News
April 4, 2019

SEC Adopts Disclosure Simplifications

Advisory

The SEC has adopted amendments (Amendments) to certain of its regulations, rules and forms to modernize and simplify certain disclosure requirements as mandated by the 2015 Fixing America's Surface Transportation Act (FAST Act). The most significant changes are described below.

S-K Item 303 - MD+A

Previously, the instructions to Item 303(a) specified that MD+A should generally cover the three-year period covered by the financial statements, and that reference to the five-year selected financial data may be necessary where trend information is relevant. The Amendments permit registrants to omit discussion of the earliest of the three years if, in management's view, that discussion is not necessary to understand the company's financial condition, changes in financial condition, and results of operations, and (as would generally be the case for all but new registrants), that year was discussed in a prior EDGAR filing, and the location in such prior filing is identified. Registrants are encouraged to reevaluate their disclosure in light of the Amendments and determine whether a discussion of the earliest year's information remains material. The Amendments also eliminate the reference to five-year selected financial data.

The Amendments clarify that registrants may use any presentation that in their judgment enhances a reader's understanding (although the SEC anticipates that many registrants will continue to provide year-to-year comparisons).

Item 5 of Form 20-F has been modified to be consistent with the amendments to Item 303.

S-K Item 601 - Exhibits

Material Contracts

Previously, Item 601(b)(10)(i) required registrants to file every material contract not made in the ordinary course of business if: (i) the contract is to be performed in whole or in part at or after the filing of the registration statement or report, or (ii) the contract was entered into not more than two years before that filing. The Amendments limit the two-year look back test to "newly reporting registrants" (as defined in the item).

Confidential Information

The Amendments permit registrants to omit confidential information from material contracts filed pursuant to Item 601(b)(2) (plans of acquisition, reorganization, arrangement, liquidation, or succession) and Item 601(b)(10) without the need to submit a confidential treatment request (CTR) if the omitted information: (i) is not material and (ii) would be likely to cause competitive harm if publicly disclosed. Registrants would need to: (i) mark the exhibit index to indicate that portions of the exhibit or exhibits have been omitted; (ii) include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both not material and would be likely to cause competitive harm if publicly disclosed; and (iii) indicate with brackets where the information has been omitted from the filed version of the exhibit. Conforming changes have been made to Item 1.01 of Form 8-K (disclosure of material definitive agreements), Form 20-F, registration forms used by investment companies, and information in reinsurance agreements filed as exhibits in specified forms.

On April 1, 2019, the Division of Corporation Finance issued guidance with respect to the filing of redacted materials, as described below.

If the SEC staff decides to initiate a review of the redactions made in a filed exhibit, it will send a letter requesting a paper copy of the unredacted exhibit marked to highlight the redacted information. Further substantiation of the registrant's redaction decisions may be required. If the staff has no comments, a letter will be sent indicating that the compliance review is complete. Any comments provided will be separate from any comments on the associated filing.

If the SEC staff elects to review the redactions made to exhibits filed as part of a registration statement prior to its effective date, it will ask registrants to resolve any questions relating to redacted exhibits before submitting a request for acceleration of the effective date. The initial request for an unredacted exhibit and the closing of review letter will be released publicly on EDGAR in connection with posting the other correspondence related to the filing review. Comments regarding redacted exhibits and registrant responses will not be made public.

With respect to Exchange Act filings, the initial request for an unredacted exhibit and the closing of review letter for that exhibit will be released publicly on EDGAR following the closing of that review. If that review was done in conjunction with a regular filing review, the initial request and closing of review letter will be posted at the time of posting of the other correspondence related to the filing review. Comments regarding redacted exhibits and registrant responses will not be made public.

Registrants may request confidential treatment of any supplemental materials provided to the SEC. Upon completion of a compliance review, supplemental materials will be destroyed.

The Amendments have not changed a registrant's ability to request confidential treatment pursuant to Rule 406 or Rule 24b-2 and the staff will continue to process new applications as well as pending applications that are not withdrawn following established procedures.

Transition questions should be directed to RedactedExhibits@sec.gov.

If a registrant has a CTR pending at the time the amended rules governing redaction of confidential information in material contracts become effective, the registrant may withdraw its pending application and refile the exhibit or exhibits, in redacted form, in an amended filing that conforms to the amended rules. Registrants should contact the Assistant Director's office, or in the case of an investment company the Division of Investment Management's Disclosure Review and Accounting Office, responsible for reviewing their filings to coordinate the withdrawal of any CTR and the refiling of the exhibit or exhibits. In the past few days, the staff has reached out to certain registrants with pending CTRs to enquire whether they would like to withdraw their CTRs, and amend the applicable filing in accordance with the new procedures. The SEC and its staff will continue to process pending CTR applications that are not withdrawn, following established procedures.

