SEC Rule 406

Rule 406 has undergone significant practical evolution since 2019, when the Commission adopted a parallel streamlined redaction mechanism under Regulation S-K Item 601(b)(10)(iv) that has, for the great majority of exhibits, displaced the formal Rule 406 application process as the preferred method for protecting commercially sensitive information from public disclosure.

Overview and Regulatory Purpose

The Securities Act's registration and disclosure framework is premised on the principle that investors are entitled to the material information necessary to make informed investment decisions.

This principle generates a comprehensive mandatory disclosure regime in which issuers must file registration statements, prospectuses, and exhibits containing detailed information about their business, financial condition, and contractual arrangements. For a subset of this information — particularly the commercial terms of material contracts — mandatory public disclosure poses a direct conflict with legitimate business interests.

A company that discloses the pricing terms of its supplier agreements, the performance benchmarks in its customer contracts, or the royalty rates in its licensing arrangements in a publicly accessible SEC filing may suffer genuine competitive harm, as competitors, customers, and suppliers can exploit that information to the issuer's disadvantage.

Rule 406 resolves this tension by providing a mechanism through which the issuer can discharge its filing obligation — making the document available to the Commission — while objecting to its full public disclosure and requesting that commercially sensitive portions be withheld from the publicly accessible version. The mechanism does not eliminate the filing obligation; it modifies the disclosure consequences of compliance by interposing a Commission determination about what information is sufficiently sensitive to warrant withholding from the public while still being reviewed by the staff. This balance — mandatory filing plus discretionary public withholding — reflects the Commission's recognition that investor protection does not require the disclosure of every contractual term in every filed agreement, and that the marginal informational value of full disclosure of commercial terms may in certain cases be outweighed by the competitive harm that disclosure causes.

Statutory Authority and Rulemaking History

Rule 406 derives its statutory authority from Section 8(a) of the Securities Act of 1933, which governs the availability of registration statements for public inspection, and Section 19(a), which provides the Commission's general rulemaking authority. Section 8(a) provides that every registration statement shall be available for public inspection during business hours, subject to such rules and regulations as the Commission may prescribe for the protection of persons entitled to file confidential material. This statutory reservation of Commission authority to prescribe confidential treatment rules is the direct legislative basis for Rule 406.

Rule 406 has been amended on several occasions throughout its history to reflect changes in the Commission's filing requirements, FOIA jurisprudence, and the evolution of the Commission's approach to the balance between disclosure and competitive protection. The most significant development in the rule's recent history is the March 2019 adoption of the streamlined redaction mechanism under Regulation S-K Item 601(b)(10)(iv), which created a parallel and considerably less burdensome pathway for protecting commercially sensitive information from public disclosure. That rulemaking did not amend Rule 406 itself but materially altered the practical landscape in which the rule operates by providing an alternative that is less administratively demanding for the majority of commercially sensitive exhibit disclosures. The November 2020 amendments further extended the redacted exhibit approach to additional exhibit categories, including certain provisions applicable to foreign private issuers and Form 8-K material definitive agreement disclosures.

A proposed amendment to Rule 406 was published in the Federal Register on March 28, 2024 at 89 FR 21919 but was delayed indefinitely on April 12, 2024 at 89 FR 25804 before it could take effect. The operative text of Rule 406 therefore remains as it stood before that proposal, and no further rulemaking has been published proposing amendments to the rule through June 2026.

Key Provisions and Operative Requirements

Rule 406(a) establishes the exclusive procedure for confidential treatment requests under the Securities Act. Any person submitting information in a document required to be filed under the Act may make a written objection to its public disclosure by following the procedure in Rule 406(b). The rule specifies that this procedure is the exclusive means of requesting confidential treatment for information in a document required to be filed under the Act — meaning an issuer that wishes to protect filed information from public disclosure must follow Rule 406's application procedure; no other mechanism, such as a cover letter note or informal request, will suffice. The exclusivity provision also distinguishes Rule 406 from Rule 83, which governs confidential treatment of information not required to be filed — if information is submitted voluntarily rather than as a mandatory filing requirement, the appropriate vehicle for seeking confidential treatment is Rule 83, not Rule 406.

