What to Expect in SEC Rulemaking: Takeaways From the SEC’s Spring 2023 Regulatory Agenda

On June 13, 2023, the U.S. Office of Information and Regulatory Affairs released the Securities and Exchange Commission (SEC or Commission) spring 2023 regulatory agenda (Agenda). The Agenda lists rules the SEC plans to finalize through April 2024 as well as upcoming rule proposals the SEC is considering introducing on a similar timeline.¹

With 55 total rules in their final or proposed stages and target dates between October 2023 and April 2024, the Agenda suggests that the SEC does not intend to slow down its pace of rapid rulemaking. Notably, the SEC does not appear to have dropped any rule proposal it has made during Chair Gary Gensler’s era, despite many of the proposals’ receiving substantial negative feedback. The SEC appears determined to adopt the rules it deems warranted with insufficient regard for legal or operational concerns as reflected by cogent critical industry and investor comments. Moreover, the SEC’s apparently resolute posture may fly in the face of the Supreme Court’s recent skepticism about unduly expansive federal agency rulemaking.

There are other insights one can draw from the anticipated target dates. For example, the SEC appears to target finalization of many rules early enough that they could not be repealed under the Congressional Review Act (CRA), ensuring that such rules could not be overturned (absent a full notice and comment rulemaking process) if the 2024 election results in Republican political control of Congress and the Presidency.² In addition, the Agenda suggests simultaneous sequencing for certain related rules. For example, the Agenda indicates that rules to enhance climate-related disclosures for issuers³ and rules requiring investment companies and investment advisers to make certain environmental, social, and governance (ESG) disclosures⁴ are both slated for final adoption by October 2023. The SEC appears likely to adopt both sets of rules at the same time, despite many investment advisers arguing that the rule for issuers should be adopted first in order for advisers to have reliable data on which to base their own disclosures.

In Chair Gensler’s stated view, the Agenda reflects the Commission’s tradition of “update[ing] its ruleset to meet the challenges of a new hour.”⁵ Consistent with that theme, the Agenda includes new rule proposals, including ones that have not previously been announced, for example, rules related to the use of artificial intelligence in investor interactions.

The extraordinary volume of these final rule adoptions and new rule proposals, many of which have complex and not always obvious interconnections, creates the potential for a compliance and implementation meltdown. This risk is especially severe when these rules are considered with some final rules already in the process of implementation, such as the conversion of securities trade settlement from a T+2 to a T+1 basis.

Final Rules

Among the 37 final rules listed on the Agenda⁶, several notable rules are estimated to be finalized by October 2023, including the following:

• climate change disclosure rules (for issuers and investment advisers)⁷
• cybersecurity rules (for issuers, investment advisers, and broker-dealers) as well as an expansion of the entities subject to Regulation SCI⁸
• rules relating to safeguarding advisory client assets⁹
• rules restricting special purpose acquisition companies (SPACs)¹⁰
• rules regarding money market mutual funds and mutual fund “swing pricing”¹¹
• rules regarding private fund advisors and documentation of registered investment adviser compliance reviews¹²
• expanded disclosures concerning short sales, securities lending and beneficial ownership reporting¹³
• expansion of Regulation ATS¹⁴
• amendments to address the definition of dealer and to require proprietary trading firms to join FINRA¹⁵

Certain rules are also estimated to be finalized by April 2024, including a set of market structure rules over order competition¹⁶, order execution¹⁷, best execution¹⁸, and minimum pricing¹⁹  as well as rules on investment adviser outsourcing.²⁰

Rule Proposals

The Agenda also includes rules the Commission expects to propose, including anticipated rulemaking, such as rules related to human capital management disclosure (expected by October 2023) and corporate board diversity (expected by April 2024). There are also certain newly identified proposals, which are expected to be introduced by October 2023, including the following:

• rules related to broker-dealer and investment adviser conflicts in the use of predictive data analytics, artificial intelligence, machine learning, and similar technologies in connection with investor interactions
• rules restricting the ability to sell certain complex exchange-traded products, even in the absence of a recommendation
• amendments to the broker-dealer customer protection rule (Rule 15c3-3) to require that certain large broker-dealers compute their customer and proprietary account of broker-dealers reserve deposit requirements daily rather than weekly
• rules to address concerns with national securities exchange volume-based transaction pricing in National Market System stocks

For a complete listing of all final and proposed rules, please see the Agenda.

