SEC + Corporate Governance

The first four weeks of 2025 have proven to be as unpredictable and frenetic as promised, with a new presidential administration taking the reins in Washington, new priorities and proposals being pushed to the forefront, and the capital markets moving in dramatic directions.

As public companies and other participants in the capital markets attempt to successfully and smoothly navigate this rapidly shifting landscape during the year ahead, they should be mindful of the many developments that occurred during 2024, or that are scheduled to take place during 2025, that may significantly impact their reporting and disclosure obligations, their strategy for maintaining compliance with the listing standards of the national securities exchanges, and the processes that they must follow to fulfill their filing obligations.

We summarize seven key developments below.

Insider Trading Policy Disclosure and Exhibit Filing

In December 2022, the U.S. Securities and Exchange Commission (the “SEC”) adopted new rules that require public companies, on an annual basis, to disclose whether they have adopted insider trading policies and procedures governing the purchase, sale, or other disposition of the company’s securities by its directors, officers, or employees, or by the company itself, that are reasonably designed to promote compliance with insider trading laws, rules, and regulations, and, if so, to describe these policies and procedures. The new rules require public companies that have adopted such insider trading policies and procedures to file them as exhibits to their Annual Report on Form 10-K. If a company has not adopted insider trading policies and procedures, it must explain why it has not done so.

For calendar-year companies, this new disclosure requirement and related exhibit filing will be required in the upcoming Form 10-K for the fiscal year ending December 31, 2024. The disclosure may be incorporated by reference from the definitive proxy statement if filed within 120 days from the end of the fiscal year covered by the Form 10-K, as many companies typically do for most of the information required by Part III of the Form 10-K, and must be submitted in Inline XBRL.

Equity Award Policy and Grant Disclosure

As part of the December 2022 rulemaking regarding the disclosure of insider trading policies and procedures discussed above, the SEC adopted new disclosure requirements regarding the timing of certain equity awards close in time to the release of material nonpublic information (MNPI). The new rules require public companies to discuss their policies and practices on the timing of option awards in relation to their disclosure of MNPI, including how the board determines when to grant these awards. In addition, a company must disclose whether the board takes MNPI into account when determining the timing and terms of such awards, and, if so, how, and whether the company has timed the disclosure of MNPI for the purpose of affecting the value of executive compensation.

Moreover, if, during the last completed fiscal year, the company awarded stock options, stock appreciation rights, or similar instruments to one or more named executive officers (NEOs) in the period beginning four business days before the filing of a Form 10-Q or Form 10-K, or the filing or furnishing of a Form 8-K that discloses MNPI (other than an Item 5.02(e) Form 8-K that discloses a material new option award grant), and ending one business day after the filing or furnishing of such report, then the company must provide tabular disclosure regarding these grants. The tabular disclosure must set forth the identity of the NEO, the grant date of the award, the number of securities underlying the award, the exercise price, the grant date fair value of the award, and the percentage change in the closing market price of the securities underlying the award between the trading day immediately prior to the disclosure of MNPI and the trading day beginning immediately following the disclosure of MNPI.

For calendar-year companies, these new disclosures, which must be provided in Inline XBRL, will be required in their Form 10-K for fiscal year 2024 (or in their proxy statement for the 2025 annual meeting if incorporated by reference).

Climate-Related Disclosures

In March 2024, the SEC adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. The final rules require registrants to disclose extensive climate-related information in their registration statements and periodic reports. As adopted, large accelerated filers would have to begin disclosing the required information in their annual reports covering fiscal years that begin in 2025.

On April 4, 2024, the SEC issued an order voluntarily staying the implementation of the climate-related disclosure rules. The stay followed a number of petitions for review filed against the SEC that challenged the legality of the rules. The rules remain stayed and under review by the U.S. Court of Appeals for the Eighth Circuit. Companies are not required to comply with the SEC’s climate-related disclosure rules while the litigation is pending.

It is difficult to predict when the matter will be decided. Adding to the uncertainty is the fact that, although the SEC has vowed to “continue vigorously defending the [final climate-related disclosure rules’] validity in court”, it is not clear whether the SEC, under new leadership following the recent change in presidential administrations, will continue to do so.

