The U.S. Senate recently passed the National Defense Authorization Act for Fiscal Year 2024 (the “NDAA”), which, if enacted, would subject insiders (i.e., directors, executive officers and greater than 10% shareholders) of foreign private issuers (“FPIs”) to the requirements of Section 16 of the Securities Exchange Act of 1934, as amended, with respect to their ownership and transactions in the securities of the relevant FPI. Specifically, Section 6081 of the NDAA amends Section 16(a)(1) to include FPIs as subject to Section 16 and nullifies Rule 3a12-3, which currently exempts securities of FPIs from Section 16. If enacted, Section 6081(c) of the NDAA would require the Securities and Exchange Commission to issue final regulations (or amend existing regulations) to carry out the amendment to Section 16(a)(1) no later than 90 days following the enactment of the NDAA.

If the NDAA is enacted, this would be a substantial change for FPIs and their insiders, adding another layer of U.S. regulation and requiring FPIs to build new compliance and administrative systems. However, one important aspect of complying with Section 16—determining the issuer’s executive officers—is well underway by FPIs due to the new Dodd-Frank Clawback Rules. The definition of executive officers that are insiders under Section 16 is the same definition used to determine the individuals who are covered persons under the new clawback rules.

We will continue to track developments and keep you informed of the NDAA as it makes way to being enacted.