February 13, 2023 Webinar

12:00 pm – 1:00 pm ET

Register here.

During this session, Mayer Brown panelists, Brian Hirshberg and Larry Cunningham, will discuss US Securities Exchange Commission (SEC) disclosures, and recent developments for foreign private issuers (FPIs). Additionally, they will cover other areas of focus that should be top-of-mind for companies as they draft their annual reports.

Key topics to be addressed, among others, include:

  • Areas of focus for SEC comments in anticipation of upcoming 20-Fs and 40-Fs, including climate change, cybersecurity matters
  • Changes to risk factor disclosure for IBOR changes, Ukraine related developments, and supply chain issues
  • Financial statement and MD&A considerations, including revenue recognition, tax, non-GAAP guidance and key performance indicators
  • SEC and PCAOB implementation of the Holding Foreign Companies Accountable Act
  • Areas of likely SEC focus in the coming months

CLE credit is pending.

In our prior posts, we discussed the Securities and Exchange Commission’s adoption of Rule 10D-1 that directs the securities exchanges to establish listing standards prohibiting the listing of a security of any company that fails to adopt and implement a clawback policy.

The Staff of the Division of Corporation Finance has issued Compliance and Disclosure Interpretations, gathered and reprinted below, by topic, relating to the timing of disclosures and related matters.

Section 121H. Requirements Under Section 10D: Rule 10D-1 ― Listing standards relating to recovery of erroneously awarded compensation

Question 121H.01

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 27, 2023]

Question 121H.02

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item 6.F of Form 20-F must be provided?

Answer: Item 6.F of Form 20-F provides for individualized disclosure for an issuer’s named executive officers. Foreign private issuers that file on domestic forms and provide executive compensation disclosure under Item 402 of Regulation S-K should provide individualized disclosure for their named executive officers to the extent required by Form 20-F. For foreign private issuers that use Form 20-F, individualized disclosure is required about members of their administrative, supervisory, or management bodies for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 121H.03

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item B.(19) of Form 40-F must be provided?

Answer: Item B.(19) of Form 40-F provides for individualized disclosure for an issuer’s named executive officers. Such individualized disclosure is required about executive officers for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 121H.04

Question: Because the clawback rule applies broadly to incentive-based compensation, would the rules affect compensation that is in any sort of plan, other than tax-qualified retirement plans, including long term disability, life insurance, SERPs, or any other compensation that is based on the incentive-based compensation?

Answer: The rule is intended to apply broadly. For plans that take into account incentive-based compensation, an issuer would be expected to claw back the amount contributed to the notional account based on erroneously awarded incentive-based compensation and any earnings accrued to date on that notional amount. [January 27, 2023]

Form 10-K

Question 104.19

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 31, 2023]

Form 20-F

Question 110.08

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item 6.F of Form 20-F must be provided?

Answer: Item 6.F of Form 20-F provides for individualized disclosure for an issuer’s named executive officers. Foreign private issuers that file on domestic forms and provide executive compensation disclosure under Item 402 of Regulation S-K should provide individualized disclosure for their named executive officers to the extent required by Form 20-F. For foreign private issuers that use Form 20-F, individualized disclosure is required about members of their administrative, supervisory, or management bodies for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 110.09

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 31, 2023]

Form 40-F

Question 112.03

Question: Which persons will be considered named executive officers for purposes of determining the parties for whom individualized disclosure pursuant to Item B.(19) of Form 40-F must be provided?

Answer: Item B.(19) of Form 40-F provides for individualized disclosure for an issuer’s named executive officers. Such individualized disclosure is required about executive officers for whom the issuer otherwise provides individualized compensation disclosure in the filing. [January 27, 2023]

Question 112.04

Question: The form amendments adding check boxes to the cover page of Form 10-K, Form 20-F, and Form 40-F indicating whether the form includes the correction of an error in previously issued financial statements and a related recovery analysis are effective January 27, 2023. However, the listing standards are not required to be effective until November 28, 2023 and issuers subject to such listing standards will not be required to adopt a recovery policy for 60 days following the date on which the applicable listing standards become effective. Will issuers be required to mark the check boxes in 2023 before an issuer is required to adopt a recovery policy and comply with the applicable listing standards?

Answer: In the adopting release, the Commission indicated that it does not expect compliance with the disclosure requirements until issuers are required to have a recovery policy under the applicable exchange listing standard. While the check boxes and other disclosure requirements will be in the rules and forms in 2023, we do not expect issuers to provide such disclosure until they are required to have a recovery policy under the applicable listing standard. [January 31, 2023]

In recent years, public company directors have increasingly been asked to engaged with their shareholders. In this Across the Board post, Mayer Brown’s Larry Cunningham and Ravi Shah discuss issues to consider when devising a policy that balances the potential advantages and costs of director-shareholder engagement.

Mayer Brown’s newest resource, Across the Board™, provides private and public companies and their boards with the latest updates, alerts, and resources in one convenient place.

The Securities and Exchange Commission (“SEC”) has issued proposed Rule 192 pursuant to Section 27B of the Securities Act of 1933. Section 27B requires the SEC to issue rules for the purpose of implementing that section’s prohibition against a securitization participant’s entering into a transaction that would involve or result in a material conflict of interest with any investor.

