COVID-19 Response Update: SEC and NYSE Measures

Wilson Sonsini Goodrich & Rosati
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Wilson Sonsini Goodrich & Rosati

As the novel coronavirus disease (COVID-19) pandemic continues, the U.S. Securities and Exchange Commission (SEC) has been providing guidance and implementing measures designed to provide relief to various market participants. In addition, the SEC approved the proposal filed by the New York Stock Exchange (NYSE) to suspend the NYSE's requirement that companies maintain an average market capitalization of at least $15 million.

SEC Measures

In addition to the recent Staff Guidance for Conducting Annual Meetings in Light of COVID-19 Concerns, issued by the staff of the SEC's Division of Corporation Finance on March 13 and discussed in further detail in our previous Client Alert, the SEC has issued 1) a Staff Statement Regarding Rule 302(b) of Regulation S-T in Light of COVID-19 Concerns, 2) a new Order modifying the exemptions from the reporting and proxy delivery requirements for public companies, and 3) CF Disclosure Guidance: Topic No. 9 regarding disclosure obligations in light of COVID-19.

  • Staff Statement Regarding Rule 302(b) of Regulation S-T. Rule 302(b) requires each signatory to electronic filings, e.g., Forms 8-K, 10-Q, 10-K, and Section 16 filings, to "manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing." This manually signed signature page or other authenticating document must "be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years."

    On March 24, the staff of the SEC's Division of Corporation Finance, Division of Investment Management, and Division of Trading and Markets, issued a statement with respect to the requirements of Rule 302(b). In response to questions and concerns from persons subject to these requirements, in particular relating to "health, transportation, and other logistical issues" during the COVID-19 pandemic, the staff stated that it would not recommend that the SEC "take enforcement action with respect to the requirements of Rule 302(b) if:
    • a signatory retains a manually signed signature page or other document authenticating, acknowledging, or otherwise adopting his or her signature that appears in typed form within the electronic filing and provides such document, as promptly as reasonably practicable, to the filer for retention in the ordinary course pursuant to Rule 302(b);
    • such document indicates the date and time when the signature was executed; and
    • the filer establishes and maintains policies and procedures governing this process."
    As an example of the first bullet, the staff stated that "if a signatory is teleworking, the signatory could execute a hard copy of the signature page remotely and hold that page for delivery to the filer upon his or her return to the place of work." In addition, the staff stated that "[t]he signatory may also provide to the filer an electronic record (such as a photograph or pdf) of such document when it is signed."

    Notwithstanding the above, the staff stated that it expects compliance with the requirements of Regulation 302(b) "to the fullest extent practicable based on [the applicable] particular facts and circumstances[,]" and that it expects filers "to maintain procedures to ensure that any typed signature in an electronic filing is affixed with the authority of the signatory."
  • SEC Order Modifying Exemptions from the Reporting and Proxy Delivery Requirements for Public Companies. On March 4, the SEC issued its original Order granting exemptions from specified provisions of the Securities Exchange Act of 1934 (Exchange Act) and certain rules thereunder for companies affected by COVID-19. The original Order related to certain filing obligations of publicly-traded companies that are due between March 1, 2020, and April 30, 2020.

    On March 25, the SEC issued a new Order modifying the exemptions to cover filing obligations of publicly-traded companies that are due on or before July 1, 2020. This new Order contains similar conditions to those included in the original Order, except that the new Order clarifies that the registrant must include in its Form 8-K or Form 6-K disclosure of "a company specific risk factor or factors explaining the impact, if material, of COVID-19 on its business[.]" (Emphasis added.) The language from the original Order was not quite as clear, requiring the company to disclose in the applicable Form 8-K or Form 6-K of "if appropriate, a risk factor explaining, if material, the impact of COVID-19 on its business[.]"

    For information relating to the original Order, questions and answers relating to these exemptions, and a summary of the conditions for eligibility to use the exemptions, please see our previous Client Alert.
  • Division of Corporation Finance - Disclosure Guidance with Respect to COVID-19. On March 25, the SEC's Division of Corporation Finance (Division) issued guidance on its "current views regarding disclosure and other securities law obligations that companies should consider with respect to [COVID-19] and related business and market disruptions."

