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.

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.

Next Wednesday, April 27, the SEC will consider whether to propose amendments to the Securities Exchange Act, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, requiring public companies to disclose in a clear manner the relationship between executive compensation actually paid and the financial performance of the company. Any rules proposed will be subject to a comment period, following which further action will be required by the SEC to finalize the rules.

Here’s the SEC’s press release about today’s rule proposals.