In a Bloomberg BNA article, I provided insight on what future additional updates the SEC Staff could be focusing on following the Commission’s announcement of proposed amendments to Regulation S-K last week. The article quotes Elizabeth Murphy, an associate director in the SEC Division of Corporation Finance, from an October 18 Association of Corporate Counsel
On October 11, the SEC proposed amendments to modernize and simplify disclosure requirements in Regulation S-K, which were mandated by the Fixing America’s Surface Transportation (FAST) Act. In large part, the proposed amendments follow the recommendations of a November 2016 report from the SEC staff. As one SEC commissioner put it, the incremental adjustments to Regulation S-K are meant to “prune” the SEC’s existing disclosure regime rather than as “an exercise in slash-and-burn clearcutting.”
Below are six highlights from the SEC’s proposed amendments to Regulation S-K:
- Rules for Management’s Discussion and Analysis (MD&A) would be amended to clarify that a registrant need only provide a period-to-period comparison for the two most recent fiscal years presented in the financial statements and may hyperlink to the prior year’s annual report for additional period-to-period comparison. The proposed amendments would require hyperlinks to information that is incorporated by reference if that information is available on EDGAR. Instruction 1 to Item 303(a).
On August 5, 2015, the SEC adopted new rules implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(b) of the Dodd-Frank Act required the SEC to adopt rules requiring reporting companies to disclose the ratio of the annual compensation of the company’s median employee to the annual compensation of its principal executive officer. These rules will become effective generally for companies in their Form 10-K for the 2017 fiscal year or in their proxy statement for the 2018 annual meeting. Below are some frequently asked questions that companies should be considering now in preparing for this new disclosure.
1. What are the new rules on pay ratio generally?
The new rules are contained in a new Item 402(u) of Regulation S-K added by the SEC. Item 402(u) generally requires companies to disclose
- the median of the annual total compensation of all company employees other than the company principal executive officer (PEO),
- the PEO’s annual total compensation, and
- the ratio between the two numbers.
Last week, the SEC’s Division of Corporation Finance issued updated guidance on processing procedures for draft registration statements. Below is a FAQ summary table we have prepared related to this new guidance.
There are some nuances in the guidance, so please consult with outside securities counsel before omitting any financial statements in your filing. Contact any member of our Corporate & Securities practice for more information.
Last month, the Staff of the SEC’s Division of Corporation Finance announced that, as part of the Division’s ongoing efforts to facilitate capital formation, all issuers are now permitted to submit draft registration statements relating to IPOs and Exchange Act Section 12(b) registration (e.g., spin-offs) to the Staff for nonpublic (i.e., confidential) review.
Previously, nonpublic review was available only to emerging growth companies (EGCs), as authorized by the JOBS Act, and in certain circumstances to foreign private issuers. Nonpublic submission of registration statements makes it possible for companies to avoid alerting the market of offering plans before the company is certain that it will move forward with any offering.
I wrote an article published by Securities Regulation Daily discussing the upcoming “say-when-on-pay” votes that many companies will hold during their annual meetings this year. Because Dodd-Frank mandates that the vote be held every six years, a great portion of companies last held the say-when-on-pay vote immediately following the enactment of Dodd-Frank in 2011 and…
In monitoring SEC comment letters, we came across this SEC comment letter made public today, which we thought of particular interest to our readership given its direct application to almost all public companies. In the letter, the SEC Staff expressly concludes that simply including a URL address in an earnings press release that directs readers to a website where the non-GAAP reconciliation is located does not comply with the requirements in Item 10(e)(1)(i) of Regulation S-K (i.e., “must include….in the filing…a reconciliation”) and the general rules regarding disclosure of non-GAAP financial measures outlined in Regulation G (i.e., “must accompany that non-GAAP financial measure with…a reconciliation”). Although this is the Staff’s current position, we believe this may be an interesting area to watch in light of the SEC’s recent rulemaking in the hyperlinking space (see this post) as well as continued innovation in electronic communication and IR practices.
Last week, as reported by The Wall Street Journal, POLITICO and others, the House voted for a sweeping rewrite of the Dodd-Frank Act. According to Politico, “The legislation, approved without a single Democratic vote, represents the GOP’s opening salvo in the debate over easing the rules on the financial system, a move sparked by the election of President Donald Trump and Republican control of Congress.”
Below are three takeaways on the CHOICE Act passage:
- There is a strong GOP push to significantly revise the rules governing Wall Street. In addition to the CHOICE Act, on Monday, June 12, the U.S. Department of the Treasury released its much anticipated financial regulatory reform report. This report stems from the President’s February 2017 Executive Order on “Core Principles for Regulating the U.S. Financial System” where the Secretary of the Treasury was to “identify any laws, treaties, regulations, guidance, reporting and record keeping requirements, and other Government policies that inhibit Federal regulation of the U.S. financial system in a manner consistent with the core principles.”
This post was updated on August 16, 2017, and September 12, 2017, to include the eleventh and twelfth FAQs, respectively.
1. What are the new rules on exhibit hyperlinks generally?
On March 1, 2017, the SEC voted to adopt new rules and form amendments to make it easier for investors and other market participants to find and access exhibits in registration statements and periodic reports. The amendments will require registrants to include a hyperlink to each exhibit in the filing’s exhibit index. Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference must review the exhibit index to determine the filing in which the exhibit is included, and then must search through the registrant’s filings to locate the relevant filing.
The amendments require registrants that file registration statements or reports subject to the exhibit requirements under Item 601 of Regulation S-K, or that file Forms F-10 or 20-F, to include a hyperlink to each exhibit listed in the exhibit index of these filings, and to submit such registration statements and reports on EDGAR in HyperText Markup Language (HTML) format.
Recently, I wrote a blog post about the anticipated update to the Financial CHOICE Act and a leaked memo from Jeb Hersarling, Chair of the House Financial Services Committee, to the Committee’s Leadership Team regarding proposed changes from the original Financial CHOICE Act introduced last year.
For legal teams updating directors and management teams on developments in Congress that may impact them in the near term, here are just some of the items to consider for this Act that would have an immediate impact on public companies (and probably well-received):