April 16, 1999
Jonathan G. Katz, Secretary
Securities and Exchange Commission
Mail Stop 6-9
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Comments on Release No. 33-7653; 34-41150; IC-23735 (File No. S-7-9-99)
Dear Mr. Katz:
On behalf of the American Society of Corporate Secretaries, Inc. we are pleased to have the opportunity to respond to the Commission's request for comments on the modernization of the EDGAR system and related rules under the Securities Act and Investment Company Act as well as Regulations S-T and Schedule 14A (the "Release").
The Society has over 4,000 members who represent approximately 2,800 corporations in the United States and Canada, ranging from the largest multinational industrial companies to start-ups and other small companies. Our members typically have the responsibility to make company filings with the Commission and to comply with related securities laws and regulations.
We commend and fully support the Commission's proposal to modernize the EDGAR system. Every member of the Society uses EDGAR, either as a filer or as an investor. Since the Commission has placed the EDGAR database on its web site, its value has grown. Once modernized, we believe that the on-line EDGAR database will be even more valuable.
Ultimately, we hope the Commission upgrades EDGAR so that companies can make filings themselves easily. Currently, most companies use outside agents to make their Commission filings. We also hope that the Commission will upgrade EDGAR and its web site interface so that company filings will be easy to find and navigate. We know that the Commission shares these goals.
We commend the Commission for upgrading EDGAR so that it can accept HTML documents. Initially, we do not believe that many companies will file HTML documents. At first, EDGAR will only be able to accept a relatively old version of HTML (i.e. version 3.2). In addition, EDGAR will accept HTML 3.2 documents only that are customized with certain tag sets for EDGAR. Popular word processing programs cannot save documents as HTML 3.2, much less produce customized documents. Companies likely will have to purchase special software or hire outside agents to convert word processing documents into customized HTML 3.2. We understand that outside agents may charge more, at least initially, for conversion of documents to HTML 3.2 compared to ASCII.
We recognize the Commission's desire to ensure that documents have consistent presentation, regardless of the viewer's browser. We believe, however, that limiting the tag set in acceptable EDGAR documents is a burden. A cost-benefit analysis should be conducted to confirm that the benefits of consistent presentation outweighs the costs of mandated use of a version of HTML that forces companies to hire outside vendors. If possible, the Commission should consider upgrading the EDGAR system to accept multiple versions of HTML as well as ASCII.
At this time, we do not believe that HTML should be mandated. Filers, as well as outside agents, need time to gain experience with HTML. In addition, currently available word processing software do not adequately convert files to HTML. Manufacturers of the popular word processing programs should eliminate these bugs before the Commission mandates HTML use. In some cases, such as material contracts filed as exhibits, it may never be cost effective to require conversion to HTML. In these cases, the Commission should consider allowing these documents to be filed in ASCII until their cost dynamic changes.
Although we are not opposed to allowing companies to file unofficial PDF copies on EDGAR, we are concerned that the combined files of the "official" and "unofficial" documents may take a long time to download from the Commission's web site and deter investors from reviewing either document. We hope the Commission has tested this potential problem and is comfortable with the time it will take investors to download a combined file.
We do not feel strongly regarding legending "unofficial" PDF copies. If the content of a "official" HTML or ASCII document and the "unofficial" PDF copy is the same, it does not appear necessary to inform investors that the PDF copy is not an official filing. Labeling the PDF copy as "unofficial" may confuse investors. It does make sense, however, for companies to disclose the location of any exhibits that are missing from the PDF copy.
We recognize EDGAR has database storage limitations. At some point, we believe that companies should be able to use most types of graphics and images in their disclosure documents. Companies should be able to take advantage of the numerous opportunities that the World Wide Web presents. To solve storage problems, the Commission should consider alternative methods of filing. For example, a company could file a document on EDGAR and use an external hypertext link to a web site that hosts the graphic and image material. Of course, the Commission could maintain its current rules that allow graphics and images to be considered filed even though they are not transmitted via EDGAR, so long as they are identified and described in an EDGAR filing.
At this time, we agree that external hypertext links should be prohibited since the law has not been fully developed in this area. Once the law develops, EDGAR should allow external hypertext links. We believe that the law should reasonably accommodate certain types of external hypertext links. One of the World Wide Web's greatest attributes is the ability to link to obtain further information. External hypertext links can assist investors in many ways, such as link to materials that provide education about particular aspects of an investment opportunity (e.g. tax consequences).
We would be interested in the Commission providing more information regarding several of the topics raised in the Release. For example, our members would be interested in learning more about the potential of the eXtensible markup language. Another example is how an Internet based filing system could be established that uses client side certificates. We believe we can provide more input on these issues once we become more familiar with the opportunities and drawbacks of these new technologies.
Should the Commission or its Staff have questions concerning the comments in this letter or desire additional information to assist it in preparing the adopting release, please do not hesitate to contact us.
Very truly yours,
Margaret M. Foran
Chairman, Securities Law Committee
cc: Brian Lane, Director, Division of Corporation Finance, Securities and Exchange Commission
Mauri Osheroff, Associate Director, Division of Corporation Finance, Securities and Exchange Commission
Karl R. Barnickol, Chairman, American Society of Corporate Secretaries
D. Craig Nordlund, Chairman-Elect, American Society of Corporate Secretaries
David Smith, President, American Society of Corporate Secretaries
ASCS Subcommittee on EDGAR Modernization: Broc Romanek