On January 17, 2023, the annual NYSE Guidance Memo and NYSE American Guidance Memo (each, a “Guidance Memo” and collectively, the “Guidance Memos”) were released. The Guidance Memos highlighted policies significant and applicable to all NYSE-listed and NYSE American-listed companies. Policies mentioned included those related to: (i) the timely alert and material news policies, including material news released during the trading day, during trading hours, trading being halted for material news dissemination and publishing news after the close; (ii) changes to a listed company’s earnings release date; (iii) annual meeting requirement; (iv) record date notification; (v) redemption or conversion of listed securities and share reporting; (vi) annual report requirements; (vii) annual and interim written affirmations of compliance with exchange corporate governance requirements; (viii) change in executive officers; (ix) transactions requiring supplemental listing applications and (x) related party transactions.

The Guidance Memos also listed rules and policies for domestic and foreign private issuers. For domestic issuers, specified rules and policies included those regarding (i) broker search cards; (ii) NYSE Rule 452 in relation to voting by member organizations; (iii) shareholder approval and voting rights requirements and (iv) voting requirements for proposals at shareholder meetings. For foreign private issuers, the Guidance Memos mentioned SEC Form 6-K semi-annual reporting requirements for unaudited financial information.

The NYSE Guidance Memo also noted the SEC’s new Rule 10D-1, directing national securities exchanges to establish listing standards that prohibit the listing of any security of a company that does not adopt and implement a written policy requiring the recovery, or “clawback,” of certain incentive-based executive compensation (for more information, see previous blog post and the Mayer Brown Legal Update embedded in the same).

January 31, 2023 Webinar

10:00 am ET

Register here.

What does Berkshire Hathaway have in common with the world’s most successful software companies and LVMH, one of the world’s best-known luxury brand conglomerates? These three seemingly different types of businesses all understand the importance of corporate culture in shaping a company’s long-term performance. The time has never been better for leaders to re-examine their corporate cultures and other high-level business priorities. It is more crucial than ever to set the right tone at the top as their teams face the challenges of a potentially looming recession.

During this webinar hosted by Volaris Group, Mayer Brown Special Counsel Lawrence A. Cunningham, among others, will discuss:

  • How to use corporate culture as your “moat” or competitive advantage;
  • How to transform corporate values into economic value;
  • The importance of taking a long-term view;
  • How to instill a sense of purpose in your employees; and
  • How businesses can support a culture of learning.

On January 10, 2023, the Financial Industry Regulatory Authority, Inc. (“FINRA”) released its 2023 Report on FINRA’s Examination and Risk Monitoring Program (the “Report), available at:  2023 Report on FINRA’s Examination and Risk Monitoring Program.  The Report details findings from FINRA’s recent oversight activities of the FINRA Member Supervision, Market Regulation and Enforcement programs.  This year’s report has several new sections, including Financial Crimes and Fixed Income – Fair Pricing.  The new Financial Crimes section consists of three topics – Cybersecurity and Technology Governance, AML, Fraud and Sanctions and Manipulative Trading.

FINRA notes in the Report, they will continue to review member firms’ communications and disclosures made to customers in relation to complex products, and that it will also review customer account activity to assess whether member firms’ recommendations regarding these products are in the best interest of the retail customer.

Focusing on Regulation Best Interest (“Reg BI”), which requires broker-dealers to establish a “best interest” standard of conduct when making recommendations to retail customers of any securities transaction or investment strategy, the Report details a number of considerations and recommendations.  The following summary relates to the Report’s observations and effective practices relating to complex products, such as structured notes:

  • Reg BI Care Obligation:  Has your firm considered applying heightened scrutiny as to whether recommended investments that are high-risk, high-cost, complex or represent a high conflict of interest are in a retail customer’s best interest?
    • Effective practices:  discussing limitations on complex or higher-risk products, such as firm concentration guidelines or minimum liquid net worth requirements; mitigating the risk of making recommendations that might not be in a retail customer’s best interest by establishing product review processes to identify and categorize risk and complexity levels for existing and new products and applying heightened supervision to recommendations of products, or investment strategies involving securities, that are high-risk, high-cost, complex or represent a high conflict of interest, or limiting such recommendations to specific customer types.
  • Reg BI Compliance Obligation:  Has your firm considered how it will demonstrate (via documentation or otherwise) it has met its obligations with respect to the basis for recommendations of complex, risky or illiquid securities?
    • Effective practices:  Monitoring associated persons’ compliance with Reg BI by conducting at least monthly reviews to confirm that their recommendations meet care obligation requirements, including system-driven alerts or trend criteria to identify products that are high-risk, high-cost, complex or represent a high conflict of interest.

