As I blogged about in Part 1 last month, there are actions you should be taking now to prepare for the SEC’s new EDGAR Next, including becoming educated about what this is all about. Here are the last of the dozen questions you should be asking yourself – with a big hat tip to McKesson’s Jim Brashear for helping to sort this out:
5. What if the Section 16 insider has other affiliated companies?
Section 16 insiders who have to make filings for their roles at more than one company will need to choose one of three options for EDGAR Next account administration. The SEC Staff has emphasized that this should be an informed decision by the Section 16 insider, who is ultimately responsible for their personal CIK account. Even if you’ve historically provided EDGAR filing support to a Section 16 insider, you should not assume that insider wants you to be their EDGAR Next account administrator.
- Centralized account administration – Perhaps Section 16 insiders will wind up designating their TPAAs at only one company (e.g., their employer or the board of directors at which they have the longest tenure). Because all account administrators have co-equal authority, limiting TPAA designations to one company may reduce coordination issues and conflicts among TPAAs at multiple companies. If the Section 16 insider later ceases to be affiliated with the company where the TPAAs are employed, any administrator may add new TPAAs at a different company and remove the TPAAs that are no longer needed.
Imagine Jane Doe is an officer at Company A and an outside director of Company B. Instead of having account administrators at both companies, an employee at Company A could serve as Doe’s account administrator and designate Company B as a delegated entity for Doe’s CIK. One of Company B’s account administrators could then authorize Company B employees as EDGAR users for Doe’s CIK, to file Doe’s Form 4 reports as to Company B. Alternatively, Doe’s account administrator at Company A could add specific Company B employees to the EDGAR Next Dashboard for Doe’s CIK which would authorize them to file Form 4 as to Company B. - Multiple entity/decentralized administration – Under this option, each Section 16 insider would have an account administrator at each public company with which they are affiliated. So, in our example, Doe would appoint account administrators at both Company A and Company B. The coordination of multiple account administrators across all the insider’s affiliated companies would be key.
This option would involve more work due to the coordination necessary. For one example, each CIK can enroll only once in EDGAR Next and enrollment automatically changes the CCC. For another example, the account administrator submitting the annual confirmation would need to confirm that all other users, account administrators and delegated entities are authorized by the filer, including those added by account administrators at other companies. This need for coordination has disclosure controls implications for the filer.
Importantly, the IT security principle of least privilege dictates that individuals should be granted the minimum levels of access or permissions needed to perform their job functions, and the number of users with administrative rights should be minimized. There is no compelling reason to have account administrators at multiple companies for a single CIK.
If this becomes the standard practice, it remains to be seen whether there will need to be documentation and controls embedded in this new type of framework. - Self-administration – Designating the Section 16 insider as one of their own EDGAR Next account administrators can give them visibility into account activity, even if they intend to use a TPAA. Although the Section 16 insider theoretically could be designated as their sole account administrator, doing that would make them entirely responsible for all of their EDGAR account administration, including being the POC with SEC’s EDGAR Business Office.
It’s unlikely that any individual Section 16 insiders will choose this self-service option, as it’s highly doubtful that insiders will want to suddenly get involved in making their own Section 16 filings, although some shareholders (under 10%) may choose to self-administer.
6. This sounds complicated! How should I coordinate with other companies about our common Section 16 insiders?
The SEC’s EDGAR Next rulemaking does not specify how companies should coordinate account administration for shared Section 16 insiders. It does not indicate a preference for centralized versus decentralized account administration, for example.
Section 16 insiders and their affiliated companies therefore have flexibility to determine the most appropriate arrangement for their specific circumstances, so long as they comply with the basic requirements of the SEC’s rule regarding account administrators and proper authorization.
- Coordinate with the other companies– You should coordinate with the other affiliated companies for each of your Section 16 insiders. You can generally coordinate through their corporate secretary, whose contact information sometimes is listed in the “Members Directory” of the Society for Corporate Governance. In the discussion, confirm the role of each company in EDGAR Next account administration and filings, consistent with the instructions from the Section 16 insider.
- Monitor industry association protocols – Luckily, there are efforts underway among industry associations and other subject matter experts to establish protocols to help alleviate the risk of chaos from having too many cooks in the EDGAR Next kitchen. Stay current with updates from the Society for Corporate Governance, Association of Corporate Counsel, National Association of Stock Plan Professionals, Section16.net, etc.
7. Will I need new powers of attorney from Section 16 insiders?
You won’t need to present a power of attorney to the SEC when you register a CIK on EDGAR Next. All anyone needs are the CIK, CCC and passphrase. That doesn’t, however, mean that you don’t need a POA for other reasons. For example, the instructions to Form 3, 4 and 5 still require a POA evidencing the authority of the person signing the form, if it’s not signed by the filer.
Whether you need a new POA depends on what EDGAR Next account administration role your company will have, and the wording of your historical POA. If your company will be providing TPAA services – such as authorizing other companies as delegated entities – then you should confirm the services are within the scope of authority granted by the existing POA.
If your company will simply be acting as a delegated entity to make filings for the Section 16 insider as to your company’s own securities, then your historical POA might be sufficient. Check with your legal counsel.
