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SEC Implements Final Rules for Disclosure of Hedging Policies

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The Securities and Exchange Commission announced that it approved the final rules for the disclosure of hedging policies on Tuesday. 

The final rules, which implement a mandate from the Dodd-Frank Act of 2010, 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. If the registrant does not have any such practices or policies, it will disclose that fact or state that hedging is generally permitted.

“The new rules will provide for clear and straightforward disclosure of company policies regarding hedging,” said SEC chairman Jay Clayton. “These disclosures in themselves, and in combination with our officer and director purchase and sale disclosure requirements, should bring increased clarity to share ownership and incentives that will benefit our investors, registrants, and our markets.”

According to the SEC, 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” (each as defined in Securities Exchange Act Rule 12b-2) 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.

A couple outstanding items remain from the Dodd-Frank law: 

  • The Clawback Rule, proposed in July 2015, takes the 2002 Sarbanes-Oxley “clawback” rule a few steps further, extending it to all executives, not just the CEO and CFO, and dropping the Sarbox requirement for misconduct before clawing back compensation, according to MarketWatch. The Dodd-Frank law mandated the SEC to adopt the rule that directs stock exchanges to prohibit companies from listing their shares if they do not create and disclose a policy for clawbacks of excess incentive-based compensation for all current or former executive officers after financial statements are restated for any reason.
  • Pay-Versus-Performance Rule, proposed in April 2015, is intended to give shareholders the ability to assess companies’ executive compensation relative to their financial performance. Companies would be required to provide a clear description of the relationship between executive compensation actually paid to the its most senior executives and the cumulative total shareholder return of the company. They would also disclose the relationship between the company’s TSR and that of a peer group chosen by the company over each of the registrant’s five most recently completed fiscal years.

About the Author 

Brett Christie is a staff writer at WorldatWork. 

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