Financial Services Weekly News: SEC Amends FINRA IPO Allocations Rules

Goodwin

REGULATORY DEVELOPMENTS

SEC Approves Amendments to FINRA IPO Allocations Rules on Accelerated Basis

On November 5, the SEC approved proposed amendments to FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and Rule 5131 (New Issue Allocations and Distributions). Rule 5130 prohibits the sale of IPO shares and other new issues by underwriters to “restricted persons” as defined in the rule. Rule 5131 contains several prohibitions and other conditions in connection with the allocation and distribution of new issues. Rule 5131(b) specifically prohibits “spinning” – the sale of new issues to the executive officers and directors of public companies and other covered companies to whom the underwriter has provided, or expects to provide, investment banking services. The rules contain a number of exemptions and exclusions which are identical with a few exceptions. The amendments to the rules, for the most part, expand the exemptions and exclusions in helpful ways. Changes include: (i) expanding the category of persons who may own a “family investment vehicle,” which is excluded from the definition of “collective investment account,” to include not only immediate family members but also other family members and family clients, both as defined in Rule 202(a)(11)(G)-1 under the Investment Advisers Act; (ii) excluding sovereign entities from the category of persons who are restricted on the basis of ownership of a broker-dealer; (iii) adding an exemption for certain foreign employee retirement benefit plans if the plan, or family of plans, has at least 10,000 participants and $10 billion in assets; (iv) providing alternative conditions for the foreign investment company exemption; (v) excluding from the rule sales by foreign non-member brokers participating in the syndicate and selling to non-U.S. persons; (vi) expanding the exception for issuer-directed offerings to include allocations directed by affiliates and selling shareholders of the issuer; and (vii) applying the anti-dilution provisions of Rule 5130 to allocations under Rule 5131(b) as well.

The SEC approved the proposed rules on an accelerated basis, prior to the 30th day after publication of notice of filing in the Federal Register. If FINRA follows its standard practice, it will publish a regulatory notice announcing the effective date of the amendments. Investment banks and collective investment accounts, such as hedge funds and private equity funds, should prepare to amend their Rule 5130 and 5131 questionnaires to incorporate the changes to the definitions and general exemptions. Fund managers may continue to rely on existing questionnaires from their investors, because the changes do not narrow or restrict exemptions that are currently applicable.

SEC Proposes Amendments to Modernize Shareholder Proposal Rule

On November 5, the SEC proposed amendments to Rule 14a-8 under the Securities Exchange Act of 1934, also known as the shareholder proposal rule. The rule requires companies that are subject to the federal proxy rules to include shareholder proposals in their own proxy statements to shareholders, subject to certain procedural and substantive requirements. The proposed amendments modify two of Rule 14a-8’s procedural requirements and one of its substantive requirements:

  • The first proposed amendment is to paragraph (b) of the rule, which establishes the ownership requirements a shareholder-proponent must satisfy to be eligible to submit a shareholder proposal. Under the SEC’s proposed amendment, a shareholder-proponent would be eligible to submit a proposal if the shareholder-proponent has continuously held at least (i) $2,000 of the company’s securities entitled to vote on the proposal for at least three years; (ii) $15,000 of the company’s securities entitled to vote on the proposal for at least two years; or (iii) $25,000 of the company’s securities entitled to vote on the proposal for at least one year. The SEC also proposes to eliminate the current 1% ownership threshold, which historically has not been utilized.
  • The second proposed amendment is to paragraph (c) of the rule, which provides that each shareholder-proponent may submit no more than one proposal to a company for a particular shareholders’ meeting. The SEC proposes to clarify the existing rule by applying it to “each person” rather than “each shareholder” who submits a proposal. This would prevent a single person from submitting multiple proposals at the same shareholder’s meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder.
  • The third proposed amendment is to paragraph (i)(12) of the rule, which allows companies to exclude a shareholder proposal if substantially the same proposal, or substantially the same subject matter, had previously been submitted during the relevant lookback period and did not meet certain minimum vote thresholds. Under the SEC’s proposed amendment, the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings would be increased from 3%, 6%, and 10%, to 5%, 15%, and 25%, respectively. The proposed amendment also adds an additional provision to the rule that would allow companies to exclude proposals that have been submitted three or more times in the preceding five years if they received more than 25%, but less than 50%, of the vote and experienced a decline in support of 10% or more compared to the prior year.

The public may comment on the proposed amendments until 60 days after publication in the Federal Register.

