SEC open meeting

By Cydney Posner

At an open meeting today, the SEC acted on a variety of matters.

The SEC voted to adopt amendments to the proxy rules that would provide shareholders with the ability to choose the means by which they access proxy materials. In essence, this rule would invert the current voluntary e-proxy rules that go into effect in July by flipping the choice to investors as to whether to view their proxies online or on paper. Under the amendments, issuers and other soliciting persons will post their proxy materials on a website and provide shareholders with a notice of the internet availability of the materials. The issuer or soliciting person may choose to furnish paper copies of the proxy materials along with the notice. If the issuer or soliciting person chooses not to furnish a paper copy of the proxy materials along with the notice, a shareholder may request delivery of a copy at no charge to the shareholder. At the meeting, there was substantial concern expressed by the commissioners regarding the absence of data for the notice-only model (which has not yet gone into effect), raising the question of whether adoption was premature. However, the staff expect to have time to make adjustments before the mandatory system goes into effect. (The staff also expect to look into concerns raised by some commentators that the rule could conflict with California Code Section 1501(a), which requires that an annual report be sent to shareholders not later than 120 days after the close of the fiscal year. Although electronic transmission is permitted, consent is required and, for individuals, consumer consent under the federal E-SIGN Act is required.) The rules include a principles-based requirement to protect anonymity; the staff believe that it's easy to segregate a portion of a website where no "cookies" would be collected. The new rules will go into effect for large accelerated filers beginning January 1, 2008 and for others beginning January 1, 2009. See my emails regarding the mandatory e-proxy proposal and the final voluntary e-proxy rules pasted at the end of this email.

In a major step toward convergence, the SEC also voted to propose amendments to Form 20-F, Rules 3-10 and 4-01 of Reg S-X, Forms F-4 and S-4 and Rule 701, to accept financial statements prepared in accordance with the English-language version of the International Financial Reporting Standards (IFRS) as published by the International Accounting Standards Board without reconciliation to U.S. GAAP when contained in SEC filings of foreign private issuers. This measure should result in substantial savings for FPIs and encourage more foreign companies to access the U.S. capital markets. There was also some discussion of the possibility of a concept release that would allow U.S. issuers to use IFRS.

In a leftover from last week, the SEC adopted amendments to Rule 105 of Reg M designed to further safeguard the integrity of the capital-raising process and protect issuers from manipulative activity that can reduce issuers' offering proceeds and dilute shareholder value. The current rule prohibits short sellers from covering with shares purchased in a public offering. However, there has been substantial non-compliance and serious efforts to camouflage violations, leading to several enforcement actions. The new rule adopts a bright-line test that would prohibit anyone who engages in short-selling during the Reg M "restricted period" from purchasing shares in a public offering during the restricted period. In response to comments on the proposal, two new exceptions have been added, first, to allow persons to participate in an offering if they make "bona fide" purchases that close out the short before pricing of the offering and, second, to exempt investment companies that make separate investment decisions without coordination of trading. The rule would become effective 60 days after publication in the Federal Register.

The SEC also adopted amendments to expand its interactive data voluntary reporting program to permit mutual funds to submit as exhibits to their registration statements supplemental tagged information contained in the risk/return summary section of their prospectuses. The risk/return summary section contains key mutual fund information, including investment objectives and strategies, risks and costs. At the same time, chairman Cox announced that, for the 500 largest companies, the SEC plans to make their proxy Summary Compensation Tables available in XBRL, which is supposed to so enchant all of us that everyone will immediately follow suit. Or at least, that's the plan.