SEC Adopts Amendments to Modernize Rule 10b5-1 Insider Trading Plans and Related Disclosures

Posted by Howard Berkenblit on December 14, 2022 at 5:15 PM

The SEC adopted amendments ( 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.

Topics: Securities Exchange Act, Rule 10b5-1 plans

SEC Adopts Rules Requiring Compensation Clawback Policies

Posted by Howard Berkenblit on October 26, 2022 at 4:07 PM

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.

Topics: Securities Exchange Act, clawback policies

SEC Adopts Pay-Versus-Performance Disclosure Rules

Posted by Howard Berkenblit on August 29, 2022 at 9:08 AM

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.

Topics: SEC, Dodd-Frank, SRCs

SEC to Require Electronic Filing of Most Remaining Paper Filings

Posted by Howard Berkenblit on June 6, 2022 at 11:17 AM

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:

Topics: Securities and Exchange Commission, Inline XBRL

SEC Proposes Rules on Cybersecurity Governance and Disclosure by Public Companies

Posted by Howard Berkenblit on March 9, 2022 at 4:08 PM

The SEC today proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies.

The proposed amendments would require, among other things, current reporting on a Form 8-K about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents, as well as reporting when a series of previously undisclosed individually immaterial cybersecurity incidents has become material in the aggregate.

The proposal also would require periodic reporting about a registrant’s policies and procedures to identify and manage cybersecurity risks; the registrant’s board of directors' oversight of cybersecurity risk; and management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures. The proposal further would require annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise, if any. The new disclosure would also need to be tagged with XBRL.

Topics: cybersecurity, Form 8-K

SEC proposes shorter 13D and 13G deadlines and other Section 13 changes

Posted by Howard Berkenblit on February 11, 2022 at 12:21 PM

Yesterday, the SEC proposed rule amendments governing beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g).

The proposed amendments to Regulation 13D-G would accelerate the filing deadlines for Schedules 13D beneficial ownership reports from 10 days to five days and require that amendments be filed within one business day. The amendments would also generally accelerate the filing deadlines for certain Schedule 13G beneficial ownership reports from 45 days after year-end to five business days after the end of the month in which the investor beneficially owns more than 5 percent, and require amendments to be filed five business days after the month in which a material change occurred rather than 45 days after the year in which any change occurred. The proposed amendments also would accelerate the amendment obligations for certain Schedule 13G filers upon exceeding 10 percent beneficial ownership or a 5 percent increase or decrease in beneficial ownership of a covered class, requiring that qualified institutional investors and passive investors file an amendment within five days and one business day, respectively. Note that the cut-off time for filings would be extended to 10:00 p.m. rather than 5:30 p.m. Eastern Time, similar to Section 16 reports.

The proposed amendments would also expand the application of Regulation 13D-G to certain derivative securities; clarify the circumstances under which two or more persons have formed a "group" that would be subject to beneficial ownership reporting obligations; provide new exemptions to permit certain persons to communicate and consult with one another, jointly engage issuers, and execute certain transactions without being subject to regulation as a "group;" and require that Schedules 13D and 13G be filed using a structured, machine-readable data language.

Topics: Securities Exchange Act, Section 13(d), Section 13(g), Regulation 13D-G

SEC's Increased Scrutiny of Climate Risk and ESG Disclosures Likely to Lead to Agency Rulemaking

Posted by Jeffrey Karp on January 31, 2022 at 1:20 PM

What public companies need to know about environmental disclosures, including recent climate risk and ESG disclosure initiatives.

By Jeffrey Karp, Senior Counsel; Vic Baltera, Partner; Howard Berkenblit, Partner; and Edward Mahaffey, Law Clerk

In fulfilling disclosure obligations under the Securities Act of 1933 and the Securities Exchange Act of 1934, public companies are required to disclose various potential environmental liabilities and potential risks in filings with the U.S. Securities and Exchange Commission (SEC or Commission). During the 1970s, SEC efforts in the area of environmental disclosure focused primarily on statutes such as the Clean Water Act and the Clean Air Act.

Subsequently, disclosure requirements were expanded to also encompass liabilities and cleanup costs under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). Over time, the SEC increasingly has emphasized broader disclosure of environmental matters, as the Commission further articulated the materiality standards for disclosure under the securities laws. These standards provide that information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or in making an investment decision—in other words, "that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available.'" See Basic, Inc. v. Levinson, 485 U.S. 224, 231 (1988) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).

SEC disclosure requirements for environmental liabilities are contained primarily in the uniform disclosure rules of ...

Read full Client Alert here.

SEC proposals re: repurchase plan disclosures

Posted by Howard Berkenblit on December 15, 2021 at 3:00 PM

The SEC today proposed rule changes regarding the disclosure of share repurchase plans. The proposed rules would require an issuer to provide a new Form SR before the end of the first business day following the day the issuer executes a share repurchase. Form SR would require disclosure identifying the class of securities purchased, the total amount purchased, the average price paid, as well as the aggregate total amount purchased on the open market in reliance on the safe harbor in Exchange Act Rule 10b-18 or pursuant to a plan that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). The proposed amendments also would enhance existing periodic disclosure requirements regarding repurchases of an issuer’s equity securities. Specifically, the proposed amendments would require an issuer to disclose: the objective or rationale for the share repurchases and the process or criteria used to determine the repurchase amounts; any policies and procedures relating to purchases and sales of the issuer’s securities by its officers and directors during a repurchase program, including any restriction on such transactions; and whether the issuer is making its repurchases  pursuant to a plan that it intends to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) and/or  the conditions of the Exchange Act Rule 10b-18 non-exclusive safe harbor. The proposals are subject to a 45-day comment period.

