The SEC has approved a NYSE rule that will prohibit listed companies from issuing material news after the official closing time of trading until at least 5 minutes after closing (unless the company’s official closing price is published sooner).
We regularly have conversations with our clients about whether particular non-public information is "material," who at the company knows about such information and whether certain individuals should be allowed to engage in securities transactions while such information remains non-public. Very often these conversations revolve around who knows what and when, how developed the facts are, etc. As a rule of thumb we advise clients to think about how things would look in hindsight if they came to light in a front page story on the cover of the Wall Street Journal.
Well, the General Counsel of Equifax is dealing with exactly that situation (see article from today's cover of The Wall Street Journal). As outsiders, we don’t know what exactly the general counsel (or outside counsel if they were involved) said to the insiders whose trades are being investigated, what the insiders knew or for that matter what the GC knew. We don’t know how Equifax’s insider trading policy operated in practice. All we currently know is that trades were made after the cyber-breach was known to at least some individuals – and that doesn’t look so good on the cover of the Wall Street Journal. Whether and how this will make our advice and our clients’ actions regarding allowing trades, time will tell, but it’s a good reminder that the conversations around these topics are not just theoretical.
Yesterday, the SEC announced that in fiscal year 2018 the fees that public companies and other issuers pay to register their securities with the Commission will be set at $124.50 per million dollars. This is an increase from the current rate of $115.90/million. The new higher rate goes into effect on October 1, 2017.
As of July 10th, the SEC’s Division of Corporation Finance will permit all companies to submit draft registration statements relating to initial public offerings for review on a non-public basis. Previously, this process was only available for “emerging growth companies” under the JOBS Act, although that covered a substantial majority of IPO candidates.
More notably, this process will now be available for most offerings made in the first year after a company has entered the public reporting system.
More information can be found at: https://www.sec.gov/corpfin/announcement/draft-registration-statement-processing-procedures-expanded
The Public Company Accounting Oversight Board has approved a new standard (though still subject to SEC approval) designed to enhance the relevance and usefulness of the Auditor's Report with additional information for investors.
The new standard and related amendments require auditors to include in the auditor's report a discussion of the critical audit matters (CAMs), which are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex auditor judgment. Under the new standard, the auditor's report will disclose, among other things, the tenure of an auditor, specifically, the year in which the auditor began serving consecutively as the company's auditor. It also will include the phrase, "whether due to error or fraud," in describing the auditor's responsibility under PCAOB standards to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.
If approved by the SEC, the new auditor's report format, tenure, and other information would be effective for audits for fiscal years ending on or after December 15, 2017. The communication of CAMs for audits of large accelerated filers would be effective for audits for fiscal years ending on or after June 30, 2019 and the communication of CAMs for audits of all other companies would be effective for audits for fiscal years ending on or after December 15, 2020.
Communication of CAMs is not required for audits of emerging growth companies, brokers and dealers, investment companies other than business development companies, and employee stock purchase, savings and similar plans.
A fact sheet on the new rules also is available: https://pcaobus.org/News/Releases/Pages/fact-sheet-auditors-report-standard-adoption-6-1-17.aspx
The SEC adopted technical rule and form amendments (https://www.sec.gov/rules/final/2017/33-10332.pdf) under the JOBS Act that impact almost every periodic report and registration statement by adding an additional “check the box” item on the covers (as well as the introductory language prior to such item.
Specifically, in the section where companies check off what type of issuer they are, there is now a new box for emerging growth company (“EGCs” - they will also still check the other relevant box for accelerated filer, smaller reporting company, etc.). In addition, to provide a uniform way to identify if EGCs have elected to take advantage of JOBS Act rules permitting them to defer adoption of accounting standards, the covers will also include an additional check the box item regarding such election. An example is below.
