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Concept release commentvi

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Industries Guides from 205 to 215, Sustainability from 216-223 and exhibits from 224 to 263
Securities Regulation, SEC reporting, Concept release- Disclosure Effectiveness Initiative

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Concept release commentvi

  1. 1. CONCEPTRELEASE: BUSINESSAND FINANCIALDISCLOSUREREQUIREDBY REGULATION Request comment number Personal comments 205 No,all registrationsshoulddiscloseunderRegS-K,S-X,S-Ttoenforce uniformityincompliancetherefore comparability 206 It dependsonindustry,some registrantsfindthe industryGuidesuseful bypreparingdisclosureforperiodic reports 207 The challengesof providingindustryGuidesdisclosureare the lackof uniformityincompliance and comparabilityacrossanindustry 208 I do notthinkcodificationwillsolvethe problem. If codificationcanbringconsistencytoindustryguides. That meansaddingquality andmakingthemcompete againstRegS-K,S-X…,Itwill have alotof challenges overcomingobsolete 209 All industryguidesshouldbe updated. Otherindustryguidesshouldbe developedlike healthcare services, entertainment-casinos-hospitality,entertainment-films,entertainment-music(media,broadcasting),defense contractors,Airline,Research&Development,Financial institutions,regulatedindustries( electricity, water,…). All of themwill benefitfromsuchguidance. Thatmeansindustryspecificdisclosure underRegS-X will be betterforall of themif SEC can developthem 210 It shouldbe expensivetodisclose underindustryguidesbecauseitcancon conflictwithRegS-Kand create disagreementininterpretation. A new guidance maybe neededbecause itwillrestore uniformityin compliance andcomparabilityacrossanindustrytherefore lessconfusion 211 I can work withoutindustryguidesaslongasI can assessSECcommentletters,CDI,NOL,waivers,… Ican developanypolicy becauseIhave a lotof data guidingmywork 212 It doescreate a lot of confusion. Asa policy staff,itdoesundermine the commissionrules. Thatsaid,if there isa conflict 213 It will be more useful toconsolidate all industryspecializeddisclosureslocatedelsewhere to RegS-Kif they do notconflictwithRegS-Kthat meanstheywill addqualityandattractivenesstoRegS-Krequirements. Theycan be identifiedbasedontheirnames. Itispossible thatCDIor SABhave addressedthese issues before handintheirQ and A 214 Industryspecificdisclosure requirements shouldapplytoeveryregistrantinaparticularindustrybutwe can alsoadd some quantitative andqualitative thresholdstodistinguishthem 215 Sophisticatedinvestorsare more likelytovalue industryguidesdisclosure 216 There are specificsustainabilityandpublicpolicyissues importanttoinformedvotingandinvestment decisionincludingclimate changes,environmentissues,all sustainabilityreport,corporate campaign contribution,carbonemission,waterscarcity,humrightsandmore. If the real issue isto add qualityand attractivenesstothe informationinordertohelpinvestorsthe reportandrelyonit forinvestmentand votingdecision,we shouldnotworryaboutchanging2010 interpretative guidance because the only informationimprovingthe understandingof the disclosure isenvironmentalcosts(litigationawards, penalties,fines, remediation,…) 217 Tough sustainabilityrequirementsline item (customerhealthandwell-being,pollutionof air,market pressure,communityhealthandwell-beingandmore) canleadto informationoverloadandexpensivecosts of the reportfor fearfor prosecution,penaltiesandreputational costs. Thiskindof disclosure will camouflage material information. Investorswouldhave hardtime readingthe whole reportand understandingwhatismaterial inthatdisclosure 218 The sustainabilityreportoncitizenshipwebpage orthe like istoovoluminous,itreportsfromacquisitionof greenvehiclestoinstallationof greenbathroom. ItismostlyforPR to the greenactivists,keepingthem from
  2. 2. joiningthe streetswithhedgefundscrowds. Integratedreportwilladdquality,consistencyand comparabilitybutwill reducethe amountof informationtobe providedtothe investingpublic. 219 I do notunderstand whythe SEC will addline- itemrequirements. IbelieveSECshould reviewthe sustainabilityframeworkandfix itwithoutline-itemrequirements 220 I do notbelieve thereare sustainabilityissuesforwhichline itemdisclosuresrequirementswouldbe consistentwiththe rule 221 The challenge isalack of data as new projectitwill require anew budgetwithnodirectimpactonthe companybottomline improvement. Theyincrease regulatoryburden,theyincrease operatingcosts, they can reduce focuson importantlongtermstrategyforthe companyand68% companiesbelievethat sustainabilityrelatedactionsanddecisionsdonotaddprofitto theirbottomline. But at the same time,they can provide incentive toinnovate andpayattention toveryimportantsocial,environmentandeconomic issues. 