The paper-only submission requirement is a notable and practically significant feature of Rule 406. All confidential treatment requests under the rule must be submitted in paper format only, regardless of whether the filer is an electronic filer required to use EDGAR for its regular Commission filings. This paper requirement persists alongside the Commission's comprehensive mandatory electronic filing framework because confidential treatment requests, by their nature, contain the very information the applicant is seeking to protect from public disclosure — submission through EDGAR would immediately make the request public, defeating its purpose before the Commission has had an opportunity to rule on it.

Rule 406(b) specifies the content and procedural requirements for the written objection. The applicant must submit the objection simultaneously with filing the document containing the information to be protected, or prior to the filing of certain registration statements as specified in Rule 406(a)'s exceptions. The written objection must identify the specific document and the specific portions of the document for which confidential treatment is sought, must state the grounds for the objection — the basis under FOIA Exemption 4 for withholding the information — and must be accompanied by a copy of the document with the portions for which confidential treatment is sought clearly marked. The Commission's review of the application is conducted by the Division of Corporation Finance, which has delegated authority to grant confidential treatment orders.

If the Division denies a confidential treatment request in whole or in part, the applicant is not immediately compelled to make the information public. Commission practice affords the applicant an opportunity to withdraw the underlying filing rather than have the previously withheld information become public, or to submit additional support for the application addressing the specific grounds for the staff's denial. An applicant dissatisfied with a final adverse determination may seek review by the full Commission and, ultimately, judicial review of the Commission's order in federal court, though such formal appeals of Rule 406 denials are rare in practice compared to the more common path of supplementing the application or accepting the staff's determination and republishing the filing in unredacted form.

The FOIA Exemption 4 standard governs the Commission's evaluation of confidential treatment requests under Rule 406. FOIA Exemption 4 protects from mandatory disclosure trade secrets and commercial or financial information obtained from a person that is privileged or confidential. The Supreme Court's 2019 decision in Food Marketing Institute v. Argus Leader Media significantly expanded the scope of Exemption 4's confidentiality prong, holding that information is confidential for FOIA purposes when the information is customarily and actually treated as private by the person from whom it was obtained, without requiring a separate showing of competitive harm. This Supreme Court decision altered the legal landscape for confidential treatment applications under Rule 406 by making it easier for companies to establish that information qualifies as confidential — the competitive harm standard previously required by prior circuit precedent was effectively supplanted by the customarily-and-actually-treated-as-private standard. The Commission incorporated this updated standard into the streamlined redaction rules adopted in November 2020 by removing the prior competitive harm requirement from those procedures.

Where the Commission grants a confidential treatment order, the protected information is withheld from the publicly accessible version of the filing for a specified period, after which it becomes public unless the issuer applies for an extension of the confidential treatment period. The January 2024 update to CF Disclosure Guidance Topic No. 7 clarified the extension procedures applicable to orders that are about to expire, distinguishing between orders that are less than three years old — for which a traditional extension application through the paper submission process remains appropriate — and orders that are greater than three years old, for which the Commission has confirmed that transition to the streamlined redacted exhibit rules under Regulation S-K Item 601(b)(10)(iv) is available as an alternative to a formal extension application.

Reverse FOIA Challenges and Third-Party Requests

Confidential treatment under Rule 406 does not permanently insulate withheld information from public view. A member of the public — frequently a journalist, competitor, or public interest organization — may submit a Freedom of Information Act request directly to the Commission seeking access to information that has been granted confidential treatment. When the Commission receives such a request, it does not automatically release the withheld material; instead, the Commission's FOIA office typically notifies the original submitter of the confidential treatment request, giving that party an opportunity to reaffirm the basis for confidentiality or to consent to disclosure of some or all of the requested information. If the submitter maintains its objection and the Commission nonetheless determines that release is appropriate, the submitter may challenge that determination in what is commonly referred to as a reverse FOIA action — a lawsuit brought under the Administrative Procedure Act seeking to enjoin the Commission from releasing the information, rather than a request compelling disclosure. This reverse-FOIA dynamic was central to the underlying dispute in Food Marketing Institute v. Argus Leader Media, and it illustrates that a Rule 406 confidential treatment order is not a final, unreviewable determination but rather an ongoing administrative posture that can be tested if a third party later seeks the same information through FOIA.

Scope of Application

Rule 406 applies to information required to be included in documents filed under the Securities Act of 1933 — most commonly, material contracts and other exhibits required by Item 601 of Regulation S-K to be filed as exhibits to registration statements on Form S-1, Form S-3, and other Securities Act forms. The rule covers any portion of a filed document, not merely exhibits, and in principle could be invoked for any commercially sensitive information required to appear in the registration statement itself, though in practice confidential treatment requests are almost exclusively directed at exhibit content rather than at the narrative or financial disclosure in the registration statement body.

