SEC Proposes Rules for Disclosure of Hedging Policies

February 20, 2015

Last week, the SEC proposed rules to enhance corporate disclosure of company policies for hedging transactions engaged in by directors, officers and other employees. The proposed rules would require annual meeting proxy statement disclosure about whether directors, officers and other employees are permitted to hedge against any decrease in the market value of company equity securities owned by or granted to them. The proposed rules would require a company to disclose which categories of hedging transactions it permits and which categories of hedging transactions it prohibits. The proposed rules would apply to companies subject to the federal proxy rules, including smaller reporting companies, emerging growth companies and business development companies. The proposed rules do not require a company to adopt a comprehensive hedging policy. However, under the proposed rules, a company would need to disclose more detail than is currently required about the scope and application of company hedging policies. As a result, public companies of all sizes should review their policies in this area. The proposal addresses one of several remaining rule-making mandates imposed on the SEC by the Dodd-Frank Act. According to SEC Chair Mary Jo White, “Increasing transparency into hedging policies will help investors better understand the alignment of the interests of employees and directors with their own.” Read the SEC press release.

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