As a follow-up to our prior blog, the New York Stock Exchange (“NYSE”) is delaying implementation of its rule change on notifications to the NYSE about announcements outside of market hours related to dividends or stock distributions. Companies should continue to comply with the current rule (summarized here) and follow their existing practices until the implementation date for the new rule, which will likely be in February 2018. The NYSE plans to provide companies with updated information prior to the date when they will be required to begin complying. As a result of the rule change, companies will have to notify the NYSE at least ten minutes in advance of an announcement related to a dividend or stock distribution made at any time, including outside market hours. Although the rule change was approved by the Securities and Exchange Commission (“SEC”) on Monday, August 14 and took effect immediately, the NYSE staff has advised orally that it is delaying implementation of the rule change. The NYSE filed a proposal (available here) seeking SEC approval of the delay on August 22nd. According to the proposal, the NYSE plans to implement the rule change no later than February 1, 2018. The purpose of the delay is to allow listed companies time to change their internal procedures and to give the NYSE more time to put in place technology and processes to facilitate staff review of dividend notifications.
Topic: Corporate Governance
NYSE Rule Change on Dividend-Related Announcements Made Outside Market Hours Now Effective
The New York Stock Exchange (“NYSE”) has amended its rules on companies’ notifications to the NYSE about upcoming dividends. The rule changes were approved by the Securities and Exchange Commission on Monday, August 14 and took effect immediately. The amended rules require companies that intend to make announcements outside market hours that involve dividends or stock distributions to notify the NYSE at least ten minutes before making the announcement. The NYSE has not made any changes to the requirements for announcements made during market hours. A blackline of the changes to the text of the Listed Company Manual is available here. A chart prepared by the NYSE in anticipation of the rule change comparing the requirements that will apply during and outside of market hours is available here. Under the NYSE’s policy on the immediate release of material news, found in Section 202.05 of the Listed Company Manual, NYSE companies must release quickly to the public any news or information that might reasonably be expected to materially affect trading in their securities. Under Section 202.06, which details the procedures for public release of information under this policy, a listed company must alert the NYSE at least ten minutes in advance when its intends to release news between the hours of 7:00 a.m. (eastern) and the close of trading on the NYSE (generally 4:00 p.m. eastern). Listed companies announcing dividend or stock distributions during these hours must comply with the immediate release policy. Accordingly, companies that publicly announce a dividend or distribution during market hours must call the NYSE’s Market Watch team, and email Market Watch a copy of the proposed announcement, at least ten minutes in advance of issuing the announcement. Companies must have NYSE approval before issuing a dividend or distribution announcement. As a result of the rule changes, companies will have to notify the NYSE at least ten minutes in advance of an announcement involving a dividend or stock distribution made at any time, rather than just during the hours when the immediate release policy is in effect. Companies providing this advance notification to the NYSE outside of the immediate release policy timeframe will not have to wait for NYSE approval before making their announcements. However, in filing the rule proposal, the NYSE stated that it intends to have staff available at all times to review dividend and stock distribution notices immediately upon receipt by the NYSE, “regardless of what time or day of the week they are provided.” NYSE staff will contact a listed company “immediately” if there is a problem with the notification. The NYSE “strongly encourages” companies to submit their dividend notifications through Listing Manager, the NYSE’s web portal. The rule changes do not alter other requirements relating to dividends and distributions, including: (1) the requirement in Section 204.12 that companies give notice to the NYSE promptly, and at least ten days in advance of the record date, of any action relating to a dividend or stock distribution, including notice of the omission or postponement of a dividend action at the customary time, and declaration of a dividend; and (2) the requirement in Section 204.21 that companies give prompt notice to the NYSE of the fixing of a record date for dividends and stock distributions. According to the NYSE, the purpose of the rule changes is to enable NYSE staff to work with listed companies in addressing any issues that may arise in relation to announcements involving dividends or stock distributions. Among other things, the NYSE will be able to confirm that a company’s proposed dividend schedule complies with NYSE requirements, and that the company’s disclosure about application of the NYSE’s ex-dividend trading policy is accurate. The ex-dividend date is the last date on which a buyer can purchase a company’s stock and still be entitled to receive a dividend that has already been declared. As a reminder, with the upcoming transition from a T+3 to T+2 settlement cycle, which will occur on September 5, 2017, the NYSE has announced that no securities will be ex-dividend on September 5, 2017 to avoid confusion about the proper time frame for settlement. The change to T+2 will also shorten the time period for which transactions in stocks will be ex-dividend to the business day before the record date for the dividend (from two business days before the record date).
Major Indices Move to Curb Multiple Class Structures
Multiple class share structures have come under increasing scrutiny since Snap Inc. (“Snap”) offered exclusively non-voting shares in its March 1, 2017, initial public offering (“IPO”). Companies employing the multiple-class structure argue that the structure contributes to corporate stability and long-term returns for shareholders, and aides in the revival of the sluggish IPO market by helping issuers overcome a reluctance to go public in the face of activist investors. However, citing corporate governance concerns and following considerable pressure and lobbying from institutional investors, both the FTSE Russell and Standard & Poor (“S&P”) Dow Jones have recently taken measures that may be seen as discouraging the practice.
ISS Releases Surveys for 2018 Policy Updates
On August 3, 2017, the proxy advisory firm Institutional Shareholder Services (“ISS”) launched its annual policy survey. Each year, ISS solicits comments in connection with the review of its proxy voting policies. ISS then uses the data to inform its voting policy review. At the end of this process, ISS will announce its updated proxy voting policies applicable to 2018 shareholder meetings.