    The Division acknowledged that there are difficulties in assessing or predicting with precision the impact of COVID-19 on specific industries or companies and that the actual impact of COVID-19 will depend on factors outside of a company's control and knowledge. Notwithstanding the foregoing, the Division stated that "the effects COVID-19 has had on a company, what management expects its future impact will be, how management is responding to evolving events, and how it is planning for COVID-19-related uncertainties can be material to investment and voting decisions." Accordingly, the Division implored companies to "consider the need for COVID-19-related disclosures within the context of the federal securities laws and [its] principles-based disclosure system."

    Although there may not be a specific line item disclosure requirement relating to pandemics or COVID-19, the Division stated that "a number of existing rules and regulations require disclosure about the known or reasonably likely effects of and the types of risks presented by COVID-19[,] which may require disclosures, if necessary or appropriate, "in management's discussion and analysis, the business section, risk factors, legal proceedings, disclosure controls and procedures, internal control over financial reporting, and the financial statements."

    Assessing and Disclosing the Evolving Impact of COVID-19

    The guidance provides that the assessment of the effects and risks of COVID-19 will be a facts and circumstances analysis. In addition, the guidance also provides that disclosures about the effects and risks of COVID-19 should be company-specific. To assist companies in assessing the effects and considering their disclosure obligations, the Division provided a non-exhaustive list of questions that companies should consider with respect to their present and future operations. These questions are wide-ranging and include, among others, questions relating to:
    • the impact on the company's financial condition and operating results;
    • the impact on the company's liquidity and capital resources;
    • the impact on a company's assets and balance sheet;
    • possible material impairments, increases in credit losses, or restructuring charges;
    • the impact of remote work arrangements on the company's ability to maintain operations, including financial reporting systems, disclosure controls, and internal controls;
    • challenges to implementing the company's business continuity plans and possible material expenditures relating thereto;
    • the impact on demand for the company's products or services;
    • the impact on the company's supply chain and distribution channels;
    • the impact on operations, human capital resources and productivity; and
    • the effect of travel restrictions and border closures on operations and business goals.
    The Division reminded companies to "provide disclosures that allow investors to evaluate the current and expected impact of COVID-19 through the eyes of management" as well as "proactively revise and update disclosures as facts and circumstances change." It also acknowledged that most of the information provided in relation to potential risks and effects of COVID-19 will be forward-looking, and that those disclosures "can be undertaken in a way to avail companies of the safe harbors in Section 27A of the Securities Act and Section 21E of the Exchange Act for this information."

    Need to Refrain from Trading Prior to Dissemination of Material Non-Public Information

    The guidance reminds both companies and individuals (e.g., directors, officers, and other insiders) that "where COVID-19 has affected a company in a way that would be material to investors or where a company has become aware of a risk related to COVID-19 that would be material to investors, its directors and officers, and other corporate insiders who are aware of these matters should refrain from trading in the company's securities until such information is disclosed to the public."

    This guidance supports the recent statement from the co-directors of the SEC's Division of Enforcement, which emphasized the currently existing dynamic circumstances in which "corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances[,]" and that those individuals with this type of access, e.g., officers, directors, and other insiders, "should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading." The statement also urged "public companies to be mindful of their established disclosure controls and procedures, insider trading prohibitions, codes of ethics, and Regulation FD and selective disclosure prohibitions to ensure to the greatest extent possible that they protect against the improper dissemination and use of material nonpublic information."

    Regulation FD Reminder - Avoiding Selective Disclosures

    The guidance reminds companies "to avoid selective disclosures by disseminating such information broadly to the public[,]" as well as to "consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate."

    Reporting Earnings and Financial Results

    The guidance encourages "companies to proactively address financial reporting matters earlier than usual[,]" including potential novel or complex accounting issues arising from the impact of COVID-19, to try to maintain, to the extent possible, timely filings during this pandemic.

