U.S. regulators took a small step toward making it harder for executives to bet against their own companies.
Under a proposed rule released Monday, the Securities and Exchange Commission would require companies to make public any policy that allows employees to use short sales, options, swaps or other transactions that would allow them to profit if stock in their company falls.
“Increasing transparency into hedging policies will help investors better understand the alignment of the interests of employees and directors with their own,” SEC Chair Mary Jo White said in a statement.
The SEC has taken more than four years to propose the rule amid opposition to broader disclosure requirements for executive pay by lawmakers and business lobby groups. Several compensation rules that the agency was mandated to write in the 2010 Dodd- Frank Act remain undone, including one aimed at showing how executive pay compares to the company’s stock performance.
SEC Commissioners Daniel Gallagher and Michael Piwowar, both Republicans, voted for the proposal but said in a statement that they “remain quite concerned” about several aspects, including that the rule doesn’t exempt smaller companies and that it applies to employees who can’t affect a company’s share price.
“It is my hope that the Commission moves promptly to adopt these additional disclosure rules to provide maximum transparency to investors about companies’ executive compensation decisions,” SEC Commissioner Luis Aguilar, a Democrat, said in a statement.
Under the proposed rule, companies would disclose the policy in their annual proxy statements, which reveal the compensation provided to top executives and boards of directors. The proposal, which is open for public comment for 60 days, covers all employees and would require disclosure of both permitted and prohibited hedging transactions.