TheCorporateCounsel.net

The SEC’s Rule 10b5-1 and insider trading disclosure rulemaking from back in December 2022 included a long transition period for the periodic disclosures concerning insider trading policies and procedures and option grant timing practices, with much of the focus being on December 31 year-end companies that do not have to comply until their filings made in 2025. For companies (other than smaller reporting companies) with a fiscal year ending on or after March 31, 2024, the new requirements will be in effect for their upcoming annual report and proxy statement filings, so it is time to pay attention to what needs to be disclosed when.

New paragraph (x) of Item 402 of Regulation S-K is one of the disclosure items that March 31 companies will need to pay attention to now that the transition period has run. Item 402(x) requires disclosure of a company’s policies and practices on the timing of awards of options, stock appreciation rights and similar instruments with option-like features, as well as certain tabular disclosure of awards of options, SARs and instruments with option-like features to named executive officers that occur close in time to the company’s disclosure of material nonpublic information. The disclosure required by Item 402(x) of Regulation S-K must be tagged using Inline XBRL. Foreign private issuers are not required to provide this disclosure.

Companies will also need to comply with Item 408(b) of Regulation S-K, which requires companies to disclose whether they have adopted insider trading policies and procedures governing the purchase, sale and other dispositions of their securities by directors, officers and employees, or the issuer itself, that are reasonably designed to promote compliance with insider trading laws, rules and regulations, and any listing standards applicable to the issuer. If an issuer has not adopted such insider trading policies and procedures, it must explain why it has not done so. Domestic companies must provide this disclosure in both annual reports on Form 10-K pursuant and in proxy and information statements, while foreign private issuers will be required to provide the disclosure pursuant to Item 16J in Form 20-F. This disclosure also must be tagged using Inline XBRL.

Finally, companies with a March 31 fiscal year-end will need to file, as an exhibit to their annual report on Form 10-K or Form 20-F, any insider trading policies and procedures, or amendments thereto, that are the subject of the disclosure required by Item 408(b) of Regulation S-K. This exhibit is not required to be tagged using Inline XBRL.

Smaller reporting companies get some extra time to comply with these new disclosure requirements. They must begin complying in filings with respect the first full fiscal period that begins on or after October 1, 2023, so these disclosures will be required in annual reports and proxy statements for fiscal years ending on or after September 30, 2024.

– Dave Lynn