Although the climate-related disclosure rules may remain in limbo for an indefinite period of time, public companies that would otherwise be subject to such rules should continue to heed their current obligations regarding climate-related disclosures when preparing their Exchange Act reports during 2025, including the Commission Guidance Regarding Disclosure Related to Climate Change issued by the SEC in 2010 (which highlights existing disclosure requirements that may require climate-specific disclosure) and the sample comment letter issued by the SEC’s Division of Corporation Finance in 2021 (which includes sample staff comments primarily relating to compliance with topics discussed in the SEC’s 2010 guidance as well as disclosure inconsistencies across issuer disclosure channels), as well as the expectations of investors.

Invalidation of Nasdaq’s Board Diversity Rule

On December 11, 2024, in a 9-8 ruling that followed an en banc hearing, the Fifth Circuit invalidated the SEC’s approval of Nasdaq’s board diversity rule in Alliance for Fair Board Recruitment v. SEC. Following a historical analysis of the Exchange Act, the court ruled that, absent a clear Congressional directive, the SEC lacked statutory authority to approve the rule in light of the limited purposes of the Exchange Act (i.e., to protect investors and the macroeconomy from speculative, manipulative, fraudulent and anti-competitive practices).

Nasdaq has notified listed companies that, although it disagrees with the court’s decision, it does not plan to appeal the ruling. As a result, companies that are currently listed on Nasdaq, as well as those seeking a Nasdaq listing, will no longer be required to follow Nasdaq’s board diversity disclosure rules. The SEC has stated that it is reviewing the decision. However, given the recent change in presidential administrations, it is unlikely that the SEC, under new leadership, will take action to challenge the court’s decision.

Nasdaq’s board diversity rule, which was proposed in December 2020 and thereafter approved by the SEC in August 2021, required listed companies, subject to transition periods to: (i) publicly disclose information on the voluntary self-identified gender and racial characteristics and LGBTQ+ status of the company’s board of directors, subject to certain exceptions; (ii) present the information in a board diversity matrix on an aggregated basis by specified characteristics; (iii) have at least two members of its board of directors who are “diverse”, including at least one director who self-identifies as female and at least one director who self-identifies as an underrepresented minority or LGBTQ+, subject to certain exceptions; and (iv) provide an explanation for not achieving the diversity metrics established by the rule if such company does not achieve such diversity metrics.

Public companies should review their forthcoming annual disclosures to consider whether, and the extent to which, to include diversity-related information. The Fifth Circuit decision does not prevent companies from voluntarily disclosing the information required by the board diversity rule should such companies desire to do so. Furthermore, proxy advisory firms such as Institutional Shareholder Services and Glass Lewis, along with certain other major institutional investors, continue to consider board diversity in their voting recommendations.

Nasdaq Reverse Stock Split Limitations

On October 7, 2024, the SEC approved a proposed amendment to Nasdaq Rule 5810(c)(3)(A) designed to limit excessive reverse stock splits implemented to comply with Nasdaq’s minimum bid price requirement. Rules 5550(a)(2) and 5450(a)(1) of the Nasdaq Capital Market require Nasdaq companies to maintain a minimum bid price of $1.00 per share. If a company’s bid price falls below $1.00 per share for 30 consecutive business days, Nasdaq will deem the company non-compliant and issue a deficiency notice. The deficient company would then have 180 calendar days from the date of the deficiency notice to regain compliance by satisfying the minimum bid price requirement for 10 consecutive business days.

Historically, a significant number of companies that have run afoul of the minimum bid price requirement have sought to cure such deficiency by implementing a reverse stock split. However, reverse stock splits, which reduce the number of shares outstanding, can simultaneously result in a separate continued listing deficiency under Nasdaq’s rules, such as a failure to have a sufficient number of publicly held shares or public stockholders. In this scenario, under the prior rules, Nasdaq would notify the delinquent company of the secondary deficiency, and the company would be afforded a new 45 calendar day period to submit a plan to cure such secondary deficiency and up to 180 additional calendar days to address the secondary deficiency, thus extending the compliance process beyond the initial bid-price deficiency period.

