Securities Industry Commentator by Bill Singer Esq

November 4, 2021




Penfield Man Going To Prison For Bilking Investors Out Of Hundreds Of Thousands Of Dollars (DOJ Release)

Shareholder Proposals: Staff Legal Bulletin No. 14L (SEC Division of Corporation Finance)

Statement regarding Shareholder Proposals: Staff Legal Bulletin No. 14L (Statement by SEC Chair Gary Gensler)

Statement on Shareholder Proposals: Staff Legal Bulletin No. 14L by SEC Commissioner Hester M. Peirce and SEC Commissioner Elad L. Roisman

Family Feud, Jeopardy, and Let's Make a Deal (Keynote Address of CFTC Commissioner Dawn D. Stump at FIA Expo)

http://www.brokeandbroker.com/6147/finra-murray-government/
In pressing for government regulation and intervention into the ESG arena, FINRA Chair Eileen Murray seems to have forgotten that she speaks as Chair of a non-governmental, so-called self-regulatory-organization, which many -- including this author -- finds an outdated, conflicted, and failed approach to the regulation of our financial markets. FINRA is run by a Board of Governors for which the voting for elected Governors is limited to its FINRA member firms to the exclusion of the hundreds of thousands of the industry's associated persons and countless millions of public customers. Given the stakeholders excluded from voting at FINRA and the self-regulator's gerrymandered Board, it is truly ironic that the clarion call for ESG reform via government intervention comes from such a compromised organization. 

https://www.justice.gov/usao-edpa/pr/two-new-jersey-one-new-york-securities-claims-aggregators-arrested-and-charged-40m
-and-
https://www.sec.gov/news/press-release/2021-222

In an Indictment filed in the United States District Court for the Eastern District of Pennsylvania,
Joseph Cammarata, Erik Cohen, and David Punturieri were charged with conspiracy to commit multiple counts of fraud in connection with a securities fraud claims scheme. As alleged in part in the DOJ Release:

[T]he three defendants were the principals of Alpha Plus Recovery, a claims aggregator firm based in Old Bridge, New Jersey. The Indictment further alleges that the defendants used Alpha Plus Recovery to make false and fraudulent claims, including claims made in the Eastern District of Pennsylvania, to the proceeds of securities fraud class action and SEC enforcement action settlements. The defendants falsely claimed that corporate clients of Alpha Plus Recovery had purchased shares of securities that were the subject of the lawsuits and enforcement actions. In reality, the clients, which were entities actually controlled by the defendants, had not purchased the subject securities. To substantiate the false claims, the defendants created fraudulent brokerage and other financial documents to provide to claims administrators. The defendants then allegedly transferred the fraudulently obtained funds into accounts they controlled. The Indictment alleges that between 2014 and 2021, the defendants received approximately $40 million from these false claims.

In a Complaint filed in the United States District Court for the Eastern District of Pennsylvania
https://www.sec.gov/litigation/complaints/2021/comp-pr2021-222.pdf, AlphaPlus Portfolio Recovery Corp, Alpha Plus Recovery LLC, Joseph Cammarata, Erik Cohen, and David Punturieri were charged with violating the anti-fraud provisions of the Securities Exchange Act; and the Court ordered an asset freeze and temporary restraining order. A parallel criminal action was filed against Cammarata, Cohen, and Punturieri. As alleged in part in the SEC Release:

[J]oseph Cammarata, Erik Cohen, and David Punturieri, and two entities that they control, AlphaPlus Portfolio Recovery Corp. and Alpha Plus Recovery LLC (collectively AlphaPlus), stole at least $40 million from approximately 400 distribution funds, including more than $3 million from settlement funds arising from SEC enforcement actions. The complaint alleges that, starting in 2014, AlphaPlus engaged in a serial scheme to fraudulently obtain money by submitting false claims to settlement fund administrators - purporting to represent clients who had traded the securities that were the subjects of the underlying settlements. The complaint further alleges that defendants used false trading data and broker-dealer letterhead they misappropriated from other companies to "document" the purported trades and provide an air of legitimacy to their fake claims. According to the complaint, Cammarata, Cohen, and Punturieri funneled the fraudulently obtained distributions through a web of accounts they controlled and used the stolen money to pay for numerous personal expenses, such as jewelry, home renovations, luxury automobiles, watercraft, and real estate.

https://www.justice.gov/usao-wdny/pr/penfield-man-going-prison-bilking-investors-out-hundreds-thousands-dollars
Brian L. Schumacher, 57, pled guilty of conspiracy to commit wire fraud in the United States District Court for the Western District of New York, and he was sentenced to eight months in prison and ordered to pay $170,000 in restitution. As alleged in part in the DOJ Release:


Victim 1, a resident of Massachusetts, wire transferred $100,000.00 from his bank account to an account in the name of Integra Diamonds. During the course of the conspiracy, $30,000 was returned to Victim 1, but not the remaining $70,000 of his initial investment nor any of the promised return on the investment. Victim 2, a resident of California, invested $100,000.00 in Integra Diamonds after receiving a promise for a significant return on the investment. Schumacher used Victim 2's money to purchase, among other things, 1,211.85 carats of industrial diamonds for $30,296.25. Schumacher then resold those diamonds to a U.S. diamond broker for $11,514 and failed to return any of the proceeds of the sale to Victim 2 notwithstanding Victim 2's multiple requests for status updates and a return of his funds. These requests by Victim 2 resulted in Schumacher making a number of excuses for the failure of the investment. Integra Diamonds did not repay Victim 2 any portion of the $100,000 loan principle, or interest.

Shareholder Proposals: Staff Legal Bulletin No. 14L (SEC Division of Corporation Finance / November 3, 2021)
https://www.sec.gov/corpfin/staff-legal-bulletin-14l-shareholder-proposals

Summary: This staff legal bulletin provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934.

Supplementary Information: The statements in this bulletin represent the views of the Division of Corporation Finance (the "Division"). This bulletin is not a rule, regulation or statement of the Securities and Exchange Commission (the "Commission"). Further, the Commission has neither approved nor disapproved its content. This bulletin, like all staff guidance, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

Contacts: For further information, please contact the Division's Office of Chief Counsel by submitting a web-based request form at https://www.sec.gov/forms/corp_fin_interpretive.

