On September 24, Reuters, citing The Information, reported a proposal to give Anthropic’s seven co-founders 50.1 percent of votes on key shareholder matters. A prospectus reviewed by Reuters now explains the mechanism: A majority of the founders would direct a single Class F share through a Founder LLC. The filing invokes protection of Anthropic’s mission as the proposal’s purpose. The special rights would begin to sunset when only two or fewer founders or their successors remained.

The same report sets out the board split. Anthropic’s Long-Term Benefit Trust would elect four of seven directors. Class A and Class F shareholders would elect the other three, with the founders holding the controlling vote. The trust’s majority is a check on the founders, though neither set of seats would be separately elected by public shareholders.

As I argued in a recent post, Anthropic’s proposed antitrust waiver raised the question of who should determine acceptable AI risks across the industry. Its IPO plan raises that question as it relates to the company’s governance, where the ability to challenge those decisions depends partly on who chooses the board.

There are precedents for such electoral insulation. Meta preserves its founder’s voting majority; Palantir protects a collective founder bloc. Snap’s public shares carry no ordinary voting rights. Professors Zohar Goshen and Assaf Hamdani explain how control can preserve an entrepreneurial vision through disagreement with investors. Professors Lucian Bebchuk and Kobi Kastiel show why its benefits may fade while the costs of entrenchment rise. Founder guidance has a serious justification. Its scope and duration remain contested.

Anthropic adds a public benefit obligation. As a Delaware public benefit corporation, it must balance shareholders’ financial interests, the interests of those materially affected by its conduct, and its stated public purpose. It may lawfully issue shares with unequal votes. Professor Jens Dammann found dual-class shares in nine of nineteen listed PBCs in his 2024 study. The legal compatibility is clear. The question concerns the justification for concentrating control in a company so explicit about its moral mission.

Professor Brett McDonnell identifies protected control as a way to preserve a public mission against investors seeking higher returns. In AI, that could sustain costly safety measures or delay a release. The same arrangement can also insulate those interpreting the mission from shareholder challenge.

Professor Oliver Hart and Professor Luigi Zingales’s work on shareholder welfare exposes the cost of that insulation. Investors can care about corporate conduct and accept lower returns to prevent harm. Their votes can give those preferences institutional force. Anthropic’s shareholders might demand greater caution about AI or question a decision to deploy it. Protecting the company from shareholder pressure also limits those demands. The company’s public benefit mission should not require excluding the judgments of investors who may share that commitment.

A controlled company can reserve a board minority for public shareholders. At the New York Times Company, Class A shareholders separately elect 30 percent of directors, rounded upward. A mission guardian could retain a majority while public investors elected a minority. That would give investors a foothold in board elections, while leaving the wider question of public accountability open.

Professor Rebecca Henderson’s Moral Firms? places human flourishing at the center of corporate purpose. Professor Margaret O’Mara’s response asks whether purposes defined by executives and investors adequately reflect the societies their firms transform. Claude’s constitution endorses democratic institutions, oversight, and checks on concentrated power. Those commitments invite scrutiny of the company’s own allocation of authority.

Professor Emily Winston calls the institutional problem the separation of benefit and control: A PBC’s intended beneficiaries generally acquire no corresponding governance rights. Equal shareholder votes would not make investors representatives of the public. But restricting their voice removes one way to challenge judgments made in the public’s name.

OpenAI already illustrates the limits of formal oversight. Its board’s dismissal of CEO Sam Altman in 2023, followed by an employee revolt and his return, exposed the gap between the authority to remove an executive and the capacity to sustain that decision. Elon Musk’s claims concerning OpenAI’s charitable commitments were dismissed as untimely in May, leaving their substance unresolved. Its restructuring retained nonprofit control over a commercial PBC. Professor Moran Ofir and senior lecturer Ronit Levine-Schnur warn that formal nonprofit oversight can yield to commercial power. The question is who can enforce the mission when those running the business stray from it.

Anthropic’s draft S-1 prospectus places AI’s promise to society beside existential risk. Its governance therefore concerns power over the conditions of economic and political life. DARPA helped direct the early internet; industry now leads frontier model development. Where public leadership supplies few effective counterweights, company law helps determine who can set technological priorities, reorganize industries, and shape social life. Shareholder voice is one check, and public institutions must supply others. Montesquieu warned that “virtue itself has need of limits.” For Anthropic, the question is who can check those entrusted with its mission.

Marco Mari is a PhD candidate in business and social law at Bocconi University and a research fellow at NYU Law School’s Program in Corporate Law and Policy and the MIT Industrial Performance Center.

We have three items on today’s agenda. First, the Commission will consider whether to issue a release proposing rule amendments expanding the circumstances under which a registered investment adviser may receive performance-based compensation.  Second, we will consider whether to issue a release proposing amendments to the rule that allows regulated closed-end funds to make repurchase offers to shareholders at net asset value at periodic intervals.  Finally, we will consider whether to issue five notices that the Commission is considering regarding whether to designate by order certain certifications, designations, or credentials as qualifying natural persons for accredited investor status.

***

Before we begin, I should like to take a moment to recognize my friend and colleague, Commissioner Hester Peirce. As her remarkable tenure at the Commission draws to a close, I thank her for her nearly nine years of principled leadership and dedicated public service as Commissioner.

Even before her tenure as commissioner, she served the SEC in the Division of Investment Management and then in my office when I was a commissioner. One of the most attractive aspects to me in returning to the Commission as chairman was the opportunity to work again with Commissioner Peirce and Commissioner Uyeda, who also served in my office back in the Aughts. We were able to bring the “band” back together. What a pleasure it has been for the past 17 months.

Commissioner Peirce has always brought an independent mind to the work of the Commission. She has never been afraid to question conventional wisdom or to stand alone when principle demanded it. At the heart of her approach has been a deep respect for investors— particularly for their judgment, their freedom to participate in our markets, and for their right to benefit from the opportunities that those markets create.

Nowhere has her courage to stand apart from the crowd proven more consequential than in digital assets. Long before regulatory clarity became a shared objective at this Commission, Commissioner Peirce was calling for it. She of all people truly deserves the nickname of “Crypto Mom.”

Many of the ideas that we are now putting into practice were first articulated and developed in her speeches and dissents. Even when those ideas had no purchase with the rest of the Commission, she continued to ask whether there was a better way. Over time, her vision for the future became a roadmap. Moreover, I am very happy to be able to say that we are actually putting those principles and ideas into practice for the benefit of investors, innovators, and the American economy.

So, Hester, thank you. Thank you very much for your friendship, for your service to this institution, and above all for the example that you have set. You have demonstrated how much one determined, persistent voice can prevail even after years of opposition and indifference. This Commission is better for your service, and the work that we carry forward will bear the imprint of your leadership for years to come. God bless you as you move on to other endeavors. I will miss you and your always pleasant demeanor, but am happy that you will not be too far away. Please remember that, as long as I am around, the door will remain open for you and especially for your comments and ideas.

***

Now, let me turn to the first two items on today’s agenda. Private markets are one of the great engines of American enterprise, equipping businesses with the capital to launch, to experiment, to scale—and, in many cases, to mature—before assuming the obligations of a public company. Investor demand for private market investment opportunities is growing, and one of my priorities for the Commission is to explore ways to facilitate the ability of individual investors to participate in private markets, while at the same time protecting those investors from bad actors and fraud. The Commission’s efforts in this regard—focused on expanding opportunities for investors’ post-tax, pre-retirement dollars—complement efforts undertaken pursuant to President Trump’s Executive Order on Democratizing Access to Alternative Assets for 401(k) Investors.

These goals are not incompatible with another priority of mine – to make IPOs great again. As I have said repeatedly, exposure to the full dynamism of our markets should not be reserved for the wealthiest or for those deemed to be the most sophisticated. Private market investments—like any investment—are not without risks. But the mere presence of investment risk is not grounds to exclude individual investors in perpetuity. At its core, this is a question of freedom and fairness.

