On March 20, 2019, nearly a year and a half after proposing them, the SEC adopted amendments to disclosure requirements for reporting companies, as mandated by the 2015 Fixing America’s Surface Transportation Act (the “FAST Act”). The amendments are a part of an ongoing effort by the SEC to simplify and modernize disclosure obligations. According to the SEC’s press release, the amendments are expected “to benefit investors by eliminating outdated and unnecessary disclosure and making it easier for them to access and analyze material information.”
Among many other items, the amendments address the following topics:
- Greater Flexibility When Filing Under Item 601 of Regulation S-K
- Omission of Immaterial Schedules and Exhibits—The amendments revise Item 601 of Regulation S-K to expand the ability of registrants to omit immaterial schedules and similar attachments to required exhibits, which previously was only available to schedules and exhibits to acquisitions agreements being filed under Item 601(b)(2).
- Easier Confidential Treatment Request Process—The amendments simplify the confidential treatment request process by allowing registrants to omit immaterial confidential information from acquisition agreements filed pursuant to Item 601(b)(2) of Regulation S-K and material contracts filed pursuant to Item 601(b)(10) of Regulation S-K without having to file a concurrent confidential treatment request. This will generally be permitted where the omitted information is not material and would “likely” cause competitive harm if publicly disclosed. For example, this change, together with the change mentioned above related to the omission of schedules and exhibits, eliminates the need to file a confidential treatment request for immaterial information included in a material agreement like a credit agreement or as an exhibit to such agreement — a practice that was unnecessary for the protection of investors and burdensome and costly for registrants. When omitting such information, registrants should largely continue to follow the SEC’s existing procedural rules related to labeling confidential information that is omitted from a filing, including marking the exhibit index to indicate that portions of the exhibit or exhibits have been omitted; including a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both (1) not material and (2) would be competitively harmful if publicly disclosed; and indicating with brackets where the information has been omitted from the filed version of the exhibit.
- For Reporting Companies, Limit the Look-Back Time Period for Material Contract Filing: The amendments limit the required two-year look back for material contracts under Item 601(b)(10) of Regulation S-K. Currently, Item 601(b)(10)(i) requires reporting companies to file every contract not made in the ordinary course of business if the contract is material and (i) is to be performed in whole or in part at or after the filing of the registration statement or report or (ii) was entered into not more than two years before the filing, even if fully performed. Revised Item 601(b)(10)(i) effectively deletes clause (ii) above for all but newly reporting registrants. The rationale for the change is that companies that are already reporting companies will have previously filed those contracts and they will be available on EDGAR. As a result of the above amendments, registrants and their counsel should review the existing exhibit indexes from their prior filings to determine what exhibits can be removed going forward.
- Delinquent Section 16 Reporting Obligations
- The amendments simplify a reporting company’s diligence and reporting responsibilities regarding Section 16(a) compliance. Section 16(a) relates to the obligations of certain insiders and holders of in excess of 10% of an issuer’s securities to file reports with the SEC detailing transactions in the issuer’s stock. Among other things, the changes eliminate the checkbox on the cover page of Form 10-K relating to Item 405 of Regulation S-K disclosures and the related instruction in Item 10 of Form 10-K. The revised rules also eliminate the requirement that Section 16 filers furnish any delinquent Section 16 reports to the issuer and permit the issuer to rely on a review of the Section 16 reports submitted on EDGAR and any written representations that no Form 5 is required. The amendments also change the caption related to Section 16 reporting delinquencies from “Section 16(a) Beneficial Ownership Reporting Compliance” to “Delinquent Section 16(a) Reports” and eliminate the need to include this caption when the company does not have Section 16(a) delinquencies to report.
- Certain Legending, Undertakings and Risk Factor Updates
- The amendments simplify certain requirements for registration statements including a shortening of the “subject to completion” legend by eliminating the language regarding state law prohibitions if they do not apply to the issuer. The changes also eliminate several undertakings under Item 512 of Regulation S-K that are considered duplicative or obsolete. Additionally, the changes relocate “Risk Factors” from Item 503(c) of Regulation S-K to a new, separate Item 105 of Regulation S-K. In particular, this will impact the application of risk factor disclosure requirements to registration statements on Form 10 and periodic reports. The examples of risk factors previously included in the SEC’s regulations have also been removed reflecting the principles-based nature of risk factor disclosure.