A. The Purpose of This Bulletin
The Division is rescinding Staff Legal Bulletin Nos. 14I, 14J and 14K (the "rescinded SLBs") after a review of staff experience applying the guidance in them. In addition, to the extent the views expressed in any other prior Division staff legal bulletin could be viewed as contrary to those expressed herein, this staff legal bulletin controls.

This bulletin outlines the Division's views on Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. We are also republishing, with primarily technical, conforming changes, the guidance contained in SLB Nos. 14I and 14K relating to the use of graphics and images, and proof of ownership letters. In addition, we are providing new guidance on the use of e-mail for submission of proposals, delivery of notice of defects, and responses to those notices.

In Rule 14a-8, the Commission has provided a means by which shareholders can present proposals for the shareholders' consideration in the company's proxy statement. This process has become a cornerstone of shareholder engagement on important matters. Rule 14a-8 sets forth several bases for exclusion of such proposals. Companies often request assurance that the staff will not recommend enforcement action if they omit a proposal based on one of these exclusions ("no-action relief"). The Division is issuing this bulletin to streamline and simplify our process for reviewing no-action requests, and to clarify the standards staff will apply when evaluating these requests.

B. Rule 14a-8(i)(7)
1. Background
Rule 14a-8(i)(7), the ordinary business exception, is one of the substantive bases for exclusion of a shareholder proposal in Rule 14a-8. It permits a company to exclude a proposal that "deals with a matter relating to the company's ordinary business operations." The purpose of the exception is "to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting."[1]

2. Significant Social Policy Exception
Based on a review of the rescinded SLBs and staff experience applying the guidance in them, we recognize that an undue emphasis was placed on evaluating the significance of a policy issue to a particular company at the expense of whether the proposal focuses on a significant social policy,[2] complicating the application of Commission policy to proposals. In particular, we have found that focusing on the significance of a policy issue to a particular company has drawn the staff into factual considerations that do not advance the policy objectives behind the ordinary business exception. We have also concluded that such analysis did not yield consistent, predictable results.

Going forward, the staff will realign its approach for determining whether a proposal relates to "ordinary business" with the standard the Commission initially articulated in 1976, which provided an exception for certain proposals that raise significant social policy issues,[3] and which the Commission subsequently reaffirmed in the 1998 Release. This exception is essential for preserving shareholders' right to bring important issues before other shareholders by means of the company's proxy statement, while also recognizing the board's authority over most day-to-day business matters. For these reasons, staff will no longer focus on determining the nexus between a policy issue and the company, but will instead focus on the social policy significance of the issue that is the subject of the shareholder proposal. In making this determination, the staff will consider whether the proposal raises issues with a broad societal impact, such that they transcend the ordinary business of the company.[4]

Under this realigned approach, proposals that the staff previously viewed as excludable because they did not appear to raise a policy issue of significance for the company may no longer be viewed as excludable under Rule 14a-8(i)(7). For example, proposals squarely raising human capital management issues with a broad societal impact would not be subject to exclusion solely because the proponent did not demonstrate that the human capital management issue was significant to the company.[5]

Because the staff is no longer taking a company-specific approach to evaluating the significance of a policy issue under Rule 14a-8(i)(7), it will no longer expect a board analysis as described in the rescinded SLBs as part of demonstrating that the proposal is excludable under the ordinary business exclusion. Based on our experience, we believe that board analysis may distract the company and the staff from the proper application of the exclusion. Additionally, the "delta" component of board analysis - demonstrating that the difference between the company's existing actions addressing the policy issue and the proposal's request is insignificant - sometimes confounded the application of Rule 14a-8(i)(10)'s substantial implementation standard.

3. Micromanagement
Upon further consideration, the staff has determined that its recent application of the micromanagement concept, as outlined in SLB Nos. 14J and 14K, expanded the concept of micromanagement beyond the Commission's policy directives. Specifically, we believe that the rescinded guidance may have been taken to mean that any limit on company or board discretion constitutes micromanagement.

The Commission has stated that the policy underlying the ordinary business exception rests on two central considerations. The first relates to the proposal's subject matter; the second relates to the degree to which the proposal "micromanages" the company "by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment."[6] The Commission clarified in the 1998 Release that specific methods, timelines, or detail do not necessarily amount to micromanagement and are not dispositive of excludability.

Consistent with Commission guidance, the staff will take a measured approach to evaluating companies' micromanagement arguments - recognizing that proposals seeking detail or seeking to promote timeframes or methods do not per se constitute micromanagement. Instead, we will focus on the level of granularity sought in the proposal and whether and to what extent it inappropriately limits discretion of the board or management. We would expect the level of detail included in a shareholder proposal to be consistent with that needed to enable investors to assess an issuer's impacts, progress towards goals, risks or other strategic matters appropriate for shareholder input.

Our recent letter to ConocoPhillips Company[7] provides an example of our current approach to micromanagement. In that letter the staff denied no-action relief for a proposal requesting that the company set targets covering the greenhouse gas emissions of the company's operations and products. The proposal requested that the company set emission reduction targets and it did not impose a specific method for doing so. The staff concluded this proposal did not micromanage to such a degree to justify exclusion under Rule 14a-8(i)(7).

Additionally, in order to assess whether a proposal probes matters "too complex" for shareholders, as a group, to make an informed judgment,[8] we may consider the sophistication of investors generally on the matter, the availability of data, and the robustness of public discussion and analysis on the topic. The staff may also consider references to well-established national or international frameworks when assessing proposals related to disclosure, target setting, and timeframes as indicative of topics that shareholders are well-equipped to evaluate.

This approach is consistent with the Commission's views on the ordinary business exclusion, which is designed to preserve management's discretion on ordinary business matters but not prevent shareholders from providing high-level direction on large strategic corporate matters. As the Commission stated in its 1998 Release:

[In] the Proposing Release we explained that one of the considerations in making the ordinary business determination was the degree to which the proposal seeks to micro-manage the company. We cited examples such as where the proposal seeks intricate detail, or seeks to impose specific time-frames or to impose specific methods for implementing complex policies. Some commenters thought that the examples cited seemed to imply that all proposals seeking detail, or seeking to promote time-frames or methods, necessarily amount to 'ordinary business.' We did not intend such an implication. Timing questions, for instance, could involve significant policy where large differences are at stake, and proposals may seek a reasonable level of detail without running afoul of these considerations.

