On December 18, 2018, the SEC adopted a requirement for U.S. public companies to provide proxy disclosure of any practices or policies they have adopted regarding the ability of the company's employees, officers or directors, or their designees, to hedge or offset any decrease in the market value of their holdings of company equity securities. The new requirement implements a long-standing mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The hedging disclosure is intended to enhance investor understanding of the ability of the covered individuals to engage in transactions that may reduce the alignment of their interests with shareholder interests based on their equity ownership. The disclosure requirement generally is consistent with the requirement proposed by the SEC nearly four years ago, but contains some modifications adopted in response to comments on the proposal.
In general, companies must include the required disclosure in any proxy or information statement relating to the election of directors during fiscal years beginning on or after July 1, 2019. Smaller reporting companies and emerging growth companies will be required to provide the disclosure in any proxy or information statement relating to the election of directors during fiscal years beginning on or after July 1, 2020. Accordingly, for calendar year companies, the new disclosure requirement will first apply in 2020 (or in 2021, for smaller reporting companies and emerging growth companies).