Rule 406 does not apply to information voluntarily submitted to the Commission that is not required to be filed — for that category, Rule 83 governs. The distinction between required and non-required information is therefore material to the selection of the appropriate confidential treatment mechanism: if the information appears in a document that the registrant is required to file as a matter of regulatory obligation, Rule 406 applies; if the information is submitted at the registrant's election rather than in satisfaction of a mandatory filing requirement, Rule 83 applies.

Relationship to Related Rules and Regulations

The most significant relationship in Rule 406's current regulatory context is with Regulation S-K Item 601(b)(10)(iv) and the streamlined redacted exhibit rules adopted in 2019 and 2020. These rules provide an alternative pathway for protecting commercially sensitive information from public disclosure that does not require a formal application to the Commission, does not require paper submission, and does not require the issuer to provide an unredacted copy of the exhibit to Commission staff at the time of filing — instead, the unredacted exhibit is provided only if the staff subsequently requests it. Under the streamlined rules, an issuer may file a material contract exhibit in redacted form, marking the omitted portions with bracketed asterisks and including a legend stating that certain information has been excluded pursuant to Item 601(b)(10)(iv) because it is both not material and the type that the registrant treats as private or confidential.

The practical consequence of the 2019 and 2020 rulemaking is that Rule 406 is now used primarily for two categories of situation: first, where the information sought to be protected is material — meaning it cannot qualify for the streamlined redacted exhibit approach, which requires non-materiality as a condition — and confidential treatment is nonetheless sought on the basis that its public disclosure would cause competitive harm and it qualifies as confidential commercial information under FOIA Exemption 4; and second, where the exhibit category does not fall within Item 601(b)(10) and the streamlined rules therefore do not apply, requiring the issuer to use Rule 406 as the only available mechanism.

Rule 406's Exchange Act counterpart is Rule 24b-2, which governs confidential treatment requests for information required to be filed under the Exchange Act — including periodic reports on Form 10-K and Form 10-Q, current reports on Form 8-K, and Exchange Act registration statements. The substantive standards applicable to Rule 24b-2 requests are essentially the same as those applicable to Rule 406 requests — both are evaluated under the FOIA Exemption 4 standard — but the procedural mechanics and the applicable forms differ between the two rules.

Amendment History and Regulatory Evolution

Rule 406's amendment history reflects the Commission's progressive refinement of the balance between disclosure and competitive protection. The most material development is not a formal amendment to Rule 406 itself but the adoption of the parallel streamlined redaction mechanism in 2019 and 2020, which has fundamentally altered the practice of confidential treatment in SEC filings by making the formal Rule 406 application process the exception rather than the rule for most commercially sensitive exhibit disclosures.

The March 2024 proposed amendment to Rule 406, published at 89 FR 21919, was delayed indefinitely before it took effect, and no further information has been published about the Commission's intentions with respect to that proposal as of June 2026. The Commission's current stated regulatory agenda under Chair Atkins does not specifically identify Rule 406 as a priority rulemaking item, and no pending formal proposal addresses the rule's substantive provisions.

The Food Marketing Institute v. Argus Leader Media Supreme Court decision of 2019 represents the most significant legal development affecting Rule 406's operative standard since the rule's adoption. By expanding the scope of FOIA Exemption 4's confidentiality prong, the decision lowered the threshold for establishing that information qualifies for protection under Rule 406 — an evolution that the Commission incorporated into the streamlined redacted exhibit rules while leaving Rule 406's own text unchanged.

Enforcement Context and SEC Action Patterns

Improper or excessive use of confidential treatment requests — including requests that seek to redact material information that investors are entitled to see, or requests that claim FOIA Exemption 4 protection for information that does not genuinely qualify — are a recurring subject of Division of Corporation Finance comment letters in the review of registration statements. The Division has consistently taken the position that confidential treatment is not available for information that is material to investors' understanding of the issuer's business, financial condition, or contractual arrangements, regardless of whether the issuer characterises that information as commercially sensitive.

