Rule2026-04202
Holding Foreign Insiders Accountable Act Disclosure
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 3, 2026
Effective
March 18, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is adopting final amendments to certain of its rules and forms under the Securities Exchange Act of 1934 ("Exchange Act") to reflect the requirements of the Holding Foreign Insiders Accountable Act ("HFIA Act"). The HFIA Act amended Section 16(a) of the Exchange Act to require directors and officers of a foreign private issuer with a class of equity securities registered under Section 12 of the Exchange Act to provide disclosure of their beneficial ownership and transactions involving the issuer's equity securities. The final amendments revise the Commission's rules and forms to reflect these statutory requirements.
Full Text
<html>
<head>
<title>Federal Register, Volume 91 Issue 41 (Tuesday, March 3, 2026)</title>
</head>
<body><pre>
[Federal Register Volume 91, Number 41 (Tuesday, March 3, 2026)]
[Rules and Regulations]
[Pages 10320-10334]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-04202]
[[Page 10320]]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-104903]
RIN 3235-AN75
Holding Foreign Insiders Accountable Act Disclosure
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting final amendments to certain of its rules and forms under the
Securities Exchange Act of 1934 (``Exchange Act'') to reflect the
requirements of the Holding Foreign Insiders Accountable Act (``HFIA
Act''). The HFIA Act amended Section 16(a) of the Exchange Act to
require directors and officers of a foreign private issuer with a class
of equity securities registered under Section 12 of the Exchange Act to
provide disclosure of their beneficial ownership and transactions
involving the issuer's equity securities. The final amendments revise
the Commission's rules and forms to reflect these statutory
requirements.
DATES: Effective date: March 18, 2026.
FOR FURTHER INFORMATION CONTACT: Kelsey Glover, Special Counsel, or
Kateryna Kuntsevich, Special Counsel, in the Office of International
Corporate Finance, Division of Corporation Finance, at (202) 551-3450,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: We are adopting final amendments to the
following rules and forms:
------------------------------------------------------------------------
CFR citation (17
Commission reference CFR)
------------------------------------------------------------------------
Exchange Act: \1\
Rule 3a12-3(b)................................... 240.3a12-3(b)
Rule 16a-2....................................... 240.16a-2
Form 3........................................... 249.103
Form 4........................................... 249.104
Form 5........................................... 249.105
------------------------------------------------------------------------
I. Background
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78a et seq.
---------------------------------------------------------------------------
Section 16(a) \2\ of the Exchange Act requires directors,\3\
officers,\4\ and persons who beneficially own more than 10 percent of
any class of equity securities registered under Section 12 of the
Exchange Act (``10 percent holders,'' and collectively with directors
and officers, as applicable, ``Section 16 reporting persons'') to
disclose their holdings of the issuer's equity securities and
transactions in the issuer's equity securities through filings with the
Commission (``Section 16 reports'').\5\ Section 16(b) \6\ of the
Exchange Act requires the disgorgement of any profits realized by a
Section 16 reporting person from any purchase and sale of any equity
security of an issuer within a period of less than six months. Section
16(c) \7\ prohibits Section 16 reporting persons from engaging in
certain short sales of the issuer's equity securities, with certain
exceptions provided by Commission rules.\8\
---------------------------------------------------------------------------
\2\ 15 U.S.C. 78p(a).
\3\ Exchange Act Section 3(a)(7) defines director as any
director of a corporation or any person performing similar functions
with respect to any organization, whether incorporated or
unincorporated. 15 U.S.C. 78c(a)(7).
\4\ Rule 16a-1(f) defines officer as an issuer's president,
principal financial officer, principal accounting officer (or, if
there is no such accounting officer, the controller), any vice-
president of the issuer in charge of a principal business unit,
division or function (such as sales, administration or finance), any
other officer who performs a policy-making function, or any other
person who performs similar policy-making functions for the issuer.
17 CFR 240.16a-1(f).
\5\ Section 16 reports are: Form 3, which is filed by Section 16
reporting persons to report their initial beneficial ownership of
equity securities; Form 4, which is filed by Section 16 reporting
persons to report any changes in their ownership within two business
days of the transaction; and Form 5, which is an annual filing for
Section 16 reporting persons who need to report unreported or
deferred beneficial ownership changes or transactions and is due 45
days after the issuer's fiscal year end.
\6\ 15 U.S.C. 78p(b).
\7\ 15 U.S.C. 78p(c).
\8\ 17 CFR 240.16c-1 et seq.
---------------------------------------------------------------------------
The HFIA Act,\9\ enacted on December 18, 2025, amended Section
16(a) to require every person who is a director or an officer of a
``foreign private issuer,'' as that term is defined in Exchange Act
Rule 3b-4,\10\ with a class of equity securities registered pursuant to
Section 12 (but not 10 percent holders of FPIs \11\) to file Section 16
[[Page 10321]]
reports electronically and in English.\12\ The Section 16(a) filing
requirements for directors and officers of FPIs will become effective
90 days after enactment of the HFIA Act, or March 18, 2026.\13\ The
HFIA Act states that if any provision of Exchange Act Rule 3a12-3(b),
which currently exempts securities registered by an FPI from all
Section 16 obligations, is inconsistent with the amendments to Section
16(a), then such provision of Rule 3a12-3(b) will have no force or
effect after the effective date of the HFIA Act.\14\ The HFIA Act
mandates that the Commission issue final regulations (or amend or
rescind, in whole or in part, existing regulations) to carry out the
amendments made by the act no later than 90 days after the date of
enactment.\15\ The HFIA Act did not amend Section 16(b) or Section
16(c), which provisions, accordingly, remain inapplicable to Section 16
reporting persons of FPIs.
---------------------------------------------------------------------------
\9\ Sec. 8103 of the National Defense Authorization Act (cited
as Holding Foreign Insiders Accountable Act, or HFIA Act), Public
Law 119-60, [X] Stat. [X] (Dec. 18, 2025), Sec. 8103.
\10\ 17 CFR 240.3b-4. Paragraph (b)(1)(A) of the HFIA Act refers
to a foreign private issuer, as that term is defined in section
240.3b-4 of title 17, Code of Federal Regulations, or any successor
regulation, and paragraph (b)(1)(B)(ii), in addressing the initial
filing obligation, makes reference to a foreign private issuer, the
securities of which are . . . registered pursuant to subsection (b)
or (g) of section 12. We interpret these statutory provisions to
mean that Section 16(a)'s disclosure requirements apply only with
respect to such foreign private issuers. We refer to foreign private
issuers with a class of equity securities registered pursuant to
Section 12 as ``FPIs'' for purposes of this release.
\11\ Some commentators have suggested that the HFIA Act's
requirements extend to 10 percent holders of FPIs. See, e.g.
Professors Bradford Levy, Robert J. Jackson, Jr. and Daniel Taylor,
Rulemaking Petition Pursuant to the Holding Foreign Insiders
Accountable Act (HFIAA), File No. 4-879, Securities and Exchange
Commission (filed Jan. 26, 2026) (``Petition''). In addressing such
comments and the Petition, we note that the language of the HFIA Act
is expressly addressed to directors and officers of FPIs rather than
10 percent holders. Specifically, paragraph (b)(1)(A) of the HFIA
Act amends Section 16(a) of the Exchange Act to provide as follows:
Every person who is directly or indirectly the beneficial owner of
more than 10 percent of any class of equity security . . . or who is
a director or an officer of the issuer of such security (including,
solely for purposes of this sub-section, every person who is a
director or an officer of a foreign private issuer . . .), shall
file [beneficial ownership reports] (emphasis added). The
legislation inserts new language relating to FPIs only in reference
to directors and officers and does not insert any such reference to
FPIs' 10 percent holders. Based on the statutory text, we interpret
this amendment to mean that the new Section 16(a) reporting
requirements apply only to directors and officers and not 10 percent
holders of FPIs. This interpretation also is consistent with the
legislative history. Prior versions of the HFIA Act introduced in
Congress contained broader language extending Section 16(a)'s
reporting requirements to ``any . . . security of a foreign private
issuer'' generally, without specifying the classes of persons
obligated to file reports, rather than the more limited language of
the HFIA Act as enacted. Holding Foreign Insiders Accountable Act,
S.1089, 119th Cong. (introduced Mar. 24, 2025). Furthermore, this
interpretation is supported by public statements on the HFIA Act and
predecessor bills by the statute's co-sponsors, which focus on
``executives'' as the parties intended to be covered by the
amendment: See, e.g., Sens. Chris Van Hollen & John Kennedy, Foreign
Companies Should Have to Play by the Same Rules, Wall Street
Journal, Apr. 16, 2023 (``We are introducing new legislation called
the Holding Foreign Insiders Accountable Act that would require
executives at foreign firms that raise money in the U.S. to disclose
their trades . . .''). We do not view the section title of the HFIA
Act (``DISCLOSURES BY DIRECTORS, OFFICERS, AND PRINCIPAL
STOCKHOLDERS'') as dispositive of Congress's intent to apply the
statutory amendments to 10 percent holders. We note that this
language simply tracks the title of the provision being amended--
i.e., Section 16 of the Exchange Act, which also reads, ``DIRECTORS,
OFFICERS, AND PRINCIPAL STOCKHOLDERS.'' 15 U.S.C. 78p. In any case,
the United States Supreme Court has made clear that titles do not
``override the plain words'' of a statute and do not control. See
Dubin v. United States, 599 U.S. 110, 121 (2023) (quoting Fulton v.
Philadelphia, 593 U.S. 522, 536 (2021)); Bhd. of R.R. Trainmen v.
Balt. & Ohio R.R., 331 U.S. 519, 528-529 (1947). Moreover, to the
extent the HFIA Act requires us to make certain changes to how rule
provisions addressing FPIs are structured (see Rules 3a12-3(b) and
16a-2, as amended), this does not provide a basis to read the
statute more broadly than what Congress enacted.
\12\ HFIA Act, paragraph (b)(1).
\13\ HFIA Act, paragraph (b)(2). Directors and officers of any
FPI whose securities were registered pursuant to Section 12(b) or
(g) of the Exchange Act as of the date of enactment of the HFIA Act
(Dec. 18, 2025) are required to file their initial reports with the
Commission on Mar. 18, 2026. Id., paragraph (b)(1)(B)(ii).
\14\ HFIA Act, paragraph (c). The HFIA Act also amended Section
16(a) to grant the Commission authority to conditionally or
unconditionally exempt any person, security, or transaction, or any
class or classes of persons, securities, or transactions, from the
reporting requirements of Section 16(a) if the Commission determines
that the laws of a foreign jurisdiction apply substantially similar
requirements to such person, security, or transaction. The
Commission may consider granting such exemptive relief in a separate
rulemaking or order.
\15\ HFIA Act, paragraph (d)(1).
---------------------------------------------------------------------------
II. Final Amendments
As mandated by the HFIA Act, we are adopting final amendments to
Rule 3a12-3(b), Rule 16a-2, and Forms 3, 4, and 5 to conform these
rules and forms to the HFIA Act.
<bullet> We are amending Rule 3a12-3(b) to be consistent with the
HFIA Act by removing the current exemption from Section 16 in its
entirety and replacing it with exemptions from Section 16(b) and
Section 16(c) only.\16\ Accordingly, Rule 3a12-3(b) will no longer
exempt directors and officers of FPIs \17\ with a class of equity
securities registered under Section 12 from the filing obligations
imposed by Section 16(a) and Rule 16a-2 (and related rules).
---------------------------------------------------------------------------
\16\ We note that Exchange Act Rule 16a-3(g)(1) requires Section
16 reporting persons to report on Form 4 all transactions not exempt
from section 16(b) as well as certain transactions that are exempt
from Section 16(b) by Commission rule. 17 CFR 240.16a-3(g)(1). See
also Instruction 4(a)(i)(1) of Form 4. Exchange Act Rule 16a-3(f)(1)
requires Section 16 reporting persons to report on Form 5
transactions not previously reported on Form 4 or eligible for
deferred reporting pursuant to Commission rule, including certain
transactions exempt from Section 16(b). 17 CFR 240.16a-3(f)(1). See
also General Instruction 4(a)(i)(A) of Form 5. The HFIA Act requires
directors and officers of FPIs to file Section 16 reports while
maintaining an exemption from Section 16(b)'s short-swing profit
disgorgement provision for their transactions. Given this statutory
mandate, directors and officers of FPIs should not view the language
in Rule 16a-3(g)(1) and (f)(1), or similar language in Instructions
to Forms 4 and 5, as exempting them from reporting transactions
otherwise required by Section 16(a). Finally, the Transaction Codes
listed in the Instructions for Forms 4 and 5 also apply to
transactions of directors and officers of FPIs, notwithstanding
their exemption from Section 16(b) under Rule 3a12-3(b).
