Shortly before the end of his tenure as Chair of the US Securities and Exchange Commission (SEC), Chair Jay Clayton presided over the SEC as it considered and approved the New York Stock Exchange’s (NYSE) proposed rule change modifying the NYSE’s rules in order to permit, as described in this Legal Update, primary issuances in connection with a direct listing of a class of the issuer’s equity securities on the exchange. As summarized in the timeline, the SEC’s consideration of the NYSE’s proposed rule change and the proposed rule change includes a number of twists and turns.  Read our Legal Update to learn more.

In its 2019 Concept Release on Harmonization of Securities Offerings, the US Securities and Exchange Commission (SEC) included a section requesting comment regarding resale exemptions, including Rule 144. While the SEC addressed a number of the key issues relating to the exempt offering framework that were first identified in the Concept Release in a rulemaking earlier this year, the SEC had not until recently addressed any of the resale exemptions. On December 22, 2020, the SEC proposed amendments to Rule 144 and Form 144 (the Proposing Release).  In the Proposing Release, the SEC is proposing to amend Rule 144, Form 144, Form 4, Form 5 and Rule 101 of Regulation S-T.

In this Legal Update, we summarize the principal aspects of the proposed amendments.


This Market Trends practice note focuses on recent market trends covering the Securities and Exchange Commission’s (SEC’s) pay ratio rulemaking, which was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (111 P.L. 203, 124 Stat. 1376), and provides recent pay ratio disclosure examples. The SEC originally proposed pay ratio disclosure in 2013, and the proposal generated a great deal of interest and debate. The final rule was adopted in 2015 and required pay ratio disclosure by companies with respect to their first full fiscal year that began on or after January 1, 2017. For calendar year companies, we’ve now seen three years of pay ratio disclosure.

Read the complete practice note here.

Securities and Exchange Commission Chair Clayton had commented in several interviews over the last couple of months regarding possible SEC Staff guidance regarding SPAC disclosures.  In a prior post, we also had noted that in remarks given at a conference this fall, SEC Commissioner Lee also had noted that perhaps given the proliferation in the number of SPAC IPOs and the retail interest that these transactions garnered, additional disclosure regarding potential or actual conflicts of interest might be appropriate in SPAC IPO registration statements and the proxy statements related to SPAC related initial business combinations.  Just yesterday, the SEC’s Division of Corporation Finance released CF Disclosure Guidance Topic No. 11, which outlines considerations for issuers and their counsel in connection with both SPAC IPO registration statements as well as proxy statements/prospectuses prepared in connection with initial business combinations.

The CF Disclosure Guidance Topic, in the context of the SPAC IPO, raises a number of questions that address conflicts of interest; the incentives of SPAC sponsors in light of the limited timeframe set for completion of an initial business combination; deferral of underwriting compensation and other underwriting related fees and services; fees and services to directors, officers and related parties; issuances of securities to SPAC sponsors and affiliates; voting control by the SPAC sponsor; other planned financing transactions; and related matters.

In the context of the initial business combination transactions, the CF Disclosure Guidance Topic suggests that registrants consider additional disclosures relating to financings undertaken concurrent with the initial business combination and the terms of, and participation by affiliates in, such financings.  The Guidance also emphasizes the need to focus on conflicts of interest disclosures, asking a number of questions, including, but not limited to, the following:

  • What material factors did the board of directors consider in its determination to approve the identified transaction?
  • How did the board of directors evaluate the interests of sponsors, directors, officers and affiliates?
  • Have you clearly described any conflicts of interest of the sponsors, directors, officers and their affiliates in presenting this opportunity to the SPAC and how the SPAC addressed these conflicts of interest?
  • If the SPAC had a policy to address conflicts of interest and waived any provisions of that policy, have you disclosed the waiver and the reasons therefor?
  • Have you described any interest the sponsors, directors, officers or their affiliates have in the target operating company, including, if material, the approximate dollar value of the interest, when the interest was acquired and the price paid?
  • Have you provided detailed information on how the sponsors, directors, officers or their affiliates will benefit from this transaction?
  • Have you quantified any material payments that they will receive as compensation, the return they will receive on their initial investment and any continuing relationship they will have with the combined company?
  • Have you disclosed the total percentage ownership interest the SPAC sponsors, directors, officers and affiliates may hold in the combined company, including through the exercise of warrants and conversion of convertible debt?

Finally, the Guidance suggests additional disclosure related to underwriter and financial intermediary compensation.  See the full text of the Guidance here.

