SEC Adopts New Rules for Accelerated Disclosures
At an open meeting held on August 27th, the Securities and Exchange Commission (“SEC”) adopted new rules shortening the time many domestic reporting companies will have to file quarterly and annual reports on Form 10-Q and 10-K, respectively, and requiring disclosure regarding access to periodic reports on company websites. The SEC also adopted new rules and form amendments implementing the accelerated reporting of beneficial ownership provisions of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) signed into law by the President on July 30, 2002. The new rules are briefly summarized below.
Accelerated Periodic Report Filing Requirements The SEC adopted amendments to accelerate the filing deadlines for quarterly reports on Form 10-Q, and annual reports on Form 10-K, required under the Securities and Exchange Act of 1934 (“Exchange Act”). The changes accelerate reports for domestic reporting companies (“accelerated filers”) that:
- have a public float of a least $75 million
- have been reporting companies for a least 12 months; •
- have previously filed an annual report; and
- are not eligible to use the SEC’s special forms for small business issuers.
The changes to filing deadlines will be phased in over three years. The annual report deadline will remain 90 days for the first year, change to 75 days for year two, and change to 60 days for year three and thereafter. The quarterly report deadline will remain 45 days for the first year, change to 40 days for year two, and change to 35 days for year three and thereafter. The first reductions, to 75 days for annual reports and 40 days for quarterly reports, would occur for accelerated filers with fiscal years ending on or after December 15, 2003.
In addition, beginning with annual reports for fiscal years ending on or after December 15, 2002, accelerated filers will be required to disclose in Form 10-Ks whether the company makes its periodic and current reports available, free of charge, on its web site as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
Accelerated Section 16 Beneficial Ownership Reporting
Prior to the enactment of the Sarbanes-Oxley Act, §16(a) of the Exchange Act provided officers, directors and owners of 10% or more of a company’s stock (i.e., §16 insiders) with up to 40 days to report trades in company stock executed on public markets and more than a year to report trades with the company itself. Effective August 29, 2002, the Sarbanes-Oxley Act mandated that §16 insiders report any purchase or sale of company stock within two business days of the transaction. On August 27th, the SEC adopted rule and form amendments to implement the accelerated filing deadlines.
In addition to the accelerated filing deadlines for trading transactions, the new rules also require transactions between officers or directors and the issuer previously reportable on an annual basis on Form 5 (including grants, cancellations and re-pricings of stock options and other transactions exempted from the “short swing” profit recovery provisions by virtue of Rule 16b-3) to be reported within two (2) business days on Form 4. Other transactions previously reportable on Form 5 will remain reportable on that form and transactions previously exempt from Section 16(a) reporting will remain exempt under the new rules.
The new two business day reporting period generally runs from the date the transaction is executed (typically the trade date). However, the Sarbanes-Oxley Act gave the SEC rulemaking authority to calculate the deadline differently “in any case in which the [SEC] determines that such 2-day period is not feasible”. The SEC adopted two narrow exemptions under this authority applicable to transactions pursuant to Rule 10b5-1(c) arrangements and specified plan transactions defined as “discretionary transactions” as defined in Rule 16b-3, such as fund-switching transactions, pursuant to employee benefit plans. For these transactions, the reports must be filed within two (2) business days after the insider received notice of the transaction, but the notification date may be no later than three (3) business days after the transaction is executed.
The rule and form amendments apply to transactions executed on or after August 29, 2002.
For more information on this client Alert, please contact D. Scott Freed (410) 347-8763 (email sfreed@wtplaw.com), Frank S. Jones, Jr. (410) 347-8707 (email: fjones@wtplaw) or Sonia Galindo (410) 347-9716 (email: sgalindo@wtpla.w.com).