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SEC Releases - 3

Articles on the Page

Release No. 33-10884: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets NEW!

Release No. 34-90244: Customer Margin Rules Relating to Security Futures NEW!

Release No. 33-10876: Qualifications of Accountants NEW!

Release No. 34-89963: Whistleblower Program Rules 

Release No. 33-10845: Adoption of Updated EDGAR Filer Manual 

Release No. 34-89964: Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 

Release No. 33-10835: Update of Statistical Disclosures for Bank and Savings and Loan Registrants 

Release No. 33-10829: Temporary Amendments to Regulation Crowdfunding; Extension 

Release No. 33-10825: Modernization of Regulation S-K Items 101, 103, and 105 

Release No. 33-10824: Amending the “Accredited Investor” Definition 

Release No. 34-89618: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments 

Release No. 34-89394: Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act 

Release No. 34-89372: Exemptions from the Proxy Rules for Proxy Voting Advice 

Release No. 33-10765A: Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts; Correction

Release No. BHCA-9: Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding 

Articles

Release No. 33-10884: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

Summary - The SEC amended its rules in order to “harmonize, simplify, and improve the multilayer and overly complex exempt offering framework. These amendments will promote capital formation and expand investment opportunities while preserving or improving important investor protections.”

The SEC indicates that a core component of the Federal regulatory regime is the requirement that all securities offerings be registered with the SEC or qualify for an exemption from registration. The registration process generally is designed for larger companies with substantial resources. As a result, many entrepreneurs and emerging businesses raise capital by selling securities in reliance on an offering exemption. This important capital formation activity ranges from raising seed capital for new businesses to growth capital for companies of all sizes, including those on the path to a registered initial public offering.

The SEC’s amendments are the next step in the agency’s efforts to improve the exempt offering framework for the benefit of investors, emerging companies, and more seasoned issuers. The amendments follow the SEC’s June 2019 concept release and March 2020 proposing release on the harmonization of offering exemptions and benefit from extensive public engagement. The amendments address gaps and complexities in the exempt offering framework that impede access to capital for issuers and access to investment opportunities for investors. The amendments generally:

  • Establish more clearly, in one broadly applicable rule, the ability of issuers to move from one exemption to another;
  • Increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits;
  • Set clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” activities; and
  • Harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions.

The amendments will be effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-90244: Customer Margin Rules Relating to Security Futures

Summary - The SEC and the Commodity Futures Trading Commission (the Commissions) approved a joint final rule that will “harmonize the minimum margin level for security futures, whether they are held in a futures account, a securities portfolio margin account, or a securities account that is not approved for portfolio margining.” The Commissions have joint rulemaking authority regarding margin requirements for security futures. In 2002, the Commissions adopted rules establishing margin levels for unhedged security futures at 20 percent. In light of the asymmetry in margin requirements resulting from the 15 percent margin level that has been established for security futures and comparable financial products held in a securities portfolio margin account, the Commissions are adopting the proposed margin requirement to set the required margin level for each long or short unhedged position in a security future at 15 percent of its current market value.

At this time, there are no security futures contracts listed for trading on U.S. exchanges. The final rule amendments, however, would set a 15 percent level for security futures if an existing exchange were to resume operations or another exchange were to launch security futures contracts.
This final rule is effective 30 days after publication in the Federal Register.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10876: Qualifications of Accountants

Summary - The SEC announced that it has adopted final amendments to certain auditor independence requirements in Rule 2-01 of Regulation S-X. The SEC indicates that informed “by decades of staff experience applying the auditor independence framework, the final amendments modernize the rules and more effectively focus the analysis on relationships and services that may pose threats to an auditor’s objectivity and impartiality.”

The final amendments reflect updates based on recurring fact patterns that the SEC staff has observed over years of consultations in which certain relationships and services triggered technical independence rule violations without necessarily impairing an auditor’s objectivity and impartiality. The SEC indicates that these relationships either triggered non-substantive rule breaches or required potentially time-consuming audit committee review of non-substantive matters, thereby diverting time, attention, and other resources of audit clients, auditors, and audit committees from other investor protection efforts. The final amendments result in auditor independence requirements that will be used to evaluate specific relationships and services, with a focus on protecting investors against threats to the objectivity and impartiality of auditors.