\17\ Some FPIs have a two-tier board structure, with a
supervisory (non-management) board and a management board. For
purposes of certain item requirements of Form 20-F, the term board
of directors refers only to the supervisory or non-management board.
See, e.g., Instruction 1 to Item 16K(c) of Form 20-F. However,
Section 3(a)(7) sets forth the definition of a director for purposes
of the Exchange Act, including Section 16(a). See supra note 3,
Whether a person is a director of an FPI for purposes of Section
16(a) reporting is therefore a factual determination based on the
Section 3(a)(7) definition.
---------------------------------------------------------------------------
<bullet> The HFIA Act did not extend Section 16(a) filing
requirements to 10 percent holders of equity securities of FPIs
registered under Section 12. We are therefore amending Rule 16a-2,
which identifies persons and transactions subject to Section 16, to
exclude 10 percent holders of FPIs' equity securities from the
requirements of Section 16(a) and related rules.
<bullet> We are amending Section 16 reports to reflect the changes
made by the HFIA Act. We are amending General Instructions 1.(a)(i),
(ii), and (iv) to Form 3 to include directors and officers of FPIs and
exclude 10 percent holders of FPIs from the requirement to file the
form.
<bullet> We are making technical amendments to each of the Section
16 reports to include an optional field for a foreign trading
symbol,\18\ a postal code, and a country code as part of the address of
the reporting person.\19\ Although Forms 3, 4, and 5 are already filed
by certain individuals with foreign addresses who provide country codes
in the ``State'' field, we believe that the increased number of filings
by foreign individuals that will result from the enactment of the HFIA
Act warrants a clearer designation of the reporting person's
country.\20\
---------------------------------------------------------------------------
\18\ Section 16 reporting persons will continue to be required
to enter name and ticker or trading symbol in Box 3 of Form 3 and
Box 2 of Form 4 and Form 5. The forms will now also include an
optional field (Box 3a. of Form 3 and Box 2a. of Form 4 and Form 5)
to allow for the listing of a second trading symbol for FPIs with
trading in both U.S. and non-U.S. markets. In cases where a Section
16 reporting person of FPIs holds shares that are traded in both in
U.S. and non-U.S. markets, they should include both trading symbols.
In cases where shares only have a foreign trading symbol, a Section
16 reporting person of FPIs could either enter the foreign trading
symbol in the first mandatory box (Box 3 of Form 3 and Box 2 of Form
4 and Form 5) if allotted space allows or enter ``none'' in that
first trading symbol box and enter the foreign trading symbol in the
second box (Box 3a. of Form 3 and Box 2a. of Form 4 and Form 5).
\19\ EDGAR country codes are documented in the EDGAR Form D XML
Technical Specification and EDGAR Ownership XML Technical
Specification. A list of the country codes is available on the SEC
website at <a href="https://www.sec.gov/submit-filings/filer-support-resources/edgar-state-country-codes">https://www.sec.gov/submit-filings/filer-support-resources/edgar-state-country-codes</a>.
\20\ We are also amending the instructions to the Section 16
reports to update certain Commission contact information that is no
longer current.
---------------------------------------------------------------------------
III. Procedural and Other Matters
If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such provisions to
other persons or circumstances that can be given effect without the
invalid provision or application.
The Office of Management Budget has determined that this action is
not a significant regulatory action as defined in Executive Order
12866, as amended, and therefore it was not subject to Executive Order
12866 review. Pursuant to the Congressional Review Act,\21\ the Office
of Information and Regulatory Affairs has designated these amendments
as not a ``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------
\21\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a proposed rulemaking in the Federal
Register and provide an opportunity for public comment.\22\ This
requirement does not apply, however, if the agency ``for good cause
finds . . . that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest.'' \23\ As discussed in
Section I above, the HFIA Act amended the Exchange Act to extend
Section 16(a) reporting requirements to directors and officers of FPIs
and mandated that the Commission issue final regulations (or amend or
rescind, in whole or in part, existing regulations) to carry out the
amendments made by
[[Page 10322]]
the HFIA Act no later than 90 days after the date of enactment of the
Act. Because the amendments described in Section II above simply
conform the Commission's rules and forms to the requirements of the
HFIA Act and involve limited exercise of agency discretion, we find
that notice and public comment are unnecessary.\24\
---------------------------------------------------------------------------
\22\ See 5 U.S.C. 553(b).
\23\ Id.
\24\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the amendments to become effective notwithstanding
the requirement of 5 U.S.C. 801 (if a federal agency finds that
notice and public comment are impractical, unnecessary, or contrary
to the public interest, a rule shall take effect at such time as the
federal agency promulgating the rule determines). The amendments
also do not require analysis under the Regulatory Flexibility Act.
See 5 U.S.C. 604(a) (requiring a final regulatory flexibility
analysis only for rules required by the APA or other law to undergo
notice and comment).
---------------------------------------------------------------------------
The APA also generally requires that an agency publish an adopted
rule in the Federal Register 30 days before it becomes effective.\25\
This requirement, however, does not apply if the agency finds good
cause for making the rule effective sooner.\26\ For the same reasons as
we are forgoing notice and comment, we find good cause to make the
rules effective on March 18, 2026.
---------------------------------------------------------------------------
\25\ See 5 U.S.C. 553(d).
\26\ Id.
---------------------------------------------------------------------------
IV. Economic Analysis
We are mindful of the costs imposed by, and the benefits obtained
from, our rules. Under Section 3(f) of the Exchange Act,\27\ whenever
the Commission is engaged in rulemaking and required to consider or
determine whether an action is necessary or appropriate in (or, with
respect to the Investment Company Act, consistent with) the public
interest, it shall also consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation. In addition, Section 23(a)(2) of the Exchange Act
requires the Commission to consider the impact on competition of any
rules the Commission adopts under the Exchange Act and prohibits the
Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.\28\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78c(f).
\28\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
We have considered the economic effects of the final amendments,
including their effects on competition, efficiency, and capital
formation. As discussed in Section II above, the final amendments
conform the Commission's rules and forms to the requirements of the
HFIA Act. Accordingly, when we discuss the economic effects of the
final amendments, we are discussing costs and benefits that stem
directly from the changes made by the HFIA Act.\29\
---------------------------------------------------------------------------
\29\ Because the amendments conform the Commission's rules and
forms to the HFIA Act and involve limited exercise of agency
discretion, we did not identify significant regulatory alternatives
to these conforming changes. As noted above, the HFIA Act grants the
Commission authority to exempt certain persons, securities or
transactions from the new Section 16(a) reporting requirements in
specified circumstances. See supra note 14. While outside the scope
of this rulemaking, the general effects of such an exemption would
be to reduce the compliance costs and transparency benefits
associated with the amendments, although the magnitude of those
effects would depend on a number of factors, such as the home
country reporting requirements and disclosure practices of exempted
directors and officers.
---------------------------------------------------------------------------
Many of the effects discussed below cannot be quantified. For
example, the magnitude of indirect costs incurred by directors and
officers is difficult to quantify because the indirect costs are
complex and difficult to observe. Relatedly, while we cite evidence,
where available, of the potential information benefits from trade
disclosures, it is difficult to predict whether their magnitude would
be similar to the benefits realized today in the case of issuers other
than FPIs, or for the subset of FPI directors and officers whose trade
disclosures are available today.\30\ Consequently, while we have,
wherever possible, attempted to quantify the economic effects expected
from the final amendments, much of the discussion remains qualitative
in nature. Where we are unable to quantify the economic effects of the
final amendments, we provide a qualitative assessment of the potential
benefits, costs, and impacts of the amendments on efficiency,
competition, and capital formation.
---------------------------------------------------------------------------
\30\ See infra notes 49, 55, and 59 and accompanying text.
---------------------------------------------------------------------------
A. Broad Economic Considerations
The final amendments are expected to provide greater transparency
to investors in FPIs with a class of equity securities registered under
Section 12. Specifically, the amendments are expected to decrease
information asymmetries between Section 16 reporting persons and
investors about director and officer trading, as well as directors' and
officers' beneficial ownership positions, enabling potentially more
informed investment and voting decisions.
Through increased transparency due to directors and officers of
FPIs being subject to Section 16(a) reporting and the ensuing potential
for market and regulatory scrutiny of their trades and other
transactions in the issuer's securities,\31\ the final amendments also
may deter trading based on material nonpublic information (``MNPI'') by
such directors and officers, resulting in potential benefits to
investors and improvement in incentives of the FPI directors and
officers.\32\ Due to their access to MNPI, FPI directors and officers
can obtain illegitimate profits through the strategic timing of trades
in the issuer's securities. In addition, such trading can: distort the
incentives of FPI directors and officers, resulting in a loss of
shareholder value and erosion of investor confidence in the markets;
lead to reputational costs for issuers; and negatively affect the
willingness of investors to trade the issuer's shares, the liquidity of
the issuer's shares, and market efficiency, as well as capital
formation and the ability to fund investments.\33\
---------------------------------------------------------------------------
\31\ Studies have found evidence that changes in mandatory
disclosure affect behavior. See, e.g., Elizabeth C. Chuk, Economic
Consequences of Mandated Accounting Disclosures: Evidence from
Pension Accounting Standards, 88 Acct. Rev. 395 (2013); Alice Adams
Bonaim[eacute], Mandatory Disclosure and Firm Behavior: Evidence
from Share Repurchases, 90 Acct. Rev. 1333 (2015).
\32\ Nevertheless, these effects may be smaller as Exchange Act
Section 10(b) and Rule 10b-5 already apply to FPIs today, which
likely serve as a deterrent to trading on the basis of MNPI. See 15
U.S.C. 78j and 17 CFR 240.10b-5.
\33\ For a comprehensive discussion of the economics of trading
on the basis of MNPI and the evidence on its implications for
investors and the capital markets, see Insider Trading Arrangements
and Related Disclosures, Release No. 33-11138, at 118-27 (Dec. 14,
2022) [87 FR 80362, 80394-97 (Dec. 29, 2022)].
---------------------------------------------------------------------------
Under the current reporting framework, the information currently
available to investors and other market participants regarding the
trading and beneficial ownership positions of FPI directors and
officers is limited. As a result, investors cannot currently use such
information when valuing an FPI's shares. The disclosure required by
the final amendments will provide greater transparency to investors and
decrease information asymmetries between FPI directors and officers and
outside investors about the directors' and officers' trading and
beneficial ownership positions, enabling more informed decisions about
whether to invest in the FPI's shares and at what valuation.\34\ This
added transparency may result in more efficient capital allocation and
more informationally efficient pricing. The additional
[[Page 10323]]
disclosure requirements may also indirectly yield potential capital
formation benefits if they increase investor confidence in the
alignment of the incentives of the FPI directors and officers with
shareholder interests.
---------------------------------------------------------------------------
\34\ Generally, by linking employees' and directors' wealth to
shareholder wealth, an ownership stake in the company can provide
employees and directors with an incentive to improve shareholder
value. See, e.g., Michael C. Jensen & William H. Meckling, Theory of
The Firm: Managerial Behavior, Agency Costs and Ownership Structure,
3 J. Fin. Econ. 305-360 (1976); Bengt Holmstrom, Moral Hazard and
Observability, 10 Bell J. Econ. 324, 324-340 (1979); Bengt Holmstrom
& Joan Ricart I. Costa, Managerial Incentives and Capital
Management, 101 Q. J. Econ. 835, 835-860 (1986).
---------------------------------------------------------------------------
All the effects described above will be smaller to the extent that
some information already is available regarding trading and beneficial
ownership positions of FPI directors and officers today. It is
important to note that the economic effects of the final amendments,
including both the incremental benefits and the costs, will be lower in
cases of FPIs whose directors and officers are already subject to
similar reporting requirements in their home country jurisdictions.\35\
As a further consideration, the informational effects of the amendments
will be smaller to the extent that some information is already
disclosed in Form 144 filings (required to be filed by directors and
officers of FPIs with respect to proposed sales of restricted and/or
control securities under that Securities Act safe harbor).\36\
Nevertheless, Section 16 requirements are expected to provide more
comprehensive disclosure with respect to the trading and beneficial
ownership positions of FPI directors and officers because they also
cover dispositions other than Rule 144 resales and acquisitions, as
well as the initial reporting of beneficial ownership positions, which
is not currently required.\37\ As a further general consideration, the
effect on share prices of the information contained in Section 16
reports may vary depending on the types of transactions reported by
directors and officers.\38\
---------------------------------------------------------------------------
\35\ See infra note 55.
\36\ A Section 16 reporting person may elect to rely on the Rule
144 safe harbor when selling restricted and/or control securities,
and in that instance such a reporting person would have to make a
Form 144 filing. See infra Section IV.B.2 for the estimate of the
number of directors and officers of FPIs that have filed Form 144
recently. See, e.g., Robert Jackson, Jr., Bradford Lynch-Levy &
Daniel Taylor, Holding Foreign Insiders Accountable, 70 Mgmt. Sci.
