Securities And Exchange Commission Rule Research Articles

How did a Previously Unscrupulous Tactic Become a Popular Corporate Strategy?….. Time to Discuss the Impact of an Excise Tax on Treasury Stock

The problematic history of stock buybacks, known more familiarly as Treasury Stock acquisitions, has at times been described as unscrupulous transactions resulting in stock manipulation tactics engaged in by corporate America (Kotter, 1952). However, when the Securities and Exchange Commission (SEC) passed rule 10b-18, the definition of share buybacks changed from problematic manipulative strategies to brilliant corporate maneuvers (SEC Act 1934.). The SEC’s enactment of Rule 10b-18 opened Pandora’s Box for corporations to engage in unfettered access of their own issued stock shares. The 10b-18 SEC Rule provided a pathway for corporations to buyback their own previously sold stock shares within an accepted legal framework. Unfortunately, the SEC Rule 10b-18 has been viewed as sanctioning the use of corporate funds for valueless purchases depleting the liquidity of the corporate balance sheet. But should these transactions, be subject to tax as a means to rectify the problematic buyback mania?

SEC Rule 14a-8 shareholder proposals: No-action requests, determinants, and the role of SEC staff

Under SEC Rule 14a-8, shareholders can petition management to include a topic for vote on the annual proxy statement. In response, management may request no-action relief from the Securities and Exchange Commission (SEC) staff to exclude unwelcome proposals. Using a sample of 3,040 no-action letters from the SEC between 2008 and 2019, I examine the determinants of the SEC staff’s decision to grant no-action relief. I find that legal characteristics, pressures on the staff, and proposal attributes have a statistically significant association with the SEC’s decision. Beyond these factors, I find evidence individual SEC staff members differ in the likelihood that they grant no-action relief. On average, these staff members appear to add value, as evidenced by a positive market response to their decisions, but this favorable valuation effect is concentrated among relatively more experienced staff.

SEC Rule 14a-8 Shareholder Proposals: No-Action Requests, Determinants, and the Role of SEC Staff

Under SEC Rule 14a-8, shareholders have the right to petition management to include a topic for vote on the annual proxy statement. In response, management may request no-action relief from the Securities and Exchange Commission (SEC) staff to exclude unwelcome proposals. Using a sample of 2,972 no-action letter responses from the SEC between 2008 and 2019, I examine the determinants of the SEC staff’s decision to grant no-action relief. I find the legal characteristics, pressures on the SEC staff, and proposal attributes have a statistically significant association with the SEC’s decision. Beyond these factors, I find evidence individual SEC staff members differ in the likelihood they grant no-action relief, suggesting heterogeneity among SEC staff characteristics is important for understanding no-action relief decisions.

AUM-Based Compensation and Financial Advice

Usually financial advisers are paid primarily or entirely according to the value of the assets they manage—that is, the assets under management (AUM). Increasingly, they have a fiduciary duty and use AUM-based fees. This compensation model results in an incentive to maximize AUM, which is widely considered to be a desirable feature. This article examines a class of situations in which that incentive may cause a conflict of interest and lead to advice, or the lack of advice, that is not in the clients’ best interests. Advisers have an incentive to avoid recommending actions that would decrease their AUM. The Securities and Exchange Commission (SEC) relies on an outmoded economic model that views disclosure as an adequate remedy to conflicts of interest. However, the SEC does not require disclosure of the types of conflicts discussed here. This article examines alternative compensation models, such as by the hour. Recognizing that information and the ability to process it are scarce and valuable resources, a more efficient use of resources may be to provide specialization in financial literacy through advisers, rather than to expect widespread financial literacy, at least in some areas. Changing the way the SEC regulates financial advice could improve that approach. This article examines effects of the new SEC rules in those types of situations. Changes in the SEC regulatory approach are recommended. <b>TOPICS:</b>Long-term/retirement investing, pension funds, retirement, social security, wealth management <b>Key Findings</b> • Financial advisers’ AUM-based compensation may affect the advice they provide if it concerns the scope of assets they manage; for example, a failure to advise beneficial options that would result in reducing the adviser’s AUM. • The AUM-based model of adviser compensation may not result in the best advice concerning the payout phase. • It may be more efficient for financial literacy to be a specialized skill in some areas, such as pension investing, but clients who are not financially literate may not be able to evaluate whether they are receiving good advice.

