Materiality Archives - Securities Law Blog

Nasdaq and NYSE Clawback Rules

On October 26, 2022, the SEC adopted final rules on listing standards for the recovery of erroneously awarded incentive-based executive compensation (“Clawback Rules”) (see HERE). The Clawback Rules implement Section 954 of the Dodd-Frank Act and require that national securities exchanges require disclosure of policies regarding and mandating the clawback of compensation under certain circumstances as a listing qualification.

I’ve written about the Clawback Rules a few times, including SEC guidance (see HERE) but have not detailed the final Nasdaq and NYSE rules, until now.

Nasdaq Clawback Rules

Nasdaq listing Rule 5608 sets forth the listing requirements related to the recovery of erroneously awarded compensation. The language conforms closely to Rule 10D-1 and the SEC release, including explanations on materiality and “litter” restatements that are material based on facts and circumstances and existing judicial and administrative interpretations.

As allowed by Rule 10D-1, the Nasdaq rule provides that a company would not be required to pursue

November 5, 2024

SEC Publishes More New C&DI On Cybersecurity Rules

On June 24, 2024 the SEC published five (5) new compliance and disclosure interpretations (C&DI) on cybersecurity incident disclosures supplementing the C&DI published in December 2023 (see HERE).

Cybersecurity

In July, 2023 the SEC adopted final new rules requiring disclosures for both domestic and foreign companies related to cybersecurity incidents, risk management, strategy and governance (see HERE for a review of the new rules).

The cybersecurity rules add new Item 1.05 to Form 8-K requiring disclosure of a material cybersecurity incident including the incident’s nature, scope, timing, and material impact or reasonably likely impact on the company. An Item 1.05 Form 8-K is due within four business days following determination that a cybersecurity incident is material. Given the sensitive nature of cybersecurity crimes, the SEC has added a provision allowing an 8-K to be delayed if it is informed by the United States Attorney General, in writing, that immediate disclosure would pose a substantial risk to national security or

July 30, 2024

NASDAQ Issues New FAQ On MarketWatch News Submittals

In November 2023, Nasdaq added a new FAQ providing guidance on completing the electronic disclosure form to provide the required advance notice to Nasdaq’s MarketWatch Department when material non-public information is being announced, including news releases. I realized that while I have blogged about the Nasdaq notification requirements in general (see HERE), the recent changes to the Nasdaq reverse split rules, including MarketWatch notification (see HERE) and Nasdaq continued listing requirements (see HERE), I have not yet drilled down on the Nasdaq Rule 5250(b)(1) MarketWatch disclosure requirements, until now.

As an aside, Nasdaq Rule 5250 is a lengthy rule covering multiple facets of listed company obligations (including the reverse split and notification requirements and several of the corporate governance requirements in the blogs linked to above). This blog focuses on Rule 5250(b)(1) and its related IM discussions related to the disclosure of material non-public information.

Nasdaq Rule 5250(b)(1)

Nasdaq Rule 5250(b)(1) sets forth a listed company’s obligation

July 9, 2024

Section 13 – Beneficial Shareholder Reporting Requirements – Part 1

Barely two weeks after the SEC charged six officers, directors and five percent (5%) or greater shareholders with failing to timely file reports, the SEC adopted final amendments to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934 (“Exchange Act”). The amendments were first proposed in February, 2022 – see HERE.

The amendments update Sections 13(d), 13(g) and Regulation 13D-G to accelerate filing deadlines for both initial and amended reports; expand the timeframe within a business day in which filings may be timely made; clarify the Schedule 13D disclosure requirements with respect to derivative securities; and require that Schedule 13D and 13G filings be filed using XBRL. I’ve included a chart of the amendments to Schedules 13D and 13G at the end of this blog.

The final rules do not adopt changes that had been proposed to clarify the circumstances under which two or more persons have formed a “group” that would be subject to beneficial ownership reporting

February 13, 2024

SEC Adopts Final New Rules On Cybersecurity Disclosures

On July 26, 2023, the SEC adopted final new rules requiring disclosures for both domestic and foreign companies related to cybersecurity incidents, risk management, strategy and governance. The proposed rules were published in March 2022 (see HERE). In response to numerous comments, the final rules made several changes to the proposal, including narrowing the disclosures in both the Form 8-K/6-K and annual reports on Form 10-K and 20-F.

