On December 18th, the SEC adopted final rules to require companies to disclose hedging practices or policies in any proxy statement or information statement relating to the election of directors. These disclosures involve any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions with respect to company equity securities. The rules implement Section 14(j) of the Securities Exchange Act of 1934, which was enacted by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule introduces new Item 407(i) of Regulation S-K. Item 407(i) requires a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director. This requirement could be satisfied by providing a fair and accurate summary of the applicable hedging practices or policies or by disclosing the practices or policies in full.
A company that does not have any hedging practices or policies would disclose the fact that the company has no policies or state that hedging transactions are generally permitted.
Disclosure is required for equity securities of the company, any parent of the company, any subsidiary of the company, or any subsidiary of any parent of the company.
Companies generally must comply with these new disclosure requirements beginning on or after July 1, 2019. Smaller reporting companies and emerging growth companies must comply with the new disclosure requirements beginning on or after July 1, 2020. Listed closed-end funds and foreign private issuers will not be subject to these new requirements.
Sources:
SEC Adopts Final Rules for Disclosure of Hedging Policies (www.sec.gov)