4604, 4604-4613 (2024) (``JLT (2024)'') for an analysis of the
information content contained in FPI insider Form 144 filings.
Subsequent to the sample period of the study, electronic filing of
Form 144 became mandatory, which can further facilitate quick
dissemination of information about insider sales reported on Form
144 to investors and other market participants. See infra note 50.
\37\ See infra note 49. Further, some studies, based on insiders
of non-FPI issuers, which have been subject to Section 16
requirements for a long time, show that the information content of
insider purchases is greater than the information content of insider
sales, making this information effect potentially significant. See,
e.g., Leslie A. Jeng, Andrew Metrick & Richard Zeckhauser,
Estimating the Returns to Insider Trading: A Performance-Evaluation
Perspective, 85 Rev. Econ. & Stat. 453, 453-471 (2003) (``Jeng et
al. (2003)'') (finding that ``insider purchases earn abnormal
returns of more than 6% per year, and insider sales do not earn
significant abnormal returns''). Separately, some beneficial
ownership positions of insiders of FPIs may be required to be
disclosed on Schedules 13D/G, where applicable.
\38\ See Lauren Cohen, Christopher Malloy & Lukasz Pomorski,
Decoding Inside Information, 67 J. Fin. 1009, 1009-1043 (2012)
(``Cohen et al. (2012)'') (showing that ``there is predictable,
identifiable `routine' insider trading that is not informative about
firms' futures. A portfolio strategy that focuses solely on the
remaining ``opportunistic'' traders yields value-weighted abnormal
returns of 82 basis points per month, while abnormal returns
associated with routine traders are essentially zero . . .''). The
term ``routine'' is used in the Cohen et al. (2012) study to refer
to trades by ``routine traders,'' which the study defines as
``insider who placed a trade in the same calendar month for at least
three consecutive years.'' The Cohen et al. (2012) study defines
``opportunistic'' trades as trades by everyone that is not a
``routine trader.'' Another dimension along which differences among
directors and officers may affect the information in Section 16
reports is how many issuer shares they hold, through direct
acquisitions or issuer-granted compensation securities.
---------------------------------------------------------------------------
As a caveat, the trading research cited above generally focuses on
non-FPIs, characterized by dispersed ownership structure and more
homogeneity in corporate governance standards, as well as certain
additional requirements. For example, directors and officers of non-
FPIs are subject to Section 16(b) and 16(c), which provide additional
deterrents against directors and officers from engaging in activities
that Section 16 is intended to address. Non-FPIs also have to disclose
information about any noncompliance with Section 16(a) filing
requirements by directors and officers in their annual Form 10-K
filings, proxy statements and information statements. The HFIA Act
extends only Section 16(a) reporting to FPI directors and officers,
without subjecting the directors and officers to the short-swing profit
disgorgement provision of Section 16(b) or the short sale prohibition
provision of Section 16(c). Neither the HFIA Act nor the Commission
rules include a requirement for FPIs to disclose non-compliance with
Section 16(a) filing requirements by directors and officers. In
addition, some FPIs may have different attributes, such as concentrated
ownership (e.g., due to a large management, or non-management, block
holder) \39\ and weaker or more varied governance standards,\40\
although there is some evidence from comparative research indicating
that trading by insiders has information content in those scenarios as
well.\41\
---------------------------------------------------------------------------
\39\ See, e.g., generally, Karl V. Lins, Equity Ownership and
Firm Value in Emerging Markets, 38 J. Fin. & Quantitative Analysis
159, 159-184 (2003).
\40\ On the one hand, insider trading disclosures may be more
informative when directors and officers hold and trade larger
positions or have greater potential to engage in self-dealing due to
weak governance. On the other hand, the private benefits from
informed insider trading may be on a smaller scale than other self-
dealing gains of controlling insiders in weak corporate governance
environments. For more on such insider self-dealing, see comparative
research analyzing the agency conflict of expropriation of small
outside shareholders, e.g., Simeon Djankov, Rafael La Porta,
Florencio Lopez-de-Silanes & Andrei Shleifer, The Law and Economics
of Self-Dealing, 88 J. Fin. Econ. 430, 430-465 (2008); Simon
Johnson, Rafael La Porta, Florencio Lopez-de-Silanes & Andrei
Shleifer, Tunneling, 90 Am. Econ. Rev. 22, 22-27 (2000); Mingzhi Liu
& Michel Magnan, Self-Dealing Regulations, Ownership Wedge, and
Corporate Valuation: International Evidence, 19 Corp. Governance:
Int'l Rev. 99, 99-115 (2011). See also C. Fritz Foley, Paul
Goldsmith-Pinkham, Jonathan Greenstein & Eric Zwick, Opting Out of
Good Governance, 46 J. Empirical Fin. 93, 93-110 (2018); Reena
Aggarwal, Isil Erel, Ren[eacute] Stulz & Rohan Williamson,
Differences in Governance Practices Between U.S. and Foreign Firms:
Measurement, Causes, and Consequences, 22 Rev. Fin. Stud. 3131,
3131-69 (2009).
\41\ See, e.g., Eric C. Chang, Jun Zhu & J. Michael Pinegar,
Insider Trading in Hong Kong: Concentrated Ownership Versus the
Legal Environment (Working Paper, 2002), available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=336702">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=336702</a>; Qiang He &
Oliver M. Rui, Ownership Structure and Insider Trading: Evidence
from China, 134 J. Bus. Ethics 553, 553-74 (2016); Dimitris K.
Chronopoulos, David G. McMillan, Fotios I. Papadimitriou & Mohammad
Tavakoli, Insider Trading and Future Stock Returns in Firms with
Concentrated Ownership Levels, 25 Eur. J. Fin. 139, 139-54 (2019)
(examining in an East Asian sample from 2003-2012 and finding ``a
significantly negative relation between the selling activity of
insiders and stock returns'' but also finding that ``the buying
activity of insiders is also inversely related to future stock
returns''); Yonggang Tian, James S. Ang, Panpan Fu, Chaoqun Ma &
Xiuhua Wang, Does Social Trust Mitigate Insiders' Opportunistic
Behaviors? Evidence from Insider Trading, 59 Glob. Fin. J. 100907
(2024).
---------------------------------------------------------------------------
On a general level, some information about the likelihood of FPI
directors and officers trading today based on MNPI may also be gleaned
from: (1) the existing disclosure of an FPI's insider trading policies
and procedures required by Item 16J of Form 20-F and/or (2) the
existing disclosure of an FPI's code of ethics.\42\ This may reduce the
effects of the amendments. Nevertheless, the final amendments will
provide more detailed information about ownership and trading by FPI
directors and officers, including timely reporting on completed
acquisitions and dispositions, by directors and officers of FPIs, which
is not available today (other than some information that may be
included in home country filings and voluntary Section 16 reports filed
by directors and officers of FPIs).
---------------------------------------------------------------------------
\42\ See Item 16B of Form 20-F and paragraph 9 of General
Instruction B to Form 40-F.
---------------------------------------------------------------------------
B. Baseline
The baseline against which the benefits, costs, and the effects on
efficiency, competition, and capital formation of the final amendments
are measured consists of the pre-HFIA Act
[[Page 10324]]
regulatory framework with respect to disclosure by FPIs and disclosures
related to trading by Section 16 reporting persons and the scope of
those parties who will be affected by the final amendments,
specifically, FPIs, their directors and officers, and their
investors.\43\
---------------------------------------------------------------------------
\43\ See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111-15 (D.C. Cir.
2022). This approach also follows SEC staff guidance on economic
analysis for rulemaking. See SEC Staff, Current Guidance on Economic
Analysis in SEC Rulemaking (Mar. 16, 2012), available at <a href="https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf">https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf</a> (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.'').
---------------------------------------------------------------------------
1. Regulatory Baseline
The regulatory baseline includes Section 16 reporting requirements
in effect prior to the enactment of the HFIA Act. Before the HFIA Act
was enacted, officers, directors, and 10 percent holders of non-FPI
issuers with a class of equity securities registered under Section 12
were subject to beneficial ownership reporting requirements in Section
16(a) and Commission regulations adopted thereunder, which required
them to file Forms 3, 4, and 5 to report their holdings and
transactions.\44\ In 2003, the Commission adopted rules requiring the
forms to be filed electronically on the Commission's Electronic Data
Gathering, Analysis, and Retrieval system (``EDGAR'') in XML format,
rather than on paper.\45\ Form 3, the initial statement of beneficial
ownership of equity securities, is required to be filed within 10 days
of the filer becoming a reporting person (e.g., assuming an officer or
director role), or in the case of an issuer that is registering a class
of equity securities (other than certain exempted securities) for the
first time under Section 12, no later than the effective date of the
registration statement.\46\ Form 4, a statement of changes in
beneficial ownership, must be filed within two business days of the
transaction resulting in the change, to ensure timely availability of
information about those transactions.\47\ Form 5, an annual report of
any transactions that were not otherwise reported on Form 3 or Form 4,
must be filed within 45 days after the issuer's fiscal year-end.\48\
---------------------------------------------------------------------------
\44\ See 17 CFR 240.16a-2, 240.16a-3, 249.103-105.
\45\ See Mandated Electronic Filing and website Posting for
Forms 3, 4, and 5, Release No. 33-8230 (May 7, 2003) [68 FR 25788
(May 13, 2003)].
\46\ See Form 3 General Instructions, Form 3; 15 U.S.C.
78p(a)(1).
\47\ See 17 CFR 240.16a-3(a), (g). The filing deadline was
shortened to two business days in 2002, as part of implementation of
the Sarbanes-Oxley Act requirements. See Ownership Reports and
Trading by Officers, Directors and Principal Security Holders,
Release No. 34-46421 (Aug. 27, 2002) [67 FR 56462 (Sept. 3, 2002)].
\48\ See 17 CFR 240.16a-3(a), (f).
---------------------------------------------------------------------------
Persons who are affiliates of either FPI or non-FPI issuers and
intend to sell restricted and/or control securities under Rule 144 must
file a notice of proposed sale of securities on Form 144 under certain
circumstances.\49\ As of April 2023, Form 144 must also be filed
electronically in XML format.\50\
---------------------------------------------------------------------------
\49\ See 17 CFR 230.144 17, 239.144. Pursuant to Securities Act
Rule 144(h), an affiliate who intends to resell restricted or
control securities of the issuer in reliance upon Rule 144 during
any three-month period in a transaction that exceeds either 5,000
shares or has an aggregate sales price of more than $50,000 must
file a Form 144 concurrently with either the placing of an order
with a broker to execute the sale or the execution of a sale
directly with a market maker. 17 CFR 230.144(h). Form 144 data have
been used in prior insider trading research. See, e.g., JLT (2024).
\50\ See Updating EDGAR Filing Requirements and Form 144
Filings, Release No. 33-11070 (June 2, 2022) [87 FR 35393 (June 10,
2022)].
---------------------------------------------------------------------------
Within the framework of Commission rules, FPIs are afforded various
exemptions and disclosure accommodations.\51\ Nevertheless, in the
context of insider trading, Exchange Act Section 10(b) and Rule 10b-5,
and the general anti-fraud provisions of the federal securities laws,
apply. FPIs also are subject to the requirement to disclose their
insider trading policies and procedures (required by Item 16J of Form
20-F \52\) and codes of ethics.\53\ Exchange-listed FPIs with a class
of securities registered under Section 12(b) are subject to certain
governance requirements of national securities exchanges, scaled for
FPI issuers.\54\
---------------------------------------------------------------------------
\51\ For a detailed discussion, see Concept Release on Foreign
Private Issuer Eligibility, Release No. 33-11376 (June 4, 2024) [90
FR 24232 (June 9, 2025)] (``FPI Concept Release'').
\52\ See 17 CFR 249.220f; Form 20-F, available at <a href="http://sec.gov/files/form20-f.pdf">sec.gov/files/form20-f.pdf</a>.
\53\ See supra note 42.
\54\ See, e.g., Section 303A of the NYSE Listed Company Manual,
<a href="https://nyseguide.srorules.com/listed-company-manual">https://nyseguide.srorules.com/listed-company-manual</a>; Section 5600
of the Nasdaq Manual, <a href="https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5600-series">https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5600-series</a>.
---------------------------------------------------------------------------
In addition, FPIs and their Section 16 reporting persons also are
subject to the securities and other laws and regulations in their
respective home country jurisdictions. These jurisdictions may require
disclosure of certain types of insider transactions.\55\
---------------------------------------------------------------------------
\55\ See, e.g., Canada, National Instrument 55-104, available at
<a href="https://www.osc.ca/">https://www.osc.ca/</a> (search for ``National Instrument 55-104'');
European Union, Market Abuse Regulation, available at <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014R0596">https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014R0596</a>; United
Kingdom, Market Abuse Regulation, available at <a href="https://www.legislation.gov.uk/eur/2014/596/contents">https://www.legislation.gov.uk/eur/2014/596/contents</a>.
