As part of its continuing effort to increase efficiency and reduce burdens on publicly traded companies, including registered investment companies, the U.S. Securities Exchange Commission (SEC) recently adopted amendments to Item 6011 of Regulation S-K to allow issuers to omit certain confidential information from contracts and omit certain schedules from material agreements without requiring a confidential treatment request.2 The SEC also adopted a rule requiring investment companies to hyperlink exhibits that are incorporated by reference.3 The SEC’s rule changes are mandated by the Fixing America’s Surface Transportation (FAST) Act of 2015 (the FAST Act), which directed the SEC to modernize and simplify Regulation S-K. The SEC adopted parallel rules and reforms for investment companies. These rule changes are described below.
Omitting Certain Confidential Information From Material Contracts Under Item 601
In its rulemaking for operating companies, the SEC amended Regulation S-K to permit operating registrants to omit confidential information from material contracts without requiring the issuer to file a confidential treatment request and receive approval to omit the confidential information. The SEC imposed two conditions that issuers must determine before they can omit information: (1) the omitted confidential information cannot be material to an investor, and (2) the omitted information would be competitively harmful if disclosed.4 This information typically includes pricing schedules, financial account records, and similar information. The SEC routinely granted confidential treatment upon request for this data. Now, issuers do not have to file confidential treatment requests if issuers determine the conditions are satisfied.
Corresponding Revisions to Investment Company Act Forms and Schedules to Allow Omission of Certain Confidential Information
The SEC approved parallel amendments for investment companies that file “other material contracts,” saving filers time. Confidential information that is not material and would be competitively harmful to investment companies can be omitted without the investment company having to file a confidential treatment request. The changes to investment company forms and instructions are set forth in the following table.
|
Form
|
Item Number
|
Instruction No.
|
|
N-1A
|
28
|
Instruction 2
|
|
N-2
|
25.2
|
Instruction 6
|
|
N-3
|
29(b)
|
Instruction 5
|
|
N-4
|
24(b)
|
Instruction 5
|
|
N-5
|
Exhibit Instructions
|
Instruction 3
|
|
N-6
|
26
|
Instruction 3
|
|
N-14
|
16
|
Instruction 3
|
|
S-6
|
Exhibit Instructions
|
Additional Instruction 3
|
Omitting Schedules and Attachments From Exhibits
The SEC also adopted rule changes to Item 601 of Regulation S-K to allow operating companies to omit schedules and attachments to exhibit filings under the Securities Exchange Act of 1934 and Securities Act of 1933 registration statement filings so long as the schedules omitted do not contain material information, the information is not otherwise disclosed in an exhibit or in the body of the disclosure document, and the issuer includes a list identifying the contents of each omitted schedule.5 Prior to this amendment, only schedules to merger and acquisition agreements could be omitted from filings.6
Applicable Form Changes for Investment Companies
The SEC adopted parallel amendments to allow investment companies to omit schedules to material contracts that qualify for the exception to disclosure. The changes to investment company forms and instructions are set forth in the table below.
|
Form
|
Item
|
Instruction
|
|
N-1A
|
Item 28 |
Instruction 2 |
|
N-2
|
Item 25.2 |
Instruction 4 |
|
N-3
|
Item 29(b) |
Instruction 3 |
|
N-4
|
Item 24b |
Instruction 3 |
|
N-5
|
Exhibits |
Instruction 1 |
|
N-6
|
Item 26 |
Instruction 1 |
|
N-14
|
Item 16 |
Instruction 1 |
|
S-6
|
Exhibits |
Additional Instruction 1 |
|
N-8B-2
|
Exhibit list |
N.A. |
|
N-CSR
|
Item 13 |
Instruction 2 |
SEC Codifies That Personally Identifiable Information May Be Omitted From Required Exhibit Filings
Historically, the SEC staff has not objected to operating companies omitting sensitive, personally identifiable information such as bank account numbers, Social Security numbers, home addresses, and the like without requiring the filing of a confidential treatment request. The SEC amended Item 601 of Regulation S-K for operating companies to codify this practice.7
The SEC also adopted parallel provisions to applicable filing rules for investment company filers to omit personally identifiable information from Investment Company Act filing. The table below lists the changes to investment company forms and instructions codifying these rules.8
|
Form
|
Item Number
|
Instruction No.
|
|
N-1A
|
28 |
Instruction 3 |
|
N-2
|
25.2 |
Instruction 5 |
|
N-3
|
29(b) |
Instruction 4 |
|
N-4
|
24(b) |
Instruction 4 |
|
N-5
|
Exhibit |
Instruction 2 |
|
N-6
|
26 |
Instruction 2 |
|
N-14
|
16 |
Instruction 2 |
|
S-6
|
Instructions |
Instruction 2 |
|
N-8B-2
|
Exhibits |
N.A. |
|
N-CSR
|
Item 13 |
Instruction 3 |
Investment Companies Must Include Hyperlinks for Exhibits Incorporated by Reference to EDGAR Filings
Since 2017, the SEC has required that operating companies tag exhibits that are incorporated by reference to other EDGAR filings using hyperlinks, allowing readers to click and read the exhibit on EDGAR using Hypertext Markup Language (HTML). The SEC adopted amendments requiring investment companies to also include hyperlinks to filed EDGAR documents if incorporated by reference. Because this process will require work, the SEC has adopted a transition period to allow investment companies to prepare for their filings to switch to the HTML format. The deadline for compliance is April 1, 2020. After that date, all registration statements on Forms N1A, N-2, N-3, N-4, N-5, N-6, N-14, and S-6 and reports on Form N-CSR filings made on or after April 1, 2020 will have to comply.
Taken together, these adopted rules continue the SEC’s efforts to reduce compliance burdens. Although requiring investment companies to make exhibits incorporated by reference to EDGAR filings hyperlinked using HTML will impose some increased burdens on investment companies, in the long-run this is a user-friendly reform for investors.
1: 17 C.F.R. 229.601
2: SEC Release No. 33-10618; 34-85381; IA-5206; IC-33426
3: 17 C.F.R. 270.0-4 Incorporation by Reference
4: 17 C.F.R. 229.601(b)(10)
5: 17 C.F.R. 229.601(a)(5)
6: 17 C.F.R. 229.601(b)(2)
7: 17 C.F.R. 229.601(a)(6)
8: 17 C.F.R. 229.601(a)(6)
