1. SEC Proposes Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants.  On October 17, 2012, the SEC voted unanimously to propose capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants. The proposed rules are required by the Dodd-Frank Act, which authorizes the SEC and other regulators to put in place a comprehensive framework for regulating the over-the-counter swaps markets. The SEC proposed rules that will determine: (i) how much capital dealers in security-based swaps need to hold, (ii) when and how these dealers need to collect collateral, or margin, to protect against losses from counterparties, and (iii) how these dealers segregate and protect funds and securities held for customers. The SEC also proposed capital and margin requirements for major security-based swap participants, entities that do not act as dealers but hold large positions in security-based swaps. Further, the SEC will consider proposing rules to increase capital requirements for the largest broker-dealers that use internal models in calculating how much capital they need to hold. The SEC is seeking public comment on the proposed rules for 60 days following their publication in the Federal Register. The proposed rule is here.
  2. SEC Adopts Standards for Risk Management and Operations of Clearing Agencies.  On October 22, 2012, the SEC adopted a rule that establishes standards for how registered clearing agencies should manage their risks and run their operations. The new rule would require registered clearing agencies that provide central counterparty services to maintain certain standards with respect to risk management and operations. Among other things, the rules would set standards with respect to measurement and management of credit exposures, margin requirements, financial resources and margin model validation. The rule also establishes certain recordkeeping and financial disclosure requirements for all registered clearing agencies as well as several new operational standards for these entities. The rule was adopted in accordance with the Securities Exchange Act of 1934 and the Dodd-Frank Act. The Dodd Frank Act provides the SEC with additional authority to establish standards for clearing agencies, including for those clearing agencies that clear security-based swaps. The new rule 17Ad-22 will become effective 60 days after the date of publication in the Federal Register. The final rule is available here.
  3. Publication of CF Staff Legal Bulletin on Shareholder Proposals.  On October 16, 2012, Corp Fin published interpretive guidance SLB#14G that provides guidance on certain issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding: (i) the parties that can provide proof of ownership under Rule 14a-8(b)(2)(i) for purposes of verifying whether a beneficial owner is eligible to submit a proposal under Rule 14a-8; (ii) the manner in which companies should notify proponents of a failure to provide proof of ownership for the one-year period required under Rule 14a-8(b)(1); and (iii) the use of website references in proposals and supporting statements.
  4. JOBS Act: FINRA Adopts Changes Research Analyst Rules.  On October 11, 2012, the SEC granted accelerated approval to FINRA’s proposed amendments to NASD Rule 2711 (Research Analysts and Research Reports). The amendments conform Rule 2711 to the requirements of the JOBS Act related to research analysts and research reports in certain offerings by emerging growth companies. The amendments make other related changes to the research quiet period rules and make conforming amendments to Incorporated NYSE Rule 472 (Communications with the Public). The amendments required by the JOBS Act are retroactively effective to April 5, 2012, the day the JOBS Act was enacted. The other changes are effective as of the date of accelerated approval. The final rule is available here.
  5. SEC Sets Mandatory Transition Date for EDGAR-based Submission of Confidential Draft Registration Statements.  On October 11, 2012, the SEC announced that, beginning on October 15, 2012, emerging growth companies (EGCs) and eligible foreign private issuers (FPIs) submitting draft registration statements and amendments to the SEC for confidential review must submit them (and any related correspondence) via the EDGAR system. Companies that have already submitted a draft registration statement using the SEC’s earlier-introduced secure e-mail system should comply with the instructions issued by the SEC on how to transition from the secure e-mail system to the EDGAR system.  Announcement: http://www.sec.gov/divisions/corpfin/cfannouncements/drsfilingprocedures101512.htm
  6. More Than 1,500 Private Fund Advisers Registered With the SEC Since Passage of the Financial Reform Law.  On October 19, 2012, the SEC reported that 1,504 advisers to hedge funds and other private funds have registered with the agency since the Dodd-Frank Act mandated such registration. A total of 11,002 investment advisers now are SEC-registered, with 37% advising hedge funds and other private funds. Assets under management at SEC-registered advisers has risen about $5.7 trillion, or 13%, even though the number of advisers fell about 15% as the Dodd-Frank Act required mid-sized advisers (those managing less than $100 million of assets) to move from federal to state oversight. To date, more than 2,300 mid-sized advisers have made the transition to state regulation.  In October, the SEC’s National Examination Program also launched an initiative to conduct focused, risk-based examinations of newly registered private fund advisers over the next two years.
  7. SEC Releases JOBS Act Report on Exchange Act Registration Circumvention Enforcement.  On October 15, 2012, the SEC staff issued a report required by Section 504 of the JOBS Act:
    • Reviewing its authority to enforce Rule 12g5-1 under the Exchange Act. This rule defines “held of record” for purposes of determining whether a company has reached the threshold number of shareholders requiring it to register under Section 12(g) of the Exchange Act
    • Determining if it needs new tools to enforce Rule 12g5-1(b)(3), an anti-evasion provision. Rule 12g5-1(b)(3) requires beneficial holders to be counted as record holders if the company knows or has reason to know that a form of ownership of securities is being used to circumvent the record holder calculation.