¹ The agenda is published by the Office of Management and Budget and is available here, after sorting for rules under consideration by the SEC.

² The CRA allows Congress to overturn federal agency rules in the form of a joint resolution of disapproval that must be introduced within 60 days of Congress’ receipt of the rule. See 5 U.S.C. §§ 801-808.

³ See the following Sidley Update: SEC Proposes Far-Reaching Rules for “Enhancement and Standardization” of Climate-Related Disclosures.

⁴ See the following Sidley Update: SEC Proposes New ESG Disclosures for Investment Advisers and Funds.

⁵ Statement on the Spring 2023 Regulatory Agenda, Chair Gary Gensler (June 13, 2023), available here.

⁶ The SEC has already adopted the final rules for the following rules listed on the Agenda: (1) Removal of References to Credit Ratings From Regulation M; (2) Prohibition Against Fraud, Manipulation, and Deception in Connection With Security-Based Swaps; Prohibition Against Undue Influence Over Chief Compliance Officers; (3) Amendments to Form PF to Require Current Reporting and Amend Reporting Requirements for Large Private Equity Advisers and Large Liquidity Fund Advisers; and (4) Form PF; Reporting Requirements for All Filers and Large Hedge Fund Advisers.

⁷ See footnotes 2 and 3. The SEC also intends to finalize in the same timeframe a related proposal restricting the “names” of investment companies. See the following Sidley Update: SEC Proposes to Expand Fund Names Rule.

⁸ See the following Sidley Updates: Newly Proposed SEC Cybersecurity Risk Management and Governance Rules and Amendments for Public Companies; Newly Proposed SEC Cybersecurity Risk Management Rules and Amendments for Registered Investment Advisers and Funds. Certain recently proposed cybersecurity-related rules are estimated to be finalized by April 2024. See the following Sidley Update: U.S. Securities and Exchange Commission Proposes Three Rules Related to Cybersecurity, Reopens Comment for One Rule.

⁹ See the following Sidley Update: SEC Proposes Sweeping Revisions to Advisers Act Custody Rule.

¹⁰ See the following Sidley Update: Expansive New SEC Rule Proposals Seek to Rewrite the SPAC Playbook.

¹¹ See the following Sidley Updates: SEC Proposes New Rule Amendments for Money Market Funds, and The SEC’s Regulatory Pendulum Swings to Swing Pricing: Part of a Complete Overhaul of the Liquidity Rules for Mutual Funds.

¹² See the following Sidley Update: SEC Proposes Significant Changes for Advisers and Private Funds.

¹³ See the following Sidley Updates: “Get Shorty” Again! — What You Need to Know About The SEC’s Proposed New Short Disclosure/Short Sale and Consolidated Audit Trail Requirements, SEC Proposes Extensive Reporting and Disclosure of Securities Lending Information, and SEC Proposes to Shorten Beneficial Ownership Reporting Deadlines, Expand Scope — How Will It Affect You?

¹⁴ See the following Sidley Update: SEC Proposes Significant Expansion of Regulation ATS.

¹⁵ See the following Sidley Update: SEC Proposes Significant Expansion of Firms That Must Register as Dealers.

¹⁶ See the following Sidley Update: SEC Proposes Rule to Enhance Competition for Certain Individual Investor Orders.

¹⁷ See the following Sidley Update: SEC Proposes Amendments to Modernize Disclosure of Order Execution Information.

¹⁸ See the following Sidley Update: SEC Proposes Comprehensive Best Execution Framework for Broker-Dealers.

¹⁹ See the following Sidley Update: SEC Proposes Rules Related to Minimum Pricing Increments, Access Fee Caps, and Transparency of Better Priced Orders.

²⁰ See the following Sidley Update: SEC Proposes New Service Provider Oversight Requirements for Investment Advisers.