The SEC’s new rules related to confidential treatment (part of FAST Act Modernization and Simplification of Regulation S-K) became effective today, April 2, when the adopting release was published in the Federal Register.  With that in mind, Corp Fin has posted some guidance under the very descriptive title, New Rules and Procedures for Exhibits Containing Immaterial, Competitively Harmful Information, to help companies comply with the new confidential treatment process, discussed below.  The remainder of the release (other than provisions related to data-tagging, which will be phased in) will become effective on May 2. (For a summary of the new rules, see this PubCo post, which, since the intital posting, has been revised and updated.) 

New approach. Under the SEC’s new approach to confidential treatment, companies will be able to redact information from material contracts without the need to submit in advance formal confidential treatment requests, so long as the redacted information (i) is not material and (ii) would be competitively harmful if publicly disclosed. Under the new rules, contained mostly in Reg S-K Item 601(b), companies will now be required to:

  • “mark the exhibit index to indicate that portions of the exhibit or exhibits have been omitted;
  • include a prominent statement on the first page of the redacted exhibit that certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed; and
  • indicate with brackets where the information has been omitted from the filed version of the exhibit.”

Compliance Reviews.  Not surprisingly, Corp Fin announces here that it intends to review filings for compliance. When the staff conducts a review in connection with a regular filing review (e.g., review of a periodic report), staff members will separate their “requests for supplemental information, and will request that registrants provide their responses to those requests separately from the regular filing review comment and response process to minimize the risk of inadvertent public disclosure of competitive information.”

 General Compliance Review Process

  • The staff will initiate a redacted exhibit review with a letter request for a paper copy of the unredacted exhibit marked to highlight the redacted information.
  • Upon review, the staff may ask the company to to substantiate the redaction decisions by providing the underlying rationales supplementally.
  • If the staff has no comments, the company will receive a letter indicating that the review is complete.
  • However, if the staff did have questions regarding materiality or competitive harm, the company would receive comments regarding the exhibit separately from any comments on the associated filing.
  • If the staff determined that the supplemental rationales provided by the company did not support the redactions, the staff could request that the exhibit be refiled to disclose additional information.
  • Once questions have been resolved, the company will receive a letter indicating that the review is complete.

Securities Act Registration Statements

  • As in the past, companies will need to resolve any questions relating to redacted exhibits in registration statements before submitting requests for acceleration.
  • The only information that will be publicly posted on EDGAR will be the initial request for an unredacted exhibit and the letter indication the closing of review, both of which will be posted together with the other correspondence related to the filing.
  • The staff will not post staff comments regarding redacted exhibits or company responses, which could contain confidential information.

Exchange Act Filings

  • As with registration statements, only the initial request for an unredacted exhibit and the letter advising that review has been closed for that exhibit will be publicly posted on EDGAR, after the review has been completed.
  • If the review was conducted as part of a regular filing review, the two letters will be posted with the other correspondence related to the filing review.
  • The staff will not post staff comments regarding redacted exhibits or company responses, which could contain confidential information.

 Procedures to preserve confidentiality of supplemental materials

  • Companies can request confidential treatment of supplemental materials, such as  unredacted copies of agreements or a supplemental analysis of the rationale for the redactions, while in the possession of the staff under Rule 83. (Presumably, the Rule 83 process required here will be a modified version of the process currently used, which does not require submission of justifications for confidential treatment unless a FOIA request is made.) 
  • Upon completion of a compliance review, the company should request return or destruction of all supplemental materials by complying with the procedures outlined in Rules 418 or 12b-4, as applicable.
  • Corp Fin will provide specific instructions in the initial request for unredacted exhibits, which should be followed to minimize the risk of inadvertent disclosure: Corp Fin encourages companies “to follow those instructions and not send supplemental responses to requests for unredacted exhibits or other supplemental information relating to those exhibits to individual staff members or the staff member that made the request.”

Transition Issues

  • The regular CTR process for requesting confidential treatment pursuant to Rule 406 or Rule 24b-2 remains available.
  • Pending CTR applications under Rule 406 or Rule 24b-2 may be withdrawn if desired.
  • If the CTR is withdrawn, the company will need to refile the exhibit in redacted form in an amended filing that conforms to the amended rules and coordinate the withdrawal with the AD responsible for reviewing the filings.
  • When the AD processes the withdrawal of the CTR, the application and related materials will be destroyed unless the company requests their return.
  • Corp Fin will continue to process new applications for CTR as well as pending applications that have not been withdrawn following established procedures.
  • Existing orders granting confidential treatment that are still in effect will remain in effect until the date stated on the order.

Questions

  • Here is an email address for questions: RedactedExhibits@sec.gov.
  • Requests should include the name, phone number and brief summary of the question.

Posted by Cydney Posner