The final rules add new Item 1.05 to Form 8-K requiring disclosure of a material cybersecurity incident including the incident’s nature, scope, timing, and material impact or reasonably likely impact on the company. An Item 1.05 Form 8-K will be due within four business days following determination that a cybersecurity incident is material. Given the sensitive nature of cybersecurity crimes, the SEC has added a provision allowing an 8-K to be delayed if it is informed by the United States Attorney General, in writing, that immediate disclosure would pose a substantial

August 29, 2023

Human Capital Disclosures

In August 2020, the SEC adopted final amendments to Item 101 of Regulation S-K including adding a requirement for disclosures related to “human capital” (see HERE). The new rule applies to Form 10-Ks and registration statements filed after November 8, 2020. This blog will not only discuss how companies are navigating their human capital disclosures, but also the push to add more prescriptive disclosure requirements to the rules, which the SEC is considering. Amendments to the rule are currently included on the SEC’s regulatory agenda although as of now, the SEC has not published a proposal.

Drill Down on Human Capital Disclosure

Item 101(c)(2) of Regulation S-K now requires that a company discuss, in its Form 10-K and in registration statements, the following information to the extent material to an understanding of the business: “[A] description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that

December 27, 2022

SEC Proposed Mandatory Climate Disclosure Rules – Part 3

On March 21, 2022, the SEC proposed rules that would require publicly reporting companies to include certain climate-related disclosures in their registration statements and periodic reports. Among other information, the new disclosures would require information about climate-related risks that are reasonably likely to have a material impact on a company’s business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to its audited financial statements.

The proposed rules would include a phase-in period for all registrants, with the compliance date dependent on the registrant’s filer status, and an additional phase-in period for Scope 3 greenhouse gas emissions disclosure.

The proposed rules, which are heady and complex, initially only allotted for a 39-day comment period. Considering the size (490-page rules release), scope, complexity and ramifications, the marketplace pushed back on such a short window. On May 9, 2022, the SEC extended the comment period through June 17, 2022, and all aspects of the industry are

June 7, 2022

ESG – The Disclosure Debate Continues

The ESG debate continues, including within the SEC and amongst other regulators and industry participants. Firmly in support of ESG disclosures, and especially climate change matters, is SEC Chair Gary Gensler and Commissioner Allison Herren Lee, while opposing additional regulation is Commissioners Eliad L. Roisman and Hester M. Peirce. Regardless of whether new regulations are enacted (I firmly believe they are forthcoming), like all SEC disclosure items, the extent of disclosure will depend upon materiality.

Materiality

The U.S. Supreme Court’s definition of materiality is that information should be deemed material if there exists a substantial likelihood that it would have been viewed by the reasonable investor as having significantly altered the total mix of information available to the public [TSC Industries, Inc. v. Northway, Inc.]. The concept of materiality represents the dividing line between information reasonably likely to influence investment decisions and everything else.

Rule 405 of the Securities Act defines “material” as “[T]he term material, when

June 29, 2021

SEC Adopts Amendments To Management Discussion And Analysis

It has been a very busy year for SEC rule making, guidance, executive actions and all matters capital markets. Continuing its ongoing disclosure effectiveness initiative on November 19, 2020, the SEC adopted amendments to the disclosures in Item 303 of Regulation S-K – Management’s Discussion & Analysis of Financial Conditions and Operations (MD&A). The proposed rule had been released on January 30, 2020 (see HERE). Like all recent disclosure effectiveness rule amendments and proposals, the rule changes are meant to modernize and take a more principles-based approach to disclosure requirements. In addition, the rule changes are intended to reduce repetition and disclosure of information that is not material.

The new rules eliminate Item 301 – Selected Financial Data – and amend Items 302(a) – Supplementary Financial Information and Item 303 – MD&A. In particular, the final rules revise Item 302(a) to replace the current tabular disclosure with a principles-based approach and revise MD&A to: (i) to

December 8, 2020

SEC Proposed To Modernize Auditor Independence Rules

As is usual, there are times where I find there are fewer current events to write about in the world of capital markets and I go back to the basics of this regulatory regime I find so fascinating, and others where I have 30 current topics in my writing queue and then a global pandemic occurs adding daily new topics to my list and poof! – six months goes by. Although they were bumped down the list, many of the proposed and completed regulatory changes, and other events, that were on the list remain worthy of attention.

In December 2019, the SEC proposed amendments to codify and modernize certain aspects of the auditor independence framework. The current audit independence rules were created in 2000 and amended in 2003 in response to the financial crisis facilitated by the downfall of Enron, WorldCom and auditing giant Arthur Andersen, and despite evolving circumstances have remained unchanged since that time. The new rules

October 6, 2020

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Materiality

Nasdaq and NYSE Clawback Rules

SEC Publishes More New C&DI On Cybersecurity Rules

NASDAQ Issues New FAQ On MarketWatch News Submittals

Section 13 – Beneficial Shareholder Reporting Requirements – Part 1

SEC Adopts Final New Rules On Cybersecurity Disclosures

Human Capital Disclosures

SEC Adopts Amendments To Management Discussion And Analysis

SEC Proposed To Modernize Auditor Independence Rules

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