---------------------------------------------------------------------------
2. Affected Parties
The HFIA Act and the final amendments will affect directors and
officers of FPIs that will be newly subject to Section 16(a) reporting,
as well as investors in such issuers, and the issuers themselves.
Based on staff review of filings and amendments to them during
calendar year 2024, we estimate that there are approximately 1,112 FPIs
filing on Forms 20-F and 40-F \56\ that have a class of equity
securities registered under Section 12,\57\ and thus whose directors
and officers will be newly subject to Section 16(a) reporting
requirements.
---------------------------------------------------------------------------
\56\ A small number of FPIs may elect to file on Form 10-K and
are not included in our count due to the difficulty in precisely
identifying their status. For instance, ``. . . using a textual
search of all Forms 10-K filed in calendar year 2023, the staff
identified only nine such FPIs.'' See FPI Concept Release, at 24237
n. 73.
\57\ Based on the review of information self-reported by issuers
on the cover page of the annual report. In a handful of instances,
the information was missing.
---------------------------------------------------------------------------
Limited disclosure about trading and other changes in the holdings
of FPI directors and officers (as well as the unstructured and
heterogeneous nature of disclosure about the list of FPI directors and
officers) make it difficult to precisely estimate the number of
directors and officers that will make multiple filings under the
amendments. We estimate the number of affected filers in several
different ways that reflect persons who would have to file Forms 3, 4,
and 5 under Section 16.\58\ As a caveat, in a few instances, directors
and officers of FPIs voluntarily file Section 16 reports today.\59\
---------------------------------------------------------------------------
\58\ We note that all directors and officers of FPIs would be
subject to Section 16(a) (and its requirements). Estimates based on
the number of actual filers over a recent year of data only
characterize the subset of directors and officers that could be
expected to make a filing in a typical year. Data from a typical
year combines all filings on Form 3, 4, and 5. See supra note 13. We
recognize that during the initial year of compliance with the HFIA
Act, all FPI directors and officers will have to file Form 3. During
a typical subsequent year, we would expect that there will be fewer
FPI directors and officers that will have to file Form 3, and not
all directors and officers subject to Section 16(a) are likely to
have transactions requiring Form 4 or Form 5 reporting in a given
calendar year.
\59\ Based on staff review of EDGAR filings during calendar year
2024, we estimate that 63 directors and officers associated with 11
FPIs (identified as issuers that filed Forms 20-F or 40-F, or
amendments to them, during calendar year 2024, and that had a class
of equity securities registered under Section 12) filed Forms 3, 4,
or 5, or amendments to them, during calendar year 2024. Timing
differences may make this number a lower bound.
---------------------------------------------------------------------------
First, we calculate the average number of persons filing Section 16
reports per issuer, based on recent data on filings
[[Page 10325]]
for non-FPI issuers, whose directors and officers are subject to
Section 16(a) today, which is 10.5.\60\ We multiply this average by the
number of FPIs (1,112), which yields an estimate of approximately
11,676 new filers that could be expected to file Section 16 reports
during a typical calendar year under the HFIA Act. As a caveat, this
estimate does not account for potential differences between FPIs and
non-FPIs with respect to the number of directors and officers per
issuer or the degree of directors' and officers' trading (e.g., due to
potential differences in stock-based compensation or propensity to own
or trade shares in their company). Considering the count of unique
directors and officers (i.e., suppressing cases of multiple issuers
associated with a given officer or director that may have multiple
board appointments at, and report holdings and trades for, multiple
issuers) yields an estimate of approximately 9,786 new filers.\61\
---------------------------------------------------------------------------
\60\ Based on staff analysis of EDGAR filings of Forms 3, 4, and
5, and amendments to them, filed during calendar year 2024, by
directors and officers (identified based on the description of their
role in the filing) associated with 5,621 non-FPI issuers
(identified as issuers that filed annual reports on Form 10-K, or
amendments to them, during calendar year 2024 and that had a class
of equity securities registered under Section 12). For purposes of
this estimate, an individual who holds multiple roles at a single
issuer is counted once. An individual who holds an officer or
director role at two different issuers is counted twice (once for
each issuer). The average reflects that some non-FPI issuers were
associated with zero Section 16 filings by directors and officers
during calendar year 2024 (due to filing lags or no reportable
trading activity). The average reflects rounding to the first
decimal point. 1,112 x 10.5 = 11,676.
\61\ To obtain this estimate, we multiplied the number of FPIs
(identified as issuers that filed annual reports on Forms 20-F or
40-F, or amendments to them, during calendar year 2024, and that had
a class of equity securities registered under Section 12) (1,112) by
the average number of unique directors and officers filing based on
non-FPIs (8.8). The latter average is calculated as the number of
unique directors and officers of non-FPIs (identified as issuers
that filed annual reports on Form 10-K, or amendments to them,
during calendar year 2024, and that had a class of equity securities
registered under Section 12) that filed Forms 3, 4, and 5 in
calendar year 2024, or amendments to them, counting only one
instance for each officer or director even if an officer or director
was associated with, and made filings involving securities of,
multiple issuers, divided by the number of non-FPIs. For purposes of
this estimate, an individual is only counted once (including
individuals who hold officer or director roles at different
issuers). The average reflects rounding to the first decimal point.
8.8 x 1,112 = 9,786.
---------------------------------------------------------------------------
Second, to partly account for potential differences between FPI and
non-FPI issuers, we adjust the estimate above by the relative
propensity of FPI and non-FPI directors and officers to make Form 144
filings, as one proxy for the differences between FPI and non-FPI
directors and officers.\62\ Adjusting the above estimate, 11,676, by
the ratio of the average number of directors and officers who file Form
144 per FPI (0.8) \63\ to the average number of directors and officers
who file Form 144 per non-FPI (2.1),\64\ yields an estimate of 4,448
\65\ FPI directors and officers that could be expected to file Section
16 reports during a typical calendar year under the HFIA Act. If we
instead take the above estimate of unique directors and officers (i.e.,
approximately 9,786) and adjust it by the relative propensity of FPI
and non-FPI directors and officers to make Form 144 filings, the
estimate would be approximately 3,728 FPI directors and officers that
would be expected to file Section 16 reports in a typical year of
compliance.\66\ It is difficult to determine this number with precision
because Form 144 is only used for proposed resales of restricted and/or
control securities above a certain threshold under the Rule 144 safe
harbor, and there may be other systematic differences in transactions
by directors and officers not reported on Form 144; however, this
adjustment may help account for some of the differences between
directors and officers of FPI and non-FPI issuers.
---------------------------------------------------------------------------
\62\ While we could have used the number of FPI directors and
officers who filed Form 144 to estimate the number of potential FPI
directors and officers expected to file Section 16 reports in a
typical year, we believe that figure is unrealistically low because
the scope of Section 16 reporting obligations is considerably
broader than for Form 144. See supra note 49.
\63\ Based on staff analysis of EDGAR filings of Form 144, and
amendments to them, filed during calendar year 2024, by directors
and officers (identified based on relevant keywords in the
relationship to issuer field; we do not exclude filings that lack
specificity and list the relationship only as affiliate, which may
result in some non-officer/director filings being potentially
included), associated with FPIs (identified as issuers that filed
Forms 20-F or 40-F, or amendments to them, during calendar year
2024, and that had a class of equity securities registered under
Section 12). For purposes of this estimate, an individual who holds
multiple roles at a single issuer is counted once. An individual who
holds an officer or director role at two different issuers is
counted twice (once for each issuer). The average reflects that some
issuers were associated with zero Form 144 filings by directors and
officers during calendar year 2024 (due to filing lags or no
reportable trading activity). The average reflects rounding to the
first decimal point.
\64\ Id. Non-FPIs are identified as issuers that filed annual
reports on Form 10-K, or amendments to them, during calendar year
2024, and that had a class of equity securities registered under
Section 12. Estimates reflect rounding.
\65\ 11,676 x (0.8/2.1) = 4,448.
\66\ To obtain this estimate, we multiplied the estimate of the
number of unique new filers from the first approach above (9,786) by
the ratio of the average number of unique directors and officers of
FPIs that filed Form 144 during calendar year 2024 (0.8) to the
ratio of the average number of unique directors and officers of non-
FPIs that filed Form 144 during calendar year 2024 (also 2.1). 9,786
x (0.8/2.1) = 3,728. For purposes of this estimate, an individual is
only counted once (including individuals who hold officer or
director roles at different issuers). The averages reflect rounding
to the first decimal point.
---------------------------------------------------------------------------
As a final approach, we estimate the average number of all
directors and officers per FPI based on information in S&P Capital IQ,
which is 18.9,\67\ and multiply it by the number of FPIs (1,112),
yielding an estimate of 21,017 \68\ FPI director and officer filers
that would become subject to Section 16(a) under the HFIA Act. While
this definition may be more inclusive of all FPI directors and officers
that would be subject to Section 16(a), compared to the prior two
approaches, it is likely to be overinclusive of the number of directors
and officers that would be expected to file one or more Section 16
reports during a typical year of compliance (since not all directors
and officers may have reportable transactions (for purposes of Forms 4
and 5) during a given calendar year). Considering the count of unique
directors and officers (i.e., suppressing cases of multiple issuers
associated with a given officer or director) yields an estimate of
approximately 19,682 filers.\69\
---------------------------------------------------------------------------
\67\ The estimate is based on S&P Capital IQ data on current
board members and company professionals for issuers filing Forms 20-
F or 40-F, or amendments to them, during calendar year 2024. As a
caveat, the definition also relies on the S&P Capital IQ data on
global executives and boards. A manual review of typical roles noted
for those professionals confirms that the vast majority are
executives, VPs, and board members. Data on directors and officers
of FPIs is not readily extractable from EDGAR filings because it is
reported in an unstructured and heterogeneous format, complicating
data gathering and standardization. The average is skewed upward by
large finance multinationals. The median was 14.0. For purposes of
this estimate, an individual who holds multiple roles at a single
issuer is counted once. An individual who holds an officer or
director role at two different issuers is counted twice (once for
each issuer). The estimate is rounded to the first decimal point.
\68\ 18.9 x 1,112 = 21,017.
\69\ To obtain this estimate, we multiplied the number of FPIs
(identified as issuers that filed annual reports on Forms 20-F or
40-F, or amendments to them, during calendar year 2024) (1,112) by
the average number of unique directors and officers based on S&P
Capital IQ data on current internal and external board members and
company professionals for issuers filing Forms 20-F or 40-F, or
amendments to them, during calendar year 2024 (17.7). The latter
average is calculated as the number of unique directors and officers
of FPIs, counting only one instance for each officer or director
even if an officer or director was associated with multiple FPIs.
For purposes of this estimate, an individual is only counted once
(including individuals who hold multiple director and officer roles
at the same issuer). The average reflects rounding to the first
decimal point. 17.7 x 1,112 = 19,682.
---------------------------------------------------------------------------
The results of the three approaches are summarized in Table 1
below, yielding a range of approximately 3,728-21,017 potentially
affected FPI directors and officers who could be Section 16 reporting
persons.
[[Page 10326]]
Table 1--Summary of Estimates of the Potential Number of Directors and Officers of FPIs Expected To File Section
16 Reports Under the HFIA Act \70\
----------------------------------------------------------------------------------------------------------------
Number of
Approach Estimate description filers Caveats
----------------------------------------------------------------------------------------------------------------
1. Non-FPI Section 16 data.......... a. Not suppressing D&O 11,676 Does not account for
overlaps across issuers: potential differences
Number of Section 16 between FPI and non-FPI
director and office filers directors and officers.
per non-FPI issuer (10.5) x
Number of FPIs (1,112).
b. Unique D&Os (suppressing 9,786
overlaps across issuers):
Number of Section 16
director and officer filers
per non-FPI issuer (8.8) x
Number of FPIs (1,112).
2. Form 144 data and non-FPI Section a. Not suppressing D&O 4,448 While it adjusts for some
16 data. overlaps across issuers: differences between FPI and
Estimate in row 1a above x non-FPI directors and
the ratio of (Average officers, the adjustment is
number of directors and imprecise to the extent
officers who have filed that there may be more
Form 144 during calendar differences than those
year 2024 per FPI (0.8)/ reflected in Form 144
Average number of directors filing statistics. Form 144
and officers who filed Form only applies to proposed
144 during calendar year resales of restricted and/
2024 per non-FPI issuer or control securities above
(2.1)). the threshold under Rule
144 safe harbor and does
not account for
acquisitions.
b. Unique D&Os (suppressing 3,728
overlaps across issuers):
Estimate in row 1b above x
the ratio of (Average
number of directors and
officers who filed Form 144
during calendar year 2024
per FPI (0.8)/Average
number of directors and
officers who filed Form 144
during calendar year 2024
per non-FPI issuer (2.1)).