  • General Rule. Proposed Rule 192 prohibits a “securitization participant” from directly or indirectly engaging in any transaction that would involve or result in a “material conflict of interest” between the securitization participant and an investor.
  • Exceptions. Rule 192 contains exceptions for (1) risk-mitigating hedging activities, (2) liquidity commitments and (3) bona-fide market making activities.
  • Scope. Rule 192 applies to “asset-backed securities” as defined by section 3(a)(79) of the Securities Exchange Act of 1934 and also includes synthetic and hybrid cash and synthetic ABS (neither of which terms are defined in Proposed Rule 192 or elsewhere under applicable securities laws).
  • Anti-Circumvention. Proposed Rule 192 includes a broad “anti-circumvention” provision that prohibits a securitization participant from engaging in any other transaction that circumvents the prohibition on transactions that create a material conflict of interest.
  • Deadline for Comments. Comments are due by March 27, 2023, or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.
  • Compliance Date. The proposing release does not specify a compliance date. Unless the adopting release provides otherwise, Rule 192 will become effective upon the issuance of the final rule.

Read the complete Legal Update.

The 2022 update to the Sixth Edition of Corporate Finance and the Securities Laws was recently published by Wolters Kluwer.

The update includes discussions of the recent regulatory approach to digital currencies, the accounting and disclosure consequences of the Russian invasion of the Ukraine and subsequent sanctions, the unexpected SEC staff position regarding Rule 15c2-11, structured notes related regulatory developments, and convertible securities market developments.  The update also addresses potential changes to the investor counting rules, “greenwashing” concerns and other developments relating to ESG related debt securities, REIT market developments given the increased interest in non-traded REITs, and more.

Learn more about the update, here.

Mayer Brown’s newest resource, Across the Board™, provides private and public companies and their boards with the latest updates, alerts, and resources in one convenient place.

Lawyers in our Public Companies & Corporate Governance practice advise companies on transactional, regulatory, governance, and litigation matters. 

Read new spotlight article by Larry Cunningham, CEO Comments on Public Policy: An Internal Governance Framework, and subscribe to our mailing lists to stay a step ahead.

Today, the Securities and Exchange Commission proposed a rule to implement Section 27B of the Securities Act.  This section was added as a result of the addition of Section 621 of the Dodd-Frank Act, which was a late addition to the Act.  Section 621 of the Dodd-Frank Act was added to address the sale of asset-backed securities “tainted” by a material conflict of interest—such as an instance similar to the Abacus transaction.  According to the SEC’s release, the rule “would prohibit securitization participants from engaging in certain transactions that could incentivize a securitization participant to structure an ABS in a way that would put the securitization participant’s interests ahead of those of ABS investors.”

A proposed rule had been released in 2011; however, it was never adopted.  Many commenters responding to the 2011 proposal believed it to be unworkable.  Many market participants since have taken the view that such a rule would be unnecessary given that the securities laws already address the circumstances that Section 621 of the Act was meant to police.  The re-proposed rule provides exceptions for risk-mitigating hedging activities, bona fide market making, and certain liquidity commitments.  Proposed Securities Act Rule 192, if adopted, would prohibit underwriters, placement agents, initial purchasers and sponsors in ABS transactions, and certain other related persons, from engaging in transactions that would involve or result in any material conflict of interest between the securitization participant and an investor in the transaction.  The prohibition on conflicted transactions would commence on the date on which such a person had reached, or had taken substantial steps to reach, an agreement that such person will become a securitization participant with respect to a transaction, and would continue for one year after the first closing.  The comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

A client alert will follow.  See the fact sheet here and the proposed rule here.

On January 10, 2023, the Financial Industry Regulatory Authority, Inc. (“FINRA”) published the 2023 Report on its Examination and Risk Monitoring Program (the “Report”). FINRA highlights several topics as key areas of risk for investors and the markets, including mobile apps, complex products and options, order handling/best execution, Regulation Best Interest and Form CRS, and cybersecurity. FINRA’s focus on these topics in 2023 is expected, given each has been the subject of regulatory initiatives of FINRA and the Securities and Exchange Commission (“SEC”) in the recent past. The regulators’ focus on these topics is likely to intensify with the continued fallout from the collapse of FTX and other market participants, particularly with respect to those business practices and products with extensive use by, or impact on, retail investors.

Notably, the Report also adds several new topics relating to Market Integrity, including with respect to fair pricing obligations for fixed income securities, trade reporting and order handling requirements for fractional shares, and certain aspects of Regulation SHO. Additionally, the Report includes manipulative trading as a new topic. Finally, FINRA adds new content on a wide range of topics covered in previous years.

In this Legal Update, we provide a brief overview of the Report’s new topics, as well as the new material in previously covered topics.

January 24, 2023 Webinar

1:00 pm – 2:00 pm ET

Register here.

During the session hosted by the Practising Law Institute, Mayer Brown Partner, Jerry Marlatt, and Robert Crowe, Head of Money Markets Origination at Citigroup Global Markets, will discuss the various trends contributing to increased interest in commercial paper financing, as well as regulatory and legal issues, including the following:

  • Introduction to commercial paper market
  • The commercial paper market and market developments
  • SEC money market reform and proposed Treasury market reforms
  • Securities law exemptions relevant to CP:  3(a)(3) versus 4(a)(2), sales process and related considerations; 15c2-11 and CP
  • Collateralized commercial paper and asset-backed commercial paper and structuring issues
  • Regulatory capital treatment for financial institutions
  • Repo issues and security interest issues

The Securities and Exchange Commission recently announced it will hold an open meeting on January 25, 2022, which will be webcast, in order to consider whether to propose a new rule to implement Section 27B of the Securities Act. This was added by Section 621 of the Dodd-Frank Act, and relates to the prohibition of conflicts of interest in certain securitization transactions. Section 621 was added to the Dodd-Frank Act late in the legislative process as a result of attention drawn by the Abacus transaction. In 2011, the SEC had proposed rules that would have implemented Section 27B by defining the types of proposed conflicts intended to be addressed by the Act. 

See the meeting notice here.