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May 2008 Published by RR Donnelley Editorial Content by LegalWorks Blake A. Bell, Editor in Chief In This Issue:
SEC I: Commission Proposes To Require All Public Companies to Provide Financial Information Using Interactive Data U.S. Securities and Exchange Commission, SEC Proposes New Way for Investors To Get Financial Information on Companies, News Release 2008-85 (May 14, 2008). U.S. Securities and Exchange Commission, Visit Proposed Rule: Interactive Data to Improve Financial Reporting, Release Nos. 33-8924, 34-57896, 39-2455 and IC-28293 (May 30, 2008). SEC Chairman Christopher Cox Discusses Interactive Data (May 14, 2008) (Windows Media Player File). On May 14, the SEC voted to propose rules to require all U.S. companies to provide financial information using interactive data beginning next year for large companies and within three years for all public companies. (Since 2005, companies have voluntarily submitted to the SEC financial information in interactive data format, although the program has not been widely adopted voluntarily.) The SEC proposes a schedule by which companies using GAAP with a worldwide public float over $5 billion (approximately the 500 largest companies) would be required to make financial disclosures using interactive data formatted in eXtensible Business Reporting Language (XBRL) for fiscal periods ending in late 2008. The first interactive data to be provided under the proposed rules would be made public in early 2009. The remaining companies using U.S. GAAP would provide such disclosure over the following two years. Companies using International Financial Reporting Standards as issued by the International Accounting Standards Board would provide this disclosure for fiscal periods ending in late 2010. The disclosure would be provided as additional exhibits to annual and quarterly reports and registration statements. Companies also would be required to post this information on their Web sites. The required tagged disclosures would include companies' primary financial statements, notes, and financial statement schedules. Initially, companies would tag notes and schedules as blocks of text, and a year later, they would provide tags for the details within such notes and schedules. Companies filing under the proposed rule that use U.S. GAAP will use upgraded data tags issued April 28, 2008, by XBRL US, Inc. that were developed based on U.S. GAAP and on the review of hundreds of actual SEC filings. According to the Commission, EDGAR will accept test filings using a February 11 version of these tags as of the close of May, with the final April 28 version of the tags becoming usable in June. In addition, an interim system is expected to be announced shortly that will enable companies immediately to provide interactive data submissions to the SEC using the April 28 version of the tags. For more information about interactive data, please visit www.TryXBRL.com. 
SEC II: SEC Will Require Mutual Funds to Provide Investor Information Using Interactive Data U.S. Securities and Exchange Commission, SEC Chairman's Opening Statement at Open Meeting on Requiring Mutual Funds to Provide Investor Information Using Interactive Data (May 21, 2008). U.S. Securities and Exchange Commission, Mutual Fund Investors Could Get Access to "Comparison Shopping" Information (May 21, 2008). On May 21, the Commission voted unanimously to propose requiring mutual funds to provide investor information using interactive data. The Commission intends to facilitate "comparison shopping" by prospective mutual fund investors by requiring the risk/return summary information for every mutual fund in so-called interactive data format. The Commission is encouraging mutual funds seeking a "head start" on data tagging to participate in the SEC's voluntary program for the submission of interactive data. Information about that program is available at http://www.sec.gov/spotlight/xbrl.shtml. The Commission's move followed closely on the heels of its unanimous vote on May 14 to propose requiring all U.S. companies to provide financial information using so-called "interactive data tags" beginning next year for large companies and within three years for all public companies regardless of size.