Schedules and Attachments

Previously, Item 601 generally required registrants to file complete copies of any required exhibits, including schedules and other similar attachments, other than with respect to items filed under paragraph (b)(2) of Item 601. New Item 601(a)(5) expands the existing accommodation in Item 601(b)(2) to all exhibits filed under Item 601, permitting registrants to omit entire schedules and similar attachments to required exhibits, provided: (i) they do not contain material information and (ii) are not otherwise disclosed in the exhibit or the disclosure document. The Amendments include comparable revisions to the exhibit requirements of Item 1016 of Regulation M-A, investment company registration forms, and Form N-CSR.

Personally Identifiable Information

As a matter of practice, the SEC staff generally does not object where registrants redact personally identifiable information from exhibits without submitting a CTR. New Item 601(a)(6) codifies this practice. Comparable provisions have been added to the exhibit requirements of Item 1016 of Regulation M-A, investment company registration forms, and Form N-CSR.

Description of Registrant's Securities

Item 202 requires registrants to provide a brief description of their registered securities in registration statements. The Amendments revise S-K Item 601(b)(4) to require registrants to provide the information required by Item 202(a)-(d) and (f) as an exhibit to Form 10-K, rather than limiting this disclosure to registration statements. Under new Item 601(b)(4)(vi), any modifications and amendments during a fiscal year should also be reflected in the Item 202 disclosure provided in an exhibit to the registrant's annual report for such year.

Foreign Private Issuers

The Amendments made conforming changes to the "Instructions to Exhibits" in Form 20-F to include revised language comparable to the amendments made to Item 601.

S-K Item 102 - Description of Property

The Amendments clarify that, unless otherwise specified, disclosure need only be provided about a physical property to the extent that it is material to the registrant. Application of this analysis may result in a description of property on an individual or collective basis, or no disclosure at all.

S-K Item 405 - Compliance with Exchange Act Section 16(a)

Item 405 requires registrants to disclose each reporting person who failed to file Section 16 reports on a timely basis during the most recent fiscal year or prior fiscal years.

The Amendments: (i) eliminate the requirement for reporting persons to furnish Section 16 reports to the registrant; (ii) amend Item 405 to: (a) clarify that registrants may, but are not required, to rely only on Section 16 reports that have been filed on EDGAR (as well as any written representations from the reporting persons) to assess whether there are any Section 16 delinquencies to disclose; (b) change the disclosure heading from "Section 16(a) Beneficial Ownership Reporting Compliance" to "Delinquent Section 16(a) Reports" (and encouraging registrants to exclude the heading altogether when they have no Section 16(a) delinquencies to report); and (iii) eliminate the checkbox on the cover page of Form 10-K (and the related instruction in Item 10 of Form 10-K) with respect to disclosure of delinquent filers.

S-K Item 501(b) - Outside Front Cover Page of the Prospectus

Item 501(b)(1) requires disclosure of a registrant's name. An instruction to this Item states that if a registrant's name is the same as that of a "well known" company, or if the name leads to a misleading inference about the registrant's line of business, the registrant must include information to eliminate any possible confusion with the other company. Prior to the Amendments, the instruction indicated that if disclosure is insufficient to eliminate the confusion, the registrant may be required to change its name (subject to a specified exception). The Amendments eliminate the portion of the instruction that discusses when a name change may be required and the specified exception.

S-K Item 501(b)(3) - Offering Price of the Securities

Item 501(b)(3) requires disclosure on the prospectus front cover page, among other things, of the price of the securities being offered. If it is not practicable to provide a price, registrants may explain the method by which the price is to be determined. The Amendments explicitly allow registrants to include a clear statement on the cover page, when applicable, that the offering price will be determined by a particular method or formula that is more fully explained in the prospectus.

S-K Item 501(b)(4) - Market for the Securities

Prior to the Amendments, Item 501(b)(4) required a registrant to disclose on the prospectus cover page the name of any national securities exchanges that list the securities being offered and the trading symbols for those securities. Because markets that are not national securities exchanges may be important to investors, the Amendments require disclosure of the principal United States market or markets for the securities being offered, and the corresponding trading symbols, where the registrant, through the engagement of a registered broker-dealer, has actively sought and achieved quotation.

S-K Item 503(c) - Risk Factors

Item 503(c) requires disclosure of the most significant factors that make an offering speculative or risky. This disclosure also applies to periodic reports and registration statements on Form 10. The Amendments relocate Item 503(c) to new Item 105, as Subpart 100 is not limited to offering-related disclosure. The Amendments also eliminate the risk factor examples enumerated in Item 503(c).