Among other things, the final amendments:

  • Amend the definitions of “affiliate of the audit client,” in Rule 2-01(f)(4), and “investment company complex,” in Rule 2-01(f)(14), to address certain affiliate relationships, including entities under common control;
  • Amend the definition of “audit and professional engagement period,” specifically Rule 2-01(f)(5)(iii), to shorten the look-back period, for domestic first time filers in assessing compliance with the independence requirements;
  • Amend Rule 2-01(c)(1)(ii)(A)(1) and (E) to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;
  • Amend Rule 2-01(c)(3) to replace the reference to “substantial stockholders” in the business relationships rule with the concept of beneficial owners with significant influence;
  • Replace the outdated transition provision in Rule 2-01(e) with a new Rule 2-01(e) to introduce a transition framework to address inadvertent independence violations that only arise as a result of a merger or acquisition transactions; and
  • Make certain other miscellaneous updates.

The amendments will be effective 180 days after publication in the Federal Register. Voluntary early compliance is permitted after the amendments are published in the Federal Register in advance of the effective date provided that the final amendments are applied in their entirety from the date of early compliance. Auditors are not permitted to retroactively apply the final amendments to relationships and services in existence prior to the effective date or the early compliance date if selected by an audit firm.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89963: Whistleblower Program Rules

Summary - The SEC adopted amendments to the rules governing its whistleblower program that are designed to provide greater clarity to whistleblowers and increase the program’s efficiency and transparency. Concurrently, to provide additional efficiencies, as well as clarity and transparency in the award determination process, the SEC’s Office of the Whistleblower published guidance regarding the process for determining award amounts for eligible whistleblowers. The SEC’s whistleblower program was created to incentivize individuals to report high-quality tips to the SEC and assist the agency in its efforts to combat wrongdoing and, as a result, better protect investors and the marketplace.

The amendments to the whistleblower rules are intended to “provide greater transparency, efficiency and clarity, and to strengthen and bolster the program in several ways. The rule amendments increase efficiencies around the review and processing of whistleblower award claims, and provide the Commission with additional tools to appropriately reward meritorious whistleblowers for their efforts and contributions to a successful matter.” Among other enhancements, the amendments provide a mechanism for whistleblowers with potential awards of less than $5 million (which historically have represented nearly 75% of all whistleblower awards), subject to certain criteria, to qualify for a presumption that they will receive the maximum statutory award amount. Other awards will continue to be evaluated consistent with past practice.

The amendments also affirm that award amounts are to be determined exclusively based on the application of the award factors set forth in the SEC’s whistleblower rules. In other words, there is not a separate (post application of the award factors) assessment of whether award amounts are too small or too large. The amendments further clarify that the SEC may waive compliance with the Tip, Complaint or Referral filing requirements if a whistleblower complies with the requirements within 30 days of first providing the information or of first obtaining actual or constructive notice of the TCR filing requirements.
The whistleblower rule amendments will become effective 30 days after publication in the Federal Register.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10845: Adoption of Updated EDGAR Filer Manual

Summary - The SEC has published a new edition of its EDGAR Filer Manual. This new edition includes updates to Volume II of the manual and related forms. The EDGAR system was upgraded to reflect these changes on September 21, 2020.

This edition of the manual is effective upon publication in the Federal Register.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89964: Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8

Summary - The SEC has adopted amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders.

The SEC indicates that the amendments will “facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest.” Under the rules, any shareholder may submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time.

The rules also provide for a transition period so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission (and through the date of the relevant meeting).

The amendments also update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at future shareholder meetings, so as to relieve companies and their shareholders of the obligation to consider, and spend resources on, matters that had previously been voted on and rejected by a substantial majority of shareholders without sufficient indication that a proposal could gain traction among the broader shareholder base in the near future.

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10835: Update of Statistical Disclosures for Bank and Savings and Loan Registrants

Summary - The SEC announced that it has adopted rules to update and expand the statistical disclosures that bank and savings and loan registrants provide to investors, in light of changes in this sector over the past 30 years. The SEC indicates that the rules also eliminate certain disclosure items that are duplicative of other agency rules and requirements of U.S. GAAP or IFRS. The rules replace Industry Guide 3, Statistical Disclosure by Bank Holding Companies, with updated disclosure requirements in a new subpart of Regulation S-K. The rules are intended “to help ensure that investors have access to more meaningful, relevant information about these registrants to facilitate their investment and voting decisions.”

