Securities Regulation and Corporate Governance


Preparing for a Potential Government Shutdown: Initial Impacts on SEC Operations

A looming partial shutdown of the federal government is on track to occur at 12:01 a.m. ET on Sunday, October 1, 2023, if Congress is unable to reach agreement on legislation funding the government. The SEC Division of Corporation Finance (the “Division") announced that in the event of a government shutdown, the SEC's “activities will be extremely limited" and specifically, that it would not be able to accelerate the effectiveness of registration statements. The Division advised that, to the extent possible, registrants with pending registration or offering statements that have satisfied the requirements to request acceleration of the effective date should consider requesting effectiveness or qualification while the Division continues its normal operations. The Division provided a Q&A with its announcement addressing potential impacts before, during and after a potential shutdown. On September 29, the Division posted an additional announcement with contact information for addressing fee calculations and emergency filing relief during a shutdown.

Regardless of the SEC's operating status, the EDGAR filing system will continue to accept reports, registration statements, offering statements, preliminary and definitive proxy statements, insider ownership and transaction reports, 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 (for the purposes of rules involving day counting, the days for which the government is shut down—other than Saturday, Sunday or a federal holiday—will continue to count as “business days").

Additionally, the Q&A notes that in the event of a shutdown, the Division will not be able to review or respond to shareholder proposal no-action letters but will return to reviewing no-action requests when the SEC's operations resume. Registrants should continue to timely submit those letters under Rule 14a-8(j). Likewise, the Q&A notes that the Division will not be able to review preliminary proxy statements, which must continue to be filed at least 10 calendar days prior to the date definitive materials are first sent to shareholders. The Division may review previously filed proxy sta...

EDGAR Next: SEC Proposes Changes to EDGAR Filer Access and Account Management Procedures

​Following a request for comment on the topic in 2021, on September 13, 2023, the Securities and Exchange Commission (“SEC") proposed amendments to Rules 10 and 11 of Regulation S-T and Form ID regarding potential technical changes to Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR") filer access and account management (referred to by the SEC as “EDGAR Next"). 

EDGAR Next is intended to “enhance EDGAR's security and further improve filers' access to the EDGAR system" said SEC Chair Gary Gensler in a statement (available here).  The Proposing Release (available here) indicates that the changes should “facilitate the responsible management of filer credentials, and simplify procedures for accessing EDGAR."  EDGAR Next would require filers to authorize designated account administrators to manage the filers' accounts and make filings on the filers' behalf and would require these account administrators and any other authorized users to have their own individual account credentials to access EDGAR Next.  As described below, the Form ID application process and ongoing flings will require slightly more coordination between a filer and individuals it has authorized to file on its behalf, the new application process will require additional information (e.g., history of securities law violations) when filing a Form ID, and new annual confirmations and other security measures might be burdensome for certain filers.  All considered, the additional security and flexibility these changes will provide will likely outweigh these inconveniences.

Individual Account Credentials Would Replace Filer Password, PMAC, and Passphrase

Currently, each filer, whether a company or individual, has a central index key (“CIK") and only one login, consisting of one password along with a passphrase used during the Form ID application and CIK confirmation code (“CCC") and password modification authorization code (“PMAC") that are each generated after a filer is granted access to EDGAR.  EDGAR allows any individual in possession of a filer's password and CCC to access the filer's EDGAR account and make filings.  EDGAR Next would continue to use the CCC, but retire the EDGAR password, PMAC, and passphrase.  Instead, account administrators and authorized users would need to login with their own individual credentials and would have access to the CCC on the filer's dashboard.  The CIK would continue to be used and the CCC would still be required for filing.  The updated access protocols thus provide additional security and traceability by limiting access to a filer's account to only those individuals...

Another Batch of SEC Staff Guidance on Rule 10b5-1 Amendments

​On August 25, 2023, the staff of the Division of Corporation Finance (the “Staff") of the Securities and Exchange Commission (the “SEC") issued five new Compliance and Disclosure Interpretations (“C&DIs") regarding the SEC's recent Exchange Act Rule 10b5-1 amendments. The new C&DIs address how to calculate the required cooling-off period; how 401(k) plans interact with the Rule 10b5-1 affirmative defense in certain circumstances; when the Rule 10b5-1 check box on Form 4 applies; and when disclosure of plan adoption and termination is required.

