At a recent conference, Securities and Exchange Commission Chair Gary Gensler gave wide-ranging remarks addressing market structure issues, LIBOR and other rates, and the Commission’s regulatory agenda.

Addressing regulatory initiatives relating to public company disclosures, Chair Gensler noted he has asked the Staff to put together recommendations on mandatory company disclosures on climate risk and human capital.  He also noted that investors would like disclosures that are consistent and that allow them to make comparisons among companies.  The Chair noted he has asked for specific recommendations relating to governance, strategy, and risk management related to climate risk, as well as a range of specific metrics, such as greenhouse gas emissions, to determine those which are most relevant to investors.  The Chair pointed to the over 400 comment letters the Commission has received regarding climate change disclosure.  He noted that he has asked the Staff, as well, to consider how funds that purport to focus on ESG are carrying out their investment objectives.  On human capital disclosures, the Chair recognized that the Staff is considering a number of possible metrics including workforce turnover, skills and development training, compensation, benefits, and workforce demographics including diversity, and health and safety.

Chair Gensler also discussed the Commission’s plans for modernizing the rules related to ownership reporting.  He noted that the rules relating to reporting beneficial ownership have not been updated since the late 1960s and connected this to the Archegos collapse, which may be tenuous.  In any event, he indicated that revisions to the Section 13 and Section 16 ownership reporting rules are contemplated, as well as updates to reporting of derivatives positions and greater transparency relating to short selling activity.

See the text of his complete remarks here.

Directors’ and officers’ (D&O) insurance policies are traditionally structured as “ABC” policies, comprised of Side A, B, and C coverage that together provide protection for the issuer and for directors and officers.  For SPACs, ABC polices differ from those of a traditional operating company with a balance sheet, and, as a result, some SPACs elect to purchase only Side A coverage.  Yelena Dunaevsky and Dan Berry of Woodruff Sawyer address D&O insurance policies for SPACs, the nuances and differences for SPACs, pricing and other considerations in this Woodruff Sawyer’s “Meet the Experts” series.

During the National Investor Relations Institute’s (NIRI) 2021 Virtual Conference, SEC Commissioner Elad Roisman spoke about the hot topic of ESG-related disclosure requirements.

The Commissioner noted that public companies are overwhelmed with the amount and the specificity of ESG data investors ask them to provide.  Commissioner Roisman appreciated the call for standardized disclosures related to environmental, social, and governance matters.  Yet, he seemed skeptical of how the SEC would approach construction of a set of ESG disclosure requirements.  Doing this would “displace a good amount of private sector engagement.”  Commissioner Roisman acknowledged SEC rule-writing is slow, and observed that there should be confidence in the process of crafting new disclosure requirements so that the requirements have long-lasting applicability, as reexamination does not happen often.

Additionally, while crafting ESG disclosure requirements, the Commissioner believes, although challenging, the SEC’s focus should be on “what information is material to an investment decision.”  Commissioner Roisman noted that the SEC Staff consists mainly of experts in financial markets, further stating, “We do not have, for example, climate scientists… It is fair to question how our staff is equipped to determine which climate or environmental information…is material to an investment decision.”

In his concluding observations, the Commissioner raised concerns also about standard-setting:  who would the SEC choose as the example to rely on and explain how its choice serves its intentions in establishing new ESG disclosure requirements? Although posing these questions and concerns, Commissioner Roisman said his mind is not ultimately made up on these issues and he is receptive to learning more.

Read the Commissioner’s full remarks here.

On June 21, 2021, US financial regulators met with US President Joe Biden to discuss the US economy and update him on their efforts to address climate-related risks.  According to the White House readout of the meeting, the regulators said “they were making steady progress” on implementing President Biden’s executive order on climate-related risk. The briefing follows last week’s passage of HR 1187, the Corporate Governance Improvement and Investor Protection Act, by the US House of Representatives by a vote of 215 to 214. HR 1187 would mandate that the SEC create an ESG disclosure regime for public companies and provides numerous statutory requirements for those disclosures, including climate-related disclosures. Although the bill is unlikely to become law due to expected opposition in the US Senate, which requires a 60-vote supermajority to pass legislation, the passage of the HR 1187 by the House – combined with President Biden’s focus on climate-related risks in his meeting with financial regulators –  should bolster and influence the US Securities and Exchange Commission’s (SEC) ongoing development of new ESG disclosure requirements for US public companies under its existing statutory authorities. With regulators telling President Biden that they are “making steady progress,” new disclosure requirements for US public companies appear to be just around the corner.

Read the full Legal Update.

Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, No. 20-222

On June 21, 2021, the Supreme Court held that in a securities-fraud class action, the district court should consider whether the alleged misrepresentation is generic in determining whether the misrepresentation affected the price of the security at issue. The Court also held that the defendant bears the burden to prove the lack of price impact by a preponderance of the evidence.  Continue reading.

We are pleased to announce our latest resource, Writing on the Wall, offering explanations and definitions for over 800 securities, capital markets, derivatives, structured finance and financial services terms and phrases.

Access the glossary at www.writingonthewall.com, or wherever you see our icon, and suggest new terms to be added.

From a SPAC’s IPO through to its initial business combination with a target company and beyond, there are certain D&O insurance considerations that may not be top of mind for a SPAC management team.  However, budgeting for and structuring D&O insurance plans is an essential part of attracting independent directors to a SPAC’s board and protecting the newly public company and its directors and officers post de-SPAC.  Yelena Dunaevsky and Dan Berry of Woodruff Sawyer address the main components of SPAC-related D&O insurance plans, pricing, structuring and other considerations in Woodruff Sawyer’s “Meet the Experts” series.

Is today a Business Day? Good question, depends who you ask.

The SEC’s EDGAR filing system is closed today for the Juneteenth Holiday.  Because today is a federal holiday, today will not count as a business day in the filing periods in Rule 424(b) under the Securities Act.  This is also helpfully noted in the SEC’s announcement of an EDGAR filing holiday at:  SEC.gov | EDGAR Will Be Closed Friday, June 18, 2021.

What about the time period between pricing and settlement of a debt security, such as a structured note issued off of a medium-term note program?  This is usually 2-3 “business days,” as defined in the relevant indenture.  A typical “business day” definition for a fixed rate debt security in an indenture reads “’business day’ means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which banking institutions are authorized or required by law or regulation to close in the City of New York.”  Because today is a legal holiday, it will not be counted for purposes of the settlement period.  We don’t have to reach the question of whether or not banks in New York City are open, as many banks are open today.

Issuers and underwriters closing a transaction pursuant to an underwriting agreement may not have an extra day.  At least one bulge bracket bank holding company’s form of underwriting agreement defines a “New York Business Day,” which is used for settlement of the transaction, as “each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are generally authorized or obligated by law or executive order to close.”  Because today is not a bank holiday in New York City, today is a New York Business Day under that formulation.  We can assume that the drafters of that agreement thought that there would be sufficient advance notice of any federal or bank holiday.  There was very little advance notice of this federal holiday.

In a comment letter to the Securities and Exchange Commission on June 11, seven well-known tech companies responded to SEC Acting Chair Allison Herren Lee’s March 2021 request for public input on climate change disclosures (see our related blog post). The letter expressed support for consistent reporting by public companies regarding climate-related matters.

With acknowledgement regarding the severity and urgency of addressing climate change issues, the letter mentions that the companies believe “…it is critical to regularly measure and report on progress towards climate commitments.”  The letter notes the importance of sharing updates with investors and stakeholders, stating, “Investors need clear, comprehensive, high-quality information on the impacts of climate change for market participants.”

The letter addressed to Chair Gensler specifically outlined some climate disclosure suggestions for the SEC to consider, including:

  • Relying on a flexible principles-based framework to align with agendas that already have, or will have, common support from investors, such as those of the Task Force on Climate-Related Financial Disclosures (TFCD);
  • Leveraging existing SEC frameworks and standards for climate reporting in order to reduce companies’ “reporting burden,” while also implementing a comment period for the public in an effort to limit the need for frequent substantive deliberations;
  • Including disclosure of greenhouse gas emissions information to divulge companies’ emissions footprint, thus allowing reflection on globalized standards; and
  • Allowing separate reporting location, frequency, and timing, especially outside of the current boundaries of documents that are filed with the SEC annually and quarterly.

These companies are already taking measures to report on their environmental performance and would like to see a consistent standard set across the board.

Read the response letter in its entirety here.

June 29, 2021 Webinar
1:00pm – 2:00pm EDT
Register here.

As many issuers continue to seek access to the capital markets in light of the pandemic-related downturn, our webcast will focus on convertible bonds. Converts have been among the most popular financing tools in recent months, and for good reason. Join Mayer Brown partners, Anna Pinedo and Remmelt Reigersman, as well as Raymond James’ Co-head of Equity-Linked Securities, Claude DeSouza-Lawrence, and Director, Peter Pergola, while they discuss the state of the market, and provide:

  • A convertible bond overview;
  • Simplified accounting treatment for issuers;
  • Accompanying antidilutive strategies, including capped call and call/warrant structures;
  • Tax considerations for the issuer;
  • Addressing busted converts; and
  • Other securities and disclosure considerations.