Most importantly, be sure you’re acting consistently with the wishes of the individual Section 16 insider. Don’t assume that your historical POA means the Section 16 insider intends for you to create their EDGAR Next dashboard and/or appoint yourself as their account administrator!
8. Can we still have multiple filing agents?
Yes, and the process isn’t unduly complex for those companies that sometimes file themselves and sometimes use their law firm, a financial printer or other services provider to file for them. Similarly, you may want to designate the brokerage firm that provides your stock plan administration services as a Form 144 filing agent for your control persons, and also designate any platform that you use for Forms 3, 4 and 5 reports for your insiders.
One of the account administrators for each filer will simply designate each desired filing agent as a delegated entity in the EDGAR Next dashboard. There is no limit on the number of delegated entities that one filer may designate, and the designations don’t expire. An account administrator for that delegated entity then appoints internal users who are authorized to make EDGAR filings for that filer.
A delegated entity cannot subdelegate its authority. So, Doe’s account administrator at Company A can make Company B a delegated entity for Doe’s CIK, but Company B cannot make Filing Agent C a delegated entity for Doe. Doe’s account administrator at Company A would have to do that delegation too.
9. API? Oh my! Will I need to appoint technical administrators for each filer?
An application programming interface (API) is a set of machine language instructions that one computer sends to another computer in order to perform a task, like when a filing agent’s computer talks to EDGAR. In EDGAR Next high-volume filers (such as financial printers) will enable optional APIs to speed up processing.
When using an API to perform a task, an EDGAR user will present two electronic credentials called tokens. Your filing agent’s technical administrator may provide its filer API token for that purpose. In that case, filers won’t need their own technical administrators to create their own filer API token. In addition, individual EDGAR users will need to generate from their EDGAR Next dashboard a personal user API token and present that credential. That could be an employee of the filing company or of the filing agent.
If you want to nerd out, see the SEC’s overview of EDGAR APIs.
10. When should we go ‘live’ on EDGAR Next?
You have plenty of time to decide on when to register your company’s CIK in EDGAR Next. The earliest you can go live on the new dashboard is March 24, 2025, and you could delay until September 15, 2025. You don’t have to be among the first to do so, but the SEC Staff is encouraging registrations of CIKs as soon as feasible, and so are some of the filing agents.
During the transition period between March 24th and September 15th, you can register in EDGAR Next and still file using legacy methods. So, according to the SEC Staff, there’s no downside to registering as soon as possible.
For example, you could register your company’s CIK at the end of March, but wait until after your Form 10-K and proxy statement filings before you fully transition. You could also wait until closer to the September 15th compliance date.
For Section 16 insiders, however, you’re going to be at the mercy of the first person who uses a Section 16 insider’s CIK, CCC and passphrase to register that CIK in EDGAR Next. Using our earlier example, if an employee at Company B registers outside director Doe’s CIK on March 24, that would automatically change Doe’s CCC. An employee at Company A, where Doe is an officer, wouldn’t be able to register Doe’s CIK or make a Form 3, 4 or 5 filing with the old CCC. Company B would need to get the new CCC from Company A before it could make a filing for Doe. If Company B had not earlier coordinated with Company A, it might be unable to make a timely Form 4 filing.
Until September 15th, Company A and Company B each could elect whether to file under the legacy method or the new EDGAR Next process, so long as each had the current CCC. After September 15th, however, Company A could not file for Doe until one of Doe’s account administrators at Company B enabled that.
So, there could be a potential land rush for EDGAR Next registrations – which highlights the importance of coordinating with other companies about EDGAR Next account administration for shared Section 16 insiders.
11. Who should be responsible for our new annual confirmation process?
The SEC’s new rules require that one of the account administrators confirm annually on EDGAR that all individuals and entities reflected on the dashboard for each EDGAR CIK account are authorized by the filer to act on its behalf, and that all information about the filer on the dashboard is accurate.
Companies will need to determine which account administrator will be primarily responsible for the annual confirmation and add the annual confirmation into their reporting processes. The confirmation requirement applies to Section 16 insider CIKs too. If the insider elects decentralized account administration, the confirmation among account administrators is another area requiring intercompany coordination.
The deadline for the annual confirmation can be set to be the end of any calendar quarter, simply by submitting the confirmation during that quarter. So, if you register a CIK in the first quarter, the annual confirmation deadline will default to March 31st. If you prefer that the deadline coincide with the calendar year end, you could submit an early confirmation during the fourth calendar quarter. That will reset the annual timing.
12. This all sounds a little scary. Can it be that bad?
It’s hard to say. I might be overstating how complex this change may be for some filers. I may be dramatically understating it, particularly for smaller companies and for Section 16 insiders with multiple affiliated companies.
As I said in the opening paragraph of last month’s blog, there is a reason why so few advisors have put out memos or articles about EDGAR Next — uncertainty. The SEC provided implementation options and no consensus has formed about those yet. Filing agents are only beginning to provide guidance on their implementation choices. We have to hear from Section 16 insiders. Coordination protocols are lacking. Most of all, people are still getting their arms around the details and scope of the changes.
Authored by
Broc Romanek