While the analysis in this bulletin may apply to any subject matter, many of the proposals addressed in the rescinded SLBs requested companies adopt timeframes or targets to address climate change that the staff concurred were excludable on micromanagement grounds.[9] Going forward we would not concur in the exclusion of similar proposals that suggest targets or timelines so long as the proposals afford discretion to management as to how to achieve such goals.[10] We believe our current approach to micromanagement will help to avoid the dilemma many proponents faced when seeking to craft proposals with sufficient specificity and direction to avoid being excluded under Rule 14a-8(i)(10), substantial implementation, while being general enough to avoid exclusion for "micromanagement."[11]

C. Rule 14a-8(i)(5)
Rule 14a-8(i)(5), the "economic relevance" exception, permits a company to exclude a proposal that "relates to operations which account for less than 5 percent of the company's total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company's business."

Based on a review of the rescinded SLBs and staff experience applying the guidance in them, we are returning to our longstanding approach, prior to SLB No. 14I, of analyzing Rule 14a-8(i)(5) in a manner we believe is consistent with Lovenheim v. Iroquois Brands, Ltd.[12] As a result, and consistent with our pre-SLB No. 14I approach and Lovenheim, proposals that raise issues of broad social or ethical concern related to the company's business may not be excluded, even if the relevant business falls below the economic thresholds of Rule 14a-8(i)(5). In light of this approach, the staff will no longer expect a board analysis for its consideration of a no-action request under Rule 14a-8(i)(5).

D. Rule 14a-8(d)[13]
1. Background
Rule 14a-8(d) is one of the procedural bases for exclusion of a shareholder proposal in Rule 14a-8. It provides that a "proposal, including any accompanying supporting statement, may not exceed 500 words."

2. The Use of Images in Shareholder Proposals
Questions have arisen concerning the application of Rule 14a-8(d) to proposals that include graphs and/or images.[14] The staff has expressed the view that the use of "500 words" and absence of express reference to graphics or images in Rule 14a-8(d) do not prohibit the inclusion of graphs and/or images in proposals.[15] Just as companies include graphics that are not expressly permitted under the disclosure rules, the Division is of the view that Rule 14a-8(d) does not preclude shareholders from using graphics to convey information about their proposals.[16]

The Division recognizes the potential for abuse in this area. The Division believes, however, that these potential abuses can be addressed through other provisions of Rule 14a-8. For example, exclusion of graphs and/or images would be appropriate under Rule 14a-8(i)(3) where they:

make the proposal materially false or misleading;
render the proposal so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing it, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires;
directly or indirectly impugn character, integrity or personal reputation, or directly or indirectly make charges concerning improper, illegal, or immoral conduct or association, without factual foundation; or
are irrelevant to a consideration of the subject matter of the proposal, such that there is a strong likelihood that a reasonable shareholder would be uncertain as to the matter on which he or she is being asked to vote.[17]
Exclusion would also be appropriate under Rule 14a-8(d) if the total number of words in a proposal, including words in the graphics, exceeds 500.

E. Proof of Ownership Letters[18]
In relevant part, Rule 14a-8(b) provides that a proponent must prove eligibility to submit a proposal by offering proof that it "continuously held" the required amount of securities for the required amount of time.[19]

In Section C of SLB No. 14F, we identified two common errors shareholders make when submitting proof of ownership for purposes of satisfying Rule 14a-8(b)(2).[20] In an effort to reduce such errors, we provided a suggested format for shareholders and their brokers or banks to follow when supplying the required verification of ownership.[21] Below, we have updated the suggested format to reflect recent changes to the ownership thresholds due to the Commission's 2020 rulemaking.[22] We note that brokers and banks are not required to follow this format.

"As of [date the proposal is submitted], [name of shareholder] held, and has held continuously for at least [one year] [two years] [three years], [number of securities] shares of [company name] [class of securities]."

Some companies apply an overly technical reading of proof of ownership letters as a means to exclude a proposal. We generally do not find arguments along these lines to be persuasive. For example, we did not concur with the excludability of a proposal based on Rule 14a-8(b) where the proof of ownership letter deviated from the format set forth in SLB No. 14F.[23] In those cases, we concluded that the proponent nonetheless had supplied documentary support sufficiently evidencing the requisite minimum ownership requirements, as required by Rule 14a-8(b). We took a plain meaning approach to interpreting the text of the proof of ownership letter, and we expect companies to apply a similar approach in their review of such letters.

While we encourage shareholders and their brokers or banks to use the sample language provided above to avoid this issue, such formulation is neither mandatory nor the exclusive means of demonstrating the ownership requirements of Rule 14a-8(b).[24] We recognize that the requirements of Rule 14a-8(b) can be quite technical. Accordingly, companies should not seek to exclude a shareholder proposal based on drafting variances in the proof of ownership letter if the language used in such letter is clear and sufficiently evidences the requisite minimum ownership requirements.

We also do not interpret the recent amendments to Rule 14a-8(b)[25] to contemplate a change in how brokers or banks fulfill their role. In our view, they may continue to provide confirmation as to how many shares the proponent held continuously and need not separately calculate the share valuation, which may instead be done by the proponent and presented to the receiving issuer consistent with the Commission's 2020 rulemaking.[26] Finally, we believe that companies should identify any specific defects in the proof of ownership letter, even if the company previously sent a deficiency notice prior to receiving the proponent's proof of ownership if such deficiency notice did not identify the specific defect(s).

F. Use of E-mail
Over the past few years, and particularly during the pandemic, both proponents and companies have increasingly relied on the use of emails to submit proposals and make other communications. Some companies and proponents have expressed a preference for emails, particularly in cases where offices are closed. Unlike the use of third-party mail delivery that provides the sender with a proof of delivery, parties should keep in mind that methods for the confirmation of email delivery may differ. Email delivery confirmations and company server logs may not be sufficient to prove receipt of emails as they only serve to prove that emails were sent. In addition, spam filters or incorrect email addresses can prevent an email from being delivered to the appropriate recipient. The staff therefore suggests that to prove delivery of an email for purposes of Rule 14a-8, the sender should seek a reply e-mail from the recipient in which the recipient acknowledges receipt of the e-mail. The staff also encourages both companies and shareholder proponents to acknowledge receipt of emails when requested. Email read receipts, if received by the sender, may also help to establish that emails were received.

