Views on the integrity of global capital markets
02 September 2016

SEC Seeks Comments on Quality of Disclosures: Important for Investors to Respond

On 25 August, the SEC published a very brief (only eight pages) Request for Comment on the disclosure requirements in Subpart 400 of Regulation S-K. The initiative to review the disclosure requirements in Regulation S-K is intended to result in recommendations and proposals that will improve disclosure for the benefit of investors and issuers. The request for comment focuses on three main areas — management, certain security holders, and corporate governance. At only eight pages, the document is rather light on details.

The SEC is inviting comments on existing requirements and rules as well as on potential disclosure issues that commenters believe the rules should address, which could include industry-specific disclosure requirements, information about sustainability and governance matters, and additional instances in which scaled disclosure could be implemented. The request for comment is fairly broad because the SEC appears to be encouraging a wide range of comments across numerous topics. We encourage investors to make their voices heard and comment on issues they believe are important.

Reason for Review

Under the Fixing America’s Surface Transportation (FAST) Act, which included several amendments to federal securities laws, the SEC is required to examine Regulation S-K. It is tasked with (1) determining how best to modernize and simplify disclosures in a way that provides material information while reducing costs for issuers, (2) finding a way to permit a company-specific approach that still allows comparability of information across issuers but avoids boilerplate requirements, and (3) evaluating ways of presenting disclosures that discourage repetition and immaterial information.

The comments received in response to this request for comment, as well as comments received in response to the Regulation S-K Concept Release, will inform the SEC in carrying out the further study of Regulation S-K.

Items Highlighted in Request for Comment

  • Item 401 of Regulation S-K: Generally requires certain disclosures about a registrant’s directors, executive officers, promoters, and control persons.
  • Item 402 of Regulation S-K: Generally requires disclosure of all plan and non-plan compensation awarded to, earned by, or paid to a registrant’s named executive officers and directors.
  • Item 403 of Regulation S-K: Generally requires a description of the security ownership of certain beneficial owners and management.
  • Item 404 of Regulation S-K: Generally requires a description of certain transactions with related persons, promoters and certain control persons.
  • Item 405 of Regulation S-K: Generally requires a registrant to identify certain persons who failed to file on a timely basis, as disclosed in certain forms, reports required by Section 16(a) of the Securities Exchange Act during the most recent fiscal year or prior fiscal years.
  • Item 406 of Regulation S-K: Generally requires disclosures about whether the registrant has adopted a code of ethics that applies to certain of the registrant’s executive officers, or persons performing similar functions, and, if it has not adopted such a code of ethics, an explanation why it has not done so.
  • Item 407 of Regulation S-K: Generally requires certain corporate governance disclosure about director independence, board meetings, various board committees (e.g., nominating, audit, and compensation committees) and any process for shareholder communications.

Analysis by CFA Institute Related to Subpart 400

Subpart 400 of Regulation S-K covers many areas that CFA Institute has written about in recent years, including the compensation discussion and analysis process, the corporate proxy, the role of the board of directors, and engagement with shareowners. Other issues, such as data tagging of series 400 information and ESG disclosures, are relatively new and will likely receive a number of comments from practitioners.

Comments are due by 31 October 2016. CFA Institute will also be offering comments to the SEC on these matters.

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Photo credit: ©iStockphoto.com/Ivan Bliznetsov

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a director of capital markets policy at CFA Institute, where he focuses on corporate governance issues. He was named one of the 2008 “Rising Stars of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management.

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