During this morning’s open meeting of the U.S. Securities and Exchange Commission (the “SEC”), the Commissioners unanimously voted to adopt amendments to remove references to credit ratings from Regulation M, and replace these with alternative standards of creditworthiness.  The existing exceptions in Rules 101 and 102 of Regulation M for certain investment grade rated securities will be replaced with exceptions for: (1) nonconvertible debt securities and nonconvertible preferred securities of issuers having a probability of default of 0.055% or less, measured over a certain period of time, and as determined and documented by the lead manager of the distribution using a “structural credit risk model” as defined in the final rules; and (2) asset-backed securities that are offered pursuant to an effective shelf registration statement filed on Form SF-3. The SEC also added a record preservation requirement for broker-dealers in connection with their probability of default determinations in reliance on the new exception in Rule 101.

The final rules adopted are largely similar to the amendments originally proposed by the SEC in March 2022, with certain modifications implemented to address feedback received during the comment period.

The final rules will become effective 60 days after publication in the Federal Register.

For more information, see the SEC’s Adopting Release and Fact Sheet. A legal update will follow.

In this MB Microtalk video, Mayer Brown’s Laura Richman discusses the SEC’s recent share repurchase disclosure amendments, which require tabular, day-by-day reporting of share buybacks on either a quarterly or semi-annual basis depending on the type of issuer, as well as quantitative and qualitative narrative disclosures.

Visit our MB Microtalk page for more topics and talks.

The Securities and Exchange Commission has announced an open meeting on June 7, 2023, which will be a webcast. At the open meeting, the SEC will consider a number of matters, including the possible rule amendments to Regulation M in order to remove certain existing rule exceptions that reference credit ratings and substitute in their place new exceptions which are based on alternative standards of creditworthiness. We discussed the proposed amendments in our client alert.

On May 9, 2023, the Financial Industry Regulatory Authority, Inc. (“FINRA”) issued Regulatory Notice 23-08 (the “Notice”), which provides supplemental and updated guidance for members conducting private placements pursuant to the Regulation D safe harbors under Sections 3 or 4 of the Securities Act of 1933, as amended.

The Notice does not change existing laws, regulations or interpretations of existing regulatory requirements. Rather, the Notice was provided as a reminder of members’ obligations in light of changes in the legal and regulatory framework since FINRA published Regulatory Notice 10-22 in 2010.

Read the complete Legal Update.

In this briefing, we take a look at the EU Green Bond Standard.

The Council of the European Union and the European Parliament recently announced that provisional agreement on the European Green Bond Standard had been reached. The consolidated legal text is now widely available and can be viewed here along with a blackline against the original proposal from the European Commission. Whilst the general direction of the EU GBS has been known for sometime, the newly available text clarifies a number of questions as to how the EU GBS will work. We provide an overview in this briefing. Read more here.

On May 9, 2023, FINRA issued Regulatory Notice 23-08 (the “Notice”), which provides supplemental and updated guidance for members conducting private placements pursuant to Sections 3 or 4 of the Securities Act of 1933, as amended.

The Notice does not change any existing laws, regulations or interpretations of existing requirements. Rather, the Notice was provided as a primer on members’ obligations in light of the changes in the legal and regulatory framework since FINRA published Regulatory Notice 10-22 in 2010.

The Notice provides guidance on the distinctions between the requirements when recommending a private placement pursuant to Regulation Best Interest (“Reg. BI”) and FINRA Rule 2111 (“Rule 2111”). In particular, the Notice discusses the reasonable basis obligations and the duty to conduct a reasonable investigation pursuant to Reg. BI and Rule 2111, respectively, and client specific obligations. Additionally, FINRA discusses effective practices for members related to reasonable investigations and related supervisory practices.

Other requirements applicable to private placements covered in the Notice are: communications with the public, filings with FINRA, supervision of associated persons and private securities transactions. A detailed Client Alert summarizing the Notice will follow. The full Notice can be found here.

On May 9, 2023, FINRA issued Regulatory Notice 23-09 (the “Notice”), seeking comment on any modifications that could be made to FINRA’s rules, operations and administrative processes to further promote capital formation while maintaining investor protection.