3. Officer/director count........... a. Not suppressing D&O 21,017 Does not account for whether
overlaps across issuers: directors and officers own
Average number of all or trade company stock.
directors and officers per Count of directors and
FPI (18.9) x Number of FPIs officers per FPI is based
(1,112). on S&P Capital IQ data due
to limitations of
reporting.
b. Unique D&Os (suppressing 19,682
overlaps across issuers):
Average number of all
directors and officers per
FPI (17.7) x Number of FPIs
(1,112).
----------------------------------------------------------------------------------------------------------------
While the amendments will also affect current and prospective FPI
investors, as discussed in detail in Section IV.A above and Section
IV.C below, we lack the data to estimate the number of affected
investors.
---------------------------------------------------------------------------
\70\ As discussed above, the first two approaches focus on the
estimated number of directors and officers of FPIs that could be
expected to file Section 16 reports in a typical year of compliance.
The third approach focuses on estimating the potential total number
of directors and officers of FPIs.
---------------------------------------------------------------------------
C. Economic Effects of the Final Amendments
Section IV.A above addressed broad economic considerations related
to the impact of disclosure of trading and beneficial ownership
positions of FPI directors and officers, and the potential factors that
may affect the magnitude of the economic effects of the final
amendments. Below we provide a more detailed discussion of the
anticipated benefits and costs of the HFIA Act and the final amendments
relative to the baseline, as well as the anticipated effects of the
HFIA Act and the final amendments on efficiency, competition, and
capital formation.
1. Benefits
Extending Section 16(a) reporting requirements to directors and
officers of FPIs will benefit investors by providing greater
transparency about the trading and beneficial ownership positions of
FPI directors and officers.\71\ This enhanced transparency can aid
investors in obtaining a more accurate picture of incentives of
directors and officers of FPIs and a potentially more accurate
valuation of the issuer's shares, enabling better informed investment
decisions and contributing to more efficient allocation of investor
capital.
---------------------------------------------------------------------------
\71\ See supra Section IV.A.
---------------------------------------------------------------------------
We expect these benefits to result from the disclosure of
acquisition and disposition transactions as well as ownership positions
under Section 16(a) and the Commission's rules thereunder. While a
purchase or sale transaction may be motivated by liquidity needs,
rebalancing, or other routine considerations, prior studies show that
purchases and/or sales reported under Section 16 may be relevant to
investors.\72\ Disclosure about ownership
[[Page 10327]]
positions, as well as partial information about equity compensation
awards that are reported among other transactions on Form 4, can
provide new information to investors about the equity incentives of FPI
directors and officers and the extent of alignment of directors' and
officers' interests with those of shareholders that is not available in
other FPI disclosures. Such granular, officer/director-level
information will provide investors with context for supplementing and
understanding other corporate disclosures that are used to value the
companies' shares and make informed investment decisions (especially to
the extent that FPIs provide disclosures that are different from U.S.
domestic issuers due to certain FPI accommodations).\73\
---------------------------------------------------------------------------
\72\ See, e.g., Francois Brochet, Information Content of Insider
Trades Before and After the Sarbanes-Oxley Act, 85 Acct. Rev. 419,
419-446 (2010). (``Brochet (2010)''); David Veenman, Disclosures of
Insider Purchases and the Valuation Implications of Past Earnings
Signals Available to Purchase, 87 Acct. Rev. 313, 313-42 (2012);
Cohen et al. (2012); Lyungmae Choi, Lucile Faurel & Stephen
Hillegeist, Do Proprietary Costs Deter Insider Trading?, 71 Mgmt.
Sci. 2751, 2751-3636 (2025); Jennifer L. Brown, G. Ryan Huston &
Brian S. Wenzel, The Gift That Keeps on Giving: Stock Returns Around
CEO Stock Gifts to Family Members, 29 Rev. Acct. Stud. 1904, 1904-47
(2024); Eli Bartov & Lucile Faurel, Sarbanes-Oxley Act and Patterns
in Stock Returns Around Executive Stock Option Exercise Disclosures,
56 Acct. & Fin. 297, 297-332 (2016); Harjeet S. Bhabra & Ashrafee T.
Hossain, Market Conditions, Governance and the Information Content
of Insider Trades, 24 Rev. Fin. Econ. 1, 1-11 (2015); Jonathan L.
Rogers, Douglas J. Skinner & Sarah L.C. Zechman, The Role of the
Media in Disseminating Insider-Trading News, 21 Rev. Acct. Stud.
711, 711-39 (2016); Alan D. Jagolinzer, David F. Larcker & Daniel J.
Taylor, Corporate Governance and the Information Content of Insider
Trades, 49 J. Acct. Res. 1249, 1249-74 (2011); Enrichetta Ravina &
Paola Sapienza, What Do Independent Directors Know? Evidence from
Their Trading, 23 Rev. Fin. Stud. 962, 962-1003 (2010); Jeng et al.
(2003); Josef Lakonishok & Inmoo Lee, Are Insider Trades
Informative?, 14 Rev. Fin. Stud. 79, 79-111 (2001). Some studies
suggest that the magnitude of market returns around Form 4 sale
disclosures has declined post-Sarbanes-Oxley Act. See, e.g., Laurel
Franzen, Xu Li, Oktay Urcan & Mark E. Vargus, The Market Response to
Insider Sales of Restricted Stock Versus Unrestricted Stock, 37 J.
Fin. Res. 99, 99-118 (2014); Brochet (2010). Separately from studies
of returns around Section 16 disclosures, there is also some
evidence that insider sales disclosures on Form 144 have information
content, see, e.g., JLT (2024).
\73\ See supra note 51 and accompanying text.
---------------------------------------------------------------------------
Further, the timing of the trades, relative to the issuance of
other corporate disclosures, may provide investors with insight into
potential actions by FPI directors and officers that may affect firm
value. Moreover, by drawing market scrutiny to trades by FPI directors
and officers, additional disclosure may deter trading based on MNPI,
benefiting investors and decreasing the economic costs and
inefficiencies associated with such trading, as discussed in Section
IV.A above.
These informational benefits should be considered in the context of
the existing baseline, which includes partial disclosure of information
about trades by directors and officers of certain FPIs through home
country reporting and Form 144 filings.\74\ Further, informational
benefits of the new disclosure may be lower to the extent that
directors and officers of FPIs do not undertake trades in, or hold,
shares of the FPI, or to the extent that their reportable trades are
routine, for instance, motivated by liquidity needs and similar
considerations unrelated to MNPI.\75\
---------------------------------------------------------------------------
\74\ See supra Section IV.B.1.
\75\ See supra note 59 and accompanying text. Nevertheless, the
fact that directors and officers only engage in routine trades may
itself be informative about the strength of internal governance in
place with respect to director and officer trading. More granular
information about director and officer holdings may also aid
investors in calculating up-to-date public float of the issuer.
---------------------------------------------------------------------------
The new mandatory Section 16(a) disclosures will significantly
increase the transparency regarding the trading and beneficial
ownership of an FPI's equity securities by its directors and officers
(in the case of FPIs from home country jurisdictions without a similar
reporting requirement), which may not be attained under a voluntary
regime. Although such reporting may reveal additional information to
investors, enabling better informed investment decisions and more
efficient allocation of capital as well as more orderly and efficient
markets, FPI directors and officers may have a conflict of interest due
to the private cost of disclosure that disincentivizes voluntary
disclosure of trading and ownership information. For instance, the
disclosure may impact share prices, affecting the prices at which the
FPI officer's or director's subsequent trades are executed, or invite
additional market scrutiny of directors' and officers' trades. Thus, a
voluntary disclosure regime is likely to result in an inefficiently low
level of disclosure about transactions by the FPI directors and
officers.
Amending Forms 3, 4, and 5 to accommodate FPI director and officer
reporting newly required under Section 16(a) is expected to make it
easier for investors and other market participants to obtain and use
this information due to the extensive market experience with electronic
filings on these forms required for insiders of non-FPI issuers.\76\
The structured data requirements of Forms 3, 4, and 5 are expected to
facilitate access to, and analysis of, the disclosures by investors,
potentially leading to more useful and timely insights. In particular,
structured data on holdings of FPI directors and officers, as well as
transaction disclosures, will enable automated extraction of detailed
data on such holdings and trading, allowing investors to efficiently
perform large-scale analyses and comparisons of holdings and trades
across FPI directors and officers, issuers, and time periods.
Structured data on holdings and trades of FPI directors and officers
may also be efficiently combined with other information that is
available in a structured data language in corporate filings and with
market data contained in external machine-readable databases. Reporting
this information in a structured data language is also expected to
enable faster and more accurate analysis of the disclosed data by
investors, including by facilitating investor analyses using machine
learning tools.
---------------------------------------------------------------------------
\76\ See supra notes 44-45.
---------------------------------------------------------------------------
2. Costs
The Section 16 reports required by the HFIA Act and the final
amendments will impose direct (legal and compliance-related) costs on
directors and officers of FPIs. Such costs include preparing the
disclosure and gathering and verifying the information required to
comply with the new disclosure requirements. Such legal and compliance
costs are expected to be somewhat lower for directors and officers that
already report trades to comply with the requirements of the FPI's home
country jurisdiction,\77\ or the very small number of directors and
officers of FPIs that voluntarily report under Section 16(a) today.\78\
Directors and officers are likely to have information about their
acquisition and disposition of securities readily available and/or
accessible from their brokers or issuers. Directors and officers also
may have this information for purposes of internal compliance with an
issuer's insider trading policies and programs (which issuers may
implement for various reasons, including, but not limited to, the
application of Exchange Act Section 10(b) and Rule 10b-5 to directors
and officers of FPIs). Nevertheless, some directors and officers may
not be systematically collecting such information or organizing it in
the format required by Forms 3, 4, and 5 today. In such cases,
directors and officers are likely to incur additional costs to compile
information about their acquisitions and dispositions of securities and
report it pursuant to the timing requirements, specifically, in the
case of Form 4. The requirement to prepare the Section 16 disclosures
in the XML format required for Forms 3, 4, and 5 should not impose
incremental compliance costs on the affected directors and officers,
because affected directors and officers would be able to complete a
fillable web form on EDGAR that automatically converts the inputted
disclosures to XML.\79\ Any affected directors and officers that wish
to submit an XML-tagged Form 3, 4, or 5 rather than use the fillable
form would be able to do so.\80\
---------------------------------------------------------------------------
\77\ See supra note 55.
\78\ See supra note 59.
\79\ See EDGAR Filer Manual Vol. II, Section 8.1.4, available at
<a href="https://www.sec.gov/submit-filings/edgar-filer-manual">https://www.sec.gov/submit-filings/edgar-filer-manual</a>.
\80\ See id. at Chapter 9.
---------------------------------------------------------------------------
Overall, we estimate that complying with the new Section 16(a)
disclosure requirements will require in the aggregate 20,510 additional
burden hours per year,\81\ which is equivalent to approximately $9.5
million per year in dollar terms (at a rate of $463 per hour).\82\ The
requirement to file the
[[Page 10328]]
Section 16 disclosures electronically on EDGAR, which currently applies
to Forms 3, 4, and 5, is expected to impose a small additional cost,
mainly during the first year of compliance to establish EDGAR access
and obtain filings codes. Directors and officers that have not
previously used EDGAR for filing are expected to expend an aggregate
5,330 hours to submit Form ID,\83\ which is equivalent to a one-time
aggregate compliance cost of approximately $2.5 million (at a rate of
$463 per hour).\84\
---------------------------------------------------------------------------
\81\ See infra Section V.C.1. (1,484 + 17,852 + 1,174) hours.