The Report summarizes considerations in examinations relating to Rule 2210 (Communications with the Public).  On general content standards, firms were asked whether their communications balance specific claims of benefits from a product or service (especially complex products) with the key risks specific to that product or service.  Regarding mobile apps, firms were asked if these apps consider detailed customer information—including the customer’s knowledge, investment experience, age, financial situation and investment objectives—when approving access to options or other complex products.  Under the heading “Findings – False, Misleading and Inaccurate Information in Mobile Apps,” the Report noted, in the area of communications promoting ESG factors, an example was “including rankings, ratings, or awards that lack a sound basis or are unwarranted or misleading based on the criteria used or factors considered.”

The Report also discusses private placements and variable annuities. A detailed client alert will follow.

On December 27, 2022, the Treasury Department and the Internal Revenue Service (“IRS”) issued Notice 2023-7 (the “Notice”) describing proposed regulations Treasury intends to issue to address certain aspects relating to the application of a new corporate alternative minimum tax (“CAMT”)—a 15% tax on the adjusted financial statement income (“AFSI”) introduced by the Inflation Reduction Act and applicable to large corporations (so-called “applicable corporations”) for tax years beginning after December 31, 2022. Taxpayers are allowed to rely on the Notice until proposed regulations are issued, and the Notice provides welcome guidance on many critical issues as taxpayers evaluate the impact of the CAMT on their financial reporting and estimated tax payments for the first quarter of 2023. 

This Legal Update discusses the Notice’s simplified safe harbor method for determining “applicable corporation” status in 2023; its guidance for determining AFSI and testing for “applicable corporation” status after certain tax-free and taxable acquisitions or divisions; its treatment of partnership income and consolidated groups; the relief it provides under the CAMT for tax-free transactions that qualify for one of the so-called non-recognition provisions of the Internal Revenue Code of 1986, as amended; its AFSI exclusions for financially distressed companies; its treatment of tax depreciation; its announcement of additional interim guidance to come; and its request for comments.

Read the complete Legal Update.

On January 4, 2023, the Office of Information and Regulatory Affairs released the Fall 2022 Unified Agenda of Regulatory and Deregulatory Actions, which includes, among other things, the SEC’s semi-annual regulatory agenda. The agenda outlines the SEC’s rulemaking priorities for 2023 and, as noted below, includes a potential proposal on disclosures for resource-extraction issuers and other proposals affecting capital markets more broadly.

There are 52 items on the agenda, with 23 items at proposed rulemaking stage and 29 items at the final rule stage.  Potential proposals include proposals regarding:

  • corporate board diversity disclosures;
  • human capital management disclosures;
  • amendments to Regulation D, including updates to the accredited investor definition;
  • amendments to the “held of record” definition for purposes of Section 12(g) of the Exchange Act;
  • implementation of the prohibition under Section 621 of the Dodd-Frank on material conflicts of interest in connection with certain securitizations;
  • cybersecurity risk disclosures;
  • exchange-traded products;
  • clearance of certain trades and repo transactions involving government securities; and
  • various measures affecting investment advisers and capital markets structure.

According to the agenda, the SEC’s Division of Corporation Finance (CorpFin) is considering recommending that the SEC review rules under Section 1504 of the Dodd-Frank Act to determine if additional amendments might be appropriate. The current rules require resource-extraction issuers to disclose annual payments to U.S. or foreign governments in connection with the commercial development of oil, natural gas or minerals. The current rules were adopted by the SEC in December 2020 by a 3-2 vote with the SEC’s two Republican commissioners at the time and then-serving SEC Chairman Jay Clayton voting for adoption of the rules over the dissents of the SEC’s two Democratic commissioners.

Appearing for the first time in the agenda are proposals relating to amendments to the SEC’s Rules of Practice and amendments to the SEC’s Privacy Act regulations.  CorpFin is considering recommending that the SEC propose amendments to:

  • the Rules of Practice regarding, among other things, service of SEC Orders Instituting Proceedings (OIPs) to align the service requirements governing OIPs with the service requirements that govern related actions in federal court; and
  • the Privacy Act regulations to update, clarify, and streamline the regulations to simplify the processes for submitting and receiving responses to Privacy Act inquiries, requests and administrative appeals, among other things.

In a statement release on January 4, SEC Chairman Gary Gensler said, “The SEC’s regulatory actions on this unified agenda would help make our markets more efficient, resilient, and fair, including through rulemaking items we have been directed by Congress to implement.  Taken together, the items on this agenda would advance our three-part mission: to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

The Fall 2022 Unified Agenda of Regulatory and Deregulatory Actions may be viewed here, and Chair Gensler’s statement may be viewed here.

