On Friday, the SEC announced that it had adopted amendments to require electronic submission of several forms that currently may be submitted on paper and to require structured data reporting (i.e., XBRL) for Form 11-K. Most notably, the amendments require electronic submission of Forms 144 and, in PDF format, of "glossy" annual reports. According to SEC Chair Gary Gensler, in "fiscal year 2021, more than half of all filed Form 144 forms—30,000 in total—were filed on paper. In a digital age, it's important for investors to have easy, online access to material information, rather than needing to visit SEC facilities to access that information. This is particularly important during Covid-19, which has made in-person visits to access these filings even more challenging. Even when access to physical copies isn't restricted, there are other costs associated with paper filings. It costs investors money and time to travel to the SEC's reading room. It costs the SEC money and time to process paper filings. These amendments will reduce costs and drive more efficiencies for investors, filers, and the SEC."
As discussed in the SEC fact sheet and the final rule release, currently, Rule 101(b) of Reg S-T permits, but does not require, electronic submission on EDGAR of a small number of documents. Among other things, the rule and form amendments will make mandatory electronic filing or submission of most of the documents that are currently permitted as electronic submissions under Rule 101(b), including
- notices of exempt solicitations and exempt preliminary roll-up communications;
- glossy annual reports to security holders (in PDF format);
- Form 144 for sales of securities of issuers subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
- filings on Form 6-K; and
- filings made by multilateral development banks.
The amendments will also mandate electronic filing of the certification made under Section 12(d) and Rule 12d1-3 that a security has been approved by an exchange for listing and registration and permit electronic submission in PDF format of certain foreign language documents. The amendments will also require the use of Inline XBRL for the filing of the financial statements and accompanying notes required by Form 11-K and make technical updates to Form F-10, Form F-X, and Form CB to remove outdated references. The tagging requirement would mirror the Inline XBRL requirements for financial information contained in annual reports on Forms 10-K, 20-F and 40-F.
As you know, under Exchange Act Rule 14a-3(c) and Rule 14c-3(b), companies are required to mail to the SEC, "solely for its information," seven copies of their glossy annual reports sent to shareholders. Section 15(d) companies are subject to a similar requirement (only four copies) under Form 10-K. In 2016, in a CDI, Corp Fin took the position that a company could satisfy these requirements by posting "an electronic version of its annual report to its corporate web site by the dates specified in Rule 14a-3(c), Rule 14c-3(b) and Form 10-K respectively, in lieu of mailing paper copies or submitting it on EDGAR. If the report remains accessible for at least one year after posting, the staff will consider it available for its information." (See this PubCo post.) The amendments supersede the 2016 staff guidance and the CDI will be withdrawn on the compliance date. (See fn. 12.) The SEC believes that submission of the glossy annual report on EDGAR will help inform the SEC and benefit investors by allowing easy access to electronic copies.
Form 144 will become an online fillable document, similar to Form 4, that will facilitate electronic filing and be machine-readable and available for automated and efficient analysis. It will also exclude certain personally identifiable information, such as home address. In addition, Rule 144(h)(1) is being amended to delete the requirement to send a copy of the Form 144 to the principal exchange.
The change to Rule 144 was originally part of a broader proposal issued in 2020. (See this PubCo post.) In fn. 11 to the release, the SEC indicates that it is "not taking any action concerning the remaining proposals in the Rule 144 Proposing Release at this time. In particular, we are not adopting the proposal to eliminate the Form 144 filing requirement for the sale of securities of companies that are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. As such, affiliates relying on Rule 144 when the issuer of the securities is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act will still be required to file a notice of sale on Form 144 in paper form pursuant to Rule 101(c)(6) of Regulation S-T and Rule 144. Accordingly, we are adopting a conforming amendment to Rule 144 (new Rule 144(h)(2)) to reflect that non-reporting issuers will continue to file in paper." The SEC also notes that the special accommodation related to the pandemic allowing filers to email their Forms 144 to the SEC (see this PubCo post) will be withdrawn upon the compliance date of amended Rules 144(h)(2) and 101(a)(1)(xxvi) of Reg S-T.
The absence of mandatory electronic filing of Forms 144 has come under substantial criticism, particularly by those who have been attempting to track sales under 10b5-1 plans. (See this PubCo post.) Form 144 requires disclosure of the adoption date of a Rule 10b5-1 plan that is applicable to the planned sale; however, the SEC's Investor Advisory Committee has observed that almost all Forms 144 are filed on paper and many are handwritten, making access and analysis difficult. According to an IAC subcommittee, "these disclosure gaps: (1) prevent proactive risk assessment and policing by the market; (2) limit the Commission's ability to actively and efficiently monitor the adoption, modification, or cancellation of plan details, for enforcement purposes; and (3) reduce market efficiency by obscuring potentially material signals (such as a sizeable sale by an executive) from full view." Electronic filing could help to remedy these problems, subcommittee recommendations suggested. (See this PubCo post.) Note that disclosure rules for 10b5-1 plans have been separately proposed. (See this PubCo post.)
The amendments will be effective 30 days after publication in the Federal Register. In addition, the SEC is providing the following transition periods:
- Filers will have six months after the effective date of the amendments to file or submit electronically, in accordance with the EDGAR Filer Manual, their "glossy" annual reports to security holders, notices of exempt solicitations and exempt preliminary roll-up communications, annual reports for employee benefit plans on Form 11-K, periodic reports and reports with respect to distributions of primary obligations filed by the Development Banks, reports or other documents submitted by a foreign private issuer under cover of Form 6-K, certain foreign language documents (in PDF), and certifications made pursuant to the Exchange Act and its rules that a security has been approved by an exchange for listing and registration;
- Filers of Form 144 will have six months after the date of publication in the Federal Register of the SEC release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144 to file Forms 144 electronically on EDGAR; and
- Filers of Form 11-K will have three years after the effective date of the amendments to submit the financial statements and accompanying schedules to the financial statements required by Form 11-K in Inline XBRL.
The SEC believes that the transition period will allow adequate time to prepare these documents for electronic submission and to allow paper filers who would be first-time EDGAR filers to apply for access to file on EDGAR. The SEC currently expects to "consider adoption of the relevant version of the EDGAR Filer Manual addressing updates to Form 144 in September 2022, and publication in the Federal Register would occur thereafter."
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