Securities Regulation and Corporate Governance


NYSE Amends Shareholder Approval Rule

On March 20, 2019, the SEC approved changes to the NYSE's shareholder approval rule. The changes amend the price requirements that companies must meet to qualify for exceptions to the shareholder approval requirements under NYSE's rule 312.03(b) (related party issuances) and 312.03(c) (the 20% rule).  The NYSE changes are comparable to changes made to Nasdaq's 20% shareholder approval rule in September 2018. Our prior post on the Nasdaq amendment can be found here.  

The new rules replace the concept of “market value" with a “Minimum Price" for purposes of determining whether exceptions to the shareholder approval requirements apply.  The Minimum Price is defined as the lower of (i) the official closing price on the NYSE as reported immediately preceding the signing of a binding agreement to issue securities, and (ii) the average of the official closing price for the five trading days immediately preceding the signing of a binding agreement to issue securities.

The NYSE amendment also eliminates the prior requirement that the price paid be no less than book value per share to qualify for the shareholder approval exceptions in Sections 312.03(b) and (c).  The book value requirement has now been eliminated, leaving in place the requirement that price be at least equal to the Minimum Price.  Note that all other requirements for shareholder approval under NYSE's rules remain unchanged.

A link to the NYSE rule 312.03 and 312.04 as amended can be found here.

A link to the SEC release approving the rule change can be found here.

A link to Nasdaq Rule 5635 as amended can be found here.


A special thank you to Blessing Havana and Eric Scarazzo in the New York office for their assistance with this post.

SEC Proposes Long-Awaited Expansion of “Test-the-Waters” to All Issuers - Use With Caution

On February 19, 2019, the Securities and Exchange Commission (the “SEC") proposed a new rule that would allow all issuers to engage in “testing the waters." Specifically, the SEC proposed an exemption (the “Proposed Rule") to certain provisions of Section 5 of the Securities Act of 1933 (the “Securities Act") commonly referred to as “gun-jumping" provisions. This exemption would permit any issuer or authorized person (e.g., an underwriter) to engage in oral or written communications with potential investors that the issuer reasonably believes are qualified institutional buyers (“QIBs") or institutional accredited investors (“IAIs").  Currently, this exemption to the gun-jumping provisions is only available to emerging growth companies (“EGCs").  The SEC believes that the Proposed Rule may “help issuers better assess the demand for and valuation of their securities," which may in turn “enhance the ability of issuers to conduct successful offerings and lower their cost of capital."  This goal is consistent with the SEC's overall effort to increase the number of public companies and reduce the regulatory burden of capital raising.

The SEC'S press release announcing the Proposed Rule is available here, and the proposing release is available here.

EGCs have been permitted to provide information through test-the-waters communications since adoption of the JOBS Act in 2012, which dramatically changed the way in which IPOs and certain other securities offerings are conducted.  The Proposed Rule would expand this option to all issuers, including larger companies planning an IPO or seasoned public companies that do not have a shelf registration statement on file, and would also extend to investment companies (including registered investment companies and business development companies). It may be particularly attractive to issuers who are interested in assessing market interest for their securities prior to creating any market disruption by publicly filing a registration statement that could signal a coming offering or investing considerable resources into conducting a formal roadshow against an uncertain market backdrop. 

If approved, the Proposed Rule would permit all issuers to provide information to QIBs and IAIs (but only QIBs and IAIs).  The Proposed Rule would not require that the issuer file such information or communication with the SEC or include any special legend on the communicatio...

Developments on Public Company Disclosures Regarding Board and Executive Diversity

On February 6, 2019, the staff (Staff) of the Division of Corporation Finance of the Securities and Exchange Commission (SEC) issued two new identical Compliance and Disclosure Interpretations (C&DIs).  The C&DIs address disclosure that the Staff expects public companies to include in their proxy statements and other SEC filings regarding “self-identified diversity characteristics" with respect to their directors and director nominees.  In addition, legislation was introduced in both the U.S. House of Representatives and the U.S. Senate that would require public companies to annually disclose the gender, race, ethnicity and veteran status of their directors, director nominees, and senior executive officers.


