SEC Alert! Upcoming 6-Month Regulatory Plan OPEN for comment! In final rule: shortening transaction cycle, swap requirements, Best Execution, and more! Comment on the agenda due by 8/26/23.
https://public-inspection.federalregister.gov/2023-14566.pdf
- SEC released the rulemaking agenda for Spring 2023.
- This agenda represents the Chair's priorities, not necessarily the entire Commission's views.
- The details were last updated on April 10, 2023, but they've tried to include recent changes.
- The SEC welcomes questions and public input on the agenda.
- They state only certain agenda items, those requiring an RFA analysis, are being printed in the Federal Register.
Proposed:EDGAR filing update:
The EDGAR Business Office is considering recommending that the Commission propose rules and amendments to modernize and enhance access to the EDGAR Filing System, including new validation requirements for Filers and/or their representatives.
Rule 144 Holding Period:
The Division is considering recommending that the Commission repropose amendments to Rule 144, a non-exclusive safe harbor that permits the public resale of restricted or control securities if the conditions of the rule are met.
PROHIBITION AGAINST CONFLICTS OF INTEREST IN CERTAIN SECURITIZATIONS:
The Division is considering recommending that the Commission adopt a rule under the Securities Act to implement the prohibition under section 621 of the Dodd-Frank Act on material conflicts of interest in connection with certain securitizations. The proposed rules would prohibit, for a specified period, a securitization participant from engaging in any transaction that would result in a material conflict of interest between a securitization participant and an investor in the relevant asset-backed security. As specified in section 621, the proposed rule would provide exceptions for risk-mitigating hedging activities, bona fide market-making activities, and liquidity commitments.
CYBERSECURITY RISK GOVERNANCE:
The Division is considering recommending that the Commission adopt rule amendments to better inform investors about a registrant’s cybersecurity risk management, strategy and governance, and to provide timely notification of material cybersecurity incidents. The Commission proposed rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and cybersecurity incident reporting by public companies that are subject to the reporting requirements of the Exchange Act.
RULE 14A-8 AMENDMENTS:
The Division is considering recommending that the Commission adopt rule amendments regarding shareholder proposals under Rule 14a-8. The Commission proposed to, among other things, update certain substantive bases for exclusion of shareholder proposals under the Commission's shareholder proposal rule. The proposed amendments would amend the substantial implementation exclusion, the duplication exclusion, and the resubmission exclusion.
Completed Actions:LISTING STANDARDS FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION:
The Commission adopted a new rule and rule amendments to implement Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 10D to the Securities Exchange Act of 1934. In accordance with Section 10D of the Exchange Act, the final rules direct the national securities exchanges and associations that list securities to establish listing standards that require each issuer to develop and implement a policy providing for the recovery, in the event of a required accounting restatement, of incentive-based compensation received by current or former executive officers where that compensation is based on the erroneously reported financial information. The listing standards must also require the disclosure of the policy. Additionally, the final rules require a listed issuer to file the policy as an exhibit to its annual report and to include other disclosures in the event a recovery analysis is triggered under the policy.
INSIDER TRADING ARRANGEMENTS AND RELATED DISCLOSURES:
The Commission adopted amendments to the rule under the Securities Exchange Act of 1934 that provides affirmative defenses to trading on the basis of material nonpublic information in insider trading cases. The amendments add new conditions to this rule that are designed to address concerns about abuse of the rule to trade securities opportunistically on the basis of material nonpublic information in ways that harm investors and undermine the integrity of the securities markets. The Commission also adopted new disclosure requirements regarding the insider trading policies and procedures of issuers, the adoption and termination (including modification) of plans that are intended to meet the rule’s conditions for establishing an affirmative defense, and certain other similar trading arrangements by directors and officers. In addition, the Commission adopted amendments to the disclosure requirements for director and executive compensation regarding equity compensation awards made close in time to the issuer’s disclosure of material nonpublic information. Finally, the Commission adopted amendments to Forms 4 and 5 to require filers to identify transactions made pursuant to a plan intended to meet the rule’s conditions for establishing an affirmative defense, and to require disclosure of bona fide gifts of securities on Form 4.
