Codifying what has become a common disclosure practice, the Securities and Exchange Commission has now required all public companies to disclose whether or not they have a policy or practice on transactions by directors or employees to hedge their exposure with respect to company equity securities and, if so, to describe it. These are transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities held directly or indirectly by a director or employee, including but not limited to purchases of securities or other financial instruments.
The new rule supplements the disclosure of material hedging policies for named executive officers suggested for inclusion in the proxy statement’s Compensation Discussion and Analysis. It will apply to all domestic public companies, including smaller reporting companies and emerging growth companies. The disclosure will be required in proxy or information statements for the election of directors during fiscal years beginning on or after July 1, 2019, or, for smaller reporting companies and emerging growth companies, July 1, 2020.
Although the rule likely will stimulate companies to adopt policies that prohibit hedging transactions, it does not require it. Most larger companies already have adopted such policies.
For a more detailed discussion of the new rules requiring hedging disclosure, see our QuickStudy here.