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US Securities and Exchange Commission

SEC Plans to Adopt 16 Rules in Coming Months

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 9 minute read

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 9 minute read

The Securities and Exchange Commission (SEC) is planning to adopt 16 rules in the coming months, according to the so-called Reg Flex Agenda, which lists planned regulatory actions by federal agencies.

The rulemaking agenda is updated twice a year, and the most recent update was unveiled earlier in July 2024, which shows 19 proposed rules planned for adoption.

But since the agenda is filed a few months earlier before being made public by the Office of Management and Budget (OMB), it includes one rule—simpler registration of non-variable annuities—that was subsequently adopted on July 1.

The agenda reflects the priorities of SEC Chair Gary Gensler.

The semi-annual update is just the best estimate of when the SEC will propose or adopt rules. Sometimes, the commission adopts earlier or later than expected. Or the agency may decide to do another round of proposal before finalizing it.

The following are 18 rulemakings slated for final adoption either in the fall of 2024 or spring of 2025. And the SEC wants to finalize the vast majority of them—16 out of 18—in the coming months.

Fall 2024

  1. EDGAR Filer Access and Account Management  The SEC in September 2023 issued a proposal that would, among other things, require multi-factor authentication to access and file documents on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The proposal is in Release No. 33-11232, EDGAR Filer Access and Account Management.
  2. Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices  The SEC issued a proposal to address greenwashing in the asset management industry. Release No. 33-11068, Environmental, Social, and Governance Disclosures for Investment Advisers and Investment Companies, issued in May 2022, would require additional disclosures related to environmental, social, and governance (ESG) strategies in fund prospectuses, annual reports, and adviser brochures. If a fund claims it will achieve a certain ESG impact, for example, there must be a description of the specific impact and summaries of the progress on achieving the impact.
  3. Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies  In February 2022 the SEC proposed a series of new cybersecurity risk management, reporting, and recordkeeping requirements for registered investment advisers and funds. The proposal is in Release No. 33-11028, Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and Business Development Companies.
  4. Outsourcing by Investment Advisers  The SEC in October 2022 issued a proposal that would prohibit investment advisers from outsourcing certain services without first conducting due diligence and monitoring the external service providers. The proposal is in Release No. IA-6176, Outsourcing by Investment Advisers.
  5. Qualifying Venture Capital Funds Inflation Adjustment  Earlier this year in February the agency proposed new rules that would raise the dollar threshold from $10 million to $12 million for venture capital funds to be covered by a principal statute regulating investment companies. So-called qualifying venture capital funds would be excluded from the definition of “investment company” under the Investment Company Act of 1940, according to Release No. IC-35129, Qualifying Venture Capital Funds Inflation Adjustment.
  6. Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding FOCUS Report  The regulator in March 2023 issued a proposal that would require electronic filing of certain forms on EDGAR. Entities that would be covered under the proposal include self-regulatory organizations (SROs), clearinghouses, broker-dealers, swap dealers, and major swap participants. The proposal is in Release No. 33-11176, Electronic Submission of Certain Material Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report.
  7. Amendments to Exchange Act Rule 3b-16 re Definition of “Exchange”; Regulation ATS and Regulation SCI for ATSs That Trade U.S. Government Securities, NMS Stocks and Other Securities The SEC in April 2023 reopened a 2022 proposal that would change the definition of “exchange” for further comment. This is to reiterate the applicability of existing rules to platforms that trade cryptoasset securities, including DeFi systems. The commission reopened the proposal in Release No. 34-97309, Rule 3b-16 Reopening of Comment Period. The rulemaking release would have broad implications to alternative trading systems. The commission wants to include systems that offer the use of non-firm interest and communication protocols that bring together buyers and sellers for trading any type of security to either register as exchanges or register as broker-dealers and comply with Regulation Alternative Trading System.
  8. Order Competition Rule The SEC in December 2022 issued four separate rule proposals related to stock market structures. They are intended to improve prices that retail investors get when stock trades are executed, among other enhancements. This is one of the four proposals. Release No. 34-96495, Order Competition Rule, would require certain orders of individual investors to be exposed to competition in fair and open auctions before the orders could be executed internally by any trading center that restricts order-by-order competition. The SEC adopted the first one last March in Release No. 34-99679, Disclosure of Order Execution Information, to update the disclosure required for order executions of stocks listed on a national securities exchange, such as the New York Stock Exchange and Nasdaq.
  9. Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders The third proposal, Release No. 34-96494, Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders, would change rules to adopt variable minimum pricing increments for quoting and trading of stocks. It would reduce access fee caps for protected quotations.
  10. Regulation Best Execution  The last proposal, Release No. 34-96496, Regulation Best Execution, would establish a best execution regulatory framework for broker-dealers. The SEC explained that a best execution rule was first established in 1968 by the National Association of Securities Dealers, Inc., the predecessor to FINRA. The proposed rule would create the first SEC-established rule on best execution.
  11. Amendments to NMS Plan for the Consolidated Audit Trail-Data Security  The SEC in August 2020 issued a proposal intended to beef up the security of data in the consolidated audit trail (CAT), a stock trade reporting system. The proposal would limit the scope of sensitive information collected. The proposal is in Release No. 34-89632, Amendments to the National Market System Plan Governing the Consolidated Audit Trail to Enhance Data Security.
  12. Cybersecurity Risk Management Rules for Broker-Dealers, Clearing Agencies, MSBSPs, the MSRB, National Securities Associations, National Securities Exchanges, SBSDRs, SBS Dealers, and Transfer Agents  The proposal would apply to covered entities in the title, and they would be required to set up policies and procedures to address their cybersecurity risks. The March 2023 proposal is in Release No. 34-97142, Cybersecurity Risk Management Rule for Broker-Dealers, Clearing Agencies, Major Security-Based Swap Participants, the Municipal Securities Rulemaking Board, National Securities Associations, National Securities Exchanges, Security-Based Swap Data Repositories, Security-Based Swap Dealers, and Transfer Agents.
  13. Covered Clearing Agency Resiliency and Recovery and Wind-Down Plans The SEC in May last year issued a proposal that would improve the resilience of clearing houses in times of severe market stress. The proposal is in Release No. 34-97516, Covered Clearing Agency Resilience and Recovery and Wind-Down Plans.
  14. Regulation Systems Compliance and Integrity Also issued in March last year, the SEC is proposing to update Regulation Systems Compliance and Integrity, which covers SROs such as stock exchanges, clearinghouses, securities associations, and the Municipal Securities Rulemaking Board. More entities would come under the regulation, including swap data repositories and all clearing agencies that are exempted from registration. The proposal is in Release No. 34-97143, Regulation Systems Compliance and Integrity.
  15. Reporting of Security-Based Swap Positions  The SEC in June 2023 reopened the comment period for a December 2021 rule proposal that would require new disclosures for large security-based swap positions that exceed certain thresholds. The large swap position reporting was one of a three-part proposal that the SEC issued in 2021, and the commission adopted the other two parts of the proposal in June 2023. The proposal is in Release No. 34-93784, Position Reporting of Large Security-Based Swap Positions.
  16. Daily Computation of Customer and Broker-Dealer Reserve Requirements Under the Broker-Dealer Customer Protection Rule  The SEC one year ago proposed a requirement for broker-dealers to calculate the net cash they owe to customers and other broker-dealers from the current weekly basis to daily frequency under the Customer Protection Rule. The proposal is in Release No. 34-97877, Daily Computation of Customer and Broker-Dealer Reserve Requirements under the Broker-Dealer Customer Protection Rule.

