Tag: Securities Regulation

SEC Guidance on Voting During M&A Transactions

Ettore A. Santucci and John T. Haggerty are partners at Goodwin Procter LLP. This post is based on a Goodwin Procter publication by Messrs. Santucci, Haggerty, and David W. Bernstein. Related research from the Program on Corporate Governance includes Bundling and Entrenchment by Lucian Bebchuk and Ehud Kamar (discussed on the Forum here).

On October 27, 2015, the Division of Corporation Finance of the SEC modified Section 201 of its Question and Answer guidance regarding SEC Rule 14a-4(a)(3) to require that if a material amendment to an acquiror’s organizational documents would require shareholder approval under state law, stock exchange rules or otherwise if presented on a standalone basis, if the change is effected by a merger (including a triangular merger) and is required by the transaction documents, the shareholders of both the acquiror and the target company must be given the opportunity to vote on the change in the organizational documents separately from their vote on whether to approve the merger or the merger agreement.


Shedding Light on Dark Pools

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at an open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today, [November 18, 2015], the Commission considers proposing much-needed enhancements to the regulatory regime for alternative trading systems (“ATSs”) that trade national market system (“NMS”) stocks. I will support these proposals because they could go a long way toward helping market participants make informed decisions as they attempt to navigate the byzantine structure of today’s equity markets.


Derivatives and Uncleared Margins

Dan Ryan is Leader of the Financial Services Advisory Practice at PricewaterhouseCoopers LLP. This post is based on a PwC publication by Mr. Ryan, Mike Alix, Adam Gilbert, Armen Meyer, and Christopher Scarpati.

Over the past two weeks, the US banking regulators released their much anticipated final margin requirements for the uncleared portion of the derivatives market. [1] This portion amounts to over $250 trillion of the global $630 trillion outstanding and has up to now been operating in “business as usual” mode, [2] while other derivatives have been pushed into clearing. The final rule’s release completes a long process since it was proposed in 2011 and re-proposed in 2014. [3]

The good news for the industry is that the final rule is generally aligned with international standards [4] and similar requirements proposed in major foreign jurisdictions. Most notably, the final rule increases the threshold of swap activity that would bring a financial end user (e.g., hedge fund) within the rule’s scope from $3 billion to $8 billion. This change, which aligns the rule with European and Japanese proposals, eases the compliance burden of smaller, less-risky market participants.


The Continuing Work of Enhancing Small Business Capital Formation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at the SEC Government-Business Forum on Small Business Capital Formation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As everyone participating in today’s [November 19, 2015] Forum knows well, our nation’s small businesses spur innovation, produce technological change, and drive job creation across the greater economy. In fact, from mid-2009—or what some pinpoint as the end of the “Great Recession”—to mid-2013, small businesses accounted for approximately 60% of net new jobs. More recently, statistics compiled through the first three quarters of 2014 show that our nation’s 28 million small business owners have been responsible for an even greater share of overall job creation, accounting for between 73% and 84% of net new jobs during that period. There can be no doubt that facilitating an environment that nurtures and breeds successful startups and small companies is critical to the health of our greater economy.


Proxy Access: Preparing for the 2016 Proxy Season

Thomas W. Christopher is a partner in the New York office and Ryan J. Maierson is a partner in the Houston office of Latham & Watkins LLP. This post is based on a Latham publication by Mr. Christopher, Mr. Maierson, Tiffany Fobes Campion, and Charles C. Wang. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

As the 2016 proxy season approaches, every public company should consider its position on proxy access and should have a plan for responding to a shareholder proxy access proposal. Based on lessons learned from the 2015 season, this post summarizes:

  1. Actions a public company can take to prepare for receipt of a proxy access proposal.
  2. Whether a company should wait and react to a shareholder proxy access proposal or preemptively adopt its own proxy access regime.
  3. Alternatives available to a company following receipt of a proxy access proposal.