    The guidance also covers non-GAAP financial measures and performance metrics, noting that to the extent that a company presents one of these measures or metrics "to adjust for or explain the impact of COVID-19, it would be appropriate to highlight why management finds the measure or metric useful and how it helps investors assess the impact of COVID-19 on the company's financial position and results of operations."

    In addition, because many companies release earnings in advance of filing their quarterly reports, the Division acknowledged that "there may be instances where a GAAP financial measure is not available at the time of the earnings release because the measure may be impacted by COVID-19-related adjustments that may require additional information and analysis to complete." In these circumstances, the guidance provides that "the Division would not object to companies reconciling a non-GAAP financial measure to preliminary GAAP results that either include provisional amount(s) based on a reasonable estimate, or a range of reasonably estimable GAAP results[,]" which provisional amount(s) or range "reflect a reasonable estimate of COVID-19 related charges not yet finalized, such as impairment charges." If using provisional amounts or an estimated range, then the company "should explain, to the extent practicable, why the line item(s) or accounting is incomplete, and what additional information or analysis may be needed to complete the accounting."

    These non-GAAP financial measures should be limited to only those measures that the company "is using to report financial results to the Board of Directors." The guidance reminds companies that the Division does "not believe it is appropriate for a company to present non-GAAP financial measures or metrics for the sole purpose of presenting a more favorable view of the company[,]" but rather that these measures and metrics should be used "for the purpose of sharing with investors how management and the Board are analyzing the current and potential impact of COVID-19 on the company's financial condition and operating results." For clarity, since those numbers should be final at the timing of filing, reconciliations in SEC filings, e.g., Forms 10-Q and 10-K, should be made to the actual GAAP results, not the provisional amounts or a range of estimated results.

    For companies considering presenting metrics or changing the method by which they calculate their metrics, in either case, in response to COVID-19 issues, the Division reminded companies to review the SEC's recent guidance on the disclosure of key performance indicators and metrics. Please see our previous Client Alert for further detail on this recent guidance.

NYSE Measures

On March 19, the NYSE filed with the SEC a proposal to suspend until June 30, 2020, the application of the NYSE's continued listing requirement that companies must maintain an average global market capitalization over a consecutive 30-day period of at least $15 million. This proposal was approved by the SEC on March 20.

Absent this accommodation, companies that fall below $15 million over a consecutive 30-day period would have trading in their securities immediately suspended, and would be subject to delisting.1 The suspension of this listing requirement does not affect any companies that have already been notified of noncompliance or are in the delisting appeal process; however, companies will not be notified of any new events of noncompliance under this listing standard during the suspension period. Of note, other continued listing standards will continue to apply. While this suspension may be extended at a later date, at this time, the NYSE would recommence measuring noncompliance with the NYSE's average global market capitalization listing requirement on a consecutive 30 trading-day period commencing on or after July 1, 2020.

The NYSE previously instituted similar measures during the financial crisis in 2009. From March 4, 2009, through July 31, 2009, the NYSE suspended its dollar price continued listing standard. In addition, commencing as of January 27, 2009, the NYSE lowered its average market capitalization standard from $25 million to $15 million, making such reduction permanent in July 2009.

What to Do Now?

For companies materially impacted by COVID-19 and requiring relief from the signature requirements set forth in Rule 302(b) or the filing requirements under the Exchange Act for filings due on or before July 1, the conditions and requirements for those relief measures should be carefully reviewed and followed. For example, appropriate written policies and procedures should be put in place to manage signature requirements in this increasingly remote environment to ensure that typed signatures are being affixed with appropriate signature authority and otherwise comply with the requirements of Rule 302(b) and the staff statement.

In addition, companies should continue to assess the risks and effects of COVID-19 at both the company and industry level, and consider what new disclosures may be required in subsequent quarterly filings or whether any updates to prior disclosures may be required. For example, many companies are filing Form 8-Ks to update prior disclosures, including providing operational updates, changing, suspending, or withdrawing prior guidance, or adding supplemental COVID-19 risk factors. Any such decisions should be based on the specific facts and circumstances of the company, and any resulting disclosures should be company specific.


[1] See Section 802.01B of the NYSE Listed Company Manual.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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