Yesterday, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s approval of Nasdaq’s board diversity disclosure rules. While the SEC has not yet indicated if it will appeal, Nasdaq has begun notifying listed companies that it does not intend to seek further review and as a result, companies will no longer be required to follow Nasdaq’s board diversity disclosure rules.

Yesterday, the SEC (apparently without a meeting) adopted rule amendments governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934. Among other things, the amendments: shorten the deadline for initial Schedule 13D filings from 10 days to five business days and require that Schedule 13D amendments be filed within two business days; generally accelerate the filing deadlines for Schedule 13G beneficial ownership reports (the filing deadlines differ based on the type of filer – see below); clarify the Schedule 13D disclosure requirements with respect to derivative securities; and require that Schedule 13D and 13G filings be made using a structured, machine-readable data language. Further, the adopting release provides guidance regarding the current legal standard governing when two or more persons may be considered a group for the purposes of determining whether the beneficial ownership threshold has been met, as well as how, under the current beneficial ownership reporting rules, an investor’s use of certain cash-settled derivative securities may result in the person being treated as a beneficial owner of the class of the reference equity securities.

For certain Schedule 13G filers (i.e., qualified institutional investors and exempt investors), the amendments shorten the initial filing deadline from 45 days after the end of a calendar year to 45 days after the end of the calendar quarter in which the investor beneficially owns more than 5 percent of the covered class. For other Schedule 13G filers (i.e., passive investors), the amendments shorten the initial filing deadline from 10 days to five business days. In addition, for all Schedule 13G filers, the amendments generally require that an amendment be filed 45 days after the calendar quarter in which a material change occurred rather than 45 days after the calendar year in which any change occurred. Finally, the amendments accelerate the Schedule 13G amendment obligations for qualified institutional investors and passive investors when their beneficial ownership exceeds 10 percent or increases or decreases by 5 percent. To ease filers’ administrative burdens associated with these shortened deadlines, the amendments extend the filing “cut-off” times in Regulation S-T for Schedules 13D and 13G from 5:30 p.m. to 10:00 p.m. Eastern time.

The amendments will become effective 90 days after publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on Sept. 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on Dec. 18, 2024. Compliance with the other rule amendments will be required upon their effectiveness.

A good reminder that the SEC pays attention (at least occasionally) to late Form 4s, 13Gs etc.: https://www.sec.gov/news/press-release/2023-201?utm_medium=email&utm_source=govdelivery

Notably the SEC also took action against a couple of issuers, not just insiders, noting for example:

"Although the Commission encourages the practice of many issuers to assist insiders in complying with Section 16(a) filing requirements, issuers who voluntarily accept certain responsibilities and then act negligently in the performance of those tasks may be liable as a cause of Section 16(a) violations by insiders."

The SEC’s Division of Corporation Finance published guidance on their operations around a shutdown, particularly with respect to registration statement acceleration of effectiveness and related topics:

https://www.sec.gov/corpfin/announcement/announcement-cf-pre-shutdown-communication-092723 

The SEC today adopted rules requiring registrants to disclose material cybersecurity incidents they experience and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy and governance.

The new rules will require registrants to disclose on the new Item 1.05 of Form 8-K (and for foreign private issuers in Form 6-Ks) any cybersecurity incident they determine to be material and to describe the material aspects of the incident's nature, scope, and timing, as well as its material impact or reasonably likely material impact on the registrant. An Item 1.05 Form 8-K will generally be due four business days after a registrant determines that a cybersecurity incident is material [note this may be later than the four business days after the incident itself]. The disclosure may be delayed if the United States Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety and notifies the SEC of such determination in writing.

The new rules also add Regulation S-K Item 106, which will require registrants to describe their processes, if any, for assessing, identifying and managing material risks from cybersecurity threats, as well as the material effects or reasonably likely material effects of risks from cybersecurity threats and previous cybersecurity incidents. Item 106 will also require registrants to describe the board of directors’ oversight of risks from cybersecurity threats and management’s role and expertise in assessing and managing material risks from cybersecurity threats. These disclosures will be required in a registrant's annual report on Form 10-K or 20-F, as applicable.