Proxy access is a mechanism that gives shareholders the right to nominate directors and have those nominees included in the company’s annual meeting proxy statement. Proxy access gained significant momentum in 2015, with approximately 100 proposals submitted to shareholders and approximately 58% of those proposals being approved by shareholders. [1] Very likely a number of public companies will be subject to proxy access proposals during the 2016 proxy season.


SEC Adopts Final Rules for Crowdfunding

Andrew J. Foley is a partner in the Corporate Department of Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss memorandum.

On October 30, 2015, the Securities and Exchange Commission (the “SEC”) adopted final rules under Title III of the Jumpstart Our Business Startups (“JOBS”) Act. These rules relate to a new exemption under the Securities Act of 1933 (the “Securities Act”) that will permit securities-based crowdfunding by private companies without registering the offering with the SEC. The crowdfunding proposal (“Regulation Crowdfunding”) follows the 2013 crowdfunding rule proposal in most significant respects and represents a major shift in how small U.S. companies can raise money in the private securities market.


The Pay Ratio Rule: Preparing for Compliance

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher/FW Cook co-publication authored by Mr. Kess, Yafit Cohn, Bindu M. Culas, and Michael R. Marino, available here.

On August 5, 2015, the Securities and Exchange Commission (SEC) adopted its much-anticipated final rule implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(b) of the Dodd-Frank Act instructed the SEC to adopt rules requiring reporting companies to disclose the median of the annual total compensation of all company employees other than the company’s chief executive officer (CEO), the CEO’s annual total compensation and the ratio between these two numbers.


New Records in SEC Enforcement Actions

John C. Wander is a partner in the Shareholder Litigation & Enforcement practice at Vinson & Elkins LLP. This post is based on a Vinson & Elkins publication authored by Mr. Wander, Jeffrey S. JohnstonClifford Thau, and Olivia D. Howe.

In late October, the Securities and Exchange Commission announced that under the leadership of chair Mary Jo White and enforcement director Andrew Ceresney, the SEC has continued to ramp up enforcement activity. In its 2015 fiscal year, the SEC reported filing a total of 807 actions for the year—including 507 independent enforcement actions, 168 follow-on actions, and 132 actions for delinquent filings—resulting in $4.19 billion in monetary penalties and disgorgements.

Securing Our Nation’s Economic Future

Leo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on Chief Justice Strine’s recent keynote address to the Fellows Colloquium of the American College of Governance Counsel, available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), and Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, by Leo E. Strine (discussed on the Forum here).

These days it has become fashionable to talk about a subject some of us have been addressing for some time: [1] whether the incentive system for the governance of American corporations optimally encourages long-term investment, sustainable policies, and therefore creates the most long-term economic and social benefit for American workers and investors. Many commentators have come to the conclusion that the answer to that question is no. They bemoan the pressures that can lead corporate managers to quick fixes like offshoring, which might give a balance sheet a short-term benefit, but cut our nation’s long-term prospects. They lament the relative tilt in corporate spending toward stock buybacks and away from spending on capital expenditures. They look at situations where corporations took environmental or other regulatory short-cuts, which ended up in disaster, and ask whether anyone is thinking about sustainable approaches. They rightly point to the accounting gimmickry involved in several high-profile debacles and ask what it has to do with the creation of long-term wealth for human investors.


SEC Rulings on Shareholder Proposals and Ordinary Business Rule

Elizabeth Ising is a partner and Co-Chair of the Securities Regulation and Corporate Governance practice group at Gibson, Dunn & Crutcher LLP. This post is based on a Gibson Dunn client alert by Ms. Ising, Sarah E. Fortt, Julia LapitskayaRonald O. MuellerKasey Levit Robinson, and Lori Zyskowski.

On October 22, 2015, the Securities and Exchange Commission’s (“SEC” or “Commission”) Division of Corporation Finance (the “Division”) issued Staff Legal Bulletin No. 14H (“SLB 14H”), setting forth a dramatically different standard for when it will concur that a shareholder proposal that conflicts with a company proposal can be excluded from the company’s proxy statement under Rule 14a-8(i)(9). The Division also reaffirmed its views on the application of the “ordinary business” standard in Rule 14a-8(i)(7). SLB 14H is available here.


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