This new guidance is in addition to the three C&DIs issued by the Staff in May 2023, discussed in our blog post here, which explained the operation of the cooling-off period when entering into back-to-back trading plans and the effective dates for the new disclosures.

Question 120.29 – Counting Business Days for the Cooling-off Period

Under Rule 10b5-1(c)(1)(ii)(B)(1), the required cooling-off period for directors and officers subject to Exchange Act Section 16 reporting is the later of 90 days after the adoption of the contract, instruction, or plan or “[t]wo business days following the disclosure of the issuer's financial results in a Form 10-Q or Form 10-K for the completed fiscal quarter in which the plan was adopted." The Staff clarified that for purposes of calculating the two business day provision of the cooling-off period, the first business day is the business day following the “filing date" of the Form 10-Q or Form 10-K, as calculated by Rule 13(a)(2) of Regulation S-T, which applies a 5:30 p.m. Eastern Time cut-off deadline. For example, if the relevant form is filed on a Monday before 5:30 p.m. Eastern Time, trading may commence under the contract, instruction, or plan on Thursday.  If such form is filed on Monday after 5:30 p.m., it will be deemed to be filed on Tuesday (i.e., it will get Tuesday as its filing date), in which case the day after the second business day would be Friday.  The Staff also stated that, for purposes of this provision, it does not make a difference whether a form is filed before or after trading opens (but before the 5:30 pm Eastern Time cut-off on a given day).  To date, we have not seen, and we do not expect to see, many companies changing their own quarterly trading window guidelines to conform to the S...

Summary of Public Company Cybersecurity Disclosure Rules

On July 26, 2023, the Securities and Exchange Commission (“SEC” or “Commission”), in a 3-to-2 vote, adopted a final rule requiring the disclosure of material cybersecurity incidents and cybersecurity risk management, strategy, and governance by public companies, including foreign private issuers. A two-page summary of the final rule is attached for your reference. 

SEC Cyber Rule Summary.pdf

Form 10-Q Updates and Reminders

As many companies prepare their quarterly reports on Form 10-Q for the quarter ended June 30, 2023, we offer the following observations and reminders regarding new disclosure requirements taking effect for this reporting period, as well as risk factor considerations that may be relevant to upcoming Form 10-Q reporting.  For convenience, this publication also includes a summary of certain upcoming compliance dates for public companies.


Rule 10b5-1 Trading Arrangement Disclosures

Beginning with the filing that covers the first full fiscal period that begins on or after April 1, 2023 (i.e., Q2 2023 Form 10-Q for calendar year companies), the “Other Information" section of each periodic report (i.e., Part II, Item 5 of Form 10-Q and Part II, Item 9B of Form 10-K) must disclose whether any director or Section 16 officer adopted or terminated a trading arrangement intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a “non-Rule 10b5–1 trading arrangement."  By its terms, the disclosure requirement (Item 408(a) of Regulation S-K) is triggered when a trading arrangement is “adopted or terminated"; however, the SEC deems certain modifications to a trading arrangement to be the termination of one arrangement and entry into another.

The disclosure must identify whether the arrangement is a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, and provide a brief description of the material terms (other than price), including (i) the name and title of the director or officer, (ii) the date of adoption or termination of the trading arrangement, (iii) the duration of the trading arrangement, and (iv) the aggregate number of securities to be sold or purchased under the trading arrangement (including pursuant to the exercise of any options).

Disclosure Format

The new rules do not prescribe the format for the disclosure, but require that it be tagged in Inline XBRL.  We expect that companies will provide either narrative or tabular disclosure. Because the “Other Information" sections of periodic reports can encompass disclosure of a variety of matters, companies may wish to provide a reference to the specific item instruction (that is, “(c)" for Forms 10-Q) and/or a subheading preceding their disclosure, such as “Trading Plans."  The narrative disclosure could read as follows:  

(c) Trading Plans

On [date], [individual's name], the Company's [individual's title], [adopted / terminated] a trading plan intended to satisfy R...