222 I believethere is noneedforline itemdisclosure requirementsif youinsist,some companieswilldeserve some waivers,andscaleddisclosure requirements 223 Expertsinthisfieldare toodifficulttosatisfy. There isnothingwrongtothe 2/2/2010 US SEC commission interpretative guidance. Itis a goodreference. WhatSEC can do isto revise itandadd some quantitative and qualitativethresholdsformateriality. Ibelieve itwasnotdiscussedproperly. 224 SEC shouldeliminate andmodifysome exhibitsrequirementsinitem601, exhibit3(a) Article of Incorporation,itison line andshouldbe requiredtobe online unlessanymaterial changestoit,exhibit3(b), exhibit14,exhibit95can be providedonForm10-K and hyperlinkonForm10-Q unlessthere isanymaterial changesto it. Lettake the riskto eliminateexhibit100 225 Exhibit3(a) Article of Incorporationshouldbe requiredonlinepostingandexhibit95 can be providedon Form 10-K and hyperlinkonForm10-Q unlessthere isanymaterial changesto it 226 There isno problemonthe usefulnessof these exhibits. Theycanbe foundeasilyatthe endof the report 227 Sophisticatedinvestorsare likelytovalue mostof these exhibits 228 It isexpensive becausewe have alotof documentstoprovide here,extensive businessrelatedlanguage,… 229 We shouldcontinue toallowregistrantstoomitschedulesandattachmentforexhibitsfiledunderitem601 (b)(2). Itshouldbe some quantitative thresholdsappliedtothisomissionandexemption 230 Immaterial schedulesare uselessandawaste of time inany reports. SEC shoulddevelopguidelineswith quantitative thresholdsandqualitative factorsonhow registrantscouldevaluate materiallypurposes includingschedulesandattachments. The benefitisthatitwill reduce immaterial schedules. The challenge isto designreliableguidance. SECshouldrequire registrantstodisclose how theyassessedmateriallyfor purposesof omissionof schedulesandattachments 231 SEC shouldrequire registrantstoinclude withsuchexhibitsalistbrieflyidentifyingthe contentsof all omittedschedules 232 Requestingaconfidential treatmentisalongprocess,itiswhyI believe thatitmakessense. SECcan allow registrantstoomitpersonallyidentifiableinformation(PII) withoutmakinganyformal requestfor confidentialtreatmentSECshouldlimitthisaccommodationtoinformationcontainedinschedulesand attachmentstoexhibits. 233 We shouldrevise item601(a)(4) toexclude immaterial amendments. SECshoulddevelopguidelinesrelated to materialityregardingamendmenttobe requiredto. 234 SEC shouldrequire registrantstoidentifychangesinthe amendedand restatedcontractssuchasby underliningorhighlightingthe changes. Thisrequirementisnotdifficulttocomplywith. 235 No,there isnothingwrongwithinstruction1 236 Yes,instruction1 isa true guideline forall filingstodeal with materiality. SECdoesnotneedtoexpand clauses(A) and(B) of instruction1. 237 No we cannoteliminate thislimitation‘anyincomplete exhibitmaynotbe incorporatedbyreference inany
  3. 3. subsequentfiling’ 238 SEC can revise item601(b)(10(ii) toinclude quantitativethresholdsorissue aCDI. It will helptodiscourage immaterial contractfiling. Thatsaid,the informationwillbecome more usefultothe investors 239 SEC can issue a CDI to define the typesof contractsnotmade inthe ordinarycourse of businessthat registrantsare requiredtofile asexhibits 240 These contractsare important to investorsbecause theyhelpinvestorsunderstandthe resultsof operations includingpastorfuture,IBNR,ARor/and cash flow. No,SECshouldnotlimitsubparagraph(ii) tonewly reportingregistrants. No, SECshouldnoteliminate subparagraph(ii) andrequireregistrantstofileonly material contracts that are to be performedinwhole orinpartor afterthe filingof the report. Aslongas the contracts remainmaterial toinforminvestorsaboutthe registrants’resultsof operationsandfinancial conditions,itmustbe filedwiththatexhibit. Underincurredbutnotreported,the contract remainmaterial informationforthe registrant’sinvestors 241 Yes,SEC shouldexpandthe typesof contractunderitem601(b)(10)(ii) 242 SEC can revise item601(b)(10)(ii)toinclude categoriesof contracts. SECcan use relevanttime frame (about a fiscal year),percentage thresholdand topmanagement/directorsinvolvement. The benefitis thatitwill focuson material contractand the challenge istoproperlycomplywiththe rule 243 The informationoncontract filedunderitem601(b)(10)(ii)isveryimportanttothe investingpublic. It dependstothe materialityof the differenttypesof contract 244 Immaterial inamountisverynecessarystandardbywhichtodetermine whenacontractneedstobe filed. Registrantsmusttestthisstandardfor inclusionor exclusion. Inmyview,if acontract ismaterial inamount, it issignificant. Itwill make sensetorevise item601(b)(10)(ii) toexcludeonly contractsthatare immaterial to amountand significance. Yes,itwill facilitate compliance if SECcan revise item601(b)(10)(ii) to state in the affirmative thatregistrantsmustfileall material contractsmade inthe ordinarycourse of businessthat fall withinone ormore categorieslistedbelow… 245 Yes,it justmeansthat relatedpartyinvolvedandthe