REPORTING DISCLOSURE LEVELS AND COMPLIANCE WITH BB, AAOIFI, B/IFRS AND SEC OF ISLAMIC FINANCIAL INSTITUTIONS IN BANGLADESH

Compliance with financial reporting guidelines/standards promulgated by Regulatory Bodies has become a crucial issue of the day after a series of corporate debacles over a few years. Regulators, professional bodies and researchers throughout the world have expressed their concern about the need for improved accounting pronouncements and compliance for providing better information than previously required for the preparation and presentation of corporate financial reporting. The present study primarily focuses on the reporting disclosure levels and compliance with Bangladesh Bank (BB) Guidelines, Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Accounting Standard, Bangladesh/International Financial Reporting Standard (B/IFRS) and Securities and Exchange Commission (SEC) Rules of Islamic Financial Institutions in Bangladesh. Annual reports of (08) eight Islamic banks in Bangladesh have been examined for the year ending 2015. The results showed that the Islamic banks significantly followed the selected accounting guidelines/standards under review and did bring remarkable changes in the financial reporting practices made by the Islamic banks in Bangladesh. The study attempted to examine empirically the levels of disclosure in corporate annual reports of Islamic banks in Bangladesh. The study recommended increasing the level of compliance to make their financial reports more informative. The study also tries to ascertain the regulatory necessary requirements in preparing the financial statements of banks under Islamic shariah and tries to display the compliance status of these banks with legislations. The average compliance rate is 93.28% for BB guidelines, 46.54% for AAOIFI Accounting Standard, 48.50% for B/IFRS and 51.99% for SEC rules considering all required aspects of financial reports. Compiling all of the requirements regarding financial reports of regulatory bodies will be helpful for banks to make financial reports convenient.

The Diminishing Benefits of U.S. Cross-Listing: Economic Consequences of SEC Rule 12h-6

On Mar. 21, 2007, the U.S. Securities and Exchange Commission (SEC) passed Exchange Act Rule 12h-6 to make it easier for cross-listed firms to deregister from the U.S. market and escape its regulatory costs. Using difference-in-difference (DD) tests, we find that, on average, Rule 12h-6’s passage induced an increase in voting premium, a decline in equity raising, and a decline in cross-listing premium. These effects are observed for exchange-listed firms and for firms from countries with weak investor protection. We conclude that although cross-listed firms are still valued at a significant premium over non-cross-listed firms, the rule decreased the value of commitment to the U.S. regulatory system.

The municipal advisor regulatory framework – where we are and where to next

PurposeTo describe the status of municipal advisor rulemaking by the US Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB), and regulatory compliance approaches, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).Design/methodology/approachExamines the posture of the SEC, MSRB and Financial Industry Regulatory Authority (FINRA) upon completion of the MSRB’s core regulatory framework for municipal advisors. Explores threshold issues in determining municipal advisor status, approaches for preparing for and responding to initial regulatory compliance examinations by the SEC and FINRA, and key considerations in reviewing municipal advisor policies, procedures and business practices in light of the evolving regulatory and marketplace landscape.FindingsSEC and FINRA compliance examiner feedback points to the expectation that municipal advisor policies, procedures, processes and records must be fully consistent with the firm’s business activities and must address each material aspect of all applicable MSRB and SEC rules, as well as the fiduciary duty of municipal advisors to their municipal entity clients under the Securities Exchange Act of 1934.Originality/valuePractical guidance from experienced securities and public finance attorney that provides a consolidated outline of key municipal advisor regulatory compliance obligations under the Dodd-Frank Act.

