SEC Releases

Summary - The SEC has published for public comment a new rule that would establish a framework for fund valuation practices. The rule is designed to “clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.”

The SEC indicates that it last addressed valuation practices under the Investment Company Act of 1940 in a comprehensive manner in a pair of releases issued in 1969 and 1970. Since then, markets and fund investment practices have evolved considerably. Many funds now engage third-party pricing services to provide pricing information, particularly for thinly traded or more complex assets. In addition, significant regulatory developments have altered how boards, investment advisers, independent auditors, and other market participants address valuation under the federal securities laws. The proposal recognizes and reflects these changes, including the important role that funds’ investment advisers may play and the expertise they may provide.

The proposed rule would establish requirements for satisfying a fund board’s obligation to determine fair value in good faith for purposes of the Investment Company Act of 1940.

The rule would require a fund board to:

Assess and manage material risks associated with fair value determinations;
Select, apply and test fair value methodologies;
Oversee and evaluate any pricing services used;
Adopt and implement policies and procedures; and
Maintain certain records.

The comment period on the proposal will be open until July 21, 2020.

For more information, click here.

Release No. 33-10771: Securities Offering Reform for Closed-End Investment Companies

Summary - The SEC adopted rule amendments to implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act relating to business development companies (BDCs) and other closed-end funds.

BDCs are a type of closed-end fund established by statute that primarily invest in small and developing companies. As directed by Congress, the rules will allow business development companies and other closed-end funds to use the securities offering rules that are already available to operating companies. The SEC indicates that the “amendments are designed to streamline the registration, offering and investor communications processes for BDCs and registered closed-end funds and will provide important benefits to market participants and investors, including advancing capital formation and modernizing and streamlining disclosures.”

The SEC reforms will allow eligible funds to engage in a streamlined registration process that has long been available to operating companies, including modernized communications and prospectus delivery procedures and requirements. As a result, they will be better able to respond to market opportunities.

The SEC also issued temporary, conditional exemptive relief for BDCs to enable them to make additional investments in small and medium-sized businesses, including those with operations affected by COVID-19. This temporary relief will “provide additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies, and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC.” The relief is subject to investor protection conditions, including specific requirements for obtaining an independent evaluation of the issuances’ terms and approval by a majority of a BDC’s independent board members.

For more information, click here.

Release No. 34-88365: Amendments to the Accelerated Filer and Large Accelerated Filer Definitions

Summary - The SEC adopted amendments to the “accelerated filer” and “large accelerated filer” definitions. The SEC indicated that the amendments will “more appropriately tailor the types of issuers that are included in the definitions, thereby reducing unnecessary burdens and compliance costs for certain smaller issuers while maintaining investor protections. The amendments are consistent with the Commission’s and Congress’s historical practice of providing scaled disclosure and other accommodations to reduce unnecessary burdens for new and smaller issuers.”

The amendments will:

Exclude from the accelerated and large accelerated filer definitions an issuer that is eligible to be a smaller reporting company and had annual revenues of less than $100 million in the most recent fiscal year for which audited financial statements are available. Business development companies will be excluded in analogous circumstances.
Increase the transition thresholds for an accelerated and a large accelerated filer becoming a non-accelerated filer from $50 million to $60 million and for exiting large accelerated filer status from $500 million to $560 million.Add a revenue test to the transition thresholds for exiting both accelerated and large accelerated filer status.
Add a check box to the cover pages of annual reports on Forms 10-K, 20-F, and 40-F to indicate whether an ICFR auditor attestation is included in the filing.

The final amendments will become effective 30 days after publication in the Federal Register and apply to an annual report filing due on or after the effective date.

For more information, click here.

Release No. 33-10763: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

Summary - The SEC proposed a set of amendments that would harmonize, simplify, and improve the exempt offering framework to promote capital formation and expand investment opportunities while preserving and enhancing important investor protections.
The SEC indicated that offerings of securities must be either registered with the agency or qualify for an exemption from the SEC’s registration requirements. A majority of entrepreneurs and emerging businesses raise capital using the exempt offering framework. This capital formation activity ranges from seed capital for new businesses to growth capital for companies on the path to an initial public offering. The proposals are the most recent step in the SEC’s ongoing efforts to assess the capital raising framework as a whole and improve it for the benefit of investors, entrepreneurs, and more seasoned issuers.

