United SEC Updates Employee Stock Options Reporting Rule

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By Andrew Ramonas

Private companies will get to give their workers more stock options and other equity compensation without making additional disclosures, thanks to the SEC and Congress.

The Securities and Exchange Commission voted 4-0 on July 18 to adopt an update expanding Securities Act Rule 701, which exempts private companies from reporting requirements when they compensate employees with securities that are valued below a certain amount. The businesses will be able to issue a total of $10 million in equity securities yearly before they have to make more disclosures, doubling the $5 million threshold currently in place.

Congress mandated the change through the Dodd-Frank Act overhaul that President Donald Trump signed into law in May. The updated regulation will become effective once it is published in the Federal Register, an action that likely will happen in the coming days or weeks.

The revision is a “discrete one, but could enhance the ability of companies to hire and retain workers,” Republican SEC Commissioner Hester Peirce said before voting for it.

SEC Commissioner Kara Stein, a Democrat, said she is “still uncertain of all of the costs and benefits of such an increase.” But then she voted “yes.”

“Congress did not give us the discretion,” she said.

Other Votes

Commissioners at the open meeting also unanimously approved the publication of a concept release requesting public feedback on further changing Rule 701 and the adoption of a rule that will require broker-dealers to disclose more details about the operations of the private stock markets they run called dark pools.

The SEC delayed a vote on whether to propose amendments to some disclosure requirements for companies under the agency’s Regulation S-X, which governs financial statements. Commission Chairman Jay Clayton said agency staff are continuing to work on the proposal, and he expects a vote on it “shortly.”

The votes were the first to be held in public since former Commissioner Michael Piwowar, a Republican, left earlier in July. His departure created a 2-2 commission split along ideological lines.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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