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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Remarks before the Symposium on Enhancing Financial Transparency


Commissioner Cynthia A. Glassman

U.S. Securities and Exchange Commission

Policy Roundtable
Symposium on Enhancing Financial Transparency
Federal Deposit Insurance Corporation Symposium

Washington, D.C.
June 4, 2002

Good afternoon. I am very pleased to be here, first, because being at a Banking Agency is familiar ground from my old life and second because of the importance of the topic of financial transparency in my new life. Before I start, I would like to state that the views I express are my own and not necessarily those of the Commission.

Financial transparency means timely, meaningful and reliable disclosures about a company's financial performance. Companies need to provide transparent financials to raise capital. Investors need transparent financials to make informed investment decisions. Therefore, financial transparency is important not only because it is the bedrock of our financial markets, but also because it is absolutely essential to today's investors.

Today's investors are much different than the investors of 20 years ago. Over 88 million shareholders, representing 51 percent of U.S. households, invest in the markets today, compared to 5.7 percent 20 years ago. Part of the reason for the change is the way people save for retirement. Twenty years ago, most households did not have a significant nest egg to invest for their retirement. Even if they did, insured bank accounts were often the savings vehicle of choice. Their retirement was more likely to be funded by defined benefit plans that were managed by their employers and insured by the Pension Benefit Guarantee Corporation ("PBGC"). With the trend away from defined benefit plans to defined contribution and other retirement investment vehicles, investors have more money to invest and more choices regarding how to invest it. They have a myriad of financial instruments and options from which to develop a retirement strategy, and many make their own decisions regarding how, when, and where to invest. This environment makes enhanced transparency even more important.

I have been a Commissioner for only a few months. In that short time, it has become increasingly clear to me that change is needed. Our financial markets, which have been battling setback after setback since the terrible events of September 11, are facing a crisis of investor confidence. In addition to the high profile cases of Enron, Global Crossing, Arthur Anderson and Xerox, we are seeing a record number of restatements being made this year. Through the Commission's Roundtables on Financial Disclosures and Auditor Oversight and the recent Investor Summit, the Commission has no doubt that the status quo will no longer suffice. From corporate America down to the small investor, everyone wants and needs better financial transparency.

So now we turn to the task of determining how to get more transparency-true transparency and not just more data with the unintended consequence of investor overload and an unnecessary reporting burden on companies. Certainly, the private sector must be responsible and accountable. Companies should disclose the right information and investors should be sufficiently financially literate to understand it. However, in the current environment, the government must be a driving force to ensure that the move toward enhanced transparency happens and happens soon. And the SEC is playing our part in that role.

We are working towards enhanced financial transparency on both the regulatory and enforcement fronts. The Commission has proposed several new regulatory initiatives designed to enhance information for investors.

First, to improve timeliness, we have proposed to accelerate the financial reporting requirements. These measures would shorten the length of time public companies have to make their required filings with the Commission and are aimed at getting investors the information they need on a timelier basis. We have also just improved access to our Electronic Data Gathering, Analysis, and Retrieval ("EDGAR") system, which will allow more immediate access to filings made with the Commission. We have also proposed changes to the Form 8-K (Current Report) to speed up information on insider transactions.

Second, to make information more meaningful, we have proposed enhanced disclosure of critical accounting issues in the Management Discussion and Analysis the ("MD&A"). If these rules are adopted, investors will be able to see what management sees when it looks at its company and will get a more clear and informative view of the company.

And to improve reliability of information that investors use, we have proposed, in coordination with the ("SROs") self-regulatory organizations, changes to the rules that address analysts' conflicts. These rules are a good working first step toward addressing the issue. Additionally, the Commission will shortly release for comment its recommendations on a new public accountability body for the accounting profession. We believe that the PAB will be a vehicle to enhance the quality of audits of financial statements. The core principles of this accountability body will include:

  • independence from the profession,
  • mandatory membership,
  • effective control by non-accounting members,
  • funding independent of the profession,
  • meaningful discipline for unethical or incompetent conduct, and
  • a fair and effective system of audit company reviews.

