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Mediant Mar 1, 2022 4 min read

Key Regulatory Issues Impacting Brokers: A 2021 Recap

Last year was a busy one for financial services regulation, especially pertaining to broker-dealers. As such, we put together a summary of key 2021 regulatory issues―divided into approved, proposed and need to keep watch of―to help brokers navigate the changing regulatory environment.


Universal Proxy

In contested votes for corporate directors, the company and the proponent of the alternate director candidates both must use proxy cards which list all the candidates – those put forth by the company and by the challenger. Approved by the SEC in November 2021, the rule will become effective with annual meetings held after August 31, 2022. Now shareholders voting by proxy will have the same opportunity that has previously been available only to those who actually attend and vote at the shareholder meeting.

NYSE Rule 451A/FINRA Rule 2251 – “Gifted Shares” Rule

The stock exchanges and FINRA have rules that specify the rates at which companies must reimburse brokers for distributing proxy materials to shareholders. Some brokers have begun “gifting” shares to customers in connection with certain marketing programs, and issuers objected to reimbursing brokers for distributing proxy materials to shareholders who owned only shares of the company that they had received for free. The NYSE amended its rules to provide that the specified fees would not apply to distributions to such shareholders, and FINRA followed its lead.

Shareholder Rights Directive (SRD II)

This European Union directive is intended to strengthen the position of shareholders, reduce short termism, and curb excessive risk-taking in companies traded on EU-regulated markets. Mediant developed a whitepaper that helps make sense of the updated SRD II regulation and examines the impact on U.S. brokers and custodians trading securities in EU markets.


NYSE proposal to make permanent the existing market-wide circuit breakers

These rules are aimed at preventing a market free fall and were initially adopted in 1988 following the October 1987 market crash. The current versions halt trading for 15 minutes after a drop of 7% from the prior day’s close of the S&P 500, for a further 15 minutes if there is a drop of 13%, and for the rest of the trading day if there is a drop of 20%. Previously in force on a temporary basis, in July of 2021, the NYSE proposed that the rule be made permanent. The SEC in September 2021 instituted proceedings to determine whether to disapprove the proposal, as it is concerned that provisions should be in place regarding ongoing assessment and continued testing of the rules. The SEC must either approve or disapprove the proposal by March 19, 2022. The existing rules will continue to be in effect on a temporary basis, and presumably can be further extended if necessary.

SEC proposal to require reporting of stock loan transactions

In November 2021, the SEC proposed new Rule 10c-1 which would for the first time require all lenders of securities to provide identifying data and material negotiated terms of securities lending transactions to a registered national securities association – likely FINRA – for public dissemination. The rule would require reporting of certain information within 15 minutes of finalizing the securities loan transaction. It would also apply to loans of debt securities as well as stock. The SEC views this rule as serving a dual purpose – providing market participants with timely information regarding securities lending and providing regulators with data that can be used to enhance surveillance of the markets.


SEC Staff Report

In October 2021, the SEC published a Staff Report on Equity and Options Market Structure Conditions. This report focuses on the January 2021 trading activity of GameStop Corp. (GME), which the SEC described as the most famous of the “meme stocks”. SEC Chair Gary Gensler said that the January events gave the SEC an opportunity to consider how to make the equity markets as fair, orderly and efficient as possible.

NYSE proposal to abdicate its historical role as arbiter of the proxy fee rules

For decades the NYSE had been the source of the proxy fee rules. Historically it was involved with public companies because they were listed on the exchange, and with regulating brokers because they were members of the exchange. Later, FINRA (or its predecessor, the NASD) would adopt the NYSE proxy fee rules so that it was clear that it applied as well to brokers that were not members of the NYSE.

Over a decade ago, however, the NYSE gave up its role as a regulator of brokers who served street name holders, and regulation of such brokers was consolidated at FINRA. Given this change, the NYSE has become unwilling to maintain its historical role as arbiter of the proxy fees. In late 2020, the NYSE proposed to delete the specific fees from its rules, and instead do as most of the other exchanges have done and provide that the reasonable proxy fees would be those specified by FINRA.

FINRA objected to the idea. Some commentators suggested that it would be most appropriate for the SEC to assume this responsibility. The SEC staff disapproved the NYSE proposal in August 2021. The NYSE, however, has appealed this action to the full commission, so as yet, no ultimate disposition has been made.

A Regulatory Partner

Mediant is actively engaged in the entire lifecycle of regulatory change management, from advocacy to implementation. A key partner in achieving clients’ regulatory and operational objectives, we continually build and provide our clients with tools that enhance and support their compliance needs.

View the complete guide of pertinent 2021 regulations and how they impact you.