On December 22, 2020, the Securities and Exchange Commission (the “SEC”) approved the proposal submitted by the New York Stock Exchange (“NYSE”) that allows companies to conduct concurrent primary offerings as part of a direct listing on the exchange.  The NYSE’s proposal had been put on hold since August, following the SEC’s receipt of a notice of intention to petition for review submitted by the Council of Institutional Investors.  As a result of the approval, a company undertaking a direct listing on the NYSE may issue new shares and sell these to the public on its first trading day without conducting a firm commitment underwritten offering.  Previously, private companies that chose to undertake a direct listing on the NYSE undertook the listing together with registering with the SEC the resale of shares by their existing shareholders.  The NYSE will deem a company to have met the applicable aggregate market value of publicly-held shares requirement in order to proceed with the direct listing coupled with a primary offering if the company sells at least $100 million in market value of its shares in the NYSE’s opening auction on the first day of trading.  Alternatively, the NYSE will determine that the company has met its market value of publicly-held shares requirement if the aggregate market value of the shares the company will sell in the opening auction on the first day of trading and the shares that are publicly-held immediately prior to the listing is at least $250 million, with the market value calculated using a price per share equal to the lowest price of the price range established by the company in its registration statement.  Generally, the companies that have elected to pursue direct listings to date have raised capital in private placement transactions and have sought to undertake the direct listing principally as a means of providing liquidity to existing shareholders.  This new alternative provides greater flexibility, making direct listings an option for many more companies.

A link to the SEC’s approval of the NYSE proposal can be found here.

On December 18, 2020, President Trump signed the Holding Foreign Companies Accountable Act (HFCAA) into law. Later that day, US Securities and Exchange Commission (SEC) Chairman Jay Clayton published a statement providing an update on a planned SEC rulemaking in light of the enactment of the HFCAA. Noting the significant overlap between the HFCAA and the planned SEC rulemaking, Chairman Clayton has directed the staff to revise the near-final rule proposal to incorporate the congressional mandate.

The passage of the HFCAA, which mandates that the SEC adopt rules applicable to reporting companies that use an auditor located in a jurisdiction where authorities restrict the Public Company Accounting Oversight Board’s (PCAOB) ability to inspect or investigate the audit firm. Specifically, the SEC would have to promulgate rules requiring disclosure about ties to foreign governmental entities, including the Chinese Communist Party. In addition, the SEC would have to prohibit trading of a company’s securities if the SEC determines that the company has had three “non-inspection years” related to its audit.

Continue reading the full Legal Update here.

On December 16, 2020, the US Securities and Exchange Commission (SEC), by a 3-2 vote, adopted final rules requiring annual disclosure on Form SD of payments by SEC reporting companies engaged in the commercial development of oil, natural gas or minerals (resource extraction issuers) to certain governmental entities. The final rules implement Section 13(q) of the Securities Exchange Act of 1934 (Exchange Act), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Section 13(q) directs the SEC to issue rules requiring resource extraction issuers to submit an annual report containing information about payments “made by the resource extraction issuer, a subsidiary of the resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal Government for the purpose of the commercial development of oil, natural gas, or minerals…”

This is the third time the SEC has adopted rules under Section 13(q). The SEC initially adopted rules in August 2012, but the rules were challenged in court and vacated in July 2013 by the US District Court for the District of Columbia. The SEC again adopted rules in June 2016, but those rules were subsequently disapproved by Congress and the president under the Congressional Review Act (CRA), which had the effect of vacating the adopted rules and requiring the SEC to draft new rules not “substantially the same” as the disapproved rules. The SEC proposed new rules intended to address the concerns underlying Congress’s action under the CRA on December 19, 2019 (the proposed rules). The final rules adopted on December 16, 2020, are largely the same as the proposed rules.

Continue reading the full Legal Update here.

In this MB Microtalk video, Management’s Discussion & Analysis, Laura Richman discusses the SEC’s recent amendments to several of the disclosure requirements relating to Management’s Discussion & Analysis of Financial Condition and Results of Operations (MD&A, or the Regulation S-K Item 303 requirements), in order to streamline and modernize these.

Visit our MB Microtalk page for more topics and talks.

At an open meeting this morning, the Securities and Exchange Commission (SEC) adopted resource extraction rules, as required by the Dodd-Frank Act.  Resource extraction issuers that file reports pursuant to Securities Exchange Act Section 13 or 15(d) will be required to disclose payments made to the U.S. federal government or foreign governments for the commercial development of oil, natural gas, or minerals.  The final rules will be effective 60 days following publication in the Federal Register.  Following a two-year transition period, an issuer will be required annually to submit Form SD no later than 270 days following the end of its most recently completed fiscal year.  For example, if the rules were to become effective on March 1, 2021, the compliance date for an issuer with a December 31 fiscal year-end would be Monday, September 30, 2024 (i.e., 270 days after its fiscal year end of December 31, 2023).

A client alert will follow.  See the SEC’s press release and fact sheet here, the final rules here, and a related order here.