The Shelf Registration Process

This note covers U.S. SEC Rule 415, more widely known as shelf registration. It briefly discusses the rationale and historical origins of the rule in 1982 and then discusses several reforms—the introduction of universal registration statements in 1992 and well-known seasoned issuers in 2005—which have greatly expanded shelf-registered equity issuance. The more frequent use of shelf registration has led to the development of alternative methods of selling seasoned or follow-on equity offers, such as fully marketed offers, accelerated book building offers, and overnight offers. Excerpt UVA-F-1701 Rev. Nov. 19, 2015 The Shelf Registration Process Over the past several decades, most financial regulatory bodies have recognized that investors differ in their need for financial information and their abilities to acquire and process it. Regulators should ideally focus their attention on issuers (and their respective security offerings) that investors know little about and limit their scrutiny of issuers that already provide extensive disclosure and are well known to investors. Accordingly, in the United States and other developed countries, initial public offerings receive the greatest scrutiny and require the most complete disclosure of information. But as firms grow larger and become more frequent issuers in the capital markets, the regulatory requirements and oversight are typically reduced. The easing of restrictions on larger and better known issuers is commonplace across many countries but all these regulations have their origins in Securities and Exchange Commission (SEC) Rule 415. This note provides a brief historical review the origins of Rule 415, or as it is more widely known as shelf registration, and some of the important revisions to it that have increased its use over time. The more frequent use of shelf registration has led to the development of alternative methods of selling seasoned or follow-on equity offers, such as fully marketed offers, accelerated book building offers, and overnight offers. . . .

Does the 20-F Reconciliation Affect Investors' Perception of Comparability between Foreign Private Issuers (FPIs) and U.S. Firms?

SYNOPSIS Until recently, all Foreign Private Issuers (FPIs) listed on U.S. exchanges were required to reconcile their non-U.S. GAAP financial statements with U.S. GAAP in their annual Form 20-F filing. In November 2007, the Securities and Exchange Commission (SEC) eliminated this requirement for FPIs reporting in IFRS. We use this rule change to provide evidence on whether the U.S. GAAP reconciliation affects investors' perception of the degree of comparability between FPIs and domestic U.S. firms reporting in U.S. GAAP. To do so, we test whether the SEC's rule change reduced information transfer from IFRS-reporting FPIs to comparable U.S. firms at the FPIs' earnings announcements. Consistent with the U.S. GAAP reconciliation increasing investors' perception of comparability between FPIs and U.S. firms, we find that information transfer from IFRS-reporting FPIs to comparable U.S. firms decreased significantly after the rule change, on average. We also find evidence consistent with a decrease in comparability for financial analysts forecasting earnings for comparable U.S. firms. In contrast, we find no evidence of a similar decrease in information transfer for FPIs not reporting in IFRS that are unaffected by the rule change.

Letter From the Editor

Letter From the Editor

The New SEC Rules for Money Market Funds: Financial Reporting and Tax Consequences

In this article, the authors explain the new Securities and Exchange Commission (SEC) rules for money market mutual funds (MMFs), which are designed to improve their transparency and provide investor protection during periods of market stress. With their effective date just over one year away, it is clear that corporate accountants and financial executives need to understand the financial reporting and tax implications so that any changes needed to accounting and tax systems can be implemented in a timely manner. © 2015 Wiley Periodicals, Inc.

Market Information and Price Clustering: Evidence from SEC Rule 201

We provide a novel test of information-based theories of price clustering by examining trade, order, and inside quote price clustering during periods when information is removed from the market. We use a natural experiment of short-sale restrictions resulting from Securities and Exchange Commission (SEC) Rule 201 to more effectively determine the impact of information on price clustering, and in turn, more appropriately test the negotiation hypothesis. We find evidence of increased price clustering for trades, orders, and inside quotes during short-sale restrictions. Additionally, we document a dramatic increase in price clustering immediately before a Rule 201 trigger that is reduced once the restriction is triggered suggesting that the restriction may have a stabilizing effect.