The proposed amendments, which reflect a comprehensive retrospective review of the patchwork system built over many decades, “seek to address gaps and complexities in the exempt offering framework that may impede access to capital for issuers and access to investment opportunities for investors. The current framework has 10 exemptions or safe harbors, each with disparate requirements. The proposed rules are focused on reducing friction points in the offering framework to help market participants navigate the exempt offering process. For example, under the proposed rules an issuer in a qualified opportunity zone would have a clearer framework for how to conduct exempt offerings targeted to various investors, including community members, while still complying with important investor protections.”

The proposed amendments would:

Address, in one broadly applicable rule, the ability of issuers to move from one exemption to another, and ultimately to a registered offering, providing more certainty to issuers raising capital;
Increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits based on the Commission’s experience with the rules, marketplace practices, capital raising trends, and comments received;
Provide greater certainty to issuers and protection to investors by setting clear and consistent rules governing offering communications between investors and issuers, including permitting certain “demo day” activity without running afoul of the prohibition on general solicitation; and
Harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions to reduce differences between exemptions, while preserving or enhancing investor protections.

The public comment period for the proposed rule amendments will remain open for 60 days following publication of the release in the Federal Register.

For more information, click here.

Release No. IC-33809: Request for Comments on Fund Names

Summary - The SEC has issued a request for public comment on its current requirements that restrict the use of potentially misleading fund names. The SEC indicates that fund names are “often the first piece of information investors see and they can have a significant impact on an investment decision.”

The request seeks feedback on whether the current requirements are effective and whether there are viable alternatives that the SEC should consider. The request is the latest in the SEC’s ongoing efforts to review and improve our existing rules to better inform and protect investors.

Comments are due by 60 days from publication in the Federal Register.

For more information, click here.

Release No. 34-88216: Market Data Infrastructure

Summary - The SEC has published for public comment a proposal to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed national market system (NMS) stocks. The proposal would “update and expand the content of NMS market data to better meet the diverse needs of investors in today’s equity markets. The Commission has not significantly updated the rules that govern the content and dissemination of NMS market data since their initial implementation in the late 1970s. The proposal would also seek to introduce competitive forces into this core component of the national market system for the first time. The introduction of and competition among these new data consolidators could, in turn, allow all market participants, including investors, to access and benefit from the expanded content of NMS maket data.”

This proposal is the latest initiative in the SEC’s ongoing efforts to modernize the national market system to better fit the needs of investors and other market participants, including our exchange listed, public companies. Comments on the proposal are due 60 days after publication in the Federal Register.

For more information, click here.

Release No. 33-10762: Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities

Summary - The SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees. These changes are intended to both improve the quality of disclosure and increase the likelihood that issuers will conduct debt offerings on a registered basis.

The amended rules focus on “the provision of material, relevant, and decision-useful information regarding guarantees and other credit enhancements, and eliminate prescriptive requirements that have imposed unnecessary burdens and incentivized issuers of securities with guarantees and other credit enhancements to offer and sell those securities on an unregistered basis. In doing so, the final amendments are intended to improve disclosure and reduce the SEC registration-related compliance burdens for issuers, including the time burden of collecting information that will no longer be required, and provide investors with protections that would not be present in an unregistered offering.”

The amendments will be effective on January 4, 2021, but voluntary compliance will be permitted in advance of the effective date.

For more information, click here.

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

Summary - The SEC announced that it has adopted a new rule and related form and rule amendments to simplify and streamline disclosures for investors about variable annuities and variable life insurance contracts. According to the SEC, the changes “permit the use of a concise, reader-friendly prospectus designed to improve investors' understanding of the contracts' features, fees, and risks. The framework's use of layered disclosure and technology will provide investors with a roadmap so that they can more easily access information that they need to make an informed investment decision. These changes are an important milestone in the Commission's ongoing efforts to improve the investor experience.”

The new rule permits variable annuity and variable life insurance contracts to use a summary prospectus to provide disclosures to investors. A summary prospectus is a concise, reader-friendly summary of key facts about the contract. More-detailed information about the variable annuity or variable life insurance contract will be available online, and an investor can choose to have that information delivered in paper or electronic format at no charge.

