Securities and Exchange Commission
Wednesday, October 26, 2016
Key Topics & Takeaways
- Universal Proxy Card: The Commission voted 2-1, with Piwowar opposed, to propose amendments to the proxy rules regarding the use of universal proxy cards and disclosure of voting options and voting standards in director elections.
- Intrastate and Regional Securities Offerings: The Commission voted unanimously to adopt rule amendments related to Securities Act Rules 147 and 504 to facilitate intrastate and regional securities transactions, and to repeal Securities Act Rule 505.
Securities and Exchange Commission Chair Mary Jo White
Securities and Exchange Commission (SEC) Chair Mary Jo White, in her statement, stated that the staff recommendation to propose amendments to federal proxy rules would provide shareholders who vote by proxy the ability to more easily pick among all candidates on the ballot. She called the right to elect directors a “fundamental element of corporate ownership,” and stated that the recommendation is driven by the principle of “fair corporate suffrage” by allowing the proxy voting process to replicate an in-person vote as much as possible.
Keith Higgins, Division of Corporation Finance, said the staff recommendation aligns proxy votes more closely with the decisions shareholders would make in-person, and that the mandatory universal proxy system would mitigate potential shareholder confusion.
Tiffany Posil, Division of Corporation Finance, explained that SEC staff have become aware of concerns that some proxy statements contained ambiguities and inaccuracies. She said the recommendation would provide more information to shareholders on nominees for director positions from both registrants and dissidents.
Mark Flannery, Division of Economic and Risk Analysis (DERA), stated that the proposed requirements could lead to cost savings for shareholders who would otherwise attend meetings in person, and would help shareholders vote for their preferred combinations of candidates. He stressed that the amendments are not meant to favor any particular sets of candidates for director positions.
Commissioner Kara Stein thanked the staff for its work on the proposal, and agreed that the recommendations would update rules to better safeguard shareholder voting rights. She said the proposal seeks to correct an anomaly that limits voter choice and helps proxy voting to better replicate the choices shareholders would make in-person.
Commissioner Michael Piwowar questioned the prioritization of workstreams at the SEC, and argued that the universal proxy rules may empower specific groups of shareholders to advance their own special interests to the detriment of other shareholders, including retail investors.
The Commission voted 2-1, with Piwowar opposed, to propose amendments to the proxy rules regarding the use of universal proxy cards and disclosure about voting options and voting standards in director elections.
Exemptions to Facilitate Intrastate and Regional Securities Offerings
Securities and Exchange Commission Chair Mary Jo White
White noted that the SEC has adopted several important new rules to facilitate capital raising by smaller issuers, such as crowdfunding and Regulation A offerings, and that many state securities regulators have similarly worked to update their own regulatory structures. However, she stated that the SEC’s rules for intrastate offerings have not been updated for decades, and do not consider how businesses practices and technology have changed.
White said the proposed Rule 147A would establish a new exemption for intrastate securities offerings to facilitate local and regional offerings that use modern technology and market practices while retaining their intrastate character. She noted that the proposal received broad support from commenters, including state regulators.
On Rule 504, White noted that the proposed amendments would increase the aggregate offering amount from $1 million to $5 million to further facilitate capital formation. Because this would reduce the incentive to use the little-used exemption in Rule 505, it would be repealed.
Higgins said the final rules would provide increased flexibility for intrastate offerings and modernize avenues for capital formation that consider how businesses operate and communicate today.
Anthony Barone, Division of Corporation Finance said the new Rule 147A would update the intrastate offering framework, and stressed that the recommended amendments would not affect an issuers’ obligations to comply with state securities laws.
Flannery said DERA has assessed the impacts of the amendments, and found that they may increase the efficiency of raising capital and increase competition among suppliers of capital by providing new avenues to raise capital for issuers.
Stein commented that while the rules attempt to improve capital raising for community-based companies, which have historically been exempted from federal registration, she has concerns about whether the rules can be relaxed while safeguarding investor protection. She pointed out that the new Rule 147A and the amended Rule 147 do not include bad actor provisions, and that the rules do not include a maximum offering limit or caps on what single investors can contribute. She said the changes are “worth the experiment,” but that the SEC should be able to recalibrate the rules “if the experiment is not working as planned.”
Piwowar called the final rules “well-crafted” and offered his full support, saying they properly recognize state regulators as competent authorities.
The Commission voted unanimously to adopt rule amendments related to Securities Act Rules 147 and 504 to facilitate intrastate and regional securities transactions, and to repeal Securities Act Rule 505.
For more information on this meeting, please click here.
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