SEC Chairman Jay Clayton Delivers First Public Remarks Since Confirmation
In his first public speech since being confirmed as Chairman of the U.S. Securities and Exchange Commission (“SEC” or “the Commission”), Jay Clayton addressed the Economic Club of New York on July 12, 2017. In his remarks, available here, Chairman Clayton discussed his vision of the principles that should guide the Commission and opportunities to apply those principles in practice.
SEC Economist Comments on New Technologies Used by the Commission to Identify Risk, Detect Fraud and Enforce the Securities Laws
Last week Scott Bauguess, Acting Director and Acting Chief Economist of the Securities and Exchange Commission’s (SEC) Division of Economic Risk and Analysis, shared insights about how the SEC is leveraging artificial intelligence and machine learning to track, and perhaps predict, emerging risks in the marketplace.[1] In the latest in a series of speeches,[2] Bauguess also described how the SEC is using big data, harnessed with the appropriate processing power and partnered with human intuition, to focus investigative and enforcement resources. While Bauguess and others at the SEC see a bright future for data analytics at the SEC, particularly in identifying emerging trends, Bauguess stressed the human element is ever important in assessing risk, combatting fraud and bringing or recommending enforcement actions.
Changes Coming to Governance Provisions of New York Nonprofit Law
Amendments to New York’s Not-For-Profit Corporation Law are set to take effect on May 27. The amendments impact several provisions of The New York Nonprofit Revitalization Act (“NRA”), which imposed substantial governance requirements on nonprofits when it took effect in 2014. The amendments build greater flexibility into aspects of the NRA that were viewed as overly broad or prescriptive. Key elements of the amendments are summarized below. A redline showing the changes to the statutory language is available here. Nonprofits incorporated in New York, and other nonprofits that may be subject to the Not-For-Profit Corporation Law due to their activities, should take note of the amendments and consider whether changes to their governance practices and documents are appropriate. 1. Related party transactions. The NRA provides for enhanced board oversight of related party transactions. The amendments explicitly permit an authorized committee of the board to review and approve related party transactions, as an alternative to full board approval. They also codify exceptions to the definition of “related party transaction” that are based on guidance previously issued by the Charities Bureau of the New York Attorney General’s office (available here). These exceptions mean that immaterial or ordinary course transactions are no longer subject to the board/committee approval procedures under the NRA. Specifically, the exceptions cover: (a) transactions that are themselves “de minimis” or where the related party’s financial interest is de minimis, with the judgment of what is de minimis to be left to individual nonprofits based on factors such as size and budget; (b) transactions that “would not customarily be reviewed” by the board at “similar organizations in the ordinary course of business” and that are available to others on the same or similar terms; and (c) transactions where a related party receives a benefit as a result of being a member of a class that benefits from the nonprofit’s work, where the benefit is available to all similarly situated members of the class on the same terms. The amendments also create a defense to actions brought by the New York Attorney General challenging related party transactions. The defense allows nonprofits to take steps to ratify transactions that were not approved in accordance with the procedures in the NRA, and to enhance their mechanisms for complying with these procedures in the future, in order to limit the possibility of adverse actions against nonprofits for inadvertent or insignificant violations of the related party provisions. 2. Audit committee independence requirements. The amendments modify the definition of “independent director,” which applies to directors serving on the audit committee, by amending the standard on business relationships between a nonprofit and entities where directors (or their relatives) have relationships. Currently, this standard prohibits a director from being independent if the director is an employee of, or has a substantial financial interest in, an entity that does business with the nonprofit, if the amount of business exceeded the lesser of $25K or 2% of the other entity’s consolidated gross revenues in any of the last three fiscal years. The amendments provide tiered thresholds that are tied to the revenues of the other entity, as follows:
SEC Adopts Amendment Shortening Trade Settlement Cycle From T+3 to T+2 (potential implications)
The SEC has adopted an amendment to Rule 15c6-1(a) of the Exchange Act (the Settlement Cycle Rule) shortening the standard settlement cycle for most broker-dealer transactions from three business days after the trade date (“T+3”) to two business days after the trade date (“T+2”). The compliance date for the amendment is September 5, 2017. The new requirement will prohibit broker-dealers from effecting or entering into a contract for the purchase or sale of a security (other than exempted securities, government securities, municipal securities, commercial paper, bankers’ acceptances, and commercial bills) that provides for payment of funds and delivery of securities later than the second business day after the date of the contract, unless otherwise expressly agreed to by the parties at the time of the transaction.
Non-Voting Shares Make Their Public Debut and Generate Some Governance Concerns, but How Will Courts View the Structure When First Presented?
On March 1, 2017, Snap Inc. (“Snap” or the “Company”) – owner of the popular social media platform Snapchat – priced its highly anticipated initial public offering (“IPO”). With 200 million shares sold at $17 per share, the IPO raised approximately $3.4 billion for the Company. On their first trading day, Snap shares opened at $22.41 per share and peaked as high as $28.84 the following day. As of March 10, shares closed at $22.07, above its initial offering price, but below its opening trading price. As the largest IPO of any U.S.-based company since Facebook’s public offering in 2012, many investors’ primary focus here has been on the complete lack of voting privileges associated with the shares sold in the IPO.
Acting SEC Chair Piwowar Directs Staff to Reconsider Conflict Minerals Rule
On January 31, 2017, the SEC’s Acting Chairman, Michael Piwowar, issued a public statement (available here) that he has directed the Commission’s Staff to reconsider whether the Staff’s prior guidance on conflict minerals disclosures (previously published in April 2014 and available here) is still appropriate and evaluate whether additional relief may be appropriate.