The report concludes that the current tools available to the SEC are adequate and does not suggest any particular legislative action. 


  1. NYSE Proposes Changes to Initial Listing Standards for Companies from Outside North America.  On October 5, 2012, the NYSE submitted a proposal to the SEC to amend Sections 102.01 and 103.00 of its Listed Company Manual. The proposed amendments would permit the NYSE to consider stockholders and trading volume in a company’s home country market or primary trading market outside the US (if that market is a regulated stock exchange) when determining whether a company from outside North America qualifies for initial listing under Section 102.01. The proposed amendments are effective on filing, subject to a 30-day operative delay period that the NYSE has asked the SEC to waive so that the amendments become operative immediately.
  2. NYSE Rule Changes in the Past Year.  Here is a document containing salient changes to the NYSE rules in the past year, including those related to emerging growth companies.
  3. NYSE Proposes Amendments to Notice Requirements under the 20% Rule.  On October 19, 2012, the NYSE proposed amendments to its Listed Company Manual that would modify the notice requirements under the financial viability exception to its stockholder approval rule for transactions that may result in the issuance of 20% or more of a company’s outstanding stock or voting power.  The proposed amendments would enable companies that can otherwise take advantage of the financial viability exception to potentially act more quickly and efficiently in raising capital under difficult conditions.
  4. NYSE Proposes Uniform Method for Companies to Provide Notice of Certain Events.  On October 15, 2012, the NYSE proposed amendments to its Listed Company Manual that would create a uniform method for listed companies to give the NYSE notice when required to do so under certain provisions of the Listed Company Manual. Except in emergency situations, companies would be required to give the NYSE notice under these provisions using either:
    • An e-mail address designated by the NYSE.
    • Egovdirect.com, a web portal operated by the NYSE.

The proposed amendments would also:

  • Reduce the number of copies of a proxy statement a listed company must submit to the NYSE from six to three.
  • Change the name of the item “Shareholders’ Meeting Notice” to “Shareholders’ Meeting/Notice of Record Date.”
  • Change the due date for the item “Shareholders’ Meeting/Notice of Record Date” to conform with the “Dividend Notification” due date.


  1. NASDAQ Proposes Modified Disclosure Requirements Relating to Non-compliance with Listing Standards. On October 3, 2012, NASDAQ issued a proposed rule change that would modify certain disclosure requirements relating to a company’s non-compliance with NASDAQ’s listing standards. Current NASDAQ rules require a company to make a public announcement after receiving a notification from NASDAQ that the company is not in compliance with a NASDAQ listing standard. Among other things, the proposed rule change would require the company’s public announcement not only to identify the NASDAQ rule on which the deficiency is based (as is currently required), but also to include a description of the bases and specific concerns underlying NASDAQ’s determination. The purpose of the proposed rule change is to ensure that investors receive adequate information when a company is deficient under NASDAQ’s rules so they may make more informed investment decisions about the company’s securities.
  2. NASDAQ Increases Annual Fees for the NASDAQ Capital Market.  On October 18, 2012, NASDAQ issued a proposed rule change to increase annual fees for companies listed on the NASDAQ Capital Market. The proposed rule change increases the annual fee for issuers of:
    • Securities other than American Depositary Receipts (ADRs) from $27,500 to $32,000.
    • ADRs from $17,500 or $21,000, depending on the number of ADRs outstanding, to a flat fee of:
    • $25,000 effective January 1, 2013; and
    • $32,000 effective January 1, 2014.

