June 21, 2021 Webinar
1:00pm – 2:00pm EDT
Register here.

Under Securities and Exchange Commission Chair Jay Clayton’s leadership, the SEC focused on a number of areas that were collectively termed “good corporate hygiene.” These subsumed policies related to trading in a company’s stock, especially the use of Rule 10b5-1 trading plans and the use of such plans by insiders, as well as corporate policies, including corporate repurchase plans, Regulation FD policies, and policies relating to the handling of material nonpublic information. Various academic studies and some well-publicized sales by corporate executives made pursuant to 10b5-1 trading plans have drawn media scrutiny and attention from legislators, prompting calls for the SEC to take a closer look at the area. Also, despite the pandemic, share repurchase activity has remained high, and that has raised questions.

In the first of a two-part series addressing corporate hygiene, Mayer Brown will address topics relating to share trading and repurchases:

  • Rule 10b5-1 best practices;
  • Recent studies relating to sales practices;
  • Rule 10b-18 programs;
  • Accelerated share repurchase plans;
  • Announcing repurchase plans;
  • Activity by insiders in proximity to corporate repurchases, including controls related to insider trading and blackout conditions; and
  • Handling material nonpublic information.

Today, the Office of Information and Regulatory Affairs released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions, which includes the Securities and Exchange Commission’s rulemaking agenda.

The rulemaking agenda identifies short-term and long-term actions to be taken by the SEC.  There are a number of items that are noted in the final rulemaking stages that we have previously mentioned on this blog, including the following:

  • Disclosure relating to climate risk
  • Disclosure relating to corporate board diversity
  • Short sale disclosure reform
  • Share repurchase disclosure modernization
  • Disclosure regarding beneficial ownership and swaps
  • Rules relating to SPACs
  • Amendments to Rule 10b5-1
  • Changes to the exempt offering framework

In addition, the rulemaking agenda also lists as near-term the following:

  • Market structure modernization within equity markets, treasury markets, and other fixed income markets
  • Investment fund rules, including money market funds, private funds, and ESG funds
  • Unfinished work directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including, among other things, securities-based swaps and related rules, incentive-based compensation arrangements, and conflicts of interest in securitizations
  • Enhancing shareholder democracy
  • Mandated electronic filings and transfer agents

You can access the agenda here.

During its meeting on June 10, the Securities and Exchange Commission’s Investor Advisory Committee held a panel discussion regarding 10b5-1 plans, welcoming three market participants and academics.  As we previously blogged, SEC Chair Gary Gensler asked for recommendations for the Commission’s consideration on how to “freshen up Rule 10b5-1.”

Dr. Dan Taylor, Associate Professor at the Wharton School of the University of Pennsylvania, provided an academic primer to kick off the panel discussion.  While covering the mechanics of Rule 10b5-1 plans, Dr. Taylor highlighted the ability for Rule 10b5-1 plans to be cancelled while a holder was in possession of material non-public information (MNPI), and noted that there are no requirements for insiders to disclose the adoption, modification, or cancellation of trading plans.  Dr. Taylor argued that these attributes undermine investor confidence and prevent proactive risk assessments and policing, while also limiting access to information by institutional investors.  Further, he shed light on the outdated filing procedures of Form 144, which can contain disclosure of trading plans.

Dr. Taylor suggested that policy recommendations need to balance the needs of executives for liquidity, the value of giving executives an affirmative defense against insider trading claims (which is the primary purpose of a Rule 10b5-1 plan), and investors’ access to information relating to executives’ trades.  With regard to trades, he recommended requiring all companies, including foreign issuers, to disclose trades of officers and directors on EDGAR; making Form 144 filings electronic, as proposed by the SEC (see our blog post); and modifying Form 4 to require disclosure of trades made pursuant to 10b5-1 plans.  With regard to trading plans themselves, Dr. Taylor proposed that the SEC require the disclosure of the number of shares covered by a trading plan for each named executive officer in a company’s annual proxy statement; requiring disclosure of the adoption, modification, and/or cancellation of trading plans by insiders on a Form 8-K; and adopting former SEC Chair Clayton’s suggested four to six month cooling off period.

Keir Gumbs, Vice President, Deputy General Counsel and Deputy Corporate Secretary for Uber Technologies, provided a corporate and uniquely tech perspective on 10b5-1 plans.  Mr. Gumbs argued that 10b5-1 plans are meant to provide clarity, rather than liquidity, for both companies and insiders.  As information is more easily accessible and shared within emerging tech companies, Mr. Gumbs explained that more tech companies are instituting blackout periods for all employees, instead of just to executives and directors who have traditionally been subject to blackout periods. He also highlighted the increased equity exposure many employees are subject to, given the equity-heavy compensation structures primarily seen in tech companies.  Adopting 10b5-1 plans allow for liquidity and regular payouts to employees that may need access for any number of reasons.  Mr. Gumbs reiterated that adopting 10b5-1 plans allow companies and individuals to mitigate risks against insider trading charges.  With regard to recommendations, Mr. Gumbs suggested that rulemaking relating to 10b5-1 plans should be data-driven.

Jeff Mahoney, General Counsel to the Council of Institutional Investors (the “Council”), echoed Dr. Taylor’s call for enhanced disclosure requirements.  Strengthening the public disclosures would “lessen the overall lack of transparency in the plans,” according to Mr. Mahoney.  Mr. Mahoney concluded by stating “…when insiders transact their own company stock through 10b5-1 plans, investors agree that the capital markets can become more eroded.”