To implement the improved disclosure framework, the SEC adopted amendments to the registration forms and related rules for variable annuity and variable life insurance contracts. Variable annuities and variable life insurance contracts may begin using the modernized layered disclosure approach as early as July 1, 2020.

For more information, click here.

Release No. 33-10750: Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information

Summary - The SEC proposed for public comment amendments to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. If adopted as proposed, the amendments would eliminate duplicative disclosures and modernize and enhance Management's Discussion and Analysis (MD&A) disclosures for the benefit of investors, while simplifying compliance efforts for companies.

Proposed Amendments
The proposed amendments would eliminate Item 301 (selected financial data) and Item 302 (supplementary financial data). In addition, the proposal would amend Item 303 (MD&A). According to the SEC, the proposed amendments “are intended to modernize, simplify, and enhance the financial disclosure requirements by reducing duplicative disclosure and focusing on material information in order to improve these disclosures for investors and simplify compliance efforts for registrants.”

Among other things, the proposed amendments to MD&A would:

Add a new Item 303(a), Objective, to state the principal objectives of MD&A;
Replace Item 303(a)(4), Off-balance sheet arrangements, with a principles-based instruction to prompt registrants to discuss off-balance sheet arrangements in the broader context of MD&A;
Eliminate Item 303(a)(5), Tabular disclosure of contractual obligations given the overlap with information required in the financial statements and to promote the principles-based nature of MD&A;
Add a new disclosure requirement to Item 303, Critical accounting estimates, to clarify and codify existing Commission guidance in this area; and
Revise the interim MD&A requirement in Item 303(b) to provide flexibility by allowing companies to compare their most recently completed quarter to either the corresponding quarter of the prior year (as is currently required) or to the immediately preceding quarter.

The proposal will have a 60 day comment period.

For more information, click here.

Release No. BHCA-8: Proposed Revisions to 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 agencies have proposed for public comment amendments to regulations implementing Section 13 of the Bank Holding Company Act (BHC Act). Section 13 contains certain restrictions on the ability of a banking entity or nonbank financial company supervised by the Board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund.

The proposed amendments are intended to continue the agencies’ efforts to improve and streamline the regulations implementing section 13 of the BHC Act by modifying and clarifying requirements related to the covered fund provisions.

Comments on the proposal are due on or before April 1, 2020.

For more information, click here.

Release No. 33-10751: Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of Operations

Summary - In conjunction with its proposal on amendments to modernize and enhance MD&A, the SEC announced that it is providing guidance on key performance indicators and metrics in MD&A. The guidance provides that, where companies disclose metrics, they should consider whether additional disclosures are necessary and gives examples of such disclosures. The guidance also reminds companies of the requirements in Exchange Act Rules 13a-15 and 15d-15 to maintain disclosure controls and procedures and that companies should consider these requirements when disclosing metrics.

For more information, click here.

Release No. 33-10749: Adoption of Updated EDGAR Filer Manual

Summary - The SEC has adopted an updated EDGAR Filer Manual. This updated edition includes changes to incorporate the SEC’s adoption of amendments to regulatory requirements in Regulation ATS under the Exchange Act applicable to alternative trading systems that trade National Market System stocks. In addition, this edition provides additional support for XBRL validation of Document Entity Identifier data in XBRL submissions to improve consistency with existing EDGAR data and data in EDGAR header elements.

For more information, click here.

Release No. 33-10738: Amendments to Rule 2-01, Qualifications of Accountants

Summary - The SEC announced that it is proposing amendments to codify certain staff consultations and modernize certain aspects of its auditor independence framework. The proposed amendments would update select aspects of the nearly two-decade-old auditor independence rule set to more effectively structure the independence rules and analysis so that relationships and services that would not pose threats to an auditor’s objectivity and impartiality do not trigger non-substantive rule breaches or potentially time consuming audit committee review of non-substantive matters.

Since the initial adoption of the auditor independence framework in 2000 and revisions in 2003, there have been significant changes in the capital markets and those who participate in them. The proposed amendments primarily focus on fact patterns presented to Commission staff through consultations that involve a relationship with, or services provided to, an entity that has little or no relationship with the entity under audit, and no relationship to the engagement team conducting the audit. In these scenarios, the staff regularly observes that the audit firm is objective and impartial and, as a result, does not object to their continuing the audit relationship with the audit client.