And, there is more to come. We are considering even more changes to the MD&A and to the Form 8-K, and the possibility of requiring certification of reports filed with the Commission in our quest to increase financial transparency to the investing public. With increased regulatory oversight, however, there are trade-offs between costs and benefits. As an economist, I am acutely aware of these trade-offs and as a Commissioner, I am making every effort to preserve a balance between these trade-offs and to minimize the likelihood of unintended consequences of our rules. That is why I encourage all interested parties to become involved in the comment process. The Commission relies heavily on the public for feedback to make sure our rulemaking leads to the best possible outcome.

There are three other elements of making financial transparency effective: enforcement, examination and education. On the enforcement side, our Enforcement Division is working above and beyond its capacity to ensure that those who mislead investors are held accountable. This year alone, the staff has filed 77 financial reporting and issuer disclosure actions, thus far, compared to 112 for all of 2001.

We have focused our enforcement efforts on real-time enforcement, which is aimed not only at bringing cases faster, but also on stepping in earlier and attempting to identify and stop fraud and other violations of the federal securities laws before they hurt investors. Again, the numbers bear evidence that the SEC is unquestionably on the scene. Our staff has brought 34 temporary restraining orders so far this year compared to 31 in all of 2001, and 40 asset freezes compared to 43 in all of 2001. Trading suspensions and subpoena enforcements also have increased.

Our examination program, which complements our Enforcement Division, also provides meaningful transparency through ensuring compliance with our disclosure requirements and providing information to registered companies. Currently, our examination staff is conducting several reviews on a preemptive basis in addition to their ongoing inspection activities in furtherance of our goals for investor protection.

Further our Division of Corporation Finance is making good on its commitment to monitor the annual reports filed by all Fortune 500 companies with the Commission as a part of our process of reviewing financial and non-financial disclosures made by public companies. The Division of Corporation Finance is also in the process of developing new risk management strategies to better focus resources on reviewing companies filings for full and improved disclosure.

Finally, we continue our efforts in investor education through both traditional and innovative methods. In 2001, we implemented a new question and answer data base system that dramatically increased the number of hits the SEC received on its "Investor Information" and "Fast Answers" web pages-from approximately 575,000 in fiscal 2000 to more than 1.4 million in fiscal 2001. In addition, the investor section of the SEC's web site features interactive calculators and quizzes, information about online investing, publications and alerts, and a special section for students and teachers. In January 2002, the SEC launched a fake "scam" website to warn investors about fraud before they lose their money. Anyone who tried to invest was greeted with an educational message that warns of potential scams. Within weeks of its launch, the site got more than 1.5 million hits, and our Office of Investor Education and Assistance received more than 500 emails, nearly all of which were overwhelmingly positive. We have launched two additional fake scam websites and plan to create more in the months ahead.

The hard work and tremendous effort of the SEC staff is a message that is lost amidst the daily headlines that announce yet another financial disaster that threatens to rock our markets. But the problems that we are facing did not appear overnight. They have been evolving for many years and have surfaced simultaneously with potentially catastrophic results. While the reform effort might appear to some not to be progressing fast enough, the magnitude of the task is enormous, and reforms must proceed under statutory provisions that require deliberate processes and protections - requirements put in place to ensure that the public interest is well served. Even within this framework, the Commission has moved at an exceptional pace to address issues of corporate governance and transparency and to enforce our securities laws. However, we are not alone in this endeavor; we work with and will continue to work with the Administration, the Congress, the states and other agencies.

Finally, it may seem as if we are facing a new financial crisis each day as we open the newspapers, turn on the television or listen to the radio. But what must not be forgotten at any point is American resiliency. We have made it through the attacks of September 11, are continuing to deal with the fallout from some of the largest bankruptcies in American history, the indictment of a major accounting institution and numerous other difficulties that barrage us each day. However, we MUST always bear in mind: we are privileged to have the best financial markets in the world. The recent events may have placed a strain on our regulatory system, but we are far from broken. Our capital markets are still the world's most honest and efficient. Our current disclosure, financial reporting and regulatory systems also are still the best developed, the most transparent and the best monitored by market participants and regulators. We are here today to discuss ways to continue to ensure that these facts remain true. I appreciate the opportunity to participate in this symposium.



Modified: 06/04/2002