SHARE REPURCHASE DISCLOSURE MODERNIZATION:
The Commission adopted amendments to modernize and improve disclosure about repurchases of an issuer’s equity securities that are registered under the Securities Exchange Act of 1934. The amendments require additional detail regarding the structure of an issuer’s repurchase program and its share repurchases, require the filing of daily quantitative repurchase data either quarterly or semiannually, and eliminate the requirement to file monthly repurchase data in an issuer’s periodic reports. The amendments also revise and expand the existing periodic disclosure requirements about these repurchases. Finally, the amendments add new quarterly disclosure in certain periodic reports related to an issuer’s adoption and termination of certain trading arrangements.
Final Rule Stage:SAFEGUARDING ADVISORY CLIENT ASSETS:
The Division is considering recommending that the Commission adopt amendments to existing rules and/or adopt new rules under the Investment Advisers Act of 1940 to improve and modernize the regulations around the custody of funds or investments of clients by Investment Advisers.
INVESTMENT COMPANY NAMES:
The Division is considering recommending that the Commission adopt amendments to Investment Company Act rule 35d-1, which applies to names used by registered investment companies. The Commission proposed to amend the rule that addresses certain broad categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. The proposed amendments to this rule are designed to increase investor protection by improving and clarifying the requirement for certain funds to adopt a policy to invest at least 80% of their assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s notice requirements, and establishing recordkeeping requirements. The Commission also proposed enhanced prospectus disclosure requirements for terminology used in fund names, and additional requirements for funds to report information on Form N-PORT regarding compliance with the proposed names-related regulatory requirements
ENHANCED DISCLOSURES BY CERTAIN INVESTMENT ADVISERS AND INVESTMENT COMPANIES ABOUT ENVIRONMENTAL, SOCIAL, AND GOVERNANCE INVESTMENT PRACTICES:
The Division is considering recommending that the Commission adopt requirements for investment companies and investment advisers related to environmental, social and governance (ESG) factors, including ESG claims and related disclosures. Among other things, the Commission proposed to amend rules and forms under both the Investment Advisers Act of 1940 and the Investment Company Act of 1940 to require registered investment advisers, certain advisers that are exempt from registration, registered investment companies, and business development companies, to provide additional information regarding their ESG investment practices. The proposed amendments to these forms and associated rules seek to facilitate enhanced disclosure of ESG issues to clients and shareholders. The proposed rules and form amendments are designed to create a consistent, comparable, and decisionuseful regulatory framework for ESG advisory services and investment companies to inform and protect investors while facilitating further innovation in this evolving area of the asset management industry.
OPEN-END FUND LIQUIDITY RISK MANAGEMENT PROGRAMS AND SWING PRICING; FORM N–PORT REPORTING:
The Division is considering recommending that the Commission adopt changes to regulatory requirements relating to open-end fund’s liquidity and dilution management. The Commission proposed amendments to its current rules for open-end management investment companies ("open-end funds") regarding liquidity risk management programs and swing pricing. The proposed amendments are designed to improve liquidity risk management programs to better prepare funds for stressed conditions and improve transparency in liquidity classifications. The amendments are also designed to mitigate dilution of shareholders’ interests in a fund by requiring any open-end fund, other than a money market fund or exchange-traded fund, to use swing pricing to adjust a fund’s net asset value ("NAV") per share to pass on costs stemming from shareholder purchase or redemption activity to the shareholders engaged in that activity. In addition, to help operationalize the proposed swing pricing requirement, and to improve order processing more generally, the Commission proposed a "hard close" requirement for these funds. Finally, the Commission proposed amendments to reporting and disclosure requirements on Forms NPORT, N-1A, and N-CEN that apply to certain registered investment companies, including registered open-end funds (other than money market funds), registered closed-end funds, and unit investment trusts. The proposed amendments would require more frequent reporting of monthly portfolio holdings and related information to the Commission and the public, amend certain reported identifiers, and make other amendments to require additional information about funds’ liquidity risk management and use of swing pricing.
PRIVATE FUND ADVISERS; DOCUMENTATION OF REGISTERED INVESTMENT ADVISER COMPLIANCE REVIEWS:
The Division is considering recommending that the Commission adopt rules under the Advisers Act to address lack of transparency, conflicts of interest, and certain other matters involving private fund advisers.
