Annual Review of Federal Securities Regulation
Summer 2016 I The Business Lawyer, Vol. 71, No. 3 I Talley K. Wood et al.
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Introduction
This Annual Review (“Review”) was prepared by the Subcommittee on Annual Review of the Committee on Federal Regulation of Securities of the ABA Business Law Section. The Review covers significant developments in federal securities law and regulation during 2015. The Review is divided into three sections: regulatory actions, accounting statements, and caselaw developments.
The Review is written from the perspective of practitioners in the fields of corporate and securities law. This results in an emphasis on significant developments under the federal securities laws relating to companies, shareholders, and their respective counsel. Our discussion is limited to those developments that are of greatest interest to a wide range of practitioners and addresses only final rules.
During 2015, the U.S. Securities and Exchange Commission (the “Commission”) concentrated its efforts on rulemaking required under the Jumpstart Our Business Startups Act (the “JOBS Act”), enacted in April 2012. On March 25, 2015, the Commission adopted final rules to update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. As amended, Regulation A allows U.S. and Canadian companies that are not required to file reports under the Securities Exchange Act of 1934 (the “Exchange Act”) to offer and sell up to $50 million in securities within a twelve-month period. The final rules create two tiers of exempt offerings: (i) Tier 1, consisting of securities offerings of up to $20 million, and (ii) Tier 2, consisting of securities offerings of up to $50 million.
In October 2015, the Commission voted to adopt Regulation CF, a set of rules and forms to implement securities crowdfunding in the United States pursuant to Title III of the JOBS Act. Regulation CF provides an exemption from registration for offerings of up to $1 million in securities over a twelve-month period. To take advantage of the exemption, issuers must comply with certain disclosure requirements and must sell crowdfunding securities through broker-dealers or “funding portals,” a new designation under the Exchange Act. Applications opened in January 2016 for entities wishing to serve as broker-dealers and portals under these new rules.
The Commission also continued to focus on rulemaking required by the Dodd-Frank Wall Street Reform and Consumer Protection Act during 2015. In August, the Commission adopted its long-awaited CEO pay ratio rule applicable to most reporting companies. The final rule requires annual disclosure of (i) the median annual total compensation of all employees of a registrant, other than its principal executive officer; (ii) the annual total compensation of its principal executive officer; and (iii) the ratio of the two amounts. Beginning in the first fiscal year beginning after January 1, 2017, companies subject to the rule must include pay ratio disclosure in any filings requiring executive compensation disclosure under Item 402 of Regulation S-K.
Generally, the Review does not discuss rules or cases that are narrowly focused. For example, the Review does not address hedge fund and other private fund related rulemaking, nor rulemaking related to registered investment companies, registered investment advisers, or municipal advisors. Cases are chosen for both their legal concepts as well as factual background. While the Subcommittee tries to avoid making editorial comments regarding regulations, rules, or cases, we have attempted to provide a practical analysis of the impact of the developments in the law and regulations on the day-to-day practice of securities lawyers.
