Rule 144 Holding Period and Form 144 Filings
The Securities and Exchange Commission (``Commission'') is proposing to amend Rule 144 to revise the holding period determination for securities acquired upon the conversion or exchange of certain market-adjustable securities of issuers that do not have securities listed on a national securities exchange. Under the proposed amendments, the holding period for those securities would not begin until the securities are acquired upon the conversion or exchange of the market-adjustable security. The Commission is also proposing to mandate electronic filing of Form 144 with respect to securities issued by issuers subject to Exchange Act reporting requirements, to amend the filing deadline for Form 144 to coincide with the filing deadline for Form 4, and to streamline the filing process in cases where both Form 4 and Form 144 are required to report the same transaction. Finally, the Commission is proposing to eliminate the requirement to file a Form 144 for resales of securities of issuers that are not subject to Exchange Act reporting.
SEC Small Business Capital Formation Advisory Committee
The Securities and Exchange Commission Small Business Capital Formation Advisory Committee, established pursuant to Section 40 of the Securities Exchange Act of 1934 as added by the SEC Small Business Advocate Act of 2016, is providing notice that it will hold a public meeting by videoconference. The public is invited to submit written statements to the Committee.
Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets
We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States. Specifically, the amendments simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections. The amendments also seek to close gaps and reduce complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for businesses and entrepreneurs.
Adjustments to Civil Monetary Penalty Amounts
The Securities and Exchange Commission (the ``Commission'') is publishing this notice (the ``Notice'') pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the ``2015 Act''). This Act requires all agencies to annually adjust for inflation the civil monetary penalties that can be imposed under the statutes administered by the agency and publish the adjusted amounts in the Federal Register. This Notice sets forth the annual inflation adjustment of the maximum amount of civil monetary penalties (``CMPs'') administered by the Commission under the Securities Act of 1933, the Securities Exchange Act of 1934 (the ``Exchange Act''), the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. These amounts are effective beginning on January 15, 2021, and will apply to all penalties imposed after that date for violations of the aforementioned statutes that occurred after November 2, 2015.
Notice of Proposed Conditional Exemptive Order Granting a Conditional Exemption From the Information Review Requirement and the Recordkeeping Requirement Under the Securities Exchange Act of 1934 for Certain Publications or Submissions of Broker-Dealer Quotations on an Expert Market
Pursuant to Section 36(a)(1) of the Securities Exchange Act of 1934 (the ``Exchange Act'') and Rule 15c2-11 under the Exchange Act (as published in the Federal Register on October 27, 2020, ``Amended Rule 15c2-11'' or the ``Amended Rule''), the Securities and Exchange Commission (the ``SEC'' or the ``Commission'') is proposing to grant exemptive relief, subject to certain conditions, to permit broker- dealers to publish or submit proprietary quotations for securities, on a continuous basis, in a market where the distribution of such quotations is restricted to sophisticated or professional investors, without complying with the information review and recordkeeping requirements of Amended Rule 15c2-11(a)(1)(i) and (d)(1)(i)(A), respectively.
Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information
We are adopting amendments to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, we are eliminating the requirement for Selected Financial Data, streamlining the requirement to disclose Supplementary Financial Information, and amending Management's Discussion & Analysis of Financial Condition and Results of Operations (``MD&A''). These amendments are intended to eliminate duplicative disclosures and modernize and enhance MD&A disclosures for the benefit of investors, while simplifying compliance efforts for registrants.
Joint Industry Plan; Notice of Filing of Amendment to the National Market System Plan Governing the Consolidated Audit Trail by BOX Exchange LLC; Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe C2 Exchange, Inc. and Cboe Exchange, Inc., Financial Industry Regulatory Authority, Inc., Investors Exchange LLC, Long-Term Stock Exchange, Inc., Miami International Securities Exchange LLC, MEMX, LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, The NASDAQ Stock Market LLC; and New York Stock Exchange LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago, Inc., and NYSE National, Inc.
