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Statement at Open Meeting on Regulation S-K Concept Release

Commissioner Michael S. Piwowar

April 13, 2016

Thank you, Chair White.  I also wish to express my appreciation to the Division of Corporation Finance, the Division of Economic and Risk Analysis, the Office of the General Counsel, and the many others at the Commission for their efforts in helping to bring this concept release to fruition.  Our action today represents another step forward in fulfilling the mission given to the Commission by Congress, on a bipartisan basis, to review and modernize our disclosure regime.

On April 5, 2012, the President signed the JOBS Act into law.[1]  Section 108 of that Act required the Commission to conduct a review of the disclosure requirements contained in Regulation S-K to determine how such rules could be modernized and simplified and to examine whether we could reduce the costs and burdens associated with these requirements for emerging growth companies.[2]  We released our staff’s report studying Regulation S-K in December 2013.[3]  However, we have not implemented any reforms based on this effort to date.[4]

Thus, in March 2015, the Chairman of the Capital Markets and Government Sponsored Enterprises Subcommittee of the House Financial Services Committee, Representative Scott Garrett (R-NJ) introduced H.R. 1525, the Disclosure Modernization and Simplification Act of 2015, which again called upon the Commission to focus on Regulation S-K disclosure.[5]  The provisions of H.R. 1525 were subsequently incorporated into the FAST Act, which was signed by the President on December 4, 2015.[6]

Among other requirements, the FAST Act mandates that the Commission study Regulation S-K to “determine how best to modernize and simplify such requirements in a manner that reduces the costs and burdens on issuers while still providing all material information.”[7]  I emphasize that last clause – material information.

“Materiality” plays a pivotal role in understanding the disclosure obligations under the federal securities laws.  It is not sufficient that information might merely be useful.  Nor is it sufficient that only some investors might find a bit of information to be important.  Rather, as Justice Thurgood Marshall wrote for a unanimous Supreme Court in the seminal case of TSC Industries v. Northway, “[t]he question of materiality, it is universally agreed, is an objective one, involving the significance of an omitted or misrepresented fact to a reasonable investor.”[8]  This is an objective legal standard, not a subjective political one.  While certain shareholders may have their own particular pet interests, the reasonable investor standard prevents an individual investor from hijacking corporate resources to serve their own specific agenda.

Hence, Justice Marshall held that “an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important.”[9]  The Supreme Court expressed concern that an unnecessarily low standard of materiality and the resulting fear of exposure to substantial liability might cause a company to “simply bury the shareholders in an avalanche of trivial information – a result that is hardly conducive to informed decision making.”[10]

The FAST Act recognized and addressed the concerns espoused by Justice Marshall by placing specific requirements on how the Commission conducts its study of Regulation S-K.  One requirement is to examine how information can be disseminated to investors using a company by company approach while avoiding the use of boilerplate language or static requirements.[11]  Another requirement is that we “explore methods for discouraging repetition and the disclosure of immaterial information.”[12]  Therefore, we must keep in mind these requirements when implementing subsequent reforms to Regulation S-K.

Despite the enactment of the JOBS Act four years ago, the Commission has still not done enough to provide fair, efficient, and robust capital markets.  As Chairman Garrett observed in his opening remarks at a hearing on legislative proposals to enhance capital formation and reduce regulatory burdens held on April 29, 2015, “America’s startups and small businesses continue to encounter difficulty, unfortunately, accessing the U.S. capital markets to finance operations.  Moreover, the costs of these companies of going and staying public remain unacceptably high.”[13]

I look forward to public comment on the concept release, as well as prompt recommendations from the staff in response to the public comments, to implement appropriate changes to Regulation S-K. 

Thank you.  I have no questions.

[1] Jumpstart Our Business Startups Act, Pub. L. 112-106, 126 Stat. 306 (2012).

[2] Id., Sec. 108.

[3] Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013), available at

[4] See also 146 Cong. Rec. H6,805 (daily ed. Oct. 6, 2015) (statement of Rep. Garrett).  Representative Garrett, in noting the need for H.R. 1525, stated “While the SEC produced a report a few years ago – 2013 – that identified a number of obsolete things and duplicative requirements that could be addressed, unfortunately, the agency has yet to act upon them, this despite an ongoing disclosure effectiveness review that has so far only produced a concept release.”  In supporting the bill, Representative Carolyn Maloney stated “this is a commonsense idea that could make lengthy annual reports, which are often hundreds of pages long and difficult to navigate, significantly more investor friendly.”  Id.

[5] H.R. 1525, 114th Cong. (2015).

[6] Fixing America’s Surface Transportation Act, Pub. L. 114-94, Title LXXII (Dec. 4, 2015) (“FAST Act”).

[7] Id., Sec. 72003(a)(1).

[8] 426 U.S. 438, 445 (1976) (emphasis added).

[9] Id. at 449 (emphasis added).

[10] Id. at 448-49.

[11] FAST Act, Sec. 72003(a)(2).

[12] Id. at Sec. 72003(a)(3) (emphasis added).

[13] Legislative Proposals to Enhance Capital Formation and Reduce Regulatory Burdens: Hearing Before the Subcomm. on Capital Markets and Government Sponsored Enterprises of the H. Comm. on Financial Services, 114th Cong. 2 (2015).

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