SEC adopts amendments to proxy rules
On July 13, 2022, the SEC adopted amendments to its rules governing proxy voting advice originally proposed in November 2021. The purpose of the amendments is to reduce burdens on proxy voting advice businesses that might impair the timeliness and independence of their advice. The amendments rescind two rules, adopted by the SEC in 2020, applicable to proxy voting advice businesses, specifically conditions to the availability of two exemptions from the proxy rules’ information and filing requirements on which these businesses often rely. The rescinded conditions required that:
- “Registrants that are the subject of proxy voting advice have such advice made available to them in a timely manner”
- “Clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice”
Additionally, the amendments delete the 2020 changes made to the proxy rules’ liability provision, and the adopting release rescinds guidance that the SEC issued in 2020 to investment advisers regarding their proxy voting obligations.
The amendments and rescission of the guidance will be effective Sept. 19, 2022.
SEC proposes amendments to shareholder proposal rule
The SEC on July 13, 2022, proposed amendments to Rule 14a-8, which governs the process for including shareholder proposals in a company’s proxy statement. It provides bases for exclusion, with substantive requirements. The proposed amendments would revise three of the bases for exclusion:
- “Substantial Implementation. The proposed amendments would specify that a proposal may be excluded under this provision if the company has already implemented the ‘essential elements’ of the proposal.
- “Duplication. The proposed amendments would specify that a proposal ‘substantially duplicates’ another proposal previously submitted for the same shareholder meeting if it addresses the same subject matter and seeks the same objective by the same means.
- “Resubmission. The proposed amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings.”
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.
SEC leaders highlight risks of single-stock ETFs
On July 11, 2022, SEC Commissioner Caroline Crenshaw released a statement on single-stock exchange-traded funds (ETFs) expressing her concerns over these complex, leveraged, and inverse ETFs that might create greater risks for investors and calling for consideration of rulemaking over these risky investments. She noted that the current regulatory framework, including Rule 6c-11 of the Investment Company Act of 1940, allows ETFs meeting certain criteria to come directly to market without first obtaining permission, through an exemptive order, from the SEC. She said single-stock ETFs are coming directly to market even though they were never contemplated by this rule. She warned that the daily rebalancing and effects of compounding might cause returns to deviate significantly from the performance of the one underlying stock, and that the effects are likely to be especially evident in volatile markets. Such leveraged and inverse products can perform in unexpected ways and potentially contribute to broader systemic risks.
She reiterated her position that a comprehensive and consistent approach to the review of complex exchange-traded products is long overdue and that the regulatory framework needs to be updated to better address the risks these products pose to investors and the markets.
Lori Schock, director of the SEC’s Office of Investor Education and Advocacy, also released a statement on July 11, 2022, highlighting the risks of single-stock ETFs. Schock noted that these are meant to be held for very short periods of time, often only a single day, and holding them for longer periods might result in returns significantly different from returns if an investor held the underlying stock directly. Additionally, these single-stock ETFs do not provide the diversification of traditional ETFs or other leveraged or inverse products.
SEC adopts final rule amendments to electronic filing requirements
To modernize how information is filed or submitted to the SEC and disclosed to the public, on June 23, 2022, the agency adopted amendments to require certain documents filed by investment advisers, institutional investment managers, and certain other entities, which previously were submitted on paper, to be filed or submitted electronically. The rule includes technical amendments to modernize Form 13F and enhance the information provided.
The new rule, except the amendments to Form 13F, are effective Aug. 29, 2022. The amendments to Form 13F will be effective Jan. 3, 2023.
SEC Chair Gary Gensler released a statement in support of these new amendments, noting that “they will modernize and increase the efficiency of the filing process for filers, investors, and the SEC.”
SEC releases updated regulatory agenda
On June 22, 2022, the SEC released its spring 2022 regulatory agenda, which lists short- and long-term regulatory actions that the SEC plans to take. This recent release lists 27 proposed rules and 26 rules in the final stage. They address the SEC’s three-part mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation.
SEC announces new commissioners
On June 16, 2022, the U.S. Senate confirmed Jaime Lizarraga and Mark Uyeda as SEC commissioners. Uyeda will serve until June 5, 2023, completing the term of Elad Roisman, who recently resigned. Lizarraga’s term will run through June 5, 2027, replacing Allison Herren Lee, whose term ended in June 2022.
Uyeda was sworn in on June 30, 2022. He joined the SEC in 2006 and has served as senior adviser to Chairman Jay Clayton and acting Chairman Michael Piwowar, as counsel to Commissioner Paul Atkins, and in the Division of Investment Management. Most recently, he served on detail to the Senate Committee on Banking, Housing, and Urban Affairs as a securities counsel to the committee’s minority staff.