Accordingly, our efforts are focused on what we have called “responsible retailization”—the notion of embracing investment growth and innovation across all asset classes, while protecting individual investors with appropriate safeguards.

Today, we will consider two proposals from the Division of Investment Management that help to realize our responsible retailization vision.

The first proposed rulemaking is designed to modernize the regulatory framework related to performance-based compensation. Performance-based compensation can offer a rational and effective means to define and align adviser and investor goals. Expanding the ability for advisers to charge performance-based fees could incentivize advisers currently operating in the private markets as well as complex or differentiated public market strategies to bring diverse strategies to a wider group of clients and investors, including investors in regulated funds.

The second proposed rulemaking, meanwhile, is designed to modernize, enhance, and simplify the interval fund framework, which may allow for the broader adoption of the interval fund structure by fund managers seeking to offer retail investors exposure to private markets.

Taken together, these proposals are important steps towards providing individual investors with more access to private market investment opportunities, including through the registered fund channel. I am pleased to support this rulemaking package and excited by the possibilities that it presents—and, as always, I look forward to reviewing the public’s feedback in the coming weeks.

Before I turn it over, I should also like to thank the staff for their hard work in developing these proposals:

In the Division of Investment Management: Brian Daly, Sarah ten Siethoff, Brian Johnson, Robert Holowka, Blair Burnett, Brad Gude, Pam Ellis, Daniel Levine, Neema Nassiri, Larry Pace, Susan Ali, and Claudia Rios.

In the Division of Economic and Risk Analysis: Joshua White, Lauren Moore, Alexander Schiller, James McLoughlin, Dasha Safonova, Caroline Schulte, Joe Simmons, and Aliya Ishmukhamedova.

In the Office of the General Counsel: Russell McGranahan, Bryant Morris, Elise Bruntel, Alice Wang, Amy Scully, and Rebecca Orban

***

The third item on today’s agenda is a recommendation from the Division of Corporation Finance to issue five notices of potential designations of additional ways that an individual can qualify as an accredited investor.

The Commission’s designation of accredited investors is core to the facilitation of retail access to private markets.  Qualifying as an accredited investor provides individuals with the opportunity to participate in a variety of capital raising transactions that are exempt from the Commission’s registration requirements under the Securities Act of 1933. Access to early investment in growth-stage companies relying on these exemptions can provide a meaningful way to build wealth if the investment’s value increases. At the same time, investing in private offerings can carry greater risk and afford fewer protections, compared to public investments. The Commission should weigh these considerations when determining how an individual may qualify as an accredited investor.

I support the recommendation to issue these notices to inform the public of the potential designations of the following ways for an individual to qualify as an accredited investor: (1) passing an examination to be developed by FINRA; (2) holding a license as a U.S. certified public accountant; (3) holding a charter as a Chartered Financial Analyst; (4) holding a certification as a Certified Financial Planner in the United States; (5) holding a FINRA Investment Banking Representative license, and (6) holding a FINRA Research Analyst license.

Each of these potential designations would leverage the Commission’s previous recognition that an individual can demonstrate the requisite financial sophistication to participate in offerings exempt from Securities Act registration by holding in good standing certain professional certifications, designations, or credentials. These potential designations would also build upon the Commission’s prior designations of the FINRA General Securities Representative license, Private Securities Offerings Representative license, and Investment Adviser Representative license as ways to qualify as an accredited investor.

I agree with the fundamental notion ingrained in today’s notices that accredited investor access to private offerings should not be limited solely to individuals satisfying financial thresholds and that such thresholds are not the sole indicators of a person’s ability to assess the merits and risks of an investment.

I look forward to receiving and reviewing the public’s feedback on each of the five notices.

Before turning the meeting over to Jim Moloney, Director of the Division of Corporation Finance, for the recommendation, I would like to thank the following members of the Commission staff for their work on the notices.

Division of Corporation Finance: Jim Moloney, Sebastian Gomez Abero, Christina Thomas, Luna Bloom, Jeb Byrne, Kenisha Nicholson, Max Corey, Jonathan Ingram, Heather Maples, Anna Abramson, Jessica Ansart, Dillon Hagius, and Doris Gama.

Division of Economic and Risk Analysis: Joshua T. White, Oliver Richard, Amy Edwards, Vladimir Ivanov, Angela Huang, Lauren Moore, Charles Woodworth, Samantha Croffie, Robert Girouard.

Office of the General Counsel: Russell McGranahan, Bryant Morris, Dorothy McCuaig, Evan Jacobson, Ken Alcé, and Michael Killoy.

Office of the Chief Accountant: Kurt Hohl, Shehzad Niazi, Blaine Roundy and Patrick Foley.

Division of Investment Management: Brian Daly, Sarah ten Siethoff, Robert Holowka, Brian Johnson, Blair Burnett, Samuel Thomas, Neema Nassiri, Daniel Levine, Marc Mehrespand, Adele Kittredge Murray, and Janet Jun.

Division of Trading and Markets: Devin Ryan, Edward Schellhorn, and Kyra Grundeman.

The debtor remains a state-law entity, while the DIP acts as the federally authorized representative of the bankruptcy estate. Thus, state corporate law debtor may continue to govern the debtor, but federal bankruptcy law governs the DIP and its administration of estate property.

This distinction produces a significant difference in fiduciary obligations. Federal bankruptcy fiduciary duties extend to a broader group of beneficiaries and cannot simply be waived in the manner permitted by state corporate law.

In particular, the paper distinguishes the ordinary state-law business judgment rule from what it calls the “bankruptcy business judgment rule.” State corporate law ordinarily gives directors substantial deference and reviews challenged decisions retrospectively. Bankruptcy, by contrast, routinely requires courts to approve important transactions before they occur.

The paper contends that this ex ante review requires courts to ask whether a proposed transaction is reasonable rather than simply deferring to management’s business judgment. The resulting standard is therefore closer to a reasonableness inquiry than to the highly deferential state-law business judgment rule.

Private equity makes the distinction urgent. Private equity merges ownership and management, eliminating the key issue that state law addresses. Private equity’s layered leverage, at the general partner, fund, and portfolio-company levels, works like a near-free call option that rewards risky strategies at creditors’ expense. More than half of large 2024 bankruptcies involved PE-backed companies. The central conflict is now creditors versus a shareholder-controlled debtor, which state corporate law largely ignores.

Our central proposition, therefore, is that chapter 11 should not be understood simply as state corporate law operating inside a federal bankruptcy proceeding. It is a distinct federal corporate-governance regime designed for a fundamentally different problem: the fair administration and distribution of a federally created bankruptcy estate among competing claimants.  The same individuals may occupy roles in both the debtor and the DIP, but they are acting in different legal capacities.

Adam J. Levitin is the Carmack Waterhouse Professor of Law and Finance at Georgetown University Law Center, and Stephen J. Lubben is the Harvey Washington Wiley Chair in Corporate Governance & Business Ethics at Seton Hall Law School. This post is based on their recent article, “The Federal Corporate Law of Bankruptcy,” forthcoming in the Georgetown Law Journal and available here,

A threshold question is what securities can be traded in these markets. These markets – or “tokenized securities venues” (“TSV”) – could trade National Market System (“NMS”) stock that has been tokenized by the issuer of the stock, or, subject to the issuer’s ability to object, a third party unaffiliated with the issuer could create the digital version of the stock. The order therefore raises the question of whether public companies want their stock to trade on a TSV. Importantly, the order does not require issuers to tokenize their stock or to participate in a TSV, directly or indirectly, but, by enabling third parties to tokenize an issuer’s stock, the order makes tokenization a more immediate governance, operational, disclosure, and investor-relations issue.

What Has the SEC Done?