S-K Item 508 - Plan of Distribution

Item 508 requires, among other things, disclosure about dealers acting as "sub- underwriters." The Amendments define the term "sub-underwriter" as a dealer that is participating as an underwriter in an offering by committing to purchase securities from a principal underwriter for the securities but is not itself in privity of contract with the issuer of the securities.

S-K Item 512 - Undertakings

The Amendments eliminate the undertakings in Items 512(c), (d), (e) and (f) as unnecessary or obsolete.

Incorporation by Reference

The rules and instructions governing incorporation by reference are contained in a variety of SEC regulations and forms. The Amendments simplify and modernize these rules, including by, among other things, eliminating the prohibition in S-K Item 10(d) from incorporating documents by reference if they have been on file with the SEC for more than five years and do not fall within one of the exceptions provided in the rule.

Previously: (i) Rule 12b-23(a)(3) under the Exchange Act required that copies of any information incorporated by reference into a registration statement or report be filed as an exhibit (with limited exceptions); (ii) Rule 411(b)(4) under the Securities Act, which pertains to non-prospectus information incorporated by reference into a registration statement, required that the incorporated information be filed as an exhibit under specified circumstances; and (iii) Rule 8b-23 generally required investment company registrants to file with a registration statement or report a copy of any registration statement, report, or prospectus from which information is incorporated by reference, except where such document is filed electronically. The Amendments eliminate these requirements, and apply consistent requirements for incorporation by reference under the Investment Company Act and Investment Advisers Act. The Amendments also eliminate the requirement in Item 601(b)(13) to file a Form 10-Q as an exhibit when it is specifically incorporated by reference into a prospectus.

Cross-Referencing and Incorporation by Reference in Financial Statements

The Amendments prohibit incorporating by reference, or cross-referencing to, information outside of the financial statements in the financial statements unless specifically permitted or required by SEC rules, U.S. Generally Accepted Accounting Principles, or International Financial Reporting Standards (IFRS), whichever is applicable.

Hyperlinks

The Amendments revise Rule 411, Rule 12b-23, and Rule 0-4 (which provides incorporation by reference rules for investment company registration statements and reports) to require hyperlinks to information incorporated by reference if that information is available on EDGAR. To accommodate the hyperlinks, those filings must be made in HTML.

Registrants are not required to file an amendment to a document solely to correct an inaccurate hyperlink, unless that hyperlink was included in a pre-effective registration statement. An inaccurate hyperlink alone would neither render the filing materially deficient nor affect a registrant's eligibility to use Form S-3, Form SF-3, or Form F-3. Registrants will not be required to refile information that is incorporated by reference from a document that was previously filed in paper.

The Amendments also include specified HTML and exhibit hyperlink requirements for specified investment company filings.

Cover Page Data

The Amendments require all of the information on the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F to be tagged in Inline XBRL. Registrants will also be required to file a "Cover Page Interactive Data File" with each of the specified forms.

The cover pages of these forms were also amended to include disclosure of the trading symbol for each class of registered securities. In addition, the cover pages of Form 10-Q and Form 8-K were revised to include disclosure of the title of each class of securities and each exchange on which they are registered.

Proposed Amendments Not Adopted

The SEC did not adopt proposed amendments: (i) to Form 10, Form 10-K, and Form 20-F to allow registrants to exclude item numbers and captions or to create their own captions tailored to their disclosure; or (ii) to Item 601(b)(21)(i) that would require registrants to include in the exhibit the legal entity identifier, if one has been obtained, of the registrant and each subsidiary listed.

Compliance Dates

Except as noted below, registrants will be required to comply with the Amendments beginning 30 days after publication in the Federal Register, which occurred on April 2, 2019.

The amendments with respect to the redaction of confidential information in certain exhibits have become effective.

With respect to the requirement to tag data on the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F in Inline XBRL: (i) large accelerated filers that prepare their financial statements in accordance with U.S. GAAP will be required to comply in reports for fiscal periods ending on or after June 15, 2019; (ii) accelerated filers that prepare their financial statements in accordance with U.S. GAAP will be required to comply in reports for fiscal periods ending on or after June 15, 2020; and (iii) all other filers that are subject to the cover page tagging requirements, including foreign private issuers that prepare their financial statements in accordance with IFRS, will be required to comply in reports for fiscal periods ending on or after June 15, 2021. Domestic form filers will be required to comply beginning with their first Form 10-Q for a fiscal period ending on or after the applicable compliance date. These requirements do not apply to non-operating companies such as any investment companies registered under the Investment Company Act, business development companies, entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X, or asset-backed issuers.

All registration statement and Form N-CSR filings made by investment company registrants on or after April 1, 2020 must be made in HTML format and comply with the rule and form amendments pertaining to the use of hyperlinks.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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