Emerson Electric Co.
February 10, 2003
VIA EMAIL: firstname.lastname@example.org
Jonathan G. Katz
RE: Comment on Proposed Rules Pursuant to Section 403 of the Sarbanes-Oxley
Dear Mr. Katz:
I am Senior Vice President, Secretary and General Counsel of Emerson Electric Co. ("Emerson"). The purpose of this letter is to provide the Commission with my comments in response to the Proposed Rules pursuant to Section 403 of the Sarbanes-Oxley Act of 2002 (the "Act"); Release Nos. 33-8170, 34-47069 and IC-25872, File No. S7-52-02 (the "Proposed Rules").
Emerson supports the goals of the EDGAR system of facilitating rapid distribution of financial and business information about reporting companies and other parties participating in U.S. capital markets. In fact, Emerson insiders already file their Section 16 forms electronically by EDGAR. Emerson has long provided a link to all its SEC filings from its corporate website.
The purpose of this letter is to provide to you my comments regarding the Proposed Rules and to request the Commission to clarify certain of the Proposed Rules:
I urge the Commission to make these clarification and adjustments in the release relating to the final rules. I address each of these points below in detail.
The Commission should clarify whether hyperlinking to all of an issuer's SEC filings, instead of only its Section 16 filings, is allowed.
In Part II. B. of the Proposed Rules, the Commission proposes to amend Rule 16a-3 to add a new paragraph (k) to require an issuer that maintains a corporate website to post on its website all Forms 3, 4 and 5 filed with respect to its equity securities by the end of the business day after filing. The Proposed Rules indicate that a reporting company could satisfy this requirement "whether it provides access directly or by hyperlinking to them via a third-party service in lieu of maintaining the forms itself" if certain conditions are met. One of those conditions is that any hyperlink "is directly to the Section 16 forms (or to a list of the Section 16 forms)" instead of just to a home page or general search page of a third party service. This statement implies that the link must be to a site only containing Section 16 forms. However, footnote 42 of the Proposed Rules provides that hyperlinking via EDGAR would satisfy the posting requirement if the conditions in that section otherwise are met. Because EDGAR contains all of an issuer's SEC filings, footnote 42 implies that a link to a site that contains all of an issuer's SEC filings would be sufficient.
Therefore, the Proposed Rules are unclear as to whether the hyperlink must be to a site containing only section 16 reports, or a list of them, and no other SEC reports, or, alternatively, whether a hyperlink to a site showing all of the issuer's SEC filings, or a list of them, would be allowed. Moreover, it is unclear from the Proposed Rules as to how the hyperlink itself should be captioned. For example, would a hyperlink captioned "SEC filings" qualify, or would a separate caption such as "Section 16 Reports" be required?
I urge the Commission, in the final rules adopting release, to clarify that a link to all SEC reports, including Section 16 reports, under a hyperlink captioned as "SEC Reports" would be sufficient to comply with the final rules. A link to all of the SEC reports is easier to establish than a link to a site that contains only Section 16 reports. A link to Section 16 reports only would require the addition of a filter into the link. I believe that requiring a reconfiguration of this type is unnecessary to achieve the goals of the Act in this regard.
The proper caption of the hyperlink would depend on the clarification the Commission makes on the above. If it is determined that a hyperlink only to Section 16 reports is appropriate, it would be appropriate to caption the link by that name.
The Commission should adjust the EDGAR coding system to reduce the potential for confusion and late filings associated with multiple code requests.
I urge the Commission to resolve the confusion that has resulted and likely will continue to result from the use of the Commission's identification codes. Currently, each Section 16 reporting insider has a series of codes associated with his or her name, including a Central Index Key (CIK), a CIK certification code (CCC), a password (PW) and a Password Modification Authorization Code (PMAC). Each time an insider files a new Form ID, a new set of codes is issued to that insider. Confusion and late filings can result because of the interplay between this system and how these forms are actually filed. As the Commission acknowledges in the Proposed Rules, although insiders are ultimately responsible for their Section 16 filings, issuers frequently help insiders prepare and file the forms. Indeed, the Proposed Rules indicate that this is encouraged by the Commission. Frequently, these insiders are Section 16 reporting persons for more than one reporting company. To the extent that each of these reporting companies undertakes to maintain the set of codes for each of its insiders, it is possible that one issuer could request codes for a reporting person who already has codes. It is my understanding that if the Commission issues new codes, then the other codes previously issued for that person become obsolete. If so, the next time an issuer with the old codes tries to file a report for that insider, the filing would be rejected as invalid because of the change in codes. Normally, this would leave the insider and the issuer with little time to identify and correct the problem. This problem is exacerbated by the fact that "failure to obtain timely an identification number or access codes will not justify" a Form TH hardship exemption. Thus, if a mix-up in codes occurs, the result will likely be an untimely Section 16 form filing. While it is true that the codes belong to the individual filer, not the issuers, and that issuers could cooperate in not obtaining codes for a particular reporting insider if they know that codes already exists for that person, I submit that this system leads to confusion and the likelihood of late filings.