These rules go into effect as soon as they are published in the Federal Register, which should be in the next few days – in other words, for upcoming 10-Qs for the quarter ended March 31, 2017, companies will need to reflect this change (if not sooner for other reports). The forms impacted include, among others: S-1, F-1, S-3, F-3, S-4, S-8, S-11, 20-F, 8-K (note this was not previously on the 8-K cover at all), 10-K, 10-Q – see the end of the rule release linked above for the forms and formats.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|Large accelerated filer|||
|Non-accelerated filer|| (Do not check if a smaller reporting company)|
|Smaller reporting company|||
|Emerging growth company|||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Inflation Changes for EGCS and Crowdfunding Amounts:
The JOBS Act requires the SEC to revisit certain definitions that contain dollar amounts to index them for inflation every 5 years. These include the $1 billion revenue threshold in the EGC definition, as well as certain limits in Regulation Crowdfunding on the dollar amount raised and invested. As a result the technical rule amendments have now raised each of these amounts slightly. For example, to qualify as an EGC, an issuer’s revenues must now be less than $1,070,000,000 and the maximum amount of crowdfunding in any 12 month period cannot now exceed $1,070,000 (increased from $1 million). With respect to the EGC definition, many issuers describe this definition in their registration statements or periodic reports and should be mindful to make the updates to such description.
The technical amendments also update various rules in Regulation S-K and S-X (in areas such as required financial statements, MD&A, executive compensation and others) to include references to various JOBS Act provisions that benefit EGCs. These are not new rules, but make it more convenient when checking the rules for particular filings to see what applies (or more likely does not apply) to EGCs by directly including instructions within the applicable rule provisions.
The SEC today adopted an amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions. Currently, the standard settlement cycle for these transactions is three business days, known as T+3. The amended rule shortens the settlement cycle to two business days, T+2. Broker-dealers will be required to comply with the amended rule beginning on September 5, 2017. For more information, view the SEC's press release.
As anyone who has ever tried to find an exhibit to an SEC filing that is incorporated by reference knows, it is not always easy or quick!
Help is on the way - yesterday, the SEC approved
rule changes that will require companies to include a hyperlink to each exhibit (other than XBRL exhibits and certain other limited exemptions) in their filings' exhibit indexes. The rules will also require all filings to be in HTML format since ASCII format cannot support functional hyperlinks.
The final rules will take effect on September 1, 2017 (September 1, 2018 for smaller reporting companies and non-accelerated filers).
The SEC Division of Corporation Finance issued a new interpretation yesterday that allows a company to post its annual report to shareholders to its website (and keep it posted for at least one year) rather than mail the SEC seven hard copies. Rule 14a-3 under the Exchange Act requires the mailing solely for the SEC’s information, one of the few paper filings still around in the age of EDGAR. Under its current practice, when the SEC receives the hard copies it posts on a company’s EDGAR list that it has been submitted but does not include the actual document if not submitted electronically. The annual report to shareholders substantially overlaps the annual report on Form 10-K in any case. Since most companies already post their annual reports for at least a year, the new interpretation effectively means one less mailing to worry about, though companies must still mail the annual report with the proxy statement when sending out annual meeting materials to shareholders.
The SEC today proposed amendments to the proxy rules to require parties in a contested election to use universal proxy cards that would include the names of all director nominees. The proposal gives shareholders the ability to vote by proxy for their preferred combination of board candidates, similar to voting in person. The proposed rules would require proxy contestants to provide shareholders with a proxy card that includes the names of both management and dissident director nominees. In addition, the proposed rules would require management and dissidents to provide each other with notice of the names of their nominees, establish a filing deadline and a minimum solicitation requirement for dissidents, and prescribe presentation and formatting requirements for universal proxy cards.
The SEC also proposed amendments to the proxy rules to ensure that proxy cards specify the applicable shareholder voting options in all director elections and require that proxy statements disclose the effect of a shareholder’s election to withhold its vote. Under the proposed amendments, proxy cards would be required to include an “against” voting option for the election of directors when there is a legal effect to a vote against a nominee and to provide shareholders the ability to “abstain” in a director election governed by a majority voting standard. The proposed change would eliminate the current ability to provide a “withhold” voting option when it has the legal effect of an “against” vote.The full text of the proposals, which are subject to a 60 day public comment period, can be found here.