The Form 10-K and Form 20-F disclosures will be due beginning with annual reports for fiscal years ending on or after December 15, 2023. The Form 8-K and Form 6-K disclosures will be due beginning the later of 90 days after the date of publication in the Federal Register or December 18, 2023. Smaller reporting companies will have an additional 180 days before they must begin providing the Form 8-K disclosure. All registrants must tag disclosures required under the rules in Inline XBRL beginning one year after initial compliance with the related disclosure requirement.

The SEC today adopted amendments to the disclosure requirements relating to repurchases of an issuer’s equity securities, including:

• requiring issuers to provide daily repurchase activity on a quarterly or semi-annual basis, depending on the type of issuer (note the proposed rules would have required next day disclosure so the final rules provide significantly more time for reporting the data). The required disclosures include, for each day on which a repurchase was conducted, the number of shares repurchased that day (including whether they were intended to qualify for the safe harbor in Rule 10b-18) and the average price paid, among other things. The information will be filed, as the case may be (1) as an exhibit to Forms 10-Q and 10-K for domestic issuers, (2) in annual and semi-annual reports on Form N-CSR for listed closed-end funds and (3) quarterly on a new Form F-SR for foreign private issuers due within 45 days after each quarter end. The new disclosures will replace existing requirements regarding monthly repurchase data in Regulation S-K, Form 20-F and Form N-CSR.
• issuers will be required to include a checkbox indicating whether certain officers and directors traded in the relevant securities in the four business days before or after the announcement of the repurchase plan or program.
• the amendments will revise and expand narrative repurchase disclosure requirements to require that an issuer disclose: (1) the objectives or rationales for its share repurchases and the process or criteria used to determine the amount of repurchases; and (2) any policies and procedures relating to purchases and sales of the issuer’s securities during a repurchase program by its officers and directors, including any restriction on such transactions.
• the amendments will add a new item 408(d) to Regulation S-K to require quarterly disclosure in periodic reports on Forms 10-Q and 10-K about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements.

Foreign private issuers will disclose the quantitative data in new Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024, and provide the narrative disclosure starting in the first Form 20-F filed after their first Form F-SR has been filed. Registered closed-end management investment companies that are exchange traded will disclose the quantitative data and provide the narrative disclosure on Form N-CSR beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024. All other issuers will be required to include the quantitative data as an exhibit to their Forms 10-Q and 10-K  and provide the narrative disclosure in their Forms 10-Q and 10-K beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023.

The SEC adopted amendments (https://www.sec.gov/rules/final/2022/33-11138.pdf) today to Rule 10b5-1 under the Securities Exchange Act of 1934, as well as related amendments regarding disclosures about insider trading policies, disclosures about equity awards made close in time to disclosure of material non-public information and reporting of gifts by insiders.  Issuers will be required to comply with the new disclosure requirements in Exchange Act periodic reports on Forms 10-Q, 10-K, and 20-F and in any proxy or information statements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023. The final amendments defer by six months the date of compliance with the additional disclosure requirements for smaller reporting companies. Section 16 reporting persons will be required to comply with the amendments to Forms 4 and 5 for beneficial ownership reports filed on or after April 1, 2023.

Amendments Related to Rule 10b5-1 Plans

• Adds a requirement for all plans by directors or officers to have a “cooling-off period” of the later of: (1) 90 days following plan adoption or modification; or (2) two business days following the disclosure in certain periodic reports of the issuer’s financial results for the fiscal quarter in which the plan was adopted or modified (but not to exceed 120 days following plan adoption or modification) before any trading can commence under the trading arrangement. For persons other than issuers or directors and officers, a cooling-off period of 30 days will be required.  Issuers will not be subject to a cooling off period.
• Adds a condition for directors and officers to include a representation in their Rule 10b5-1 plan certifying, at the time of the adoption of a new or modified plan, that: (1) they are not aware of material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.
• Adds a limitation on the ability of anyone other than issuers to use multiple overlapping Rule 10b5-1 plans.
• Adds a limitation on the ability of anyone other than issuers to rely on the affirmative defense for a single-trade plan to one such plan during any consecutive 12-month period.
• Adds a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to that plan.