The SEC issued an exemptive order; it is not a rule (although the SEC is seeking comment). The order is effective immediately, although a TSV must provide public notice 30 calendar days before operating. The order provides “conditional exemptions” from the Exchange Act definitions of “exchange” and “dealer” – that is, to take advantage of the exemptions, participants need to comply with certain conditions specified in the order. The order also provides that a TSV must publish a revised public notice within five business days of commencing or ceasing to make a tokenized stock available for trading, or within five business days of receiving a notice of objection from an issuer. The order has a term of five years.

How Does This Affect a Public Company?

A TSV seeking to trade a tokenized stock must provide written notice to the issuer at least 30 calendar days before trading commences, providing the issuer with an opportunity to object.  TSVs are required to send the notice to the physical or email address for the issuer’s principal executive offices listed on the cover page of its Exchange Act reports, and include the TSV’s current, accurate contact information. Companies that wish to object must provide written notice of objection to the TSV.

Third party tokenized stock must have the same economic and governance rights of listed stock (i.e., the right to dividends, residual assets, and vote). The order does not permit any primary issuance or initial offerings on a TSV; companies should not, at this stage, view tokenizing securities as a capital raising opportunity, unlike the SEC’s recent Regulation Crypto Assets proposal.

How Would Tokenized Securities Trade?

A distributed ledger (commonly called a blockchain) is a shared digital record of ownership maintained simultaneously by many independent computers rather than by a single institution. To “tokenize” a security is to create a digital record, or “token,” on that ledger representing a share of stock, so that ownership can change hands by updating the ledger rather than by instructing a broker, clearing agency or transfer agent. Importantly, digital tokens contemplated by the order would not be new or synthetic instruments; rather, they would represent the same NMS stock, carrying the same dividend and voting rights, but recorded in a different place.

This is not a hypothetical market. Tokenized versions of U.S.-listed shares have traded outside the U.S. since mid-2025 on various platforms, making up part of a market that now measures in the tens of billions of dollars. Those offshore products are often wrapper or debt instruments that track a share price without conveying shareholder rights, which is a key distinction from what the order contemplates.

U.S. incumbent infrastructure has been moving in the same direction: SEC staff granted no-action relief in December 2025 for a Depository Trust Company pilot to tokenize securities entitlements and approved Nasdaq and NYSE rule changes permitting listed securities to trade in tokenized form. Importantly, these efforts involved tokenizing assets at the end of the existing settlement chain and preserved today’s clearing plumbing. The Innovation Exemption, on the other hand, may be understood as a fully on-chain venue alongside the current system.

What Are the Potential Benefits of Tokenization?

The SEC cites a number of potential benefits, mostly addressed to market participants and investors. These benefits include the ability to self-custody securities (i.e., not with a broker, adviser or bank); fractionalized ownership of shares; faster settlement; and improved auditability and record-keeping. The only benefit identified by the SEC for public companies is the possibility that proxy communications could be conducted at a lower cost. In addition, companies already in or contemplating entering the digital asset space may want to establish proof-of-concept and demonstrate their mastery of the technology.

Settlement today is typically a one business day process involving intermediaries. On a distributed ledger, the transfer of the token and the transfer of payment can be made to occur simultaneously and within seconds. Because a token can be divided into very small units, fractional ownership lets an investor buy a fixed dollar amount of a high-priced share. Additionally, tokens are “programmable,” meaning that the rules governing them are written into software that runs automatically; in principle, this feature can enable the automation of certain functions, including dividend distributions, transfer restrictions and delivery of proxy materials. Whether these efficiencies materialize at scale remains an open question.

What Are the Potential Risks of Tokenization?

The SEC identifies two primary risks to public companies: the challenge of maintaining its shareholder register related to on-chain transfers; and the potential price dislocation or adverse effects on the price of the underlying stock. The order does not address any obligation or expectation of coordinating the TSV’s records with those of the company’s transfer agent. Moreover, the order assumes a pricing mechanism on a TSV that need not reflect the security’s primary market. In addition, companies should consider investor relations challenges of two potentially very different shareholder bases with two fundamentally different markets.

What’s Different About a TSV?

A TSV will not be regulated like an exchange (and may not hold itself out as an exchange). Prices will be generated by algorithmic trading among liquidity pool participants, and as mentioned above, may not reflect the security’s exchange-listed price. A TSV could potentially operate 24/7 trading, longer than the exchange where the company’s security trades.  Because of the algorithmic (“smart contract”-based)[1] trading, there will potentially be instant settlement with fewer broken trades.

The order limits the volume of trading permitted on a TSV compared with the primary market. (If a TSV exceeds the volume limit, it will be required to cease trading that security for three months.) A TSV can only trade NMS stock, which generally includes exchange-listed equity securities for which transaction reports are collected under an effective transaction reporting plan. It may not trade tokenized options, rights, warrants or swaps.

The order provides that a TSV must stop trading a tokenized NMS stock concurrently with a stoppage in the underlying NMS stock on its primary listing exchange. In addition, the TSV must verify that the tokenized stock has the same economic and governance rights as the primary security. The TSV must also determine if the third party token sponsor will distribute proxy materials to holders at no cost.

Questions Not Addressed in the Order

• What happens to holders of tokenized stock after five years (the stated duration of the exemptive order)?
• What are the TSV procedures for trading halts not required by the exchange where the securities are listed? (The TSV is required to disclose “any procedures to address price volatility or trading involving, for example, corporate actions occurring when markets for the underlying securities are closed,” but does not dictate what those procedures will be.)
• What options does a holder of tokenized stock have if the trading venue is required to halt trading in a security for three months because it exceeded the volume limitation?
• Does a public company have any remedy if a TSV improperly trades a company’s tokenized security? (The SEC could pursue an enforcement action for operating as an unregistered exchange outside the permission of the exemptive order.)
• The order only addresses the status of market participants in the operation of a trading venue under the Exchange Act; it does not address the Securities Act (or state corporate law) implications of establishing a tokenized security program. (For example, how does a public company authorize, issue, offer and sell tokenized stock?)
• If multiple TSVs tokenize the same stock on different blockchains, what technical or interoperability standards apply, and can those tokens move between venues or be reconciled with one another?

What Should My Company Do?

• Check the contact information on your Exchange Act reports and train employees who monitor communications about this development and the importance of timely escalation of any notices received from TSVs.
• If you haven’t, begin the conversation with the Board, as well as with appropriate employees in the company’s treasury and investor relations functions, to consider whether tokenization might be appropriate.
• Comment to the SEC if you think the order could be improved.
• If you are considering participating in a TSV, coordinate with your transfer agent and primary listing exchange. Issuers should understand how a proposed tokenization structure would interact with the official shareholder register, existing settlement arrangements, corporate actions, and trading halts.

ENDNOTE

[1] A “smart contract” is software deployed on the blockchain that executes automatically once its conditions are met, with no intermediary approving or processing the trade; that is what makes near-instant settlement possible, and it also means a coding error or exploit is an operational risk in its own right. An “automated market maker,” or AMM, is a type of smart contract that replaces the traditional order book: rather than matching a buyer against a seller, participants deposit inventory into a shared “liquidity pool,” and the pool quotes prices algorithmically based on the relative amounts of each asset it holds. Prices in such a pool are therefore set by supply and demand within the pool itself.

This post is based on a Covington & Burling LLP memorandum, “Will My Company Be Forced to Tokenize Its Stock Now? (What Public Companies Should Know About the SEC’s ‘Innovation Exemption’), dated September 23, 2026, and available here. 

Objections have already come from the left, right, and center. The Council of Institutional Investors calls the proposal “a solution in search of a problem.” Faith-based and environmental proponents call it “an attack on the fundamental rights of shareholders” and a “loss for the free market” more broadly. Conservative proponents object just as loudly; one accuses the SEC of proposing “to lock in left-wing shareholder activist gains.” It is not often that the Council of Institutional Investors and the National Center for Public Policy Research agree on anything. All predict the same result: Without the federal rule, few shareholder proposals will ever reach a vote.

