As expected, the SEC has approved amendments to Rule 10b5-1 and related amendments to Forms 4 and 5 and Rule 16a-3. There is a lot to unpack in the adopting release, which is 252 pages long. Most of the release explains the amendments to Rule 10b5-1, which I won’t cover here but expect will be summarized in numerous law firm memos posted on TheCorporateCounsel.net. I will mention here only the Section 16-related amendments, which become effective April 1, 2023, and which I will cover in more detail in the December 2022 issue of Section 16 Updates. The package of changes adopted today will require companies to re-examine their insider trading policies, and sometime soon I will address plan features which might warrant focus.
- First, the SEC adopted the mandatory checkbox for Form 4 and Form 5. Insiders will be required to check the box when reporting transactions intended to comply with Rule 10b5-1 and, as proposed, will be required to disclose in the “explanation of responses” section the date the plan was adopted. The Commission did not adopt the additional, optional checkbox which insiders could have checked to disclose that a reported transaction occurred pursuant to a non-10b5-1 trading plan. Also, the Commission changed the language accompanying the checkbox to say the reported transaction was “intended to satisfy” Rule 10b5-1 as opposed to “was made” pursuant to the rule.
- Second, the SEC amended Rule 16a-3 to require that insiders’ dispositions by gift be reported on Form 4 within two business days, taking away insiders’ ability to report dispositions by gift on year-end Form 5 or an earlier, voluntary Form 4. The Commission noted that a gift could occur pursuant to a Rule 10b5-1 plan, in which case the disposition might qualify for reporting as late as five business days after the date of the gift. Acquisitions by gift still may be reported on Form 5.
The new rules also impose on issuers three new disclosure requirements, effective for the first filing that covers a fiscal period beginning on or after April 1, 2023 (October 1 for smaller reporting companies):
- The Form 10-K and annual proxy statement must disclose whether the issuer has an insider trading policy and, if it does, include the policy as an exhibit.
- Form 10-K and Form 10-Q must disclose whether, during the most recent quarter, an officer or director adopted or terminated a Rule 10b5-1 plan or a non-Rule 10b5-1 trading plan. (Modification of an existing plan counts as both a termination and an adoption). The disclosure must include the duration of the plan and the number of shares subject to the plan but will not need to include pricing information.
- The 10-K and proxy statement must disclose the issuer’s policy, if any, regarding the timing of option grants and must include tabular disclosure if any options were granted during the period beginning four business days before and ending one business day after the filing of a 10-K or 10-Q or an 8-K disclosing material information.
— Alan Dye, Section16.net, December 14, 2022