CYBERSECURITY RISK MANAGEMENT FOR INVESTMENT ADVISERS, REGISTERED INVESTMENT COMPANIES, AND BUSINESS DEVELOPMENT COMPANIES:
The Division is considering recommending that the Commission adopt rules to enhance fund and investment adviser disclosures and governance relating to cybersecurity risks. The Commission proposed new rules to require registered investment advisers (advisers”) and investment companies (funds”) to adopt and implement written cybersecurity policies and procedures reasonably designed to address cybersecurity risks. The Commission also proposed a new rule and form under the Advisers Act to require advisers to report significant cybersecurity incidents affecting the adviser, or its fund or private fund clients, to the Commission. With respect to disclosure, the Commission proposed amendments to various forms regarding the disclosure related to significant cybersecurity risks and cybersecurity incidents that affect advisers and funds and their clients and shareholders. Finally, the Commission proposed new recordkeeping requirements under the Advisers Act and Investment Company Act.
OUTSOURCING BY INVESTMENT ADVISERS:
The Division is considering recommending that the Commission adopt rules related to the oversight of third-party service providers. The Commission proposed a new rule under the Investment Advisers Act of 1940 to prohibit registered investment advisers ("advisers") from outsourcing certain services or functions without first meeting minimum requirements. The proposed rule would require advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider. The Commission also proposed corresponding amendments to the investment adviser registration form to collect census-type information about the service providers defined in the proposed rule. In addition, the Commission proposed related amendments to the Advisers Act books and records rule, including a new provision requiring advisers that rely on a third party to make and/or keep books and records to conduct due diligence and monitoring of that third party and obtain certain reasonable assurances that the third party will meet certain standards.
REGULATION S P: PRIVACY OF CONSUMER FINANCIAL INFORMATION AND SAFEGUARDING CUSTOMER INFORMATION:
The Division of Investment Management and Division of Trading and Markets are considering recommending that the Commission adopt amendments to Regulation S-P. The Commission proposed rule amendments that would require brokers and dealers, investment companies and investment advisers registered with the Commission to adopt written policies and procedures for incident response programs to address unauthorized access to or use of customer information, including procedures for providing timely notification to individuals affected by an incident involving sensitive customer information with details about the incident and information designed to help affected individuals respond appropriately. The Commission also proposed to broaden the scope of information covered by amending requirements for safeguarding customer records and information, and for properly disposing of consumer report information. In addition, the proposed amendments would extend the application of the safeguards provisions to transfer agents. The proposed amendments would also include requirements to maintain written records documenting compliance with the proposed amended rules. Finally, the proposed amendments would conform annual privacy notice delivery provisions to the terms of an exception provided by a statutory amendment to the Gramm-Leach-Bliley Act.
ENHANCED REPORTING OF PROXY VOTES BY REGISTERED MANAGEMENT INVESTMENT COMPANIES; REPORTING ON EXECUTIVE COMPENSATION VOTES BY INSTITUTIONAL INVESTMENT MANAGERS:
The Commission adopted amendments to Form N-PX under the Investment Company Act of 1940 to enhance the information mutual funds, exchange-traded funds, and certain other funds currently report about their proxy votes and to make that information easier to analyze. The Commission also adopted rule and form amendments under the Securities Exchange Act of 1934 that would require an institutional investment manager subject to the Exchange Act to report on Form N-PX how it voted proxies relating to executive compensation matters, as required by the Exchange Act. The reporting requirements for institutional investment managers complete implementation of those requirements added by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
TAILORED SHAREHOLDER REPORTS FOR MUTUAL FUNDS AND EXCHANGE-TRADED FUNDS; FEE INFORMATION IN INVESTMENT COMPANY ADVERTISEMENTS:
The Commission adopted rule and form amendments that require open-end management investment companies to transmit concise and visually engaging annual and semi-annual reports to shareholders that highlight key information that is particularly important for retail investors to assess and monitor their fund investments. Certain information that may be more relevant to financial professionals and investors who desire more in-depth information will no longer appear in funds’ shareholder reports but will be available online, delivered free of charge upon request, and filed on a semi-annual basis on Form N-CSR. The amendments exclude open-end management investment companies from the scope of the current rule that generally permits registered investment companies to satisfy shareholder report transmission requirements by making these reports and other materials available online and providing a notice of that availability. The amendments also require that funds tag their reports to shareholders using the Inline eXtensible Business Reporting Language structured data language to provide machine- readable data that retail investors and other market participants may use to more efficiently access and evaluate investments. Finally, the Commission adopted amendments to the advertising rules for registered investment companies and business development companies to promote more transparent and balanced statements about investment costs.
