SEC Updates Electronic Filing Requirements Article

On June 3, 2022, the Securities and Exchange Commission (the “SEC”) announced its adoption of rule and form amendments expanding the requirement of electronic filing to include certain documents that are currently permitted to be filed or submitted in paper form, including Form 144 and glossy annual reports. The revised rules are intended to modernize the SEC’s filing requirements and provide electronic access to these documents, allowing greater and easier investor review.

The SEC indicates that this compulsory transition to electronic filings will enable more efficiency, transparency, and operational resiliency. Electronic submissions are more readily accessible to the public, presented in easily searchable formats on the SEC’s website, and easily tracked by the SEC, and the expansion of mandatory electronic filing is expected to ultimately benefit investors. The SEC also hopes that this full-scale shift to electronic filings will enable less sophisticated investors to more readily look up corporate filings and, in turn, encourage them to access information about the companies in which they hold securities – a practice that has traditionally been reserved for experienced investors. The SEC hopes that no longer will the vast majority of security holders seeking corporate information be agents sent to Washington, DC by institutional investors; rather, inquisitive investors of all kinds will access information with a few taps on their smartphone. SEC Chairman Gary Gensler highlighted the SEC’s expectation that these amendments will reduce costs for investors and the SEC, saying “It costs investors money and time to travel to the SEC’s reading room. It costs the SEC money and time to process paper filings. These amendments will reduce costs and drive more efficiencies for investors, filers, and the SEC.”

The amended rules apply to various issuers, affiliates, and national securities exchanges that file or submit reports to the SEC and will require electronic filings for numerous documents described below. Additionally, these rule amendments will also mandate the use of Inline XBRL for the filing of financial statements and accompanying notes to the financial statements required by Form 11-K.

Form 144

One of the more notable documents affected by this shift to mandatory electronic filing is Form 144. Rule 144 has long required “affiliates” of issuers – defined under Rule 405 and Section 16(a) of the Exchange Act and including officers and directors of an issuer – to file a Form 144 when relying on Rule 144 to effect a sale of restricted or control securities in excess of 5,000 shares or $50,000 in sales price (in each case, calculated over a three month period). Forms 144 are required to be filed concurrently with the placing of an applicable sale order, but these forms have historically been filed in paper by the sales broker. Under the revised rules, Forms 144 will be electronically filed on the SEC’s EDGAR filing system under the affiliate’s EDGAR codes, and thus will be immediately available to the public.

While corporate insiders already subject to Section 16 filing requirements will already have their own EDGAR codes, other holders of restricted securities may not. Accordingly, holders of restricted securities without EDGAR codes should consider obtaining them now.

The requirement to file the Form 144 electronically is expected to result in more time needed by broker-dealers to administrate and execute trades by those subject to Rule 144.

Glossy Annual Reports

As for the “glossy” annual reports, SEC proxy rules require companies to provide their security holders with an annual report (referred to colloquially as “glossy” annual reports because of the high gloss paper on which these reports have historically been printed) before or at the time companies furnish proxy statements to their security holders. The SEC has until now stated that it would not object if companies posted an electronic version of the glossy annual report to a corporate website rather than electronically delivering them to the SEC, or submitting in paper copy. As a result of the new rules, all glossy annual reports must be filed electronically even if also posted on a corporate website.

Other Documents Affected

In addition to the documents discussed above, the SEC will also now mandate electronic filing of the following items: (a) documents that currently are permitted to be submitted electronically under Rule 101(b) of Regulation ST, including notices of exempt solicitations and exempt preliminary roll-up communications; (b) filings on Form 6-K; (c) filings made by multilateral development banks; (d) certifications made pursuant to Section 12(d) of the Act; and (e) certain foreign language documents.

Timeline for Implementation

The SEC has set forth transition periods for different filings to allow issuers time to prepare for the new filing procedures. In summary, these transition periods are as follows:

  • A six-month transition will also be put in place for Form 144 filings, but this transition period will not commence until the SEC’s release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144 is published in the Federal Register. The SEC has stated that it expects this manual to be released in September of 2022, with publication to the Federal Register thereafter.
  • A six-month transition period beginning on the effective date (the date that is 30 days after the final rule is published in the Federal Register) for the (1) “glossy” annual report to shareholders, (2) notices of exempt solicitations and preliminary roll-up communications, (3) annual reports on Form 11-K (with the exceptions discussed below), (4) certain periodic reports filed by Development Banks, (5) documents submitted by foreign private issuers under Form 6-K, (6) certain foreign language documents and (7) certifications made pursuant to Section 12(d) of the Act.
  • A three-year transition period after the effective date of the amendments for the financial statements and accompanying schedules required by Form 11-K to allow employee benefit plans sufficient time to arrange for Inline XBRL filing.

Conclusion

While not altering the content of required SEC reports, these amendments are expected to further modernize reporting procedures and provide investors, including investors without access to the SEC’s paper records, with additional information. Filers should be aware of the new requirements, as well as the timeline for their implementation, so that they may prepare as necessary to meet the new obligations as they come due.

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