SEC Releases New C&DIs on Rule 10b5-1 Amendments

In connection to its adoption of amendments to Rule 10b5-1 in December 2022, the Securities and Exchange Commission (SEC) released three new compliance and disclosure interpretations (C&DIs) on May 25, 2023. The new C&DIs clarify the timeline for companies to implement new annual and quarterly disclosure requirements and establish the length of a cooling-off period when individuals hold two Rule 10b5-1 plans. This guidance is applicable to both U.S. domestic companies and foreign private issuers.

120.26

C&DI 120.26 clarifies the time frame for companies to incorporate new disclosures under (i) Item 408(a) (requiring the quarterly disclosure of any adoption, modification or termination by officers or directors of Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements, and the material terms of each plan), (ii) Item 402(x) (requiring annual disclosure of policies and practices related to the timing of option grants and tabular disclosure of any equity awards granted to directors and officers within a period starting four business days before, and ending one business day after, the filing of a company’s Form 10-Q or Form 10-K, or the filing or furnishing of material nonpublic information on a Form 8-K), and (iii) Item 408(b) or Item 16J of Form 20-F for foreign private issuers (requiring annual disclosure of whether a company has implemented insider trading policies and procedures and also that such policies be filed as exhibits to periodic reports). Additionally, tagging requirements for Items 408(a), 402(x) and 408(b)(1) in Inline XBRL will become effective at the same time as the disclosure requirements described above.

Under C&DI 120.26, companies that are not smaller reporting companies must comply with the disclosure and tagging requirements in the first filing that covers the first full fiscal period that begins on or after April 1, 2023, as provided below:

• For companies with a Dec. 31 fiscal year-end, quarterly disclosures must first be included in the Form 10-Q for the period ended June 30, 2023. Annual disclosures must first be provided in the Form 10-K or Form 20-F for the fiscal year ended Dec. 31, 2024.
• For companies with a June 30 fiscal year-end, quarterly disclosures must first be included in the Form 10-K for the fiscal year ended June 30, 2023. Annual disclosures must first be included in the Form 10-K or Form 20-F for the fiscal year ended June 30, 2024.

For smaller reporting companies, compliance with the disclosure and tagging requirements is required on the following timeline:

• For companies with a Dec. 31 fiscal year-end, quarterly disclosures must first be included in the Form 10-K for the fiscal year ended Dec. 31, 2023. Annual disclosures must first be included in the Form 10-K or Form 20-F for the fiscal year ended Dec. 31, 2024.
• For companies with a June 30 fiscal year-end, quarterly disclosures must first be included in the Form 10-Q for the period ended Dec. 31, 2023. Annual disclosures must first be provided in the Form 10-K or Form 20-F for the fiscal year ended June 30, 2025.

C&DI 120.27

Pursuant to C&DI 120.27, companies other than smaller reporting companies must first provide disclosures under Item 408(b) and Item 402(x) in their proxy statements for the first annual meeting (or information statements for consent solicitations in place thereof) for the election of directors after the completion of the first full fiscal year beginning on or after April 1, 2023. Smaller reporting companies will be required to make these disclosures in their proxy statements for the first annual meeting (or information statements for consent solicitations in place thereof) for the election of directors after the completion of the first full fiscal year beginning on or after Oct. 1, 2023. (The Item 408(b) disclosure must be included in Item 10 of Form 10-K, and the Item 402(x) disclosure must be included in Item 11 of Form 10-K. Under Instruction G(3) to Form 10-K, these disclosures can be incorporated by reference to the proxy statement, so long as the definitive proxy statement involving the election of directors is filed no later than 120 days after the fiscal year covered by the Form 10-K. Otherwise, these disclosures must appear in both the Form 10-K and the proxy statement.)

As such, companies (including smaller reporting companies) with a Dec. 31 fiscal year-end will need to begin providing Item 408(b) and Item 402(x) disclosures in their proxy statement for their 2025 annual meeting. Companies with a June 30 fiscal year-end (excluding smaller reporting companies) must begin providing such disclosures in their proxy statement for their 2024 annual meeting. Smaller reporting companies with a June 30 fiscal year-end must begin providing these disclosures in their proxy statement for their 2025 annual meeting.

C&DI 120.28

Rule 10b5-1(c)(1)(ii)(D)(2) permits individuals to maintain multiple Rule 10b5-1 plans, if trading under a later-commencing plan is not authorized to begin until after all trades under an earlier-commencing plan are completed or have expired. C&DI 120.28 clarifies that if an individual terminates the earlier-commencing Rule 10b5-1 plan, the later-commencing plan is subject to an “effective cooling off period,” which begins on the date of termination of the earlier-commencing plan and ends in accordance with Rule 10b5-1(c)(1)(ii)(B). However, if the earlier-commencing plan expires without further action from the plan’s holder, trading may begin under the later-commencing plan as soon as the later-commencing plan’s original cooling-off period has lapsed.