Global funding for companies in the automotive and mobility sectors fell to $27.6 billion in 2020, a 5% decrease year-over-year, with 522 deals completed according to CB Insights’ recent report and webinar on the State of Mobility. While the first half of 2020 was particularly affected by the COVID-19 pandemic, the second half of 2020 saw more investor interest in the sector as companies addressed electrification and autonomous driving.

As demonstrated by the shift to later stage financings and the emergence of new automotive and mobility unicorns, automotive and mobility companies are remaining private longer. Globally, there are now 45 unicorns in the sector, collectively valued at over $226.8 billion.

In 2020, there were 107 auto and mobility company exits, which included 22 SPAC deals. Companies developing technology to support electric vehicles (EV) made up 58% of 2020’s total SPAC deals.

Highlighted below are the 2020 funding highlights for certain notable subsectors:

  • EV companies raised $12.8 billion in 193 deals completed in 2020, with $8 billion of funding going to original equipment manufacturers (OEMs).
  • Autonomous vehicle companies raised $7.3 billion in 105 deals, with the average deal rising 17% year-over-year to $104 million.
  • Connected vehicle companies raised $1 billion, a decline from 2019’s $2.2 billion, with 70 completed in 2020. Analysts believe the shift to electrification and autonomous vehicles may have led to this steady decline.

As we continue to speed through 2021, particular focus continues to be placed on zero-emission transportation and commercial vehicle innovation, given the global focus on ESG. Due to the ripple effects of the pandemic on our daily lives, analysts expect to see the emergence of new mobility tech, including robotaxis, micromobility and personal electric vehicles, and digital car dealerships.

A new executive order (“EO”) signed by President Biden on June 3, 2021, amends existing prohibitions on US investments in companies that the US government has determined support the military of the People’s Republic of China (“PRC”). The EO, Executive Order 14032, builds on the national emergency declared in Executive Order 13959, signed by President Trump in November 2020, regarding threats from China’s military-industrial complex (see our previous Legal Update) and broadens it to include threats from the “use of Chinese surveillance technology outside the PRC and the development or use of Chinese surveillance technology to facilitate repression and serious human rights abuses.”

The new executive order prohibits US investment in the publicly traded securities of the targeted companies. This Legal Update summarizes key aspects of Executive Order 14032, including what has changed and what has stayed the same from Executive Order 13959.

June 18, 2021 Webinar
11:00am – 12:00pm EDT
Register here.

Issuers in a range of industry sectors may now be evaluating potential liability management transactions, including debt repurchases and tenders or exchange offers. In some cases, no-action letter relief may provide issuers and their advisers with greater flexibility for tender offers for non-convertible debt securities, including non-investment grade debt securities.

During this webcast, Mayer Brown’s Eddie Best, John Berkery, and Brennan Young will speak alongside RBC Capital Markets’ Salim Mawani to address:

  • Disclosure issues and handling material non-public information;
  • Structuring repurchases to avoid the application of the tender offer rules;
  • Repurchasing debt trading at a discount;
  • Handling busted convertible notes;
  • The tender offer rules;
  • No-action letter relief for non-convertible debt securities;
  • Consent solicitations; and
  • Tax considerations.

Today, speaking at a conference, Securities and Exchange Commission Chair Gary Gensler shared some thoughts regarding Rule 10b5-1 plans and how the SEC might “freshen up” the rule.  The Chair noted that currently there is no required cooling off period required when an insider establishes a plan and then makes a first trade pursuant to the trading plan.  He noted that various proposals, requiring anywhere from four- to six-month cooling off periods from program establishment, have received bipartisan support and merit consideration.  The Chair also noted that currently are no limitations on when 10b5-1 plans can be canceled, which seems “upside-down.”  As a result, he has requested that the Staff consider limitations on when and how plans can be canceled.  The Chair noted that there are no mandatory disclosure requirements regarding Rule 10b5‑1 plans, and that more disclosures regarding adoption, modification and terms of such plans would enhance confidence in the markets.  Finally, he noted that there should be a limit on the number of plans that an insider could adopt.

The Chair also noted that he has asked the Staff to consider additional changes to the rule, including its intersection with company stock buybacks.  For the full text of his prepared remarks, see here.

Rule 502(c) of the Securities Act of 1933, as amended (the “Securities Act”), prohibits an issuer from offering or selling securities by any form of general solicitation or general advertising when conducting certain offerings exempt from registration under the safe harbors provided under Regulation D of the Securities Act. Many have felt that, over the years, this prohibition has impaired capital formation and that it would be more appropriate to regulate actual sales rather than offers. In order to address this, Congress passed the JOBS Act directing the SEC to relax the prohibition against general solicitation and general advertising for certain offerings made in reliance on Rule 506 of the Securities Act. The amendments to Rule 506 adopted by the SEC became effective in July 2013. The amendments implemented a bifurcated approach, allowing for private placements to be conducted in reliance on Rule 506(b) without general solicitation and general advertising and for certain exempt offerings to be conducted using general solicitation or general advertising in reliance on Rule 506(c).

Read more about general solicitation and general advertising in our latest On Point.

The Securities and Exchange Commission recently announced that its Investor Advisory Committee will hold a public meeting on Thursday, June 10, 2021. The meeting will begin at 10:00 a.m. (ET) and will be open to the public and webcast. The agenda for the meeting includes a number of market structure related topics, but also features a discussion regarding Rule 10b5-1 plans, beginning at 2:30 p.m. See the full agenda and list of speakers here.

The US Securities and Exchange Commission is actively reconsidering its position on the applicability of its proxy rules to proxy voting advice. This Legal Update provides background and details on related statements from the SEC’s chair, two commissioners and the Division of Corporation Finance.