Data Verification Period for New ISS Environmental & Social Disclosure QualityScore Questions Open from July 10 until July 21, 2023; Companies Should Log On Soon and Validate Their Information

A data verification period for Institutional Shareholder Services' (ISS) new Environmental & Social Disclosure Quality Score questions opened for companies on July 10, 2023 and will remain open until July 21, 2023.  The data verification process reflects a comprehensive update to ISS's Environmental & Social Disclosure QualityScore scoring methodology, which ISS previewed in April 2023 and elaborated on in a June 2023 announcement.     

ISS has stated that under the methodology updates, more than 150 factors/data points underlying the scoring have been revised, with approximately 50 factors retired, and more than 60 new factors added.  ISS has stated that it expects the updated methodology to take effect in the third quarter of 2023, at which time rated companies Environmental & Social Disclosure Quality Scores will be revised to reflect the updated methodology.

While ISS did not provide advance detail on the specific updates to the scoring methodology, it stated that they include the following:

  • Expansion of included topics to allow for more in-depth assessments of labor relations and occupational health disclosures.
  • Improved tracking of disclosures in the areas of workforce diversity and equality, with the addition of gender pay gap factors.
  • Enhanced assessment of disclosures concerning human rights for companies and their suppliers.
  • Introduction of new participation factors in social and environmental initiatives and frameworks.
  • Update to existing assessments of companies' natural resources profiles.
  • Increase in granularity of reviewing carbon- and climate-related disclosures.

As a result, the ratings (and the verification process) now cover approximately 250 data points. Under  the Environment pillar, most of the factors address Carbon and Climate reporting, but other categories addressed include Waste and Toxicity, Natural Resources, and Risks and Opportunities.  Categories under the Social pillar include Labor, Health and Safety, Stakeholders and Society, Human Rights, and Product Safety, Quality and Brand. 

During the July 10th through 21<...

New Vote Reporting Disclosures Required on Form N-PX – Vote Reports Now Extend to All 13F Filers – No Longer Limited to Registered Funds

​In November 2022, the Securities and Exchange Commission (“SEC") adopted amended rules that update the existing reporting requirements on Form N‑PX and create new Form N‑PX reporting requirements for institutional investment managers.[1]  The purpose of these amendments is to increase transparency surrounding proxy voting records.  Prior to the adoption of this new rule, registered investment management companies (“Funds"), such as mutual funds and exchange traded funds, were required to publicly report their annual proxy voting records on Form N‑PX. However, the SEC determined the content of information in Form N‑PX was not always useful to the public as there was no requirement that the form be machine readable or presented in a standard format.  In addition, the SEC wanted to expand the scope of the persons subject to such reporting requirements.

Effective July 1, 2024, both Funds and institutional investment managers who currently file Form 13F under the Exchange Act (“13F Filers") will be required to file Form N‑PX.  Funds must continue to report their votes on all matters, while 13F Filers will be required only to report votes pursuant to Section 14A(a) and (b) of the Exchange Act, relating to proposals on matters including executive compensation (say-on-pay), frequency of advisory votes on executive compensation (say-on-frequency), and compensation packages in merger transactions (golden parachute proposals).  These requirements on reporting votes will apply to all securities registered under Section 12 of the Exchange Act for which the reporting person exercised voting power, including securities for which the reporting person has direct voting power or indirect voting power through a contract, arrangement, understanding, or relationship (including the discretion to recall a loaned security before a vote).

For each security included on a reporting person's Form N‑PX, the reporting person must include:

  • the name of the issuer;
  • the CUSIP number;
  • the ISIN (International Securities Identification Number);
  • the shareholder meeting date;
  • an identification of the matter voted on, including a selection from a list of categories the matter concerns (e.g., “Section 14A say-on-pay votes");
  • the number of shares voted;
  • how the shares were voted;
  • whether votes aligned with management's recommendations;
  • whether votes were cast in multiple manners and if so, the number of votes cast in each manner; and
  • the number of shared loaned that the reporting person did not recall.

