November 30, 2001
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Mandated EDGAR Filing for Foreign Issuers
(Release Nos. 33-8016, 34-44868)
Commission File No. S7-18-01
Dear Mr. Katz:
We are pleased to comment on the proposed amendments to Regulation S-T, the rules that govern the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system, that would require foreign private issuers and foreign governments to file their securities documents, including registration statements, reports and other documents under the Securities Acts of 1933 and 1934, electronically through the EDGAR system.
Overall, we agree with the proposed amendments and believe they will benefit foreign issuers and market participants. We agree that mandated electronic filing benefits investors and the financial community by making information publicly available in an electronic format that facilitates timely access and efficient retrieval. We concur that the benefits of universal electronic filing outweigh the additional costs that would be imposed on foreign issuers. However, we encourage the Commission to consider ways to reduce the cost to foreign issuers of adopting and complying with any new electronic filing requirements.
Although we support the Commission's objectives and the majority of the proposed amendments, we would like to provide some comments and suggested improvements for the Commission to consider. Our comments and recommendations regarding the proposed amendments are discussed in detail below.
The amendments propose a four month transition period. While this may be adequate, we believe a smoother transition would result if the requirements were phased in by type of SEC form being filed. We suggest that foreign registrants be required to adopt the rules for their first Securities Act registration statement (e.g., Forms F-1, F-2, F-3 and F-4) or their first Annual Report on Form 20-F, or equivalent forms in the case of MJDS Canadian issuers, following the four month transition period. This would avoid a foreign private issuer using EDGAR for the first time on a more time-sensitive document, such as a Form 6-K. This provides important relief, because a Form 6-K filing often is unexpected and has a short lead time, so foreign issuers would have limited time to plan and coordinate their first "real time" electronic submission. Allowing foreign issuers to adopt EDGAR on a known time frame would provide them an orderly schedule to prepare and implement the new requirements. Earlier adoption should still be encouraged.
To assist foreign registrants with implementation, we recommend the Commission develop a communication package for distribution to foreign registrants that incorporates the following: full notification and text of Regulation S-T, as amended, the latest version of the EDGAR Filer Manual, guidelines on how to locate and select a filing agent, help-line phone numbers, and any other materials deemed useful. This information should be distributed to foreign registrants as soon as the SEC adopts any final rules.
Under the current Rule 306 of Regulation S-T, the filing on EDGAR of any foreign language document is forbidden, without exception, but foreign issuers who file by paper are permitted to file such documents as an exhibit, if accompanied by a "summary, version or translation in the English language". The proposed amendments would prohibit the filing of foreign language documents and require foreign issuers to file a complete English translation of all documents filed as exhibits.
We do not agree that the filing of foreign language documents should be prohibited. We believe the original foreign language version of required exhibits should be filed, as these are the documents that are legally binding. Based on our experiences, translation of foreign language documents into English can be complex and invariably involves judgments and interpretations that can have significant legal and accounting implications. For this reason we feel it is important that the official foreign language version of the document also be a matter of public record. This would not impose an additional burden on either the registrant or the Commission, because the document could be submitted in a format such as Portable Document Format ("PDF"), thus avoiding the practical limitations of the EDGAR software, which currently only recognizes a limited number of foreign language symbols and characters.
We also do not believe that a full English translation of all documents required to be filed as exhibits is necessary in all cases. In our view, the costs of complying with a mandate of universal English translation of foreign language exhibits would likely outweigh the benefits. Clearly, a full English translation should be provided, in addition to the original foreign language version, for certain important exhibits (e.g., articles of incorporation, by-laws and other documents involving corporate governance and the rights of securities holders; financial statements). However, in other cases, an English summary of the key terms and conditions of other legal documents should suffice (e.g., leases, employee benefit plans, merger documents, sales and supply contracts). Finally, in some cases, an identification of the subject matter of the foreign language document may be sufficient (e.g., documents filed on Form 6-K solely because they are being filed in the home jurisdiction). We recommend that any new rules classify exhibits in such tiers and require different levels of translation for each tier as discussed above. The proposing release mentions that the Commission has experienced problems in the past with English summaries being too brief or too general. However, the SEC could consider providing better guidance and more objective criteria regarding the expected form and content when an English summary is provided in lieu of a full English translation. In addition, we believe that the translation regime for foreign issuers (i.e., filing original foreign language exhibits in PDF form, and providing English translation, summarizations or identification thereof) should apply equally to domestic registrants.
Further, we do not agree with the proposed written representation requirement of Regulation S-T Rule 306 (c). We believe that a separate representation, signed by the registrant's designated officer or official certifying that the submission is a fair and accurate translation of the foreign language document, is unnecessary. The registrant is ultimately responsible for the entire content of its filings, including the English translation or summarization of foreign language exhibits. Moreover, persons who sign registration statements and reports can be held liable for materially misleading filings under the federal securities laws. Accordingly, we do not believe that separate certification of translated documents is warranted.
Filers can currently submit documents in electronic format by direct transmission, formatted either in American Standard Code for Information Interchange ("ASCII") or a version of HyperText Markup Language ("HTML"). Filers also may choose to provide an unofficial copy of a filing in PDF format, but may not use PDF documents to meet filing requirements. Securities commissions in other countries may permit or require a different format. For example, in Canada, PDF is now the only acceptable filing format for SEDAR filers' documents.
We recommend that the Commission begin to work with other securities regulators, perhaps through the International Organization of Securities Commissions ("IOSCO"), to develop an international standard electronic document-filing format. Given the rise in transnational capital formation in increasingly global markets, this is an area that should be addressed. Investors, analysts and the Commission would benefit from the development of an international filing standard that would make it easier for foreign companies to enter U.S. capital markets. Furthermore, domestic companies would benefit, as it would simplify and facilitate the process of raising capital in foreign markets. Overall, a common electronic filing standard would reduce the costs of global capital-formation and facilitate cross-border offerings.
We also recommend that the SEC reevaluate electronic hours of operation for EDGAR filing, for both domestic and foreign registrants. Currently, electronic transmission and acceptance of filings is allowed from 8:00am to 10:00pm U.S. Eastern Time. Given the current state of technology and the proposed global extension of EDGAR filing requirements, it seems reasonable for the SEC to provide for virtually around the clock transmission of filings on EDGAR, as opposed to the current 14 hour window.
* * * * *
We would be pleased to discuss our comments with the Commission or its staff at your convenience.
Very truly yours,
Ernst & Young LLP