SEC III: SEC Commissioner Paul S. Atkins Announces Intention to Leave Commission U.S. Securities and Exchange Commission, Commissioner Atkins Announces Intention to Leave SEC, News Release 2008-78 (May 5, 2008). Block, Donna,Commissioner Paul Atkins to Leave SEC, The Deal Special to Law.com (May 7, 2008). On May 5, SEC Commissioner Paul S. Atkins announced that he plans to leave the Commission following the end of his term. Commissioner Atkins has been with the SEC for nearly a decade. He served from 1990 to 1994 on the staffs of two former SEC Chairmen, Richard C. Breeden and Arthur Levitt, ultimately as Chief of Staff and Counselor, respectively. Commissioner Atkins began the first of his two terms when he was appointed by President Bush in August 2002. According to his announcement, he plans to remain with the Commission until his successor is appointed and takes office. The Commission is operating with only three members, all Republicans, at present. Although the White House has nominated Elisse Walter and Luis Aguilar to fill the two empty Democratic seats, both await approval by the U.S. Senate. The move was not necessarily unexpected in the face of rumors last year that Commission Atkins might leave the SEC to lead the Commodity Futures Trading Commission.
SEC IV: SEC Issues Final Rule Release on Definition of Eligible Portfolio Company Under the Investment Company Act of 1940 U.S. Securities and Exchange Commission, Definition of Eligible Portfolio Company Under the Investment Company Act of 1940, Release No. IC-28266 (May 15, 2008). U.S. Securities and Exchange Commission, SEC Staff Recommends Commission Action to Facilitate Investment in Small Business, News Release 2008-81 (May 7, 2008). U.S. Securities and Exchange Commission, Definition of Eligible Portfolio Company: Amendment to Rule 2a-46 Under the Investment Company Act - A Small Entity Compliance Guide (May 7, 2008). Two years ago the Commission adopted new rules under the Investment Company Act to address the effect of the Federal Reserve Board's 1998 amendments on the definition of eligible portfolio company. Among other things, the Commission adopted Rule 2a-46, which defines eligible portfolio company to include all private companies and public companies whose securities are not listed on a national securities exchange. At that time the Commission also adopted a rule that conditionally permitted a 'business development company (BDC) to include in its 70 percent basket any so-called "follow-on investments" in a company that met the new definition of eligible portfolio company at the time of the BDCs initial investment in it. When the Commission adopted Rule 2a-46, it also proposed to amend the rule to further expand the definition of eligible portfolio company to include certain smaller companies that list their securities on a national securities exchange. The amendment was designed to facilitate small business capital formation by providing added investment flexibility to BDCs, consistent with the purpose of the Investment Company Act. On May 7 of this year, Commission staffers recommended proposed amendments to Rule 2a-46 to address this issue. The Commission issued its final rule release a week later on May 15. The amendment expands the definition of eligible portfolio companies to include Exchange-listed companies that have less than $250 million in market capitalization.
IOSCO I: IOSCO Will Revise Code of Conduct for Credit Rating Agencies International Organization of Securities Commissioners, IOSCO To Implement Changes to Code of Conduct for Credit Rating Agencies, IOSCO/MR/006/2008 (May 28, 2008). Glover, John & Unmack, Neil, S&P, Moody's Should Distinguish Asset-Backed Ratings, Bloomberg News (May 28, 2008). On May 28, the International Organization of Securities Commissioners published a final report outlining amendments to the Code of Conduct Fundamentals for Credit Rating Agencies following a lengthy consultation process involving regulators, credit rating agencies and financial market stakeholders. The move, prompted by the U.S. subprime retail mortgage crisis, addresses activities of credit rating agencies in the market for structured finance products. The most significant amendment involves a provision to prohibit credit rating agencies from making recommendations on the way products that they grade should be structured. Additionally, ratings agencies will be required to differentiate ratings of structured finance products from other ratings through such tools as different rating symbols. In the U.S., the SEC reportedly plans to release proposed amendments to its credit rating agency rules on June 11. It is expected that the SEC's proposed amendments will reflect consideration of IOSCO's final report. At a minimum, it seems clear that the Commission will require greater disclosure by ratings agencies of the methods used to analyze and rate such products to allow interested parties to test the quality of the analysis.
