SEC Plans Changes for Forms 4, 5, and 144

The SEC has proposed amendments to Form 144 and Forms 4 and 5. Here’s what you need to know about the proposal.

Form 144 Gets a New Deadline

The SEC has suggested the following changes for Form 144:

• Mandated electronic filing via EDGAR (currently electronic filing is voluntary).
• A new filing deadline that would align with the deadline to file Form 4 (i.e., two business days after the execution date or deemed execution date of the reported sale).

Currently, Form 144 has to be filed in advance of or simultaneously with the sale. For most sales, the proposed new deadline would give affiliates two additional days to submit the filing and, in the case of certain sales pursuant to Rule 10b5-1 plans, insiders might have up to five days to submit the filing.

Simultaneous Filing of Form 144 and Form 4

In most cases, sales reported on Form 144 must also be reported on Form 4; in 2013, Jesse Brill, the NASPP's founder, petitioned the SEC to combine the two forms. This would simplify the filings for insiders and, since all transactional information would be included in a single form, might also be preferable for investors and others who use the forms.

The SEC is not proposing this step, however. Instead, they are offering to develop an interface that would allow insiders who need to report a sale on both Form 144 and Form 4 to create the two forms at the same time. Information that is included on both forms would only need to be entered once.

Filers could choose to continue to file their Forms 144 separately from their Forms 4, so the proposed changes would not necessarily affect the usual allocation of filing responsibilities between brokers and Section 16 compliance personnel.

Alas, while the thought is nice and I’m sure there are some filers that this will help, I suspect that most companies that submit filings on behalf of their insiders use a third-party system that generates a file that is uploaded to EDGAR, rather than using the EDGAR OnlineForms interface. Where this is the case, the proposed interface is not likely to be helpful.

Rule 10b5-1 Plan Info Added to Forms 4 and 5

In the same release, the Commission proposed to amend Form 4 and Form 5 to add a checkbox which an insider could select to indicate that a reported transaction occurred pursuant to Rule 10b5-1(c). Although not required, many insiders currently disclose in a footnote that a reported transaction occurred pursuant to a Rule 10b5-1 trading plan or instruction, to explain the timing of the reported transaction.

Disclosure of a 10b5-1 plan would still be voluntary, but the proposed checkbox is intended to offer insiders an alternative to a footnote. Many investors (and reporters) don’t read footnotes; a checkbox would perhaps receive more attention. It also would make it possible for third-party systems that report on Section 16 filings to indicate when transactions are pursuant to 10b5-1 plans and would be helpful for academics and others that use Section 16 filing data to analyze the usage of 10b5-1 plans.

Insiders could still use a footnote instead of or in addition to the checkbox.

Comments

Comments on the proposal can be submitted through March 22, 2021.

Don’t Miss Alan Dye’s Annual Section 16 Q&A

The nation’s foremost expert on Section 16, Alan Dye, will cover this and other updates related to Section 16 during his webcast on January 27. Submit your Section 16 questions for him to answer during the program.