That’s probably true, but not necessarily. Rescission ends a federal subsidy: the free space the rule commandeered in a company’s proxy statement. But the right the rule subsidized comes from state corporate law, and that right will survive the rescission of the rule. Whether shareholders ever use it depends on whether they and the companies they own value it.

In Delaware, where most large public companies are incorporated, a shareholder may raise a proposal at the annual meeting, subject to any advance-notice requirements in the company’s bylaws. Whether that right extends to nonbinding resolutions, which nearly all shareholder proposals are,[2] is a question Delaware courts have never squarely decided.[3] After rescission, Delaware will answer that question, not the SEC.[4]

The Legal Case for Rescission

The Commission’s legal argument is straightforward: The statute the rule rests on, Section 14(a) of the Securities Exchange Act of 1934, lets the SEC regulate how proxies are solicited, not what shareholders vote on. And it certainly says nothing about shareholder proposals. So, the Commission concludes, it never had the power to adopt Rule 14a-8.

The SEC’s reading of the statute has ample support, including a 2010 amendment to the Exchange Act that the Commission never cites. When Congress amended Section 14(a) in 2010, it explicitly authorized the SEC to require companies to include shareholders’ board nominees in their proxy materials,[5] and in the same law it required a say-on-pay vote.[6] Congress knew how to require something in a public company’s proxy materials.[7] But it never expressly authorized nonbinding shareholder proposals.

In defense of Rule 14a-8, one might be tempted to argue that Congress has known about the rule for decades, has referred to the practice in later statutes,[8] and has left it alone, reflecting congressional acquiescence in, if not endorsement of, the rule. But the U.S. Supreme Court has warned that reading that kind of intent into legislative inaction is “at best treacherous,”[9] and that a regulation’s “age is no antidote to clear inconsistency with a statute.”[10]

The Policy Case for Rescission

Separate from the legal question, the rule’s recent record supports the policy case for its repeal. In 2025, the typical proposal that reached a vote drew 14 percent support.[11] No environmental proposal won a majority in 2025 or 2026, and anti-ESG proposals did worse still. After an animal-rights group sued, PepsiCo agreed to carry a proposal on the treatment of bulls in its supply chain; shareholders gave it under 9 percent support. By the SEC Chairman’s count, a single individual was the sole or lead proponent of about 41 percent of the proposals voted on this past proxy season. That is one shareholder deciding what millions of other investors are asked to vote on. From 2022 through 2025, companies asked the SEC staff for permission to exclude more than 1,000 proposals,[12] under a no-action process that shifted with each change of administration and that the SEC staff abandoned entirely in August. A rule that compels hundreds of corporate referenda a year on proposals that shareholders routinely reject, administered by an agency that has stopped administering it, is hard to justify. Indeed, the Commission offers its own policy reasons as a separate ground for rescission, one that could sustain repeal even if a court rejected the Commission’s legal argument.[13]

Reasonable minds can differ over what is lost if Rule 14a-8 is repealed. The rule has occasionally produced real and lasting governance reforms: Board declassification, majority voting for directors, and proxy access itself all spread through shareholder proposals. The shareholders who would lose the most are individual investors, who filed about half of last year’s proposals.[14] The Commission admits as much.[15] But none of that could save the rule if the SEC never had the legal authority to adopt it.

Private Ordering After Rescission

What comes next is up to companies and their shareholders. The SEC’s shareholder proposal rule has long deferred to state corporate law on whether a proposal is a proper subject for shareholder action, so a company could have restricted proposals through its bylaws long ago. Almost none did,[16] presumably because no board wanted to be the first accused of silencing its shareholders. Once the rule is gone, the same bylaw power can be used to provide access instead of restricting it. A company whose shareholders value proposal access can grant it in its bylaws, on terms of its own choosing: ownership thresholds, holding periods, limits on subject matter and number. Investors can price the differences.

Proxy access shows what such contracting can look like. After a federal court vacated the SEC’s proxy access rule in 2011,[17] companies adopted proxy access bylaws one at a time, investors converged on a market standard of 3 percent held for three years, and by 2019 three quarters of the S&P 500 had proxy access without any federal rule requiring it. Access for shareholder proposals may follow the same path, though I doubt it will, at least not quickly. Proxy access spread through shareholder proposals, the very method that rescission of Rule 14a-8 would effectively close. And the other methods that remain open to shareholders, engagement with boards and the annual election of directors, work more slowly. But if companies and their investors value what the federal rule provided, nothing after rescission prevents them from restoring it in whatever form they please.

In the wake of the SEC’s move, the New York State Comptroller has already asked companies to commit to accepting proposals voluntarily. And a politically conservative proponent has asked Procter & Gamble, Oracle, Microsoft, and other companies to adopt policies preserving the current eligibility thresholds whatever the SEC does. Procter & Gamble’s board opposes the request as “premature.” Microsoft has already agreed to keep the current thresholds, at least through its 2027 annual meeting.

Despite all the signals pointing toward rescission—including the SEC Chairman’s call in October 2025 to re-evaluate the rule’s “fundamental premise” and an executive order in December 2025 directing the agency to consider rescinding it[18]—shareholder advocates spent the last year quarreling over how the SEC administers the rule. They are about to fight the wrong battle again, this time over the SEC’s legal authority for the rule.

That question may take years to resolve in court. The terms of proposal access can be settled sooner, company by company, in corporate bylaws. If investors value nonbinding shareholder proposals, they need not wait for a court to save the federal rule. They can ask for the right from the companies they own. Whether they bother to will tell us much about what the rule was worth.

ENDNOTES

[1] Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4, Exchange Act Release No. 106,383, 91 Fed. Reg. 59,904, 59,906 (proposed Sept. 21, 2026) [hereinafter Release] (“we propose to rescind Rule 14a-8 in its entirety because the rule exceeds the Commission’s statutory authority under section 14(a)”).

[2] Jay B. Sykes, Cong. Rsch. Serv., R48855, The Shareholder Proposal Rule 29 (2026) (“According to some estimates, precatory proposals constitute roughly 98% of proposals submitted in a typical proxy season.”).

[3] See Release, supra note 1, at 59,914 (“[N]o commentator has identified any controlling authority from a Delaware court on this issue”); Mohsen Manesh, The Corporate Contract & the Private Ordering of Shareholder Proposals, 50 J. Corp. L. 1, 29 & n.203 (2024) (noting that “to the extent that right is recognized by case law, judicial references to it are scant and fleeting”); see also Kyle A. Pinder, The Non-Binding Bind: Reframing Precatory Stockholder Proposals Under Delaware Law, 15 Mich. Bus. & Entrepreneurial L. Rev. 1 (2026) (concluding that Delaware law provides no inherent right to make precatory proposals).

[4] The same release would also make it easier for companies to vote the proxies they hold against proposals raised that way. See Release, supra note 1, at 59,922–23 (proposing to amend Rule 14a-4(c)); id. at 59,923 (explaining that, without the amendment, proponents could “effectively obtain inclusion of their proposals on the company’s proxy card at the company’s expense, even if Rule 14a-8 is rescinded”).

[5] 15 U.S.C. § 78n(a)(2) (2024) (rules “may include . . . a requirement that a solicitation of proxy . . . by (or on behalf of) an issuer include a nominee submitted by a shareholder to serve on the board of directors of the issuer”); see also Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 971(b), 124 Stat. 1376, 1915 (2010) (codified at 15 U.S.C. § 78n note) (“The Commission may issue rules permitting the use by a shareholder of proxy solicitation materials supplied by an issuer of securities for the purpose of nominating individuals to membership on the board of directors of the issuer . . . .”).

