Via Electronic Delivery and Overnight Mail

July 2, 2002

Jonathan G. Katz
Secretary, U. S. Securities and Exchange Commission
450 Fifth Street NW
Washington, D.C. 20549-0609

Re: Enhanced Disclosure Proposals, File Nos. 33-8089, 33-8090, 33-8098, 33-8106

Dear Mr. Katz:

The Charles Schwab Corporation ("Schwab") appreciates the opportunity to submit this comment on the above-referenced proposals. Schwab is one of the five largest financial services companies in the United States, with $858 billion in client assets in nearly 8 million client accounts at the end of the first quarter of 2002. Schwab serves its broker-dealer clients through its Charles Schwab & Co., Inc., Schwab Capital Markets L.P., CyberTrader, Inc. and U.S. Trust Securities subsidiaries, and its bank clients through U.S. Trust Corporation and its depository subsidiaries.

Schwab strongly supports the Commission's efforts to restore investor confidence in the US securities markets. U.S. Trust's 2002 survey of affluent American investors, released last week, confirms that there has been a substantial loss of public confidence in the fundamental fairness of our securities markets during the past year.1 This loss of confidence spans all sectors of the markets from research analysts and investment bankers, registered representatives and their supervisors, the accounting profession, public companies and their directors and officers, and even the regulatory and self-regulatory structure overseeing the markets. We encourage the Commission to continue to address all aspects of this problem.

The Commission has proposed to accelerate and enhance the disclosure of transactions by directors and executive officers, to enhance the disclosure of critical accounting policies, to require executive certification of the accuracy of periodic reports, and to accelerate the filing of annual and quarterly reports. These proposals are the latest in a series of Commission releases affecting the disclosure process. They occur in an environment in which the FASB is issuing an increasing number of increasingly complex accounting pronouncements, and the NYSE and Nasdaq are proposing increasing levels of corporate governance oversight on corporate accounting and disclosure. And the Commission is considering more far-reaching proposals to require disclosure for the first time of forward-looking projections.

Schwab's interest in these proposals is simply to make available for retail investors the most useful possible disclosure. Schwab takes disclosure seriously: we were awarded the NAIC Nicholson "Best in Industry" award for both 2000 and 2001, and we won the Investor Relations magazine award for best communications with the retail market for a large-capitalization company in 2000, for our own disclosures as a public company. We believe retail investors need assurance that the financial statements of public companies are as accurate as possible, that they reflect the true financial condition of the companies, and that their periodic SEC filings candidly discuss the strategies and prospects of these companies.

Schwab supports the enhanced disclosure proposed for critical accounting policies and for transactions by directors and executive officers, and we support the executive certification of the accuracy of financial statements. However, we note that there is an inherent tension between enhanced disclosure and accelerated disclosure. We believe the disclosure of director and executive officer transactions, which are objective facts that occur on specific dates, can be accelerated without compromising the quality of those disclosures.

However, we cannot make the same statement with respect to the disclosures required in SEC periodic reports. For example, this year Schwab's outside auditors had more than 50 days to complete their annual audit after we closed our financial books for 2001. Under the new proposal, our auditors would have only 30-35 days to complete the same work. It is difficult for us to believe that compressing the time available for audits in this way - especially for companies with more complex financial statements than ours - will enhance the quality of those audits. Similarly, shortening the time available for drafting 10-Qs and 10-Ks necessarily will make it more difficult for CEOs and CFOs - who have other important responsibilities - to provide thoughtful and thorough input to the explanatory narrative disclosures contained in these documents. These proposals would provide less time for public companies to consult with their outside auditors, audit committees and the Commission staff concerning novel or uncertain accounting issues. The proposals may result in more companies having to seek extensions of their filing deadlines and more companies having to correct errors - both of which harm investor confidence.

Schwab believes that enhanced quality of disclosure and accelerated speed of disclosure are both worthy goals and should be pursued. However, we do not believe speed of disclosure should be pursued at the expense of quality of disclosure, and that at present, the Commission should emphasize quality of disclosure. We believe the SIA's suggestion is a constructive one: the SEC should consider mandating uniform guidelines expanding the disclosure contained in earnings releases, so that reliable, comparable financial information is quickly made available to all investors. However, the SEC should not accelerate the filing of annual and quarterly reports.

Schwab has several more specific comments. First, we note that under the proposed rules concerning executive transactions, many issuer stock transactions will have to be reported twice: once immediately in a Form 8-K filing, and then again at the end of the month in a Form 4 filing. There is no value, and considerable cost, to having to report a single transaction twice in separate documents. We believe this dual filing requirement also will confuse investors, who may have difficulty distinguishing between a single transaction that is being reported a second time, and a second transaction by the same executive or director. We urge the Commission to integrate fully the proposed Form 8-K executive transaction disclosures with the existing Section 16 disclosure requirements. Second, we support the recognition by the Commission in Regulation F-D that a widely disseminated press release is equivalent in terms of public disclosure to a Form 8-K filing. Indeed, because press releases do not need to be "EDGAR-ized" and are not dependent on the limited hours of the Commission's EDGAR system, press releases generally provide more prompt and widespread disclosure than do Form 8-K filings. We urge the Commission to recognize a widely-disseminated press release as satisfying a company's public disclosure obligations, without requiring the company also to file a Form 8-K containing the same information.2

Finally, most of the Commission's proposals continue to rely on the concept of materiality, without further definition or elaboration except to state that disclosures may be qualitatively material even when they are quantitatively unimportant. As Schwab noted in our comment letter in support of Regulation F-D, judgments about materiality are extremely difficult: it is hard to predict in advance what information the market will treat as material, and very easy to second-guess these decisions in hindsight. We urge the Commission to clarify that a good faith but mistaken judgment that information is immaterial should not result in liability. In the past, the Commission and its staff have sometimes taken the position that materiality is an "objective" standard, and that it is irrelevant whether an issuer held a good-faith but (in retrospect) mistaken subjective view that information was immaterial. Lack of clarity about this issue creates an incentive for companies to include endless boilerplate disclosures designed primarily to prevent private class-action litigation rather than to enlighten shareholders. To improve the quality of disclosure, the Commission should clarify that innocent but mistaken judgments about materiality will not result in liability.

Schwab strongly supports the Commission's efforts to improve the disclosure available to retail investors. We believe that, with the modifications we have suggested above, the Commission's proposals will help reassure retail investors that the US securities markets are indeed open, transparent and fair, and worthy of investors' trust. If you have any questions regarding this letter, please contact me. Thank you for providing us this opportunity to comment on the proposals.


W. Hardy Callcott
SVP & General Counsel
Charles Schwab & Co., Inc.

1 The survey indicated that 85% of the respondents saw a need for tighter regulation of financial disclosure, 76% question the reliability of corporate financial statements, 73% do not trust the stock recommendations of equity analysts, 66% do not trust corporate management, and 58% do not trust independent auditors.
2 Schwab is evaluating the Commission's recent proposal to expand and accelerate other Form 8-K filings. Preliminarily we believe the same tradeoff will apply: accelerated filing may be realistic for some corporate events but not others.