On December 27, 2022, the US Treasury Department and the Internal Revenue Service (“IRS”) issued Notice 2023-2 (the “Notice”), which provides taxpayers interim guidance (until regulations are issued) on how the new 1% excise tax on stock-buybacks will be imposed and administered. The new 1% excise tax was enacted last summer as part of the Inflation Reduction Act of 2022 and generally applies to any US corporation whose stock is traded on an established securities market and that repurchases more than $1 million of stock over the course of a tax year. Taxpayers may rely on the Notice pending the issuance of proposed regulations. 

This Legal Update discusses the Notice’s clarification of “repurchases”; how acquisitions of certain foreign corporation stock will be treated; timing, fair market value and the qualifying property exception; the netting rule; reporting; examples provided of transactions that may or may not be subject to the stock repurchase excise tax; and specific areas on which comments are being solicited.

Read the complete Legal Update.

On December 15, 2022, the New York Stock Exchange (“NYSE”) received approval from the Securities and Exchange Commission (“SEC”) to modify certain pricing limitations for companies undertaking a direct listing involving sales of company shares in the opening auction on the first day of trading on the NYSE.  The approval and related conditions are consistent with the approval granted by the SEC to Nasdaq earlier this month, as previously blogged

The rule change provides that a direct listing with a primary offering may proceed, so long as (i) the actual price is set at or above the price that is 20% below the lowest price within the disclosed price range or (ii) the actual price is set at or below the price that is 80% above the highest price of the disclosed price range.  In order to rely on the additional pricing flexibility, the company is required to publicly disclose and certify to the NYSE that the company does not expect such price would materially change the company’s previous disclosure in its effective registration statement and that its effective registration statement contains a sensitivity analysis explaining how the company’s plans would change if the actual offering proceeds are less than or exceed those that would be raised if the offering were to proceed at a price within the disclosed price range. 

As part of the rule change, the NYSE also requires that the company retain an underwriter with respect to the primary sales of shares and identify the underwriter in its effective registration statement.  While the requirement to include an underwriter mitigated the SEC’s concerns relating to traceability and the perceived lack of a “gatekeeper” that often arise, the perception of increased securities liability for the identified underwriter will likely increase the costs associated with conducting a direct listing with a capital raise and potentially diminish the likelihood this alternative to a traditional IPO will be pursued.

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

January 19, 2023 Webinar

12:00 pm – 1:00 pm ET

Register here.

In December 2022, the Securities and Exchange Commission adopted significant amendments to Rule 10b5-1, which provides, under certain conditions, an affirmative defense to insider trading claims. Issuers and their boards or directors, large stockholders and investment banks that administer trading plans should prepare now to comply with the amendments. During our session, Mayer Brown Panelists Jennifer Carlson, Anna Pinedo, Laura Richman, and David Schuette will discuss:

  • Principal changes between the proposed amendments and the final amendments; 
  • The required cooling off periods and exceptions; 
  • Issuer insider trading policies and filing requirements; 
  • Issuer disclosure requirements;
  • Other issuer considerations; 
  • Compensation committee considerations; 
  • Section 16 reporting requirements; 
  • Considerations for investment banks; and 
  • Effective dates and transition issues.

January 20, 2023 Webinar

12:00 pm – 1:00 pm ET

Register here.

2022 was a year marked by the market’s increasing preference for structured financing alternatives. During this session, panelists Syed Raj Imteaz and Anna Shearer of ICR Capital joined by Mayer Brown’s Anna Pinedo will discuss market trends within the structured debt and private convertibles sector, as well as issues to consider from a legal perspective.

Topics will cover: 

  • The building blocks of a convertible;
  • Differences between a private convertible and a public convertible, as well as benefits and drawbacks of each;
  • Structuring toggles;
  • Various types of investors;
  • Variations of pre-IPO convertibles;
  • Converting pre-IPO convertibles to 144A convertibles upon an IPO, and the legal and practical considerations; and
  • Structured debt with warrant transactions for private companies.

January 11, 2023 Webinar

3:00 pm – 4:00 pm ET

Register here.

The Securities and Exchange Commission recently approved amendments to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The SEC had proposed extensive amendments in January 2022, which were the subject of significant comments from market participants. Rule 10b5-1 provides an affirmative defense to insider trading liability under Section 10(b) of the Exchange Act and Rule 10b-5 subject to certain conditions. The final amendments, which are the first since the rule’s adoption in 2000, represent a significant change for issuers, directors, officers, and other security holders. During this session hosted by the Practising Law Institute, Lawrence Cunningham, founder of Quality Shareholders Group, and Mayer Brown partner, John Ablan, will address:

  • An overview of Rule 10b5-1 and the affirmative defense and conditions
  • Concerns which prompted the amendments
  • The cooling off period requirement for directors, officers, and other parties
  • Additional representations and the good-faith requirement
  • Limitations on trading plans
  • Issuer disclosure requirements and issuer policies and procedures
  • Beneficial ownership reporting