Monthly Archives: March 2018

Statement on Proposed Amendments to Public Reporting of Fund Liquidity Information

Posted by Kara M. Stein, U.S. Securities and Exchange Commission, on
Friday, March 16, 2018
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Kara M. Stein is a Commissioner at the U.S. Securities and Exchange Commission. The following post is based on Commissioner Stein’s recent public statement, available here. The views expressed in the post are those of Commissioner Stein and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I would like to join Chairman Clayton in thanking the staff for their work on this release—in particular, Zeena Abdul-Rahman, Thoreau Bartmann, and Sarah ten Siethoff.

While I sincerely appreciate the staff’s efforts, I am not persuaded that we should amend our liquidity rule and take useful disclosure away from investors.

So what is the staff proposing be taken away? Starting next year, certain investment funds, such as mutual funds, are supposed to give investors information about the liquidity of the funds’ investments. [1] The proposal before the Commission today [March 14, 2018] would take away that public disclosure requirement.

When you boil it down, liquidity is all about one question. How long does it take to do something? We ask that question in all sorts of situations. How long does it take to travel from point A to point B? How long does it take to sell a house or a car? Or, in this case, how long does it take for a fund to sell an underlying investment without affecting its price?

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Statement at Open Meeting on Investment Company Liquidity Disclosure

Posted by Michael S. Piwowar, U.S. Securities and Exchange Commission, on
Friday, March 16, 2018
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Michael S. Piwowar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Mr. Piwowar’s recent public statement at an open meeting of the SEC, available here. The views expressed in this post are those of Mr. Piwowar and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

I would first like to thank the Director of the Division of Investment Management, Dalia Blass, for moving this proposal forward. Also, thank you to the staff who worked so hard devising and drafting its contents.

I support this recommendation to improve the reporting and disclosure of liquidity information by investment companies. Nevertheless, I am disappointed that the Commission is missing a golden opportunity.

Seventeen months ago, the Commission adopted rules aiming to promote effective liquidity risk management throughout the fund industry and to provide investors with information to help them understand a mutual fund’s or exchange-traded fund’s (“ETF”) liquidity and redemption practices. [1] I supported the final rule, because it reflected the staff’s thoughtful consideration and incorporation of the public comments received on the proposal. [2]

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Weekly Roundup: March 9–15, 2018

Posted by Harvard Law School Forum on Corporate Governance & Financial Regulation, on
Friday, March 16, 2018

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This roundup contains a collection of the posts published on the Forum during the week of March 9–15, 2018.

Delaware’s Retreat: Exploring Developing Fissures and Tectonic Shifts in Delaware Corporate Law

Posted by James D. Cox Duke (Duke University) and Randall S. Thomas (Vanderbilt University), on Friday, March 9, 2018
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The Rise of Blockchains and Regulatory Scrutiny

Posted by Stuart Levi, Gregory Fernicola and Eytan Fisch, Skadden, Arps, Slate, Meagher & Flom LLP, on Friday, March 9, 2018
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Are Financial Constraints Priced? Evidence from Textual Analysis

Posted by Matthias Buehlmaier (University of Hong Kong) and Toni M. Whited (University of Michigan), on Saturday, March 10, 2018
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The Narrowing Scope of Whistleblower Anti-Retaliation Protections

Posted by Brad S. Karp, Paul, Weiss, Rifkind, Wharton & Garrison LLP, on Saturday, March 10, 2018
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Delaware Appraisal Litigation: Non-Arm’s-Length Transactions, Arm’s-Length Transactions and the Anna Karenina Principle

Posted by Arthur H. Rosenbloom (Consilium ADR) and Gilbert E. Matthews (Sutter Securities), on Sunday, March 11, 2018
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Dunkin’ Brands and SEC Economic Relevance Exclusion of Shareholder Proposal

Posted by Keith F. Higgins and Craig E. Marcus, Ropes & Gray LLP, on Sunday, March 11, 2018
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Taxation and Executive Compensation: Evidence from Stock Options

Posted by Andrew Bird (Carnegie Mellon University), on Monday, March 12, 2018
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An Identity Theory of the Short- and Long-Term Investor Debate

Posted by Claire A. Hill (University of Minnesota Law School), on Monday, March 12, 2018
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SEC and CFTC Testimony on Virtual Currencies: Is More Regulation on the Horizon?

