The SEC is planning to issue 11 proposals in 2024, 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 in December 2023, which showed 14 rules planned for proposal. But since the agenda is filed a few months earlier before being made public by the Office of Management and Budget (OMB), it includes three rules that were subsequently proposed in September and October.
The agenda reflects the priorities of 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. Occasionally, some rules get relegated to long-term action and are silently dropped.
The following are 11 projects slated for proposal either in the spring—five items—or fall—six items—in 2024.
The SEC will once again be very busy writing rules as it is also working to adopt 25 proposed rules in 2024.
This comes as Gensler has been pursuing an ambitious and fast-paced rulemaking effort right from the get-go. About two months into the job, the SEC in June 2021 unveiled 49 projects on the near-term agenda. These are items that the SEC wants to advance to the next stage in the rule writing process in the next 12 months. And along the way, a few more got added to it.
Slated for Spring 2024
- 1. Human Capital Management Disclosure This is probably the most closely watched among the projects, and it has been delayed a few times already. Notably, the SEC’s Investor Advisory Committee (IAC) in September 2023 unanimously voted to recommend that the commission write a rule that requires companies to provide more relevant information about its workforce, including the total cost of the company’s labor, broken down into major components of compensation. The IAC finds today’s disclosure requirements—inside and outside financial statements—to be inadequate to properly value companies. It is unclear whether the SEC’s proposal will include IAC’s recommendations that endorse a June 2022 rulemaking petition that asked the commission to write human capital accounting disclosure rules.
- 2. Incentive-Based Compensation Arrangements This is an unfinished Dodd-Frank executive compensation rule. And this is probably closely followed by bankers as it applies to financial institutions and would be written jointly with banking regulators. This will be a third proposal, and it is intended to reign in reckless behavior on Wall Street caused by imprudent incentive compensation packages for bankers as seen during the financial crisis of 2008.
- 3. Regulation D and Form D Improvements The SEC is considering changes to Regulation D, including updates to the accredited investor definition and Form D to better protect investors. The staff in December issued a report that said 18.5% of households qualify as accredited investors as of 2022. By contrast, when the definition was first written in the 1980s, it would have been 1.8% who qualify. In the meantime, SEC Commissioner Caroline Crenshaw suggested requiring big private companies that raise funds using Rule 506 exemption under Reg D to provide audited financial statements to investors.
- 4. Revisions to the Definition of Securities Held of Record The Division of Corporation Finance (CorpFin) is working on a recommendation to revise the “held of record” definition in Section 12(g) of the Securities Exchange Act of 1934. A company that has either 2,000 holders of record or 500 holders of record that are not accredited investors must register its securities. This is something that former SEC Commissioner Allison Herren Lee discussed in an October 2021 speech, saying that most shares are held in street name, which meant that record ownership has gone down and fewer companies have registered their securities.
- 5. Financial Data Transparency Act Joint Rulemaking This is joint rulemaking with other financial regulators. They are writing a rule proposal that establishes data standards for the collections of information reported to each agency by financial entities under their jurisdiction, as well as the data collected from the agencies on behalf of the Financial Stability Oversight Council (FSOC). This is intended to implement the requirements of section 124 to the Financial Stability Act of 2010, which was added by the Defense Authorization Act for Fiscal Year 2023 (NDAA). It gives agencies two years to write the rule.
Slated for Fall 2024
- 1. Corporate Board Diversity The SEC in December 2009 issued a rule, which requires companies to disclose the extent to which they consider diversity in selecting board candidates. The rule requires additional disclosure if a company has a policy regarding its consideration of diversity. However, some large pension funds told the commission that the rules do not provide enough information and stick investors with the extra work of researching nominees’ backgrounds independently. Moreover, investors want companies to present information about their director nominee’s gender, race, and ethnicity in a structured format.
- 2. Disclosure of Payments by Resource Extraction Issuers This one has a long history. The SEC wrote the Dodd-Frank requirement, but it was disapproved by Congress in a Joint Resolution in 2017. It was rewritten when Jay Clayton was SEC chairman in 2020 to scale back the rule requiring the disclosure of payments by oil, gas, and mineral companies to foreign governments for commercial developments. Now, CorpFin “is considering recommending that the Commission review the rules under section 1504 of the Dodd-Frank Act to determine if additional amendments might be appropriate,” the agenda notes. Sec. 1504 of PL111-203
- 3. Rule 144 Holding Period The SEC in December 2020 proposed a rule that would revise the holding period determination for securities acquired upon the conversion or exchange of certain “market-adjustable securities” of companies not listed publicly under Rule 144A of the Securities Act of 1933. “The Division is considering recommending that the Commission repropose amendments to Rule 144, a non-exclusive safe harbor that permits the public resale of restricted or control securities if the conditions of the rule are met,” the agenda states.
- 4. Fund Fee Disclosure and Reform The Division of Investment Management is considering recommending that the commission propose changes to regulatory requirements related to investment companies’ fees and fee disclosure.
- 5. Exchange-Traded Products SEC Chair Gensler has directed the staff to study the potential risks of complex financial products that are traded on exchanges and draft a proposal to address the risks as part of a broader review of exchange-traded products (ETPs). The market regulator in June 2015 first issued a preliminary rulemaking document on ETPs, which have grown rapidly over the past few decades. There has also been a proliferation of novel and complex ETPs. The staff study includes exploring areas of focus in reviewing exchange proposals to list and trade new ETPs.
- 6. Regulation ATS Modernization The Division of Trading and Markets is working to draft recommended proposal to amend Regulation Alternative Trading System (ATS) “to modernize the conditions to the ATS exemption for all ATSs,” the agenda states. “This includes considering recommending that the Commission propose requirements to promote pre-trade price transparency across asset classes.”
Already Proposed
The following three were already proposed in the fall last year:
- 1. EDGAR Filer Access and Account Management The SEC in September 2023 issued a proposal that would change login, password, and other account access protocols for those who file using the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The move comes as a lot has changed in the three decades since EDGAR filings became mandatory. The SEC is proposing to require that filers authorize and maintain designated individuals as account administrators.
- 2. Registration for Index-Linked Annuities; Amendments to Form N-4 for Index-Linked and Variable Annuities Also in September the SEC issued a proposal to update the offering process and disclosure requirements for registered index-linked annuities (RILAs) sold by insurance companies to retail investors. The return is based in part on the performance of a stock market index, such as the S&P 500, over a set period of time. The proposal would highlight key information about RILAs and allow insurance companies to conduct RILA offerings in the same way they do for variable annuities.
- 3. Volume-Based Exchange Transaction Pricing for NMS Stocks The SEC in October 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.
This article originally appeared in the January 16, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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