Proposed U.S. Legislation to Extend Insider Reporting to Foreign Private Issuers
17 December 2025
In December 2025, the U.S. House of Representatives issued the text of its proposed "National Defense Authorization Act for Fiscal Year 2026" (the "NDAA").1 Notwithstanding the title of the bill, as often occurs, the bill contains a wide variety of proposals that are not directly related to the subject of national defense. One of them is Section 8103, entitled the "Holding Foreign Insiders Accountable Act," which would extend the insider reporting provisions of Section 16 of the Exchange Act of 1934 relating to share ownership to SEC reporting companies that are "foreign private issuers."2
This article introduces the Section 16 requirements for those who may not be familiar with them, and summarizes the potential impact of the new legislation.
Section 16 and Its Rules – an Overview
Section 16 and the related rules adopted by the SEC have two basic requirements:
Insider Reporting of Equity Ownership – under Section 16(a), specified insiders of a public company, including directors, executive officers and 10% stockholders, are required to report their holdings in a company's equity securities, and changes to those holdings, on specified SEC forms. These forms are (a) Form 3 (for setting forth initial holdings, for example, at the time of an IPO), (b) Form 4 (for reporting transactions, with a filing due within two business days after the relevant transaction), and (c) Form 5 (generally, changes in ownership not required to have been reported on a prior form, and which is filed within 45 days after the relevant company's fiscal year end).
These reporting requirements are designed to promote transparency and to deter unlawful insider trading by reporting persons. These reporting requirements enable market participants to track the timing of actual trades against the timing of corporate developments and announcements.
Insiders subject to Section 16 generally include executive officers, directors, and holders of more than 10% of the issuer’s outstanding shares. Depending upon the ownership and governance structure of the relevant non-U.S. companies, the identification of insiders may require some analysis and judgment.
Liability for Short-Swing Profits – under Section 16(b), an insider covered by the existing provisions is required to disgorge profits that are derived from purchases and sales effected within a six-month period. For example, a profit resulting from a purchase of shares in one month, followed by a sale of shares at a higher price one month later.
Insiders of foreign private issuers are currently exempt from both the Section 16 reporting requirements and the disgorgement provisions. This exemption has generally been viewed as an accommodation to encourage non-U.S. issuers to list on U.S. securities exchanges and to offer securities in the U.S., since many non-U.S. companies are not subject to similar rules in their home countries.
Proposed Rules
Under the current bill, the SEC would be required, within 90 days after enactment of the law, to adopt rules to extend the reporting obligations of Section 16 to foreign private issuers. The new reporting requirements would apply to directors and executive officers of foreign private issuers, but not to their 10% shareholders. The draft would enable the SEC to exempt those issuers who are subject to a "substantially similar" set of requirements in a non-U.S. jurisdiction. It is likely that any new rules would not be immediately effective, but would involve some sort of transition period before insiders must begin to file Forms 3, 4 and 5. Relevant insiders would be required to obtain filing codes for EDGAR, the SEC's electronic filing system, and become subject to the ongoing reporting requirements under Section 16. As part of its rulemaking process, the SEC may impose rules requiring disclosures of late filings, for example, as part of the annual reporting requirement on Form 20-F.
Under the draft statute, insiders of foreign private issuers would remain outside the scope of Section 16(b)'s rules relating to the disgorgement of short-swing profits. This exemption would take some of the teeth out of the statute. However, the reporting rules would make it possible for the SEC and market participants to follow patterns in insider transaction activity, making it easier to determine whether there were any trades that might have been based on material non-public information. It is also possible that the SEC will decide at some point in the future that it is appropriate to attempt to impose disgorgement rules through its own rule-making process.
Next Steps
The U.S. House of Representatives and the U.S. Senate must agree on a version of this bill before it is sent to the President for his signature. The current proposal could well remain the final version. Accordingly, a version of this statute may become effective quite soon.
- The text of the bill may be found here. (Recommend not printing the whole document – it's very long, and contains mostly subjects that are not relevant to this article.)
- A non-U.S. issuer will typically qualify as a "foreign private issuer" if 50% or less of its outstanding voting securities are held by U.S. residents; or if more than 50% of its outstanding voting securities are held by U.S. residents and none of the following three circumstances applies: the majority of its executive officers or directors are U.S. citizens or residents; more than 50% of the issuer’s assets are located in the U.S.; or the issuer’s business is principally managed in the U.S. See Rule 405 under the Securities Act of 1933 for the full definition.
