April 3, 2000
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Comments on Release No. 33-7803; 34-42462; IC-24319 (File No. S-7-05-00)
Dear Mr. Katz:
On behalf of the American Society of Corporate Secretaries, Inc. we are pleased to have the opportunity to respond to the Commission's request for comments on amendments to its rules to reflect changes in the EDGAR system as a result of EDGAR Release 7.0 (the "Release").
The Society has over 4,000 members who represent approximately 2,800 corporations in the United States and Canada, ranging from the largest multinational industrial companies to start-ups and other small companies. Our members typically have the responsibility to make company filings with the Commission and to comply with related securities laws and regulations.
We commend and fully support the Commission's on-going efforts to modernize the EDGAR system. Every member of the Society uses EDGAR, either as a filer or as an investor. Since the Commission has placed the EDGAR database on its web site, its value has grown. With the modernization of EDGAR, it is becoming even more valuable.
We previously expressed our hope that the Commission would upgrade EDGAR so that companies could make filings themselves easily. Currently, most companies use outside agents to make their Commission filings. We also expressed our hope that the Commission would upgrade EDGAR and its web site interface so that company filings were easier to find and navigate. With the changes that the Commission has proposed, the EDGAR system is moving closer to these goals.
Use of HTML and PDF
The Commission is proposing to designate a new set of permissible HTML 3.2 tags for EDGAR Release 7.0. The Release notes that the Commission plans to move to a set of permissible HTML 4.0 tags in a future EDGAR system release. As we previously have noted, version 3.2 of HTML is a relatively old version of HTML and popular word processing program cannot save documents as HTML 3.2 even with the proposed addition of permissible tags. The use of HTML rather than HTML 4.0 probably accounts for the relatively small number of HTML filings the Commission has received. We suggest that rather than taking the interim step of expanding the set of permissible HTML 3.2 tags, the Commission move expeditiously to accept HTML 4.0.
The Release indicates the Commission's expectation that HTML will eventually replace ASCII for most filings. We would hope that the Commission would give ample lead time before it mandated HTML. Filers, as well as outside agents, need time to gain experience with HTML. In this regard, we commend the Commission for providing technical support for filers to assist them in submitting and correcting HTML documents. Nevertheless, such efforts might be better reserved, as noted above, until the Commission accepts HTML 4.0. Currently available word processing software do not adequately convert files to HTML, even Release 4.0. Manufacturers of the popular word processing programs should eliminate these bugs before the Commission mandates HTML use. In some cases, such as material contracts filed as exhibits, it may never be cost effective to require conversion to HTML. In these cases, the Commission should consider allowing these documents to be filed in ASCII until their cost dynamic changes.
We support the Commission's proposal to amend Rule 104 to permit filers to submit redlined copies of official filings in unofficial PDF copies of EDGAR correspondence documents without having to submit the entire official filing. If the only difference between the PDF copy and the official filing is the redlining, we do not believe that the text of the ASCII or HTML correspondence document should have to describe the content of the unofficial PDF copy. Moreover, we suggest that since PDF submissions may facilitate staff review and are contained in the non-public portion of the EDGAR database, the amendment to Rule 104 should not be limited to redlined copies.
Graphic and Image Material
We support the Commission's proposal to permit graphic and image material in HTML documents, but question its proposed limitation for certain text or tables (e.g. financial statements). Moreover, the proposal to require that graphic material contained in documents distributed to shareholders be included in HTML documents may well discourage the submission of such documents. While the graphics may be included in the document distributed to shareholders, it may be difficult to include it in the HTML document submitted to the Commission.
The Commission also requests comment on the possibility of limiting file size and type of graphic and image material it will accept out of concern about the potential size of data files. As we have previously suggested, to solve storage problems, the Commission should consider alternative methods of filing. For example, a company could file a document on EDGAR and use an external hypertext link to a web site that hosts the graphic and image material. Of course, the Commission could maintain its current rules that allow graphics and images to be considered filed even though they are not transmitted via EDGAR, so long as they are identified and described in an EDGAR filing.