1. Submission of Proposals
Rule 14a-8(e)(1) provides that in order to avoid controversy, shareholders should submit their proposals by means, including electronic means, that permit them to prove the date of delivery. Therefore, where a dispute arises regarding a proposal's timely delivery, shareholder proponents risk exclusion of their proposals if they do not receive a confirmation of receipt from the company in order to prove timely delivery with email submissions. Additionally, in those instances where the company does not disclose in its proxy statement an email address for submitting proposals, we encourage shareholder proponents to contact the company to obtain the correct email address for submitting proposals before doing so and we encourage companies to provide such email addresses upon request.

2. Delivery of Notices of Defects
Similarly, if companies use email to deliver deficiency notices to proponents, we encourage them to seek a confirmation of receipt from the proponent or the representative in order to prove timely delivery. Rule 14a-8(f)(1) provides that the company must notify the shareholder of any defects within 14 calendar days of receipt of the proposal, and accordingly, the company has the burden to prove timely delivery of the notice.

3. Submitting Responses to Notices of Defects
Rule 14a-8(f)(1) also provides that a shareholder's response to a deficiency notice must be postmarked, or transmitted electronically, no later than 14 days from the date of receipt of the company's notification. If a shareholder uses email to respond to a company's deficiency notice, the burden is on the shareholder or representative to use an appropriate email address (e.g., an email address provided by the company, or the email address of the counsel who sent the deficiency notice), and we encourage them to seek confirmation of receipt.

= = = = =

[1] Release No. 34-40018 (May 21, 1998) (the "1998 Release"). Stated a bit differently, the Commission has explained that "[t]he 'ordinary business' exclusion is based in part on state corporate law establishing spheres of authority for the board of directors on one hand, and the company's shareholders on the other." Release No. 34-39093 (Sept. 18, 1997).

[2] For example, SLB No. 14K explained that the staff "takes a company-specific approach in evaluating significance, rather than recognizing particular issues or categories of issues as universally 'significant.'"  Staff Legal Bulletin No. 14K (Oct. 16, 2019).

[3] Release No. 34-12999 (Nov. 22, 1976) (the "1976 Release") (stating, in part, "proposals of that nature [relating to the economic and safety considerations of a nuclear power plant], as well as others that have major implications, will in the future be considered beyond the realm of an issuer's ordinary business operations").

[4] 1998 Release ("[P]roposals . . .  focusing on sufficiently significant social policy issues. . .generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote").

[5] See, e.g., Dollar General Corporation (Mar. 6, 2020) (granting no-action relief for exclusion of a proposal requesting the board to issue a report on the use of contractual provisions requiring employees to arbitrate employment-related claims because the proposal did not focus on specific policy implications of the use of arbitration at the company).  We note that in the 1998 Release the Commission stated: "[P]roposals relating to [workforce management] but focusing on sufficiently significant social policy issues (e.g., significant discrimination matters) generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote."  Matters related to employment discrimination are but one example of the workforce management proposals that may rise to the level of transcending the company's ordinary business operations.

[6] 1998 Release.

[7] ConocoPhillips Company (Mar. 19, 2021).

[8] See 1998 Release and 1976 Release.

[9] See, e.g., PayPal Holdings, Inc. (Mar. 6, 2018) (granting no-action relief for exclusion of a proposal asking the company to prepare a report on the feasibility of achieving net-zero emissions by 2030 because the staff concluded it micromanaged the company); Devon Energy Corporation (Mar. 4, 2019) (granting no-action relief for exclusion of a proposal requesting that the board in annual reporting include disclosure of short-, medium- and long-term greenhouse gas targets aligned with the Paris Climate Agreement because the staff viewed the proposal as requiring the adoption of time-bound targets).

[10] See ConocoPhillips Company (Mar. 19, 2021).

[11] To be more specific, shareholder proponents have expressed concerns that a proposal that was broadly worded might face exclusion under Rule 14a-8(i)(10).  Conversely, if a proposal was too specific it risked exclusion under Rule 14a-8(i)(7) for micromanagement.

[12] 618 F. Supp. 554 (D.D.C. 1985).

[13] This section previously appeared in SLB No. 14I (Nov. 1, 2017) and is republished here with only minor, conforming changes.

[14] Rule 14a-8(d) is intended to limit the amount of space a shareholder proposal may occupy in a company's proxy statement.  See 1976 Release.

[15] See General Electric Co. (Feb. 3, 2017, Feb. 23, 2017); General Electric Co. (Feb. 23, 2016).  These decisions were consistent with a longstanding Division position.  See Ferrofluidics Corp. (Sept. 18, 1992).

[16]Companies should not minimize or otherwise diminish the appearance of a shareholder's graphic.  For example, if the company includes its own graphics in its proxy statement, it should give similar prominence to a shareholder's graphics.  If a company's proxy statement appears in black and white, however, the shareholder proposal and accompanying graphics may also appear in black and white.

[17] See General Electric Co. (Feb. 23, 2017).

[18] This section previously appeared in SLB No. 14K (Oct.16, 2019) and is republished here with minor, conforming changes.  Additional discussion is provided in the final paragraph.

[19] Rule 14a-8(b) requires proponents to have continuously held at least $2,000, $15,000, or $25,000 in market value of the company's securities entitled to vote on the proposal for at least three years, two years, or one year, respectively.

[20]Staff Legal Bulletin No. 14F (Oct. 18, 2011).

[21]The Division suggested the following formulation: "As of [date the proposal is submitted], [name of shareholder] held, and has held continuously for at least one year, [number of securities] shares of [company name] [class of securities]."

[22] Release No. 34-89964 (Sept. 23, 2020) (the "2020 Release").

[23] See Amazon.com, Inc. (Apr. 3, 2019); Gilead Sciences, Inc. (Mar. 7, 2019).

[24] See Staff Legal Bulletin No.14F, n.11.

[25] See 2020 Release.

[26] 2020 Release at n.55 ("Due to market fluctuations, the value of a shareholder's investment in a company may vary throughout the applicable holding period before the shareholder submits the proposal.  In order to determine whether the shareholder satisfies the relevant ownership threshold, the shareholder should look at whether, on any date within the 60 calendar days before the date the shareholder submits the proposal, the shareholder's investment is valued at the relevant threshold or greater.  For these purposes, companies and shareholders should determine the market value by multiplying the number of securities the shareholder continuously held for the relevant period by the highest selling price during the 60 calendar days before the shareholder submitted the proposal.  For purposes of this calculation, it is important to note that a security's highest selling price is not necessarily the same as its highest closing price.") (citations omitted).

https://www.sec.gov/news/statement/gensler-statement-shareholder-proposals-14l

Today, staff in the Division of Corporation Finance issued a new legal bulletin setting forth its views with respect to Rule 14a-8 of the Securities Exchange Act.[1] The right to put proposals in front of other shareholders for a vote is an important part of the securities laws.

