someone pressing a keyboard button labeled "SEC"

Keeping Up with SEC Rulemaking

June 16, 2022

The SEC has published updates to its Spring 2022 Reg Flex Agenda. The Reg Flex Agenda provides a view into the SEC’s current projects, including which projects are expected to be accomplished in the short term and those that are longer term projects. The agenda is typically ambitious and often proves to be more aspirational than predictive, but it does give us an idea of the SEC’s priorities.

Here is a quick summary of the rulemaking projects that relate to equity compensation.

Form 144 Goes Electronic

Form 144 has been one of the last remaining SEC filings that could be submitted on paper—until now! The SEC has adopted rules that will require Form 144 to be filed electronically via the EDGAR system, except in the case of nonreporting issuers.

The adopting release indicates that the SEC will make an online fillable Form 144 available. In addition, the release indicates that electronic filing will not be required until six months after the Commission adopts a version of the EDGAR Filer Manual that addresses the updates to Form 144.

In his statement on the adopting release SEC Chair Gensler clarifies that Form 144 will not be required to be filed electronically until six months after the online fillable form is available.

According to the NASPP/Deloitte Consulting 2020 Domestic Stock Plan Administration Survey, at nearly half of public companies, Form 144 is filed by the broker handling the sale. It will be interesting to see if this practice continues or if electronic filing causes more companies to start managing Form 144 filings in-house

You may recall that the SEC also has a proposal on the table to create a online tool that facilitates simultaneous filing of Form 144 and Form 4 (and to changing the filing deadline of Form 144 to align with Form 4). No word from the SEC yet on when—or if—this is going to happen.

Rule 10b5-1 Proposal

I’m sure many of you are waiting with bated breath to hear when the final Rule 10b5-1 rules will be published. Given the short comment period on the proposed rules (just 45 days), I had expected that we might see final rules this year, but this isn’t the case. According to the Reg Flex Agenda, the final rules will be released in April 2023.

Clawbacks

The Dodd-Frank Act, adopted over ten years ago, requires the SEC to promulgate rules requiring US exchanges to implement listing requirements that would direct companies to adopt policies for the recoupment of incentive compensation in the event of a material restatement. As of today, the rules still have not been adopted.

The SEC proposed rules to implement the requirement back in 2015. In October of last year, the SEC re-opened the comment period on the proposal and now the SEC has reopened the comment period a second time. Even with the newly reopened comment period, the SEC has the final rules on its agenda for October of this year (perhaps just in time for the NASPP Conference—if so, you can be sure we’ll cover it).

Got something to say about this proposal? Comments are due by July 14, 2022.

Pay-For-Performance Disclosure

Another Dodd-Frank rulemaking project that still hasn’t made it over the finish line is the pay-for-performance disclosure. In January of this year, the SEC updated its proposal on how the requirement should be implemented and reopened the comment period on it.

According to the Reg Flex Agenda, the SEC expects to issue the final rules in October of this year. Whether the rules are finalized or still just a proposal, the NASPP Conference session “Get Ready for the SEC’s Pay vs. Performance Proposal” will cover them.

EDGAR Access

When the SEC announced that it would be imposing a new two-step verification process to access EDGAR and making other changes to how companies, insiders, and others responsible for submitting EDGAR filings access the system, the plan was to start transitioning filers to the new process this year.

This now appears to be delayed. The project has moved from the short-term to the long-term agenda, with no estimate of when it will happen.

Changes to Form 4 and 5

The SEC has proposed a couple of changes to Forms 4 and 5, including adding a checkbox to indicate when a trade is made pursuant to a Rule 10b5-1 plan and requiring gifts to be reported on Form 4. Both proposals are part of the Rule 10b5-1/insider trading proposal, which means we are probably looking at April 2023, at the earliest, for these changes to be finalized.

Glossy Annual Reports to Be Filed on EDGAR

This isn’t a rule change that relates to stock compensation, but I found it interesting that the SEC is now going to require companies to file their glossy annual reports via EDGAR. In TheCorporateCounsel.net blog, Dave Lynn notes that since 2016 the SEC has allowed companies to simply post the glossy reports on their corporate websites in lieu of mailing copies to the SEC or filing them on EDGAR. Those days are now coming to an end.

My first job out of college was working as a file clerk for a now-defunct computer leasing firm. I worked in the credit department, so I managed all the files we maintained on the companies that leased equipment from us. These files included their financial statements—10-Ks and Qs, 8-Ks, and their glossy annual reports. One of my responsibilities was to call companies and ask them to send us their annual reports.

Of everything that I filed, the annual reports were the most interesting. They had pictures and sometimes included other fun things. An agricultural company included seed packets one year. The 1990 Reebok annual report included a pull-out poster of a man wearing a pair of Reebok shoes and nothing else (he was strategically posed so that there was nothing inappropriate about it).

It’s a good thing I moved on from that job because I would have been replaced by the internet and EDGAR a long time ago. 

  • Barbara Baksa
    By Barbara Baksa

    Executive Director

    NASPP