In December 2022, the U.S. Securities and Exchange Commission (SEC) adopted amendments to Rule 10b5-1 under the Securities Exchange Act of 1934 (Exchange Act). These amendments added new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1) and became effective for Rule 10b5-1 plans entered into or amended on or after February 27, 2023.
In addition to the amendments to Rule 10b5-1, the SEC adopted new issuer disclosure requirements relating to Rule 10b5-1 plans and insider trading arrangements. These new disclosure requirements include the following (please see our Client Alert for a detailed discussion of these disclosure requirements):1
Tracking Rule 10b5-1 Plans
In the adopting release, the SEC provided for transition periods for compliance with these new disclosure and tagging requirements. The quarterly disclosures will be required in the first periodic filing that covers the first full fiscal quarter that begins on or after April 1, 2023 (or October 1, 2023, for smaller reporting companies (SRCs)).
This means that issuers (other than SRCs) with a fiscal quarter commencing on or after April 1, 2023 (e.g., the second fiscal quarter for calendar-year issuers) should ensure that they have implemented and are continuing to maintain disclosure controls and procedures for tracking any Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements (collectively, trading arrangements) adopted, modified, or terminated by directors or officers from and after April 1, 2023.
Under new Item 408(a) of Regulation S-K, issuers will be required to disclose the material terms of the trading arrangement (other than the prices at which transactions may occur), such as: 1) the name and title of the director or officer; 2) the date on which the director or officer adopted, modified, or terminated the trading arrangement; 3) the duration of the trading arrangement; and 4) the aggregate number of securities to be purchased or sold under the trading arrangement. These disclosures will be subject to the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002, which include certifications relating to the issuer’s disclosure controls and procedures.
Transition Timing for Quarterly and Annual Disclosures
We continue to receive a number of questions on the transition timing for the quarterly and annual disclosures. The SEC’s Division of Corporation Finance published A Small Entity Compliance Guide in February 2023, which provides clarity on transition timing. Hat tip to TheCorporateCounsel.net for highlighting this guide in a recent blog post.
Based on the foregoing, we are providing two charts (one for non-SRCs and one for SRCs) with applicable compliance timing, based on fiscal year-end.
All Issuers (other than SRCs):
Smaller Reporting Companies:
1 The disclosure requirements and transition timing for foreign private issuers (FPIs) is beyond the scope of this blog post. Generally, FPIs would be required to comply with the annual requirement to disclose issuer insider trading policies and procedures pursuant to new Item 16J in Form 20-F. This disclosure would be required in the first filing that covers the first full fiscal period that begins on or after April 1, 2023 (or October 1, 2023, for smaller reporting companies). Please see our Client Alert for more information.
2 This disclosure is applicable to members of the issuer’s board of directors and to officers as defined by Exchange Act Rule 16a-1(f).