On December 18, 2018, the SEC adopted final rules requiring proxy statement disclosure of practices or policies regarding hedging by directors, officers and other employees. The rules implement Section 14(j) of the Exchange Act, enacted by Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
New Item 407(i) of Regulation S-K will require issuers to describe any of their practices or policies regarding the ability of their directors, officers and other employees to purchase securities or other financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities of the issuer (or its parents, subsidiaries, or subsidiaries of its parents) granted as compensation, or held directly or indirectly by the employee or director.
The requirement can be satisfied by either: (i) providing a fair and accurate summary of the practices or policies (including the categories of persons affected and any categories of hedging transactions that are specifically permitted or disallowed), or (ii) disclosing the practices or policies in full. Companies that do not have any such practices or policies will need to disclose that fact or state that hedging transactions are generally permitted.
The new disclosure requirements are generally effective for proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019, and one year later for smaller reporting companies and emerging growth companies. Listed closed-end funds and foreign private issuers are not subject to the new disclosure requirements.
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