September 20, 2018

The New “Disclosure Simplification” Rules: Effective Yet? (No)

Since the SEC adopted the “disclosure simplification” rules over a month ago, a number of members have asked when the rules take effect. For starters, the adopting release hasn’t been published in the Federal Register yet – which is unusual because the average period of time between the SEC adopting a rule & it being published in the FR is typically a week or so. And it’s been over a month now. So what gives?

Dave Lynn guesses that, due to the many technical rule & form changes in the release, there might be some errors in the regulatory text that Corp Fin is trying to work out or the release got kicked back to the Staff because it doesn’t pass the FR style guide (or they are waiting for space in the FR – but that is less likely given the length of time that has passed). Dave’s read is that because the adopting release doesn’t say anything about relating to periods beginning – or ending – on or after the effective date, then the changes will just apply to anything that gets filed after the effective date.

And the excerpt below from this Gibson Dunn blog explains why the effective date matters – because companies might need to make new disclosures for their first 10-Q after these rules changes become effective:

Ironically, the first effect of the Final Rules that companies may encounter is one that requires additional disclosure. The Final Rules require Form 10-Q to contain a statement of changes in stockholders’ equity and to disclose the amount of dividends per share for each class of shares with respect to the interim period, pursuant to revised Rule 3-04 of Regulation S-X. Previously, this information was only required in Form 10-K.

The adopting release for the Final Rules notes that “[t]he extension of the disclosure requirement in Rule 3-04 of Regulation S-X may create some additional burden for issuers . . . because it will require disclosure of dividends per share for each class of shares, rather than only for common stock, and disclosure of changes in stockholders’ equity in interim periods,” but the SEC staff “expect[s] this burden will be minimal, as the required information is already available from the preparation of other aspects of the interim financial information such as the balance sheet and earnings per share.” The required analysis of changes in stockholders’ equity for the “current and comparative year-to-date periods, with subtotals for each interim period,” can be presented in a note to the financial statements or in a separate financial statement.

The Final Rules become effective 30 days from publication in the Federal Register. As of the date of this blog post, the Final Rules have not been published in the Federal Register. Moreover, the adopting release does not indicate (1) whether the amendments should be applied only to periodic reports covering periods ending on or after the effective date, or (2) whether the amendments should be applied to all periodic reports filed after the effective date.

Accordingly, assuming the Final Rules are published in the Federal Register sometime this month, it is unclear whether companies with a September 30 quarter-end will be required to include the new disclosures in their upcoming 10-Qs. We understand that the SEC staff expects to issue guidance on the applicability of the Final Rules, but in the meantime, companies should be mindful of the new requirements and the procedures they will need to have in place to comply with them.

SEC Provides Hurricane Florence Relief

As has happened for other natural disasters, the SEC provided relief yesterday to victims of Hurricane Florence – including companies who need deadline extensions (including S-3 eligibility needs). There’s the SEC’s order – and these interim final temporary rules – so that you can see if you’re eligible. Of course, if you’re eligible, you likely don’t have power & can’t read this…

Senator Warren’s New “Climate Change Disclosure” Bill

Here’s the news from Davis Polk’s Ning Chiu in this blog:

The “Climate Risk Disclosure Act,” introduced by Senator Warren, would require the SEC to issue rules for every public company to disclose:

– Its direct and indirect greenhouse gas emissions
– The total amount of fossil-fuel related assets that it owns or manages
– How its valuation would be affected if climate change continues at its current pace or if policymakers successfully restrict greenhouse gas emissions to meet the Paris accord goal; and
– Its risk management strategies related to the physical risks and transition risks posed by climate change

The SEC can tailor the rules to different industries, and impose additional requirements on companies in the fossil fuel industry.

Broc Romanek