On June 11, 2021, the Office of Information and Regulatory Affairs, a division of the Office of Management and Budget, released the Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions,[1] which includes contributions (the “Agenda”) from the Securities and Exchange Commission (“SEC” or “Commission”). The ambitious list is borne of Chair Gensler’s acknowledgment that the Commission “has a lot of work” before it in order to meet its “mission of protecting investors maintaining fair, orderly, and efficient markets, and facilitating capital formation.”[2] It does, however, provide a number of potentially contentious rule proposals and amendments related to climate change disclosure, human capital management disclosure, amendments regarding special purpose acquisition companies, and amendments to the use of affirmative defense provisions under the insider trading rules. A statement from the SEC’s Republican Commissioners, Roisman and Peirce, soon followed the Agenda’s publication, and questioned whether the list is fully comprehensive and noting certain salient items that appear to be missing, including rules to provide clarity for digital assets.[3]

The Chair’s Agenda

The semiannual regulatory agenda lists a number of rule proposals expected over the next year. Chief among these propositions are those rules addressing climate change, human capital management, and corporate board diversity, which suggests that Chair Gensler will make good on his promises to focus on Environmental, Social, and Governance issues (“ESG”). For example, at the Conference on Financial Market Regulation, Chair Gensler’s opening remarks noted that climate risk and the workforce will be one of his top priorities and “an early focus of [his] tenure at the SEC.”[4] This statement seems to buttress a priority recently set when Commissioner Lee was Acting Chair, as climate and sustainability are among her priorities.[5] Specifically, on March 3, 2021, the SEC’s Division of Examinations announced its 2021 exam priorities and noted that it “is enhancing its focus on climate and ESG-related risks.”[6] And just days later, on March 15, 2021, Acting Chair Lee issued a public statement requesting public input on climate change disclosures, citing a “demand for climate change information.”[7] The SEC has also created a page on its website, “SEC Response to Climate and ESG Risks and Opportunities,” which provides a number of resources to correspond with the Commission’s so-called “all-agency approach” to ESG.[8]

The Agenda also notes the Division of Trading and Markets’ recommendation that the Commission seek public comment on potential rules related to gamification, behavioral prompts, predictive analytics, and differential marketing.[9] This request appears directly tied to the Division’s monitoring of stock market volatility tied to the “meme stock” trading craze, which has also led to various requests for shortening the current settlement cycle from two days to one (“T+1”). The Depository Trust & Clearing Corp. (“DTCC”), Securities Industry Financial Markets Association, and Investment Company Institute, reported their desire to accelerate the settlement cycle to T+1, which will, in turn, “deliver greater operational efficiencies, substantially lower capital requirements and reduce risk in the financial system.”[10] Accordingly, the Agenda also calls for proposed rule amendments that would shorten settlement times.[11]

Around that same time, the Commission is seeking to propose rule amendments addressing Rule 10b5-1 corporate stock plans, which were established to address insider trading concerns by allowing corporate executives who may possess material nonpublic information to enter into predetermined stock transactions without reliance on future information. Chair Gensler has already expressed concern about potential abuses of this rule and his hope to revise it.[12] In particular, Chair Gensler expressed the following four criticisms of Rule 10b5-1: (1) the current 10b5-1 plans do not require a cooling-off period before insiders can make their first trades; (2) there are no limits on when 10b5-1 plans can be canceled, which has an “upside-down” effect of enabling insiders to cancel plans based on material nonpublic information; (3) there are no mandatory disclosure requirements regarding 10b5-1 plans; and (4) there are no limits on the number of 10b5-1 plans that insiders can adopt, enabling them to enter into multiple plans, pick among favorable plans, and cancel unfavorable plans as they please.[13]

Commissioner Dissent

Following the release of the Agenda, on June 14, 2021, Commissioners Peirce and Roisman published a statement on the Agenda to note the “important and timely items” on the Agenda, and to voice concern that scarce resources are being used to revisit a series of recently completed rulemakings and that important issues are missing from the list, particularly those involving digital assets, and proxy plumbing.[14] Commissioners Peirce and Roisman discussed that the Agenda appears to “undo a number of rules the Commission just adopted,” which had undergone significant public comment periods.[15] For example, the statement charges that the recent directive to revisit rulemakings regarding proxy voting advice was “just the opening salvo in an effort to reverse course on a series of recently completed rulemakings,” and cites to a number of amendments seeking to change course on proxy advice and shareholder proposals under Rule 14a-8, the resource extraction payment disclosure rules, the accredited investor definition, and the whistleblower rules.[16] The Commissioners state that the SEC’s recent amendments to each of these rules are less than a year old and have been in effect for only a period of months, thus lending support to the notion that the Commission has not received new information that could warrant opening up these rules for further changes at this time.[17]

