January 19, 2022

Volume XII, Number 19


January 18, 2022

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Capital Markets & Public Companies Quarterly: Capital Formation, Dividend Notice and Pay Ratio Q3 Updates

In Depth

The third quarter of 2017 saw a few clarifications from the US Securities and Exchange Commission (the SEC) as well as a confirmation that one of the most controversial Dodd-Frank reforms—CEO pay ratio disclosure—will go into effect for the 2018 proxy season as scheduled. In addition, the SEC announced a new policy that will permit all issuers, in certain circumstances, to submit draft registration statements for nonpublic review by the SEC staff in what may be a move to stimulate the stagnant IPO market.

SEC Pay Ratio Update

In September, Bill Hinman, the director of the SEC’s Division of Corporation Finance, signaled that the SEC will not be delaying the implementation of the pay ratio rule. That means that companies will be required to comply with the new pay ratio rule for the 2018 proxy season.   McDermott’s team has recently written about the implications of the pay-ratio rule and issues our clients should consider as they prepare their pay ratio disclosures.  

NYSE Revises Dividend Notice Requirements

On August 14, 2017, the SEC issued an order approving the New York Stock Exchange’s (the NYSE) proposed rule change amending certain provisions of the NYSE Listed Company Manual to require NYSE-listed companies to provide advance notice to the exchange before announcing any dividend or stock distribution.   Pursuant to the NYSE’s current “Immediate Release Policy” (Section 202.06 of the NYSE Listed Company Manual), a listed company that is releasing material news between 7:00 am and 4:00 pm EST must notify the NYSE Market Watch Team by telephone at least 10 minutes prior to making any public announcement of the news and, when the public announcement is to be issued in written form, companies must email a copy of the proposed announcement to the Market Watch Team at least 10 minutes prior to its release.  

The NYSE’s rule change amends Sections 202.06(B), 204.12 and 204.21 of the Listed Company Manual to apply the Immediate Release Policy, with some modifications, to dividend and stock distribution announcements.   Specifically, the rule change requires that listed companies notify the NYSE at least 10 minutes before making a public announcement regarding any divided or stock distribution or the fixing of a record date for any dividend or stock distribution, even if such announcement is made outside of NYSE trading hours. The NYSE plans on making staff available around the clock to allow listed companies to provide the required notice outside of market hours when necessary.

Though the general application of the Immediate Release Policy to dividend and stock distribution announcements goes into effect immediately, the NYSE is delaying the implementation of the rules that require notice outside of market hours.   In a press release issued September 11, 2017, the NYSE announced that the exchange will give listed companies at least 30 days’ advance notice of the implementation date for the rules requiring notice outside of market hours. The NYSE expects the policy to be fully implemented not later than February 1, 2018.

SEC Continues Efforts to Facilitate Capital Formation

On June 29, 2017, the SEC announced reforms to its draft registration processing procedures as part of the Division of Corporation Finance’s ongoing efforts to facilitate capital formation. The Fixing America’s Surface Transportation (FAST) Act gave emerging growth companies (EGCs) the right, under certain circumstances, to submit draft registration statements for nonpublic review by the SEC staff. The SEC’s new policy expands the draft registration statement review process, making it available to all issuers, and not just EGCs.

Key components of the new policy include:

  • Initial Public Offerings

    • All issuers may submit a draft of their initial registration statement and related revisions under the Securities Act of 1933, as amended (the Securities Act), for nonpublic review by the SEC staff. Issuers must confirm in a cover letter submitted with the draft registration statement that they will file the registration statement and nonpublic draft submissions at least 15 days prior to any road show or, if there will not be a road show, at least 15 days prior to the requested date of effectiveness of the registration statement.

  • Spin-Offs and Initial Registrations under Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act)

    • An issuer registering a class of securities for listing on a national securities exchange for the first time may submit its draft registration statement and related revisions for nonpublic review. The cover letter included with the submission must confirm that the issuer will file all the initial draft and subsequent nonpublic revisions at least 15 days prior to the anticipated effective date of the registration statement.

  • Securities Act Offerings Within One Year of an IPO or First Listing

    • Any issuer may submit a draft registration statement for nonpublic review within one year of the issuer’s first Securities Act or Exchange Act Section 12(b) registration. The issuer must confirm that it will file the registration statement and the nonpublic draft submissions no later than 48 hours prior to any requested effective time and date.

    To harmonize the expanded nonpublic review process with the process made available to EGCs pursuant to the FAST Act, the SEC’s policy allows an issuer making a nonpublic submission to exclude financial information if the issuer reasonably believes the omitted information will not be required at the time the registration statement is publicly filed.

    The new nonpublic submission policy is also available to foreign private issuers, though those issuers may choose to take advantage of procedures applicable to EGCs if the issuer qualifies as an EGC. The expanded nonpublic review procedures do not impact the procedures available to EGCs.  

    If you are interested in taking advantage of the new nonpublic review policy or have any questions as to how this might affect you, please feel free to reach out to one of McDermott’s Capital Markets & Public Companies attorneys.

