• Mandated Electronic Filing and Website Posting of Section 16(a) Reports
  • October 21, 2003 | Authors: D. Scott Freed; Sonia Galindo
  • Law Firms: Whiteford, Taylor & Preston L.L.P. - Baltimore Office; Whiteford, Taylor & Preston L.L.P. - Columbia Office
  • On May 7, 2003, the Securities and Exchange Commission ("SEC") issued final rules to mandate electronic filing and website posting of beneficial ownership reports under Section 16(a) of the Securities and Exchange Act required to be filed by officers, directors and 10% beneficial owners of registered public companies. The final rules complete the SEC's implementation of the requirements of Section 403 of the Sarbanes-Oxley Act. SEC Release No. 33-3230 is available at
    http://www.sec.gov/rules/final/33-8230.htm.

    Mandatory Electronic Filing

    The new rules become effective on June 30, 2003. After that date, all reports on Forms 3, 4 and 5 must be filed electronically with the SEC. Unlike with other reports required to be filed electronically, the rules do not provide temporary hardship exemptions, although requests for continuing hardship exemptions and filing date adjustments will be available upon application to the SEC. However, these adjustments will only be available when a late filing is a result of extraordinary circumstances involving undue burden and expense. In the adopting release the SEC indicated that it did not anticipate granting continuing hardship exemptions due to the nature of the information and the relative ease of making the required electronic filings.

    In order to ease the burdens of the transition to mandatory electronic filing, the rules provide for a one business day grace period before a late filing of a Form 4 must be reported in an issuer's proxy statement pursuant to Item 405 of Regulation S-K and Regulation S-B. The disclosure relief is only available for Form 4 reports filed on or before June 30, 2004 (the one year anniversary of the effective date of the new rules) and will only apply to filings that are no more than one business day late.

    In addition, the new rules provide that Section 16(a) reports submitted electronically on or before 10:00 p.m. Eastern Time on a given day will be treated as having been filed on that day. Other forms submitted via EDGAR after 5:30 p.m. Eastern Time are deemed to be filed on the next succeeding business day.

    New SEC Website

    In order to ease electronic filings of section 16(a) reports, the SEC has installed a new on-line filing system, which became operational on May 5, 2003. The website address of the new system is http://www.onlineforms.edgarfiling.sec.gov. This system is more user friendly than the previous EDGARLink system and should ease reporting for insiders, especially for 10% beneficial owners who do not have access to the issuer's internal resources. The new system does have some significant shortcomings, especially the inability of users to save a form for filing at a later time and the inability to modify certain mandatory field requirements for certain holdings and transactions. The SEC stated that the later shortcoming will be remedied in EDGAR Release 8.6, currently scheduled for the end of July.

    Mandatory Website Posting

    The rules also require issuers that maintain corporate websites to post all Section 16(a) reports filed by insiders by the end of the business day following the filing of the report with the SEC. Reports must remain posted on the website for at least 12 months. Issuers can satisfy the posting requirements by providing a hyperlink to the SEC website or to a third party service if certain conditions are met, including that:

    • the forms are made available in their entirety in the required time frame and all exhibits and schedules to the form must be accessible;
    • access to the forms must be free; and
    • the link must be directly to the form or to an index of Section 16(a) reports and not to a general search or home page of a third-party service.

    Planning Considerations

    In order to ensure a smooth transition to mandatory electronic filing, issuers are encouraged to assist all reporting persons in obtaining the required individual CIK and CCC codes. We also recommend that issuers obtain powers of attorney for officers and directors so that the issuer has the ability to make the required filings on behalf of such insiders, especially in light of the two-business day filing requirement for Form 4s. Also, in order to assure timely website posting of filings by 10% beneficial owners who are not officers and directors, the SEC strongly encourages issuers to designate an electronic transmission medium compatible with the issuer's own systems, so that a form sent via that medium at the time specified by Rule 16a-3(e) will be received by the issuer in time to satisfy the website posting deadline. To assure that insiders are aware of the designated person and electronic transmission medium, issuers are also encouraged to post this information on their websites together with the Section 16 filings.