In 2018, the Securities and Exchange Commission (“SEC”) finalized its hedging disclosure rules,[i] Regulation S-K. This final rule requires public companies make certain disclosures in their proxy statement or information statement with regard to the election of directors on practices or policies adopted relating to the ability of the company's employees (including officers or directors) to engage in hedging transactions in company equity securities given to those employees as compensation, or which are otherwise held by those employees.
These amendments impact companies with classes of securities registered under the Exchange Act that file with the SEC proxy or consent solicitation material for the election of directors; however, registered investment companies and foreign private issuers are exempt.
Companies can satisfy this disclosure requirement by either disclosing company practices or policies in full, or by providing a fair and accurate summary of the practices or policies that apply.
If the summary route is chosen, the summary must include:
- the categories of persons covered; and
- any categories of hedging transactions that are specifically permitted or specifically disallowed.
For companies that do not have policies in effect, a disclosure stating that fact must be provided.
For most companies, this rule amendment took effect for fiscal years beginning on or after July 1, 2019. There is, however, an exception is for companies that qualify as “smaller reporting companies” or “emerging growth companies,” who must comply during fiscal years beginning on or after July 1, 2020.
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