August 25, 2019

August 23, 2019

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SEC Agrees No Permission Required

Earlier this week, the Securities and Exchange Commission adopted a new rule that will require a company to describe any practices or policies it has adopted regarding the ability of its employees (including officers) or directors to purchase financial instruments, or otherwise engage in transactions, that hedge or offset, or are designed to hedge or offset, any decrease in the market value of equity securities granted as compensation, or held directly or indirectly by the employee or director.  This new rule is intended to implement Section 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As proposed, the rule would have required a company to disclose whether it "permits" such arrangements.  This seemed to me to be backwards because hedging is generally permitted unless the company has adopted some policy or procedure prohibiting it.  Thus, the question isn't whether a company permits hedging but whether it prohibits hedging.  I submitted a comment to this effect and the SEC has agreed (see text accompanying note 52 in the adopting release).  

Below is my mark-up showing the changes between the proposed and final version of the new rule.


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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...