Imagine a prospective investor, reading business news on her phone: a public company’s stock is rising after their recent earnings announcement. Curious to know more, she taps the highlighted text to read their press release which then opens the company’s filings on the SEC website. Uncertain how to navigate SEC.gov, she opens the first filing listed. Scrolling through the latest offering materials it directs investors to “see our recent annual report (10-K) incorporated by reference here.” She clicks on the text to open the Annual Report but nothing happens. This is the reality for most SEC filings today: information incorporated from one filing into another is not easily accessible. This all changes beginning May 2, 2019.
SEC Filings will become more interactive
The SEC has taken action that now requires filings be more interactive in adopting the FAST Act final rule on March 20, 2019. The rule has many far-reaching provisions designed to modernize disclosure, including Inline XBRL cover tagging of filings on Form 8-K, 10-Q, and 10-K plus 20-F and 40-F annual reports. See our recent discussion of the expected impact for legal counsel managing 8-K filings.
Among these changes, the SEC included a seemingly simple requirement: hyperlink information incorporated by reference (beyond the existing exhibit hyperlink mandate). Public operating companies and Mutual Funds are allowed under existing Rules 411, 12b-23, and 0-4 to incorporate information from one filing to another. Under the new amendments, they will “be required to provide hyperlinks to documents incorporated by reference.”
The SEC believes these changes “will improve the readability and navigability of disclosure documents and discourage repetition, consistent with our FAST Act mandate.” Similar to the Exhibit Hyperlink mandate in 2017, the SEC wants investors to be able to click a button to find complete, original disclosures, easily. SEC Commissioner Robert Jackson painted his vision of this growing movement to modernize SEC reporting, specifically through structured data, in a March 2018 speech (see Dimensions January 2019).
Hyperlinking in a Prospectus
A prospectus is designed to provide a potential investor with all the data needed to make an informed decision. A review of a recent prospectus, illustrates the struggle for investors when researching a public company. When a public company registers securities with the SEC for sale to the public, it is required to file a registration statement (1933 Act) and an associated prospectus. SEC rules allow companies to meet their disclosure requirements by incorporating information from a previous document on SEC.gov to their current filing. Every prospectus includes a section called “Information Incorporated by Reference/Where to Find More Information,” where interested investors can conduct more research based on these previous filings. However, this research can be confusing and challenging to navigate for those without knowledge of SEC reporting and documents. This is a sample of that section (details of filing that may be linked under the new rules are bold):
INFORMATION INCORPORATED BY REFERENCE
The rules of the SEC allow us to incorporate by reference information into this prospectus. This prospectus incorporates by reference the documents listed below:
- Our Annual Report on Form 10-K for the year ended December 31, 2018 filed on February 3, 2019;
- the information specifically incorporated by reference into our Annual Report from our definitive proxy statement on Schedule 14A, filed on April 1, 2018; and
- the descriptions of our Common Stock in Form 8-A, filed with the SEC on October 31, 2018 pursuant to Section 12(b) of the Exchange Act.
The SEC’s new rule is designed to make this information interactive for readers and analysts. A hyperlink to the original information being incorporated into the current filing will allow an investor to find the source disclosure on the SEC website with one click, even from a smart phone. This new mandate will make any prospectus or other SEC filing easier to review and navigate.
Timing and Implementation
The rule is effective May 2, 2019. This means that any applicable filing on or after that date must include a hyperlink to information incorporated by reference to a previous EDGAR filing. Mutual Funds have a delayed compliance date for this provision until April 1, 2020 when they are mandated to file in HTML format and hyperlink their exhibit and information incorporated by reference (also required under the FAST Act).
For assistance with this new requirement and to learn more, contact Toppan Merrill today.