Securities Regulation

Today, the Securities and Exchange Commission voted 3-2 to adopt a short sale-related circuit breaker solution (the “Alternative Uptick Rule”) to limit excessive short selling pressure on individual stocks.  The SEC’s press release is available at http://www.sec.gov/news/press/2010/2010-26.htm. The Alternative Uptick Rule, Securities Exchange Act Rule 201 of Regulation SHO, was formally proposed by the Commission in August 2009, see Release No. 34-60509 (Aug. 17, 2009), available at  http://www.sec.gov/rules/proposed/2009/34-60509.pdf.1

At a meeting held on January 27, 2010, the Securities and Exchange Commission (“SEC”) approved by a 3-2 vote an interpretive release (the “Interpretive Release”) providing guidance to public companies on the SEC’s existing disclosure requirements as they apply to climate change matters.  The Interpretive Release makes clear that companies who have not done so should establish a process for assessing whether and to what extent climate change matters are material to the company and, if so, include appropriate disclosures in their SEC filings.[1]  This is especially critical for calendar-year companies who will be filing their Annual Reports on Form 10-K in the coming weeks.  The Interpretive Release is available at http://www.sec.gov./rules/interp/2010/33-9106.pdf.

The SEC yesterday formally released an anticipated new initiative designed to encourage individual and company cooperation with SEC investigations and enforcement actions.[1]  The initiative, laid out in a new section of the enforcement manual for the Division of Enforcement entitled “Fostering Cooperation,” (the “Initiative”) establishes incentives for early, substantial, robust cooperation with the stated goal of ensuring “that potential cooperation arrangements maximize the Commission’s law enforcement interests.”[2]  The Initiative provides guidance for evaluating an individual’s cooperation and authorizes new cooperation tools, including cooperation agreements, deferred prosecution agreements and non-prosecution agreements.  While the new Initiative provides more options for the Enforcement Division and individuals, only time will tell if it proves to be the “game-changer” that Enforcement Director Robert Khuzami anticipates. 

In our “Mid-Year Review of SEC Enforcement,” we reviewed the transformation that had begun at the SEC’s Division of Enforcement under the agency’s new Chairman, Mary Schapiro, and the Division’s new Director, Robert Khuzami, as well as the measurable increase in enforcement activity that had resulted.  Since then, Mr. Khuzami has articulated more specifically the changes the he plans to make, some of which are already in effect and others that have yet to be implemented.  Nevertheless, the results of the Enforcement Division continue to reflect the heightened enforcement initiative that has been the calling card of this Commission.  In this Year-End Review, we focus on the significant enforcement developments of the last six months, as well as notable cases and important trends revealed by annual enforcement statistics, both those disclosed by the SEC, as well as those that result from our own analysis.  We also look ahead to the significant developments to anticipate in the coming year.

On December 21, 2009, the Securities and Exchange Commission issued a proposed amendment to paragraph (c) of Rule 163 under the Securities Act of 1933, as amended.  Rule 163 was initially adopted in 2005 as part of the SEC’s Securities Offering Reform, which, among other things, eased many of the “gun jumping” restrictions on communications by issuers and others in connection with registered securities offerings.  The proposed amendments to Rule 163 would further ease some of these restrictions and may thereby facilitate so called “wall-crossed” offerings by well-known seasoned issuers, or WKSIs.[1]

New Guidance Should Increase Attractiveness of Registered Exchange Offers as Means of Restructuring Outstanding Debt Securities

On November 16, 2009, the Staff of the Securities and Exchange Commission’s Division of Corporation Finance (the “Staff”) issued a new Compliance and Disclosure Interpretation (Interpretation #139.29) facilitating the ability of an issuer to enter into lock-up agreements (i.e., agreements to tender) with holders of its debt securities in connection with a registered exchange offer under the Securities Act of 1933, as amended (the “Securities Act”), for the issuer’s outstanding debt securities (the “Lock-Up Interpretation”).[1]

New York partner Alan Bannister, Dubai associate Patrick Dykstra and London associate Claibourne Harrison are the authors of “Every second counts – Secondary listings on European and US exchanges” [pdf] in the November issue of The Brief.