Investment Company Institute
February 10, 2003
Mr. Jonathan G. Katz
Re: Mandated Electronic Filing and Web Site Posting for Forms 3, 4 and 5
Dear Mr. Katz:
The Investment Company Institute1 is pleased to comment on the Securities and Exchange Commission's proposal to mandate the electronic filing, and website posting by issuers with corporate websites, of beneficial ownership reports filed by officers, directors and certain beneficial owners of more than 10 percent of an issuer's equity securities (collectively "insiders") under Section 16(a) of the Securities Exchange Act of 1934.2 The Commission's proposal would implement Section 403 of the Sarbanes-Oxley Act of 2002, which requires the SEC to adopt rules no later than July 30, 2003 to require insiders to file beneficial ownership reports electronically, and the Commission and issuers with corporate websites to post these reports within a specified timeframe.
The Institute supports the Commission's proposal. Our members are investment companies that would be affected by the proposed rules both as issuers and investors. Our closed-end fund members issue equity securities subject to Section 16 reporting requirements and thus would be subject to the website posting requirement with respect to the beneficial ownership reports filed by their insiders with the Commission. In addition, all investment companies frequently monitor the Forms 3, 4 and 5 of the companies in which they are invested or in which they may be considering for investment, and evaluate the information in making investment decisions. Having access to this information more quickly would facilitate that process.
In a comment letter on the Commission's recent proposal to amend Form 8-K under the Exchange Act to require disclosure of certain information regarding trading by insiders, we expressed support for mandated electronic filing and website posting of such information.3 In particular, we noted that such electronic filing would benefit investors by accelerating the flow of transaction information into the marketplace and enabling the receipt of important information free of charge and on a timelier basis than is presently the case. We also expressed support for any Commission initiative that would encourage companies to post information regarding trading by insiders on their websites. Our comments on the Commission's current proposal are intended to ensure that these benefits are achieved while minimizing any undue burdens on reporting entities.4
Our comments relate primarily to tailoring for investment companies the proposed amendments to Rule 16a-3, which, as drafted, would require any issuer that maintains a corporate website to post on that website, by the end of the business day after filing, any Form 3, 4 or 5 filed under Section 16(a) of the Exchange Act. Our comments are discussed in more detail below.
A. Issuer Website Posting of Forms 3, 4 and 5
The Commission's proposal would add a new paragraph (k) to Rule 16a-3 to require website posting of any Form 3, 4 or 5 by "any issuer that maintains a corporate website." Investment companies typically do not maintain their own websites. Because, in most instances, investment companies are externally managed, a website that contains information about an investment company typically would be maintained by a separate entity, such as the fund's investment adviser. Thus, to tailor the rule appropriately for investment companies, we recommend that the requirement to post Forms 3, 4 or 5 with respect to a fund's equity securities apply to any affiliate that maintains a website that contains descriptive information about the fund (e.g., performance information or other descriptive attributes). If no affiliate maintains a website that includes such information about a closed-end fund, or if the affiliate's website merely identifies the fund by providing, for example, the fund's name and current net asset value, then that fund would not have its forms posted. Also, if more than one affiliate's website included such information, only one of them should be required to post the forms. (The website could be identified in the fund's Form N-CSR.5) We believe that this approach would be consistent with the Commission's objective to encourage the availability of information in Forms 3, 4 and 5 in a variety of locations to enable broader accessibility.6
B. Commission Acceptance of Electronic Filing of Forms 3, 4 and 5
Rule 16a-3(h) currently provides that the date of filing with the Commission shall be the date of receipt by the Commission. Rule 13(a)(3) of Regulation S-T, which addresses electronic submission acceptance, provides that an accepted filing that begins before 5:30 p.m., Eastern Standard Time, on a weekday is deemed filed on the same day, whereas if the filing begins after 5:30 p.m., it is deemed filed on the next business day. The Proposing Release requests comment on whether the Commission should amend Rule 13(a)(3) to treat an accepted Form 3, 4 or 5 filing as deemed filed on the same business day if it is received before 10:00 p.m. Eastern Standard Time. We strongly support this change.
As the Proposing Release notes, Rule 13(a)(3) already provides an exception whereby if a post-effective amendment or registration statement is filed to increase the number of securities registered as permitted by Securities Act Rule 462(b), the filing will be deemed filed on the same business day as long as it is received before 10:00 p.m. We believe the Commission should amend the rule to treat an accepted Form 3, 4 or 5 filing in the same manner as a Rule 462(b) filing for purposes of the deemed filing date. Providing insiders with additional time to make their filings is reasonable and appropriate given the accelerated filing deadline requirements applicable to Section 16 reports. Extending the timeframe would also help those insiders that are located in time zones other than Eastern Standard Time who, under the proposal, for example, would have to file their reports by as early as 2:30 p.m., Pacific Time. By the same token, if the Commission determines to extend the business day to 10:00 p.m. for purposes of insider filings of Forms 3, 4 and 5 filings, we request a similar extension for issuers with respect to satisfying their website posting requirement. Thus, an issuer would have until 10:00 p.m. (rather than 5:30 p.m.) the next business day after any such filing to post this information on its website.
C. Transition Date
The Proposing Release notes that the Commission expects to have a new on-line filing system in place at the same time that its rulemaking proposal becomes effective. The Institute supports the Commission's initiative to develop an on-line filing system for Section 16(a) reports inasmuch as it will enable greater accuracy in the filing process and permit filers to download and print filings and add attachments before submission to the Commission.
The Proposing Release makes clear that when the new system is implemented, EDGAR filing will no longer be available for Forms 3, 4 and 5. Because the development of any new electronic filing system inherently involves the resolution of a variety of issues - both foreseen and unforeseen, we strongly recommend that the Commission provide a delayed compliance date to permit insiders to continue utilizing the existing EDGAR system before eliminating this alternative altogether. Permitting insiders to continue to use the EDGAR system for a certain period of time, e.g., six months, would help facilitate a smooth transition to the new on-line filing system and provide time for Commission staff to resolve any unforeseen issues or complications that may result.
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The Institute appreciates the Commission's consideration of our views. If you have any questions, or would like additional information, please contact the undersigned at (202) 326-5824, Barry E. Simmons at (202) 326-5923, or Dorothy M. Donohue at (202) 218-3563.
cc: Mark W. Green, Senior Special Counsel
Paul F. Roye, Director