[6] 15 U.S.C. § 78n-1(a)(1) (2024) (a proxy “shall include a separate resolution subject to shareholder vote to approve the compensation of executives”).

[7] Cf. Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 176 (1994) (“Congress knew how to impose aiding and abetting liability when it chose to do so.”).

[8] See 15 U.S.C. § 78n-1(c)(4) (2024) (The say-on-pay vote “may not be construed . . . to restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation….”); National Securities Markets Improvement Act of 1996, Pub. L. No. 104-290, § 510(b)(1), 110 Stat. 3416, 3450 (directing an SEC study of “shareholder access to proxy statements pursuant to section 14”). Neither statute grants the Commission authority for the rule.

[9] Girouard v. United States, 328 U.S. 61, 69 (1946) (“It is at best treacherous to find in congressional silence alone the adoption of a controlling rule of law.”).

[10] Brown v. Gardner, 513 U.S. 115, 122 (1994); see also id. at 121 (“[W]here the law is plain, subsequent reenactment does not constitute an adoption of a previous administrative construction.” (quoting Demarest v. Manspeaker, 498 U.S. 184, 190 (1991))).

[11] Release, supra note 1, at 59,930–31 (reporting median support of 14 percent for proposals voted on in 2025).

[12] Id. at 59,917 n.160 (“During the 2022–2025 period, companies submitted 1,073 no-action requests to the Commission to exclude shareholder proposals….”).

[13] Id. at 59,906 (“Even if the rule or aspects of it were within the Commission’s statutory authority, there are independent policy reasons to rescind Rule 14a-8 in its entirety.”); id. at 59,913.

[14] Id. at 59,930–31 (estimating that 53 percent of 2025 proposals were submitted by individual proponents).

[15] Id. at 59,946–47 (“The proposed rescission of Rule 14a-8 would disproportionately affect less well-resourced proponents, including individual retail investors and smaller advocacy groups . . . .”); see also id. at 59,941.

[16] See id. at 59,917 (noting that the Commission is “not aware of any companies that have incorporated their own framework for addressing shareholder proposals into their governing documents”); id. at 59,917 n.162 (noting “a small number of companies” that opted into a new Texas statute).

[17] Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) (vacating Rule 14a-11).

[18] Exec. Order No. 14,366, 90 Fed. Reg. 58,503 (Dec. 16, 2025) (directing that “the SEC Chairman shall consider revising or rescinding all rules . . . relating to shareholder proposals, including Rule 14a-8”).

Mohsen Manesh is the L.L. Stewart Professor of Business Law at the University of Oregon School of Law. He is the author of “The Corporate Contract and the Private Ordering of Shareholder Proposals.

Tokenized Securities Venues

The Innovation Exemption is centered on TSVs. These trading venues bring together buyers and sellers of stock tokenized by or on behalf of the issuer, or by an unaffiliated third party (a tokenized NMS stock) through one or more automated market maker (AMM) liquidity pools. The exemption from the definition of “exchange” for TSVs is subject to a number of conditions designed to ensure the exemptive relief is in the public interest and consistent with the protection of investors. TSVs must be U.S. persons, comply with Office of Foreign Assets Control (OFAC) sanctions, maintain books and records for the exemption period plus three years, consent to SEC examinations and provide 30 days’ public notice before commencing operations.

Trading tokenized NMS stocks on a TSV is restricted by tight symbol and volume caps divided into two tiers. For Tier 1 stocks — which are constituents of the S&P 500 and Russell 1000 indexes as well as specific exchange-traded products — a TSV is restricted to 75 symbols and a volume cap of 0.25% of the asset’s average daily share volume from the previous month. Conversely, Tier 2 stocks cover all other eligible NMS securities (excluding rights and warrants). These are permitted up to 250 symbols and a higher volume cap of 2.5% of the prior month’s average daily share volume as recorded by an effective transaction reporting plan.

The TSV also must verify that any tokenized NMS stock made available for trading provides holders the same rights and privileges as traditional NMS stock of an equivalent class. Additionally, before making available for trading a tokenized NMS stock that is tokenized by a party other than the issuer, the TSV must provide written notice and an opportunity to object to the issuer of the underlying NMS stock.

The conditions also impose transparency and operational requirements on TSVs. Smart contracts used by a TSV must be auditable, public and deployed on a public, permissionless distributed ledger. A TSV also must stop trading in a tokenized NMS stock concurrently with any stoppage of trading in the underlying NMS stock on the primary listing exchange, ensuring that trading halts and other regulatory actions applicable to the underlying security are effectively mirrored in the tokenized market.

Finally, a TSV must provide public notice about its operations and trading activities, and the trading activities of its affiliates on the TSV. Taken together, these conditions are intended to promote market integrity and investor protection by ensuring that tokenized securities trading venues operate with a level of transparency and regulatory oversight comparable to that of traditional exchanges.

Notably, because TSVs that meet the conditions of the exemption are exempt from the definition of “exchange,” they would not be required to register as a national securities exchange or operate under the alternative trading system (ATS) exemption from registration. As a result, a TSV would not be considered a trading center or market center under Regulation NMS and would not be subject to the Regulation NMS rules that apply to exchanges, ATSs, trading centers or market centers.

Relief for Liquidity Providers

The Securities Exchange Act of 1934 defines a “dealer” as any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise. Depending on the facts and circumstances, certain liquidity-provider activity could constitute dealer activity, as opposed to trader activity, under Section 3(a)(5) of the Exchange Act. To address this uncertainty, the order includes a Covered Firm Exemption that exempts certain liquidity providers (Covered Firms) from the definition of “dealer” under the Exchange Act.

A Covered Firm’s securities activities must be limited to activities related to the trading of tokenized NMS stock in an AMM liquidity pool operating pursuant to the TSV Exemption. A Covered Firm must provide liquidity through a TSV, and trade solely for its own proprietary accounts. It is not permitted to hold or have custody of customer assets. It also must maintain records of liquidity provision, agreements and fees, and notify the SEC in writing of its role as a Covered Firm. A Covered Firm must prominently disclose on its website, if applicable, that it is not registered as a broker-dealer with the Commission; that it may enter into liquidity provision, including market making, agreements or arrangements with a TSV to provide liquidity to an AMM liquidity pool; and that it may receive fees, tokens or other incentives for providing liquidity or achieving certain volume thresholds.

Practical Implications of the Innovation Exemption

• While many will welcome the exemption, market participants should carefully consider how it will impact their businesses. The exemption is intentionally narrow, which will allow the Commission to observe emerging venues and market participants as it considers long-term rules.
• The limited nature and scope of the exemption, books and records, and public notice requirements, and trading volume caps, may address the regulatory asymmetry concerns many market participants feared the exemption would create.
• Issuers should be aware that their securities may be tokenized by unaffiliated third parties, subject to a notice-and-objection process. Issuers may wish to develop internal policies regarding third-party tokenization of their stock.
• Liquidity providers operating exclusively within AMM pools on qualifying TSVs may benefit from the Covered Firm Exemption, potentially avoiding broker-dealer registration. However, the exemption’s conditions are narrow, and firms should carefully assess eligibility.
• Unless the SEC extends the relief or adopts permanent rules, the exemption can be relied on only for the next five years. TSVs and Covered Firms should consider having contingency plans in place in the event that the SEC does not come up with a permanent solution.

Conclusion

The Innovation Exemption represents a landmark step in the Commission’s broader “Project Crypto” initiative and responds to Congress’ inability to advance the CLARITY Act. By acting within its existing statutory authority, the SEC is seeking to bridge the gap between traditional capital markets infrastructure and emerging distributed ledger technology, while maintaining core investor protections. The next five years may help determine whether AMM-based trading of tokenized stocks is viable, and which elements of today’s market structure remain necessary when securities can be issued, traded, held and transferred online.

