SEC Sets Compliance Date for Form 144 Mandated Electronic Filing

Overview

On October 13, 2022, the latest version of the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system Filer Manual, Volume II was published in the Federal Register. The publication triggered a six-month transition period after which the Securities and Exchange Commission (SEC) will require the electronic filing of Forms 144 with respect to securities issued by an issuer subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934—commonly known as a “public company.” The transition period, ending April 13, 2023, is intended to give filers adequate time to make necessary modifications and to ensure they have an account with and are prepared to submit documents on EDGAR. The SEC advises all filers that do not already have an EDGAR account to apply for access well in advance of the April deadline.

Mandatory Electronic Filing on EDGAR

On June 2, 2022, and effective July 11, 2022, the SEC adopted amendments to certain rules and forms governing the electronic filing and submission of documents. The amendments mandate that several documents that were previously permitted or required to be filed in paper form must now be electronically filed on EDGAR, such as “glossy” annual reports to security holders, Form 144, Form 11-K, and Form 6-K, among others.

In its final rule, the SEC noted that the change will benefit investors, market participants, and other EDGAR users by making the applicable filings accessible to the public almost immediately after electronic submission. In contrast, investors and others can only access and review paper filings by doing so in person at the SEC’s public reference room or by subscribing to a third-party service that scans and distributes the information. The SEC further noted that the increased use of EDGAR will facilitate efficient storage and modernize SEC record management, improving the SEC’s ability to track and process filings.

Addressing access and cost concerns, SEC Chair Gary Gensler stated that, “[i]n a digital age, it’s important for investors to have easy, online access to material information, rather than needing to visit SEC facilities to access that information. This is particularly important during COVID-19, which has made in-person visits to access these filings even more challenging. . . . These amendments will reduce costs and drive more efficiencies for investors, filers, and the SEC.”

Filing Form 144 – Past, Present and Future

Prior to the amendment (and until the April 13, 2023 compliance date), 17 C.F.R. § 230.144 (Rule 144)—which provides a safe harbor for the public resale of restricted and control securities under certain conditions—permits filing Form 144 either on paper or electronically. Upon the effectiveness of the amendment, Section 230.144(h)(1) requires that Forms 144 for sales of securities of reporting companies “shall be filed electronically” with the SEC. Similar to Section 16 filings, EDGAR’s electronic Form 144, which was released on September 27, 2022, is an XML-based fillable electronic form, and, for filers that prefer to file directly in Form 144-specific XML, the SEC released the XML technical specifications on October 17, 2022. Notably, in 2021, of the approximately 30,000 Forms 144 that were filed with the SEC, only 234 were filed electronically through EDGAR, with the remainder being filed as paper or as a PDF email attachment.

Concerns raised during the proposed rule’s comment period highlighted that the majority of Forms 144 are currently paper-filed by broker-dealers that file on behalf of multiple clients. In response, the SEC granted a longer transition period for Form 144 filers to comply than originally proposed, giving broker-dealers additional time to update internal processes and transition their clients for which they prepare and submit Rule 144 filings. Form 144 filers were given a transition period of six months after the date of publication in the Federal Register of the SEC release that adopts the version of the EDGAR Filer Manual addressing updates to Form 144. The EDGAR Filer Manual addressing the Form 144 electronic filing requirements was published in the Federal Register on October 13, 2022, and the SEC confirmed that Form 144 filers must comply by April 13, 2023.

Addressing the logistical challenges ahead for broker-dealers, the SEC pointed out in its final rules that EDGAR allows for the filing of bulk forms and for multiple CIKs; however, it is unclear whether broker-dealers will continue to file Forms 144 on behalf of their clients after the compliance date. The SEC has posted a series of resources on its website to assist filers with applying for an EDGAR account and filing Form 144.

As the compliance date approaches, Capital Markets & Securities Law Watch will continue to monitor developments, trends, and activity in this area and will provide updates to our readers as they become available.