On December 18, the Securities and Exchange Commission announced the adoption of final rules mandating disclosure of “practices or policies…regarding the ability of employees (including officers) or directors 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”. The rules were mandated by the Dodd-Frank Act, enacted in 2010, and were originally proposed in 2015, but adoption was delayed due to vacancies on the Commission and other factors. The disclosures will be required in proxy or information statements covering the election of directors beginning for fiscal years ending on or after July 1, 2019 (July 1, 2020, in the case of “smaller reporting companies” and “emerging growth companies”). Listed closed-end funds and foreign private issuers will not be subject to the new requirements.
Many companies have policies on hedging and pledging, and have been disclosing those policies for some time, in response to pressure from investors and proxy advisory firms. As a result, the rules are not likely to generate much, if any, controversy.
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