The SEC already has rules requiring board diversity-related disclosure.  Item 407(c)(2)(vi) of Regulation S-K requires companies to disclose “whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director."  It further requires that, “[i]f the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, [the company must] describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy."  Historically, it has been our understanding that the Staff takes a broad view of what qualifies as a “policy," and that if a company considers diversity in identifying director candidates, the company has a “policy" for purposes of this requirement and is expected to provide disclosure about the implementation and effectiveness of its policy.  This disclosure requirement therefore can influence what companies report under Item 401(e) of Regulation S-K, which requires directors' and nominees' biographical information to “briefly discuss the specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director for the registrant at the time that the disclosure is made, in light of the registrant's business and structure."

These rules have “been subject to some criticism" that they don't provide “enough useful disclosure,"[1] as noted by Bill Hinman, the head of the SEC's Division of Corporation Finance, in testimony before the House Committee on Financial Services Subcommittee on Capital Markets, Securities and Investment in April 2018.  Hinman added that the Staff had been reviewing company disclosures regarding directors' diversity and considering concerns raised about directors' privacy issues.  As a result, the SEC's regulatory agenda states on the long-term agenda...

As Government Shutdown Continues, SEC Updates Guidance and Capital Markets Are Hindered

As we are all aware, the SEC has been closed since December 27th as a result of the ongoing partial shutdown of the federal government. While there are staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement, and the SEC continues to operate certain systems such as the EDGAR system, most activities are currently suspended. The SEC does not have staff in place to review registration statements and other filings, acceleration requests, Rule 3-13 waiver requests, and no-action letter requests, including with respect to shareholder proposal exclusions. As discussed in our previous post available here, the Staff has provided an FAQ page regarding operations during the shutdown. These FAQs were updated and supplemented recently. You should continue to visit the SEC's website, including the FAQs, for any additional updates both during and shortly after the shutdown.

Significant to capital markets and M&A activity, the staff advised that new eligible registration statements may be filed without a delaying amendment in order to automatically go effective after 20 days, and previously filed registration statements may also be amended to remove delaying amendments in order to allow for automatic effectiveness. In the past three weeks, several companies have removed the delaying amendment on their registration statements, including Forms S-4 for public company mergers. In order to allow for automatic effectiveness after 20 days, such amendments must (1) remove the delaying amendment, (2) include all information required by the relevant form, including information typically excluded  from preliminary filings with delaying amendments such as the price of securities to be sold, and (3) include the following language required under Rule 473(b) under the Securities Act of 1933: “This registration statement shall hereafter become effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933." We note you should also update other references to the registration statement being “declared effective," such as in the “approximate date of commencement of proposed sale of the securities to the public" field on the cover page. If you amend your filing to remove the delaying amendment and the SEC's operating status changes prior to the effective date of your registration statement, the staff may ask you to amend your filing to include the delaying amendment so that the staff may work with you to res...

SEC Expands Regulation A to Allow Offerings by Reporting Companies

On December 19, 2018, the Securities and Exchange Commission (the “SEC") adopted amendments to Regulation A allowing U.S. and Canadian companies that file reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act"), to conduct securities offerings using Regulation A.  The amendments were mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law in May 2018.  

Regulation A is available to companies organized in and with their principal place of business in the United States or Canada.  Regulation A provides an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act"), for offers and sales of securities up to $20 million, for Tier 1 offerings, or up to $50 million, for Tier 2 offerings, in a twelve-month period.  Prior to the newly adopted amendments, Regulation A was not available to SEC reporting companies.

As discussed in more detail below, the amendments may be particularly attractive to certain types of reporting companies, including reporting companies that are not listed on a national securities exchange (such as companies that trade on OTC markets), reporting companies that are unable to, or are limited in their ability to, use Form S-3 or F-3 shelf registration, and reporting companies that became reporting companies in connection with a Regulation A offering.

The adopting release relating to the amendments is available here.  The SEC press release announcing adoption of the amendments is available here.  The amendments will become effective immediately upon publication of the adopting release in the Federal Register, and will not be subject to a public comment period.[1]

Summary of the Rule Amendments

The amendments revise Rule 251 of Regulation A to delete Rule 251(b)(2) and allow eligible Exchange Act reporting companies to use the exemption provided by Regulation A.  Conforming changes are made to Item 2 of Part I of Form 1-A, which lists the issuer eligibility criteria to use the form.

Additionally, the amendments add a new paragraph to Rule 257(b) of Regulation A, with respect to Tier 2 offerings, to deem an Exchange Act reporting company issuer as having met its periodic and current reporting requirements under Rule 257 if the issuer meets the reporting requirements of Section 13 of the Exchange Act.  The amendments use a twelv...