CYBERSECURITY RISK MANAGEMENT RULES FOR BROKER-DEALERS, CLEARING AGENCIES, MSBSPS, THE MSRB, NATIONAL SECURITIES ASSOCIATIONS, NATIONAL SECURITIES EXCHANGES, SBSDRS, SBS DEALERS, AND TRANSFER AGENTS:
The Division is considering recommending that the Commission adopt amendments to require that market entities address cybersecurity risks, to improve the Commission’s ability to obtain information about significant cybersecurity incidents impacting market entities, and to improve transparency about cybersecurity risk in the U.S. securities markets. The Commission proposed a new rule and form and amendments to existing recordkeeping rules to require broker-dealers, clearing agencies, major securitybased swap participants, the Municipal Securities Rulemaking Board, national securities associations, national securities exchanges, security-based swap data repositories, security-based swap dealers, and transfer agents to address cybersecurity risks through policies and procedures, immediate notification to the Commission of the occurrence of a significant cybersecurity incident and, as applicable, reporting detailed information to the Commission about a significant cybersecurity incident, and public disclosures that would improve transparency with respect to cybersecurity risks and significant cybersecurity incidents. In addition, the Commission proposed amendments to existing clearing agency exemption orders to require the retention of records that would need to be made under the proposed cybersecurity requirements. Finally, the Commission proposed amendments to address the potential availability to security-based swap dealers and major security-based swap participants of substituted compliance in connection with those requirements.
REGULATION NMS: MINIMUM PRICING INCREMENTS, ACCESS FEES, AND TRANSPARENCY OF BETTER PRICED ORDERS:
The Division is considering recommending that the Commission amend certain rules of Regulation National Market System (Regulation NMS) under the Securities Exchange Act of 1934, as amended, to adopt variable minimum pricing increments for the quoting and trading of NMS stocks, reduce the access fee caps, and enhance the transparency of better priced orders
REGULATION BEST EXECUTION:
The Division is considering recommending that the Commission adopt new rules under the Securities Exchange Act of 1934 relating to a broker-dealer’s duty of best execution. Proposed Regulation Best Execution would enhance the existing regulatory framework concerning the duty of best execution by requiring detailed policies and procedures for all broker-dealers and more robust policies and procedures for broker-dealers engaging in certain conflicted transactions with retail customers, as well as related review and documentation requirements.
ELECTRONIC RECORDKEEPING REQUIREMENTS FOR BROKER-DEALERS AND SECURITYBASED SWAP DEALERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS:
The Commission adopted amendments to the recordkeeping rules applicable to brokerdealers, security-based swap dealers, and major security-based swap participants. The amendments modify requirements regarding the maintenance and preservation of electronic records, the use of thirdparty recordkeeping services to hold records, and the prompt production of records. The Commission also designated broker-dealer examining authorities as Commission designees for purposes of certain provisions of the broker-dealer record maintenance and preservation rule.
SHORTENING THE SECURITIES TRANSACTION SETTLEMENT CYCLE:
The Commission adopted rule amendments to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date ("T+2") to one business day after the trade date (‘‘T+1’’). In addition, the Commission adopted new rules related to the processing of institutional trades by broker-dealers and certain clearing agencies. The Commission also amended certain recordkeeping requirements applicable to registered investment advisers.
How to Comment:
- Comment due by 8/26/23.
- Electronically: Via the Commission's comment form or by email at [email protected]. Use "File Number S7-09-23" in the subject line.
- Paper: Addressed to Vanessa A. Countryman, Secretary, SEC, 100 F Street NE, Washington, DC 20549-1090.
TLDRS:
- The SEC is giving a heads up about its regulatory plans for the next six months.
- Unlike with the Fed's you can comment on this one!