The rule change is effective on filing with the SEC but the increased fees will not be implemented until January 1, 2013. 


  1. Institutional Shareholder Services Releases 2013 Draft Policies for Comment.  On October 15, 2012, Institutional Shareholder Services (ISS) released certain 2013 draft proxy voting policies for public comment.  The draft voting policies for US companies address:
    • Board Matters:  ISS may recommend against the entire board if it fails to implement a shareholder proposal that receives the support of a majority of votes cast in the prior year. The current ISS policy recommends a “vote against” or “withhold” from the entire board (except new nominees, who should be considered “case-by-case”) for failure to respond to a shareholder proposal supported by a majority of: (i) outstanding shares in the previous year; or (ii) shares cast in the last year and one of the two previous years.
    • Say-on-Pay Analysis: ISS is considering using a company’s selected peers as an input to its peer group methodology. The ISS peer group will continue to be comprised of 14-24 companies that are selected using market cap, revenue (or assets for certain financial firms) and peers within the company’s GICS industry group, but will now also include the company’s own peers’ GICS industry group with size constraints.  ISS may incorporate a comparison of realizable pay to grant date pay as part of the qualitative evaluation of pay-for-performance alignment for large-cap companies. Realizable pay will consist of the sum of relevant cash and equity-based grants and awards made during a specified performance period being measured, based on equity award values for actual earned awards, or target values for ongoing awards, calculated using the stock price at the end of the performance measurement period.  ISS indicates that realizable pay consideration may mitigate or exacerbate CEO’s pay for performance concerns. Pledging of company stock by directors and executive officers joins the list of “problematic pay practices,” such as excessive perks or tax gross-ups that are evaluated on a case-by-case basis.  ISS cites a study that shows 15% of Russell 3000 companies have one or more executives or directors who have pledged shares, which at some companies exceed 50% of the company’s total market value or exceed $1 billion in total dollar value.
    • Say-on-Golden-Parachute Proposal: ISS is proposing to update its current policy on golden parachute proposals to: (i) include existing change-in-control arrangements maintained with named executive officers rather than focusing only on new or extended arrangements and (ii) to place further scrutiny on multiple legacy problematic features in change in control agreements.
    • Shareholder Proposals: ISS may modify its voting policy on shareholder proposals to link executive compensation to sustainability (environmental and social) criteria and instead of recommending against the proposals, will recommend on a case-by-case basis considering the following factors:  (i) whether the company has significant and/or persistent controversies or violations regarding social and/or environmental issues; (ii) whether the company has management systems and oversight mechanisms in place regarding its social and environmental performance; (iii) the degree to which industry peers have incorporated similar non-financial performance criteria in their executive compensation practices; and (iv) the company’s current level of disclosure regarding its environmental and social performance.
  2. Conflicts Minerals Rule Challenged by Business Groups.  On October 19, 2012, the National Association of Manufacturers and the US Chamber of Commerce filed a petition with the US Court of Appeals for the District of Columbia Circuit requesting that the court review both the SEC’s final conflict minerals rules and Section 1502 of the Dodd-Frank Act, the statutory provision under which the rules were adopted. The conflict minerals rules require reporting companies to make specialized disclosure and conduct related diligence concerning specified minerals and their derivative metals contained in the companies’ products. The minerals and metals covered by the rule, including, among others, gold, tin, tantalum and tungsten, are included in many common products. Plaintiffs have requested that the court modify or set aside the rules in whole or in part. Petition: http://uslf.practicallaw.com/6-522-0409
  3. Corporatecounsel.net Publishes Handbooks.  Broc Romanek of the thecorporatecounsel.net has published a comprehensive “Shareholder Proposal Handbook” that provides practical guidance about Rule 14a-8. This is an update of a treatise that Mr. Romanek co-authored with Beth Young and Bill Morley over a decade ago.  Mr. Romanec has also published a “D&O Questionnaire Handbook” that provides practical guidance on the subject.