United States: SEC Proposes Amendments To Modernize And Simplify Regulation S-K

On October 11, 2017, at the first open meeting under Chairman Jay Clayton's tenure, the SEC proposed amendments to modernize and simplify certain disclosure requirements in Regulation S-K. The proposed amendments are largely consistent with the recommendations in the SEC's FAST Act Report to Congress in November 2016 (the "Report").1 The rulemaking proposal is intended to improve the readability and navigability of SEC documents and discourage repetition and disclosure of immaterial information.

The rulemaking proposal includes approximately 30 discrete changes to Regulation S-K, and related rules and forms. With a couple of exceptions that we note below, none of the changes is likely individually to have a significant impact. Taken together, however, they should have a salutary effect on the preparation and presentation of disclosure documents. Highlights of several key aspects of the proposal are summarized in this Alert.

Proposed Rule

MD&A. Instruction 1 to Item 303(a) provides that, generally, a company's MD&A should cover the three-year period covered by the financial statements and either use year-to-year comparisons or any other format that, in the company's judgment, would enhance a reader's understanding. The Instruction also states that, where trend information is relevant, reference to the five-year selected financial data may be necessary. Under the proposed rule, the discussion of the earliest year can be omitted from MD&A if (i) that discussion is not material to an understanding of the company's financial condition, changes in financial condition and results of operations, and (ii) the company has filed its prior year Form 10-K containing MD&A of that earliest year. In the proposing release, the SEC noted that these changes are intended to discourage repetition of disclosure that is no longer material and encourage companies to re-evaluate disclosures in their prior year MD&A and take a "fresh look" to determine whether such disclosure remains material. Towards this end, the SEC declined to implement the staff's recommendation in the Report to require that companies include a hyperlink to the prior year's annual report for the earlier of the year-to-year comparisons.

In addition, the proposed rule would eliminate the reference to the five-year selected financial data in Instruction 1. This change is intended to simplify the instruction and eliminate duplication and is not intended to discourage companies from providing trend disclosure in MD&A. The proposed rule would also further simplify Instruction 1 to emphasize that companies may use any presentation that, in the company's judgment, would enhance a reader's understanding. In the proposing release, the SEC acknowledged that "almost all registrants provide year-to-year comparisons," but noted its belief that some companies may determine that a narrative discussion for some or all of the three years in the three-year period is a more appropriate format.

Confidential Treatment. The proposed rule would allow companies to redact confidential information from materials contracts filed under Item 601(b)(10) where such information is both (a) not material and (b) competitively harmful if publicly disclosed, without simultaneously submitting a confidential treatment request to the SEC. If the staff requests, the company must promptly provide an unredacted paper copy of the exhibit and its materiality and competitive harm analyses. These proposed changes, if adopted, would appear to result in a substantial change to current practice and would streamline the confidential treatment process. Note, however, the staff would continue its selective review of company filings and would selectively assess whether redactions appear to satisfy the above requirements. If the company's analyses do not support its redactions, the staff may request that the company file an amendment that includes some, or all, of the previously redacted information.

Exhibits. The proposed rule would expand the existing Item 601(b)(2) accommodation that permits companies to omit immaterial schedules and attachments to acquisition agreements to include all exhibits filed under Item 601. Under the proposed rule, companies would still be required to provide with each filed exhibit a list that briefly identified the contents of all omitted schedules and attachments and, upon SEC staff request, furnish a copy of any omitted schedules or attachments. Consistent with existing staff guidance, the proposed rule would also permit companies to redact any personally identifiable information ("PII") from filed exhibits without filing a confidential treatment request.

Risk Factors. Item 503(c) requires companies to disclose the most significant factors that make an offering speculative or risky. Consistent with the staff's recommendation in the Report, the proposed rule would relocate Item 503(c) from subpart 500 to subpart 100 of Regulation S-K to reflect the application of risk factor disclosure requirements to Exchange Act reports and registration statements. In addition, the proposed rule would eliminate the risk factor examples that are currently enumerated in Item 503(c). In the proposing release, the SEC stated that it believed that the elimination of these examples would encourage public companies to focus on their own risk identification processes.

Incorporation by Reference. Consistent with the staff's recommendations in the Report, the proposed rule would eliminate the five-year limit in Item 10(d), which prohibits the incorporation of documents by reference if they have been on file with the SEC for more than five years and do not fall within one of the exceptions provided in the rule, and require hyperlinks to information that is incorporated by reference if that information is available on EDGAR. Unlike the requirements for exhibit hyperlinking, which the SEC adopted in March 2017, a company would not be required to correct inaccurate hyperlinks in an effective registration statement by including a corrected hyperlink in a subsequent periodic report or a post-effective amendment. Under the proposed rule, companies would need to include a clear statement describing the specific location of the information that is being incorporated by reference and identify the document where the information was originally filed or submitted and the location of the information within that document.

In addition, the proposed rule would prohibit the incorporation by reference or cross-referencing from the financial statements to information outside of the financial statements, unless otherwise specifically permitted or required under SEC rules, because the practice could raise questions as to the scope of an auditor's responsibilities.

LEIs, Trading Symbols, and XBRL. Some of the proposed amendments would require additional disclosure or incorporation of new technology. Under the proposed rule, companies would be required to include the legal entity identifier ("LEI"), if one has been obtained, of the company and each subsidiary listed on the company's subsidiary list exhibit. The SEC noted that the disclosure of LEIs would provide clear and unique identification of market participants that would facilitate the statistical analysis and aggregation of firm financial data. The proposed rule would also revise the cover pages of Forms 10 K, 10-Q, 8-K, 20-F, and 40-F to include the trading symbol for each class of the company's registered securities and require that all information on the cover pages of these forms be tagged in Inline XBRL, instead of the traditional XBRL format. According to the proposing release, the proposed XBRL-related changes would enhance investors' ability to automate their use of this information and the disclosure of trading symbols would facilitate investors' efforts to search for information about companies.

Comment Period

Interested stakeholders are encouraged to share their views with the SEC on the rule proposal, which contains 97 numbered questions. Comments are due within 60 days following the publication of the proposed rule in the Federal Register.

Whether or not the SEC adopts any of the proposed amendments, companies can review their existing SEC disclosures and consider making changes to enhance them. Indeed, Chairman Clayton seemed to issue a current "call to action" at the open meeting when he said that "[c]orporate leaders should respond to [the SEC's] disclosure requirements by conveying information to investors in a way that captures how they assess and manage their businesses. [The SEC's] approach to disclosure allows this and issuers should be pursuing it."

Footnote

1 See Report on Modernization and Simplification of Regulation S-K (November 2016), which was required by Section 72003 of the Fixing America's Surface Transportation (FAST) Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions