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From the Editors
Welcome to the Fall 2022 issue of the Insider Trading &
Disclosure Update, Debevoise’s periodic Update focusing on
legal, compliance and enforcement developments in the areas of
insider trading, the management of material nonpublic information
and disclosure rules and enforcement.
The nature and extent of the developments highlighted in this
Update, including a number of pending SEC rule proposals and the
first insider trading case in the digital asset space, illustrate a
significant uptick in securities regulatory and enforcement
activity at the SEC under Chair Gensler and on the enforcement
front at the DOJ.
We hope that you find this Update useful and informative, and we
look forward to bringing you further news and analyses in future
issues.
The Editorial Board
Rulemaking Activity
An Active Rulemaking Period with Gary Gensler at the Helm of
the SEC
Since taking office as the SEC Chair in April 2021, Gary
Gensler’s SEC has been busy publishing rule proposals,
targeting current hot-button areas such as issuer share
repurchases, insider trading and cybersecurity as well as topics
such as clawback rules and pay-versusperformance disclosure, which
have been a part of the SEC agenda since the Dodd-Frank Act was
enacted in 2010.
Proposed Rule on Share Repurchase Disclosures
On December 15, 2021, the SEC released a new proposed rule that
would significantly expand required disclosure concerning an
issuer’s repurchases of its equity securities listed on a U.S.
stock exchange or otherwise registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the “Exchange
Act”). If adopted, the proposed rules would: (i) require daily
repurchase disclosure on a new Form SR, furnished to the SEC one
business day after execution of the issuer’s share repurchase
order; (ii) require additional detail regarding the structure of an
issuer’s repurchase program and its share repurchases to be
disclosed in periodic reports by amending Item 703 of Regulation
S-K (“Regulation S-K”); and (iii) require information
disclosed on Form SR or pursuant to Item 703 of Regulation S-K to
be tagged with inline eXtensible Business Reporting Language
(“Inline XBRL”). The full text of these proposed
amendments is available here.
The comment period closed April 1, 2022, but the SEC has yet to
adopt final rules concerning share repurchase disclosures. The
SEC’s spring 2022 Regulatory Flexibility Agenda (the
“SEC’s Agenda”) targets October 2022 as the date for
final action on this proposal. If adopted, the new requirements
will significantly impact the share repurchase regime and may
impose a significant burden on issuers that decide to implement a
share repurchase program. For more information about the SEC’s
proposed rule on share repurchase disclosure, please see our
Debevoise Debrief here. 1
Rule 10b5-1 Trading Plans and Augmented Trading-Related
Disclosure Requirements
On December 15, 2021, the SEC proposed amendments to Rule 10b5-1
under the Exchange Act. The proposed amendments aim to address
“real cracks in the insider trading regime,” as cited by
the SEC Chair, through enhanced disclosure relating to trading
activity by corporate insiders and issuers and by placing new
conditions on the use of Rule 10b5-1 trading plans.
If adopted, the proposed amendments would: (i) add significant
new conditions to the availability of the Rule 10b5-1 affirmative
defense to insider trading liability under Rule 10b-5 of the
Exchange Act, including a cooling-off period for issuers and
directors and officers subject to the beneficial ownership
reporting requirements of Section 16 of the Exchange Act
(“Section 16 officers”) after the date of adoption or
modification of a trading arrangement that satisfies the
requirements of Rule 10b5-1(c)(1); (ii) create new disclosure
requirements under Regulation S-K regarding the adoption,
modification and termination of Rule 10b5-1 and other trading
arrangements; insider trading policies and procedures of issuers;
and the timing of equity compensation awards to named executive
officers or directors made in close proximity to the issuer’s
release of material nonpublic information; and (iii) augment the
reporting obligations under Section 16 of the Exchange Act for
transactions made pursuant to a Rule 10b5-1 trading arrangement and
gifts. The full text of these proposed amendments is available here.
The comment period closed April 1, 2022, but the SEC has yet to
adopt final rules concerning Rule 10b5-1 trading plans and insider
trading-related disclosure. All five SEC commissioners voted in
favor of the proposed amendments, expressing particular support for
cooling-off periods for directors and Section 16 officers. While
the commissioners expressed differing views on certain aspects of
the proposed amendments, the likelihood that they will be adopted
in some form is high given the SEC Chair’s focus on addressing
perceived abuse and investor concerns in this area. The SEC’s
Agenda targets April 2023 as the date for final action on this
proposal. For more information about the SEC’s proposed rule on
Rule 10b5-1 trading plans and augmented tradingrelated disclosure
requirements, please see our Debevoise Update here.
Proposed Cybersecurity Rules
On March 9, 2022, the SEC released a series of proposed
cybersecurity rules, which expand upon the SEC’s 2018 guidance
on cybersecurity disclosures2 by promulgating a
substantial new cybersecurity regulatory framework that creates
significant new disclosure obligations for public companies. The
proposed rules place particular emphasis on timely and detailed
disclosures of material cybersecurity incidents, as well as on
periodic disclosure about cybersecurity risk management and
governance.
One of the key elements of the proposed rules is a new Form 8-K
line item requirement to disclose certain information within four
business days of determining that a cyber incident is material. To
avoid delays in assessing materiality, proposed Form 8-K Item 1.05
requires the determination of materiality to be made “as soon
as reasonably practicable after discovery of the incident.”
This new Form 8-K requirement was an area of particular concern
expressed in a number of comment letters, including a letter
submitted by Debevoise & Plimpton,3 due to the
burdens associated with current disclosure of an ongoing
cybersecurity incident. Additionally, proposed Item 106(d)(1) of
Regulation S-K would require an issuer to disclose any material
changes from the disclosures made in the initially filed Form 8-K
Item 1.05 in the issuer’s Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, as applicable, and proposed Item
106(d)(2) of Regulation S-K would require periodic disclosure of
immaterial cybersecurity incidents that become material in the
aggregate. Lastly, proposed Item 106(b) and (c) of Regulation S-K
would increase the scope and detail of issuer disclosures on
cybersecurity risk management, strategy and governance. The full
text of the proposed amendments is available here.
The comment period for this rule proposal closed on May 9, 2022,
but the SEC has yet to adopt final rules. While the reporting
requirements have drawn criticism, it is uncertain whether the SEC
will implement any substantive changes in the final rules. The
SEC’s Agenda targets April 2023 as the date for final action on
this proposal. For more information about the SEC proposed rule on
cybersecurity risk management, strategy, governance and incident
disclosure, please see our more detailed Debevoise In Depth here.
Footnotes
1. In addition, issuers considering a stock repurchase
program should be aware of the implications of the Inflation
Reduction Act signed into law on August 16, 2022, which imposes a
non-deductible 1% excise tax on the fair market value of stock
repurchased by publicly traded corporations or their specified
affiliates. For more information about the Inflation Reduction Act,
please see our Debevoise Update here.
2. For more information about the SEC’s 2018
guidance on public company cybersecurity disclosure and governance,
please see our Client Update here.
3. The full text of the comment letter submitted by
Debevoise & Plimpton is available here.
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