The SEC has issued a comment release soliciting input on many questions related to quarterly reporting. The release covers a lot of possible scenarios, any or none of which may occur. The format, as with many releases of this nature, has some limited analysis but is more dominated by questions as to which the public is invited to comment. As expected, there are some questions on whether quarterly reporting should be eliminated or changed to semi-annual, and if so, if this should only be for certain types of issuers (such as smaller reporting companies or emerging growth companies). Perhaps more interesting, there are a lot more questions and discussion of potential ways to combine quarterly earnings releases with Quarterly Reports on 10-Q, given their overlap and proximity in release/filing times. The thrust of many of the questions seems to be if there are ways to reduce redundancy without delaying the process.
Yesterday (without a meeting), the SEC approved final rules to require companies to disclose in proxy or information statements for the election of directors any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions with respect to company equity securities. This rulemaking had been mandated by the Dodd-Frank Act in 2010 and had sat in proposal form for several years.
Under the new rules, new Item 407(i) of Regulation S-K will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director. A company could satisfy this requirement by either providing a fair and accurate summary of the practices or policies that apply, including the categories of persons they affect and any categories of hedging transactions that are specifically permitted or specifically disallowed, or, alternatively, by disclosing the practices or policies in full. If the company does not have any such practices or policies, the rule will require the company to disclose that fact or state that hedging transactions are generally permitted.
Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019. However, smaller reporting companies and emerging growth companies do not have to comply until their proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2020. Listed closed-end funds and foreign private issuers will not be subject to the new disclosure requirements.
Today the SEC adopted amendments to eXtensible Business Reporting Language (XBRL) requirements for operating companies and funds. The amendments are intended to improve the quality and accessibility of XBRL data by replacing the existing requirements for tagged data to be filed as exhibits to certain SEC filings and posted as separate files on companies’ websites. The amendments, which will go into effect in phases, require the use of Inline XBRL for financial statement information and risk/return summaries.
While the amendments modify existing XBRL requirements, they do not change the categories of filers or scope of disclosures subject to XBRL requirements, nor do they change the relevant liability standards.
Operating companies that are currently required to submit financial statement information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2019, accelerated filers that use U.S. GAAP being required to comply beginning with fiscal periods ending on or after June 15, 2020, and all other filers being required to comply beginning with fiscal periods ending on or after June 15, 2021. Filers will be required to comply beginning with their first Form 10-Q (not 10-K) filed for a fiscal period ending on or after the applicable compliance date.
Funds that are currently required to submit risk/return summary information in XBRL will be required, on a phased basis, to transition to Inline XBRL, with large fund groups (net assets of $1 billion or more as of the end of their most recent fiscal year) being required to comply two years after the effective date of the amendments and all other funds being required to comply three years after the effective date of the amendments. The amendments also eliminate the 15 business day filing period for risk/return summary XBRL data, so that the data will be more timely available to the public.
The SEC posted today an interpretive release regarding its latest guidance public companies’ disclosure obligations under existing law with respect to matters involving cybersecurity risk and incidents. It also addresses the importance of cybersecurity policies and procedures and the application of disclosure controls and procedures, insider trading prohibitions, and Regulation FD and selective disclosure prohibitions in the cybersecurity context.
The timing of the release was a bit unusual. Initially, the SEC was scheduled to consider the guidance at an open meeting on February 21st. It abruptly cancelled the meeting and instead put out a press release saying the interpretive guidance had been approved on February 20th. Sounds like the SEC may be having its own issues with disclosure controls and procedures!
The SEC has approved a NYSE rule that will prohibit listed companies from issuing material news after the official closing time of trading until at least 5 minutes after closing (unless the company’s official closing price is published sooner).