Cyber Breach Analysis. The first analysis we present is to identify specific potential breach scenarios and assess the relative difficulty of implementation, relative frequency, and conditional severity of each. As part of this assessment, we identified eight potential scenarios in which bad actors could attempt to unlawfully obtain, utilize, and monetize CAT data. Of course, we recognize that cyber-attacks on the CAT could vary from the scenarios we hypothesize, but we offer them to provide a framework to assess the economic exposures that flow from the gathering, storage, and use of CAT data. Our risk analysis indicates that most of these scenarios are relatively low frequency events because they are either difficult to implement, unlikely to be meaningfully profitable for a bad actor, or both. The scenario analysis also indicates that three types of breachesreverse engineering of trading algorithms, inserting fake data to wrongfully incriminate individuals or entities, and removing data to conceal misconductcould result in ``extremely'' severe economic consequences (which we define as potentially greater than $100 million in damages). We conclude that all three of these types of breaches are relatively low frequency events. Summary: Regulation vs. Litigation to Mitigate Cyber Risk for the CAT. The second analysis we present focuses on whether the cyber risk posed by CAT should be addressed through ex-ante regulation, ex post litigation, or a combination of both approaches. In a prior version of the CAT Reporter Agreement, CAT LLC included a limitation of liability provision, which memorialized the Participants' view that Industry Members should not be able to litigate against CAT LLC or the Participants to recover damages sustained as a result of a cyber breach. Although the current operative version of the Reporter Agreement does not contain a limitation of liability, we understand that CAT LLC is submitting this White Paper in connection with CAT LLC's request that the SEC amend the CAT NMS Plan to authorize such a provision. We understand that the Industry Members have opposed any limitation of liability provision and contend that CAT LLC, as the party holding the CAT data, should be subject to litigation by the Industry Members in the event of a cyber breach. In deciding whether to approve Participants' proposed plan amendment, an important question for the SEC to address is whether, in light of the extensive cyber requirements already imposed on CAT LLC through regulation, the SEC-mandated nature of the CAT, and the ability of the SEC to bring enforcement actions to compel compliance, it is appropriate to also allow Industry Members to sue CAT LLC and the Participants. As part of our analysis, we specifically assess whether including a limitation of liability provision in the CAT Reporter Agreement is appropriate from the perspective of economic theory as applied to the specifics of this situation. By applying the economic principles of liability and regulation as a means of motivating risk-minimizing behavior and considering the crucial role of the SEC's mandates regarding cyber security for the CAT (which already incorporate the concerns of entities involved in the National Market System as a whole), we conclude that the regulatory approach leads to the socially desirable level of investment in cyber security and protection of CAT data. We further conclude that SIFMA's position, which advocates allowing Industry Members to litigate against CAT LLC and the Participants in the event of a cyber breach, would result in increased costs for various economic actorsincluding CAT LLC, the Participants, Industry Members, and retail investorswithout any meaningful benefit to the CAT's cyber security. At a high level (and as discussed in extensive detail below), we therefore conclude that CAT LLC's proposal to limit its liability and the liability of the Participants is well supported by applicable economic principles in the framework of the SEC's mission and its mandates regarding the CAT. As a general matter, economic theory provides that society can motivate economic actors to take appropriate precautions to minimize the likelihood and consequences of accidents and misconduct through: (a) A regulatory approach (i.e., dictating specific precautions, requirements, and standards in advance), (b) a litigation approach (i.e., civil liability for damages caused by failing to adhere to a general standard of care), or (c) a combination of (a) and (b). At the outset, we note that we do not address this question in a vacuum. Rather, we conduct our examination in the context of an extensive regulatory program that the SEC has enacted mandating specific cyber standards, policies, procedures, systems, and controls that CAT LLC and the Plan Processor must implement. This regulatory regime was developed with extensive feedback from the securities industry (e.g., through the Development Advisory Group and the Advisory Committee) and is subject to ongoing review and modification through a public review and comment process. Moreover, CAT LLC's compliance with the requirements of this regulatory regime can be policed by the SEC's Enforcement Division. We also note that in adopting the CAT NMS Plan, the SEC concluded that the regulatory approach to cyber security was sufficient when it stated that ``the extensive, robust security requirements in the adopted [CAT NMS] Plan . . . provide appropriate, adequate protection for the CAT Data.'' \5\
Good Faith Determinations of Fair Value
The Securities and Exchange Commission (``Commission'') is adopting a new rule under the Investment Company Act of 1940 (``Investment Company Act'' or the ``Act'') that will address valuation practices and the role of the board of directors with respect to the fair value of the investments of a registered investment company or business development company (``fund''). The rule will provide requirements for determining fair value in good faith for purposes of the Act. This determination will involve assessing and managing material risks associated with fair value determinations; selecting, applying, and testing fair value methodologies; and overseeing and evaluating any pricing services used. The rule will permit a fund's board of directors to designate certain parties to perform the fair value determinations, who will then carry out these functions for some or all of the fund's investments. This designation will be subject to board oversight and certain reporting and other requirements designed to facilitate the board's ability effectively to oversee this party's fair value determinations. The rule will include a specific provision related to the determination of the fair value of investments held by unit investment trusts, which do not have boards of directors. The rule will also define when market quotations are readily available under the Act. The Commission is also adopting a separate rule providing the recordkeeping requirements that will be associated with fair value determinations and is rescinding previously issued guidance on the role of the board of directors in determining fair value and the accounting and auditing of fund investments.