IOSCO II: IOSCO Publishes Recommendations to Address Subprime Crisis International Organization of Securities Commissioners, IOSCO Publishes Recommendations to Address Subprime Crisis, IOSCO/MR/007/2008 (May 29, 2008). International Organization of Securities Commissioners, Final Communiqué 33rd Annual Conference of the International Organization of Securities Commissions, IOSCO/MR/008/2008 (May 29, 2008). On May 29, the International Organization of Securities Commissioners published the final report of its Technical Committee's Task Force on the Subprime Crisis. The Task Force recommended changes in three principal areas: (1) issuer transparency and investor due diligence; (2) firm risk management and prudential supervision; and (3) valuation and accounting issues. According to IOSCO's summary of the developments, its recommendations for each of the three topics encompass the following: (1) Issuer Transparency and Investor Due Diligence
(2) Firm Risk Management and Prudential Supervision
(3) Valuation
FASB I: FASB Issues Rules To Toughen Bond Insurer Disclosures Financial Accounting Standards Board, FASB Issues Statement No. 163, Accounting for Financial Guarantee Insurance Contracts (May 23, 2008). Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 163: Accounting for Financial Guarantee Insurance Contracts (May 2008). On May 23, the Financial Accounting Standards Board issued FASB Statement No. 163: Accounting For Financial Guarantee Insurance Contracts. The new standard is intended to clarify how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises, applies to financial guarantee insurance contracts issued by insurance enterprises, including the recognition and measurement of premium revenue and claim liabilities. Statement 163 requires expanded disclosures about financial guarantee insurance contracts. It requires, for example, that an insurance enterprise recognize a claim liability prior to an event of default (an insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. It also requires disclosure about: (a) the risk-management activities used by an insurance enterprise to evaluate credit deterioration in its insured financial obligations; and (b) the insurance enterprise’s surveillance or watch list. The Statement is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years, except for disclosures about the insurance enterprise’s risk-management activities. Disclosures about the insurance enterprise’s risk-management activities are effective the first period beginning after issuance of the Statement.
FASB II: FASB Issues Guidance on The Hierarchy of GAAP Financial Accounting Standards Board, Statement of Financial Accounting Standards No. 162: The Hierarchy of Generally Accepted Accounting Principles (May 2008). Financial Accounting Standards Board, FASB Issues Statement No. 162: The Hierarchy of Generally Accepted Accounting Principles, News Release (May 9, 2008). On May 9, the Financial Accounting Standards Board issued guidance intended to set forth a consistent hierarchical framework for selecting accounting principles to be use in the preparation of financial statements prepared in accordance with GAAP. In general, Statement No. 162 provides that the sources of accounting principles that are generally accepted for preparation of financial statements in accordance with GAAP are categorized in descending order of authority as follows:
PRACTICAL GUIDANCE: Courtesy of RealCorporateLawyer.com RealCorporateLawyer.com provides its readers with free access to a very large collection of law firm memoranda providing practical guidance on current hot topics. Readers are encouraged to visit the frequently-updated "Emerging Legal Issues" area of the home page for such current memoranda, as well as the Expert Analysis: SEC Reform Portal section containing hundreds of other such memoranda. Recent additions include:
COMINGS AND GOINGS: Who's Doing and Saying What and Where? On May 29, the Commission announced that Rosalind Tyson has been appointed as Regional Director of the Commission's Los Angeles Regional Office. See U.S. Securities and Exchange Commission, SEC Veteran Rosalind Tyson Tapped to Lead Los Angeles Region, News Release 2008-100 (May 29, 2008). Also on May 29, the Commission announced the appointment of Marc Fagel as Regional Director of the Commission's San Francisco Regional Office. He previously served as Associate Regional Director for Enforcement in that Office. See U.S. Securities and Exchange Commission, SEC Promotes Long-Time Enforcement Attorney Marc Fagel to Director of San Francisco Region , News Release 2008-99 (May 29, 2008). The Commission also announced on May 23 that SEC Secretary Nancy Morris is leaving the Commission to become