The Situation: The Securities and Exchange Commission ("SEC") adopted amendments that will mandate the electronic submission of certain documents, including Form 144, the form filed by insiders in connection with many proposed sales of restricted or control securities.
The Result: After the transition period, insiders will need to obtain access to the Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system to make electronic submissions of Form 144 filings and should be advised that sales activity will be more readily available to the public through EDGAR.
Looking Ahead: Insiders may seek assistance from issuers of securities if broker-dealers cease providing Form 144 filing assistance as a result of these new rules.
On June 2, 2022, the SEC announced the adoption of amendments mandating the electronic submission of certain documents, including Form 144. Rule 144 under the Securities Act of 1933, a commonly used resale registration exemption for directors, executive officers, and other insiders, requires insiders to file a Form 144 in connection with many proposed sales of restricted or control securities.
Under the prior rules, filers had the option of filing Form 144 in paper form or submitting electronically through the SEC's EDGAR system (Rule 101(b) of Regulation S-T). Since April 2020, in response to COVID-19, the SEC has also accepted e-mail submissions of PDF copies. According to the SEC, under these prior reporting options, less than 1% of filings were made electronically through EDGAR, with the remainder filed in paper form or through e-mail submissions. The SEC estimates that as many as 75% of Form 144 filers may need to obtain EDGAR access to file electronically going forward.
EDGAR access requires filers to have a central index key ("CIK") number with the SEC. Filers may have obtained a CIK in connection with previous SEC filings (e.g., Section 16 filings), but first-time electronic filers will need to complete the EDGAR Form ID process in order obtain a CIK. In particular, insiders of Foreign Private Issuers ("FPIs") who have not historically made Section 16 filings will need to obtain EDGAR access to make electronic submissions of Form 144 filings.
Historically, broker-dealers often have submitted Form 144 paper filings on behalf of their clients. However, during the comment period for the amendments, the Securities Industry and Financial Markets Association expressed concern that the amendments would create logistical challenges for broker-dealers in preparing Form 144 filings for their clients, and may result in firms ceasing to provide such services.
If broker-dealers no longer offer Form 144 filing assistance, filers likely will request assistance from the issuer of the securities. Issuers should communicate with insiders regarding this change so insiders can determine if their broker-dealer will continue to assist with Form 144 filings or if they will need help from the company.
Under the prior rules, paper filings were typically only available for review in person at the SEC. Under the amendments, however, all filings will immediately become public and searchable on EDGAR. As a result, insiders of FPIs who are not required to file Section 16 reports will nonetheless have most sales activity made more readily available to the public through EDGAR-filed Form 144 filings.
The amendments provide for a six-month transition period, which will commence on the date the SEC publishes a revised version of the EDGAR Filer Manual addressing these updates. The SEC currently expects to publish the revised version of the EDGAR Filing Manual in September 2022, with estimated compliance required beginning in March 2023.
Four Key Takeaways
- Directors, executive officers, and other insiders looking to sell securities should obtain EDGAR access, if not already an electronic filer.
- Issuers should anticipate requests for assistance with Form 144 filings from insiders, as broker-dealers may ultimately decide to no longer provide Form 144 filing services for their clients.
- Issuers also should advise insiders that Form 144 filings will be publicly available on EDGAR upon filing.
- Insiders of FPIs that have not historically reported trading activity in Section 16 reports will be required to disclose most sales activity in Form 144 filings on EDGAR, which will be more accessible to the public.