Posted by Michael H. Krimminger, Colin D. Lloyd & Zachary Baum, Cleary, Gottlieb, Steen & Hamilton LLP, on Monday, March 12, 2018
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What a Difference a (Birth) Month Makes: The Relative Age Effect and Fund Manager Performance

Posted by Kevin Mullally (University of Alabama), on Tuesday, March 13, 2018
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The Hidden Power of Compliance

Posted by Stavros Gadinis and Amelia Miazad (Berkeley Law School), on Tuesday, March 13, 2018
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SEC Guidance on Public Company Cybersecurity Disclosures

Posted by Lillian Brown, Meredith Cross, and Benjamin Powell, Wilmer Cutler Pickering Hale and Dorr LLP, on Tuesday, March 13, 2018
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The Importance of Conviction in the Face of Litigation Risk

Posted by Edward D. Herlihy and David E. Shapiro, Wachtell, Lipton, Rosen & Katz, on Wednesday, March 14, 2018
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Investor Ideology

Posted by Enrichetta Ravina (Northwestern University), on Wednesday, March 14, 2018
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Remarks to the SEC Investor Advisory Committee

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on Wednesday, March 14, 2018
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Overview of Proposed Revisions to the UK Corporate Governance Code

Posted by Jason Halper, Steven Baker and Janaki Tampi, Cadwalader, Wickersham & Taft LLP, on Thursday, March 15, 2018
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Spring Awakening: Notes from This Year’s CII Meeting

Posted by Nell Minow, ValueEdge Advisors, on Thursday, March 15, 2018
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Statement on Proposed Amendments to Public Reporting of Fund Liquidity Information

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on Thursday, March 15, 2018
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Statement on Proposed Amendments to Public Reporting of Fund Liquidity Information

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Thursday, March 15, 2018
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Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent public statement, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff.

Today [March 14, 2018], the Commission will consider a proposed rule that would amend the liquidity risk management rules for open-end funds that the Commission adopted in October 2016. Specifically, staff will recommend that the Commission propose amendments to revise the manner in which information about funds’ liquidity risk management practices is provided to investors in those funds. These recommendations are designed to address the potential for investor confusion presented by a few aspects of the current rule.

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Spring Awakening: Notes from This Year’s CII Meeting

Posted by Nell Minow, ValueEdge Advisors, on
Thursday, March 15, 2018
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Nell Minow is Vice Chair of ValueEdge Advisors.

The theme I heard most often at the annual spring meeting of the Council of Institutional Investors was ESG: environmental/social/governance risks and investment opportunities. The issues of how best to understand ESG and factor it into assessing investment risk and return and how to respond as investors through proxy voting or engagement came up in a number of contexts. Other issues that were raised more than once included voting rights, crypto-currencies and initial coin offerings, and international investments and investors.

Some of the highlights of the official and member-hosted side meetings:

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Overview of Proposed Revisions to the UK Corporate Governance Code

Posted by Jason Halper, Steven Baker and Janaki Tampi, Cadwalader, Wickersham & Taft LLP, on
Thursday, March 15, 2018
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Jason Halper and Steven Baker are partners and Janaki Tampi is an associate at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader publication by Mr. Halper, Mr. Baker, Ms. Tampi, Ellen Holloman, Jared Stanisci and Hyungjoo Han. Related research from the Program on Corporate Governance includes The Elusive Quest for Global Governance Standards by Lucian Bebchuk and Assaf Hamdani.

In December 2017, the UK Financial Reporting Council (the “FRC”) proposed revisions to the UK Corporate Governance Code. These revisions will impact companies with a Premium Listing of equity shares in the UK, which are required under the Listing Rules to state in their annual report and accounts how they have applied the Code. The revisions are designed to achieve long-term company growth through enhanced corporate accountability mechanisms and are aimed at consolidating the UK’s reputation as a leading environment for transparent and efficient international business. Many of the proposed revisions, if enacted, would facilitate greater alignment between UK and US corporate governance law and regulations.

Introduction

In December 2017, the FRC published proposed revisions to the UK Corporate Governance Code (the “current Code”). The changes follow the August 2017 announcement by business secretary Greg Clark that the UK Government would be implementing wide-ranging corporate governance reforms in response to its November 2016 Green Paper Consultation on Corporate Governance Reform, the subsequent FRC report on corporate culture and the Business Enterprise and Industrial Strategy report on corporate governance.

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Remarks to the SEC Investor Advisory Committee

Posted by Jay Clayton, U.S. Securities and Exchange Commission, on
Wednesday, March 14, 2018
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Jay Clayton is Chairman of the U.S. Securities and Exchange Commission. This post is based on Chairman Clayton’s recent remarks to the SEC Investor Advisory Committee, available here. The views expressed in this post are those of Mr. Clayton and do not necessarily reflect those of the Securities and Exchange Commission or its staff. Related research from the Program on Corporate Governance includes The Perils of Small-Minority Controllers by Lucian Bebchuk and Kobi Kastiel (discussed on the Forum here).