Changes and Considerations for the 2018 Form 10-K

Below are select developments to keep in mind when preparing the Annual Report on Form 10-K this year. Registrants will need to update their disclosure in the upcoming 2018 Form 10-K as a result of recent rulemaking by the Securities and Exchange Commission (the "SEC") and new SEC guidance and accounting rule changes, as well as to reflect new and developing risk areas that the SEC or investors have identified. 

SEC Disclosure Update and Simplification

The table below highlights changes to keep in mind when preparing the 2018 Form 10-K as compared to the 2017 Form 10-K as a result of certain changes to Regulation S-K adopted by the SEC effective November 5, 2018.  For more details, please read our client alert dated August 27, 2018 (available h​ere) and the SEC final rules release (available here).

Item 1. Business

Segment Financial Information — S-K 101(b)*

  • No longer required to disclose three years of segment level financial information (for example, revenues from external customers, a measure of profit or loss and total assets)

R&D — S-K 101(c)(1)(ix)*

  • No longer required to disclose amounts spent on research and development activities

Financial Data by Geography — S-K 101(d)*

  • No longer required to disclose financial information by geographic area
  • No longer required to disclose risks associated with foreign operations and a segment's dependence on foreign operations
  • No longer required to discuss facts indicating why performance in certain geographic areas may not be indicative of current or future operations (but see Item 7 below)

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  • ​​Stock Prices — S-K 201(a)
    • Must now disclose trading symbols for each class of common equity traded
    • No longer required to state the high and low sales prices for the equity over the last two fiscal years, so long as common equity trades on an established trading market such as NYSE or Nasdaq​
  • Dividend History — S-K 201(c)(1)*
Partial Shutdown: Potential Impact on SEC Operations

A partial shutdown of the federal government began at midnight on December 21, 2018. As a result, the SEC Division of Corporation Finance (the “Staff”) announced that the SEC would “remain fully operational for a limited number of days” from the beginning of the federal government shutdown. The SEC will be closed on December 24th and 25th in observance of the federal holiday. It is expected to have funding to remain in “open” status through the end of December 26th. Should the shutdown continue past the 26th, the SEC’s operating status is expected to change to “closed” and the SEC will begin to operate according to its Operations Plan under a Lapse in Appropriations and Government Shutdown. As currently envisaged, starting on December 27th the SEC “will have only an extremely limited number of staff members available to respond to emergency situations involving market integrity and investor protection, including law enforcement.” Regardless of the SEC’s operating status, the EDGAR filing system will continue to accept reports, registration statements and other filings. Accordingly, public companies must continue to file periodic and current reports when due on Forms 10-K, 10-Q and 8-K; however, from December 27th the SEC will not be able to declare registration statements effective nor qualify Form 1-A offering statements. A prolonged shutdown could create difficulties for the IPO market and for many public companies without an effective shelf registration statement and, in particular, would create a complex calculus for any company thinking about going public in January.


The Staff has provided an FAQ page...

The SEC (Finally) Adopts Rules for Hedging Disclosure

​On December 18, 2018, the Securities and Exchange Commission adopted long-awaited rules that require disclosure of hedging practices or policies in any proxy statement or information statement relating to the election of directors. 

Background. Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010 in the wake of the financial crisis, added Section 14(j) to the Securities Exchange Act of 1934, which required the SEC to promulgate rules for disclosure of hedging policies. According to a report issued by the Senate Committee on Banking, Housing, and Urban Affairs, the purpose behind Section 14(j) was to “allow shareholders to know if executives are allowed to purchase financial instruments to effectively avoid compensation restrictions that they hold stock long-term, so that they will receive their compensation even in the case that their firm does not perform."

Subsequently, in February of 2015, the SEC proposed to implement Section 955 by adding  Item 407(i) to Regulation S-K and explained in its proposing release that the disclosure on hedging policies is “primarily corporate governance-related because it requires a company to provide in its proxy statement information giving shareholders insight into whether the company has policies affecting how the equity holdings and equity compensation of all of a company's employees and directors may or may not align with shareholders' interests." After soliciting comments on the proposed amendments until April of 2015, the SEC fell silent on the matter.

Final Rules Adopted. Over three years later, the SEC has finally adopted Item 407(i) of Regulation S-K and issued a press release on December 18th. Earlier today, on December 20th, the SEC posted the final adopting release, and we plan to update this blog post with a more detailed analysis based on today's posted release.