I encourage the Commission to consider three ways to reduce or eliminate this problem. First, the Commission could provide a mechanism for one to determine if a particular person already has a set of codes, such as a website that would list Section 16 filers. Second, the Commission should change the coding system such that each person has a code or set of codes which connects that person to each particular issuer. Under this system, if a new issuer requested a set of codes for a new insider, the codes received would be unique to that combination of insider and issuer and would not affect the codes used by other issuers for that insider. With these approaches, an issuer and a reporting insider would be much less likely to inadvertently request unnecessary codes for section 16 filings. Third, I submit that a good faith attempt to request and use the codes that nonetheless results in the mishandling or termination of valid codes should be a valid basis for allowing the use of the temporary hardship exemption.
The Commission should deem Section 16 forms filed between 5:30 and 10:00 p.m. Eastern Time as filed on that day.
Rule 13(a)(3) of Regulation S-T addresses acceptance of electronic submissions. Currently, filings are accepted between the hours of 8 a.m. and 10:00 p.m., eastern time. An accepted filing that begins before 5:30 p.m. eastern time is deemed filed on the same day. After that time, the filing is deemed filed on the next business day. However, a post-effective amendment or registration statement filed to increase the number of securities registered as permitted by the Securities Act Rule 462(b) is deemed filed on the same business day as long as it is received by 10:00 p.m., eastern time. In the Proposed Rules, the Commission asks whether Section 16 forms should be treated in the same manner as a Rule 462(b) filing.
I encourage the Commission to accept as timely filed on the day of acceptance those Section 16 forms filed before the 10 p.m. eastern time deadline. Allowing a few extra hours to file these forms would ease the administrative burden relating to their filing. Prior to August 29, 2002, most Forms 4 were due 10 days after the month in which the transaction occurred. Most Forms 4 are now due by the second business day following the transaction. This new time pressure and the potential for error associated with insiders and the coding system (as discussed above) would be relieved to some extent if filings were accepted as timely filed until 10:00 pm. This would allow two entire business days to prepare the form, have the insider sign-off on the report and allow time for filing. Moreover, a later filing time would reduce the disadvantage faced by issuers outside of the eastern time zone who have less time to file. Furthermore, allowing this later filing should not impact the usefulness of Section 16 reports. Currently, the deadline for filing the reports is after the traditional trading markets close. Filings between 5:30 pm and 10:00 pm will have no different impact on the markets than filings between the market close and 5:30 pm. Moreover, the markets will likely benefit from reduced errors resulting from the additional time to make a proper filing.
The Commission should provide a transition period for the existing EDGARlink system. The Commission should ensure that the new on-line filing system allows for proper proofreading.
In Section III of the Proposed Rules, the Commission states that it intends to introduce a new on-line filing system. The Proposed Rules indicate that in the initial version of this system, insiders will be able to access the Commission's web site and fill out and submit forms. Further, the Proposed Rules warn that the filer should have all available information ready, and that due to "cost and technical limitations, data entry must be performed quickly enough to avoid timeouts that end the session." The Proposed Rules further warn that "the system will not be able to provide a way to save an incomplete form on-line from session to session."
I encourage the Commission to modify the new on-line filing system such that proper review and proofreading are possible. In my experience, before a Form 4 is filed, the attorneys involved, the insider and any other interested person proofread a completed form. Under the new system, as described in the Proposed Rules, this would not be technically possible. Instead, to complete an adequate proofread, all interested persons virtually would need to be physically present over the data entry person's shoulder. In light of the time demands and geographic dispersion of insiders, their counsel and corporate staff, this form of proofreading would be untenable. These demands are especially challenging for larger issuers. The proposed new on-line filing system should allow a final submission-ready version to be created and filed with a sufficient amount of time for proofreading, which facilitates more accurate and timely Section 16 filings. Finally, to minimize the likelihood of proofreading and other errors, I encourage the Commission to overlap the phase in of the new system with the phase out of the old EDGARlink system.
I urge the Commission to consider carefully the requested clarifications regarding hyperlinking to an issuer's web site and my requests for the Commission to adjust certain of its Proposed Rules. I believe that these clarifications and adjustments are consistent with the policy behind the Proposed Rules and will result in a better system for issuers, insiders, the public and the Commission.
I thank you for the opportunity to comment on this important matter. Should the Commission have any questions regarding my comments, please do not hesitate to contact me.