In 1998, the Commission finalized a 14a-8 rulemaking "to improve the operation of the rules governing shareholder proposals."[2] Today's legal bulletin aligns with the intent of that Commission action. Since then, from time to time the Division staff has offered its views on application of the rule. In recent years, hundreds of companies have come to the staff seeking no-action letters with respect to shareholder proposals. Today's bulletin will provide greater clarity to companies and shareholders on these matters, so they can better understand when exclusions may or may not apply. The updated staff legal bulletin, which replaces three previously issued bulletins, is consistent with the Commission's original intention.

I'd like to thank the Division staff for putting together this thoughtful bulletin. Specifically, I would like to thank Renee Jones, Michael Seaman, Connor Raso, Erik Gerding, Matt McNair, and Deanna Virginio in the Division of Corporation Finance, among the many others on our staff who contributed.
= = = = = 
[1] Staff Legal Bulletins represent the views of the SEC staff and are not a rule, regulation or statement of the Securities and Exchange Commission (the "Commission"). Further, the Commission has neither approved nor disapproved their content. Staff legal bulletins, like all staff statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

[2] Release No. 34-40018 (May 21, 1998) (the "1998 release"). See https://www.sec.gov/rules/final/34-40018.htm.

Statement on Shareholder Proposals: Staff Legal Bulletin No. 14L by SEC Commissioner Hester M. Peirce and SEC Commissioner Elad L. Roisman
https://www.sec.gov/news/statement/peirce-roisman-statement-shareholder-proposals-staff-legal-bulletin-14l

Today the Division of Corporation Finance issued a new staff legal bulletin relating to shareholder proposals, which rescinded the last three bulletins and indicated that the staff may no longer agree that certain proposals are excludable from proxy statements under Rule 14a-8.[1] Notably, the Bulletin singles out as likely no longer excludable proposals "squarely raising human capital management issues with a broad societal impact" and proposals that "request[] companies adopt timeframes or targets to address climate change." While it is disappointing to see these two topics highlighted for special treatment, it is not altogether surprising given current SEC priorities. Today's Bulletin furthers the recent trend of erasing previous Commissions' and staffs' work and replacing it with the current Commission's flavor-of-the-day regulatory approach.

The rationale for today's action is a bit of a mystery. First while the bulletin lays out a case for repealing the last three bulletins, it does not fill the void left by their repeal. Specifically, it fails to address the problem those three bulletins were trying to solve, whether it still exists, and how it will be addressed going forward. For example, with respect to the significance analysis under Rule 14a-8(i)(7), the rescinded bulletins were designed to help issuers determine whether a proposal dealing with the company's ordinary business operations is nevertheless not excludable because it raises a policy issue so significant that it transcends the day-to-day business matters of the company. With these bulletins now rescinded, how should these proposals be analyzed? In rejecting a company-specific approach in evaluating significance, the Bulletin states that the staff "will instead focus on the social policy significance of the issue that is the subject of the shareholder proposal" and "consider whether the proposal raises issues with a broad societal impact." The Bulletin assures us that such a focus is realigned with the standard articulated by the Commission in 1976 and 1998, but the practical effect is unclear. Is the analysis simply a question of whether the proposal involves any socially significant issue? What criteria, timeframe, or proof support a finding that a topic is socially significant or has a broad societal impact? The new bulletin does not say.

Second, today's Bulletin does not explain what consequences of the rescinded bulletins were problematic. For example, while the Bulletin rejects the recent micromanagement analysis because it "may have been taken to mean that any limit on company or board discretion constitutes micromanagement," in practice the staff frequently rejected micromanagement arguments, including ones that related to climate change proposals. During the 2021 proxy season, no climate change proposals were excluded based on micromanagement arguments; and in 2020, only four climate change proposals were excluded based on micromanagement arguments.[2] Even in 2019, when twenty-one proposals (including, but not limited to climate change proposals) were excluded under micromanagement arguments, the staff denied no-action relief on micromanagement grounds for certain climate change proposals.[3]The Rule 14a-8 process has long been an insatiable consumer of staff time. The staff traditionally has not made decisions about excludability based solely on the type of issue a proposal raises. Rather, these determinations have been the product of rigorous analysis of the language of the proposal itself. Such analysis has been informed by the text of Rule 14a-8, Commission-level guidance (much of which is outdated and vague), staff legal bulletins, court decisions, and no-action letter precedents. Based on the guidance in this bulletin, analysis under Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception, will be even more difficult. We anticipate, of course, that our committed staff will approach these requests with the same diligence and nuance as they have under the rescinded analytical frameworks, but this Bulletin does not make their jobs easier.

The staff's ever-shifting standards and analytical frameworks for Rule 14a-8 communicated through staff legal bulletins over the years suggest a bigger shift may be in order. We have allowed proponents and companies to use our no-action letter process as a quick arbitration mechanism to determine questions of excludability, rather than present their arguments to a court of law. But, it is hard to see how this resource-intensive review is time (or tax dollars) well spent given that the proposals can involve issues that are, at best, only tangential to our securities laws. Why should the Commission's or its staff's views about the "significance" of non-securities issues be relevant to the analysis at all? Perhaps one day the Commission will relieve the staff of this burden and either take on consideration of these proposals itself or, better yet, amend the rule to excise the Commission and its staff from matters of state corporate law and areas outside our expertise.

= = = = =

[1] Of course, the staff's no-action responses to Rule 14a-8 submissions reflect only informal views. See Shareholder Proposal No-Action Responses,  https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/shareholder-proposal-no-action-responses.htm (last visited Nov. 3, 2021) ("The staff of the Division of Corporation Finance states only informal, non-binding views as to whether the Division would recommend enforcement action to the Commission if a company excludes a proposal from its proxy materials. The staff does not and cannot adjudicate the merits of a company's position with respect to a proposal. Only a court can determine whether a company may legally exclude the shareholder proposal from its proxy materials.").