This post is based on a Skadden, Arps, Slate, Meagher & Flom LLP memorandum, “SEC’s Innovation Exemption Establishes a New Framework for Trading Tokenized Stocks,” dated September 22, 2026, and available here. 

Each team index opens the season at a baseline of 7,500 points and shifts in real time based on goals, saves, takeaways, penalties, and other determined statistics, using a rules-based scoring methodology built by a Chicago startup called FutureSports and licensed exclusively from the NHL. Traders can go long or short. Positions can be taken on margin.

Major League Baseball (MLB) has also agreed to such futures contracts on each MLB team.  FutureSports announced its MLB partnership on September 22, just six days before the NHL contracts went live. The investment arms of the Los Angeles Dodgers’ and Boston Red Sox’s ownership groups, Elysian Park Ventures and John Henry’s family office, respectively, played a direct role in brokering the MLB deal.[2] Other financial backers reportedly include the Chicago Cubs’ ownership group, Marquee Ventures, and the trading platform Robinhood.[3] It is unclear when the MLB indexes for each team will go live, but the NHL futures contracts are available for purchase as the NHL season starts this week.

This is a genuinely new species of financial product, and it deserves scrutiny before the enthusiasm outruns the risk disclosures. These products are like other futures products that are based off indexes that move up or down. Each team’s index is continuously changing according to both in game metrics as well as after a game, after a month, and at the end of the season. The index for each team started at 7,500 and will change depending upon how the team plays and the season progresses. These novel products are different from traditional sports betting as well as prediction markets as outlined below:

How these futures contracts are different from a sportsbook bet.  Sports bettors can wager money on the outcome of a game (who will win) as well as specific other outcomes such as how many total points will be scored (over/under), or “prop” bets that deal with individual player and team statistics such as whether a named player scores a goal, takes a penalty, makes a certain number of hits, and more. To this extent, the sportsbook pays the sports bettor if the outcome happens. As an example, if the bet is that the Washington Capitals will beat the New York Rangers, and that happens, then the sportsbook pays those who placed that bet. The bet resolves at the end of the game.

However, these NHL indexes do not resolve. They continuously move, absorbing in-game and after-game statistics. This is exactly like other stock indexes that continuously move.  The financial product is based off the indexes and not the index itself. Therefore, the futures contracts based off each team’s index are considered derivative products and thus federally regulated by the Commodity Futures Trading Commission (CFTC). CME and FutureSports are structuring the indexes as continuous benchmarks rather than binary settlement contracts. The methodology for the sports financial indexes has been designed to align with the International Organization of Securities Commissions’ Principles for Financial Benchmarks.[4]

How these futures contracts are different from a prediction market.  As I have written  here,[5] prediction markets such as Kalshi, Polymarket, and others are locked in an active, unresolved legal battle over whether sports-event contracts are federally regulated derivatives under the Commodity Exchange Act or state regulated gambling products. Most agree that the issue will reach the Supreme Court. However, FutureSports’ model was deliberately built to sidestep that fight. Instead of a yes or no contract on a single event, these futures contracts are priced off of a continuously valued index. But regulators have not yet definitively blessed that distinction, and investors should not assume the “CFTC-regulated” label forecloses future jurisdictional challenges simply because the product was engineered to avoid prediction markets’ current fight.

Although CME describes these contracts as trading in a CFTC-regulated marketplace, there is some regulatory history with sports futures.  In 2020, the CFTC raised concerns that Eris Exchange’s proposed sports futures amounted to sports gambling, and Eris ultimately withdrew its products. What has changed since 2020 is that the CFTC has taken a friendlier approach to novel markets, including supporting sports-event contracts in prediction markets as federally regulated products. Nevertheless, investors should not mistake a permissive regulator for a settled legal question.

How these futures contracts are different from stocks.  A share of stock represents a claim on a company’s future cash flows, discounted by some rational (if imperfect) model of value.  However, a sports performance index represents nothing but the statistical output of athletes playing a game. There is no earnings report, no balance sheet, no fundamental anchor at all. CME’s own marketing leans into this, describing the product as “a pure-play asset class that moves independently of inflation and interest rates.”[6] This is actually the problem with these contracts: An asset with no connection to macroeconomic fundamentals also has no floor.  A team’s index can move on a season-ending injury, a trade-deadline blockbuster, or a winning streak with the same volatility a meme stock moves on a tweet. Unlike a meme stock, though, there is no underlying business that will eventually re-anchor the price to something real.

In addition, my earlier research on legalized sports betting found that sports betting measurably crowds out long-term saving and investing.  Sports betting delivers the instant gratification of gambling while increasingly being marketed and experienced as akin to investing.  These new futures contracts eliminate that distinction. This is not betting dressed up to feel like investing.  Rather, these indexes are a genuine, regulated financial instrument. Layering margin and leverage on top, as CME’s own materials do (“access larger market positions with less upfront capital”),[7] does not just repackage sports betting risks, it amplifies them.

Integrity risk is not hypothetical. Both the NHL and MLB have barred players, coaches, and league staff from trading these instruments, which is the correct call. Nevertheless, a financial product whose value is a direct function of athletic performance creates the same insider information and integrity incentives that have already produced enforcement actions in prediction markets. A sports performance index, continuously priced and directly tied to the same underlying information, is not immune from the same category of risk simply because it is wrapped in index methodology rather than a yes or no contract.

What this means going forward. None of this means sports performance indexes are illegitimate financial products. These futures contracts can become hedging tools for sponsors, broadcasters, and franchise-adjacent businesses. Marketing materials suggest even season ticket holders may benefit from this potential hedge against their investment by purchasing tickets for every game in advance.

Moreover, CME’s institutional backing lends real infrastructure and oversight relative to unregulated offshore sports books. With the MLB agreeing to a deal with FutureSports last week, the potential audience grows well beyond hockey. Co-founder of FutureSports Rhett Dinsdale said, “Our mission is to evolve sports or transition sports out of the binary, sort of, entertainment realm and into the institutional risk management sector.”[8]  That is a genuinely significant ambition. If prediction markets were the first step in creating an asset class from sports event contracts, these new futures contracts are furthering that goal. Hockey season starts this week, and now so does the ability to trade on it.

ENDNOTES

[1] CME Group, CME FSPI Sports Indexes and Futures, https://www.cmegroup.com/fspi (last visited Sept. 24, 2026).

[2] Jon Seidel, First Hockey, Now Baseball: FutureSports Deal with MLB Will Let Fans Bet on Teams, Chi. Sun-Times (Sept. 22, 2026), https://chicago.suntimes.com/technology/2026/09/22/hockey-baseball-futuresports-deal-mlb-fans-bet-teams.

[3] Id.

[4] CME Group, Sports Index Futures, https://www.cmegroup.com/markets/equities/sports-index-futures.html (last visited Sept. 24, 2026).

[5] See Roth, Melinda, Prediction Markets: Creating a New Asset Class from Ballots to Box Scores (August 13, 2025). Forthcoming __ Connecticut Law Review __, Available at SSRN: https://ssrn.com/abstract=5390765.

[6] CME Group, supra note 1.

[7] Id.

[8] Seidel, supra note 2.

Melinda Roth is a professor at New England Law School.

If the Rule is rescinded, SEC-registered investment advisers, exempt reporting advisers, and foreign private advisers would no longer be subject to the prescriptive, strict liability prohibitions in the Rule that, among other things, place limits on certain political contributions by covered associates. Instead, investment advisers would be required to address their pay-to-play risks using a principles-based approach that the Proposal notes is consistent with other existing obligations under the Investment Advisers Act of 1940, as amended (the Advisers Act).

