We all know the drill. The investor relations community just about gets used to the latest regulation produced by the Securities & Exchange Commission, when – blast it – the SEC goes and proposes another one.
In September 2001, the commission proposed a rule that would require all foreign private issuers with publicly-traded securities in the US to file documents electronically via the SEC’s Electronic Data Gathering, Analysis and Retrieval system – affectionately known as Edgar – replacing the old paper filings with effect from some time around the middle of this year. Last month, on May 8, the SEC formally adopted the rule and announced mandatory Edgar filings for foreign issuers starting November 4, 2002.
Until now, the 1,400 foreign issuers with stocks listed on a US stock exchange had been exempt from the requirement, on the grounds that it might cause undue hardship. Edgar filing could only be performed across a dial-up connection, which was potentially expensive and often unstable – especially for foreign issuers from those parts of the globe where telecoms and IT systems tend to be less established and less robust.
‘There had been some concern in the SEC over the technical literacy of foreign companies and the costs they would face,’ confirms David Copenhafer, director of Edgar services at financial printer and filing service firm Bowne.
But that was then. Things have changed.
‘Technological advances have knocked down the barriers to the timely dissemination of information about securities listed in the US market,’ says John Nester, a spokesman for the SEC. ‘Previously, the issuer had no choice but to dial up. Now they can use the internet.’
No exemptions
Combine that factor with the general increase in computer literacy and some believe the argument in favor of the exemption has gone. The SEC also said, in adopting the rule last month, that according to the feedback it has received, mandatory Edgar filing won’t discourage non-US companies from listing on US exchanges.
So are the 82 percent of foreign companies that haven’t chosen, of their own volition, to file via Edgar now rushing frantically to comply with the electronic filing rule? Well, not really, no.
‘I’d love to be able to say that UK firms are up in arms about this, but I can’t,’ reports Andrew Hawkins, director general of the UK Investor Relations Society. ‘The reactions have been fairly sanguine.’
In continental Europe the reaction has been equally mild. ‘There has been very little said about the ruling, to be honest,’ says Thorsten Pedersen, secretary general of Danish Investor Relations Foreng.
C’est la vie
Talk to the companies whose ADRs are listed in the US (which will therefore be directly affected by the new rule) and even they share this c’est la vie attitude.
‘We’ll be doing our next 20F filing via Edgar,’ confirms Paul Heward, director of investor relations at British Energy. ‘There are a number of changes in the way you have to file documents which we have yet to do.’ Ralf Brandt, associate director of IR and PR at German insurance firm Hannover RE, confesses to knowing little about the proposed rule. ‘It doesn’t sound all that different to what we are doing already,’ he says.
Generally, overworked IROs balk at the idea of having to change their disclosure practices. So is this ready acceptance just a result of foreign issuers being less bolshy than their US counterparts?
‘No, even when Edgar filing was made mandatory for domestic issuers, there was no complaint,’ says Copenhafer. ‘As for issuers in Europe, I haven’t heard a single word of complaint out of them. They’re just saying, Tell us what we have to do and how to do it. I think they privately acknowledged that the technological knowledge and infrastructure were there.’
To say there was no reaction at all to the proposal would be unfair, however. The Consortium of Filing Agents and Software Developers (the CFASD, comprising a dozen firms including Bowne, Davis Polk & Wardwell and RR Donnelley Financial, which provide a variety of Edgar filing services) proposes that filing hours – currently set at 8 am to 10 pm Eastern – should be extended so companies everywhere can do Edgar filings during normal hours of business, in spite of the SEC’s cost considerations. The SEC says filing hours will be the same to begin with, but it is interested in gradually expanding Edgar’s hours by opening earlier.
The CFASD also believes the SEC’s company database’s outdated information and country names should be conformed to current standards. The Soviet Union is still listed, for example. Latvia and Lithuania are not. Some of the logistical concerns of Edgar filing on the net also remain.
While the SEC has stated that the costs incurred by foreign filers will be comparable to those of US domestic filers, some observers point to additional start-up costs of both time and money. These include costs of formatting and transmitting documents via Edgar, which only accepts documents in HTML 3.2 or in Ascii format (not PDF format). The extent of such costs will depend upon the technological proficiency of a foreign company as well as its level of familiarity with Edgar filing requirements.
One UK-based IRO whose company has an ADR listed on the New York Stock Exchange refuses to acknowledge that this is a problem. ‘It’s just a formatting issue,’ she says. ‘I don’t think that it’s going to cause any great problems at all.’
The CFASD was also concerned that foreign issuers would no longer be allowed to provide English document summaries as exhibits to registration statements or reports in lieu of complete translations. But the SEC has backed off on that proposal and says summary translations are fine. It has also determined that a corporate officer’s certification of accuracy won’t be a requirement. US securities law liabilities already apply, so certification doesn’t have any real benefit.
On this point, too, issuers aren’t concerned. Ralf Brandt of Hannover RE remarks, ‘Everything we file with the SEC is in English anyway,’ he says. ‘I don’t know too much about the proposed rule but I wouldn’t see a problem with it. English is such a common language and those companies that really can’t communicate in English would be unlikely to seek an ADR listing on the NYSE anyway.’
Disclosing changes
So these complaints aren’t raising anybody’s pulse, it would seem. But, come November 4 when Edgar filing becomes a reality for all non-US companies listed in the US, how will they actually be affected by the new rule?
The SEC certainly believes that the new rule will facilitate both the SEC’s review of registration statements and the dissemination of financial information about foreign issuers. It expects Edgar filing to result in greater market exposure for a foreign filer’s securities, more dependable delivery of securities documents and a faster completion of the SEC review process. It will also ensure a uniform standard for the dissemination of all material information about foreign companies, allowing investors to gather information more efficiently.
‘It will be better for investors,’ says Copenhafer. ‘And it cuts both ways. I hope that what companies will see is that their documents, information and corporate disclosures will now be so easy to access by people all over the world that it will help them to attract greater investor interest.’
As for the practical effects of a new rule, the change, it seems, won’t be too crippling. ‘What’s been mooted will, at worst, be an extra step in the process of publishing company information,’ says the IRS’s Hawkins. ‘The content of the disclosures won’t change.’
This alteration isn’t totally idiot-proof, however. ‘Getting your documents into an SEC compliant format is clearly the most difficult part,’ says Copenhafer. ‘But once you have created a document, it’s possible to change it using the SEC’s transfer software. You can even use a word processor. I’m not going to say it’s absolutely easy or that it won’t need a bit of practice, but it isn’t that difficult.’
Even if the new rule doesn’t rock the world of too may IROs, you can bet that some people will be affected. ‘What will happen is that things will change for the people who distribute this information,’ explains Andrew Hawkins. ‘This extra step will be a commercial opportunity for them, and companies like Business Wire have already latched onto this.’
And not just Business Wire. The SEC has recently made it clear that, while it still accepts both Ascii and HTML submissions for now, it will eventually require HTML for most filings. This is where Edgar filing agents will come in handy. ‘Bowne and other financial printers do provide a service,’ says Copenhafer. ‘And financial printers come in where time, a document’s size or a complexity are issues.’
For the time being, non-US issuers are certainly not kicking up a fuss. Perhaps that’s a sign of the times: relentlessly stricter disclosure standards are a fact of life for companies on the global stage, and realists nowadays know they must take them in stride.
