June 24, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Re: Proposed Rule: Form 8-K Disclosure of Certain Management Transactions. Release (File Reference No. S7-09-02)
Dear Mr. Katz:
The Financial Services Roundtable ("The Roundtable") is pleased to submit comments at the request of the Securities and Exchange Commission ("Commission") on a proposed rule to require Form 8-K disclosure of certain management transactions.
The Roundtable is a national association representing 100 of the largest integrated financial services companies providing banking, insurance, and investment products and services to American consumers. The Roundtable applauds the Commission's attempt to provide American investors the necessary information they need to make an informed decision on a more timely basis. We believe that prompt and accurate disclosure of corporate information is the hallmark of American economy. However, our support for the current proposals is tempered by the fact that they are overly broad and place unnecessary burdens on reporting companies. Such regulations should balance the two concerns of providing accurate and timely information to the American investors without unnecessarily taxing the issuers. Our concerns and our proposed alternatives are discussed below.
1. Reporting of Transactions in Company Stock
The Roundtable supports the goal of allowing investors to quickly and easily obtain information regarding management transactions in a company's equity securities. However, adding additional company disclosure requirements on Forms 8-K to those already required under Section 16 is duplicative, redundant and would be confusing for all parties involved. The more appropriate way to improve investors' access to information regarding the selected management transactions is to modify the current reporting system and to require quicker disclosure under Section 16.
However, should the Commission determine to move forward with its proposal to require company disclosure on Form 8-K, The Roundtable recommends the following changes to the proposal. Our suggested modifications provide the desired balance between providing timely information and avoiding unnecessary burdens on the issuer.
First, the proposed disclosures should not include the reporting of transactions in equity securities entered into by non-employee directors. It would be very difficult to obtain and report the information regarding outside directors on such a short time frame. In addition, disclosure by non-employee directors is less valuable to the investor than the same information regarding executive officers' transactions. We recognize that the information regarding non-employee directors is useful to investors and it would still be disclosed under Section 16(a).
Second, the Commission should require the reporting of only those equity transactions which require action by the director or executive officer, such as exercising options, intra-plan transfers, purchases and sales on the open market and sales to the issuer (keeping the other exclusions currently in the proposal). Other transactions will not "reflect management's views of the company's prospects" and should not be reported. These include option grants, option expirations, and restricted stock awards.
Third, the proposed dollar triggers of $10,000 and $100,000 are too low to reflect meaningful changes in an insider's equity position and should be substantially increased. Form 144 would require most sales under $1 million to be reported before or concurrently with the trade. Finally, these transactions are already posted on the Web.
In addition to Form 144's reporting requirements for sales by affiliates, we recommend that the Commission:
(i) eliminate the option of deferred reporting on a Form 5 for sales to the issuer and, instead, require that all such sales be reported on a Form 4 within 10 days of the sale; and
(ii) require that purchases that are non-exempt for Section 16 purposes and are below the 8-K $1 million level be reported on a Form 4 within 10 days after the trade date, rather than 10 days after month end.
In the alternative, we propose that reports of a transaction with an aggregate value not exceeding $100,000 should be deferred until the aggregate cumulative value of unreported transactions with respect to the same individual exceeds $100,000. All transactions with an aggregate value of $100,000 or more should be reportable not later than the close of business on the second business day of the week following the week in which the event occurred. Under such reporting deadlines, companies would be able to file a weekly Form 8-K reporting all events for that time period instead of filing new Forms 8-K almost daily.
Fourth, the Roundtable asks the Commission to narrow the categories of reportable transactions under new Item 10 of Form 8-K. Certain transactions, like the Section 16 exemptions, including gifts, grants of stock and options under employee benefit and director plans and the exercise of tax withholding rights in connection with the vesting of restricted stock, do not "reflect management's views of the company's prospects." Such transactions do not provide additional, useful information, and thus should be exempt from Item 10 Form 8-K reporting requirements.
Finally, the Roundtable recommends that the Commission change the cut-off time for accepting EDGAR filings from 5:30 p.m. to midnight, in order to allow for a greater volume of filings and to extend the available time for the report.
2. Availability of Arrangements Under Rule 10b5-1
The Roundtable has long supported making public arrangements under Rule 10b5-1. However, this should be limited to arrangements with executive officers, and, for the reasons discussed above, Form 8-K should not include disclosure of arrangements with outside directors. The Roundtable supports limiting the reporting of modifications of Rule 10b5-1 arrangements only to those that are material.
3. Disclosing Company Loans to Directors or Executives
The Roundtable supports disclosing to investors loans or guarantees made by the issuer or an affiliate to directors or executive officers. The Commission's proposals, however, extend beyond their stated purpose of disclosing loans that are "not available to shareholders generally." The Commission should exclude these types of financing arrangements for the following reasons:
The Roundtable believes that that Commission should provide a reporting exemption for financial institutions in the business of banking that makes loans in the ordinary course of business on the market terms. As written, the proposed rules would, for example, require an issuer with a bank subsidiary to file an 8-K when an executive officer or director uses his bank-issued credit card to pay for dinner on vacation and his charges go over $10,000, or writes a check on his home equity line of credit to buy a lawnmower and his aggregate draws on the line of credit exceed $10,000.
The Senate Banking Committee provided for a specific reporting exceptions on Tuesday, June 18th when it reported out the "Public Company Accounting Reform and Investor Protection Act of 2002"
4. Liability For Filed Reports
The Roundtable strongly objects to the terms of the proposal that Item 10 of Form 8-K would be considered "filed" for purposes of liability under Section 18 of the Exchange Act. We object for the following reasons:
Due to the heavy reliance upon the individual, liability should not rest with the issuer.
As an alternative, we propose the information reported under new Item 10 should be treated like information filed under Item 9 of Form 8-K. The Commission can still achieve its objectives of providing timely information without unfairly placing Section 18 liability for these filings on issuers.
The Roundtable supports the goals of the Commission's proposal. Timely and accurate information is the bedrock of insuring the continued viability and superiority of the American stock exchanges. However, the potential benefits to investors of these proposed additional disclosures must be balanced with the additional burdens placed on issuers and the everyday abilities of issuers to comply. The Roundtable believes that its suggestions to modify the proposal accomplish both the Commission's goals and the needs of investors.
The Roundtable appreciates this opportunity to comment on the Commission's proposals. We thank you for considering our comments. If you have any further questions or comments, please do not hesitate to contact me at (202) 289-4322.