The SEC’s rules require disclosure about the following:

  • Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;
  • Weighted average yield of investments in debt securities by maturity;
  • Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;
  • Certain credit ratios and the factors that explain material changes in the ratios, or the related components during the periods presented;
  • The allowance for credit losses by loan category; and
  • Bank deposits including average amounts and rate paid and amounts that are uninsured.

The rules will be effective 30 days after publication in the Federal Register and will apply to fiscal years ending on or after December 15, 2021. However, voluntary compliance with the new rules will be accepted in advance of the mandatory compliance date. Guide 3 is scheduled to be rescinded effective January 1, 2023.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10829: Temporary Amendments to Regulation Crowdfunding; Extension

Summary - The SEC is extending the effective date and applicability dates of our temporary final rules under Regulation Crowdfunding to facilitate capital formation for small businesses impacted by the COVID-19 pandemic. The temporary final rules are intended to “expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities” made pursuant to Regulation Crowdfunding.
The temporary final rules are designed to facilitate this offering process by providing tailored, conditional relief from certain requirements of Regulation Crowdfunding relating to the timing of the offering and the availability of financial statements required to be included in issuers’ offering materials while retaining appropriate investor protections.
The amendments in this rule are effective from August 31, 2020 through September 1, 2021. The expiration date for the temporary final rules previously published May 7, 2020 is extended from March 1, 2021, to September 1, 2021. The temporary final rules apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020, and February 28, 2021.
For more information, click here.
© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10825: Modernization of Regulation S-K Items 101, 103, and 105

Summary - The SEC announced that it voted to adopt amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. These disclosure requirements have not undergone significant revisions in over 30 years. The amendments the Commission is adopting today update these items to reflect the many changes in our capital markets and the domestic and global economy in recent decades.

Many of the amendments reflect the Commission's long-standing commitment to a principles-based, registrant-specific approach to disclosure. These disclosure requirements, while prescriptive in some respects, are rooted in materiality and are designed to facilitate an understanding of each registrant's business, financial condition, and prospects. The rules are designed for this information to be presented on a basis consistent with the lens that management and the board of directors use to manage and assess the registrant's performance. The modernization of Items 101, 103, and 105 is intended to elicit improved disclosures, tailored to reflect registrants' particular circumstances, which are designed will improve disclosures for investors and add efficiencies to the compliance efforts of registrants. The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of information that is not material.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10824: Amending the “Accredited Investor” Definition

Summary - The SEC adopted amendments to the “accredited investor” definition, one of the principal tests for determining who is eligible to participate in our private capital markets. Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets. The amendments update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.

The amendments allow investors to qualify as accredited investors based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including by allowing any entity that meets an investments test to qualify.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89618: Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments

Summary - The SEC rescinded a rule exception that allowed a proposed national market system (NMS) plan fee amendment to become effective upon filing, prior to review and comment by investors and other market participants. According to the SEC, the new procedures require public notice of any proposed NMS plan fee amendment, an opportunity for public comment, and SEC approval by order before a new or changed fee can be charged. The SEC also modified the procedures for review of all proposed NMS plans and plan amendments, including fee amendments, to specify timelines for SEC action for each step of the process, adding certainty to the process for NMS plan participants.

The amendments will be effective 30 days after publication in the Federal Register.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89394: Covered Broker-Dealer Provisions under Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Summary - The SEC and the Federal Deposit Insurance Corporation have adopted a final rule required by the Dodd-Frank Act clarifying and implementing provisions relating to the orderly liquidation of certain brokers or dealers (covered broker-dealers) in the event the FDIC is appointed receiver under Title II of the Dodd-Frank Act. The FDIC and SEC developed the final rule in consultation with the Securities Investor Protection Corporation (SIPC).

The SEC indicates that by statute, “the orderly liquidation of a covered broker-dealer must be accomplished in a manner that ensures that customers of the covered broker-dealer receive payments or property at least as beneficial to them as would have been the case had the covered broker-dealer been liquidated under the Securities Investor Protection Act of 1970 (SIPA).”