\82\ 20,510 hours x $463 = $9,496,130. The $463 per hour rate
reflects our current estimate of the blended hourly rate for lawyers
($498), paralegals and legal assistants ($169), and chief executives
($723). We expect that the types of individuals, the rates for those
individuals, and the proportion of each individual's contributions
would vary among filers and could differ depending on which specific
form a filer is completing. Nonetheless, for purposes of this
economic analysis, we believe the $463 per hour rate is a reasonable
estimate of the hourly cost of completing Forms 3, 4, and 5. To
calculate the occupational hourly rates used in this release, the
Commission uses occupational mean hourly wage data from the
Occupational Employment and Wage Statistics (OEWS) program of the
Bureau of Labor Statistics (BLS) for the private sector. See
Occupational Employment and Wage Statistics, U.S. Bureau of Labor
Statistics, available at <a href="https://www.bls.gov/oes/">https://www.bls.gov/oes/</a>; see also Standard
Occupational Classification, U.S. Bureau of Labor Statistics,
available at <a href="https://www.bls.gov/soc/">https://www.bls.gov/soc/</a> (describing occupational
classification system used by BLS); Exec. Off. of the President,
Off. of Mgmt. & Budget, North American Industry Classification
System (2022), available at <a href="https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf">https://www.census.gov/naics/reference_files_tools/2022_NAICS_Manual.pdf</a> (describing the industry
classification system used by BLS and other agencies). We assume
that these mean hourly wage data for domestic employers are
comparable for foreign employers for the purpose of this analysis,
although the actual wages could be higher or lower. The mean hourly
wage for each occupation is adjusted for changes in the seasonally
adjusted employment cost index for private wages and salaries
between the data reference period and when the data are released by
BLS. See Employment Cost Index, U.S. Bureau of Labor Statistics,
available at <a href="https://www.bls.gov/eci/">https://www.bls.gov/eci/</a>. The adjusted mean hourly wage
is then multiplied by a factor that accounts for nonwage costs borne
by employers, such as bonuses, benefits, and overhead. This factor
is calculated as an average over the 10 most recently available
years of data of the ratio of the Bureau of Economic Analysis's
annual gross output data for the private sector to total annual
wages across all occupations for the private sector in the OEWS
data. See Gross Output by Industry, U.S. Bureau of Economic
Analysis, available at <a href="https://www.bea.gov/data/industries/gross-output-by-industry">https://www.bea.gov/data/industries/gross-output-by-industry</a>; Occupational Employment and Wage Statistics,
U.S. Bureau of Labor Statistics, available at <a href="https://www.bls.gov/oes/">https://www.bls.gov/oes/</a>. The final product is the occupational hourly rate. See
generally Updated Methodology for Calculating Occupational Hourly
Rates (Dec. 19, 2025), available at <a href="https://www.sec.gov/files/method-occupational-hourly-rates.pdf">https://www.sec.gov/files/method-occupational-hourly-rates.pdf</a>. We assume that these mean
hourly wage data for domestic employers are comparable for foreign
employers for the purpose of this analysis, although the actual
wages could be higher or lower.
\83\ Form ID, the application for EDGAR access, must be
submitted and approved by SEC staff in order for filers to make
filings on EDGAR. See Prepare and Submit My Form ID Application for
EDGAR Access, Sec. and Exch. Comm'n (last reviewed or updated on
Dec. 22, 2025), <a href="https://www.sec.gov/submit-filings/filer-support-resources/how-do-i-guides/prepare-submit-my-form-id-application">https://www.sec.gov/submit-filings/filer-support-resources/how-do-i-guides/prepare-submit-my-form-id-application</a>. See
also infra Section V.C.2.
\84\ 5,330 x $463 = $2,467,790. See supra note 82 for an
explanation of the hourly rate calculation.
---------------------------------------------------------------------------
While these are aggregate average estimates, it is possible that
there will be some variation in compliance costs. Initial costs of
Section 16(a) reporting may be somewhat larger than ongoing compliance
costs because all directors and officers of FPIs will have to file an
initial Form 3, even if they do not have any holdings in the FPI's
securities or make subsequent transaction disclosures on Forms 4 and 5.
Initial compliance costs also may vary based on directors' and
officers' existing recordkeeping processes. Somewhat higher compliance
costs are expected to be incurred, especially initially, by FPI
directors and officers that do not report their trades in the FPI's
home country jurisdiction; FPI directors and officers that have no
prior individual experience with filing on EDGAR; FPI directors and
officers with more shareholdings and trades; FPI directors and officers
whose broker does not provide electronic or otherwise readily
accessible trade confirmations; and FPI directors and officers who must
undertake the incremental effort to translate and compile trade records
for Section 16 reporting in English. While there may be variation in
compliance costs across filers, the average compliance cost per filer
is expected to be modest.\85\ In addition, FPIs may assist directors
and officers with retaining a preparer or leveraging the expertise of
the issuer's personnel to help directors and officers comply with their
filing obligations, which may make compliance less costly and more
efficient for individual filers.
---------------------------------------------------------------------------
\85\ For example, filing Form ID to establish initial EDGAR
access is estimated to require 0.6 hours for purposes of the PRA,
which is equivalent to approximately $278 in dollar terms ($463 x
0.6), incurred once by new filers that have not previously used
EDGAR. See infra note 104 and accompanying text and supra note 82.
For purposes of the PRA, complying with Form 3, 4, and 5
requirements is estimated to require 20,510 hours per year across
9,786 filers, or approximately $970 ($463 x 20,510/9,786) for the
average filer in dollar terms. See supra note 81, infra note 100 and
accompanying text, and supra note 82 for an explanation of the $463
hourly rate calculation.
---------------------------------------------------------------------------
Next, we discuss the indirect costs of the new Section 16(a)
disclosure requirements. One potential indirect cost to affected FPI
directors and officers, and potentially issuers themselves, is the
potential share price movement that may make directors' and officers',
and potentially issuers', subsequent trades costlier. For example, if
the market price rises (or falls) following the Section 16(a)
disclosure, irrespective of the reason for the trade reported under
Section 16(a), and the officer or director, or the issuer, plans to
undertake future share purchases (or sales), such future transactions
may be executed at a less favorable price. Affected directors and
officers may be able to structure multiple trades into a shorter time
period in anticipation of the timing of the Form 4 disclosure, although
placing a single larger trade may also result in price impact. Issuers
also may implement policies regarding director and officer trading
around the timing of issuer trades, to mitigate potential spillovers.
Another potential indirect cost of the new Section 16(a) disclosure
requirements is that they may reveal details about directors' and
officers' incentives and compensation structures that are not otherwise
required to be disclosed under existing regulations, which could
potentially reveal sensitive proprietary information about individual
directors' and directors' compensation structures and executive talent
retention strategy to competitors. For example, compensation
disclosures for FPI directors and officers required by Form 20-F and
Form 40-F can be provided on an aggregated basis if home country laws
do not require disclosure of compensation on an individual basis (and
such individualized compensation disclosure is not otherwise publicly
provided).\86\ It also may invite market scrutiny to FPI director and
officer compensation arrangements and equity incentives, potentially
prompting issuers to make changes to such arrangements. In anticipation
of the costs of compliance and market scrutiny of Section 16 reports,
some directors and officers of FPIs may seek to restructure their
securities holdings. In some other instances, directors and officers
may negotiate changes to compensation when facing additional compliance
requirements.\87\ If the existing ownership and compensation incentives
already were optimal, such changes may be inefficient. As a general
consideration, costs incurred by issuers would be borne by their
existing shareholders.
---------------------------------------------------------------------------
\86\ See Item 6B of Form 20-F.
\87\ See, generally, D.T. Roulstone, The Relation Between
Insider-Trading Restrictions and Executive Compensation, 41 J. Acct.
Res. 525, 525-51 (2003) (showing, in a different context, ``that
firms that restrict insider trading pay a premium in total
compensation relative to firms not restricting insider trading,
after controlling for economic determinants of pay.'').
---------------------------------------------------------------------------
FPI directors and officers, and the issuers themselves, may incur
other indirect costs as the result of additional market scrutiny of
directors' and officers' trades by investors and other market
participants in response to the
[[Page 10329]]
Section 16 disclosures, including additional expenditures on investor
relations and even potential reputational concerns, without regard to
the reasons for the trades, including liquidity considerations. Some
FPI directors and officers might hesitate to trade, even when
confronted with liquidity needs, to avoid drawing heightened investor
scrutiny. Such costs are expected to be higher in cases of directors
and officers that do not already report their trades of the FPI's
equity securities (whether in the FPI's home country jurisdiction or,
in the case of sales, on Form 144), as well as directors and officers
that engage in more trades.
3. Present Values and Annualized Values of Monetized Benefits and Costs
In this section, we report the total monetized benefits and costs
of the new Section 16(a) disclosure requirements in two alternative
ways. These presentations are intended to address the fact that the
various benefits and costs of the amendments will not accrue at the
same point in time; rather, benefits and costs that accrue sooner are
generally more valuable than those that occur later in time.
Specifically, we report below (1) the present values of expected
benefits and costs that are monetized in our economic analysis over a
10-year time horizon, starting in 2026, as well as (2) the annualized
values over the same time horizon that are derived from the present
values. This 10-year time horizon represents the period over which the
principal benefits and costs that are monetized in the economic
analysis are expected to accrue.\88\ The present values and annualized
values account for the timing of benefits and costs through
discounting, which is a procedure that accounts for the time value of
money.\89\ The present values and annualized values are computed for
total monetized benefits and costs, combining one-time and recurring
monetized benefits and costs, across all affected persons over the time
horizon.
---------------------------------------------------------------------------
\88\ See OMB, Circular A-4, at 31 (Sept. 17, 2003) (stating that
``[t]he ending point should be far enough in the future to encompass
all the significant benefits and costs likely to result from the
rule''). For the purposes of this analysis, we assume the start year
for the analysis's 10-year time horizon is the effective date of the
rule. The analysis uses calendar years and accounts for the
compliance periods included in the release (see note b in Table 2).
\89\ See id. at 32 (``The Rationale for Discounting'') & 45
(``Treatment of Benefits and Costs over Time''); see also OIRA,
Regulatory Impact Analysis: A Primer, at 11 (Aug. 15, 2011),
available at <a href="https://www.reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf">https://www.reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf</a> (``To provide an
accurate assessment of benefits and costs that occur at different
points in time or over different time horizons, an agency should use
discounting. Agencies should provide benefit and cost estimates
using both 3 percent and 7 percent annual discount rates expressed
as a present value as well as annualized.''); Harvey S. Rosen & Ted
Gayer, Public Finance 151 (8th ed. 2008) (defining present value as
``the value today of a given amount of money to be paid or received
in the future'').
---------------------------------------------------------------------------
Table 2 reports the present values of monetized benefits and costs
using annual real discount rates of 3 percent and 7 percent over a 10-
year time horizon, starting in 2026.\90\
---------------------------------------------------------------------------
\90\ This approach is consistent with OMB Circular A-4. See
Circular A-4, at 31-34 (stating that, ``[f]or regulatory analysis,
[agencies] should provide estimates of net benefits using both 3
percent and 7 percent'' discount rates and discussing why those
rates are reasonable default rates).
Table 2--Present Value of Monetized Benefits and Costs Over a 10-Year
Time Horizon
[2025 Dollars] \a\
------------------------------------------------------------------------
3% Real discount 7% Real discount
Estimated effects \b\ rate rate
------------------------------------------------------------------------
Benefits.......................... N/A N/A
Costs............................. $84,641,581 $71,377,454
------------------------------------------------------------------------
Notes:
\a\ This Table includes only benefits and costs that are monetized. As
discussed in this economic analysis, there are other benefits and
costs that we are not able to monetize.
\b\ For each discount rate, the present value of monetized costs is
calculated assuming that annual monetized costs start to be incurred
as of the year in which affected persons first comply. We assume that
monetized costs accrue mid-year, and we use a mid-year discount rate.
Table 3 reports annualized monetized benefits and costs using real
discount rates of 3 percent and 7 percent over a 10-year horizon.\91\
The lump sum present values of monetized benefits and costs reported in
Table 2 are converted in Table 3 into a constant stream of annualized
benefits and costs over a 10-year time horizon, starting in 2026.\92\
Annualized benefits and costs may differ from the recurring monetized
annual benefits and costs discussed earlier in this economic analysis
because they incorporate the timing of benefits and costs, through
discounting, and combine one-time and recurring benefits and costs.\93\
---------------------------------------------------------------------------
\91\ This approach is consistent with the recommended treatment
of benefits and costs over time in Circular A-4. See id. at 45
(``You should present annualized benefits and costs using real
discount rates of 3 and 7 percent'').
\92\ For each discount rate, the annualized monetized benefits
(costs, respectively) in Table 3 represent the constant annual
stream of benefits (costs, respectively) whose present value over
the 10-year horizon equates the corresponding present value in Table
2. See note b, Table 3 for additional calculation details.
\93\ The annualized benefits and costs present these values over
the 10-year time horizon, starting in the year of the effective
date, even if recurring annual benefits and costs would actually
start to be incurred at a later date due to compliance periods.
Table 3--Annualized Monetized Benefits and Costs Over a 10-Year Time
Horizon
[2025 Dollars] \a\
------------------------------------------------------------------------
3% Real discount 7% Real discount
Estimated effects \b\ rate rate
------------------------------------------------------------------------
Benefits.......................... N/A N/A
Costs............................. $9,777,004 $9,824,502
------------------------------------------------------------------------
Notes:
\a\This Table includes only benefits and costs that are monetized. As
discussed in this economic analysis, there are other benefits and
costs that we are not able to monetize.
[[Page 10330]]
\b\ For each discount rate, the annualized value of monetized benefits
(costs, respectively) is calculated by dividing the corresponding
present value of monetized benefits (costs, respectively) in Table 2
by the sum of discount factors over the 10-year time horizon. The
discount factor in year t of the 10-year time horizon (t = 1, . . .,
10) is equal to 1/(1 + discount rate)[supcaret](t-0.5), where the
discount rate is either 3% or 7%. The sum of discount factors over the
10-year time horizon is then the sum of the discount factors across
years t = 1 through 10.
