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From Securities Regulation Daily, October 11, 2017

SEC proposes modernization of disclosure under Regulation S-K

By Jacquelyn Lumb

The SEC will seek comments on a number of recommendations included in last year’s FAST Act-mandated report on modernizing and simplifying the disclosure requirements in Regulation S-K. Among the key proposals are amendments to Management’s Discussion & Analysis and to the confidential treatment process for commercially sensitive information. The comment period will be open for 60 days (Release No. 33-10425, October 11, 2017).

Proposals based on FAST Act report. Appearing at his first open meeting as chairman, Jay Clayton said the proposal will reduce the burdens on issuers while providing investors with the information they need to make informed decisions. He noted that the proposal includes improvements in all of the areas in which the FAST Act report recommended action. In his opening remarks, he focused on the amendments to MD&A and the confidential treatment process.

Streamlining MD&A. The MD&A proposal would permit registrants to omit a discussion of the earliest of the three-period upon which they currently report as long as the information is no longer material. Clayton explained that the revised disclosure would encourage registrants to take a fresh look at their MD&A to determine whether the oldest year remains material and to omit the information if it no longer is material in order to reduce repetition in their filings.

Confidential treatment process. The proposal related to confidential treatment would permit registrants to omit from their material contract exhibits confidential information that is not material or that could cause competitive harm if disclosed, without requesting confidential treatment from the Commission. Registrants currently must provide an un-redacted copy of each exhibit and request confidential treatment from the staff. Under the proposal, registrants also could omit personally identifiable information without submitting a confidential treatment request. The exhibits would still be subject to filing selective reviews so the staff can assess whether the redactions were appropriate. Registrants also would be required to mark their filings to indicate that confidential information had been omitted.

Legal entity identifiers. The proposal would require registrants that have legal entity identifiers (LEIs) to disclose them. The SEC is also seeking comments on the structured data format for LEIs that would be the most useful to investors. Commissioner Kara Stein described LEIs as a modern-day way of identifying companies and their overall market exposure, and said the proposal does not go as far as it could in identifying subsidiaries of registrants. Commissioner Michael Piwowar characterized the proposed amendments as a careful pruning.

The proposal also would revise various rules and forms by, among other things, eliminating the disclosure of risk factor examples and revising the requirement related to the description of property to focus on the materiality threshold, with the exception of the mining, real estate, and oil and gas industries where the description of property is always deemed to be material.

The proposal focuses primarily on recommendations in the FAST Act report. The staff continues to consider potential additional changes based on its other proposing releases and requests for comment.

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