REMINDER: Registrants Must File Their Insider Trading Policies as Exhibits and Related Disclosures

This Alert is intended to remind all filers that for the first time ever they will be required to publicly file their insider trading polices with their annual reports to be filed in 2025. Accordingly, those policies should be re-evaluated in advance for this new visibility and updated effectiveness. In addition, all filers will have to disclose in such reports Rule 10b5-1 transactions.

Background: Rule 10b5-1 Plan and Insider Trading Policy Disclosures

Until relatively recently, there were no mandatory disclosure requirements regarding the use of 10b5-1 plans or insider trading policies by issuers or insiders. That changed with the introduction of Item 408 of Regulation S-K by the Securities and Exchange Commission (the “SEC”) in connection with the adoption of the final rules amending Rule 10b5-1 in December 2022. ¹

The amendments to Rule 10b5-1 address insider trading concerns in areas where the SEC saw the potential for abuse. To enhance transparency surrounding the use of Rule 10b5-1 plans, these requirements impose a number of conditions to the availability of the Rule 10b5-1(c)(1) affirmative defense to insider trading, including, but not limited to, the following:

• requiring “cooling-off” periods between entry into a Rule 10b5-1 plan and commencement of purchases or sales under the plan by persons (other than the issuer) relying on the affirmative defense;
• limiting the ability of persons other than the issuer to use overlapping plans;
• requiring persons entering into 10b5-1 plans to act in good faith with respect to the plans; and
• limiting the use of single-trade plans by persons other than the issuer to one such plan in any 12-month period.

The final rules became effective in February 2023, but have been subject to various compliance dates. Both domestic issuers and foreign private issuers (“FPIs”) must address the new requirements regarding insider trading disclosures for their upcoming filings for the fiscal year ending December 31, 2024.

Quarterly Disclosures

New Item 408(a) of Regulation S-K and corresponding amendments to Forms 10-Q and 10-K require quarterly disclosure of:

• whether any Section 16 director or officer has adopted, modified, or terminated a Rule 10b5-1 plan or “non-Rule 10b5-1 pre-planned trading arrangement” (as defined in new Item 408(c)) during the last fiscal quarter; and
• with respect to any such plan or trading arrangement, a description of the material terms (excluding pricing terms) of each plan or arrangement, including the name and title of the Section 16 officer or director, the date of adoption or termination, the duration, the aggregate number of securities to be sold or purchased, and whether the trading arrangement is intended to qualify for the affirmative defense of Rule 10b5-1.

These quarterly disclosures do not apply to FPIs.

Annual Disclosures

New Item 408(b) of Regulation S-K and corresponding amendments to Forms 10-Q and 10-K require annual disclosure of whether the registrant has adopted insider trading policies and procedures governing the purchase, sale, and other dispositions of the registrant’s securities in annual reports on Form 10-K and proxy and information statements on Schedules 14A and 14C. Notably, FPIs also are required to disclose their insider trading policies annually under new Item 16J of Form 20-F. The imposition of this requirement on FPIs departs from the SEC’s historical approach of providing concessions to FPIs to allow them to follow home country disclosure and governance practices.

Pursuant to Item 408(b) and related amendments to Item 601(b)(19) of Regulation S-K, as well as new Item 16J of Form 20-F, registrants that have adopted insider trading policies and procedures must file them as exhibits to their annual reports on Form 10-K or Form 20-F, as applicable. If the insider trading policies and procedures are included in a code of ethics that is filed as an exhibit pursuant to Regulation S-K, Item 406(c)(1) (or Item 16B(c)(1) in the case of FPIs), that would satisfy the new Item 408(b) filing requirement for domestic issuers (or the Item 16J(b) filing requirement in the case of FPIs). ² Registrants that have not adopted insider trading policies and procedures must explain why they have not done so.

As very few companies have historically made their insider trading policies public, the requirement to publicly file insider trading policies should cause registrants to review and reconsider their existing policies and procedures in advance of the approaching deadlines.

Disclosure Regarding Option Grants Made Close in Time to the Release of Material Non-Public Information (“MNPI”)

Additionally, new Item 402(x) of Regulation S-K was adopted to add tabular and narrative disclosure requirements regarding grants of options, stock option rights and similar option-like instruments made close in time to an issuer’s disclosure of MNPI and as to company’s policies regarding such grants. Under new Item 402(x)(1), registrants will be required to discuss:

• their policies and practices on the timing of awards of stock options, stock appreciation rights, and/or similar option-like instruments in relation to the disclosure of MNPI by the registrant;
• whether the board or compensation committee takes MNPI into account when determining the timing and terms of an award; and
• whether the registrant has timed the disclosure of MNPI for the purposes of affecting the value of executive compensation.

Under Item 402(x), if, during the last completed fiscal year, stock options, stock appreciation rights, and similar instruments were awarded to a named executive officer within a period starting four business days before the filing of a periodic report on Form 10-Q or 10-K, or the filing of a current report on a Form 8-K that discloses MNPI (other than a Form 8-K disclosing a material new option award grant), and ending one business day after a triggering event, the issuer must provide certain information regarding each such award on an aggregate basis in a specified tabular format. Foreign private issuers are not required to provide this disclosure.

Practical Reminder to Registrants

As a reminder, all domestic public companies now must disclose whether the company has adopted insider trading policies and procedures that apply to transactions involving the company’s securities by its directors, officers and employees or the company itself in their upcoming annual reports on Form 10-K and file such policies and procedures to be included as Exhibit 19 to their annual reports. The analogous requirements (except regarding transactions by the company itself) apply to FPIs, with such filing required by Item 16J(b) of Form 20-F to be included as Exhibit 11.2 thereto.

New Item 408(b) disclosure, new Item 402(x) disclosure, and the filing of insider trading policies as exhibits to annual reports will first be required in the 2024 Form 10-K (or Item 16J disclosure in the 2024 20-F) for fiscal year ending December 31, 2024.

As this will be the first full year of complying with the new Item 408(b) disclosure and filing requirements, companies should review their existing insider trading policies and consider whether certain conditions and prohibitions in their policies should be revised, including blackout period start and end dates and which individuals should be subjected to blackout and pre-clearance procedures.