In addition to the open-ended request, the Notice sets forth the following ten questions for commenters to consider: 

  • Are there any FINRA rules, operations or administrative processes that should be updated or amended to better facilitate capital raising in a manner that preserves investor protection?
  • Have FINRA’s rules covering the capital raising process effectively responded to the problem(s) they were intended to address?
  • What have been the economic impacts, including costs and benefits, arising from FINRA’s rules on the capital raising process? To what extent do these economic impacts differ by business attributes, such as size of the member or differences in business models? Can you provide quantitative information regarding any of these impacts?
  • Where have FINRA rules related to the capital raising process been particularly effective? Are there other rules or applications where a similar approach might enhance capital formation while maintaining investor protections?
  • What, if any, unintended consequences have arisen from FINRA’s rules related to the capital raising process? Have members changed their business models and practices in ways unintended by FINRA with a consequence to capital formation or investor protection in response to FINRA’s rules in these areas?
  • Are there other FINRA rules or practices not identified above that impact the capital raising process, such as rules related to the fixed income market (other than the amendments to FINRA Rule 11880)? If so, what has been your experience with these rules or practices?
  • Are there any ambiguities in the rules that FINRA should address to aid members’ compliance and enhance the capital raising process while ensuring investor protection concerns are addressed? Are there any other types of modifications to FINRA rules that should be considered? For example, can FINRA rules be modified to encourage the frequency of quotes, quoted prices or number of shares quoted for securities, particularly illiquid ones?
  • What changes have occurred in the market for capital formation since Regulatory Notice 17-14 that should prompt FINRA to consider amending its rules to better facilitate capital raising?
  • Can FINRA make any of its administrative processes or interpretations related to the capital raising process more efficient and effective? If so, which ones and how? Are there any such processes or interpretations that should be added?
  • Is there any additional data FINRA could provide to facilitate capital formation or to facilitate analysis of the regulatory framework?

Comments must be received by August 7, 2023. The full text of the Release is available here.

On May 3, 2023, the U.S. Securities and Exchange Commission (the “SEC”) adopted, by a 3-to-2 vote, amendments (the “Amendments”) to its existing rules (the “Existing Rules”) regarding disclosures about purchases of an issuer’s equity securities by or on behalf of the issuer or an affiliated purchaser, commonly referred to as “buybacks.” The Amendments require quantitative and qualitative disclosure of buybacks on a day-by-day basis but, in a significant change from the SEC’s original proposal that would have required next business day reporting, this disclosure will be required on either a quarterly or semi-annual basis, depending on the type of issuer. The amendments also revise and expand the existing periodic disclosure requirements for buybacks.

Read the complete Legal Update.

Continuing its focus on the fund industry, the Securities and Exchange Commission’s Division of Investment Management will hold its inaugural Conference on Emerging Trends in Asset Management on May 19, 2023, which will be open to the public via webcast on the SEC website. Asset management industry leaders and academics will contribute to discussions on emerging trends in the field across four sessions. Following opening remarks, the Commission will discuss asset managers, corporate governance, and civic democracy.

In the afternoon sessions, the Commission will discuss private funds, investor protection and industry concentration; investment complexity, international effects and outsourced private services; and lastly retail investors, fund trends and investment innovation.

The full meeting agenda and list of speakers can be found here.

On May 3, 2023, the Securities and Exchange Commission voted (3-2) to adopt amendments requiring disclosures related to issuers’ share repurchases.  The amendments that were adopted are different from those that were proposed.  Notably, the amendments require issuers to disclose daily repurchase activities quarterly or semiannually in connection with their periodic filings. 

See the fact sheet and text of adopting release.

A detailed alert will follow.

Consider registering for our upcoming PLI program.  

May 22, 2023 Webinar

1:00 pm – 2:00 pm ET

Register here.

During this session hosted by Practising Law Institute, Mayer Brown’s Anna Pinedo and Laura Richman will discuss the changes between the proposed amendments and the final amendments in light of public comments. Anna and Laura will address the effect of these changes on issuer stock repurchase programs, including accelerated repurchase programs. 

Topics include:

  • Discussion of the final SEC amendments;
  • Key differences between the proposed amendments and the final amendments;
  • Reporting requirements;
  • Corporate policies relating to trading plans;
  • Effects on issuer stock repurchase plans; and
  • Effects on accelerated share repurchase plans.