an Executive Vice President at Allianz Global Investors of America. See U.S. Securities and Exchange Commission, SEC Secretary Nancy Morris to Leave Commission, News Release 2008-96 (May 23, 2008). The SEC's Chief Accountant, Conrad W. Hewitt, announced on May 15 that he has selected Donal Byard, Susan Krische and Roger Martin to serve as Academic Accounting Fellows for fixed terms beginning this summer. See U.S. Securities and Exchange Commission,Office of the Chief Accountant Names Academic Fellows, News Release 2008-89 (May 15, 2008). On May 7, the SEC announced the appointment of its current Deputy General Counsel for Legal Policy and Administrative Practice, Alex Cohen, as the Commission's Deputy Chief of Staff effective May 9. See U.S. Securities and Exchange Commission, Alex Cohen, SEC Deputy General Counsel, Named Deputy Chief of Staff, News Release 2008-79 (May 7, 2008). On May 5, the Commission announced that SEC Commissioner Paul S. Atkins will leave the Commission following the end of his term once a successor is appointed and takes office. See U.S. Securities and Exchange Commission, Commissioner Atkins Announces Intention to Leave SEC, News Release 2008-78 (May 5, 2008). On May 28, SEC Chairman Christopher Cox spoke regarding "International Financial Reporting Standards: The Promise of Transparency and Comparability for the Benefit of Investors Around the Globe," an Address to the Annual Conference of the International Organization of Securities Commissions, Paris, France. The same day, Commissioner Paul S. Atkins delivered "Remarks at the President's Advisory Council on Financial Literacy Subcommittee Meeting on the Future of Responsible Subprime Lending" . Chairman Cox's also delivered statements at the Commission's open meetings held on May 21 and May 14. See Opening Statement at May 21 Open Meeting on Requiring Mutual Funds to Provide Investor Information Using Interactive Data and Opening Statement — May 14 Open Meeting on the Use of Technology to Improve Financial Reporting . Chairman Cox also spoke twice on May 7. He delivered an "Address to the Security Traders 12th Annual Washington Conference" and "Videotaped Remarks at the 17th XBRL International Conference". Finally, Chairman Cox also delivered the "Northeastern University Commencement Address" on May 2. A few Commission Staffers also hit the speaking circuit during April. On May 19, the SEC's Director of the Division of Enforcement, Linda Chatman Thomsen, delivered "Opening Remarks to the Securities Industry and Financial Markets Association Regulatory Symposium on Insider Trading". On May 14, James Lopez, Legal Branch Chief of the SEC's Division of Corporation Finance, delivered the "Division Statement before the Commission Open Meeting". Linda Chatman Thomsen also spoke on May 12 regarding "Keeping up with the Smartest Guys in the Room: Raising the Bar for Corporate Boards". The Director of the Commission's Division of Trading and Markets, Erik R. Sirri, delivered a "Luncheon Address at the SIFMA Market Structure Conference 2008: Maximizing Liquidity in the U.S. Equity Markets" on May 9. Erik Sirri also spoke on May 2, delivering "Remarks before the 2008 Options Industry Conference".
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©2008 RR Donnelley This free E.Zine is provided for informational purposes only and does not constitute legal advice. RR Donnelley & Sons Company is not engaged in rendering legal or other professional services. Publication on this E.Zine is not intended to create, and the information contained hereon does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent professional counsel. The RR Donnelley Financial Services Group provides a range of solutions to address all of your business communications needs. We offer financial printing services to the capital and investments markets, as well as judgment-based outsourcing and real estate services. Through our integrated global network, we file more than 50,000 documents annually with the SEC and produce many of the critical documents for regulatory compliance and financial transactions. Our BPO services leverage an on-site/offshore delivery model, leading subject matter experts and state-of-the-art, global operations to assume functions of our clients' business. We add value through highly personalized and around-the-clock service, single-source solutions, Venue virtual data rooms, worldwide regulatory and industry expertise, and insight that comes from over 140 years of experience and achievement. For more information, visit us at www.financial.rrd.com or www.RealCorporateLawyer.com, a reference resource site for corporate and securities lawyers. |
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