SEC Adopts Final Rules for Disclosure of Hedging Policies

14 January 2019 Legal News: Transactional & Securities Publication
Authors: Benjamin F. Rikkers Joshua A. Agen Collin M. Scheuermann

The U.S. Securities and Exchange Commission recently announced that it has approved final rules implementing Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The new rules, promulgated under new Item 407(i) of Regulation S-K, require issuers to disclose in their proxy or information statements for the election of directors the issuer’s policies on transactions that involve an employee (including officers) or directors purchasing securities or other financial instruments or other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation or held, directly or indirectly, by the employee or director.

Issuers have the option of summarizing their practices or policies or disclosing their full policies. If an issuer does not have a hedging policy, it must disclose that fact or disclose that hedging transactions are generally permitted in the proxy or information statement. The new rules apply to securities of the issuer, any parent of the issuer, any subsidiary of the issuer and any subsidiary of the issuer’s parent. It is important to note that the new rules only require disclosure and do not prohibit transactions or mandate that an issuer adopt a hedging policy.

Most issuers must begin to comply with the new rules in their proxy or information statements for the election of directors during the fiscal years beginning on or after July 1, 2019. However, smaller reporting companies and emerging growth companies need not comply until they file proxy or information statements for the election of directors during the fiscal years beginning on or after July 1, 2020.