SEC Proposed Rule Changes Intended to Simplify Regulation S-K

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SEC Proposed Rule Changes Intended to Simplify Regulation S-K

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The Securities and Exchange Commission (SEC) proposed rule amendments last week that are intended to both simplify and modernize Regulation S-K’s disclosure requirements. The rule amendments were proposed in accordance with the Fixing America’s Surface Transportation (FAST) Act and are based on the FAST Act Report, prepared by SEC staff in November 2016. With these proposed rules, the SEC aims to reduce the costs to and burdens on registrants, while still providing the information necessary for investors to make informed investment decisions. The SEC’s proposed changes include, but are not limited to, the following:

  • Revising the description of property requirement to emphasize materiality (Description of Property – Item 102)
  • Revising management’s discussion and analysis to permit flexibility in the discussion of historical periods by discouraging the repetition of disclosure that is no longer material (Management’s Discussion and Analysis of Financial Condition and Results of Operation – Item 303)
  • Clarifying instructions regarding the disclosure of information about a registrant’s directors, executive officers, and significant employees (Directors, Executive Officers, Promoters and Control Persons – Item 401)
  • Allowing registrants to rely on Section 16 reports filed on EDGAR instead of reports furnished to the registrant (Compliance with Section 16(a) of the Exchange Act – Item 405)
  • Eliminating the outdated reference to AU sec. 380, Communication with Audit Committees, in favor of a broader reference to “applicable requirements of the PCAOB and the Commission rules” (Corporate Governance – Item 407)
  • Clarifying requirements for emerging growth companies (Corporate Governance – Item 407)
  • Providing registrants with flexibility in designing prospectus cover pages (Outside Front Cover Page of the Prospectus – Item 501(b))
  • Removing the risk factor examples listed in the disclosure requirement to encourage registrants to focus on their own risk identification process (Risk Factors – Item 503(c))
  • Defining the term “sub-underwriter” in Rule 405 (Plan of Distribution – Item 508)
  • Eliminating undertakings that are duplicative of other rules or are unnecessary, including Items 512(c), (d), (e) and (f) (Undertakings – Item 512)
  • Requiring registrants to provide certain information regarding their registered securities as an exhibit to Form 10-K, rather than limiting such disclosure to registration statements (Exhibits  - Item 601(b)(4)) 
  • Allowing for the omission of confidential information from material contracts if it is not material and could be competitively harmful if disclosed, without having to submit an unredacted copy and formal confidential treatment request to the SEC (Exhibits – Item 601(b)(10))
  • Limiting the material contract exhibit two-year look back test to newly reporting registrants, so established companies do not have to include as exhibits material contracts that have already been performed (Exhibits – Item 601(b)(10)(i))
  • Requiring registrants to include legal entity identifiers (if one has been obtained) in Exhibit 21 (Exhibits – Item  601(b)(21)(i))
  • Simplifying and expanding the requirements associated with incorporation by reference (Item 10(d), Rule 411, Rule 12b-23, Rule 12b-32 and other related forms)
  • Requiring Inline XBRL tagging of cover page information in Exchange Act reports
  • Requiring Exchange Act report cover pages to include the trading symbol for each class of registered securities
  • Requiring hyperlinks for information that is incorporated by reference, in addition to the exhibit hyperlinks that have been required since September 2017

The SEC’s proposal also includes amendments to rules and forms applicable to investment companies and investment advisers. Public comments on the proposed rule amendments can be submitted at www.sec.gov for 60 days after the proposed rules are published in the Federal Register.