The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.

For more information, click here.

Release No. 34-87783: Disclosure of Payments by Resource Extraction Issuers

Summary - The SEC has issued for public comment rules that would require resource extraction issuers to disclose payments made to foreign governments or the U.S. federal government for the commercial development of oil, natural gas, or minerals.

The SEC first adopted rules in this area in 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). The 2012 rules were vacated by the U.S. District Court for the District of Columbia. The SEC then adopted new rules in 2016, which were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act.

Although the joint resolution of Congress vacated the 2016 rules, the statutory mandate remains in effect. As a result, the SEC is statutorily obligated to issue a rule. Under the Congressional Review Act, however, the SEC may not reissue the same rule in “substantially the same form” or issue a new rule that is “substantially the same” as the disapproved rule.

The proposed rules include several changes compared to the 2016 rules vacated pursuant to the Congressional Review Act. For example, the proposed rules would:

Revise the definition of the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level;
Revise the definition of “not de minimis” to include both a project threshold and an individual payment threshold so that disclosure with respect to payments to governments that equal or exceed $150,000 would be required when the total of the individual payments related to a project equal or exceed $750,000;
Add two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure;
Add an exemption for smaller reporting companies and emerging growth companies; and
Revise the definition of “control” to exclude entities or operations in which an issuer has a proportionate interest.

The proposal will have a 60-day public comment period following its publication in the Federal Register.

For more information, click here.

Release No. 33-10734: Amending the “Accredited Investor” Definition

Summary - The SEC has issued for public comment proposed amendments to the definition of Accredited Investor, one of the principal tests for who is eligible to participate in our private capital markets. The proposal seeks to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets.

The proposed amendments would allow more investors to participate in private offerings by adding new categories of natural persons that may qualify as accredited investors based on their professional knowledge, experience, or certifications. The proposal would also expand the list of entities that may qualify as accredited investors by, among other things, allowing any entity that meets an investments test to qualify.

The public comment period will remain open for 60 days following publication in the Federal Register.

For more information, click here.

Release No. 34-87607: Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles

Summary - The SEC has issued for public comment a proposed rule, Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles.

The SEC is re-proposing rule 18f-4, a new exemptive rule under the Investment Company Act of 1940 designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds’ use of derivatives and the other transactions addressed in the proposed rule.

Comments on this proposal are due 60 days from publication in the Federal Register.

For more information, click here.

Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations

Summary - The SEC announced that it has voted to propose amendments to modernize the rules under the Investment Advisers Act addressing investment adviser advertisements and payments to solicitors. The proposed amendments are intended to update these rules to reflect changes in technology, the expectations of investors seeking advisory services, and the evolution of industry practices.

According to the SEC, the proposed amendments to the advertising rule “would replace the current rule’s broadly drawn limitations with principles-based provisions. The proposed approach would also permit the use of testimonials, endorsements, and third-party ratings, subject to certain conditions, and would include tailored requirements for the presentation of performance results based on an advertisement’s intended audience.”

The proposed amendments to the solicitation rule would expand the current rule to cover solicitation arrangements involving all forms of compensation, rather than only cash, subject to a new de minimis threshold. They also would update other aspects of the rule, such as who is disqualified from acting as a solicitor under the rule.

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

For more information, click here.

Release No. 34-87782: Risk Mitigation Techniques for Uncleared Security-Based Swaps

Summary - The SEC adopted rules requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps. New Rules 15Fi-3, 15Fi-4, and 15Fi-5 establish requirements for registered security-based swap dealers and major security-based swap participants to:

Periodically reconcile outstanding security-based swaps with counterparties;
Engage in certain forms of portfolio compression exercises, as appropriate; and
Execute written trading relationship documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap transaction.

These rules are effective 60 days after publication in the Federal Register.

For more information, click here.