Topics: Rule 10b5-1(c), share repurchase plans, Form SR, Rule 10b-18

SEC proposes new conditions for 10b5-1 plans

Posted by Howard Berkenblit on December 15, 2021 at 12:33 PM

The SEC today proposed a number of rule changes including, among others (at the same meeting the SEC also proposed reforms for company share repurchase plans, money market funds and securities-based swap transactions, which are not covered below), significant changes to the conditions for so-called "10b5-1" trading plans. The proposals are subject to 45 day comment periods. Key terms of the proposed changes include:

  • Would add new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1), including:

    • Officers and directors must have a 120-day cooling off period before the first trade under a 10b5-1 plan; issuers must have a 30-day cooling off period
    • Officers and directors must certify that they are not aware of material nonpublic information about the issuer or the security when adopting a new or modified trading arrangement
    • The affirmative defense under Rule 10b5-1 does not apply to multiple overlapping Rule 10b5-1 trading arrangements for open market trades in the same class of securities
    • 10b5-1 trading arrangements to execute a single trade are limited to one plan per 12 month period
    • 10b5-1 trading arrangements must be entered into and operated in good faith (essentially adds the concept of operating in good faith not just when entering the plan)

  • Would require enhanced disclosure regarding Rule 10b5-1 plans, option grants, and issuer insider trading policies and procedures, including:

    • A requirement for an issuer to disclose in its annual reports whether or not (and if not, why not) the issuer has adopted insider trading policies and procedures. Additionally, issuers would be required to disclose their insider trading policies and procedures, if they have adopted such policies and procedures
    • A requirement for an issuer to disclose in its annual reports its option grant policies and practices, and to provide tabular disclosure showing grants made within 14 days of the release of material nonpublic information and the market price of the underlying securities on the trading day before and after the release of such information
    • A requirement for an issuer to disclose in its quarterly reports the adoption and termination of Rule 10b5 1 trading arrangements and other trading arrangements by directors, officers, and issuers, and the terms of such trading arrangements

  • Would update Forms 4 and 5 to require identification of transactions made pursuant to Rule 10b5- 1 plans and to disclose all gifts of securities on Form 4 (as opposed to being allowed to defer until Form 5).

Topics: Rule 10b5-1 plans, Exchange Act Rule 10b5-1(c)(1)

SEC Issues "Sample" Climate Change Disclosure Comment Letter

Posted by Howard Berkenblit on September 23, 2021 at 10:19 AM

As part of the SEC Division of Corporation Finance’s focus on climate-related disclosure in public company filings, and as a follow up to guidance on this topic issued in 2010, the Division posted an illustrative letter containing sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure. These sample comments impact several sections of company filings, including most significantly management’s discussion and analysis of financial condition and results of operations (MD&A):


  1. We note that you provided more expansive disclosure in your corporate social responsibility report (CSR report) than you provided in your SEC filings.  Please advise us what consideration you gave to providing the same type of climate-related disclosure in your SEC filings as you provided in your CSR report.

Risk Factors

  1. Disclose the material effects of transition risks related to climate change that may affect your business, financial condition, and results of operations, such as policy and regulatory changes that could impose operational and compliance burdens, market trends that may alter business opportunities, credit risks, or technological changes.
  2. Disclose any material litigation risks related to climate change and explain the potential impact to the company.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  1. There have been significant developments in federal and state legislation and regulation and international accords regarding climate change that you have not discussed in your filing. Please revise your disclosure to identify material pending or existing climate change-related legislation, regulations, and international accords and describe any material effect on your business, financial condition, and results of operations.
  2. Revise your disclosure to identify any material past and/or future capital expenditures for climate-related projects. If material, please quantify these expenditures.
  3. To the extent material, discuss the indirect consequences of climate-related regulation or business trends, such as the following:
    • decreased demand for goods or services that produce significant greenhouse gas emissions or are related to carbon-based energy sources;
    • increased demand for goods that result in lower emissions than competing products;
    • increased competition to develop innovative new products that result in lower emissions;
    • increased demand for generation and transmission of energy from alternative energy sources; and
    • any anticipated reputational risks resulting from operations or products that produce material greenhouse gas emissions.
  4. If material, discuss the physical effects of climate change on your operations and results. This disclosure may include the following:
    • severity of weather, such as floods, hurricanes, sea levels, arability of farmland, extreme fires, and water availability and quality;
    • quantification of material weather-related damages to your property or operations;
    • potential for indirect weather-related impacts that have affected or may affect your major customers or suppliers;
    • decreased agricultural production capacity in areas affected by drought or other weather-related changes; and
    • any weather-related impacts on the cost or availability of insurance.
  5. Quantify any material increased compliance costs related to climate change.
  6. If material, provide disclosure about your purchase or sale of carbon credits or offsets and any material effects on your business, financial condition, and results of operations.

The full letter may be found here.

Topics: public companies, Climate change, Securities and Exchange Commission, Climate-related financial risk, corporate social responsibility

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About the Blog

The SEC Pulse provides updates and commentary from our Capital Markets Group on issues affecting publicly traded and privately owned businesses, investment banks and foreign companies who trade or raise capital in the United States, and boards of directors and company officers in securities transactions and corporate governance matters.

The material on this site is for general information only and is not legal advice. No liability is accepted for any loss or damage which may result from reliance on it. Always consult a qualified lawyer about a specific legal problem.

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