Issuers that have redacted material contract provisions without filing a proper Rule 406 application — whether by relying on the streamlined redaction rules for information that is in fact material, or by simply omitting information from filed exhibits without following any confidential treatment procedure — have been required to refile the affected exhibits with the redacted information restored or with a proper Rule 406 application submitted. Comment letters in this area have become a standard feature of registration statement reviews involving issuers with complex commercial arrangements, particularly in technology, pharmaceutical, and energy sectors where licensing agreements, supply contracts, and offtake arrangements frequently contain commercially sensitive pricing, performance, and exclusivity terms.

Even under the streamlined redacted exhibit approach, the Division of Corporation Finance retains the authority to request the unredacted version of a filed exhibit if the staff questions the registrant's materiality determination or its characterization of information as customarily treated as private. In such cases, an issuer that redacted an exhibit without first securing a Rule 406 order faces a materially different posture from one that obtained an order in advance: the untested redaction must be defended after the fact, often under time pressure created by an open comment letter, whereas a pre-cleared Rule 406 determination is not subject to the same after-the-fact challenge. This asymmetry is one of the principal reasons some filers continue to pursue formal Rule 406 applications for particularly sensitive provisions even where the streamlined approach would technically be available.

The Division of Corporation Finance's online guidance on confidential treatment applications — CF Disclosure Guidance Topic No. 7, most recently updated January 8, 2024 — provides the authoritative practical reference for practitioners preparing Rule 406 applications, including guidance on the content of the written objection, the format for marking redacted portions of exhibits, the procedure for submitting the confidential application package to the Commission, and the options available for renewing or transitioning from expiring confidential treatment orders.

Practical Compliance Considerations for Filers

Counsel preparing a Rule 406 application typically begin by cataloguing every provision of the underlying agreement that could plausibly satisfy the FOIA Exemption 4 standard, rather than redacting broadly and refining later, because the Division's comment process tends to scrutinize redactions that appear disproportionate to the stated competitive justification. A well-supported application pairs each proposed redaction with a specific, fact-based explanation of the harm that disclosure would cause — for example, identifying the particular competitor that could exploit a disclosed pricing term, rather than asserting in general terms that the pricing information is sensitive. Because the paper submission requirement means the application itself does not appear on EDGAR, filers must separately track internally which provisions remain under an active confidential treatment order and calendar the applicable expiration date, since an order that lapses without a timely extension application results in the automatic public disclosure of the previously withheld information. Many law firms and financial printers maintain internal tracking systems for this purpose precisely because the consequences of an inadvertently lapsed order — unplanned public disclosure of commercially sensitive terms — can be difficult to reverse once the information becomes part of the public record.

Examination Relevance and Key Takeaways

Rule 406 is relevant to Series 65 and Series 7 candidates primarily in the context of the registered offering process and the obligations applicable to issuers filing material contracts and other sensitive documents as exhibits to Securities Act registration statements. Candidates should understand the basic framework of the rule: Rule 406 is the exclusive mechanism for seeking confidential treatment of information required to be filed under the Securities Act; applications must be submitted in paper format only; the standard for protection is FOIA Exemption 4, which protects confidential commercial or financial information customarily and actually treated as private; and the Commission's grant of a confidential treatment order specifies the period during which the information will be withheld from public disclosure.

The relationship between Rule 406 and the streamlined redacted exhibit approach under Regulation S-K Item 601(b)(10)(iv) is increasingly examined in the context of compliance with Securities Act filing obligations. Candidates should understand that the streamlined approach is available only for immaterial information that the company customarily treats as private — it cannot be used to redact material information — and that Rule 406 remains the appropriate vehicle where materiality or exhibit category prevents reliance on the streamlined rules.

The key points to retain are these.

Rule 406 establishes the exclusive procedure for confidential treatment of information required to be filed under the Securities Act. Applications must be submitted in paper format simultaneously with or prior to the filing of the document containing the information to be protected.

The applicable standard is FOIA Exemption 4, under which commercial or financial information customarily and actually treated as private by the submitting party qualifies for protection.

Since 2019, the streamlined redacted exhibit approach under Regulation S-K Item 601(b)(10)(iv) has become the preferred alternative for most commercially sensitive exhibit disclosures, requiring no formal application and no contemporaneous submission of unredacted documents to Commission staff.

Rule 406 remains available and continues to be used where the information is material — and therefore ineligible for the streamlined approach — or where the exhibit category falls outside Item 601(b)(10)'s scope. A proposed amendment to Rule 406 published March 2024 was delayed indefinitely before taking effect; the current operative text remains unchanged and no pending amendment has been published through June 2026.