On March 6, 2026, the SEC released updated Compliance and Disclosure Interpretations (CDIs) related to Rule 701, Rule 405, CIK codes, and smaller reporting company (SRC) status. Key takeaways are summarized below.
Rule 701
Repricing of Options (Revised Question 271.10): When an issuer reprices an option grant at a lower exercise price within 12 months of the original grant, the issuer may exclude the original grant in determining the amount of securities that may be sold and whether it has an obligation under Rule 701 to deliver the additional disclosure. However, the repriced options must be counted as a new sale and included in determining the aggregate sales price or amount of securities sold within any consecutive 12-month period that includes the repricing date.
Rule 701(e) Disclosure Obligations and Consequences of Non-Compliance (Revised Question 271.12): If an issuer believes that sales will exceed the $10 million threshold in the coming 12-month period, Rule 701(e) disclosure must be provided to all investors in the Rule 701 offering, not only to those who purchase securities after the issuer exceeds the $10 million threshold. Failure to provide this disclosure to all investors before the sale will result in a loss of the Rule 701 exemption for the entire offering once sales exceed the $10 million threshold.
Financial Statement Requirements for Foreign Issuers (Revised Question 271.14): A foreign issuer conducting a Rule 701 offering that exceeds the $10 million threshold must deliver financial statements that are no more than 180 days old, as required by Rule 701(e)(4). This requirement applies regardless of whether the issuer furnishes financial statements reconciled to U.S. GAAP or prepared in accordance with IFRS.
Availability of Rule 701 After Termination of Exchange Act Reporting (Revised Question 271.16): Rule 701 is available to a company upon the suspension or termination of its Exchange Act reporting obligations. For outstanding stock options whose underlying shares were previously registered on Form S-8 and subsequently deregistered, the issuer may rely on Rule 701 for the exercise of those options, provided that if the aggregate exercise price exceeds $10 million, the issuer must deliver the Rule 701(e) disclosure a reasonable period of time before exercise. For future grants, the company starts with a clean slate under Rule 701; shares underlying previously outstanding options are not included in the 12-month sales limitation calculations under Rule 701(d) or the disclosure threshold calculations under Rule 701(e).
Post-Merger Treatment of Target Company Securities (Revised Question 271.23): Following a merger, the acquirer must include any securities that the target company sold pursuant to Rule 701 during the same consecutive 12-month period in determining whether the acquirer has exceeded the $10 million disclosure threshold.
Timing of Disclosure for Restricted Stock Units (RSUs) (Revised Question 271.24): For RSUs issued in reliance on Rule 701, the date of sale is the grant date, not the settlement date. If the $10 million disclosure threshold is triggered, the issuer must provide the Rule 701(e) disclosure a reasonable period of time before the grant date.
Identifying Which Investors Must Receive Rule 701(e) Disclosure for Options (New Question 271.26): The obligation to deliver Rule 701(e) disclosure is triggered when the value of options granted (based on their exercise price) during a consecutive 12-month period, plus the aggregate sales price of additional securities sold in reliance on Rule 701 during the same period, exceeds $10 million. The trigger is based on grant-date values, not vesting or exercise amounts. The timing of when the disclosure must be delivered is based on the date of exercise.
Consequences of Failure to Deliver Timely Disclosure (New Question 271.27): If an issuer fails to deliver the Rule 701(e) disclosure a reasonable period of time before the date of sale, the Rule 701 exemption is lost for the entire offering that took place during the 12-month period in which the $10 million threshold was exceeded. The exemption is not lost, however, for offerings that took place during other 12-month periods in which the threshold was not exceeded.
Rule 405
Consequences of a Conviction by a Foreign Court (Revised Question 203.03): A conviction by a foreign court for activities described in § 15(b)(4)(B)(i)-(iv) of the Exchange Act does not trigger ineligibility under Rule 405. This is a reversal of the SEC’s prior position.
Securities Act Forms Generally
CIK for a Reorganized Company (New Question 101.06): A company that has reorganized from an LLC to a C corporation may retain the same CIK but should update its information in EDGAR.
Filer Status
Failure to Check SRC Status Box (New Question 102.06): Failure to check the SRC status box does not result in loss of SRC status or the ability to use SRC accommodations, provided the issuer otherwise qualifies as an SRC.
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