SEC Coronavirus (COVID-19) Response – UPDATE

As of March 21:

The U.S. Securities and Exchange Commission is providing this update on its response to COVID-19 and the related effects on our securities markets.  The SEC’s efforts are centered, first and foremost, on the health and safety of our employees and all Americans.  We also are focused on, among other things:

• maintaining the continuity of Commission operations;
• monitoring market functions and system risks;
• providing prompt, targeted regulatory relief and guidance to issuers, exchanges and other registrants impacted by COVID-19, including in connection with the execution of their business continuity plans (BCPs); and
• maintaining our enforcement and investor protection efforts, particularly with regard to the protection of our critical market systems and our most vulnerable investors.

We continue to work in close coordination with other financial regulators and governmental authorities.

Below is a summary of operational initiatives, market-focused actions, guidance and targeted assistance and relief, investor protection efforts and other work of the agency in response to the effects of COVID-19.  It is not an exhaustive list.  Rather, it provides background and more specific context as to how the SEC is continuing to execute its mission during this challenging time.

Agency Operations: Transition to Telework and Continuity of Operations

The agency has now transitioned to a full telework posture with limited exceptions.  A majority of SEC staff began teleworking on Tuesday, March 10, and through this transition, the agency has remained fully operational.

In the weeks prior to March 9, staff prepared for telework readiness, including conducting network capacity tests, and encouraging all employees to test their remote connectivity.  More recently, we have also been preparing for the possibility of remote open and closed Commission meetings.  Our experience over the course of the week of March 9 provides us confidence that the agency will continue to be able to maintain operations in a full telework posture.  As with any large-scale operational shift, we expect adjustments in certain functions, including with respect to information technology, may be necessary or advisable.  We encourage market participants to continue to engage with us, and we will provide operational updates as necessary.

Market Monitoring and Engagement with Market Participants

In early February, we began assembling a cross-divisional working group to prepare for the possible adverse effects of COVID-19.  An initial focus of these efforts was on monitoring the real and potential effects of COVID-19 on public companies, including with respect to potential reporting challenges and the importance of prompt, public disclosures by issuers concerning the effects and risks of COVID-19 on their businesses.  Staff across divisions and offices have also expanded their ongoing outreach efforts with clearing agencies, exchanges, issuers, public accounting firms, investor representatives, credit rating agencies, fund sponsors, investment advisers and other market participants, as well as other domestic and foreign regulators.  Key areas of ongoing focus and monitoring include:

• Trading, Markets and Securities Infrastructure: Monitoring the functioning, integrity and resiliency of securities markets with a focus on operations, systems integrity and BCPs of U.S. securities and derivatives clearinghouses, exchanges, other market utilities and key market participants.  This involves monitoring and direct communications with these organizations (and other regulators) regarding market conditions and operations issues.

• Large Financial Firm Monitoring: Monitoring and communicating with the largest U.S. broker-dealers to keep abreast of their activities and operations, including BCP matters and capital and liquidity.  This includes gathering insights from these firms concerning industry trends and dynamics relating to the impact of COVID-19 on operations (at both a firm and a system level) and continued coordination with FINRA on observations and identification of material risks.

• Asset Management Industry: Monitoring and outreach to the asset management industry (including mutual funds, money market funds, exchange traded funds (ETFs), private equity funds and investment advisers), particularly funds and advisers with material exposures in markets and asset classes that have been most affected by recent events.

• Securities Market Macro Trends, Dynamics and Potential Impacts: Monitoring and analyzing real and potential effects of COVID-19 on the functioning of U.S. and global securities markets.  This includes potential impacts and spillover effects on industry and company operations and actions taken by governmental authorities and private market participants.  This also includes communicating with the largest nationally recognized statistical rating organizations (NRSROs) to keep abreast of how they are considering the impacts of COVID-19 on their credit ratings and operations.  As examples, in addition to market price movements and credit ratings, we are monitoring capital flows, funding requirements and the availability of credit and capital.

• Issuers, Corporate Disclosures and Accounting Issues: Monitoring and providing guidance with respect to corporate filings and disclosures (e.g., changes in trends and outlook, the addition or modification of risk factors and discussion of supply chain and distribution matters) of U.S. issuers, as well as foreign companies that are listed in the United States, including engaging with issuers and other market participants who may need assistance or conditional relief in complying with their reporting obligations.  We also have ongoing contact with several public accounting firms and their affiliates concerning their global operations, as well as industry and general trends and dynamics.

• Ongoing Coordination with U.S. and Foreign Financial Regulatory Community: Engaging in regular communication, coordination and information sharing concerning risks, trends and impacts with the Department of the Treasury, National Economic Council, Federal Reserve Board, Federal Reserve Bank of New York, FDIC, OCC and CFTC, as well as regulators in Asia and Europe, including through Chairman Clayton’s participation in the Financial Stability Board (FSB) and the Commission’s participation in the International Organization of Securities Commissions (IOSCO).  Coordinating with Congress on operations, market conditions and Commission actions and authorities, among other things.

Guidance and Targeted Regulatory Assistance and Relief

The Commission and staff are working to promptly provide guidance to market participants and targeted regulatory assistance and relief where necessary or appropriate.  Below is a chronological list of certain of the more significant actions we have taken to date:

January 2020

• Statement from Chairman Clayton: Impact of the Coronavirus 1/30/2020
  • Reminded issuers that the effects of COVID-19 and their response could, depending on a number of factors, be material to an investment decision; and directed staff to monitor issuer disclosures and provide guidance and assistance to issuers and other market participants.

