Tag: conflicts of interest

Exam Alert: SEC requires new exchange listing standards and proxy disclosures

Effective July 27, 2012, the SEC has adopted a new rule that requires national securities exchanges to modify their listing standards. The rule provides new standards for compensation committees and compensation advisers. The SEC also requires companies to disclosure of conflicts of interest for their compensation consultants. Continue reading

Effective July 27, 2012, the SEC has adopted a new rule that requires national securities exchanges to modify their listing standards.  The rule provides new standards for compensation committees and compensation advisers.  The SEC also requires companies to disclosure of conflicts of interest for their compensation consultants.

 

The new listing standards must include provisions that require each member of a company’s compensation committee to be a member of the board of directors and to be independent.  Independence will be gauged based on the source of the person’s compensation and whether the person is affiliated with the company, among other factors.

 

The standards must provide that the compensation committee:

-may retain a compensation adviser,

-be responsible for the selection, payment, and supervision of the compensation adviser, and

-is properly funded.

 

The standards must only allow a compensation committee to select a compensation adviser after considering:

-other services provided by the adviser to the company

-amount the adviser has earned from the company

-policies to prevent conflicts of interest

-relationships between the adviser and members of the compensation committee

-whether the adviser owns company stock

-relationships between the adviser and company executives

 

The following companies will be exempt from the compensation committee independence requirements:

-limited partnerships

-companies in bankruptcy proceedings

-registered open-end management investment companies

-foreign private issuers, though they must explain why they don’t have an independent compensation committee in their annual reports

The exchanges can establish additional exemptions.

 

The following companies are exempt from the compensation committee listing standards altogether:

-controlled companies

-smaller reporting companies

 

Under new proxy disclosure rules, companies must disclose whenever the work of a compensation consultant raises a conflict of interest, if that consultant has a role in setting the level of executive and director compensation.

 

Source: SEC Release 2012-115

This alert applies to the Series 24, Series 62, Series 79, and Series 7.

Exam Alert: MSRB requires underwriters of municipal securities to provide additional disclosure

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements. The changes apply to negotiated underwritings, but not to competitive underwritings. Continue reading

Effective August 2, 2012, the Municipal Securities Rulemaking Board (MSRB) will require underwriters of municipal securities to provide additional disclosures to issuers (state and local governments) and abide by other requirements.  The changes apply to negotiated underwritings, but not to competitive underwritings.  An underwriter must disclose the following:

-Details regarding the underwriter’s role, including that the underwriter has different financial interests than the issuer and that the underwriter does not have a fiduciary duty to the issuer

-The conditions of the underwriter’s compensation

-Any actual or potential material conflicts of interest – the interpretive notice specifically identifies the following potential conflicts of interest: third-party payments, profit-sharing with investors, and credit default swaps

-If recommending complex municipal securities transactions/products, all associated material financial risks, characteristics, incentives, and conflicts of interest

Additional requirements are as follows:

-All representations to the issuer must be accurate, truthful, and complete, with no omission or misrepresentation of material information.

-When drafting any issuer disclosure documents, the underwriter must have a reasonable basis for any representations it makes.

-The underwriter must pay a fair and reasonable price to the issuer.

-The underwriter may not recommend that the issuer not retain a municipal advisor.

This Exam Alert applies to the Series 7 Exam.

Sources:

MSRB Notice 2012-25

MSRB Establishes New Protections for State and Local Governments that Issue Bonds