Originally published December 19, 2002

Proposed Rules Require Electronic Filing of Change of Beneficial Ownership Reports Required to be Filed by Officers, Directors and Principal Security Holders Pursuant to Section 16(a) of the Exchange Act

On December 18, 2002, the United States Securities and Exchange Commission (the "Commission") proposed to require electronic filing and website posting of information regarding corporate insiders' ownership and transactions in their company securities. The proposal is designed to implement Section 403 of the Sarbanes-Oxley Act of 2002 and complement the accelerated reporting requirement adopted by the Commission in August of this year. Section 403 requires these rules to be implemented by July 30, 2003, but the Commission believes they will be implemented well in advance of the deadline.

Currently, directors, officers and 10% owners of a class of securities (collectively, "Insiders") are required to file Forms 3, 4 and 5 ("Section 16 Reports") pursuant to Section 16(a) of the Exchange Act of 1934, as amended, and the rules thereunder. These forms can be filed electronically or by paper. The proposal would update the rules under Section 16(a) to (i) require all Insiders to file all Section 16 Reports electronically, giving investors more timely and transparent access to Insiders' transactions and (ii) require issuers to post Section 16 Reports on their websites, providing investors with an alternate source to access this information.

Under the proposal, electronic filing of Section 16 Reports would be facilitated by implementing changes to the Commission's EDGAR filing system. Insiders would be able to access an EDGAR filer website, fill in a template online, add any applicable attachments and file. The Commission anticipates this system will be available in the Spring of 2003 and expects to adopt the new rules once the new filing system is in place. The Commission also noted that there would be a test period after the launch of the new filing system during which the planned electronic filing system for Section 16 Reports and the current filing system could be accessed. The Commission believes the proposed changes to the EDGAR filing system will make it much easier for Insiders to report the information required by Section 16(a), but plans to make the specifications of the new system available to third party providers so as to lead to the production of simpler ways to file.

The Commission indicated that once the proposed rules become fully effective, it would rescind any rules related to paper filings and generally not accept paper filings. At the open meeting proposing the rules, the Commission did not address whether extended filing hours would be provided to accommodate west coast filers.

This article is based on information provided at the SEC's open meeting and therefore may not reflect nuances that appear in the official rule proposals. Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the corporate securities lawyer with whom you work if you have questions.

Copyright © 2002 Gibson, Dunn & Crutcher LLP