New Disclosure Requirements Regarding 10b5-1 Plans, Insider Trading Policies and Option Grants

The amendments will require:

• Quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other written trading arrangements by an issuer’s directors and officers for the trading of its securities.

• Annual disclosure of an issuer’s insider trading policies and procedures and annual filing of such policies as exhibits.

• Certain tabular and narrative disclosures about issuer policies and Board considerations regarding awards of options close in time to (4 business days before until one business day after) the release of material nonpublic information.

• XBRL tagging of the required disclosures.

• Form 4 and 5 filers to indicate by checkbox that a reported transaction was intended to satisfy the affirmative defense conditions of Rule 10b5- 1(c).

Accelerated Reporting of Gifts by Insiders

The amendments will require the reporting on Form 4 of gifts of issuer securities by insiders within two business days rather than the current rules allowing annual reporting on Form 5.

The SEC adopted long-pending rules requiring the recovery of erroneously awarded compensation as required by Congress in the Dodd-Frank Act. The rules will, among other things, require securities exchanges to adopt listing standards that require issuers to develop and implement a policy (usually called a “clawback policy”) providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers. The rules require a listed issuer to file the policy as an exhibit to its annual report and to include disclosures related to its recovery policy and recovery analysis where a recovery is triggered.

The new rules implement Section 10D of the Securities Exchange Act of 1934, a provision added by the Dodd-Frank Act. New Exchange Act Rule 10D-1 directs national securities exchanges (e.g., NYSE and Nasdaq) and associations to establish listing standards that require a listed issuer to: (1) adopt and comply with a written policy for recovery of erroneously awarded incentive-based compensation received by its current or former executive officers in the event it is required to prepare an accounting restatement due to its material noncompliance with any financial reporting requirement under the securities laws, during the three completed fiscal years immediately preceding the date that the issuer is required to prepare an accounting restatement; and (2) disclose those compensation recovery policies in accordance with Commission rules, including providing the information in tagged data format.

More specifically, if an issuer is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the issuer must recover from any current or former executive officers incentive-based compensation that was erroneously awarded during the three years preceding the date such a restatement was required. The recoverable amount is the amount of incentive-based compensation received in excess of the amount that otherwise would have been received had it been determined based on the restated financial measure. Notably, the rules do not require that the officers from whom compensation is being recovered have any culpability or direct involvement with the restatement or underlying issued causing the restatement. Many companies with existing clawback policies will need to revise those policies to comply with the new rules.

The rules will apply to all listed issuers, including smaller reporting companies, foreign private issuers and emerging growth companies. The rule contains only limited exceptions where: (1) direct expenses paid to third parties to assist in enforcing the policy would exceed the amount to be recovered and the issuer has made a reasonable attempt to recover; (2) recovery would violate home country law that existed at the time of adoption of the rule, and the issuer provides an opinion of counsel to that effect to the exchange; or (3) recovery would likely cause an otherwise tax-qualified retirement plan to fail to meet the requirements of the Internal Revenue Code.

Further, the final rules require specific disclosure of the listed issuer’s policy on recovery of incentive-based compensation and information about actions taken pursuant to such recovery policy. The amendments also require all listed issuers to: (1) file their written recovery policies as exhibits to their annual reports; (2) indicate by check boxes on their annual reports whether the financial statements included in the filings reflect correction of an error to previously issued financial statements and whether any of those error corrections are restatements that required a recovery analysis; and (3) disclose any actions they have taken pursuant to such recovery policies. Issuers will be required to use Inline XBRL to tag their compensation recovery disclosure.

