The Securities and Exchange Commission (SEC) voted in October to propose amendments to Regulation S-K and its related rules and forms with the intent to modernize and simplify disclosure requirements for public companies, investment advisers and investment companies, while continuing to provide material information to investors.
The proposed amendments, addressed at length in an SEC release, closely follow the staff’s initial recommendations in the SEC’s November 2016 Report on Modernization and Simplification of Regulation S-K, mandated by Section 72003 of the Fixing America’s Surface Transportation Act (the “FAST Act”). The proposed amendments are intended to improve readability and navigability of disclosure documents while discouraging repetition and inclusion of immaterial information. Comments to the proposed amendments are due to the SEC by January 2, 2018.
The following provides an overview of several of the significant proposed amendments, and is not meant to be a complete summary of all amendments the SEC has proposed. For a complete discussion of the proposed amendments, please reference the SEC’s release.
- Confidential treatment requests. The SEC has proposed to terminate the Division of Corporation Finance’s confidential treatment request (CTR) program. Under the proposed rules, instead of submitting CTRs, registrants may redact immaterial and competitively harmful information from a filed exhibit provided that the redaction is indicated with a prominent statement on the first page of the exhibit and the location of the omitted information is marked with brackets. The SEC staff would maintain the ability to review material exhibits and assess whether the registrant appropriately redacted the information.
- Description of property. The SEC has proposed to amend Item 102 to emphasize disclosure of properties that are material to the registrant (as opposed to material to the registrant’s ongoing business operations), but this amendment would also obviate the need for certain registrants that do not have materially important physical properties to disclose information about their corporate headquarters and other office space. In addition, disclosure of physical properties may be provided on a collective basis, if appropriate.
- Management’s discussion and analysis. The SEC proposes amending Item 303 to, in some cases, remove the requirement that the registrant discuss the earliest of the three years for which financial statements have been provided to illustrate the registrant’s financial condition. Discussion of the earliest year would not be required as long as (i) the discussion is not material to an understanding of the registrant’s financial condition, or any changes in its financial condition and results of operations, and (ii) the registrant filed its prior year Form 10-K, which includes Management’s Discussion and Analysis of the earliest year in the current filing.
- Directors, executive officers, promoters and control persons. A proposed amendment to the general instructions of Item 401 would eliminate the requirement that a registrant identify executive officers by name, age, position and term of office in the proxy or information statement as long as such information is provided in the registrant’s Form 10-K.
- Section 16(a) compliance. Under proposed amendments to Item 405, reporting persons would no longer be required to furnish to the registrant Section 16 reports required under Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”); instead, registrants may rely on a review of Section 16 reports filed on EDGAR and a representation by the reporting person that no Form 5 is required.
- Exhibits. The SEC has proposed to make several changes to the rules regarding information that may be omitted from exhibits filed under Item 601. For example, Item 601(b)(2) would be expanded to allow omission of schedules and similar attachments from all filed exhibits, provided that such attachments do not provide material information and the omitted content is not found elsewhere in the disclosure document. Further, Item 601(b)(10)(i) would be revised to limit the “two-year look back” requirement for material exhibits to only registrants that are newly reporting companies (i.e., companies that at the time of filing a registration statement are not subject to Exchange Act reporting, certain shell companies and any company that has not filed an annual report since a previously suspended reporting obligation has been revived).
- Incorporation by reference. A proposed amendment to Item 10(d) would remove the prohibition from incorporating by reference documents that have been on file with the SEC for more than five years. The SEC noted that the document retention concerns underlying this prohibition are no longer a concern with electronic filing. The SEC has also proposed rules that would require registrants to add to a disclosure document hyperlinks to information incorporated by reference if that information has been made available on EDGAR.
We believe that the move by the SEC toward a more streamlined and efficient public company disclosure system is a good one for many registrants, as it should relieve, in part, some of the repetition and inclusion of immaterial information, saving companies both time and money.
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