The federal Office of Information and Regulatory Affairs recently published the SEC's Spring 2023 "Reg Flex" agenda. Chairman Gary Gensler sets the SEC's agenda, which identifies rules that the agency expects to consider over the coming 12 months. The Spring Reg Flex agenda includes 18 rulemakings at the proposal stage and 37 rulemakings at the final/adoption stage. It is important to note that the anticipated dates in the agenda are merely projections, and the SEC's actual timing for proposing or adopting a rulemaking may be before or after the listed dates. For example, the SEC's Fall 2022 agenda projected April 2023 for adoption of the Cybersecurity Risk Governance final rule, but the most recent agenda projects the SEC will consider this rulemaking in October 2023. The agenda suggests the SEC has no intention of slowing its rulemaking pace in the coming months.

Corporation Finance

As anticipated, the agenda includes several high-profile rulemakings on which the Commission will vote for adoption. Expected final rulemakings from the Division of Corporation Finance with an anticipated adoption date of October 2023 include climate change disclosure, cybersecurity risk governance, amendments to Rule 14a-8 relating to shareholder proposals, rules relating to SPACs, and modernization of beneficial ownership reporting. The agenda also signals that the SEC expects to propose in October 2023 several new Corp Fin rulemakings, including proposals related to human capital disclosure, amendments to the definition of "held of record" in Exchange Act Section 12(g), amendments to Regulation D and the definition of "accredited investor," and another proposal to enhance board diversity disclosure in April 2024.

Trading and Markets

The agenda identifies several new proposals from the Division of Trading and Markets, including another amendment to Regulation ATS. This new rule would modernize the conditions to the ATS exemption for all ATSs and propose requirements to promote pre-trade price transparency across asset classes. Regulation ATS has been a clear focus of the SEC, with a prior amendment occurring in 2018 and one amendment currently proposed (the proposed amendment has itself been amended via a reproposal). Another highlight from Trading and Markets (with a companion proposal from Investment Management) will be a prohibition on conflicted practices for broker-dealers that use covered technologies — namely data analytics, artificial intelligence, machine learning, and similar technologies — in connection with investor interactions. This proposal is a natural extension to the SEC's prior request for comment regarding digital engagement practices. Rounding out the TM agenda, the industry should expect proposed amendments to the customer protection rule (relating to how large broker-dealers compute reserve deposits) and volume-based exchange transaction pricing (to address concerns with exchange volume-based pricing, mitigate conflicts, and require related periodic disclosure). In addition, the agenda indicates near term adoption of the Rule 3b-16 and ATS proposals (mentioned above), the expanded "dealer" definition, the four significant equity market structure proposals (best execution, order competition, Rule 605 amendments, and minimum pricing increments), and broker-dealer cybersecurity.

Investment Management

The agenda includes several important rulemakings from the Division of Investment Management that will affect investment advisers and registered investment companies. Related to advisers, the agenda includes expected proposals to amend the exemption for internet advisers and on digital engagement practices (as noted above). The agenda also includes the expected adoption of proposed rules covering private fund advisers (with respect to conflicted transactions, preferential treatment, quarterly statements on performance and fees and expenses, fund audits, and adviser-led secondary transactions), the overhaul of the Custody Rule into the new Safeguarding Rule, the due diligence and monitoring of service providers for certain outsourced services and functions, standards for advisers' ESG disclosures, cybersecurity and incident response programs, and amendments to Form PF. As noted above, and of relevance to private-fund sponsors, amendments to the definition of "accredited investor" and other Regulation D changes are also in the works.

Related to registered funds, the upcoming rulemakings include a fund fee disclosure reform proposal and final rulemakings regarding open-end fund liquidity and swing pricing, amendments to the rule that prohibits misleading fund names, standards for ESG disclosures by funds, money market fund reforms, cybersecurity risk management, and protection of customer information. The SEC has approved final rulemakings that streamline and modernize fund shareholder reports and enhance fund proxy voting reports.

Consistent Themes

SEC Chair Gensler observed that "[t]echnology, markets, and business models constantly change. Thus, the nature of the SEC's work must evolve as the markets we oversee evolve. In every generation since President Franklin Roosevelt's, our Commission has updated its ruleset to meet the challenges of a new hour. Consistent with our legal mandate, guided by economic analysis, and informed by public comment, this agenda reflects the latest step in that long tradition."

Given the breadth of proposed and forthcoming rules, and the pace with which the SEC is approaching rulemaking, it's clear that Chair Gensler continues to identify a number of challenges he believes the SEC should address. The SEC seems poised to tackle many of the Reg Flex agenda items by the end of 2023, and we will continue to monitor for updates and provide our insights on these developments as they occur.

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