SEC Proposes Disclosure Rules on Hedging Policies: Will Not Affect 2015 Proxy Season; Requires Description of Hedging Policies, Not Specific Transactions

Sullivan & Cromwell LLP - February 10, 2015

Yesterday, the SEC proposed rules requiring disclosure of hedging policies for directors, officers and employees of U.S. public companies.  These rules would require each public company to disclose, in any proxy or information statement relating to director elections, whether its directors, officers or employees are permitted to engage in transactions to hedge or offset any decrease in the market value of equity securities of the public company or its affiliates.  The rules would cover both equity securities granted as part of compensation and those otherwise held directly or indirectly and would require disclosure of the categories of hedging transactions a public company permits and those it prohibits.

The proposed rules would not require any company to prohibit hedging transactions or to otherwise adopt hedging policies and would not require disclosure of any particular hedging transactions.

The proposal was approved unanimously by the SEC in private session, but the two Republican Commissioners issued a separate joint statement expressing concerns over the scope of the proposal.  Comments are due 60 days after publication of the proposal in the Federal Register.