Under the new rule, companies that cure a bid price deficiency by implementing a reverse split will not be afforded additional time to cure a secondary deficiency that was caused as a result of such reverse stock split. Rather, such companies will be required to correct the minimum bid price deficiency and any other secondary deficiencies caused by the reverse stock split, within the original period for compliance with the minimum bid price requirement. Additional compliance periods otherwise available for the secondary deficiency are no longer applicable.

Going forward, Nasdaq-listed companies should be mindful of the impact of the proposed rule amendment, and the impact of any contemplated reverse stock split on the other numerical listing standards required by Nasdaq, when determining whether to implement a reverse stock split in order to cure a minimum bid price deficiency.

Accelerated Schedule 13D / 13G Filing Deadlines

On October 10, 2023, the SEC adopted amendments to the beneficial ownership reporting rules under Sections 13(d) and 13(g) under the Exchange Act. The amendments significantly accelerated the timeline for original Schedule 13D and Schedule 13G filings and any amendments thereto. Compliance with the new Schedule 13D filing deadlines has been required since early 2024 and compliance with the new Schedule 13G filing deadlines was required as of September 30, 2024.

With respect to Schedule 13D filings, all Schedule 13D filers currently have to file an initial Schedule 13D within five (5) business days after either acquiring beneficial ownership of more than 5% of a class of voting equity securities registered under the Exchange Act or losing eligibility to file on Schedule 13G, and such filers must file an amended Schedule 13D to disclose material changes within two (2) business days following any change that requires an amendment.

With respect to initial Schedule 13G filings:

• “Qualified Institutional Investors” and “Exempt Investors” must file an initial Schedule 13G no later than 45 calendar days after the calendar quarter in which they beneficially own 5% or more of a class of voting equity securities registered under the Exchange Act; and
• “Passive Investors” must file an initial Schedule 13G within five (5) business days after the date on which the 5% beneficial ownership threshold is crossed.

With respect to 13G amendments:

• All Schedule 13G filers must file a Schedule 13G amendment to disclose material changes no later than 45 calendar days after each calendar quarter;
• Passive Investors must file a Schedule 13G amendment within two (2) business days of acquiring 10% or more of a class of voting equity securities registered under the Exchange Act; and
• Qualified Institutional Investors must file a Schedule 13G amendment within five (5) business days after the end of the month in which they cross the 10% threshold.

All Schedule 13D and 13G filers, including directors and officers of public companies who directly or indirectly beneficially own five percent (5%) or more of the outstanding shares of such company, should ensure that their initial and amended filings are compliant with the amended rules and filing deadlines. Also, reporting companies should ensure that they are reviewing the most recent Schedule 13D or 13G filing for purposes of gathering the information to be presented in the beneficial ownership table of their proxy statement.

Upcoming Changes to the EDGAR System

In September 2024, the SEC adopted final rules intended to improve access to and management of accounts on its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system that are related to certain technical changes to EDGAR (collectively referred to as “EDGAR Next”).

The changes will require individual account credentials to log into EDGAR (allowing identification of the specific person making each submission) and multifactor authentication. Filers will also be required to authorize individuals to manage their EDGAR accounts on a new EDGAR Next dashboard. Filers will need to authorize at least two individuals as account administrators to manage their EDGAR account (one is permitted if the filer is an individual or single-member company). As part of the changes, optional EDGAR Application Programming Interfaces will be added to allow filers to make submissions, retrieve information, and perform account management tasks on a machine-to-machine basis.

The beta version of EDGAR Next was released on September 30, 2024. Filers currently have the option to adopt it. Enrollment in EDGAR Next opens on March 24, 2025. The compliance date for EDGAR Next, by which time all filers must enroll in EDGAR Next, is September 15, 2025. Filers who do not enroll in EDGAR Next will still be able to file through the legacy EDGAR system until September 12, 2025. Thereafter, existing filers may continue to enroll until December 19, 2025, but enrollment will be a prerequisite to filing. Beginning December 22, 2025, filers who have not enrolled in EDGAR Next or received access through submission of an amended Form ID will be required to submit an amended Form ID to request access to their existing accounts.

If you have any questions regarding any of the matters discussed in this Client Update, or any other matters relating to the reporting and disclosure obligations of public companies or other participants in the capital markets, please reach out to Michael T. Campoli or to any of the other Pryor Cashman attorneys with whom you regularly work.