October One-Minute Reads
SEC adopts amendments to beneficial ownership rules
On October 10, the Securities and Exchange Commission (SEC) announced that it had adopted final rules governing beneficial ownership reporting under Exchange Act Sections 13(d) and 13(g). The final rules will:
- For Schedule 13D, shorten the initial filing deadline from 10 days to five business days and require that amendments be filed within two business days.
- For certain Schedule 13G filers (i.e., for qualified institutional investors and exempt investors), shorten the initial filing deadline from 45 days after year-end to 45 days after the end of the calendar quarter in which the investor beneficially owns more than 5% of the covered class.
- For other Schedule 13G filers (i.e., passive investors), shorten the initial filing deadline from 20 days to five business days.
- For all Schedule 13G filers, require that amendments be filed 45 days after the calendar quarter in which a material change occurred, rather than 45 days after the year in which any change occurred.
- For certain Schedule 13G filers, accelerate the amendment obligations upon exceeding 10% beneficial ownership or a 5% increase or decrease in beneficial ownership of a covered class.
In addition, the final rules extend the filing “cut-off” times from 5:30 pm to 10:00 pm Eastern Standard Time for Schedules 13D and 13G. They also revise Item 6 of Schedule 13D to clarify that a person is required to disclose interests in all derivative securities that use the issuer’s equity security as a reference security, and they require that these filings use a structured, machine-readable data language.
The final rules will become effective 90 days after publication in the Federal Register. Compliance with the revised Schedule 13G filing deadlines will be required beginning on September 30, 2024. Compliance with the structured data requirement for Schedules 13D and 13G will be required on December 18, 2024. Compliance with the other rule amendments, including Schedule 13D, will be required 90 days after publication in the Federal Register. For more information, including details on new guidance provided by the SEC in the adopting release, refer to the SEC’s fact sheet and this October 16 Cooley PubCo blog post.
Division of Corporation Finance issues CDIs on pay-versus-performance rules
On September 27, 2023, the SEC’s Division of Corporation Finance posted new compliance and disclosure interpretations (CDIs) addressing issues arising under the final pay-versus-performance rules that were codified in Item 402(v) of Regulation S-K. The final rules required most public companies to provide a table and accompanying disclosure comparing executive “compensation actually paid” against specified measures of company financial performance beginning in 2023. Among other topics, the CDIs address complex calculations for arriving at compensation actually paid in the pay-versus-performance table, with a particular focus on:
- The treatment of stock and option awards.
- The applicability of Regulation G and Item 10(e) of Reg S-K to non-generally accepted accounting principles (non-GAAP) financial measures used in the proxy statement.
- A carve out from the required footnote disclosure to the pay-versus-performance table if the disclosure would involve confidential trade secrets or confidential commercial or financial information.
For a summary of all the CDIs, refer to this October 2 Cooley PubCo blog post. For more information on the final rules, refer to this September 7 Cooley client alert and this September 1 Cooley PubCo blog post.
Reminder: Clawback listing standards now in effect
Previous editions of Cooley’s One-Minute Reads discussed the pending effectiveness of the New York Stock Exchange and Nasdaq listing standards implementing the SEC’s Dodd-Frank clawback policy rule, which requires the adoption of clawback policies by listed companies. As a reminder, these listing standards became effective on October 2, and therefore require the adoption of a compliant clawback policy by December 1, 2023. Companies should ensure this is on their radar and slated to be adopted by the December 1 deadline, if not yet completed.
Investor Advisory Committee recommends human capital disclosure
On September 21, the SEC’s Investor Advisory Committee (IAC) voted to approve a subcommittee recommendation regarding human capital management disclosure. The IAC recommendations include two components:
- Adding quantitative disclosures to the business description under Item 101 of Reg S-K.
- Adding qualitative disclosures in the management discussion and analysis (MD&A).
In the business description, the IAC recommends the requirements be expanded to include disclosure of a breakdown of full-time and part-time employees, turnover of the workforce, the total cost of the workforce, and workforce demographic data. Regarding the MD&A, the IAC recommends that narrative disclosure be required of how the company’s labor practices, compensation incentives, and staffing fit within the broader corporate strategy – specifically, the “portion of labor costs management views as an investment and why, including how labor is allocated across areas designed to promote firm growth (e.g., R&D) and those necessary to maintain current operations rather than increase sales revenue (e.g., compliance).” We will see whether the IAC’s recommendation impacts the SEC’s work on a proposed human capital management rule, which has appeared in the last few SEC Reg-Flex agendas. For more information, refer to this September 25 Cooley PubCo blog post.
Key considerations outlined for Form 8-K cybersecurity materiality determinations
With the Form 8-K reporting obligations for “material” cybersecurity incidents under the new SEC cybersecurity rules becoming effective on December 18, 2023, a recent Cooley cyber/data/privacy insights blog post outlines practical considerations for companies when making “real-time” materiality determinations following a cybersecurity incident. The post includes substantive analysis tips, explores the importance of process and formality, and highlights potential reporting pitfalls. Companies may find this post useful when finalizing their preparations for the new regime of cybersecurity incident reporting. For more information on the new rules, refer to our August 2 client alert.
New California law signed relating to climate goals, claims and offsets
As discussed in this October 16 Cooley client alert, on October 7, 2023, California Gov. Gavin Newsom signed Assembly Bill 1305, the Voluntary Carbon Market Disclosures Act (VCMDA). This legislation will impose new requirements applicable to companies making climate-related claims, as well as participants in carbon emission offset markets. In addition to new obligations for companies that purchase and sell offsets, the VCMDA includes significant broadly applicable disclosure obligations for public and private companies, regardless of company size, that operate in California and make claims regarding the climate performance or goals of their business or individual products.
These new rules supplement greenhouse gas emissions and climate risk disclosure requirements (the California Climate Accountability Package) contained in Senate Bills 253 and 261, which Newsom also signed on October 7. Disclosure under the VCMDA must be published on company websites and updated at least annually. The VCMDA’s requirements take effect on January 1, 2024, requiring covered companies to act quickly to prepare relevant disclosure. To learn more, register for our November 2 webinar, where we will address questions regarding the interpretation of the VCMDA, understanding its significance, and strategies for mitigating enforcement and litigation risks.