Among other things, the final rule clarifies how the relevant provisions of SIPA would be incorporated into a Title II proceeding. Upon the appointment of the FDIC as receiver, the FDIC would appoint SIPC to act as trustee for the broker-dealer. SIPC, as trustee, would determine and satisfy customer claims in the same manner as it would in a proceeding under SIPA. The treatment of the covered broker-dealer’s qualified financial contracts would be governed in accordance with Title II.

In addition, the final rule describes the claims process applicable to customers and other creditors of a covered broker-dealer and clarifies the FDIC’s powers as receiver with respect to the transfer of assets of a covered broker-dealer to a bridge broker-dealer.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-89372: Exemptions from the Proxy Rules for Proxy Voting Advice

Summary - The SEC adopted amendments to its rules governing proxy solicitations designed to ensure that clients of proxy voting advice businesses have reasonable and timely access to more transparent, accurate and complete information on which to make voting decisions. According to the SEC, the amendments “aim to facilitate the ability of those who use proxy voting advice—investors and others who vote on investors’ behalf—to make informed voting decisions without imposing undue costs or delays that could adversely affect the timely provision of proxy voting advice.”

The amendments condition the availability of two exemptions from certain of the federal proxy rules often used by proxy voting advice businesses on compliance with tailored and comprehensive conflicts of interest disclosure requirements. The exemptions are also conditioned on two principles-based requirements designed to ensure that:

  • Registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner; and
  • Clients of proxy voting advice businesses are provided with an efficient and timely means of becoming aware of any written responses by registrants to proxy voting advice.

The SEC indicates that these conditions reflect certain observed market practices and are intended to ensure that proxy voting advice clients have access to information that is more transparent, accurate and complete.

In addition, the amendments codify the SEC’s longstanding view that proxy voting advice generally constitutes a solicitation under the proxy rules and makes clear that the failure to disclose material information about proxy voting advice may constitute a potential violation of the antifraud provision of the proxy rules.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10765A: Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts; Correction

Summary - The SEC has published technical corrections to amendments to disclosure requirements and summary prospectus for variable annuity and variable life insurance contracts previously adopted in March 2020.

Specifically, this document amends Instructions 15(d) and 18(b) published in the previous release. Instruction 15(d) is amended to redesignate Note 2 to rule 405 of Regulation S-T as Note 1 to rule 405 of Regulation S-T, and Instruction 18(b) is amended to replace the reference to Item 3 of Form N-14 with a reference to Item 5(c) of Form N-14.

These technical corrections are effective July 1, 2020.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. BHCA-9: Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

Summary - The SEC and four other federal regulatory agencies finalized a rule modifying the Volcker rule’s prohibition on banking entities investing in or sponsoring hedge funds or private equity funds—known as covered funds. The final rule is broadly similar to the proposed rule from January 2020.

The Volcker rule generally prohibits banking entities from engaging in proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a hedge fund or private equity fund.

Like the proposal, the final rule modifies three areas of the rule by:

  • Streamlining the covered funds portion of rule;
  • Addressing the extraterritorial treatment of certain foreign funds; and
  • Permitting banking entities to offer financial services and engage in other activities that do not raise concerns that the Volcker rule was intended to address.

The rule will be effective on October 1.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-10781: Temporary Amendments to Regulation Crowdfunding

Summary - The SEC announced that it is providing temporary, conditional relief for established smaller companies affected by COVID-19 that may look to meet their urgent funding needs through a Regulation Crowdfunding offering. According to the SEC, these actions will expedite the offering process for eligible companies by providing relief from certain rules with respect to the timing of a company's offering and the financial statements required. To take advantage of the temporary rules, a company must meet enhanced eligibility requirements and provide clear, prominent disclosure to investors about its reliance on the relief. The temporary rules are intended to expedite the offering process for smaller, previously established companies directly or indirectly affected by COVID-19 that are seeking to meet their funding needs through the offer and sale of securities pursuant to Regulation Crowdfunding.

The temporary rules provide flexibility for issuers that meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials, and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief. The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering more than $107,000 but not more than $250,000 in securities in reliance on Regulation Crowdfunding within a 12-month period.

The relief will apply to offerings launched between the effective date of the temporary rules (publication in the Federal Register) and August 31, 2020.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.