In sum, Tables 2 and 3 report in two alternative ways expected
total benefits and costs, across all affected persons, which are
monetized in our economic analysis, using real discount rates of 3
percent and 7 percent over a 10-year time horizon.
4. Efficiency, Competition, and Capital Formation
We expect the HFIA Act and the final amendments to reduce the
information asymmetry between directors and officers of FPIs and
outside investors by providing additional details about the trading and
beneficial ownership positions of FPI directors and officers. The
reduction in information asymmetry as a result of the new Section 16(a)
disclosure requirements should result in more informationally efficient
stock prices.\94\ Because disclosure of trading and beneficial
ownership positions of FPI directors and officers can reveal directors'
and officers' incentives, which may affect shareholder value as
discussed in Section IV.A above, the additional disclosure may also
better inform investment decisions (enabling more efficient allocation
of capital in investor portfolios) and voting decisions.
---------------------------------------------------------------------------
\94\ A number of studies demonstrate adverse effects of insider
trading on market efficiency. See, e.g., Michael J. Fishman &
Kathleen M. Hagerty, Insider Trading and the Efficiency of Stock
Prices, 23 RAND J. Econ. 106 (1992) (showing that ``under certain
circumstances, insider trading leads to less efficient stock prices.
This is because insider trading has two adverse effects on the
competitiveness of the market: it deters other traders from
acquiring information and trading, and it skews the distribution of
information held by traders toward one trader.''); Zhihong Chen et
al., The Real Effect of the Initial Enforcement of Insider Trading
Laws, 45 J. Corp. Fin. 687 (2017) (finding evidence that the initial
enforcement of insider trading laws ``improves capital allocation
efficiency by increasing price informativeness and reducing market
frictions''); Robert M. Bushman et al., Insider Trading Restrictions
and Analysts' Incentives to Follow Firms, 60 J. Fin. 35 (2005)
(arguing that ``insider trading crowds out private information
acquisition by outsiders'' and showing that ``analyst following
increases after initial enforcement of insider trading laws'' in a
cross-country sample); Nuno Fernandes & Miguel A. Ferreira, Insider
Trading Laws and Stock Price Informativeness, 22 Rev. Fin. Stud.
1845 (2009) (finding that price informativeness increases with the
enforcement of insider trading laws, but only in countries with a
strong ``efficiency of the judicial system, investor protection, and
financial reporting''); see also Fishman & Hagerty, 23 RAND J. Econ.
106 (showing in a theoretical framework that ``with insider trading,
the aggregate amount of information possessed by traders in the
market is greater. Nevertheless, under certain circumstances,
insider trading leads to less efficient stock prices. This is
because insider trading has two adverse effects on stock price
efficiency. First, with insider trading, the number of informed
traders in the market is lower--the presence of a better-informed
insider deters non-insiders from acquiring information and trading.
Second, with insider trading, the information in the market is not
evenly distributed across traders--the insider has an informational
advantage. Both of these effects lead to a less competitive market
and less efficient prices...''). But see Henry G. Manne, Insider
Trading and the Stock Market (Free Press 1966) (arguing that insider
trading does not harm long-term investors and instead represents an
efficient method of compensating insiders). In addition, potential
failure of investors to accurately interpret the information in the
Section 16 disclosures (e.g., overreaction to disclosures of
liquidity trades by directors and officers) also may decrease the
informational efficiency of prices.
---------------------------------------------------------------------------
Importantly, the new Section 16(a) disclosure requirements may draw
additional market scrutiny to the trading of directors and officers of
FPIs and thus may serve to deter trading by FPI directors and officers
on the basis of MNPI. As discussed in Section IV.A. above, this
potential scrutiny could strengthen the alignment of directors' and
officers' objectives with those of shareholders.
A lower risk of trading against an informed director or officer of
an FPI may increase investor confidence and the willingness of market
participants to buy and trade in the issuer's shares. These effects
should indirectly make it easier for the issuer to gain greater
investor confidence and raise capital from investors, resulting in
capital formation benefits for such issuers.\95\
---------------------------------------------------------------------------
\95\ See, e.g., Hsuan-Chi Chen & Qing Hao, Insider Trading Law
Enforcement and Gross Spreads of ADR IPOs, 35 J. Banking & Fin.
1907, 1907-1917 (2011) (showing in a cross-country analysis that
better enforcement of insider trading laws decreases underwriter
gross spreads for ADRs, an important IPO cost). Further, various
studies show that insider trading negatively impacts liquidity.
See, e.g., Raymond P.H. Fishe & Michel A. Robe, The Impact of
Illegal Insider Trading in Dealer and Specialist Markets: Evidence
From a Natural Experiment, 71 J. Fin. Econ. 461 (2004); Louis Cheng
et al., The Effects of Insider Trading on Liquidity, 14 Pacific-
Basin Fin. J. 467 (2006); Hayne E. Leland, Insider Trading: Should
It Be Prohibited?, 100 J. POL. ECON. 859 (1992) (showing in a model
that ``markets are less liquid'' and ``outside investors and
liquidity traders will be hurt'' when insider trading is permitted);
Laura N. Beny, Do Insider Trading Laws Matter? Some Preliminary
Comparative Evidence, 7 Am. L. & Econ. Rev. 144 (2005) (finding that
``countries with more prohibitive insider trading laws have more
diffuse equity ownership, more accurate stock prices, and more
liquid stock markets''); Lawrence R. Glosten, Insider Trading,
Liquidity, and the Role of the Monopolist Specialist, 62 J. Bus. 211
(1989) (showing in a model that insider trading reduces liquidity).
---------------------------------------------------------------------------
Finally, in line with the discussion in Section IV.A. above, the
new Section 16(a) disclosure requirements may affect competition.
Decreasing the ability of directors and officers of FPIs to trade on
MNPI will weaken their competitive edge in trading, promoting
competition among other investors in the market for the FPI's shares. A
lower risk of an officer or director with a significant private
information advantage trading the FPI's shares should strengthen the
incentive of other market participants to trade those shares and
compete in gathering and processing information about the issuer.
Disclosure of transactions of an FPI's equity securities by its
directors and officers will also enable investors to access and compare
such information across all issuers, including other FPIs and non-FPI
issuers, potentially enhancing issuers' incentives to compete in, and
establish a reputation for, having robust practices in the area of
director and officer trading.
The new Section 16(a) disclosure requirements may reduce trading by
FPI directors and officers on the basis of MNPI. Decrease in such
trading should also limit such persons' incentives to engage in
inefficient corporate decisions associated with such trading.\96\ The
effects of the new disclosure requirements on the efficiency of
corporate investment and other decisions are not fully certain because
the amendments may induce FPI directors and officers to adjust their
holdings in response to the reduced liquidity and potentially lead
companies to adjust incentive and compensation structure or other
policies and practices in response to the amendments.
---------------------------------------------------------------------------
\96\ See supra Section IV.A.
---------------------------------------------------------------------------
Further, limiting the ability of FPI directors and officers to
trade on MNPI may decrease the incentives of affected directors and
officers to influence the timing and content of corporate disclosures.
More timely and higher-quality corporate disclosures will provide more
information to investors, which should result in more informationally
efficient share prices in the secondary market and more efficient
allocation of investor capital across investment opportunities in their
portfolio. A reduction in trading on the basis of MNPI by FPI directors
and officers may also benefit market efficiency.\97\
---------------------------------------------------------------------------
\97\ See supra note 95.
---------------------------------------------------------------------------
All effects described above will be weaker to the extent that some
[[Page 10331]]
information about the trading of directors and officers of FPIs may
already be available today, as discussed in greater detail in Section
IV.A. above.
It is possible that for some companies and directors and officers,
the direct and indirect costs of complying with the new Section 16(a)
requirements detailed in Section IV.C above may be so significant as to
affect, on the margin, the decision to remain registered under Section
12, or to pursue a new registration under Section 12. If that were to
occur, it would reduce the number of FPIs with a class of securities
registered under Section 12 in the U.S. market, potentially impacting
access to capital and U.S. investors' ability to diversify their
portfolios within the U.S. securities market. However, given that there
are likely other, more substantial regulatory costs and economic cost-
and-benefit considerations of having a class of shares registered under
Section 12, we believe that the new Section 16(a) disclosure
requirements are unlikely to have a significant effect on this
decision.
V. Paperwork Reduction Act
A. Background
Certain provisions of Form 3, Form 4, and Form 5 that will be
affected by the final amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\98\ The final amendments will also necessitate an increase
in respondents to Form ID required for filings on EDGAR by FPI
directors and officers to comply with Section 16(a), but will not
change the form itself. The Commission is submitting the final
amendments to the Office of Management and Budget (``OMB'') for review
in accordance with the PRA.\99\ We are seeking emergency approval from
OMB for the revised burden estimates associated with the HFIA Act
requirements and the related final amendments to Form 3, Form 4, and
Form 5 and the revised burden estimates for Form ID in accordance with
the procedures of the PRA. In a separate notice, we will seek public
comment on the revised burden estimates.
---------------------------------------------------------------------------
\98\ 44 U.S.C. 3501 et seq.
\99\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------
The titles for the collections of information are:
(1) ``Form 3--Initial Statement of Beneficial Ownership of
Securities'' (OMB Control No. 3235-0104);
(2) ``Form 4--Statement of Changes in Beneficial Ownership of
Securities'' (OMB Control No. 3235-0287);
(3) ``Form 5--Annual Statement of Beneficial Ownership'' (OMB
Control No. 3235-0362); and
(4) ``Form ID--Application for EDGAR Access'' (OMB Control No.
3235-0328).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information requirement unless it
displays a currently valid OMB control number. Compliance with the
information collections is mandatory. Responses to the information
collections are not kept confidential and there is no mandatory
retention period for the information disclosed. The affected Forms 3,
4, and 5 were adopted under the Exchange Act and are used by Section 16
reporting persons to disclose securities ownership information and
securities transaction information under Exchange Act Section 16(a).
Form ID is the application for EDGAR access, which is necessary to file
required reports on EDGAR, including those on Form 3, 4, and 5. The
hours and costs associated with preparing and filing the forms
constitute reporting and cost burdens imposed by each collection of
information.
B. Summary of the Amendments
As described in more detail in Section II above, we are adopting
final amendments to reflect the requirements of the HFIA Act. The HFIA
Act amended Section 16(a) of the Exchange Act to require directors and
officers of FPIs with a class of equity securities registered under
Section 12 of the Exchange Act to provide disclosure as to their
beneficial ownership and transactions involving the company's equity
securities. The final amendments revise the Commission's rules and
forms to reflect these statutory requirements.
C. Burden and Cost Estimates Related to the HFIA Act Requirements and
the Related Final Amendments
1. Forms 3, 4, and 5
We anticipate that the HFIA Act requirements and the related final
amendments will increase the number of respondents on Forms 3, 4, and
5, and thus the total annual burden hours for those forms. Given that
directors and officers of FPIs were not previously subject to Section
16(a) of the Exchange Act, and the limited information on variables
that are highly specific to the unique circumstances of each type of
person affected by the final amendments, our ability to predict the
magnitude of corresponding burdens with any precision is constrained.
In deriving our estimates, we make certain assumptions. For
example, we assume that FPIs' governing structures, and, therefore,
number of directors and officers, are, on average, similar or
proportionate to those of non-FPIs. We further assume that FPI
directors and officers have similar trading habits to non-FPI directors
and officers, for whom we have reporting data. We estimate the number
of affected respondents to be 9,786 by determining the number of FPIs
filing on Forms 20-F and 40-F \100\ that have a class of equity
securities registered under Section 12 (1,112 FPIs) and multiplying it
by the average number of unique directors and officers filing Section
16 reports per non-FPI issuer (8.8 persons).\101\
---------------------------------------------------------------------------
\100\ A small number of FPIs may elect to file on Form 10-K and
are not included in our estimates, see supra note 56.
\101\ See supra note 61. But see supra Section IV.B.2. for
alternative estimates of total affected respondents.