[2] See Gibson Dunn, Shareholder Proposal Developments During the 2021 Proxy Season, https://www.gibsondunn.com/wp-content/uploads/2021/08/shareholder-proposal-developments-during-the-2021-proxy-season.pdf (last visited Nov. 3, 2021) at 11.

[3] See Gibson Dunn, Shareholder Proposal Developments During the 2019 Proxy Season, https://www.gibsondunn.com/wp-content/uploads/2019/08/shareholder-proposal-developments-during-the-2019-proxy-season.pdf (last visited Nov. 3, 2021) at 11; Anadarko Petroleum Corp., SEC No-Action Letter (Mar. 4, 2019),  https://www.sec.gov/divisions/corpfin/cf-noaction/14a-8/2019/asyousowetal030419-14a8.pdf (stating that the staff was unable to concur in company's view that a proposal was excludable under Rule 14a-8(i)(7) when the proposal requested "the company issue a report describing if, and how, it plans to reduce its total contribution to climate change and align its operations and investments with the Paris Agreement's goal of maintaining global temperatures well below 2 degrees Celsius").

Family Feud, Jeopardy, and Let's Make a Deal (Keynote Address of CFTC Commissioner Dawn D. Stump at FIA Expo)
https://www.cftc.gov/PressRoom/SpeechesTestimony/opastump10

Before beginning, I note that the views I express today are my own and not necessarily those of the Commission I am proud to serve upon nor my fellow Commissioners.

I am very happy to be here with you all in Chicago.  Due to the pandemic, it has been a while since I have had the opportunity to speak in person.  I am a little out of practice, so I am going to need a little help from the audience today.  I hope we can also have a bit of fun by starting with a friendly game of "Family Feud." 

Two of the conference attendees have agreed to be our first contestants.

Top three answers are on the board.

In 2021, what topic is a CFTC Commissioner most often asked to address when invited to speak?  

1. Crypto/Digital Assets

2. Climate Change/Carbon Markets

3. ESG

I asked this question because it really demonstrates where the public's interest is focused.  Interestingly, these topics are well beyond the traditional mandate of the Commodity Futures Trading Commission (CFTC).  Sure, we have CFTC-regulated products that are based upon the demand for crypto, emission reductions, and impact investment, but those products comprise a small portion of the markets we oversee.  Nonetheless, it seems to be where at least some of you - and many of your clients - are focused, so I thought I would spend a bit of time talking about each today. 

Crypto and Digital Assets

I'll begin with digital assets.  Before regulators go about engaging in a jurisdictional power-grab, I think market participants need us to provide clearer descriptions of our current authorities.  Only from that point can we determine whether gaps exist.  

On a frequent basis, I am reminded that the public is confused by the application of each federal and state regulator's current regulatory and enforcement regime.  Until we remedy that confusion, we cannot have an honest conversation about whether any agency needs new authorities.  And only then can informed stakeholders contribute to designing a workable regulatory structure.

One clear example of where regulators owe the marketplace clarity is with respect to the persistent tendency to draw a distinction between commodities and securities.  Oftentimes, this confusion seems to stem from well-intentioned product developers seeking to determine if they need to face the CFTC or the Securities and Exchange Commission (SEC) in achieving proper U.S. regulatory compliance, and in doing so they ask the wrong question: "Is my product a security or is it a commodity?".  I am alarmed that those who are genuinely seeking to enter a regulatory environment with these new products have been led to believe that this is the fundamental question they must answer.

As most everyone here knows, the CFTC does not regulate commodities.  So, any pronouncement that an asset is a commodity should not be interpreted as a roadmap to the CFTC for regulatory oversight.  Unfortunately, far too many of those seeking to genuinely innovate in this space, and those looking to participate in this space, have been misinformed as to this point.  I am trying my best to level-set and correct the proliferation of this misinformation.  I want to be very clear that the CFTC regulates derivatives - we are specifically charged by Congress to regulate futures and swaps1  - many of which have commodities as their underlying assets, but we do not regulate the underlying commodities themselves. 

For example, natural gas is a commodity, and the CFTC regulates futures contracts and swaps on natural gas.  But the CFTC does not regulate the transmission and sale of natural gas for resale in interstate commerce.  Rather, that is left to the Federal Energy Regulatory Commission.

While the SEC does regulate securities (and I will leave it to them to hash out what qualifies as a security), the CFTC regulates derivatives, not commodities. That said, the derivatives we regulate include some derivatives on securities.2

Complicated?  Unfortunately, yes.  But it is how our system is designed today, with multiple regulators involved in the oversight of assets depending on the nature and function of the specific product.

Separately, and perhaps the root of some of the confusion as to the CFTC's role in the digital asset space, is the more expansive enforcement authority we have to deter fraud and manipulation in the cash markets (notably, this anti-fraud/anti-manipulation authority extends beyond the derivatives markets we regulate and into the cash markets).3  Congress provided the CFTC with this expanded enforcement authority because such fraudulent or manipulative activity in the cash markets may have an impact on the derivatives markets we are tasked to oversee.  Given the confusion that exists, I believe we must consistently clarify that this broader enforcement authority does not suggest that we are conducting day-to-day regulatory oversight in these cash or spot crypto markets.  Failing to be clear on this point gives the public a false sense of security and leaves those seeking a regulatory home perplexed.

We need to minimize the confusion and stop allowing silly distinctions between commodities and securities to drive the discussion.  Only then can we have an honest conversation about next steps. 

Meanwhile, a regime already exists for regulating futures and swaps on digital assets, and we at the CFTC have for some time been applying our regime in this space, much as we do for other futures and swaps based on vastly different assets, ranging from crude oil futures to credit default swaps.  My opinion is that we should stick to what we do best in regulating the infrastructure that supports futures and swaps markets.  Whether based upon corn, crypto, or credit defaults, the derivatives markets we regulate function very differently from those markets that facilitate exchange of the underlying assets.  Before expanding the CFTC's authority into the cash markets, careful consideration should be given to whether the market infrastructure we oversee today can logically benefit the cash markets, which have historically been beyond our expertise.

Climate Change and Carbon Markets

Turning now to our second most requested speaking topic - climate and carbon markets.  Anyone who reads a paper or watches the news is familiar with the various concerns and opinions pertaining to the impact of climate change on the global economy.  Like many things we as a nation grapple with, this one is multi-faceted to the point that sometimes the basics get lost in the mix.  If we are to have an honest conversation about a path forward, we must consider the entire picture, which is well beyond just the environmental goals, but also involves strong impact investor sentiments as well as everyday consumer needs.  Balancing these interests is no small task, and we should do so very thoughtfully.  