    Revised Securities Act Compliance & Disclosure Interpretations (C&DIs)

    On September 20, 2017, the SEC’s Division of Corporation Finance issued revised C&DIs to reflect updates for the amendments to Rules 147 and Regulation D, including the repeal of Rule 505.   Some of the takeaways from the revised C&DIs include the following:

    • Securities issued in a Rule 506 offering will not lose “covered security” status under Section 18 of the Securities Act if an issuer fails to file a Form D. Securities Act Question 257.08.

    • Rule 504 is available to a private fund excluded from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 so long as the Rule 504 offering is a “nonpublic offering.” Securities Act Rules Item 258.03.

    • Rule 504 is not available to any issuer that is subject to disqualification under Rule 506(d) on or after January 20, 2017.   For any Rule 504 offering on or after that date, the issuer must determine if they are subject to bad actor disqualification as of the time of the offering. Securities Act Rules Item 258.06.

    • If a family trust that is not deemed to be a separate legal entity has a trustee residing in a state where a Rule 147 offering is being made, the issuer in the Rule 147 offering may offer and sell securities to the trust in the offering in reliance on that rule. Securities Act Rules Item 541.03.

    The Division also withdrew Securities Act Rules Items 258.04, 260.02, 541.02 and all items pertaining to Securities Act Rule 505.   The new C&DIs are available here.

    EDGAR Hacked

    In September 2017, SEC Chairman Jay Clayton released a statement on cybersecurity that discloses additional details on a 2016 breach of the EDGAR filing system. His statement, announced that the breach may have provided information that could be used to make illegal trades. The breach resulted from a vulnerability in the system’s test-filing component.

    “Say-on-Frequency” Reporting

    As the end of the calendar year approaches, we want to take this opportunity to remind our clients of the need to report the results of your “say-on-frequency” decision. This year marks the second required “say-on-frequency” proposal for many companies. In the Current Report on Form 8-K filed in connection with the annual meeting, the company must disclose the results of the shareholder vote on the “say-on-frequency” proposal.   In that same Form 8-K filing or in a subsequent amendment to that Form 8-K, the company must report its “say-on-frequency” decision that will apply for the following six years. As the shareholder vote is merely an advisory vote, the company must make an affirmative election on its own with respect to “say-on-frequency” and disclose that decision.

    Heidi J. Steele and Andrew C. Liazos also contributed to this article.

    © 2022 McDermott Will & EmeryNational Law Review, Volume VII, Number 291

    About this Author

    Robert H. Cohen, Corporate Attorney with McDermott Will law firm

    Robert H. Cohen is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  He focuses his practice on transactional and securities work for a broad range of clients, including initial and follow-on public offerings, registered direct and PIPE financings, private placements, bridge financings, equity line and reverse mergers.

    Bob has extensive experience in the areas of mergers and acquisitions, joint ventures, 1933 & 1944 Act representation and licensing and distribution arrangements...

    212-547 5885
    Thomas P. Conaghan, Mcdermott Will Emery law Firm,  (M&A), joint ventures, strategic investments, spin-offs,

    Thomas P. Conaghan is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s Washington, D.C., office.  Tom represents both publicly held and closely held businesses, underwriters and other sources of capital, corporate boards and board committees and corporate executives.  He advises both U.S. and foreign-based public companies on issues relating to public and private offerings of securities, disclosure, periodic reporting, corporate governance, executive compensation, the rules of the New York Stock Exchange and the Nasdaq Stock Market and compliance with the...


    Gary Emmanuel is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s New York office. He focuses his practice on corporate securities matters.

    With over 15 years of experience, Gary represents both domestic and foreign companies that are navigating the process of capital raising including initial public offerings, registered direct offerings, follow-on offerings, private placements, PIPEs and bridge financings. Gary has worked extensively with biotechnology and other life science companies, both as company counsel...

    212 547 5541
    Mark J. Mihanovic Corporate Finance Mergers & Acquisitions Attorney McDermott Will Emery Law Firm

    Mark J. Mihanovic is a partner in the law firm of McDermott Will & Emery LLP.  Mark heads our Firm’s California corporate practice and serves as corporate liaison partner in the Firm’s strategic alliance with MWE China Law Offices based in Shanghai.  His practice is primarily focused in the areas of corporate finance and mergers and acquisitions involving companies in a broad range of industries, with a particular emphasis on technology, life science and health care companies.  Mark has served as lead counsel on behalf of issuers and underwriters in numerous public...

    1 650 815 7438

    Thomas J. Murphy is of counsel in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office.  He is head of the Securities & Capital Markets Affinity Group and co-head of the Firm's Corporate Responsibility practice.  Tom focuses his practice primarily in corporate and securities transactions and compliance, including:  representation of issuers and underwriters in public and private offerings of equity and debt securities; representation of acquiring and selling companies in negotiated and unnegotiated acquisitions; counseling regarding compliance with...