July 2023 in Brief: Securities Law

SEC Adopts Cybersecurity Disclosure Rules

By Alan J. Wilson, WilmerHale

On July 26, 2023, in a 3–2 vote, the Securities and Exchange Commission (the “SEC”) adopted new rules for public companies that will require disclosures regarding cybersecurity incidents, as well as cybersecurity risk management, strategy, and governance. The new rules and amendments include current and periodic reporting requirements, with disclosures required in Forms 8-K, 6-K, 10-K ,and 20-F, and associated inline XBRL tagging requirements. The new requirements apply broadly to all public companies, including foreign private issuers, emerging growth companies, and smaller reporting companies. In general, companies other than smaller reporting companies will first be required to comply with the new current reporting requirements in Forms 8-K and 6-K before year-end. The annual reporting requirements in Forms 10-K and 20-F apply to all companies starting with their Forms 10-K and 20-F filed in early 2024.

For an expanded discussion of these new rules, see the WilmerHale post linked here.

SEC Proposes Daily Computation of Customer and Broker-Dealer Reserve Requirements under the Broker-Dealer Customer Protection Rule

By Tylandra Callands, J.D. Candidate, Class of 2024, Mitchell Hamline School of Law

On July 12, 2023, the Securities and Exchange Commission (“SEC”) proposed amendments to Rule 15c3-3, the Customer Protection Rule. The proposed amendments would mandate specific broker-dealers to increase the frequency of calculating the net cash they owe to customers and other broker-dealers (termed PAB account holders) from weekly to daily. SEC Chair Gary Gensler explained that the proposal could “help protect customers [if] a broker-dealer [collapses],” given the segregation of customers’ cash and securities from a broker-dealer’s own account.

According to the proposal, broker-dealers who owe an average total of $250 million or more in credits to customers and PAB account holders would be required to calculate the daily deposits necessary for the customer and PAB reserve bank accounts based on the previous business day’s close. This proposal aims to ensure that the net amount of cash owed to customers and PAB account holders is reflected accurately with the deposits in the broker-dealer’s reserve bank accounts. The enhanced frequency of calculations is designed to prevent substantial discrepancies from accumulating over time, thus increasing the chances of customers and PAB account holders being compensated if a broker-dealer defaults.

Public comments on the proposed amendments are due by September 11, 2023.