There will be some transition time - as a next step, stock exchanges will be required to file proposed listing standards no later than 90 days following publication of the release of the SEC rules in the Federal Register, and the listing standards must be effective no later than one year following such publication. Issuers subject to such listing standards will be required to adopt a recovery policy no later than 60 days following the date on which the applicable listing standards become effective.

The Securities and Exchange Commission adopted final rules implementing the pay versus performance requirement as required by Congress in the Dodd-Frank Act. The rules will require registrants to disclose, in proxy or information statements in which executive compensation disclosure is required, how executive compensation actually paid by the registrants related to the financial performance of the registrants over the time horizon of the disclosure.

The rules will apply to all reporting companies, except foreign private issuers, registered investment companies, and Emerging Growth Companies. Smaller Reporting Companies (“SRCs”) will be permitted to provide scaled disclosures. Companies must begin to comply with these disclosure requirements in proxy and information statements that are required to include Regulation S-K Item 402 executive compensation disclosure for fiscal years ending on or after December 16, 2022.

New Item 402(v) of Regulation S-K will require registrants to provide a table disclosing specified executive compensation and financial performance measures for the registrant’s five most recently completed fiscal years. Registrants will be required to include in the table, for the principal executive officer (“PEO”) and, as an average, for the other named executive officers (“NEOs”), the Summary Compensation Table measure of total compensation and a measure reflecting “executive compensation actually paid,” calculated as prescribed by the rule. The financial performance measures to be included in the table are: (1) Total shareholder return (“TSR”) for the registrant; (2) TSR for the registrant’s peer group; (3) The registrant’s net income; and (4) A financial performance measure chosen by the registrant and specific to the registrant (the “Company-Selected Measure”) that, in the registrant’s assessment, represents the most important financial performance measure the registrant uses to link compensation actually paid to the registrant’s NEOs to company performance for the most recently completed fiscal year. New Item 402(v) also will require a registrant to provide a clear description of the relationships between each of the financial performance measures included in the table and the executive compensation actually paid to its PEO and, on average, to its other NEOs over the registrant’s five most recently completed fiscal years. The registrant will be required to also include a description of the relationship between the registrant’s TSR and its peer group TSR. A registrant will also be required to provide a list of three to seven financial performance measures that the registrant determines are its most important measures (using the same approach as taken for the Company-Selected Measure). Registrants are permitted, but not required, to include non-financial measures in the list if they considered such measures to be among their three to seven “most important” measures. Registrants will be required to use Inline XBRL to tag their pay versus performance disclosure.

Registrants, other than SRCs, will be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy filings that require this disclosure. SRCs will initially be required to provide the information for two years, adding an additional year of disclosure in the subsequent annual proxy or information statement that requires this disclosure. In addition, an SRC will only be required to provide the required Inline XBRL data beginning in the third filing in which it provides pay versus performance disclosure, instead of the first.

On June 3, the SEC adopted rules and form amendments to mandate the electronic filing or submission of certain documents that currently are permitted to be filed or submitted in paper, most notably "glossy" annual reports and Form 144s; and mandate the use of Inline eXtensible Business Reporting Language ("Inline XBRL") for the filing of the financial statements and accompanying schedules to the financial statements required by Form 11-K. The new rules for annual reports and most of the other filings impacted will go into effect in approximately 6 months, while the new rules for Form 144 will go into effect 6 months after an updated EDGAR filer manual is published (expected in September; so presumably the new Form 144 rules will go into effect sometime around March 2023). In addition, once in effect, the current SEC guidance allowing website posting of annual reports in lieu of filing with the SEC will be withdrawn (though of course companies can continue to post them on their websites in addition to the EDGAR filings).

For additional information, as well as other filings impacted please see the full rule release here: https://www.sec.gov/rules/final/2022/33-11070.pdf