The Proposal makes clear that the SEC is not proposing to permit wholesale previously prohibited pay-to-play practices.[i] Indeed, the Proposal specifically states that payments to state officials as a quid pro quo for obtaining advisory business, as well as other forms of pay-to-play, violate the antifraud provisions of Section 206 of the Advisers Act. The Proposal emphasizes that such practices remain generally subject to scrutiny under the antifraud provisions of the Advisers Act — which the SEC has previously used to bring pay-to-play enforcement actions — and may also need to be addressed under an investment adviser’s code of ethics.

The Proposal ties pay-to-play practices to conflicts of interest and fiduciary duty concerns, noting that public plan beneficiaries are harmed when a government official fails to “disclose that the government official has directed the investment of [a plan’s] assets into a pooled investment vehicle not because of the adviser’s qualifications … but rather because the official has received a contribution.” Furthermore, the Proposal notes that under Section 203 of the Advisers Act, if advisory personnel engage in pay-to-play practices, the SEC may charge the investment adviser and its individual supervisors for failure to reasonably supervise.

Although the Proposal would rescind the Rule, analogous pay-to-play restrictions would remain in effect for other market participants, which could in turn affect investment advisers: Broker-dealers would remain subject to comparable FINRA rules; registered municipal advisers would remain subject to the Municipal Securities Rulemaking Board’s pay-to-play prohibitions (which served as the model for the Rule); security-based swap dealers would remain subject to Rule 15Fh-6 promulgated under the Securities Exchange Act of 1934, as amended; and commodity-based swap dealers would remain subject to the Commodity Futures Trading Commission’s pay-to-play rule. In addition, investment advisers that engage third-party placement agents for government entity business should note that such intermediaries would remain subject to pay-to-play restrictions.

Additionally, other federal, state, and local laws and regulations regarding the public procurement or lobbying processes — including the awarding of investment advisory mandates — exist independently of the Rule and would not be limited or otherwise impacted by its rescission. Separately, large public pension plans often require investment advisers to agree to pay-to-play restrictions as a contractual matter, and such restrictions would remain in effect notwithstanding a rescission of the Rule.

Background on the Rule

Adopted in July 2010, the Rule was designed to reduce the risk that campaign contributions provided by investment advisers and/or their “covered associates” to elected officials or candidates could result in fraudulent inducements to award public pension plan advisory business. As stated in its adopting release, the Rule’s intention was to “reduce the occurrence of fraudulent conduct resulting from [pay-to-play practices and to protect] public pension plans, beneficiaries and other investors from the resulting harms.”

The Rule currently prohibits investment advisers from receiving compensation for advisory services to “government entity” clients within two years after a triggering contribution — which is defined to include any “gift, subscription, loan … or anything of value made for the purpose of influencing an election.” The two-year ban is automatically triggered once a covered contribution is made; only in the exemptive relief process under Rule 206(4)-5(e) will the SEC consider the facts and circumstances, including whether the contribution was intended to influence government business. Investment advisers have often found the exemptive relief process expensive, onerous, and time-consuming.

SEC’s Stated Concerns

In the Proposal, the SEC acknowledged that the Rule has led to what it believes are significant and unintended consequences, including:

• Implementation challenges from the Rule’s de facto strict-liability standard, under which small donations or inadvertent “foot faults” can trigger substantial prohibitions
• Barriers to hiring or promoting qualified individuals into “covered associate” roles for six months or two years after an in-scope contribution, even if the contribution predates their employment as a “covered associate” or there is no evidence of actual quid pro quo corruption or intent to induce government business
• Barriers to public pension plans’ hiring the most qualified or cost-effective investment advisers, or loss of existing investment advisers, because of covered associate contributions during the lookback period
• Difficulty identifying which elected officials and candidates qualify as “officials” who can influence a government entity’s investment adviser hiring
• Political-contribution thresholds not updated for inflation since the Rule’s adoption, so contributions as little as $150 can trigger its two-year ban despite being unlikely to influence investment adviser selection
• Difficulty using the returned-contribution exception, which requires the contributor to obtain the contribution’s return within 60 calendar days of the investment adviser’s discovery and leaves the adviser dependent on the recipient to satisfy the exception
• Blanket prohibitions on all state and local political contributions by investment advisers and their employees to avoid inadvertent violations
• Difficulty interpreting the “covered associate” definition
• Cost and time required to seek exemptive relief from the Rule’s prohibitions
• Impacts on core political speech protected by the First Amendment

With respect to the SEC’s last observed concern, various parties have brought lawsuits challenging the validity of the Rule since its inception, without success.[ii] The SEC appears to have grounded its thinking in the proposed rescission of the Rule in part on the basis of First Amendment principles.

Considerations for Investment Advisers Following a Rescission

Under the Proposal, if the Rule is rescinded, investment advisers would be expected to address their pay-to-play risks through a principles-based approach consistent with other existing obligations under the Advisers Act. Investment advisers would still be required to have policies and procedures that are reasonably designed to prevent fraudulent practices, including pay-to-play practices, but would have flexibility to tailor those policies particular to their business models in a manner that differs from the specific prescriptive requirements of the Rule. In assessing their compliance programs, investment advisers generally should also assess their codes of ethics to reinforce fiduciary principles governing the conduct of the investment adviser and its personnel in the context of pay-to-play risks.

The Proposal identifies several key considerations for investment advisers in structuring their compliance programs:

• Compliance with applicable law. An investment adviser’s policies and procedures would need to address pay-to-play practices that violate the Advisers Act and the rules thereunder.
• Risk identification. An investment adviser’s policies and procedures would need to identify and assess the risk of the investment adviser or its personnel engaging in pay-to-play practices — including by making contributions to government officials, political parties, and political action committees — that violate the Advisers Act and the rules thereunder. In making this risk assessment, an investment adviser should, for example, take into account:
• Governmental relationships. Investment advisers should consider whether they have an existing relationship with one or more government entities or government-entity officials, or whether they are seeking to provide investment advisory services to such government entities or officials. If so, investment advisers should analyze any contributions or related activities to assess the investment adviser’s risk.
• Investment advisers should consider the nature of the position of any personnel making a contribution — for example, whether the contributor is advisory or senior-level decision-making or business development personnel versus back-office, administrative, or clerical employees — and the associated risk. Contributions by personnel in positions involving client solicitation may carry heightened pay-to-play risks. Some personnel may also carry heightened pay-to-play risks due to their history of contributions.
• Pre-clearance. Investment advisers could consider incorporating into their policies and procedures a process of pre-clearance of contributions by the investment adviser and its personnel to officials of government entities, depending on the investment adviser’s risk assessment, nature of business, and its particular facts and circumstances. As part of any such process, the investment adviser could consider maintaining reports documenting contributions by personnel to help better identify pay-to-play risk, which could also aid the investment adviser in performing the required annual review of its overall compliance program.
• Risk mitigators. After identifying conflicts and other compliance factors creating pay-to-play risk, investment advisers would need to design policies and procedures to address those risks. As noted throughout the Proposal, these policies and procedures could be tailored to an investment adviser’s particular business model. For example, policies and procedures could provide that the investment adviser or its personnel may make contributions during a particular window that the investment adviser determines to have low pay-to-play risk. Policies and procedures could also set forth contribution thresholds, where contributions falling under such thresholds would not be subject to all or certain elements of the investment adviser’s pay-to-play policies and procedures (e.g., not subject to pre-clearance, if such a protocol were adopted).
• Third-party solicitors. To the extent an investment adviser uses third-party solicitors, the investment adviser would need to address in its policies and procedures the unique pay-to-play risks associated with such practices. For example, the investment adviser could consider limitations, such as requiring engagements to be approved by the adviser’s chief compliance officer or requiring any third-party soliciting government business on behalf of the investment adviser to be a registered investment adviser, registered broker-dealer, security-based swap dealer, or registered municipal adviser who has not made a political contribution to the government entity it is soliciting.
• Periodic monitoring. Policies and procedures could incorporate a process for more frequent periodic monitoring of compliance with, and the effectiveness of, any pay-to-play-related elements, as part of the investment adviser’s overall review of the effectiveness of the implementation of its policies and procedures under the compliance rule.
• Remedial steps. Investment advisers would need to include in their policies and procedures steps or a framework to address contributions that are inconsistent with the policies and procedures. For example, policies could require seeking the return of contributions within a specific timeframe or potential disciplinary or other appropriate actions against employees that violate the policies and procedures.

