On May 25, 2023, the U.S. Securities and Exchange Commission’s Division of Corporation Finance (Corp Fin) issued three new Compliance and Disclosure Interpretations (CDIs) relating to Rule 10b5-1 and related disclosure requirements. The first two CDIs provide clarification on the transition timing for compliance with the new quarterly and annual disclosure requirements, and the third CDI provides clarification on one of the exceptions for overlapping Rule 10b5-1 plans. The full text of the CDIs is set forth in the Appendix below.^[1]

Question 120.26

In new Question 120.26, Corp Fin confirmed the transition timing for the new quarterly disclosures required under Item 408(a) of Regulation S-K, and the new annual disclosures required under Items 402(x) and 408(b) of Regulation S-K (and Item 16J of Form 20-F for foreign private issuers). Consistent with the timing set forth in our previous post, Corp Fin has now confirmed in writing that the following compliance dates apply:

• All issuers other than smaller reporting companies
  • 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 or 20-F 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 or 20-F for the fiscal year ended June 30, 2024.
• Smaller reporting companies
  • 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 or 20-F 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 or 20-F for the fiscal year ended June 30, 2025.

The new quarterly and annual disclosures include the following:

• Item 408(a) of Regulation S-K requires quarterly disclosure of certain information relating to officer and director Rule 10b5-1 trading plans and non-Rule 10b5-1 trading arrangements.
• Item 408(b) of Regulation S-K requires annual disclosure of the issuer’s insider trading policies and procedures (or, if they do not have any such policies and procedures, an explanation as to why it does not have them).
• Item 402(x) of Regulation S-K requires annual (1) narrative disclosure of the issuer’s option grant policies and practices regarding the timing of option grants in relation to the release of material nonpublic information and (2) tabular disclosure of any option awards granted to named executive officers around the time of the release of material nonpublic information.

For more information on these disclosure requirements, please see our previous Client Alert.

Question 120.27

In new Question 120.27, Corp Fin confirmed that companies will be required to provide the disclosures in proxy statements (i.e., Item 402(x) and Item 408(b) disclosure) for the first annual meeting for the election of directors after completion of the first full fiscal year beginning on or after April 1, 2023 (or October 1, 2023 for smaller reporting companies).

Thus, the following compliance timing would apply:^[2]

• December 31 fiscal year-end companies (including smaller reporting companies) would need to provide the disclosures in the proxy statement for their 2025 annual meeting, typically held in May or June.
• June 30 fiscal year-end companies (other than smaller reporting companies) would need to provide the disclosures in the proxy statement for the 2024 annual meeting, typically held in November or December.
• June 30 fiscal year-end smaller reporting companies would need to provide the disclosures in the proxy statement for the 2025 annual meeting, typically held in November or December.

Question 120.28

New Question 120.28 confirms that under the exception in Rule 10b5-1(c)(1)(ii)(D)(2) for overlapping plans, it is possible for individuals to structure their Rule 10b5-1 plans to operate on a continuous basis, consistent with Rule 10b5-1 plan practices prior to the recent amendments. The CDI states that as long as “the earlier-commencing plan ends by its terms without action by the individual, the cooling-off period for the later-commencing plan is not reset and trading may begin as soon as the [later-commencing] plan’s original cooling-off period is satisfied. Depending on when the later-commencing plan was adopted, this could be as soon as immediately after the earlier-commencing plan ends.” 

However, if the individual terminates the earlier-commencing plan (rather than plan ending by its terms without action by the individual), then the later-commencing plan will be subject to an “effective cooling-off period” that begins on the date of the termination of the earlier-commencing plan and lasts for (1) at least 90 days in the case of Section 16 officers or directors, or (2) 30 days for other individuals. Moreover, if the first trade under the later-commencing plan is scheduled during the “effective cooling-off period,” then the individual may not rely on the exception in Rule 10b5-1(c)(1)(ii)(D)(2).

While some aspects of the concepts in these CDIs have previously been discussed by Corp Fin staff at conferences and in the Small Entity Compliance Guide, this new written guidance is a welcome development.

^[1] On May 25, 2023, the three new CDIs were published and available for viewing on the SEC website under the category “Exchange Act Rules.” However, as of the time this blog post was published, the CDIs were unavailable for viewing on the SEC website and, accordingly, we are unable to include a hyperlink to the new CDIs. If any changes are made to the previously published CDIs, we will update this blog post.

^[2] This compliance timing assumes that the company has opted to forward incorporate the disclosures into its Form 10-K by reference from the proxy statement pursuant to General Instruction G(3) of the Form 10-K.

Appendix

Question 120.26

Question: When are companies required to begin providing the quarterly Item 408(a) disclosures and the annual Item 402(x) and Item 408(b) disclosures (Item 16J of Form 20-F disclosures for foreign private issuers) in periodic reports?

Answer: Release No. 33-11138 states that companies other than smaller reporting companies will be required to comply with the new disclosure and tagging requirements in Exchange Act periodic reports on Forms 10-Q, 10-K and 20-F “in the first filing that covers the first full fiscal period that begins on or after April 1, 2023.” Therefore, the following compliance dates apply:

• 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 or 20-F 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 or 20-F for the fiscal year ended June 30, 2024.

Smaller reporting companies must comply with these new disclosure and tagging requirements in the first filing that covers the first full fiscal period that begins on or after October 1, 2023. Therefore, the following compliance dates apply:

• 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 or 20-F 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 or 20-F for the fiscal year ended June 30, 2025. [May 25, 2023]

Question 120.27

Question: When are companies required to begin providing the disclosures in proxy or information statements?

Answer: For transition purposes only, companies other than smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after April 1, 2023. Smaller reporting companies must first provide this information in proxy statements for the first annual meeting for the election of directors (or information statements for consent solicitations in lieu thereof) after completion of the first full fiscal year beginning on or after October 1, 2023.[May 25, 2023]

Question 120.28

Question: The Rule 10b5-1(c) affirmative defense generally is not available if a person has multiple Rule 10b5-1 contracts, instructions, or plans in place. However, Rule 10b5-1(c)(1)(ii)(D)(2) permits a person (other than the issuer) to maintain two separate Rule 10b5-1 plans at the same time so long as trading pursuant to the later-commencing plan is not authorized to begin until after all trades under the earlier-commencing plan are completed or have expired without execution. If an individual terminates the earlier-commencing plan (i.e., the earlier-commencing plan does not end by its terms and without any action by the individual), when can trading begin under the later-commencing plan?

Answer: Pursuant to Rule 10b5-1(c)(1)(ii)(D)(2), if an individual terminates the earlier-commencing plan, the later-commencing plan will be subject to an “effective cooling-off period.” The effective cooling-off period will begin on the termination date of the earlier-commencing plan and will last for the time period specified in Rule 10b5-1(c)(1)(ii)(B). On the other hand, if the earlier-commencing plan ends by its terms without action by the individual, the cooling-off period for the later-commencing plan is not reset and trading may begin as soon as the plan’s original cooling-off period is satisfied. Depending on when the later-commencing plan was adopted, this could be as soon as immediately after the earlier-commencing plan ends. See Footnote 180 of Release No. 33-11138.[May 25, 2023]