& Securities

Yesterday, the Securities and Exchange Commission took a step forward to complete its unfinished business under the Dodd-Frank Wall Street Reform and Consumer Protection Act by proposing rules that would require disclosure of policies permitting or prohibiting hedging by employees (including officers) and directors of their company’s equity securities. The proposed rules, voted on by the Commission seriatim without an open meeting, would implement new Section 14(j) of the Securities Exchange Act of 1934 mandated by Section 955 of the Dodd-Frank Act. The purpose of the proposed rules is to provide transparency to shareholders about whether employees and directors are permitted by the company to engage in transactions that mitigate or avoid the incentive alignment associated with ownership of company equity securities, whether these securities are acquired through company compensatory arrangements, in the open market or otherwise. Because the SEC views Section 14(j) as raising governance issues that transcend the risks associated with executive compensation, it has proposed to amend Item 407 of Regulation S-K (corporate governance disclosures) rather than Item 402 of Regulation S-K (compensation of named executive officers and directors) to require the new principles-based disclosures.

View the alert.