Issue link: https://digital.shearman.com/i/1512772
Shearman & Sterling LLP SEC Rulemaking Roundup | 66 Changes to Rule 10b5-1 Trading Plans and Related Disclosures 3 The SEC implemented amendments to Rule 10b5-1 under the Exchange Act to introduce several new requirements for Rule 10b5-1 trading plans, including: • cooling-off period requirements for directors and executive officers (between 90 and 120 days) and other persons (30 days), • required representations by directors and executive officers, and • limitations on the ability to use overlapping Rule 10b5-1 trading plans or more than one single-trade Rule 10b5-1 trading plan within a 12-month period. These new requirements do not apply to companies' own Rule 10b5-1 trading plans, but all persons who enter into a Rule 10b5-1 trading plan (including companies entering into plans with respect to their own securities) must do so acting in good faith. Companies, other than FPIs, must now also disclose the adoption or termination, and material terms (other than pricing terms), of any Rule 10b5-1 trading plan or a trading arrangement that does not comply with the requirements of Rule 10b5-1 in its securities by its directors and officers on a quarterly basis, and certain tabular and narrative disclosures of information pertaining to stock option awards made to named executive officers on an annual basis. Companies, including FPIs, must also be prepared to file their insider trading policies following the applicable compliance date 4 or, if they have not adopted one, disclose the reasons why not. We have suggested that companies take a fresh look at their insider trading policies in light of these new safe harbor requirements. Any company that does not currently make its insider trading policy publicly available should consider what amendments it would like to make before the policy is required to be disclosed publicly. Additionally, companies should familiarize themselves with the new option award disclosure tables that are to be presented in upcoming annual filings (either annual reports or proxy statements) and ensure they are collecting the necessary information to make quarterly disclosures of director and officer plan adoption and termination activities. Cybersecurity Disclosures 5 Starting December 18, 2023, domestic companies will be required to disclose under new Item 1.05 on Form 8-K any cybersecurity incident they determine to be material within four business days of such determination. Such materiality determinations must be made without unreasonable delay. The Form 8-K will be required to describe the material aspects of the nature, scope and timing of the incident. These new incident disclosure obligations do not apply to FPIs; however, an FPI will be required to furnish on Form 6-K cybersecurity incident information that it makes or is required to make public under home country laws, stock exchange rules or otherwise by providing the information to its security holders. Companies will also need to describe in their Form 10-K or 20-F their processes for identifying, assessing and managing material risks from cybersecurity threats, as well as how risks from cybersecurity threats have materially affected, or are reasonably likely to materially affect, business strategy, results of operations or financial condition. 3 See Shearman & Sterling LLP, "SEC Changes Requirements for Rule 10b5-1 Plans," https://www.shearman.com/en/perspectives/2022/12/ sec-changes-requirements-for-rule-10b5-1-plans (December 20, 2022). 4 The SEC's adopting release, clarified by subsequently issued SEC guidance, stipulates that the new disclosure and filing requirements relating to insider trading policies will be required in the first filing that covers the company's first full fiscal year that begins on or after April 1, 2023 (or October 1, 2023, for smaller reporting companies). For a company with a December 31 fiscal year end, this would be its 2024 annual report on Form 10-K or 20-F, filed in early 2025. 5 See Shearman & Sterling LLP, "SEC Mandates New Cybersecurity Disclosures," https://www.shearman.com/en/perspectives/2023/08/ sec-mandates-new-cybersecurity-disclosures (August 1, 2023).