SEC TAKES STEPS TOWARD ACCESSIBILITY, READABILITY
Edgar Gets A Facelift
The SEC recently announced amendments to Regulation S-T in connection with the initial modernization phase of its Electronic Data Gathering and Retrieval (EDGAR) service. The changes mark the first steps of a program to simplify the 15-year-old system and increase its public accessibility.
A New Filing System. The EDGAR system automates the receipt, processing and dissemination of documents filed with the SEC. Until now, filers using EDGAR were required to submit documents in ASCII (American Standard Code for Information Interchange) format. Material submitted in ASCII is stripped of familiar formatting, such as fonts and graphics. ASCII text can be difficult to read, is generally not searchable, and, as EDGAR users are well aware, often
bears little resemblance to the original document.
In an effort to make EDGAR more user-friendly for both filers and readers, the SEC has amended Rule 105 under SEC Regulation S-T to permit filers to submit certain documents in the format of the World Wide Web, i.e., hypertext markup language (HTML). HTML documents can include varied fonts, formatting and colors, graphics, and other visual displays. HTML also allows hypertext linking, or "jumping" to another page, by clicking on a highlighted term. HTML documents filed via EDGAR appear substantially similar to the originals and are generally more appealing to the eye. HTML documents also allow the formatting improvements, such as indentation, spacing, bullet points, and highlighting that the SEC has called for as part of its plain English initiative.
Implementation Period. On June 28, 1999, the SEC began accepting official filings of HTML documents via EDGAR. Unofficial test filings of HTML documents have been accepted since late May 1999. Use of HTML for EDGAR submissions is strictly voluntary, and ASCII documents will still be accepted. Certain filings, including Financial Data Schedules, may not be submitted in HTML format.
The SEC has designated the period from June 28, 1999, until early 2000 as an HTML implementation period, and will provide limited support for HTML as it monitors the anticipated technical issues. During the implementation period, no EDGAR document submitted may contain any graphic or image material and may not contain hyperlinks to external Web sites or documents. The SEC will consider expanding the use of graphic material and hyperlinks after this implementation period.
PDF. As part of its modernization efforts, the SEC has also adopted new Rule 104 to Regulation S-T to permit filers to submit, along with their official filings, a single, unofficial PDF (portable document format) copy of each electronic document. PDF documents retain all of the fonts, formatting, colors, images and graphics of the original
document. While PDF submissions are unofficial and may not be submitted without an HTML or ASCII filing, they will be used for public dissemination of hard copies. This will allow filers
to ensure that the public has access to the cleanest, most appealing version of their filing.
SEC Issues Plain English Update
The SEC recently released an updated staff legal bulletin regarding plain English disclosures. The plain English rule, which became effective on October 1, 1998, is designed to make prospectuses easier to read by requiring issuers to write in a clear and understandable manner. The SEC bulletin addresses common questions about the rule and presents sample comments. The plain English rule is set forth in Rule 421, under the Securities Act, and presently applies only to prospectuses filed under the Securities Act. All information included in such prospectuses must comply with the rule, including information incorporated by reference or reprinted from an Exchange Act filing.
Application. A posteffective amendment to a Form S-3 filed prior to the plain English requirements must comply with the plain English rule if either--
* the amendment incorporates by reference audited financial statements that are more recent than those incorporated by reference in the original registration statement or an earlier post-effective amendment; or
* the filer is required to file a new posteffective amendment because the prospectus is being used more than nine months after the effective date of the registration statement, and the information within it is more than 16 months old.
Risk Factors. Risk factors should be presented concretely, concisely, and with enough information to allow an investor to assess the degree of the risk. Each risk should be placed into one of the following categories:
* Industry risks, due to the nature of the industry in which the company operates
* Company risks, those specific to the company
* Investment risks, due to a security involved in the transaction.
In addition, boilerplate language that a given risk would have a material adverse effect on operations should be replaced with a specific discussion of those effects.
Practice Pointers. In the bulletin, the SEC provides a sampling of comments it has issued since the plain English rule took effect. In addition to the points already noted, the SEC has directed registrants to--
* use the actual name of the company, or a shortened version of it, instead of "the Company";
* refrain from using capitalized terms;
* minimize the use of footnotes;
* draft the prospectus with the uninformed shareholder in mind;
* limit information on the cover page to items key to an investment decision, and eliminate extraneous items such as par value, cascading margins, information repeated in the summary of the prospectus, and the excessive use of all capital letters; and
* limit information in the summary of the prospectus to only the highlights of the offering.
Issuers that ignore plain English principles in drafting prospectuses can expect a multitude of plain English comments from the staff. *
Adapted with permission from Corporate Securities, a bulletin of Vedder, Price, Kaufman & Kammholz, June 1999.
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