Tweeting corporate disclosures: SEC staff issues guidance permitting hyperlinks to cautionary statements and legends in social media communications

Purpose – To review guidance issued in April 2014 by the staff of the USA Securities and Exchange Commission (SEC) that clarifies how participants in regulated securities offerings, business combinations, proxy contests, and tender offers may transmit required cautionary statements and legends to the securities marketplace via social media technology platforms whose space limitations preclude display of the full text of the required statements. Design/methodology/approach – Examines the new SEC staff interpretative guidance in light of the tension between the disclosure requirements of the SEC’s communications rules and the characteristics of some social media platforms that do not permit compliance with the SEC rules in the same manner as traditional paper-based disclosure vehicles. Findings – The staff’s new guidance permits issuers and other parties to comply with the communications rules by using in their social media transmissions an active hyperlink that connects to the text of the required statements, thereby dispelling the legal uncertainty about the hyperlinking approach that has discouraged parties from using some social media outlets to disseminate information about their transactions. The article notes that the staff’s conditions place important limitations on the use of hyperlinks, especially in connection with the use of popular social media platforms such as LinkedIn, Facebook, and others that do not impose a cap on the number of characters or amount of text that may be included in a communication, and fails to address the permissibility of other approaches to overcoming the space limitations of some platforms. Originality/value – Provides expert guidance from experienced securities lawyers.

Demystifying Disclosure Controls: Understanding Them to Effectively Leverage Toward Objectives

All organizations are subject to some degree of disclosure requirements, which are also commonly called external reporting requirements. They can be as simple as filing tax returns or as complex as meeting applicable rules and regulations of a governmental regulator, such as the U.S. Securities and Exchange Commission (SEC). No matter the extent, organizations are well advised to have robust disclosure controls in place to help ensure that external disclosures are prepared and delivered in accordance with the applicable external reporting requirements. While the article tackles disclosure controls mostly from SEC's definition, it also has ideas for entities not subject to SEC rules and regulations since this is a topic that applies to all types of organizations. It is essential to complete disclosures in an accurate, timely and complete manner to protect against adverse legal actions and to preserve the organization's reputation. The interests of stakeholder groups such as governments, creditors and regulators are essential to the success of any business and ignoring or under-resourcing their requirements is a recipe for disaster that can be averted through appropriate disclosure controls.

The Sixth Commissioner

The federal securities laws grant broad rulemaking authority to the Securities and Exchange Commission (SEC). In promulgating rules, the SEC must not only ensure that its rules protect investors and the public interest, but also consider the effects of its rules on efficiency, competition, and capital formation (the ECCF mandate).However, the SEC’s rulemaking authority has recently been frustrated. In two decisions striking down SEC rules, the D.C. Circuit held that the ECCF mandate requires a quantitative cost-benefit analysis. This contrasts with the SEC’s historic practice of qualitatively assessing the effects of its rules.While these D.C. Circuit decisions have been criticized for applying an inappropriately high standard of review to SEC rulemaking, this article identifies a more fundamental problem with these decisions: they interfere with the SEC’s power to administer the securities laws. This interference frustrates administrative law principles that lie at the heart of the division of power among the three branches of government.Requiring the SEC to engage in a quantitative analysis in rulemaking is especially troubling in a context where the SEC must pass numerous rules under the Dodd-Frank and JOBS Acts. These analyses will surely fail to capture the unquantifiable effects of SEC rules, such as their effect on firm wealth-creating strategic management processes. For these reasons, this article urges the SEC to exert its authority under securities laws and issue an explicit interpretation of the ECCF mandate in a way that best captures the full impact of its rules.

