Product & Service Launches – 12/21/23

Morgan Stanley at Work unveils technology enhancements; John Hancock Investment Management launches active international equity ETF; PGIM releases 4 active ETFs.

Morgan Stanley at Work Unveils Technology Enhancements for End of Year 2023

Morgan Stanley at Work announced technology enhancements to increase automation and efficiency across workplace benefits solutions such as equity compensation, retirement, deferred compensation, executive services, saving and giving, and financial wellness. Morgan Stanley at Work platforms Equity Edge Online and Shareworks together serve roughly 40% of the S&P 500 in the U.S. 

The improvements to Equity Edge Online include a revamped stock plan interface under the unified brand “Morgan Stanley at Work,” simplifying the user experience. Plan administrators can now upload foreign exchange rates by equity type, enabling automated reporting in USD and local currency denominations. Enhanced workflow functionality includes templates and automated scheduling.

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The Shareworks updates offer streamlined plan servicing with improved performance and security controls. A new “Selling Shares” feature allows qualifying U.S. participants to transfer shares directly from their online accounts. Additionally, advanced performance in the Shareworks engine provide greater plan customization.

“Our ongoing mission remains to unify our tools and capabilities into a single user account structure that will enrich the user experience and help both companies and their employees expand how they manage their financial lives,” Mark Mitchell, chief product officer of Morgan Stanley at Work, said in a statement.

John Hancock Launches Active International Equity ETF

John Hancock Investment Management will launch the John Hancock Disciplined Value International Select ETF. The new exchange-traded fund seeks long-term capital growth and is managed by a veteran team at subadviser Boston Partners Global Investors Inc.

The fund focuses on a stock selection process, which targets securities with attractive relative valuations, strong fundamentals and positive business momentum. Portfolio managers Joshua Jones and Christopher Hart have more than 50 years of combined experience and are jointly responsible for the day-to-day management of the fund’s portfolio.

“We are excited to launch a new active international equity ETF with one of our long-term subadvisers who is familiar to our financial professionals and their clients,” Kristie Feinberg, president and CEO of John Hancock Investment Management, said in a statement. “Boston Partners is known for its investment philosophy and ability to find value opportunities that we believe investors will find compelling as a potential core holding in their portfolios.”

John Hancock Investment Management’s ETF suite now totals 13 funds. As of September 30, the firm has more than $5 billion in assets under management.

PGIM Launches 4 Active ETFs

PGIM has launched four actively managed exchange-traded funds:

  • PGIM Jennison International Opportunities ETF;
  • PGIM Jennison Better Future ETF;
  • PGIM Jennison Focused Mid-Cap ETF; and
  • PGIM Short Duration High Yield ETF.

The three new equity ETFs, subadvised by Jennison Associates, seek long-term growth of capital with concentrated, high-conviction portfolios. Jennison’s long-term equity investment approach is based on fundamental research and bottom-up security selection.

The PGIM Short Duration High Yield ETF seeks total return through a combination of current income and capital appreciation, investing in a diversified portfolio of shorter-duration high-yield fixed-income securities that are rated below investment grade.

“Building out our suite of actively managed ETFs is a priority for PGIM, and we have aggressive plans for future product development,” said Stuart Parker, president and CEO of PGIM Investments, in a statement. “We’re thrilled to launch four new ETFs subadvised by our affiliate managers to meet the accelerating demand for active ETFs from our clients.”

Appeals Court Sets Aside Share Repurchase Disclosure Rule

The SEC could not meet a 30-day deadline to correct issues in the rule.

The U.S. 5th Circuit Court of Appeals Tuesday formally vacated the share repurchase rule that had been finalized by the Securities and Exchange Commission in May.

The rule required issuers to disclose their daily stock buybacks on a quarterly basis. The disclosures were to include the pricing and volume of the buybacks, as well as the rationale behind the buyback program. Additionally, the rule required issuers to disclose their policies regarding executives trading in company stock.

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According to the SEC, the rule was primarily intended to reduce information asymmetry between the companies issuing stock and investors; reduce opportunistic buybacks and insider trading; and improve price discovery. The disclosure regime under the rule would have made it more difficult for corporations to initiate a buyback program on the basis that their stock was undervalued. Similarly, the rule would have revealed if buyback programs were motivated by executive compensation schemes related to stock pricing.

The rule was challenged by the U.S. Chamber of Commerce in May. On October 31, three judges from the 5th Circuit ruled that the SEC had not done a proper cost-benefit analysis during the finalization of the rule. According to the ruling, the SEC did not adequately consider comments that suggested the SEC should study how often buybacks triggered executive bonuses, the impact of incentive compensation related to stock prices, and the economic benefit of reduced information asymmetry. As such, the appeals court found that the SEC’s adoption of the rule was arbitrary and capricious and violated the Administrative Procedures Act.

The court gave the SEC 30 days to remedy the issues. When, on November 22, the SEC asked for an extension, the court refused. The SEC then filed a letter on December 1 stating it could not “correct the defects in the rule” on the court’s 30-day timeline. Accordingly, the 5th Circuit vacated the rule on December 19.

Jay Gould, a special counsel with Baker Botts LLC, explains that under the APA, a federal agency must consider the comments it receives. Adopting statements issued by the SEC generally explain how the commission considered the comments and which of the comments influenced changes between an initial proposal and a final rule and why other comments were not considered. If the SEC fails to do this, “the rulemaking is deemed arbitrary and capricious.”

If the SEC appealed the case to the Supreme Court, the SEC would likely lose, Gould says. Instead, the SEC will likely “go back to Square 1 and re-propose the rule.” The rule was vacated on procedural grounds but is otherwise “entirely consistent with the securities laws” and dealt with creating “orderly capital markets.” The SEC may be successful on a second try, but the process could take a year or longer, Gould says.

Absent the vacated rule, stock issuers must still disclose less-specific information about buybacks on forms 8-K and 10-Q, aggregated on a monthly basis, rather than a daily basis.

The SEC’s rule was part of a broader effort to reign in buybacks. The Inflation Reduction Act of 2022 implemented a 1% tax on buybacks, and some Democrats in Washington, including President Joe Biden, have suggested increasing that tax to 4%.

According to Standard & Poor’s, stock buybacks by companies in the S&P 500 are down this year. A report published Tuesday noted that “the 12-month September 2023 expenditure of $787.3 billion was down 19.8% from the $981.6 billion expenditure of September 2022” for buybacks among S&P 500 companies.

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