United States: SEC Proposes Rules To Modernize and Simplify Disclosure

On Oct. 11, the Securities and Exchange Commission, based on the recommendations made in the staff's Report on Modernization and Simplification of Regulation S-K (as required by Section 72003 of the Fixing America's Surface Transportation Act), proposed amendments to modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information.

The proposed amendments are briefly described below. Set forth in Annex A hereto are the Commission's requests for comments related to the proposed amendments.

A. Description of Property (Item 102)

The proposed amendments to Item 102 of Regulation S-K would clarify that a description of property is only required to the extent physical properties are material to the registrant and make other clarifying amendments.

B. Management's Discussion and Analysis (Item 303)

The proposed amendments to Item 303 would allow registrants, in some circumstances, to eliminate the earliest year of the MD&A discussion. The proposed amendments would also eliminate the reference to five-year selected financial data in Instruction 1 to Item 303(a) and clarify that registrants may use their discretion in selecting the best format for their MD&A presentation.

C. Directors, Executive Officers, Promoters and Control Persons (Item 401, Item 405 and Item 407)

The proposed amendments to Item 401, Item 405, and Item 407 of Regulation S-K would simplify and modernize executive officer, Section 16(a) compliance and corporate governance disclosure requirements. The proposed amendments to Item 401 would simplify the rules for determining what disclosure about executive officers may be included in Form 10-K when other disclosure in Part III of Form 10-K will be incorporated by reference to the registrant's definitive proxy or information statement. The proposed amendments to Item 405 would allow registrants to rely on a review of Section 16 reports submitted on EDGAR rather than reports furnished to the registrant when providing disclosure about Section 16(a) compliance. Finally, the proposed amendments to Item 407 clarify the applicable auditing standard and the disclosure requirements for the compensation committees of EGCs.

D. Registration Statement and Prospectus Provisions (Item 501(b))

The proposed amendments to Item 501(b) would require disclosure on the cover page of the prospectus of any national securities exchange where the securities being offered are listed or, if not listed, the principal United States market or markets for the securities being offered and the corresponding trading symbols, if any.

E. Registration Statement and Prospectus Provisions (Item 501(b), Item 503(c), Item 508 and Item 512)

The proposed amendments to Item 501(b)(1), Item 501(b)(3), and Item 501(b)(10) would, respectively, eliminate misleading company name disclosure requirements, explicitly allow registrants to include a clear statement that the offering price will be determined by a particular method or formula (and require a cross reference to the offering price method or formula disclosure), and permit registrants to exclude some portion of the legend relating to state law in the prospectus for an offering that is not prohibited by state blue sky law. The proposed amendments to Item 503(c) would relocate the current risk factor disclosure requirements to Subpart 100 and eliminate the risk factor examples without substantively changing the underlying disclosure requirements. The proposed amendment to Item 508 would define the term "sub-underwriter" to clarify one aspect of the required disclosure about the plan of distribution for a registered securities offering. The proposed amendments to Item 512 would eliminate certain undertakings that are redundant or obsolete.

F. Exhibits (Item 601)

The proposed amendments to Item 601 of Regulation S-K would affect provisions related to the Commission's confidential treatment process. Specifically, the proposed amendments to Item 601(a)(5), Item 601(a)(6), and Item 601 (b)(10)(iv) would permit registrants to omit, without submitting a confidential treatment request, schedules and attachments that are not material, personally identifiable information and confidential information in material contract exhibits that is both (i) not material and (ii) competitively harmful if publicly disclosed.

The proposed amendment to Item 601(b)(10)(i) would limit the two-year look back filing requirement for material contracts to newly reporting registrants.

Proposed new Item 601(b)(4)(vi) would require registrants to file an Item 202 description of their Exchange Act registered securities as an exhibit to Form 10-K. The proposed amendments to Item 601 (b)(21) would require disclosure of an Legal Entity Identifier ("LEI") (if one has been obtained) for each registrant and any subsidiaries required to be disclosed in the exhibit.

Proposed new Rule 406, proposed new Item 601(b)(104), proposed new paragraph 104 to "Instructions as to Exhibits" of Form 20-F and proposed new Instruction 17 to "Information To Be Filed on this Form" of Form 40-F would require registrants to tag every data point on the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F using Inline XBRL, including certain new data points added pursuant to the proposed amendments.

G. Incorporation by Reference

The proposed amendments also seek to simplify and modernize the rules and forms governing incorporation by reference. Under the proposed amendments, certain existing requirements for incorporation by reference would be consolidated into Rule 411, Rule 12b-23, Rule 0-4, and Rule 0-6. The proposed amendments would also eliminate several redundant or outdated requirements. In addition, the proposed amendments would provide registrants with additional flexibility in organizing the disclosure in Form 10, Form 10-K, and Form 20-F by permitting them to exclude item numbers and captions or create their own captions tailored to the disclosure in these forms.

Comments on the proposed amendments should be submitted by 60 days after publication of the proposed amendments in the Federal Register.

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.

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