February 2020

• Joint Statement: Effects of the Coronavirus on Financial Reporting 2/19/2020
  • Urged issuers to work with their audit committees and auditors to ensure that their financial reporting, auditing and review processes meet the applicable requirements in light of their obligations and the unforeseen circumstances.
  • Emphasized the need to consider potential disclosure of subsequent events in the notes to the financial statements in accordance with guidance included in Accounting Standards Codification 855, Subsequent Events.
  • Articulated the Commission’s general policy to grant appropriate relief from filing deadlines in situations where, in light of circumstances beyond the control of the issuer, filings cannot be completed on time with the appropriate level of review and attention.

March 2020

• In early March, it became apparent that more targeted assistance and relief would be required for various market participants impacted by COVID-19.  The Commission and staff have provided assistance and relief to various classes of market participants and certain specific entities including the following relief and guidance:
  • Staff Guidance: New and Updated Frequently Asked Questions for Investment Advisers on: Conducting Investment Advisory Business from a Temporary Location (Form ADV Item 1.F) & Inadvertent Adviser Custody During a Temporary Office Closure (Question II.1) (3/16/2020)
  • Staff No Action Letter:  Consolidated Audit Trail Reporting (3/16/2020)
  • Immediate Effectiveness of Proposed Rule Change:  Facilitating Continued Operations of the Cboe Options Exchange In Light Of Temporary Suspension of Cboe Physical Trading Floor (3/14/2020)
  • Conditional Exemptive Order: Targeted Action to Assist Funds and Advisers, Permit Virtual Board Meetings and Provide Conditional Relief From Certain Filing Procedures for Funds and Investment Advisers Affected by COVID-19 (3/13/2020)
  • Staff Guidance:  Providing Guidance to Facilitate Continued Shareholder Engagement, Including at Virtual Annual Meetings, for Companies and Funds Affected by COVID-19 (3/13/2020)
  • Staff Statement: Fund Board Meetings and Unforeseen or Emergency Circumstances Related to COVID-19 (3/4/2020)
  • Conditional Exemptive Order: Providing Conditional Regulatory Relief and Assistance for Companies Affected by COVID-19 (3/4/2020)

The Commission and staff stand ready to assist and, where necessary or appropriate, provide relief to market participants who are facing operational or reporting hardships relating to the effects of COVID-19.

Enforcement, Examinations and Investor Education

Like the rest of the agency, the Division of Enforcement and the Office of Compliance Inspections and Examinations continue to execute on their mission of protecting investors and remain fully operational. The agency is actively monitoring our markets for frauds, illicit schemes and other misconduct affecting U.S. investors relating to COVID-19—and as circumstances warrant, will issue trading suspensions and use enforcement tools as appropriate.

Those interested can keep track of enforcement actions here at SEC.gov.  For example, recent trading suspensions issued in connection with COVID-19-related misconduct include:

• Aethlon Medical, Inc. (2/7/2020)
• Eastgate Biotech (2/24/2020)

On March 19 the Commission issued an order in pending Administrative Proceedings to encourage parties to file and serve documents electronically.

The Office of Investor Education and Advocacy continues its work to educate investors while the staff adheres to guidance from our nation’s public health officials. The Office also issued an alert in February to educate investors, “Look Out for Coronavirus-Related Investment Scams.”

Comment Periods for Certain Pending Actions

Certain of the Commission’s proposed actions have comment periods that will expire in March.  We understand that challenges associated with COVID-19 may delay the completion and submission of some comment letters.  The Commission and staff have historically considered comments submitted after a comment period closes but before adoption of a final rule or order, consistent with the Commission’s Informal and Other Procedures (17 C.F.R. 202.6).  For each of the pending items listed below, the Commission will not take final action before April 24th in order to allow commenters additional time if needed.

• Amendments to Rule 2-01, Qualifications of Accountants, File No: S7-26-19, Release Nos.: 33-10738, 34-87864, FR-86, IA-5422, IC-33737;
• Amending the “Accredited Investor” Definition, File No: S7-25-19, Release Nos.: 33-10734, 34-87784;
• Disclosure of Payments by Resource Extraction Issuers, File No: S7-24-19, Release No. 34-87783;
• Use of Derivatives by Registered Investment Companies and Business Development Companies; Required Due Diligence by Broker-Dealers and Registered Investment Advisers Regarding Retail Customers’ Transactions in Certain Leveraged/Inverse Investment Vehicles, File No. File No: S7-24-15, Release Nos.: 34-87607, IA-5413, IC-33704; and
• Notice of Proposed Order Directing the Exchanges and the Financial Industry Regulatory Authority to Submit a New National Market System Plan Regarding Consolidated Equity Market Data, File No. 4-757, Release No. 34-88340.

The Commission is operational and we encourage market participants to submit comments on the most reasonable possible timeframe.  The Chairman will continue to consult with fellow Commissioners and staff and make adjustments to the list above as necessary.

*  *  *

Through this period of nationwide challenge, we have remained fully operational and committed to our tripartite mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.   While the agency is engaging on numerous COVID-19 initiatives as noted above, we also continue our regular agency operations.  For example, we have continued to advance rulemaking initiatives, conduct inspections, bring enforcement actions, and review and comment on issuer and fund filings.

Our staff has been intently focused on continuing to display the level of professionalism and dedication on which our investors and markets have come to rely.  We recognize the importance of our mission to America’s investors and our markets and believe it is a privilege to serve.