The new rule will require a company to describe in its annual proxy statement “any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or dir...

SEC to Reconsider Quarterly Reporting, Solicits Public Comment

On December 18, 2018, the Securities and Exchange Commission published a request for comment on earnings releases and quarterly reports, available here.  The request was issued the day before, and in place of, the SEC's previously scheduled open meeting to consider whether to issue such a request, as discussed here

In April 2016, in connection with the SEC's concept release on the business and financial disclosure requirements of Regulation S-K, the SEC collected comments on the frequency of periodic reporting and the reporting process generally.  More recently, the topic of quarterly reporting by public companies gained widespread attention when President Trump tweeted that he had asked the SEC to study the possibility of changing the reporting requirements for public companies from quarterly to semi-annual.  Speaking at a Financial Executives International conference in November 2018, SEC Chairman Jay Clayton said that the SEC had been considering the matter even before the President brought up the idea in August.

The idea of moving from quarterly to semi-annual reporting is neither novel nor outrageous.  In fact, both the European Union and United Kingdom have eliminated the requirement for quarterly reporting.  Eliminating the requirement, however, does not automatically trigger change.  For example, the U.K. eliminated the quarterly reporting requirement in 2014; yet as of 2017 less than 10% of U.K. companies made the switch to semi-annual reporting (as reported by MarketWatch).  In a speech at the Bipartisan Policy Center in October 2018, Chairman Clayton said that the quarterly report is driven by investor demand, and he pointed out that even in countries that do not have a quarterly reporting requirement, companies will still produce the information.  He also observed that while the quarterly report does play a role in driving short-term thinking, it is not the only factor. In addition, we note that, in light of requirements under the Securities Act of 1933 and the demands of underwriters and investors, quarterly reporting may continue to be essential for any company that wants to access the capital m...

The Changes Keep Coming: SEC Updates C&DIs and NYSE Updates Rules for Revised “Smaller Reporting Company” Definition

On November 7, 2018, the Staff of the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff") released four updated, and withdrew six, Compliance and Disclosure Interpretations (“C&DIs") in light of the June 2018 amendments to the definition of a smaller reporting company (“SRC").  We summarized the amendments to the SRC definition in our previous blog post here.

The updated C&DIs provide guidance regarding the implementation of the revised definition.  Similarly, the New York Stock Exchange (“NYSE") has proposed corresponding changes to Section 303A.00 of the Listed Company Manual to scale several of the NYSE listing requirements based on the revised definition of SRC. A summary of the new guidance and proposed rule changes follows.

Regulation S-K

Question 102.01

In this C&DI, the Staff confirmed that a company can be both a “smaller reporting company" and an “accelerated filer".  For example, if an issuer qualifies as both a SRC and an accelerated filer, such issuer may use the scaled disclosure requirements available to SRCs in its annual report on Form 10-K, but as an accelerated filer, must comply with the accelerated filer deadline and include the Sarbanes-Oxley Section 404 auditor attestation report. 

Question 102.02

This C&DI clarifies when a reporting company that initially fails to qualify as a SRC may subsequently be eligible for SRC status, assuming that its revenues or public float have sufficiently declined on the annual determination date (for example, in the case of a reporting company with a December 31 fiscal year that failed to meet the amended SRC definition criteria as of June 30, 2018 or thereafter ceases to qualify as a SRC as of a subsequent annual determination date).  For these reporting companies to qualify as a SRC, on the last day of the second fiscal quarter of the applicable year, the reporting company must either (1) have a public float of less than $200 million, or (2)(a) “for any threshold that it previously exceeded, [the reporting company] is below the subsequent annual determination threshold (public float of less than $560 million and annual revenues of less than $80 million)" and (b) “for any threshold that it previously met, it remains below the initial determination threshold (public float of less than $700 million or no public float and annual revenues of le...

1 - 10 Next
Current thoughts on development and trends in securities regulation, corporate governance and executive compensation published by Gibson Dunn.

© Copyright 2018 Gibson, Dunn & Crutcher LLP.
Attorney Advertising. Prior results do not guarantee a similar outcome. All information provided on this site is for informational purposes only, does not constitute legal advice, is not confidential, and does not create an attorney-client relationship. Statements and content posted to this site do not represent the opinion of Gibson Dunn & Crutcher LLP ("Gibson Dunn"). Gibson Dunn makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors or omissions therein, nor for any losses, injuries, or damages arising from its display or use.