Limitation on Hypertext Links
One of the Web's greatest attributes is the ability to link to obtain further information. We understand the Commission's current hesitation to permit external hyperlinks, but suggest that additional consideration be given to this issue. External hypertext links can assist investors in many ways, such as links to materials that provide education about particular aspects of an investment opportunity (e.g tax consequences). We note that the Commission has permitted issuers to include their web site address in prospectuses and reports. In this regard, the Commission should be aware that some popular word processing software programs automatically convert URLs (web site addresses) to active hyperlinks.
We applaud the Commission's proposal to permit hypertext links not only to documents contained in the same filing but also to documents contained in other official filings in the EDGAR database. Such links will assist investors in reading filings on the EDGAR system. Hyperlinks also brings practice in line with theory when it comes to incorporation by reference. In theory, certain information is not required to be repeated in Commission filings because it has already been filed and digested by the market. However, investors who wanted to access this information prior to EDGAR could not easily do so. Even today, they must sift through various filings to find the incorporated information. However, with the addition of hyperlinks, investors will be able to directly access the incorporated information. Accordingly, we believe it would be appropriate for the Commission to revisit the use of incorporation by reference in light of the capability provided by hyperlinks. In its 1995 Release on the use of electronic media for deliver purposes, the Commission stated that it "would view information distributed through electronic means as satisfying the delivery or transmission requirements of the federal securities laws if such distribution results in delivery . . . of substantially equivalent information."
If the Commission were to permit hyperlinked documents to meet substantive disclosure requirements, we would not object to the liability for such documents proposed in the Release. On the other hand, if such hyperlinked information cannot be incorporated by reference, we do not think it is appropriate for filers to have to assume liability for the hyperlinked material beyond that which they already have for a filed document on the EDGAR system. For example, if a Securities Act registration statement hyperlinks to one of the issuers Exchange Act periodic reports in a context where the Exchange Act document is not incorporated by reference, the filer should not have to assume the heightened Securities Act liability simply because it is providing investors with the benefit of a hyperlink. Similarly, if an issuer voluntarily hyperlinks to another company's filing, it should not be required to assume liability for that filing. If the Commission wishes to encourage hyperlinking within the EDGAR system because of the benefit it provides to investors, it should not require issuers to assume additional liability.
Method of Electronic Transmission
We do not object to the elimination of diskettes as a permissible filing method and appreciate the opportunity to use client side certificates on an optional basis.
Financial Data Schedules
We applaud the removal of the requirement for Financial Data Schedules ("FDS"). We understand that the primary purpose of FDS were to assist the staff in their analysis, and that the staff is relying on other sources for this information. Accordingly, filers are pleased to be relieved of the burden of fling FDS.
Possible Rulemaking Projects
While we support the voluntary electronic filing of Forms 3, 4, and 5 and Form 144, we continue to be opposed to the mandatory electronic filing of such forms for the following reasons:
(1) While most large issuers handle filings for their Section 16 filers, this is not always true for smaller companies, where individual insiders may make their own filings. It would seem an unnecessary hardship for the Commission to require that these individual filers pay for computers, modem hookups, conversion software or training or incur the expense of hiring an outside filing agent to make filings on EDGAR when these filers can no comply with the rules for the price of a postage stamp. On the other hand, not all companies want to take on the task of filing for their officers and directors.
(2) If an individual director is a foreign resident, he or she would consequently be required to file electronically even though electronic filing is still voluntary for foreign issuers.
(3) Does the Commission have the capability to handle the quantity of Form 5 filings that might flood into the system on February 14 each year or Form 3 and 4 filings made on the 10th of each month?
(4) The Committee does not believe there is compelling interest in requiring electronic filing of insider reporting information in order to get this information to the market faster. The data is often a bit stale when it gets to the SEC anyway, and moving it electronically rather than via overnight mail delivery would not seem to make much difference to consumers of the information.
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Should the Commission or its staff have questions concerning the comments in this letter or desire additional information to assist it in preparing the adopting release, please do not hesitate to contact us.
Very truly yours,
Margaret M. Foran, Chairman
Securities Law Committee
Amy L. Goodman, Chairman
cc: David Martin, Director, Division of Corporation Finance, Securities and Exchange Commission
Mauri Osheroff, Associate Director, Division of Corporation Finance, Securities and Exchange Commission
D. Craig Nordlund, Chairman, American Society of Corporate Secretaries
David Smith, President, American Society of Corporate Secretaries