SEC Proposes Rule Amendments to Improve Accuracy and Transparency of Proxy Voting Advice

On November 5, the SEC proposed amendments to certain of its rules regulating proxy advisers. The proposal, which is part of the SEC’s ongoing focus on improving the proxy process and the ability of shareholders to exercise their voting rights, would reshape the existing regulatory framework that exempts proxy advisers from the filing and information requirements of the federal proxy rules. The proposed amendments would amend three rules under the Securities Exchange Act of 1934:

  • Rule 14a-1(l). The proposed amendments, which codify the SEC’s August 21 guidance, would amend the rule’s definitions of “solicit” and “solicitation” to specify the circumstances when a proxy adviser will be deemed to be engaged in a solicitation subject to the rules. This amendment would also codify the SEC’s view that voting advice furnished in response to an unsolicited inquiry (e.g., a financial advisor or broker providing voting advice based on an unsolicited inquiry from its client) would not constitute a solicitation. (For more on the SEC’s August 21 guidance, see Goodwin’s September 11, 2019 client alert).
  • Rules 14a-2(b)(1) and 14a-2(b)(3). The proposed amendments would subject proxy advisers currently relying on Rule 14a-2(b)’s exemptions from the information and filing requirements of the proxy rules to certain enhanced disclosures. Proxy advisers would be required to disclose material conflicts of interest in their proxy voting advice. The proposed amendments would also require proxy advisers to provide companies and other soliciting parties an opportunity to review and provide feedback on the proxy adviser’s advice before it is provided to clients. The proposed amendments would also allow companies and other soliciting parties to request that the proxy adviser hyperlink in its proxy voting advice to the company’s or other soliciting party’s written views on the proxy adviser’s advice.
  • Rule 14a-9. The proposed amendments would include new examples of how a proxy adviser’s failure to disclose certain information in its proxy voting advice could be considered misleading within the meaning of the rule.

The public may comment on the proposed amendments until 60 days after publication in the Federal Register.

SEC Announces Proposed Amendments to the Advertising and Cash Solicitation Rules for Investment Advisers

On November 4, the SEC announced that it had voted to propose amendments to the Investment Advisers Act of 1940 rules regarding investment adviser advertisements and payments to solicitors. On the amendments’ purpose, SEC Chairman Jay Clayton stated, “The reforms we have proposed today are designed to address market developments and to improve the quality of information available to investors, enabling them to make more informed choices.” The amendments would revise Rules 206(4)-1, 206(4)-3, and 204-2 and would amend Form ADV. The proposed amendments to Rule 206(4)-1 would, among other things, update the definition of “advertisement” to provide flexibility and remain current with advances in technology and industry practices, permit testimonials and endorsements and third-party ratings, under certain circumstances, and would provide additional protections for advertisements targeted at retail audiences. The proposed amendments to Rule 206(4)-3 are meant to make refinements in its scope pertaining to written solicitation agreements and in disclosure requirements. The solicitation amendments would expand the rule to cover all forms of compensation to solicitors rather than the cash-only rule, subject to a de minimis threshold. Finally, the SEC has also proposed amendments to Rule 204-2 regarding advertising and solicitation rules, as well as to Form ADV, to provide additional information regarding advertising practices, which will facilitate the SEC’s review, inspection and enforcement practices. The public comment period will remain open for 60 days following the proposal’s publication in the Federal Register.

FDIC Requests Comments on Collection of Pilot Program Proposals by Innovators

On November 6, the FDIC requested comments on its collection of pilot program proposals by innovators. An innovation pilot program framework can provide a regulatory environment in which the FDIC, in conjunction with individual proposals collected from innovators, including banks, will provide tailored regulatory and supervisory assistance, when appropriate, to facilitate the testing of innovative and advanced technologies, products, services, systems, or activities. At the end of the comment period, any comments and recommendations received will be reviewed to determine the extent to which the collection of proposals should be modified prior to the submission to the Office of Management and Budget for review and approval. Comments must be submitted by January 6, 2020.

ENFORCEMENT & LITIGATION

FDIC Settles With Seattle-Based Bank Over Alleged RESPA Violations

On November 6, the FDIC announced a settlement with a Seattle-based bank over alleged violations of the Real Estate Settlement Procedures Act (RESPA). According to the FDIC, the bank, through a now-discontinued business line, entered into certain co-marketing and desk rental arrangements with real estate brokers and home builders to co-market their services using online platforms. The FDIC found that these arrangements resulted in the bank paying fees to the real estate brokers and home builders for referrals of business. Such arrangements may be permissible under certain circumstances, but in this case the FDIC found that the agreements violated RESPA because the amounts paid exceeded the fair market value of the goods and services provided. Read the Enforcement Watch blog post.

Written by:

Goodwin
Contact
more
less

Goodwin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.