Release No. 34-87780: Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements

Summary - The SEC adopted a package of rule amendments, guidance, and a related order to expand and improve the framework for regulating cross-border security-based swaps, including single-name credit default swaps. The adoption of this package also improves the SEC’s broad security-based swap regulatory regime as it triggers the compliance date for security-based swap entities to register with the SEC and the implementation period for previously adopted rules under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These rules establish a coherent approach to the regulation of margin, capital, segregation, recordkeeping and reporting and business conduct for security-based swaps.

These rules are effective the later of March 1, 2020 or 60 days after publication in the Federal Register.

For more information, click here.

Release No. 33-10720: Filing Fee Disclosure and Payment Methods Modernization

Summary - The SEC has issued for public comment a proposed rule, Filing Fee Disclosure and Payment Methods Modernization. This proposal would modernize filing fee disclosure and payment methods. Specifically, the SEC is proposing to amend most fee-bearing forms, schedules, statements, and related rules to require each fee table and accompanying disclosure to include all required information for fee calculation in a structured format.
Comments on the proposal are due by 60 days after publication in the Federal Register.

For more information, click here.

Release No. 34-87327: Commission Statement on Market Structure Innovation for Thinly Traded Securities

Summary - The SEC issued a statement that invites exchanges and other market participants to submit innovative proposals designed to improve the secondary market structure for exchange listed equity securities that trade in lower volumes, commonly referred to as "thinly traded securities."

According to the SEC, low trading volumes “may drive higher transaction costs for investors, may present challenges for investors seeking to establish or unwind meaningful positions, and may negatively impact an issuer's cost of capital. The Commission is interested in proposals to address these issues by improving the secondary market structure for thinly traded securities. The Commission's statement lays out various considerations that may be helpful for a proposal to address, including whether and under what circumstances it would be appropriate to suspend unlisted trading privileges on multiple exchanges and whether exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 would improve trading and liquidity.”

For more information, click here.

Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

For more information, click here.

Release No. 34-87457: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice

Summary - The SEC voted to propose amendments to its rules governing proxy solicitations to enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients.

The SEC voted to propose amendments to its rules governing proxy solicitations to enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients. The proposal would also provide an opportunity for a period of review and feedback through which companies and other soliciting parties would be able to identify errors in the proxy voting advice. The review and feedback period would only be available to companies that file definitive proxy materials 25 days or more in advance of the relevant meeting. The Commission’s proposal aims to enhance the accuracy and transparency of the information that proxy voting advice businesses provide to investors and others who vote on investors’ behalf, and thereby facilitate their ability to make informed voting decisions.

The public comment period will remain open for 60 days following publication of the proposal in the Federal Register.

For more information, click here.

SEC Releases - 2

Articles On This Page

Release No. IC-33845: Good Faith Determinations of Fair Value NEW!

Articles

Release No. IC-33845: Good Faith Determinations of Fair Value

Release No. 33-10771: Securities Offering Reform for Closed-End Investment Companies

Release No. 34-88365: Amendments to the Accelerated Filer and Large Accelerated Filer Definitions

Release No. 33-10763: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

Release No. IC-33809: Request for Comments on Fund Names

Release No. 34-88216: Market Data Infrastructure

Release No. 33-10762: Financial Disclosures about Guarantors and Issuers of Guaranteed Securities and Affiliates Whose Securities Collateralize a Registrant’s Securities

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

Release No. 33-10750: Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information

Release No. BHCA-8: Proposed Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds

Release No. 33-10751: Commission Guidance on Management’s Discussion and Analysis of Financial Condition and Results of Operations

Release No. 33-10749: Adoption of Updated EDGAR Filer Manual

Release No. 33-10738: Amendments to Rule 2-01, Qualifications of Accountants

Release No. 34-87783: Disclosure of Payments by Resource Extraction Issuers

Release No. 33-10734: Amending the “Accredited Investor” Definition

Release No. 34-87607: Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles

Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations

Release No. 34-87782: Risk Mitigation Techniques for Uncleared Security-Based Swaps

Release No. 34-87780: Rule Amendments and Guidance Addressing Cross-Border Application of Certain Security-Based Swap Requirements

Release No. 33-10720: Filing Fee Disclosure and Payment Methods Modernization

Release No. 34-87327: Commission Statement on Market Structure Innovation for Thinly Traded Securities

Release No. IA-5407: Investment Adviser Advertisements; Compensation for Solicitations

Release No. 34-87457: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice