Regulatory and Legal Reform

Policy and Legal

NAM, KAM Win on SEC Bond Rule Interpretation

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In response to advocacy by the NAM and the Kentucky Association of Manufacturers, the Securities and Exchange Commission has granted privately held companies temporary relief from a punishing new rule interpretation that would have required them to expose confidential financial information to the public.

The background: In 2020, the SEC finalized a rule designed to increase disclosure obligations for companies issuing over-the-counter equity securities (“penny stocks”). The following year the SEC published a new interpretation of the rule, to take effect in January 2023, which broadened the disclosure requirement to include private companies issuing corporate bonds.

  • Late last month, following an emergency petition for interim relief from the NAM and the KAM, the SEC granted a two-year stay of the new interpretation—so private companies will not face the new public disclosure obligations until January 2025.
  • Corporate bonds can only be purchased by large institutional investors (which already have access to issuers’ financial information), not retail investors, so the risks of fraud that spurred the 2020 rule are nonexistent in this market.

A victory—for now: “This is a win for private and family-owned manufacturers raising capital for job-creating investments and planning for growth,” NAM Senior Director of Tax and Domestic Economic Policy Charles Crain said. 

Damaging effect: The NAM recently released a study showing the significant economic damage that would result from forcing private businesses to disclose confidential and proprietary financial information publicly. Among the key findings:

  • The U.S. economy would lose 30,000 jobs per year in the early years after the new interpretation takes effect, rising to 50,000 lost jobs per year after five years and 100,000 lost jobs per year after a decade.
  • Companies would face decreased liquidity and higher capital costs, including an increase in borrowing costs of up to 13%.

What we’re doing: The NAM and the KAM have filed a petition for rulemaking calling on the SEC to reverse course by clarifying—either by rule or exemptive order—that corporate bond issuers are not required to make public financial disclosures.

  • The NAM and KAM have also asked Congress to protect manufacturers from the damage the new interpretation would cause.

The last word: “A two-year delay is a step in the right direction, but the SEC must act to permanently reverse this novel and misguided rule interpretation,” Crain said. “Especially at a time of rising interest rates, the bond market needs stability and manufacturers need low-cost and efficient access to capital.”

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