Buried on page 2659 of the National Defense Authorization Act for Fiscal Year 2026 (the “NDAA”) – the US$901bn defense spending bill signed into law by President Trump on December 18, 2025 – you’ll find Section 8103: “Disclosures by Directors, Officers, and Principal Stockholders” a.k.a. the “Holding Foreign Insiders Accountable Act.” This extends the insider trading reporting requirements under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to Foreign Private Issuers (“FPIs”) with a class of equity securities registered under Section 12 of the Exchange Act. As a result, directors and certain officers of FPIs – and potentially 10% beneficial owners – who were previously exempt from Section 16(a), will be required to publicly report their holdings and trades in the equity securities of those issuers to the U.S. Securities and Exchange Commission (the “SEC”).
What’s Section 16(a)?
Section 16(a) of the Exchange Act requires “Insiders” – the directors, certain officers, and 10% beneficial owners of an issuer – to disclose their equity holdings in that issuer and report any changes to those holdings on special forms, namely Forms 3, 4, and 5.
Form 3s are the initial reports that must be filed when becoming an Insider.
Form 4s are generally filed to report any change in an Insider’s beneficial ownership in the issuer’s equity securities – including derivatives (e.g. puts, calls, options, warrants, convertible securities, or other rights or obligations to buy or sell securities). Form 4s are also filed when an Insider makes equity compensation-related transactions, such as receiving equity compensation grants or making sales to cover tax withholding obligations.
Form 5s are reserved for transactions eligible for deferred reporting, such as small acquisitions of less than US$10,000 of company securities in a six-month period and inheritances (although these transactions can be voluntarily reported on a Form 4), and transactions that should have been filed on a Form 4 but were not, such as late filings.
Section 16(a) is intended to provide prompt, accurate information to the public on the shareholding of important persons relating to an issuer.
When Do I Have to File These Forms?
All Section 16 reports must be filed via the SEC EDGAR system prior to 10:00 p.m. Eastern time on their respective due dates.
- A Form 3 must be filed within 10 calendar days of becoming an Insider, unless it is in connection with an initial public offering – then the Form 3 must be filed on the day the registration statement is declared effective. For individuals who are already Insiders at the time of the NDAA’s enactment, a Form 3 must be filed within 90 days. Insiders of issuers that are already public companies will be required to make an initial filing on Form 3 on or prior to March 18, 2026;
- Form 4s must be filed by the end of the second business day after any purchase, sale, gift, conversion, exercise, or other acquisition/disposition is executed (e.g. a sale on Monday must be reported prior to 10:00 p.m. Eastern time on Wednesday);¹ and
- Form 5s must be filed within 45 days after the issuer’s fiscal year end.
All reports must be filed in English via EDGAR with eXtensible Markup Language (XML), similar to how Schedule 13G and 13Ds are filed.
What Happens If I Don’t Make These Filings?
For domestic filers, the issuer must, in its 10-K or annual proxy, disclose the names of the Insiders who failed to file timely Section 16(a) reports and the number of delinquent reports and transactions. The SEC may create analogous rules for FPIs, but that remains to be seen.
The SEC can also seek penalties in judicial enforcement actions of up to US$11,823 per violation by an individual and up to US$118,225 per violation by an entity.² Last year, the SEC used data analytics to conduct an enforcement sweep of late beneficial ownership and insider transaction reports, netting over US$3.8m in penalties.³
How Do I Know If I am an Insider for Purposes of Section 16(a)?
All members of the Board of Directors are Insiders.
In general, individuals identified as executive officers for purposes of 20-F filings are presumed to also be officers for Section 16 reporting. Additionally, the principal financial officer and the principal accounting officer – or the issuer’s controller if there is no principal accounting officer – are considered Insiders for Section 16 purposes. Further, the SEC views “deputized” directors, vice presidents in charge of principal business divisions or functions, and any officer who has significant policymaking functions as Insiders. Entities that have a right to appoint one or more directors are also Section 16 Insiders.
The wording of the NDAA is ambiguous as to whether the Section 16(a) reporting requirements apply to 10% beneficial owners of FPIs. While it is likely that 10% beneficial owners will be exempt, such shareholders should be ready to comply. The SEC’s final regulations and guidance should hopefully clarify whether 10% beneficial owners of FPIs will need to file Section 16(a) reports.
When Will These Rules Take Effect?
The new reporting requirements will apply on March 18, 2026. However, the SEC may include a transition period in their final rule, moving the start date later into 2026, or decide that the legislation is self-executing in regard to filing Forms 3, 4, and 5 and maintain the March 18, 2026 date. Directors, officers, and 10% beneficial owners should assume that the March 18, 2026 date will be the effective date, until the SEC otherwise states.
What About the Rest of Section 16?
FPIs and their directors, officers, and 10% shareholders remain exempt from Section 16(b) short-swing profit disgorgement and Section 16(c) prohibitions on short sales.
What If the Issuer is Dual-Listed?
The legislation allows the SEC to provide exemptions “if the [SEC] determines that the laws of a foreign jurisdiction apply substantially similar requirements to such person, security, or transaction.” While it is yet to be seen how the SEC will use the exemption prerogative, and the timing of such exemption, persons and entities that make routine filings reporting changes in beneficial ownership similar to those required by Section 16 may be exempt from making Section 16 filings in the future, after the SEC provides guidance.
Are More Changes for FPIs Coming?
Yes. On June 4, 2025, the SEC issued a concept release to solicit public comment as to whether the FPI definition should be modified. While the SEC has not come out with a final rule yet, its concept release did delineate proposals like (i) lowering the U.S. shareholder threshold; (ii) adopting a mutual recognition framework; (iii) imposing a minimum foreign trading volume requirement; (iv) requiring listing on a major foreign exchange; (v) conditioning FPI status on international regulatory cooperation; and (vi) introducing jurisdictional restrictions based on the quality of the foreign regulatory framework. This could mean sweeping changes to the FPI framework if enacted.
What Should I Do in the Meantime?
- identify insiders: determine which directors and officers will be subject to the new rules and begin the process of obtaining SEC EDGAR Next access. We recommend doing this as soon as possible, as this process can be time consuming. Further, the SEC will be handling a great deal of new requests from FPI directors and officers who will now be considered Insiders, so we expect delays. 10% shareholders should already have SEC EDGAR Next access due to their Schedule 13G and 13D filing requirements, which remain in effect;
- analyze current systems: review your current disclosure and reporting infrastructure to see if it can accommodate Section 16 reporting obligations. This includes systems to alert in-house legal teams and outside counsel to changes in beneficial ownership. Section 16 filings can be complex depending on the nature of the transaction, so early notification is important, and filings must be made quickly;
- educate your board and your team: conducting appropriate trainings for directors and officers as well as compliance personnel about these new requirements is crucial to ensuring compliance with Section 16; and
- consider a pre-clearance policy: requiring directors and officers to pre-clear trades may help ensure that filing deadlines are met.
We are closely tracking these developments and are available to assist clients in evaluating their compliance systems and educating their Insiders. Should you have any questions about Section 16, please contact a member of our Corporate and Capital Markets team for further guidance.
[1] Unlike an amendment to a Schedule 13G or Schedule 13D, there is no requirement for the change reflected in a Form 4 to be “material.”
[2] https://www.sec.gov/enforce/civil-penalties-inflation-adjustments
[3] https://www.sec.gov/newsroom/press-releases/2024-148