Let's start with investors.  It is undeniable that many are seeking to invest in a way that drives transition to reduced carbon emissions.  And as a result, those that supply our nation with food and energy are themselves exploring how to expedite transition by committing resources to the next generation of technology.  I support market-driven outcomes such as this, as preferred to government mandates.  That said, I am not naïve to the fact that others of my colleagues in various agencies may prefer the government to play a more prominent role in driving these developments.

Regardless of what or who creates the momentum and my own personal views on the preferred impetus, as a nation, we would be well served to contemplate the new transitional and physical risks that are being introduced - the potential for stranded assets, changes in asset prices, credit risks, supply disruptions, and so forth.  Investors should work with those that provide our economy with essential goods and services to determine how best to balance carbon reduction efforts against these new risks during the transition they seek.  It would be unfortunate for the government to be the source of such new risks.

It's a balancing act, and while institutions finance new technologies to advance carbon emission reduction, those that continue to support existing infrastructure in the meantime should not be penalized.  Abandoning established food and energy supply methods during a time when many are trying to transition cannot be the price we pay to advance alternative production methods.  Otherwise, it is the U.S. consumers who will ultimately suffer. 

Additionally, the best solutions likely benefit from drawing upon the experience of those who today supply our country with such goods and services.  Their experience with the infrastructure and markets, as well as the influence of investor pressure they are already responding to, cannot be dismissed if we are genuinely interested in adapting without the unnecessary disruptions other countries have experienced.  As such, I was pleased to see that a recent report from the Financial Stability Oversight Council (FSOC) recommended the formation of a Climate-related Financial Risk Advisory Committee to help the FSOC gather information and analysis on climate-related financial risks.4   I hope such a committee will have balanced representation to include current energy and agricultural producers who are on the front lines of taking on new risks to balance the demands of environmental improvements, impact investors, and consumers.

Perhaps that is where the CFTC can be of most help in lending our expertise in facilitating risk management tools.  Whether these new risks are driven by government mandates or consumer and investment demand, derivatives will be used to manage such.  We will regulate the resulting risk management tools just as we do with respect to risk arising from all other asset classes.  In fact, we already are doing so, as today we oversee approximately 175 exchange-listed climate-related derivatives products.

"ESG" - Environmental, Social, Governance Factors

The discussion of climate change naturally leads to a broader conversation on ESG.  Difficult questions remain in how to value a company's ESG standing - opinions vary widely, and reliable data is often hard to come by. 

Diversity in the context of ESG is perhaps an example of the valuation confusion that exists.  Some suggest it belongs in the "S" category (social) for the greater good and fairness it represents, but how does one measure goodness and fairness?  Others believe diversity is a component of the "G" category (governance) - a simple metric in the tally of individuals represented.  In the context of governance, I have repeatedly stated my belief that encouraging a diverse set of views yields alternative ways of considering challenges and broadens the options for solving problems.  And I believe that is a benefit to any decision-making body - public company, government agency, or otherwise.  But numbers alone will not achieve this objective; inclusion is critical - more on the importance of inclusion later.

When I set aside my personal views and focus on my job of regulating the derivatives markets developing in response to demand for ESG investing, I am reminded that difficult questions remain, even as demand persists.  And the way in which these underlying standards develop will impact the ability to realize well-functioning derivatives markets in this area.  I appreciate that so many of you are working on this task.  As new markets and products develop in our space, we need much input.

__________

As I would now like to shift my remarks to other matters that may be of interest, I would like to ask our "Family Feud" contestants back to the stage for round 2.  

Top three answers are on the board.

As many of you know, former Commissioner Dan Berkovitz and I have had a close working relationship that pre-dates our time at the CFTC.  And as such, we often compared notes on various matters.  During the first half of 2021, what topic 1. most often dominated my conversations with former Commissioner Berkovitz?  (And as a reminder, the topic of positions limits is "so 2020," and, therefore, a reasonable guess for prior years, but not in 2021.)  

1. Event Contracts 

2. Retail Interest in Derivatives Markets

3. Interesting Podcasts or Non-Fiction Books

As to this last topic, anyone who knows Dan appreciates that he is an avid inquirer.  Very rarely did we end a conversation without my adding another non-fiction book or podcast to my library list.  Perhaps someday he will publish his favorites - too many for me to recount here, so I had better focus my remarks on the many days that Dan and I read our favorite "book" together, the Commodity Exchange Act (CEA).  And I am not joking, we often read excerpts from the CEA as we contemplated new questions about novel contracts or the application of the statute in the context of increased retail participation or disintermediation.  In fact, he returned my call one day last spring as I was walking to pick up my daughter from school - I told him I might need to call him back because I didn't have the CEA in front of me, and he kindly asked which section I wanted to discuss and then proceeded to read it to me such that I could point out my specific query within Section 5c(c)(5)(C) of the CEA - true story. 

Event Contracts

For those who may not have memorized the CEA, Section 5c(c)(5)(C) deals with a special consideration for CFTC review of event contracts.5   Congress has generally limited the CFTC's ability to disapprove new contracts unless it finds they are violating the CEA or CFTC regulations.  These limitations date back to the Commodity Futures Modernization Act of 2000,6  but were left in place by Congress when it enacted the Dodd-Frank Act a decade later.7

Also in the Dodd-Frank Act, Congress addressed the trading of a narrow set of event contracts by granting the CFTC a bit more discretion to determine that certain of these contracts MAY be contrary to the public interest if they involve specifically enumerated activities including: (1) activity that is unlawful under any Federal or State law; (2) terrorism; (3) assassination; (4) war; (5) gaming; or (6) other similar activity determined by the CFTC, by rule or regulation, to be contrary to the public interest.8

So, what does all of this mean?  While the CEA provides a fairly wide allowance for contracts to be traded on events that could happen in the future by demonstrating compliance with the statutory core principles and CFTC regulations, there is additional legal analysis that the CFTC must undertake for event contracts.  With regard to event contracts, we must answer two additional questions:
  • First, we must determine if the contracts involve any of the enumerated activity - gaming, terrorism, assassination, war, unlawful activity.
  • If the answer is yes, then we must answer whether such contracts are contrary to the public interest.  If yes again, then the contract cannot be listed.9 

Otherwise, if the answer to either of these questions is "no," then we are tasked to honor the process established by Congress of reliance on a demonstration of compliance with the core principles and CFTC regulations as the standard for new contract listings.

