New SEC disclosure rules could help investors by letting in more sunshine
Securities regulators are planning to issue a blueprint to revamp disclosure requirements for public companies, mutual funds, brokers, and other regulated entities.
The Securities and Exchange Commission yesterday said it will conduct a study labeled the "21st Century Disclosure Initiative." It will consider how to use new technology to deliver information and how to create disclosure forms that are easier for investors to understand.
The study will lay the groundwork for future SEC rules on disclosure, one of the cornerstones of the investor protection agency's mission.
"Sunlight remains the best disinfectant for problems in our capital markets," the SEC's chairman, Christopher Cox, said in a prepared statement.
"We'll be examining how to improve the way disclosure works, including tapping the full potential of today's technology and integrating it seamlessly into our regulatory approach."
Cox said the outcome could be fewer confusing forms and more useful information for investors.
The study will review all existing SEC forms and reporting requirements and will consider ways to get the best real-time distribution of financial numbers and management discussion to investors.
The blueprint will be ready by the end of the year, the SEC said. After that, an advisory committee will hold public meetings to help implement the recommendations.
The study will be led by former securities lawyer William Lutz, an emeritus professor at Rutgers University and a plain-English specialist.
During his time as chairman, Cox has been an advocate of plain-English reporting and of using technology to improve disclosure. Cox is a Republican appointed by President Bush, whose term expires in January. A new president typically replaces the heads of federal agencies.
The review will also look at how disclosure will change after the adoption of an interactive data format known as extensible business reporting language, or XBRL.
XBRL tags are like bar codes attached to each piece of financial data, allowing investors to easily find and compare key financial figures.
The SEC proposed rules last month that would made it mandatory for the largest public companies to start filing their financial results in XBRL in early 2009.
It proposed similar rules for mutual funds to report their risk and return information using the digital tags by the end of 2009.
An SEC advisory committee has been meeting since last year on ways to make the financial reporting system less complex and costly.
The group, chaired by Robert Pozen, the former vice chairman of Boston-based Fidelity Investments, has been studying how to reduce the number of restatements, make management discussions of financial results clearer, and simplify accounting.
Karey Wutkowski is a Reuters reporter.