- Simplify Property Disclosures
- The amendments modify the disclosure requirements related to an issuer’s physical properties under Item 102 of Regulation S-K. Now, registrants will be required to provide disclosure about a physical property only to the extent it is material to the issuer.
- Data Tagging and Additional Hyperlinking Requirements
- The amendments seek to further incorporate technology to improve access to information for investors by requiring data tagging for items on the cover page of certain filings and using hyperlinks for information that is incorporated by reference and available on EDGAR. In essence, the new rules on hyperlinking build and expand on the Commission’s recent rules in this area related to the hyperlinking of exhibits and will now generally require registrants to hyperlink all of the information that is incorporated by reference if that information is available on EDGAR (e.g., the incorporation by reference sections in Form S-3).
The final amendments are similar in many ways to those originally proposed in October 2017. The amendments relating to the redaction of confidential information in certain exhibits will become effective upon publication in the Federal Register. The remaining amendments will be effective 30 days after they are published in the Federal Register, which is usually about 30-45 days after the rules are adopted. The only exceptions are that (1) the requirements to tag data on the cover pages of certain filings are subject to a three-year phase-in, and (2) the requirement that certain investment company filings be made in HTML format and use hyperlinks will be effective for filings on or after April 1, 2020. (The hyperlinking requirement for all other registrants other than investment companies will be effective 30 days after the rules are published in the Federal Register.)
An excerpt of the SEC’s chart contained within its adopting release is included below. The chart intends to highlight some of the more significant aspects of the final amendments and does not reflect all of the amendments or all of the rules and forms that are affected. All changes are discussed in their entirety within the final amendments.
|Rule||Summary Description of Amended Rules||Principal Objective|
|Regulation S-K, Item 303 and Form 20-F||Registrants will generally be able to exclude discussion of the earliest of three years in MD&A if they have already included the discussion in a prior filing.||Simplify disclosure requirements to reduce repetition, reduce costs and burdens to registrants, focus disclosure on material information and improve readability.|
|Regulation S-K, Items 601(b)(10) and 601(b)(2) and investment company registration forms||Registrants will be able to omit confidential information in material contracts and certain other exhibits without submitting a confidential treatment request to the SEC, so long as the information is (1) not material and (2) would likely cause competitive harm to the registrant if publicly disclosed.||Substantially reduce the burden-borne by registrants in preparing and responding to confidential treatment requests while still providing all material information to investors.|
|Regulation S-K, Item 601(b)(10)||Only newly reporting registrants will be required to file material contracts that were entered within two years of the applicable registration statement or report.||Eliminate duplicative and unnecessary disclosure and reduce costs and burdens to registrants while still providing all material information to investors.|
|Regulation S-K, Item 601(a)(5) and investment company forms||Registrants will not be required to file attachments to their material agreements if such attachments do not contain material information or were not otherwise disclosed.||Reduce costs and burdens to registrants while still providing all material information to investors|
|Regulation S-K, Item 102||Registrants will need to provide disclosure about a physical property only to the extent that it is material to the registrant.||Clarify and simplify the disclosure requirement to reduce costs and burdens to registrants, while focusing on material information.|
|Forms 8-K, 10-Q, 10-K, 20-F and 40-F||Registrants will be required to disclose on the form cover page the national exchange or principal U.S. market for their securities, the trading symbol, and title of each class of securities.||Improve investors’ efforts to search news websites and stock market databases for information about registrants and distinguish among similarly named companies.|
Securities Act Rule 411(b)(4); Exchange Act Rules 12b-23(a)(3), and 12b-32; Investment Company Act Rule 0-4; and Regulation S-T Rules
102 and 105
|Registrants will no longer be required to file as an exhibit any document or part thereof that is incorporated by reference in a filing, but instead will be required to provide hyperlinks to documents incorporated by reference.||Improve readability and navigability of disclosure documents and discourage repetition.|
|Forms 10-K, 10-Q, 8-K, 20-F and 40-F.||Registrants will be required to tag all cover page data in Inline XBRL.||Further enhance investors’ use of interactive data to identify, count, sort, compare, and analyze registrants and their disclosures.|
|Regulation S-T Rules 102 105, 201, 202 and 311; Form N-CSR; and investment company registration forms||Investment companies will be required to file reports on Form N-CSR and registration statements and amendments thereto in HTML format and provide hyperlinks to exhibits and other information incorporated by reference.||Improve navigability of disclosure.|
Have additional questions about the newly adopted amendments? Contact the authors or another Bass, Berry & Sims corporate and securities attorney.