European states involved in the development of a Financial Transaction Tax (“FTT”) agreed to make January 1, 2016 its target launch date.

The FTT is designed to oblige banks to aid in rebuilding Europe’s post-crisis finances. In its initial proposal, the European Commission tried to introduce a tax of 0.1 percent for trading in shares and on bonds, and a 0.01 percent tax on derivatives such as options, futures, and contracts for difference or interest rate swaps when at least one of the parties was based in the EU.

In December 2014, the member states were unable to reach an agreement. However, in late January 2015, France and Austria unblocked negotiations by offering a compromise proposal. Under the compromise, the finance ministers of the member states said, the FTT should have the widest possible base, which would be covered by low rates, while taking into account the economic impact of the potential relocation of financial services.

Austria, Belgium, Estonia, France, Germany, Italy, Portugal, Slovakia, Slovenia and Spain all signed the common text. Of the European States involved in the FTT’s development, the Greek Finance Minister alone refrained from signing.

See: Euractiv Press Release.

SEC Division of Corporation Finance (the “Division”) Director Keith Higgins discussed the his views on the controversy over conflicting proposals between shareholders and management, and how the SEC should respond with regard to the “directly conflicts” exclusion under Exchange Act Rule 14a-8. His remarks were delivered at the Practising Law Institute Program on Corporate Governance.

Although Rule 14a-8 generally requires a company to include a qualified shareholder proposal in its proxy materials, a company may exclude it for one of the 13 reasons described in the rule. According to Mr. Higgins, the most significant recent development in the Division’s shareholder program is the decision on January 16, 2015 that the Division will not express its informal views on any requests for exclusions made by an issuer under Rule 14a-8(i)(9): the so-called “directly conflicts” exclusion. (For an example of an instance in which the Division refused to give comfort on an issuer request, see, e.g., the Whole Foods letter.)

The exclusion itself, which allows a company to exclude a shareholder proposal that “directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting,” has been the source of recent conflicting views.

Mr. Higgins explained various concerns with the motives of management proposals; for example, the possibility that the only reason for a proposal by management in response to a shareholders’ proposal might be to prevent the shareholders from expressing their views; or, if management came up with slightly different proposals year after year, the probability that the purpose would be to keep a shareholders’ proposal from making it into the proxy materials. According to Mr. Higgins, it is difficult for the Division to assess “good faith” motives.

Mr. Higgins added that, as the Division continues to review Rule 14a-8(i)(9), it may consider whether there is a structural limitation in the SEC’s overall current proxy rules that makes side-by-side comparisons difficult.

Mr. Higgins requested that interested parties send comments on this topic to i9review@sec.gov.

See: Mr. Higgins’ Speech.
Related news: SEC Chair White Directs Staff to Review Rule for Excluding Conflicting Proxy Proposals (January 20, 2015).

The SEC proposed rules to enhance the corporate disclosure of company hedging policies for directors and employees. The proposal requires an issuer to disclose whether it permits directors and employees to hedge their exposure to the company’s securities that they own or that are granted to them as compensation.

The proposal amends Regulation S-K to require annual proxy disclosures about whether directors and employees are permitted to hedge or offset any decrease in the market value of equity securities granted by a company as compensation or otherwise held by them, as well as the equity securities of their employer’s parent, any subsidiary or any affiliate of the company that is registered under Exchange Act Section 12. The disclosures apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies and registered closed-end investment companies with shares listed and registered on a national securities exchange.

SEC Commissioners Gallagher and Piwowar (the “Commissioners”) issued a statement that offered their qualified support for the proposed rule, but also identified several aspects of the proposal that they found “troubling.” The Commissioners questioned whether costs of the proposed requirement could fall disproportionately on emerging growth companies and smaller reporting companies, since they are less able to bear the fixed costs of disclosure financially than larger established companies. The Commissioners also explained that certain externally managed investment companies have few employees who are compensated by hedging and would be subject to the proposal.

Furthermore, the Commissioners stated, the SEC should have exempted disclosures from the rule that relate to employees who cannot affect the company’s share price. According to the Commissioners, the scope of securities of the issuer and the issuer’s affiliates – including subsidiaries, parents, and brother-sister companies – is “overbroad.”

By failing to address certain exceptions and exemptions from the proposed rule, the Commissioners stated, the SEC runs the risk of “disclosure overload.” The Commissioners questioned whether prioritizing the release “over the Division of Corporation Finance’s comprehensive disclosure review was the highest and best use of that Division’s expert staff.”

Lofchie Comment: Congressional legislation requires the SEC, as well as the CFTC, to adopt too many rules within wholly impractical timeframes. Thus, the SEC is effectively given the authority (even if that authority is not provided by legislation) to determine which Congressional directives should be prioritized. Should legislation be implemented on a first-in, first-out basis or in response to political pressures (the directives of the Congressional majority), or should rules that seem more sensible to the SEC as a matter of policy be implemented first? It seems reasonable that the SEC clarify the policy and communicate the order in which laws will be subject to rulemaking. Perhaps more important than the Commissioners’ specific comments is the question of whether the development of this proposed rule was a good use of the SEC’s resources.

See: Text of Proposed Rule.
See also: SEC Commissioners Gallagher and Piwowar’s Statement; Commissioner Aguilar’s Statement.

IOSCO approved a project by its Committee 6 on Credit Rating Agencies (“C6”) to gain a better understanding of credit rating agencies (“CRA”) and other CRA products and services.

The project will consist of two parts. C6 will undertake (i) a series of information-gathering exercises, which include surveying the issuers of CRA products and services, and (ii) the gathering of information on how CRA issuers, investors and users understand and utilize CRA products.

See: Press Release; C6 CRA Survey.