As our readers know, I am irritated by Congress’s penchant for naming bills so as to create nifty acronyms. And for including provisions that have nothing to do with the name or the acronym. However, I can better put up with these irritants when the legislation – and SEC regulations implementing the legislation – create a good result.
Such is the case with the FAST Act. It stands for “Fixing America’s Surface Transportation Act,” and despite its acronymic name and its questionable connection to securities law, it contained some provisions to make disclosures more effective and the process by which disclosures are made somewhat easier.
These benefits were engraved in stone by the SEC on March 20, when it adopted a series of rules under the FAST Act. The rules provide for the following types of relief:
- Companies will generally be able to exclude a discussion of the earliest of three years in the MD&A if they have already included the discussion in a prior filing.
- Companies will be able to omit confidential information in material contracts and certain other exhibits without submitting a confidential treatment request to the Commission, so long as the information is (i) not material and (ii) would likely cause competitive harm to the company if publicly disclosed. In addition, personally identifiable information can be omitted from exhibits, a topic that has driven securities lawyers and clients nuts for generations. And in both cases, it will no longer be necessary to file a confidential treatment request, which has long been (and will likely remain, when required) one of the most byzantine processes under the securities laws.
- Only newly reporting companies will be required to file material contracts entered within two years of the applicable registration statement or report.
- Companies will not be required to file attachments to material agreements if the attachments do not contain material information or were not otherwise disclosed.
- Companies will no longer be required to file as an exhibit any document or part thereof that is incorporated by reference in a filing, but instead will be required to provide hyperlinks to documents incorporated by reference. And the prohibition against incorporating documents more than five years old has been dropped.
- Companies will need to provide disclosure about a physical property only to the extent that it is material to the company. This reform will save a few trees and, perhaps, alleviate some eye fatigue, as companies have traditionally provided excessive disclosure on properties due to uncertainties as to what’s required.
Of course, no SEC rulemaking is all benefits and no burdens. Accordingly, the new rules will require companies to disclose on the form cover page the national exchange or principal U.S. market for their securities, the trading symbol, and title of each class of securities and to tag all cover page data in Inline XBRL. But those seem like small prices to pay.
More important, the SEC release describing and discussing the above and other provisions is a none too brief 252 pages – unfortunately, long proposing and adopting releases are common when disclosure “simplification” is at issue. However, it’s important to read the release carefully this time, as there are a number of wrinkles in most of the new rules that require attention. And the SEC has already issued some interpretations on the procedures to be followed when immaterial information is omitted from filings under the new rules. More such interpretations, FAQs, and the like can be expected.
The new rules not only are helpful in themselves, but also demonstrate that the SEC is committed to continuing disclosure effectiveness initiatives and, where feasible, to make the filing process less burdensome as well. Keep up the good work, guys!