SEC approves rules for disclosure of hedging policies

Maria Nikolova

The rules require companies to disclose in documents for the election of directors any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions involving company equity securities.

The United States Securities and Exchange Commission (SEC) has approved final rules to require companies to disclose in proxy or information statements for the election of directors any practices or policies regarding the ability of employees or directors to engage in certain hedging transactions with respect to company equity securities.

The rules, which implement a mandate from the Dodd-Frank Act, will require disclosure of practices or policies in full, or, alternatively, a summary of those practices or policies that includes a description of any categories of hedging transactions that are specifically permitted or disallowed. In case the registrant does not have any such practices or policies, it will disclose that fact or state that hedging is generally permitted.

In addition, the new rules specify that the equity securities for which disclosure is required are equity securities of the company, any parent of the company, any subsidiary of the company, or any subsidiary of any parent of the company.

Companies generally must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2019. However, companies that qualify as “smaller reporting companies” or “emerging growth companies” must comply with the new disclosure requirements in proxy and information statements for the election of directors during fiscal years beginning on or after July 1, 2020.

Listed closed-end funds and foreign private issuers will not be subject to the new disclosure requirements.

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