Next Steps

The Proposal will be open for public comment until November 9, 2026. In the meantime, the Rule remains in effect until the SEC takes further action on the Proposal. Given this timing, the Rule is expected to remain effective for at least the remainder of the 2026 election cycle.

The SEC is requesting comment on whether to rescind the Rule in its entirety or instead amend it within a more principles-based framework. Identified alternatives include raising the de minimis threshold to $3,500; shortening or eliminating the two-year time-out and lookback; simplifying the “official” and “covered associate” definitions; and expanding the bases for exemptive relief. Wholesale rescission, therefore, is not certain.

Even if the Rule is rescinded, the Proposal is clear that certain pay-to-play practices can still give rise to liability under the Advisers Act’s general antifraud provisions and fiduciary duty standards, as well as applicable federal, state, and local election laws. Therefore, registered investment advisers, exempt reporting advisers, and foreign private advisers should continue to closely evaluate their pay-to-play practices and associated risks, and maintain the political-contribution reporting and/or pre-clearance protocols established for compliance with the Rule.

ENDNOTES

[i] For purposes of the Proposal, “pay-to-play practices” arise when: (1) political contributions influence the selection of an investment adviser to provide investment advisory services to state and local governments, including by constituting a prerequisite to competing for an advisory role; or (2) investment advisers seek to influence an elected official’s award of advisory contracts by making or soliciting contributions to that official. In some instances, the SEC notes, investment advisers have engaged in pay-to-play practices that embody such quid pro quo corruption or highlight the risk of it.

[ii] See N.Y. Republican State Comm. & Tenn. Republican Party v. SEC, 799 F.3d 1126 (D.C. Cir. Aug. 25, 2015) (finding the plaintiffs’ claim to be time-barred and dismissing the lawsuit).

This post is based on a Latham & Watkins LLP memorandum, “SEC Proposes to Rescind the Political Contribution Rule for Investment Advisers,” dated September 11, 2026, and available here. 

Governments are central to protecting nature, and issuing

sovereign green bonds is one way to finance environmental projects such as renewable energy, clean transportation, biodiversity conservation, sustainable water management, and forestry.

But do investors consider a country’s natural assets when pricing its green debt? Do promises to protect the environment affect borrowing costs, or do investors wait for evidence that projects have actually been implemented?

In a new paper, we examine sovereign green bonds issued between 2016 and 2024, and then  study more than 15,000 municipal green bonds to determine whether our findings extend from national to local public finance. In addition to bond-market information, we use issuers’ green bond frameworks, allocation reports, and impact reports to distinguish between governments’ stated intentions and their subsequent efforts.

Three findings stand out.

First, nature-related risks are associated with the cost of public green debt. Sovereign green bond yields are higher when countries score higher on out measures of biodiversity and natural-capital risk. This relationship appears both when bonds are issued and when they subsequently trade in financial markets.

We also compare green bonds with similar conventional bonds issued by the same government. The association between natural-asset risk and yields is generally stronger for green bonds, particularly in the secondary market. This is consistent with these risks being especially relevant for securities intended to finance environmental projects.

The municipal bond evidence points in the same direction. State-level measures of endangered bird species are positively associated with municipal green bond yields. Nature-related risks may therefore matter not only for national governments but also for state and local authorities.

Second, investors appear to distinguish between environmental promises and implementation.

When issuing a green bond, a government typically outlines the types of projects it intends to finance. Those projects typically include biodiversity conservation or natural-resource management. However, simply listing these objectives is not significantly associated with lower bond yields. We find a similar result for bonds linked to the United Nations Sustainable Development Goals, specifically Life Below Water (Goal 14) and Life on Land (Goal 15).

The results differ when governments report on actual project implementation. Governments that showed an effort to mitigate these risks through these green projects generally received lower yields on their green bonds. This suggests investors value action more than commitments alone.

The distinction has an important implication for sustainable finance. Issuing a green bond and announcing eligible projects are only the beginning. Allocation and impact reports enable investors to see how proceeds are used and whether projects move forward.

Third, the paper examines whether green financing leads to measurable environmental improvements . We do not find a statistically significant relationship between governments’ interim or net-zero targets and changes in per-person carbon emissions over the following three years. Broad climate commitments, by themselves, are therefore do not lead to clear improvements in this measure.

The forestry results are more encouraging. Approximately 40% of the sovereign green bonds in our main sample support sustainable forestry. In countries that finance these projects, the years following green bond issuance are associated with increased forest area and reduced forest-cover loss. Although these findings should be interpreted as associations, they suggest that examining outcomes tied to specific projects may be more informative than evaluating broad commitments alone.

Our study contributes to sustainable finance in two ways. First, it expands the discussion beyond climate risk to include biodiversity and the depletion of natural resources. Second, it shifts attention from corporate securities to public debt, where governments have both a responsibility for protecting natural assets and a need to finance that protection.

The main message is straightforward. Nature-related risks are associated with public borrowing costs, while mere promises to protect the environment contain limited pricing information. What appears to matter more is whether governments translate their commitments into observable projects and outcomes.

For governments entering the green bond market, the green label is a starting point. Implementation is what gives that label substance.

Jitendra Aswani is an affiliated researcher at MIT Sloan School of Management, and William W. Xiong is an assistant professor at the State University of New York, Binghamton. This post is based on their recent paper, “Natural Assets and Public Green Debt,” available here.

Separately, the bill would also prohibit any paper filed in court from containing a citation that “has not [been] personally verified” by an attorney responsible for the filing, including a citation supplied by generative AI.[6] While the bill does not provide for independent penalties for violations of the generative AI rules, attorney violations are potentially subject to sanctions under California Code of Civil Procedure Section 128.7 and through the State Bar disciplinary process.[7]

The bill directs the Judicial Council to “publicly revisit, and revise as necessary,” its existing standard governing judicial use of generative AI, and expands the State Bar’s certification and complaint procedures for alternative dispute resolution providers. [8] Senate Bill 574 now awaits action by Governor Gavin Newsom.

ENDNOTES

[1] Bill History of S.B. 574, 2025–2026 Reg. Sess. (Cal. Aug. 31, 2026); Quinn Wilson, California Attorney AI Guardrail Bill Advances to Newsom’s Desk, Bloomberg Law (Sept. 1, 2026), https://perma.cc/V2AC-P8NW.

[2] S.B. 574, 2025–2026 Reg. Sess. § 1 (Cal. 2026) (proposing Cal. Bus. & Prof. Code § 6068.1(a)(2)).

[3] Id. (proposing Cal. Bus. & Prof. Code § 6068.1(a)(3)(A)).

[4] Id. (proposing Cal. Bus. & Prof. Code § 6068.1(a)(3)(B)).

[5] Id. (proposing Cal. Bus. & Prof. Code § 6068.1(a)(3)(C)).

[6] Id. § 3 (proposing Cal. Civ. Proc. Code § 128.7(b)(2)(A)–(B)).

[7] Id. (proposing Cal. Civ. Proc. Code § 128.7(c)–(e)); Cal. Bus. & Prof. Code § 6103.

[8] Id. §§ 2, 4 (proposing Cal. Bus. & Prof. Code § 6173; Cal. Civ. Proc. Code § 180).

This post is based on a Sullivan & Cromwell LLP memorandum, “California Legislature Passes Rules on Generative AI Use by Legal Practitioners,” dated September 11, 2026, and available here.