SEC Proposes Hedging Disclosure Rules

by Cohen & Grigsby, P.C
Contact

The Securities and Exchange Commission has proposed amendments to its rules under the Securities Exchange Act of 1934 (the “hedging disclosure proposal”). The hedging disclosure proposal would require public companies to disclose whether their employees, officers or directors are permitted to engage in hedging transactions with respect to any equity securities that were granted to them as compensation, as well as other equity securities owned by them.[1] The disclosures would be required in any proxy or information statement for a meeting of shareholders at which directors are being elected.

The proposed amendments would add new paragraph (i) to Item 407 of Regulation S-K to require disclosure of whether an employee, officer or director, or any of their designees, is permitted to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engage in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities. The SEC notes that this requirement is broader than the statutory mandate (which would only require disclosure of certain specified financial instruments) and would extend to all transactions that establish downside price protection – whether by purchasing or selling a security or derivative security or otherwise. The SEC noted that if the proposed disclosure requirement is not sufficiently principles-based, investors would not receive information concerning transactions with the same economic effects as purchase of the financial instruments listed in the statute.

Under the proposed amendments a company must disclose which categories of transactions it permits and which categories of transactions it prohibits and make disclosures in sufficient detail that explain the scope of the permitted transactions. If a company permits hedging transactions by some, but not all, of the persons covered by Item 407(i), it must disclose the categories of persons who are permitted to engage in hedging transactions and those who are not.

To reduce duplicative disclosure in proxy and information statements, the SEC proposes to amend Item 402(b) of Regulation S-K by adding an instruction that explains that a company may satisfy its obligation to disclose material policies on hedging by named executive officers in the Compensation Discussion and Analysis by cross referencing the information disclosed pursuant to proposed Item 407(i) to the extent that such information satisfies the Compensation Disclosure and Analysis disclosure requirement.

 


[1]               The amendments are designed to implement Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act which amended Section 14 of the Securities Exchange Act of 1934 by adding: ‘‘(j) DISCLOSURE OF HEDGING BY EMPLOYEES AND DIRECTORS.—The Commission shall, by rule, require each issuer to disclose in any proxy or consent solicitation material for an annual meeting  of the shareholders of the issuer whether any employee or member  of the board of directors of the issuer, or any designee of such employee or member, is permitted to purchase financial instruments (including prepaid variable forward contracts, equity swaps,  collars, and exchange funds) that are designed to hedge or offset any decrease in the market value of equity securities—‘‘(1) granted to the employee or member of the board of directors by the issuer as part of the  compensation of the employee or member of the board of directors; or ‘‘(2) held, directly or indirectly, by the employee or member of the board of directors.’’

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cohen & Grigsby, P.C | Attorney Advertising

Written by:

Cohen & Grigsby, P.C
Contact
more
less

Cohen & Grigsby, P.C on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.