Inside or Out? The Dodd-Frank Whistleblower Program's Anti-Retaliation Protections for Internal Reporting

On July 17, 2013, the very first circuit court to have addressed the anti-retaliation protections available to whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) suddenly strayed from the string of judicial victories that had been mounting for employee-whistleblowers. In Asadi v. G.E. Energy (USA) LLC, the Fifth Circuit deviated from the holdings of several federal district courts that have interpreted the scope of Dodd-Frank’s anti-retaliation provisions to broadly protect whistleblowers. Ever since Dodd-Frank’s enactment in 2010, courts have struggled to interpret whether the statute’s anti-retaliation protections are available for internal whistleblowers, or those who internally report violations of the securities laws to their employers, rather than directly to the Securities and Exchange Commission (SEC). Confusion as to the scope of Dodd-Frank’s protections has arisen due to an inconsistency in the language of the statute with respect to how the term, “whistleblower,” is defined, which, on its face, appears to exclude internal whistleblowers. The various district courts to have addressed this issue prior to Asadi have each sided with the whistleblower, and have granted Chevron deference to a 2011 SEC rule that reconciles the statute’s inconsistency by clarifying that Dodd-Frank’s anti-retaliation protections are available to internal and external whistleblowers alike. The decision in Asadi stands in stark contrast to these decisions and the SEC’s interpretation of the statute. This Article will explore the Fifth Circuit’s decision in Asadi, as well as the district court opinions that have interpreted this issue, and will argue that Asadi sets a dangerous precedent. Not only will the Fifth Circuit’s decision likely pave the way for how other circuit courts will address this issue in the future, it also compromises the importance of internal compliance programs, which offer employees an outlet for reporting possible securities violations internally so that companies can respond to problems in a timely manner. Weakened protection against retaliation for internal whistleblowers will likely have the effect of creating disincentives for employees to report internally. This Article will examine the importance of internal compliance programs as a preventative measure against major securities violations and will consider the effect that strong anti-retaliation protections has on the promotion of internal reporting. As Dodd-Frank is still in its relatively early stages, it is probable that the Fifth Circuit’s surprising decision in Asadi will either give rise to a circuit split or prompt the Supreme Court to address this important issue.

Examining Timely Disclosure of Material Information and the Privacy Concerns of Executive Officers

On January 20, 1993, Michael Walsh, the former Chairman and CEO of Tenneco revealed to the public that he had brain cancer. This type of disclosure of health issues are arguably serious enough to affect Wall Street. Other company officials have previously made similar disclosures such as Hugh Martin, CEO of Pacific Biosciences, who in October 2010 disclosed to his employees that he had cancer of the Blood (multiple myeloma), and Harry J. Pearce, the Vice President of General Motors, who disclosed in 2001 that he had leukemia. The above public disclosures are however more the exceptions than the rule. When a CEO becomes ill, most public companies usually respond by keeping the full details of the illness a secret without violation of Securities Laws. The concern of these companies is that investors would abandon ship and that stock prices would decline if this information gets to the market. Classic examples are Apple Inc., and Sara Lee. The Securities and Exchange Commission (SEC) rules seem to be silent on such situations. The Securities Act of 1933 and the Securities and Exchange Commission Act of 1934 require companies with publicly traded securities to make fair, timely disclosures of material information to the investing public.The question therefore remains whether the health situation of an executive officer of a company is material information within the contemplation of the SEC rules that must be disclosed. If answered in the affirmative, then to what extent do executive officers have a right to privacy? If this information is not material information that is subject to disclosure, should the company in the absence of specific SEC rules, disclose facts about the illness of executives as a matter of good corporate governance. This paper will look at the position of the securities laws with regard to the duty to disclose and some of the arguments in support of material disclosure of the health of executive officers. This paper will also examine some of the opposing arguments and criticism about additional disclosures, which are mostly based on privacy-related statutes, absence of specific SEC rules for such situations, and the burden that such a requirement might place on companies. The paper will also attempt to strike a balance between the need to provide material information that may influence the investment decision of shareholders, and the need for the protection of the right to privacy of executive officers of a company.