In cases where a ...

Updated Summary of Director Education Opportunities Now Available

​Gibson Dunn's summary of director education opportunities has been updated as of July 2023. A copy is available at this link. Boards of Directors of public and private companies find this a useful resource as they look for high quality education opportunities.  

This quarter's update includes a number of new opportunities as well as updates to the programs offered by organizations that have been included in our prior updates. Some of the new opportunities include unique events for members of private boards.

Thank you to associates Mason Gauch, To Nhu Huynh, and summer associate Jason Ferrari from our Houston office for their assistance with this quarter's update.​

NYSE and Nasdaq Allow More Time for Companies to Adopt Rule 10D-1 Clawback Policies: What to Do Now

This week, both the New York Stock Exchange (“NYSE") and The Nasdaq Stock Market (“Nasdaq", and together with NYSE, the “Exchanges") filed amendments with the Securities and Exchange Commission (“SEC") to provide a delayed effective date for the Exchanges' proposed listing standards requiring listed companies to adopt clawback policies, as mandated by Rule 10D-1 under the Securities and Exchange Act of 1934. Specifically, the Exchanges are proposing that their new listing standards become effective on October 2, 2023. If the listing standards are approved by the SEC, companies will have until December 1, 2023 (60 days after the effective date) to adopt clawback policies satisfying the new listing standards  (“Rule 10D-1 policies"), and the policies would need to apply to any incentive compensation “received" (as defined in Rule 10D-1) on or after October 2, 2023. The NYSE's amended proposal is available here, Nasdaq's is available here, and our client alert on the SEC's adoption of Rule 10D-1 is available here.

The delayed effective dates, which were highly anticipated, align with the SEC's statement when it adopted Rule 10D-1 in October 2022 that it anticipated companies would have “more than a year from the date the final rules are published in the Federal Register to prepare and adopt compliant recovery policies." We expect the SEC to approve the Exchanges' listing standards substantially in the form now proposed, with the October 2, 2023 effective date.  [post-script: On June 9, the SEC approved the Exchanges' proposed listing standards, as modified by these amendments, on an accelerated basis.] The delayed effective dates will ensure that companies have adequate time to draft, customize, and implement Rule 10D-1 policies. When doing so, companies should consider the following issues:

What form should the policy take, and should it be integrated with any existing clawback policy?

The Exchanges' listing standards will require that companies adopt a written policy. Companies that have existing clawback policies need to determine whether to adopt a stand-alone Rule 10D-1 compliant policy, or whether to integrate that policy with their existing clawback policy. When faced with the prospect of an early effective date for the Exchanges' listing standards, some companies were leaning toward adoption of a stand-alone policy, but either approach is acceptable, ...

Supreme Court Upholds Tracing Requirement For Section 11 Claims in Direct Listings - Slack Technologies LLC v. Pirani, No. 21-200

On June 1, 2023, the Supreme Court of the United States unanimously upheld that  plaintiffs alleging the registration statement for a “direct listing" IPO contained a material misstatement or omission, who sue under Section 11 of the Securities Act of 1933, must trace the shares they bought  to the registration statement.  In a direct listing, unlike a traditional IPO, unregistered shares can be sold by non-affiliates on the initial listing date, so it is possible that certain shares bought on the first day will be unregistered shares and thus not subject to the strict liability standard of Section 11.   

The Court declined to resolve whether Section 12 under the Securities Act similarly requires tracing and remanded that matter to the lower courts to decide that question.  In a footnote, the Supreme Court noted that the Ninth Circuit had stated that its decision to permit the plaintiff's Section 12 claim “follow[ed] from" its analysis of his Section 11 claim.  The Supreme Court further noted that it is not “endors[ing] the Ninth Circuit's apparent belief that Section 11 and Section 12 necessarily travel together, but instead caution[s] that the two provisions contain distinct language that warrants careful consideration."

Gibson Dunn represents Slack in this matter, including in the case that was before the Supreme Court. A link to our full alert on this decision can be found here. ​

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