---------------------------------------------------------------------------
As a result of the HFIA Act requirements and the related final
amendments, we estimate that, on an annual basis, there will be an
additional 2,967 Forms 3 filed, an additional 35,703 Forms 4 filed, and
an additional 1,174 Forms 5 filed.\102\ In addition, the increase in
the annual paperwork burden for Forms 3, 4, and 5 will be 1,484 hours,
17,852 hours, and 1,174 hours, respectively, and zero dollars of cost
burden for each Form.\103\
---------------------------------------------------------------------------
\102\ The current OMB inventories for Forms 3, 4, and 5 reflect
16,520, 186,052 and 5,939 annual responses, respectively. As
discussed above, we expect the final amendments to Section 16(a) and
related rules to increase the number of persons required to make
Form 3, 4, and 5 filings. For purposes of this PRA estimate, we
assume that the ongoing rate of filing by FPI directors and officers
will be proportionate to the ongoing rate of filing by non-FPI
directors and officers. However, the current OMB inventories for
Forms 3, 4, and 5 include filings by 10 percent holders of non-FPIs,
and the final amendments will only increase responses by directors
and officers of FPIs, and not 10 percent holders of FPIs. To adjust
for 10 percent holders, we estimate that 92%, 97%, and 96% of
current responses on Forms 3, 4, and 5, respectively, are made by
directors and officers of non-FPIs. Applying that approach to the
current OMB inventories for Forms 3, 4, and 5, we estimate that the
number of responses will increase by 2,967, 35,703, and 1,174 for
Forms 3, 4, and 5, respectively.
\103\ These amounts are calculated based on the estimated number
of additional Forms 3, 4, and 5 filed as a result of the final
amendments--2,967, 35,703, and 1,174, respectively, see supra note
102--multiplied by the current OMB inventory number of hours per
response. The current OMB inventory indicates that there are 0.5
burden hours associated with each Form 3 and Form 4 filing and one
burden hour associated with each Form 5 filing. The estimated change
in burden hours is rounded to the nearest whole number. The current
OMB inventory also indicates that there are $0 of burden dollars
associated with each Form 3, 4, and 5 filing.
---------------------------------------------------------------------------
These estimates represent the average burdens for all affected
respondents, regardless of their individual characteristics. In
deriving our estimates, we recognize that the burdens will likely vary
among individual
[[Page 10332]]
respondents based on a number of factors. We believe that some
respondents will experience burdens in excess of this average and some
respondents may experience less than the average burden.
The table below shows the total annual compliance burden, in hours
and in costs, of the collection of information resulting from the HFIA
Act requirements and the related final amendments. The burden estimates
were calculated by multiplying the estimated increase in the number of
responses by the estimated average amount of time it would take a
respondent to prepare and review the required information. The burden
carried by the respondent internally is reflected in hours. For
purposes of the PRA, we estimate that 100 percent of the burden of
preparing Forms 3, 4, and 5 is carried by the respondent internally.
PRA Table 1--Calculation of the Incremental Burden Estimates for Form 3, 4, and 5
----------------------------------------------------------------------------------------------------------------
Estimated number Incremental Incremental
Collection of information of new annual Burden hour per change in annual change in cost
responses response burden hours burden
(A) (B) (C) [(A) x (B)] (F)
----------------------------------------------------------------------------------------------------------------
Form 3.............................. 2,967 0.50 1,484 $0
Form 4.............................. 35,703 0.50 17,852 0
Form 5.............................. 1,174 1.00 1,174 0
----------------------------------------------------------------------------------------------------------------
2. Form ID
As a result of the HFIA Act requirements and the related final
amendments, FPI directors and officers will be required to file
specified disclosures on EDGAR. The final amendments will not change
Form ID itself, but we anticipate that the number of Form ID filings
will increase due to new respondents being required to comply with
Section 16(a).
For purposes of this PRA analysis, we assume that most FPI
directors and officers becoming subject to Section 16(a) reporting will
not have filed an electronic submission with us previously and,
therefore, will be required to file a Form ID. We further assume that
each director and officer filing a Form ID will incur 0.6 total burden
hours, with 100 percent of those hours being handled internally by the
respondent. In total, this will correspond to approximately 8,883 \104\
additional Form ID filings and a total annual burden of 5,330 hours for
the ``Form ID'' information collection (8,883 filings x 0.6 hours/
filing).
---------------------------------------------------------------------------
\104\ We estimate the number of individual FPI directors and
officers that may become subject to Section 16(a) reporting under
the HFIA Act based on average number of non-FPI directors and
officers (see supra Economic Analysis Table 1 and accompanying
discussion). We have further accounted for FPI directors and
officers that likely already have a Form ID on file due to voluntary
Section 16 reporting (63, see supra note 59) or because they have
filed Form 144 (840). Because most FPI directors and officers have
never previously filed a Form ID and there is limited reporting
information, the actual number of filers may differ from our
estimates.
---------------------------------------------------------------------------
The below table summarizes the estimated incremental paperwork
burdens associated with Form ID.
PRA Table 2--Calculation of the Incremental Burden Estimates for Form ID
----------------------------------------------------------------------------------------------------------------
Estimated number Incremental Incremental
Collection of information of new annual Burden hour per change in annual change in cost
responses response burden hours burden
(A) (B) (C) [(A) x (B)] (F)
----------------------------------------------------------------------------------------------------------------
Form ID......................... 8,883 0.60 5,330 $0
----------------------------------------------------------------------------------------------------------------
The table below illustrates the estimated annual compliance burden
of new information collections as a result of the HFIA Act
requirements' and the related final amendments' estimated effect on the
paperwork burden per response.
PRA Table 3--Calculation of the Change in Burden Estimates of Current Responses Resulting From the HFIA Act Requirements and the Related Final
Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current burden Program change Requested change in burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Current Number of Change in
Form annual burden Current affected burden Change in Annual Burden Cost
responses hours cost burden responses hours cost burden responses hours burden
(A) (B) (C) (D) (E) (F) (G) (H) [(B) + (I)
(E)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 3............................ 16,520 8,260 $0 2,967 1,484 $0 19,487 9,744 $0
Form 4............................ 186,052 93,026 0 35,703 17,852 0 221,755 110,878 0
Form 5............................ 5,939 5,939 0 1,174 1,174 0 7,113 7,113 0
Form ID........................... 73,600 44,160 0 8,883 5,330 0 82,483 49,490 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
[[Page 10333]]
VI. Statutory Authority
The amendments contained in this release are being adopted under
the authority set forth in Sections 16 and 23(a) of the Exchange Act
and the HFIA Act.
List of Subjects
17 CFR Part 240
Reporting and recordkeeping requirements, Securities.
17 CFR Part 249
Reporting and recordkeeping requirements, Securities.
Text of the Amendments
In accordance with the foregoing, the Commission amends title 17,
chapter II of the Code of Federal Regulations as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
1. The authority citation for part 240 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 1681w(a)(1),
6801-6809, 6825, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12
U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat.
1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 126 Stat. 326
(2012), unless otherwise noted.
* * * * *
0
2. Section 240.3a12-3 is amended by revising the section heading and
paragraph (b) to read as follows:
Sec. 240.3a12-3 Exemption from sections 14(a), 14(b), 14(c), 14(f),
16(b) and 16(c) for securities of certain foreign issuers.
* * * * *
(b) Securities registered by a foreign private issuer, as defined
in Rule 3b-4 (Sec. 240.3b-4 of this chapter), shall be exempt from
sections 14(a), 14(b), 14(c), 14(f), 16(b) and 16(c) of the Act.
0
3. Amend Sec. 240.16a-2 introductory text by adding a new second
sentence to read as follows:
Sec. 240.16a-2 Persons and transactions subject to section 16.
* * * The rules under section 16(a) of the Act do not apply to ten
percent beneficial owners of an issuer that is a foreign private
issuer, as defined in Rule 3b-4 (Sec. 240.3b-4 of this chapter).''
after the first sentence.* * *
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
4. The authority citation for part 249 continues to read, in part, as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107
Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94,
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat.
1063 (2020), unless otherwise noted.
* * * * *
0
5. Form 3 (referenced in Sec. 249.103) is amended by:
0
a. Revising paragraphs (i), (ii) and (iv) of section 1(a) of the
General Instructions;
0
b. In section 3(a) of the General Instructions, removing the text ``For
assistance with technical questions about EDGAR, or to request an
access code, call the EDGAR Filer Support Office at (202) 942-8900. For
assistance with questions about the EDGAR rules, call the Office of
EDGAR and Information Analysis at (202) 942-2940.'' and, in its place,
adding the text ``For assistance with questions about EDGAR, contact
the EDGAR Business Office at (202) 551-8900.'';
0
c. In the note to section 3 of the General Instructions, removing the
text ``450 5th Street NW'', and, in its place, adding the text ``100 F
Street NE''; and
0
d. On the first page of the form in data field box ``1. Name and
Address of Reporting Person*'', removing the word ``Zip'', and adding
the words ``Zip/Postal Code'' and ``Country''; and
0
e. On the first page of the form add data field box ``3a. Foreign
Trading Symbol'' under data field box ``3. Issuer Name and Ticker or
Trading Symbol''.
Note: Form 3 is attached as Appendix A to this document. The
text of Form 3 will not appear in the Code of Federal Regulations.
* * * * *
0
6. Form 4 (referenced in Sec. 249.104) is amended by:
0
a. In the title of the General Instructions, removing the word ``OF''
from between ``STATEMENT OF CHANGES'' and ``BENEFICIAL OWNERSHIP OF
SECURITIES'' and, in its place, adding the word ``IN'' so that the
title reads ``STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP OF
SECURITIES'';
0
b. In section 2(a) of the General Instructions, removing the text ``For
assistance with technical questions about EDGAR, or to request an
access code, call the EDGAR Filer Support Office at (202) 942-8900. For
assistance with questions about the EDGAR rules, call the Office of
EDGAR and Information Analysis at (202) 942-2940.'' and, in its place,
adding the text ``For assistance with questions about EDGAR, contact
the EDGAR Business Office at (202) 551-8900.'';
0
c. In the note to section 2 of the General Instructions, removing the
text ``450 5th Street, NW'', and, in its place, adding the text ``100 F
Street NE''; and
0
d. On the first page of the form in data field box ``1. Name and
Address of Reporting Person*'', removing the word ``Zip'', and adding
the words ``Zip/Postal Code'' and ``Country''; and
0
e. On the first page of the form add data field box ``2a. Foreign
Trading Symbol'' under data field box ``2. Issuer Name and Ticker or
Trading Symbol''.
* * * * *
Note: The text of Form 4 does not, and this amendment will not
appear in the Code of Federal Regulations.
0
7. Form 5 (referenced in Sec. 249.105) is amended by:
0
a. In section 2(a) of the General Instructions, removing the text ``For
assistance with technical questions about EDGAR, or to request an
access code, call the EDGAR Filer Support Office at (202) 942-8900. For
assistance with questions about the EDGAR rules, call the Office of
EDGAR and Information Analysis at (202) 942-2940.'' and, in its place,
adding the text ``For assistance with questions about EDGAR, contact
the EDGAR Business Office at (202) 551-8900.'';
0
b. In note to section 2 of the General Instructions, removing the text
``450 5th Street, NW'' and, in its place, adding the text ``100 F
Street NE''; and
0
c. On the first page of the form in data field box ``1. Name and
Address of Reporting Person*'', removing the word ``Zip'', and adding
the words ``Zip/Postal Code'' and ``Country''; and
0
d. On the first page of the form add data field box ``2a. Foreign
Trading Symbol'' under data field box ``2. Issuer Name and Ticker or
Trading Symbol''.
* * * * *
Note: The text of Form 5 does not, and this amendment will not
appear in the Code of Federal Regulations.
By the Commission.
Dated: February 27, 2026.
Sherry R. Haywood,
Assistant Secretary.
Note: The following appendix will not appear in the Code of
Federal Regulations
[[Page 10334]]
Appendix A--Form 3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 3
* * * * *
General Instructions
1. * * *
(a) * * *
(i) any director or officer of an issuer with a class of equity
securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (``Exchange Act''), including every person who
is a director or an officer of a foreign private issuer, as that
term is defined in Rule 3b-4 (Note: Title is not determinative for
purposes of determining ``officer'' status. See Rule 16a-1(f) for
the definition of ``officer'');
(ii) any beneficial owner of greater than 10% of a class of
equity securities registered under Section 12 of the Exchange Act of
an issuer that is not a ``foreign private issuer'' as defined in
Rule 3b-4, as determined by voting or investment control over the
securities pursuant to Rule 16a-1(a)(l) (``ten percent holder'');
* * * * *
(iv) any officer, director, member of an advisory board,
investment adviser, affiliated person of an investment adviser or
beneficial owner of more than 10% of any class of outstanding
securities (other than short-term paper), except for the beneficial
owner of more than 10% of any class of outstanding securities of a
foreign private issuer as defined in Rule 3b-4, of a registered
closed-end investment company, under Section 30(h) of the Investment
Company Act of 1940; and
* * * * *
3. * * *
(a) * * * For assistance with questions about EDGAR, contact the
EDGAR Business Office at (202) 551-8900.
* * * * *
Note: If filing pursuant to a hardship exception under
Regulation S-T Rule 202 (17 CFR 232.202), file three copies of this
Form or any amendment, at least one of which is signed, with the
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549. * * *
* * * * *
[FR Doc. 2026-04202 Filed 3-2-26; 8:45 am]
BILLING CODE 8011-01-P
</pre></body>
</html>Indexed from Federal Register on March 3, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.