Spring 2025

  1. Rule 14a-8 Amendments  The SEC in July 2022 issued a proposal that would revise the rule that governs the process in which shareholders bring forth proposals to be voted on during annual meetings. The rulemaking would favor shareholders. This is intended to partially address—in a roundabout way—rules adopted when Jay Clayton was chairman of the SEC during the Trump administration. In September 2020, the SEC made it more difficult for shareholders to put forth proposals. The proposal is in Release No. 34-95267, Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8.
  2. Volume-Based Exchange Transaction Pricing for NMS Stocks The SEC in October 2023 issued a proposal that would ban volume discounts for professional market stock transactions, in a key step in the agency’s effort to update market structure rules that have not changed in decades. The agency proposed its ban on fee-shaving as a way to level the field for smaller firms that don’t receive the bulk trading discount. The proposal is in Release No. 34-98766, Volume-Based Exchange Transaction Pricing for NMS Stocks.

The most recent update to the agenda also comes as Gensler’s tenure as chair might be winding down. If Donald Trump is elected President in November, Gensler will most likely leave the agency shortly after since he was appointed by President Biden.

Even if a Democrat wins, it is unclear whether Gensler will serve out the rest of his second term which expires in June 2026. Even if Biden did not drop of the race and got reelected, there is often a change in cabinet members or leaders of regulatory agencies.

 

This article originally appeared in the July 30, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.

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