4 SEC Projects to Keep an Eye On

The SEC announced updates to its Spring 2021 Reg Flex Agenda in June. 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.

In her summary of the SEC’s recent update to its agenda (“Lots to See on the SEC’s Spring 2021 Reg Flex Agenda”), Cydney Posner of Cooley notes that the current agenda may be particularly ambitious (Posner uses the word “doozy”). In the past, the short-term agenda generally signified projects the SEC hoped to accomplish in 12 months, but Posner speculates that the new SEC Chair Gary Gensler “may be operating under a different clock.”

Here is a summary of four SEC projects that affect equity compensation that you are going to want to keep an eye on, plus two more projects that aren't as imminent.

1. Updates to Forms 144, 4 and 5

This past December, the SEC proposed changes to Forms 144, 4, and 5. With regards to Form 144, the proposal would:

• Mandate electronic filing via EDGAR (currently electronic filing is voluntary).
• Align the filing deadline to the deadline to file Form 4 (i.e., two business days after the execution date or deemed execution date of the reported sale).
• Implement an interface that would allow filers to complete and file both Form 4 and Form 144 simultaneously.

For Forms 4 and 5, the SEC has proposed adding a checkbox that could be voluntarily selected to indicate that trades are pursuant to a Rule 10b5-1 plan.

The SEC is planning to issue the final rules by October of this year.

Alan Dye will cover the latest news on Section 16 and Rule 144 during his session “Section 16 & Insider Considerations in Today’s Market” at the 29th Annual NASPP Conference.

2. Rule 10b5-1 Updates

Gensler has been critical of Rule 10b5-1 plans and has indicated his intention to direct the SEC staff to update the rule. The reforms he is looking for include:

• A mandated cooling off period before trades can begin under plans.
• Limitations on when and how plans can be cancelled.
• Required disclosure of adoption, modification, and cancellation of plans.
• Limitations on the number of plans individuals can have in effect simultaneously.

The agenda targets October of this year for proposed rules on this.

For the latest on Rule 10b5-1 plans, tune in to the session “Trends in 10b5-1 Plan Management” at the 29th Annual NASPP Conference.

3. Pay-for-Performance Disclosures

The Dodd-Frank Act calls for the SEC to adopt rules requiring public companies to include a disclosure in their proxy statement that relates compensation paid to executives to the company’s financial performance. The SEC issued proposed rules in April 2015 but those rules were never finalized. According to the updated agenda, the SEC hopes to issue the final rules in April of next year.

4. Clawbacks

The Dodd-Frank Act also instructs the SEC to adopt rules directing US exchanges to adopt standards that would require listed companies to recover incentive compensation that is awarded to officers erroneously (i.e., in circumstances the company materially restates its financials and, as a result of the restatement, some compensation that was considered earned turns out to not have been earned).

There is a long road to implementation here. First, the SEC has to finalize the rules it proposed back in 2015, then the exchanges have to propose and adopt their own rules. And, interestingly, the road seems to have gotten longer because, while this is on the SEC’s short-term agenda, the next noted action is for the SEC to issue another round of proposed rules, which it expects to do in April of next year.

Long-Term Projects

1. Rule 701 and Form S-8 Modernizations

Last year, the SEC proposed several changes intended to modernize Rule 701 and Form S-8, including:

• Increasing the Rule 701 limitations
• Changes intended to facilitate compliance with the additional disclosures required under Rule 701 when more than $10 million worth of securities are issued in reliance on the rule in a 12-month period
• Clarifying that multiple plans can be registered on a single Form S-8
• Allowing additional plans and securities to be registered via an immediately effective post-effective amendment to Form S-8

Unfortunately, these proposals have landed on the SEC’s “long-term” agenda, which Posner describes as the “maybe never” agenda. This is disappointing for several reasons, not the least of which is that I spent literally days drafting a comment letter on them that now appears to have been not the best use of my time. I notice that the SEC didn’t receive many other comment letters on the proposal—perhaps everyone else knew something that I didn’t (or perhaps the lack of comment letters caused the SEC to lower the priority of this project).

But it’s even more disappointing because many aspects of the proposal were very helpful and seemed to have broad support.

2. Allowing Rule 701 and Form S-8 to Be Used for Gig Workers

At the same time that the SEC proposed the rules to modernize Rule 701 and Form S-8, it also proposed a pilot program that would allow Rule 701 and Form S-8 to be relied on temporarily for shares issued to gig workers. This proposal doesn’t appear to be included in either the short-term or the long-term agenda.

I’m not sure if that means that the SEC has simply lumped it in with the modernization proposal or if it has been dropped from the agenda altogether. Either way, it doesn’t seem like it will be happening anytime soon. The gig-worker pilot program was controversial, so I’m not surprised it has been tabled.