amountisover$120,000, the contract mustbe filed because thisinformationisuseful toinvestors. Itwill make sensetorevise item601(b)(10(ii) toinclude relatedpartytransactionunderitem404(a). The benefitisthatitwill limitkickback. Challenge isthatitfails to addressthe aggregatednature of these contracts,all of themcan come fromseveral relatedparties 246 SEC can attemptto consolidate item601(b)(10(i) and601(b)(10(ii) torequire all contractsthatare material to an understandingof the registrantfinancial condition andresultsof operationstobe filed. All the contracts will be capturedwiththisrequirement. Thisinformation doesenhance investors understandingof the registrantfinancial conditionandresultsof operations. The challenge is thatsophisticatedinvestorswill start micromanage the company. The benefitisthatitdoesprovide clarityandconsistencytothe registrants intheirefforttocomplywhile beingtransparencytoinvestors 247 SEC shouldconsolidateall qualitativeand quantitative thresholdsfordeterminingwhencontractsidentified initem601(b)(10)(ii) andadoptit 248 SEC can revise item601(b)(10)(ii)(B) todefine‘substantial dependence’. SECshouldlookat‘relatedparties’ and ‘contingency’inordertodefine ‘substantial dependence’. 249 Quantitative thresholdswillbe basedonthe size of the registrantmarketcapitalizationortotal assets. Quantitative thresholdswillbringconsistencyandclaritytothe disclosure while reducingimmaterial disclosure. Itwill be goodtotie quantitative thresholdstomarketcapitalizationortotal assets 250 It will addclarityto the registrantefforttocomplyif SECdefines‘dependsto a material extent’. Itisnot necessarytomake distinctionbetweenfranchise,licenseagreementsandthe like. 251 I preferwhenquantitative thresholdsare basedon total assetsinsteadof fixedassets(see Dot.com),that meansrevisingitem601(b)(10)(ii)(C) tofix itto10% of total assetsthresholds. Iwouldnoteliminatea prescriptive thresholdforprinciplebasedrequirements. 252 Item601(b)((10)(ii)(C) shouldnolongerfocusonfixedassets. SECshouldexpandthisitemtoincludeIP
  4. 4. (intellectualproperty),patentlicenses,…Yes,alittle ‘clind’oeil’toitem2.01of form8-K will be appropriated because 10% of total assetsmakessense. 253 The informationprovidesbyregistrantintheirauditor’spreferabilityletterismeaningless. If SECcould developsome kindsof quantitative andqualitativethresholdstriggeringanychangesitwouldhave been helpful 254 There isno particularlanguage addingclarity,consistencyandqualitytothe preferabilityletter. Rarely, there isany real reasonfor changesotherthanto improve the registrant’sbottomline. Itdoesnotdepend on the nature of the change 255 SEC shouldrevise item601(b)(18). The same auditorcan onlyissue anunqualifiedopiniontothe disclosure while readinghis preferabilityletter. The eliminationof thisexhibitwill create alotof changeswithout any suspicionof fraudfromthe investingpublic 256 It isnot appropriate tomake any indicationbutthe investingpublic(sophisticatedinvestors) will suspect these changesincludingtheirtimingandthe improvementtheybringtothe bottomline,leverage,rating,… 257 SEC shouldrevise item601(b)(21) torequire registrantstodiscloseall subsidiaries. The benefitisthatitwill keepthe registrantfromhidingsome small subsidiarieswithhighaggregatedvalue 258 No,SEC shouldnotexpand the exhibitrequirementtoinclude additional disclosureaboutthe registrant’s subsidiaries 259 Yes,SEC shouldrequire registrantstoinclude anorganizationchartor corporate structure chart or similar graphicdepictingtheirsubsidiariesandtheirbasisof control. Thischartcan helpinvestorsunderstand where the registrantresultof operationsandfinancial conditionsare comingfrom. SEC shouldrequire an organizational chartas exhibitof the annual report. There isno challenge todesignthischart 260 Thisdefinitionof ‘significantsubsidiaries’excludes‘insignificantsubsidiaries’. Thisdisclosure shouldnot exclude anysubsidiaryatall 261 SEC shouldrequire registrantstodisclose theirLEIand the LEI of theirsubsidiariesonthe listof subsidiaries filedunderitem601(b)(21). The benefitisthatinvestorswillknow the existence of the reference code to uniquelyidentifyalegallydistinctentitythatengagesinafinancial transaction. Asyouknowthe commission prescribesdisclosure of anobligorLEIwithrespectto a ratingactioninvolvingacreditratingof an obligoras an entitysoit doeshave effect. Asof December2015, the cost of obtaininganLEI fromGlobal Masters EntityIdentifier(GMET) utilityinthe USwas $200 plusa $19 perrecord surcharge for the LEI Central OperatingUnit. 262 At thistime,Ido not see anyreasonto require LEI,maybe financial servicesregistrantsmayneeditbutSEC needstoperform more researchonthisutilizationbefore makingadefinitivedecisiononthe LEI requirement 263 SEC shouldmake a goodresearchstudybefore torequire ittolarge acceleratedfilersorwell-known seasonedissuers(WKSI)

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