Treasury Recommends Sweeping Capital Markets Regulatory Reforms

By Randi Morrison posted 10-09-2017 12:00


Further to our previous report, on Friday, the US Treasury Department released its second in a series of Executive Order-triggered regulatory reform-focused reports, which includes numerous recommended capital markets reforms consistent with the EO's economic growth and capital formation objectives.

This post from Stinson Leonard Street Partner and Society member Steve Quinlivan summarizes a number of key recommendations, including these:

  • Repeal of "non-material disclosure requirements," including Dodd-Frank 1502 (conflict minerals), §1503 (mine safety), §1504 (resource extraction), and §953(b) (pay ratio) and withdrawal of any rules issued pursuant to such provisions, as proposed by the Financial CHOICE Act (most recently reported on here). Absent legislative action, Treasury recommends that the SEC consider exempting Smaller Reporting Companies (SRCs) and Emerging Growth Companies (EGCs) from these requirements. (Report pg. 29)
  • Substantial revision of the 30-year-old $2,000 holding requirement for shareholder proposals. The report also suggests the SEC "explore options that better align shareholder interests (such as considering the shareholder’s dollar holding in company stock as a percentage of his or her net liquid assets) when evaluating eligibility, rather than basing eligibility solely on a fixed dollar holding in stock or percentage of the company’s outstanding stock." (Report pgs. 31-32)
  • Substantial revision of the shareholder proposal resubmission thresholds for repeat proposals - from the current thresholds of 3%, 6%, and 10% - to promote accountability, better manage costs, and reduce unnecessary burdens. (Report pgs. 31-32)
  • Modification of rules that would broaden eligibility for status as an SRC and as a non-accelerated filer to include entities with up to $250 million in public float from the current $75 million, as reflected in the SEC's proposed amendments. (Report pg. 36)
  • Extending the length of time a company may be considered an EGC to up to 10 years subject to a revenue and/or public float threshold - consistent with R. 1645, the Fostering Innovation Act of 2017. (Report pgs. 36-37)
  • Expanding Reg. A eligibility to include Exchange Act reporting companies and increase the Tier 2 offering limit to $75 million. (Report pgs. 39-40)

Appendix B of the report (pg. 205+) conveniently lists all of its recommendations by major topic (e.g., Access to Capital) and subtopic (e.g., Public Companies & IPOs) - including the recommended action, the method of implementation (Congressional and/or regulatory action), and which of the EO's Core Principles are addressed. Remarkably few of the recommendations call for legislative action - signaling a call for the SEC and CFTC , both of whose chairs Jay Clayton and Christopher Giancarlo, respectively, reportedly "provided extensive input to the 'thoughtful' report and supported its recommendations" - to act at the agency level.      

       See also the report's accompanying Fact Sheet; last week's post: "Keith Higgins Suggests Modest Shareholder Proposal Reforms"; this article from The New York Times; and numerous additional resources on our Regulatory Reform topical page.