Conclusion

This new Agenda will likely result in an increase in inspections and examination in the fund industry and will drive an overall increase in enforcement. Accordingly, we anticipate increased calls for and initiatives regarding transparency, disclosures, and investor protection.[18] The Agenda is therefore likely a response to the change in Presidential Administration, and the shift in regulatory and enforcement priorities. Market participants should keep on top of these various changes and the proposed rules that will continue to roll out and ensure that they are equipped to handle any increased scrutiny and enforcement. Enacting a strong compliance program can provide a company with the means to reduce potential securities law violations, and a consultation with counsel can provide advice on how to proactively respond to these proposed changes.

[1] Office of Information and Regulatory Affairs, Spring 2021 Unified Agenda of Regulatory and Deregulatory Actions, U.S. Sec. & Exch. Comm’n Agency Rule List, available at https://bit.ly/35H1Det
[2] U.S. Sec. & Exch. Comm’n, Press Release, Rel No 2021-99, SEC Announces Annual Regulatory Agenda (June 11, 2021), available at https://www.sec.gov/news/press-release/2021-99.
[3] Hester M. Peirce and Elad L. Roisman, U.S. Sec. & Exch. Comm’n, Public Statement, Moving Forward or Falling Back? Statement on Chair Gensler’s Regulatory Agenda (June 14, 2021), available at https://www.sec.gov/news/public-statement/moving-forward-or-falling-back-statement-chair-genslers-regulatory-agenda?utm_medium=email&utm_source=govdelivery#_ftn1.
[4] Dan Seal, Law360, Gensler Says Climate Disclosure Rules Among ‘Top Priorities’ (May 13, 2021), available at https://www.law360.com/articles/1384626.
[5] U.S. Sec. & Exch. Comm’n, Press Release, Rel. No. 2021-13, Allison Herren Lee Named Acting Chair of the SEC, available at https://www.sec.gov/news/press-release/2021-13.
[6] U.S. Sec. & Exch. Comm’n, Press Release, Rel. No. 2021-39, SEC Division of Examinations Announcement 2021 Examination Priorities (March 3, 2021), available at https://www.sec.gov/news/press-release/2021-39.
[7] Allison Herren Lee U.S. Sec. & Exch. Comm’n, Public Statement, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021), available at https://www.sec.gov/news/public-statement/lee-climate-change-disclosures.
[8] https://www.sec.gov/sec-response-climate-and-esg-risks-and-opportunities.
[9] See note 1 supra.
[10] DTCC, A Shorter Settlement Cycle: T+1 Will Benefit Investors and Market Participant Firms by Reducing Systemic and Operational Risks (May 4, 2021), available at https://www.dtcc.com/dtcc-connection/articles/2021/may/04/a-shorter-settlement-cycle.
[11] See note 1 supra.
[12] John J. Carney, Teresa Goody Guillén, Jonathan R. Barr, Jimmy Fokas, and Audrey van Duyn, BakerHostetler, New SEC Chair Proposes Limiting Rule 10b5-1 Trading Plans, Citing ‘Real Cracks’ in SEC Insider Trading Enforcement (June 11, 2021), available at https://www.bakerlaw.com/alerts/new-sec-chair-proposes-limiting-rule-10b5-1-trading-plans-citing-real-cracks-in-sec-insider-trading-enforcement; see also Gary Gensler, U.S. Sec. & Exch. Comm’n, Prepared Remarks, CFO Network Summit (June 7, 2021), available at https://www.sec.gov/news/speech/gensler-cfo-network-2021-06-07.
[13] Id.
[14] See note 3 supra.
[15] Id.
[16] Id.
[17] Id.
[18] Jonathan R. Barr, John J. Carney, Kevin R. Edgar, Jimmy Fokas, Teresa Goody Guillén, Bari R. Nadworny, Michelle N. Tanney, BakerHostetler, The Future of SEC Enforcement Under the Biden Administration (Apr. 16, 2021), available at https://www.bakerlaw.com/alerts/the-future-of-sec-enforcement-under-the-biden-administration.