SEC Proposed Rule: Disclosure of Hedging by Employees, Officers and Directors

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Dodd-Frank Timeline, Disclosure of Hedging by Employees, Officers and Directors, SEC
Proposed Rule Issue Comment Deadline Final Rule Issue
February 9, 2015 60 days after Federal Register TBA

On February 9, 2015, the SEC approved a proposed rule that would enhance corporate disclosure of company hedging policies for directors and employees, as mandated by Section 955 of the Dodd-Frank Act.[1]

The proposed rules would require disclosure in proxy and information statements for the election of directors and apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies, business development companies, and registered closed-end investment companies with shares listed and registered on a national securities exchange.

After the rule appears in the Federal Register, there will be a 60 day comment period. A selection of comments received will appear HERE.

Background

Title IX of the Dodd-Frank Act aims to update and enhance investor protection and improve protections in U.S. securities markets. Among its provisions are five sections related to executive compensation:

  • Section 951, which requires advisory votes of shareholders about executive compensation and golden parachutes; VIEW FINAL RULE
  • Section 952, which requires disclosure about the role of, and potential conflicts involving, compensation consultants; VIEW FINAL RULE
  • Section 953, which requires disclosure on compensation practices such as pay-for-performance and ratios between CEO and median compensation; VIEW PROPOSED RULE
  • Section 954, which aims to require compensation claw-back policies; and
  • Section 955, which requires disclosure about whether company directors are permitted to hedge decreases in market value of the company's stock. VIEW PROPOSED RULE

In 2011 and 2012 the Securities and Exchange Commission (SEC) first proposed and then began finalizing rules related to executive compensation. In the fall of 2013, the commission proposed a rule requiring the disclosure of the ratio CEO pay to that of the median employee. [2]

Text of the Rule Change

The rule would amend Reg. 229.407 by adding this paragraph (i) to read as follows:

In proxy or information statements with respect to the election of directors , disclose whether the registrant permits any employees (including officers) or directors of the registrant, or any of their designees, to purchase financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engage in transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities —

  1. Granted to the employee or director by the registrant as part of the compensation of the employee or director; or
  2. Held, directly or indirectly, by the employee or director.

Related Document: Proposed Rule


References

  1. SEC Proposes Rules for Hedging Disclosure. U.S. Securities and Exchange Commission. Retrieved on February 9, 2015.
  2. Corporate Governance Issues, Including Executive Compensation Disclosure and Related SRO Rules. U.S. Securities and Exchange Commission. Retrieved on June 22, 2012.

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