Corporate Governance Regulatory Compliance & Disclosure 2 — Questions and Answers
Question 1: What is the purpose of the SEC's EDGAR database?
- A public system where companies electronically file and investors can access all SEC filings (Correct answer)
- A regulatory database tracking insider trading violations
- An executive compensation benchmarking tool maintained by the SEC
- A real-time market surveillance system monitoring trading activity
Correct answer: A public system where companies electronically file and investors can access all SEC filings
EDGAR (Electronic Data Gathering, Analysis, and Retrieval) is the SEC's public filing system where all required SEC reports are submitted and made freely available to investors.
Question 2: What does the 'proxy statement' (DEF 14A) contain?
- Information about matters to be voted on at the annual meeting, including director nominees and executive compensation (Correct answer)
- Audited financial statements required by SEC for annual reporting
- A prospectus for new securities being offered to the public
- A current report on material events occurring between quarterly filings
Correct answer: Information about matters to be voted on at the annual meeting, including director nominees and executive compensation
The proxy statement (DEF 14A) provides shareholders with information needed to vote on annual meeting items including director elections, say on pay, and shareholder proposals.
Question 3: What is 'insider trading' under US securities law?
- Trading securities based on material nonpublic information in breach of a duty of trust or confidence (Correct answer)
- Any securities trading by company executives regardless of information basis
- Trading company shares during the period before earnings are publicly released
- Purchasing company shares immediately following a secondary offering
Correct answer: Trading securities based on material nonpublic information in breach of a duty of trust or confidence
Insider trading is illegal when a person trades based on material nonpublic information while owing a duty of trust or confidence to the company or source of the information.
Question 4: What is a 'trading blackout period'?
- A company-imposed window prohibiting insiders from trading company securities around earnings announcements or other material events (Correct answer)
- An SEC-mandated halt of all trading in a company's securities during an investigation
- A FINRA rule prohibiting broker-dealers from trading during market circuit breakers
- A lock-up period preventing IPO insiders from selling shares for six months post-offering
Correct answer: A company-imposed window prohibiting insiders from trading company securities around earnings announcements or other material events
Blackout periods are company-imposed trading restrictions on insiders during sensitive periods (e.g., the weeks before quarterly earnings) to reduce insider trading risk.
Question 5: What is a '10b5-1 trading plan'?
- A pre-established trading plan that allows insiders to sell shares on a set schedule, providing an affirmative defense against insider trading claims (Correct answer)
- An SEC registration exemption for employee stock purchase plans
- A FINRA-approved algorithm for executing large institutional trades without market impact
- A plan filed with the SEC to disclose all future insider purchases within 30 days
Correct answer: A pre-established trading plan that allows insiders to sell shares on a set schedule, providing an affirmative defense against insider trading claims
A 10b5-1 plan lets insiders pre-schedule share sales at a time when they lack MNPI, creating a safe harbor from insider trading allegations on later trades.
Question 6: Which governance disclosure is required by the SEC's 2022 cybersecurity rules?
- Material cybersecurity incidents must be disclosed on Form 8-K within four business days of determining materiality (Correct answer)
- All cybersecurity incidents must be disclosed within 24 hours of detection
- Companies must annually disclose the number of attempted cyberattacks
- The CIO must personally certify the company's cybersecurity posture in the 10-K
Correct answer: Material cybersecurity incidents must be disclosed on Form 8-K within four business days of determining materiality
The SEC's 2023 cybersecurity disclosure rules require public companies to disclose material cybersecurity incidents on Form 8-K within four business days of determining materiality.
Corporate Governance Regulatory Compliance & Disclosure 2
What is the purpose of the SEC's EDGAR database?