On March 20, 2019, the Securities and Exchange Commission issued a release1 (the Release) adopting amendments to Regulation S-K in an effort to modernize and simplify disclosure requirements. The rule changes became effective on May 2, 2019. Among a myriad of other changes, certain amendments revised the rules relating to issuer disclosure of delinquent Section 16(a) reports.
Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange Act), applies to officers, directors and holders of more than 10% of any class of equity security that is registered pursuant to Section 12 of the Exchange Act. Pursuant to Section 16(a), Insiders are required to file with the SEC a Form 3 within 10 days of any individual or entity becoming an Insider, a Form 4 within two days of many transactions that result in a change to the Insider’s beneficial ownership in the company and a Form 5 to report any transactions which were not previously reported.
The Release made the following amendments to Insider reporting:
Insider Reports Are No Longer Required to be Furnished to the Issuer
Previously, Rule 16a-3(e) required all filings made pursuant to Section 16(a) to be furnished to the issuer. However, this requirement has become antiquated, as Insiders are now required to file reports digitally on EDGAR, which makes them available to the issuer. For this reason, the requirement to furnish Section 16(a) reports to the issuer has been eliminated.
Item 405 Caption and Due Diligence Requirements Altered
Item 405 previously required companies to detail the failure of Insiders to timely file Section 16(a) reports under the caption “Section 16(a) Beneficial Ownership Compliance.” As a due diligence mechanism, companies were previously required to review Section 16(a) reports furnished to them in making their determination as to whether or not disclosure of any noncompliance was necessary. The Release modified the required heading, which will now read “Delinquent Section 16(a) Reports.” The SEC emphasized that this heading may be omitted to the extent there are no delinquent Section 16(a) filings to report. Additionally, to satisfy their due diligence requirement, issuers may now rely only on documents posted by Insiders to EDGAR, rather than on documents received from Insiders.
Form 10-K Checkbox Eliminated
Finally, the Release eliminated the checkbox on the cover page of Form 10-K which previously required companies to indicate whether their disclosure of delinquent Section 16(a) filings is contained in the document or would be included in a proxy or information statement incorporated by reference. The SEC noted that this requirement, which was once useful to help SEC staff easily identify delinquent filings, has outlived its usefulness.
The SEC noted the comments received regarding these amendments were generally supportive.
Footnotes
1 Release No. 34-85381, available at https://www.sec.gov/rules/final/2019/33-10618.pdf.
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