An Update on the Use of Reservoir Analogs for the Estimation of Oil and Gas Reserves

Summary Since a prior paper on analogy for estimating petroleum reserves (Hodgin and Harrell 2006), new dimensions of this topic have emerged. This paper provides updated guidance for analogy use and explains new concepts for the application of analogy in reserves estimation and classification. Reserves evaluators using engineering and geoscience techniques now have new petroleum-reserves rules that include the use of analogy. In 2007, SPE finalized the Petroleum Resource Management System (PRMS) instructions, and in late 2008, the US Securities and Exchange Commission (SEC) published updated regulations on reserves reporting. Recent papers (Lee 2009; Etherington 2009) provide good summaries of the updated SEC rules and a comparison to PRMS. This paper will provide guidance to aid understanding of and compliance with these rules as related to the use of analogs. The paper provides interpretations of new analogy-related terminology and the related reserves rules. It also gives examples of how these interpretations can be applied to common reserves-estimation situations where analogy is used. The paper also addresses new concepts concerning how analogies can be shown as valid and can be adjusted for minor differences in the comparison of target field with analogy field. The recent publication of the US SEC reserves reporting rules, which draw partially from the SPE PRMS, has increased interest in deeper understanding of both these SEC rules and PRMS. This paper will assist those who develop and use petroleum-reserves data in understanding how the use of analogy can contribute to reliable reserves estimates and proper classification. Please note that the opinions expressed in this paper are those of the authors alone. They represent the opinions of neither the US SEC nor its staff members.

SEC Revises Reserves Rules on the Basis of SPE System

The US Securities and Exchange Commission (SEC) late last year unanimously adopted revisions to its rules governing oil and natural gas reserves reporting, with those revisions aligned with and incorporating many of the definitions in the Society of Petroleum Engineers (SPE) Petroleum Resources Management System (PRMS). The revised rules will go into effect on January 1, 2010. The SEC oversees US securities exchanges, securities brokers and dealers, investment advisers, and mutual funds. Companies publicly offering securities on US exchanges are required to file regular disclosures to the SEC, concerning their securities and the scope, practices, condition, and risks of their businesses with respect to investors. The changes just adopted by the SEC, announced December 29, 2008, marked the first major revision of the commission's reserves-reporting rules since 1983. "In the more than a quarter century since the SEC last reviewed its rules in this area, there have been significant changes in technology that have increasingly limited the usefulness of current disclosures to the market and investors," said Christopher Cox, then-Chairman of the SEC. "These updates to the SEC rules will help ensure more meaningful and comprehensive disclosure of information that, even though it does not appear on a company's balance sheet, is of significance to investors in making informed investment decisions." Leo Roodhart, 2009 SPE President, praised the commission for modernizing the reporting rules. "The SEC is to be commended for updating the rules on oil and natural gas reserves reporting to reflect changes in technology, and for using the PRMS primarily as the basis for the technical changes," he said. "The updated rules recognize the importance of new technologies in making accurate and reliable estimates of oil and natural gas reserves as the industry develops resources in harsher environments, including ultradeepwater and the Arctic, as well as more unconventional resources." The PRMS was developed by SPE in collaboration with the World Petroleum Council, the American Association of Petroleum Geologists, and the Society of Petroleum Evaluation Engineers (SPEE). "SPE's Oil and Gas Reserves Committee is gratified that our work has served as a foundation for improving the information provided to investors and the public about the reserves controlled by public companies," said Delores Hinkle, SPE Oil and Gas Reserves Committee Chairperson. "The updated rules allow companies the flexibility to provide additional reserve information to the investing public and should result in better reserve estimates, due to the inclusion of the advanced technologies and evaluation practices now in use around the world."

IPO Listings: Where and Why?

According to most research, firms benefit from being listed on the New York Stock Exchange (NYSE). Nevertheless, 224 of 640 firms that went public from 1993 through 2000 and were eligible for a NYSE listing chose to list their stock on Nasdaq. We hypothesize that this choice may be related to Securities and Exchange Commission (SEC) Rule 144. The rule regulates the sale of restricted stock by limiting the amount of unregistered stock that can be sold by an individual. We investigate the determinants of post‐IPO sales of restricted stock, examine IPO firms' listing choices, and find evidence consistent with firms selecting Nasdaq to reduce the effect of the limits on selling restricted stock imposed by the SEC's Rule 144. Venture capitalists play an important role in this listing decision.