SEC Updates: Rule 10b5-1 Interpretations, EDGAR Access, and More

The SEC has answered a few questions on amended Rule 10b5-1 and added the EDGAR Access project back to its short-term agenda.

Rule 10b5-1: SEC Staff Issues CDIs

The SEC staff has issued three compliance and disclosure interpretations (CDIs) on amended Rule 10b5-1 and related disclosures.

Overlapping Plans and Cooling-Off Periods

The amended rule 10b5-1 prohibits individuals from adopting multiple 10b5-1 plans under which trades will occur during the same time period (with the exception of 10b5-1 plans implemented to sell shares to cover taxes due upon vesting of RSU awards). Specifically, trades under the later-commencing plan cannot begin until all trades under the first plan have executed or expired and the cooling-off period for the later-commencing plan is satisfied.

The SEC has received questions about when trades under a new plan can begin when the earlier-commencing plan is terminated, rather than fully executing or expiring. In this case, the CDI explains that the later-commencing plan is subject to an “effective cooling-off period” that begins on the termination date of the earlier-commencing plan.

The CDI also clarifies that if the earlier-commencing plan is allowed to fully execute or expire, trades can begin immediately under the later-commencing plan, provided the cooling-off period for the later-commencing plan has elapsed (i.e., if the plan was adopted prior to execution of expiration of the earlier-commencing plan).

In case you are wondering, the required cooling-off period varies based on whether the adopter is a Section 16 officer or director. Here’s the rule:

• For plans adopted by Section 16 officers and directors, the required cooling off period is later of: A) 90 days after the plan is adopted, or B) two business days after disclosure of financial results in Form 10-Q or 10-K for the quarter in which the plan is adopted.
• For plans adopted by anyone else, the required cooling off period is 30 days after the plan is adopted.

See CDI Question 120.28 for more information.

Disclosure of 10b5-1 Plans, Insider Trading Policies, and Springloaded Grants

In addition to amending Rule 10b5-1, the SEC adopted rules requiring the following disclosures:

• Disclose adoption, modification, and termination of 10b5-1 plans by officers and directors in Forms 10-Q and 10-K.
• Disclose whether the company has an insider trading compliance policy in Form 10-K and the company’s proxy statement.
• Disclose, in Form 10-K and the company’s proxy statement, options and SARs that are granted to executives within four business days before or one business day after certain public filings.

The SEC has received questions regarding when companies are required to begin providing these disclosures.

Periodic Reports

The CDI clarifies that companies (other than smaller reporting companies) are required to comply with the new disclosures in Forms 10-Q and 10-K covering the first full fiscal period that begins on or after April 1, 2023.

The CDI provides the following examples:

• December 31 fiscal year-end company: Quarterly disclosures must first be provided in the Form 10-Q for the period ended June 30, 2023, and should continue to be provided in the Form 10-Q for the period ended September 30, 2023 and the Form 10-K for the fiscal year ended December 31, 2023.
• June 30 fiscal year-end company: Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2023.
• December 31 fiscal year-end company: Annual disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2024.
• June 30 fiscal year-end company: Annual disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2024.

Smaller reporting companies have until their first filing that covers the first full fiscal period that begins on or after October 1, 2023. The CDI provides the following examples:

• December 31 fiscal year-end company: Quarterly disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2023.
• June 30 fiscal year-end company: Quarterly disclosures must first be provided in the Form 10-Q for the period ended December 31, 2023.
• December 31 fiscal year-end company: Annual disclosures must first be provided in the Form 10-K for the fiscal year ended December 31, 2024.
• June 30 fiscal year-end company: Annual disclosures must first be provided in the Form 10-K for the fiscal year ended June 30, 2025.

See CDI Question 120.26 for more information.

Proxy Statements

Companies must first provide the disclosures in their proxy statement for their first annual meeting for the election of directors after completion of the first full fiscal year beginning on or after April 1, 2023 (October 1, 2023, for smaller reporting companies).  

See CDI Question 120.27 for more information.

Updated Reg Flex Agenda

The SEC has announced its Spring 2023 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 list is typically ambitious and often proves to be more aspirational than predictive, but it does give us an idea of the SEC’s priorities.

EDGAR Access

The project to update how filers access the EDGAR system has moved from the long-term agenda back to the short-term agenda, with the SEC targeting October of this year for proposed rules. We’ve already seen one proposal on this (and a beta program); here’s the gist of the changes:

• Implementing multi-factor authentication to log into EDGAR. Those of you that log in to EDGAR using your insiders’ accounts would likely no longer be able to do so and would need your own accounts.
• Requiring filers to designate filer administrators and users. Only these authorized individuals would be able to submit filings on behalf of a filer (e.g., an insider). Currently anyone who has an insider’s CIK and CCC numbers can submit filings for them. Filer administrators would be able to submit filings and designate additional administrators and users; users would only be able to submit filings.

Comments submitted on the original proposal identified some key concerns that I’m guessing/hoping will be addressed in the proposed rules. More to come on this.

Other Projects

Some of the other projects added to the SEC’s short-term agenda include the following:

• Enhancing the human capital management disclosures (proposed rules, October 2023)
• Incentive-based compensation practices at certain financial institutions that have $1 billion or more in total assets (proposed rules, April 2024)
• Rule 144 holding period (proposed rules, April 2024)