How a person (including any Commissioner or CFTC staff member) feels about these contracts is a subjective determination.  My job is to objectively apply the statutory criteria for listing event contracts.  We will then regulate and oversee the listing entities as we do all of our registrants. 

Retail

Beyond event contracts, the interest from retail market participants in many other products the CFTC regulates is another topic worth exploring.  I would like to discuss three recent developments with respect to retail participation generally that I find to be very interesting:
  • First, access - initial demand for many new asset classes is increasingly derived from retail participants.  Take, for example, crypto derivatives.  
  • Second, product development - we have seen the introduction of smaller-sized "micro" futures on such things as crude oil, as futures exchanges attempt to attract retail traders to their platforms.    
  • Third, infrastructure - last year, the CFTC granted designated contract market (DCM) designations to several new futures exchanges whose business models focus on retail traders. 
I think all of these things demonstrate how the CFTC's principles-based approach to compliance with our requirements enables us to be a bit more nimble than other regulators in permitting innovation and evolution to occur.  I trust that when conducting rule enforcement reviews, our market oversight staff will pay close attention to the new retail-focused DCMs in order to make sure these exchanges fulfill their legal obligations - just as we do for any market infrastructure provider.

At the same time, I am hopeful the CFTC will undertake new initiatives to help assure that retail traders are properly informed about how the futures markets operate and the degree of risk that such trading inherently entails. 

And I would be remiss if I did not add that we are continually carrying out our market surveillance and investigative functions to assure that the futures markets trade in an orderly manner and to guard against manipulation, disruptive trading, and other types of abuse which harm the futures markets and those who trade on them - both institutional and retail traders alike.        

While the advantage of the principles-based regulatory framework is that it is sufficiently flexible to allow the CFTC to adapt to changing market dynamics, there are aspects of our current regime that are a bit ill-fitting for some of the recent trends.  For example, our clearing rules are designed around a structure where an intermediary stands between clients and clearinghouses as a guarantor, and where clients use leverage to increase their exposure.  Perhaps this works well for some retail offerings, but many new retail-focused derivatives clearing organizations (DCOs) do not use an intermediary model. 

To date, we have accommodated this model by imposing conditions such as requiring products to be fully collateralized.  But I think anyone who assumed that was the end of the story might be a tad naïve.  Certainly, we might expect future requests from these registrants to offer leveraged clearing.  Yet, our DCO rules are written for a legacy structure of intermediaries operating in markets largely dominated by institutional clients.  If the trend of growing retail interest persists, we will eventually have to address this very thoughtfully, with an eye towards maintaining the safety and soundness of the clearinghouses while at the same time encouraging retail access to the clearing infrastructure.  

__________

Before I close, I think we have time for one more friendly competition.  This time the game is "Jeopardy," and our contestants are all CFTC alumni. 

And the categories are:

1. CFTC C-Hair
2. Women Before Me

Please remember to frame your response in the form of a question. 

During the past 10 years, the CFTC has had six Chairmen (including Acting Chairmen).  Among these men, only two - Heath Tarbert and Mark Wetjen - share a physical feature that distinguishes them from the others.

                        Answer: What is a full head of hair?

During the CFTC's 47 years, on only one occasion have three female Commissioners served simultaneously.  These women formed the majority of the Commission in 1994/95 - points will be awarded for each correct name.

                        Answers:     Who is Barbara Holum?

Who is Mary Schapiro?

Who is Sheila Bair?

I look forward to the day - perhaps soon - when more female Commissioners serve simultaneously.  But having men and women serve as Commissioners is just one example of the diversity of experiences and views that I believe benefits all decision-making bodies, including the CFTC.  If all leaders in an organization have homogeneous experiences, opinions, and areas of expertise, that will limit ideas.  Encouraging a diverse set of views yields alternative ways of considering challenges and broadens the options for solving problems. 

But diversity is only part of the equation.  Inclusion and retention are critical.  An organization's employees must feel comfortable sharing their unique opinions.  It is unacceptable for any employees to feel they must pull back for fear of failure or to adapt to the majority or the status quo in a way that causes us to lose the benefit of diverse viewpoints.  Furthermore, without proactive steps to retain employees, we again risk losing the benefit of diversity. 

Closing

In closing, I want to thank everyone for playing along in my game-show themed talk, but I also want to assure you that there is no family feud or double jeopardy playing out at the CFTC.  As you are well aware, we are a little light on Commissioners right now.  As a result, matters requiring Commission-level approval can only proceed if the two of us agree.  Some have suggested this affords me the opportunity to simply oppose the Acting Chairman's agenda by canceling his vote with an opposing vote of my own.  Anyone who knows me or Russ Behnam understands that is not how either of us chooses to do our work.  I have known and worked with Acting Chair Behnam for a long time - even before we arrived at the CFTC.  We are much more inclined to try our hand at "Let's Make a Deal."  And even as the two of us are currently limited in our ability to communicate directly with one another about agency business, our teams have also worked together for several years, and they serve us well in finding common ground.  Nevertheless, I will be true to my principles, and I know he will be, too.  But we will not play games with your markets.

= = = = =

1 See Section 2(a)(1)(A) of the Commodity Exchange Act (CEA), 7 U.S.C. § 2(a)(1)(A).

2 This includes, for example, futures contracts on broad-based stock indexes.

3 See CEA Sections 6(c)(1) and 9(a)(2), 7 U.S.C. §§ 9(1), 13(a)(2), respectively.

4 See FSOC, Report on Climate-Related Financial Risk 2021, at 5, 119 (October 21, 2021) (Recommendation 1.2), available at FSOC Report on Climate-Related Financial Risk (treasury.gov).

5 CEA Section 5c(c)(5)(C), 7 U.S.C. § 7a-2(c)(5)(C).

6 Commodity Futures Modernization Act of 2000, Appendix E of Public Law 106-554, 114 Stat. 2763 (2000).

7 Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376 (2010) (Dodd-Frank Act).

8 CEA Section 5c(c)(5)(C)(i), 7 U.S.C. § 7a-2(c)(5)(C)(i).

9 CEA Section 5c(c)(5)(C)(ii), 7 U.S.C. § 7a-2(c)(5)(C)(ii).