Thank you, Anne (Sheehan), and good morning everyone. I want to extent a special welcome to their first Investor Advisory Committee meeting to Commissioner Robert Jackson and Commissioner Hester Peirce. Hester previously served on, and contributed substantially to, this Committee. Rob and Hester have brought great intellect, energy, and commitment to the Commission. I also express my gratitude to Jennifer Marietta-Westberg and Heidi Stam, who graciously agreed to dedicate their time as new Committee members. You are joining a valuable group that shares a common and important goal—promoting the long-term interests of America’s Main Street investors. We look forward to your contributions.

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Investor Ideology

Posted by Enrichetta Ravina (Northwestern University), on
Wednesday, March 14, 2018
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Enrichetta Ravina is Visiting Assistant Professor of Finance at Northwestern University Kellogg School of Management. This post is based on a recent paper authored by Professor Ravina; Patrick Bolton, David Zalaznick Professor of Business and Professor of Economics at Columbia Business School; Tao Li, Assistant Professor of Finance at University of Florida Warrington College of Business; and Howard Rosenthal, Professor of Politics at New York University.

Understanding the determinants of institutional investor voting has become increasingly important as they own a larger share of the economy. They, not retail investors, cast the determining votes on most proxy ballots, and consequently shape a wide range of corporate governance, social and economic issues.

In our paper, Investor Ideology, publicly available on SSRN, we estimate the ideology of several hundred mutual fund families and public pension funds by examining their proxy voting records in publicly listed Russell 3000 firms. We follow a “political” approach based on the W-NOMINATE spatial model pioneered by Poole and Rosenthal to study voting in Congress. The model takes institutional investors’ votes on proposals up for a shareholder vote to estimate their ideal points along one, or possibly two, most salient policy dimensions. This political approach, which has also been adopted by Bubb and Catan in simultaneous and independent work, is in contrast to the economic and financial approaches taken in the existing proxy voting literature, which mostly focus on financial and agency considerations. We can thus allow for a broad “ideological” interpretation of the diverse ideal points of the multiple institutional asset managers and owners that goes beyond pure shareholder value considerations.

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The Importance of Conviction in the Face of Litigation Risk

Posted by Edward D. Herlihy and David E. Shapiro, Wachtell, Lipton, Rosen & Katz, on
Wednesday, March 14, 2018
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Edward D. Herlihy and David E. Shapiro are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Herlihy and Mr. Shapiro, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court in a two-page order summarily affirmed an important appraisal decision, upholding the Delaware Court of Chancery finding that the fair value of SWS Group, Inc. was $6.38 per share—a valuation 19% below the merger price at announcement and 7.8% below the merger price at closing (see our memo of May 31, 2017). This represents the first Delaware Supreme Court decision in the era of “appraisal arbitrage” to affirm an appraised valuation meaningfully below the deal price.

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SEC Guidance on Public Company Cybersecurity Disclosures

Posted by Lillian Brown, Meredith Cross, and Benjamin Powell, Wilmer Cutler Pickering Hale and Dorr LLP, on
Tuesday, March 13, 2018
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Lillian Brown, Meredith Cross, and Benjamin Powell are partners at Wilmer Cutler Pickering Hale and Dorr LLP. This post is based on a WilmerHale publication by Ms. Brown, Ms. Cross, Mr. Powell, Jonathan Cedarbaum, and Alan Wilson.

On February 21, 2018, the Securities and Exchange Commission (SEC) approved an interpretive release updating guidance on public company disclosure and other obligations concerning cybersecurity matters. The interpretive release, titled “Commission Statement and Guidance on Public Company Cybersecurity Disclosures,” Release No. 33-10459 (Guidance), had been scheduled to be considered at an open meeting on February 21, which was canceled. Much of the Guidance is devoted to reiterating and expanding upon the Division of Corporation Finance’s 2011 CF Disclosure Guidance: Topic No. 2, Cybersecurity, which was issued to assist companies in assessing what disclosures might be required about cybersecurity risks or incidents. WilmerHale discussed the 2011 guidance here. Emphasizing the increasing significance of cybersecurity incidents in recent years, the new Guidance further illustrates potential disclosures that companies should consider and comments on matters beyond disclosure obligations. The Guidance stresses the importance of cybersecurity policies and procedures, and discusses the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD selective disclosure prohibitions. Recognizing that the cybersecurity landscape continues to shift, Chairman Clayton commented in a separate statement that the Commission “will continue to evaluate developments in this area and consider feedback about whether any further guidance or rules are needed.”

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