Alert
06.10.22
On June 2, 2022, the Securities and Exchange Commission (SEC) adopted rule and form amendments (Amendments) that will mandate the electronic filing or submission of certain documents that filers currently may choose, but are not required, to submit electronically. This alert focuses on certain of the Amendments that are likely to be most relevant to our clients.
Form 144
Pursuant to Rule 144(h) under the Securities Act of 1933 (the Securities Act), an affiliate who intends to resell restricted or control securities of an issuer in reliance on Rule 144 under the Securities Act (Rule 144) exceeding either 5,000 shares or with an aggregate sales price of more than $50,000 over a three-month period must file a Form 144. Rule 101(b) of Regulation S-T (Rule 101(b)) currently permits electronic or paper submission of Form 144 if the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act). Although most Form 144 filings can be made electronically on EDGAR (because the issuer of the securities is typically subject to Exchange Act reporting requirements), in 2021 only a small percentage were made on EDGAR.
The Amendments will require the electronic filing of Form 144 for transactions in securities of issuers subject to Exchange Act reporting requirements. In addition, the SEC plans to make Form 144 an online fillable form, similar to the fillable forms currently available for Forms D, 3, 4 and 5, and the data on Form 144 accordingly will become machine-readable. The Amendments will also remove the requirement that an affiliate send a copy of Form 144 to the principal exchange, if any, on which the restricted or control securities are admitted to trade.
The SEC estimates that up to 75% of Form 144 filers will need to obtain EDGAR access codes to enable their use of EDGAR due to the Amendments. The SEC recognized that broker-dealers may need more time to collect EDGAR filing credentials from their clients filing on Form 144 and to establish new governance protocols to file the forms and maintain EDGAR credentials. Consequently, the SEC has provided a transition period for mandated electronic filing of Form 144, starting six months after publication in the Federal Register of the SEC’s updated EDGAR Filer Manual. The SEC stated that it expects to consider adoption of the updated EDGAR Filer Manual in September 2022, meaning that electronic filing requirements can be expected to commence at some point in 2023.
Investors in restricted securities who might seek to sell pursuant to Rule 144 and do not already have EDGAR filing codes should consider acquiring those codes in the coming months to avoid logistical delays in selling restricted securities pursuant to Rule 144. We expect that company insiders holding control securities within the meaning of Rule 144 should already have EDGAR filing codes due to the need to file Forms 3 and 4 pursuant to Section 16 of the Exchange Act, but to the extent that company insiders do not already possess EDGAR filing codes, they should likewise consider acquiring them in a timely manner.
“Glossy” Annual Reports
Rule 101(b) currently permits electronic or paper submission of annual reports to security holders furnished to the SEC for its information pursuant to Rule 14a-3(c) or 14c-3(b) under the Exchange Act, under the requirements of Form 10-K, or by foreign private issuers on Form 6-K, often referred to as “glossy” annual reports. In recent years, the SEC has received very few “glossy” annual reports, likely because the SEC indicated it would not object if issuers posted an electronic version of their “glossy” annual report to their corporate website instead of mailing paper copies or electronically submitting them, provided the report remained accessible for at least one year after posting. The Amendments will require “glossy” annual reports to be submitted on EDGAR, regardless of whether issuers post them on their websites. Filers will have a six-month transition period after the effective date of the Amendments to comply.
Form 11-K and Form 6-K
Rule 101(b) currently permits electronic or paper submission of annual reports for employee stock purchase, savings and similar plans on Form 11-K, as well as reports or other documents submitted by a foreign private issuer on Form 6-K. The Amendments will require each of Form 11-K and Form 6-K to be submitted on EDGAR, and filers will have a six-month transition period after the effective date of the Amendments to comply.
Inline XBRL
The Amendments will mandate the use of Inline XBRL for the financial information required by Form 11-K. Given that employee benefit plans currently are not required to submit any information in XBRL or Inline XBRL, the SEC is providing a three-year transition period after the effective date of the Amendments for filers of Form 11-K to comply.