In an announcement posted to its website this week, the SEC plans to finalize the Dodd-Frank Hedging rule next week. The Dodd-Frank hedging rule, originally proposed without an open meeting in 2015 using a process called seriatim, iin which Commissioners individually approve a proposal, is one of three executive compensation rules from Dodd-Frank still at a proposed stage. Unlike the other pending rules – pay for performance and clawbacks – the hedging rule does not elicit much passion given that a significant majority of large companies already prohibit executives from hedging company stock. A Center policy brief explains the proposed rule which does the following:
- Requires disclosure of whether any employee or director of the company (or any designee of such individual) is permitted to purchase financial instruments designed to hedge or offset any decrease in the market value of company equity securities. This includes any transactions which constitute direct hedging of company equity or transactions which would have the same effect such as a short sale or selling an equity future;
- Contemplates a principles-based disclosure in which companies will be required to disclose the company's policy in any proxy or information statement which provides information concerning an election of directors; and
- Requires disclosure of hedging practices involving any equity security issued by the company, a parent of the company, and any subsidiary of the company or parent company.
Republican Commissioners Piwowar and Gallagher issued qualified support for the proposal when the Commission first published it. The Center does not anticipate there will be many changes to the rule, which was principles-based and largely seen as uncontroversial. Public comments on the rule also did not call for significant changes to the proposed framework. The Center will review the final rule and provide an update in the next Center Weekly Update.