SEC open meeting

By: Cydney Posner

At an open meeting this morning, the SEC voted to propose amendments to Rule 105 of Reg M intended to safeguard the integrity of the capital-raising process and to protect issuers from manipulative activity that can reduce issuers' offering proceeds and dilute shareholder value. The current rule prohibits short sellers from covering with shares purchased in a public offering. However, there has been substantial non-compliance and serious efforts to camouflage violations, leading to several enforcement actions. The proposal adopts a bright-line test that would prohibit anyone who engages in short-selling during the Reg M "restricted period" from purchasing shares in a public offering during the restricted period.

In response to market developments and following a pilot program commenced in 2005, the SEC also voted to propose an amendment to eliminate the short sale price, or "tick," test of Rule 10a-1. SROs would also be prohibited from imposing their own short sale price tests. In addition, the SEC voted to propose certain technical amendments to Reg SHO.

In addition, the SEC approved the budget of the PCAOB ($136.4M) and the aggregate annual accounting support fee under SOX 109 ($122.4M), the fee charged annually to public companies to fund the PCAOB.

On Friday, the SEC removed from today's meeting agenda a proposal to raise the financial criteria for accredited investor status for hedge fund investors (although it's possible that the proposed change could apply more generally), as well as a proposal to prohibit advisers from making false or misleading statements to investors in certain pooled investment vehicles they manage. The NYT reports that the measures were delayed to give the SEC more time to review the language of the proposal, noting that the proposal may be added to the December 13 meeting agenda.

(Note also that Corporate Counsel reports from the ABA meeting that it's possible that both the proposed electronic proxy rules and proposed "Katie Couric" provision of the proxy rules might apply to this upcoming proxy season. The "Katie Couric" rule is not currently on the agenda for the December 13th meeting, but could still be added. Also reported from the meeting is that option backdating guidance and executive compensation guidance may be forthcoming in the next few weeks.)

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