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White Outlines Division's 2007 Agenda

John White, the director of the SEC's Division of Corporation Finance, reviewed the Division's agenda for the coming year in remarks at a conference on securities regulation and business law in Dallas. Among the rulemaking initiatives that may soon see final action are foreign deregistration, management guidance under section 404 and electronic proxy delivery.

White reported that the staff has received 28 comment letters in response to its revised proposal on the termination of registration by foreign private issuers. The commenters have generally been supportive, he said, but some have suggested further revisions. White said the staff is reviewing the letters and hopes to return with recommendations for a final rule in the very near future.

White said the staff is very aware of the fact that foreign private issuers that are accelerated filers or large accelerated filers will be required to include one or both of the section 404 reports for the first time in the next annual report they file with the SEC. Foreign private issuers with calendar year-ends will file their Forms 20-F at the end of June. White said there likely will be a period of 60 days between the approval of a final rule and its effective date.

White referred to views that the U.S. is losing its standing in the global markets as a result of the section 404 requirements. He does not agree with those views, but does agree that the implementation of section 404 can be improved. White reported that he had spent the day before his appearance at the conference attending the PCAOB's Standing Advisory Group meeting at which the proposed revisions to the PCAOB's auditing standard for attestations of internal control were a primary topic of discussion.

The SEC's guidance for management and the PCAOB's proposed replacement for Auditing Standard No. 2 are important initiatives for improving the implementation of section 404, he said. The staff hopes that both will be available for the year-end 2007 reports.

The comment period for the proposed universal availability of electronic proxy delivery closes March 30. White said the staff hopes to receive helpful comments from the whole range of interested parties. After analyzing those comments, the staff hopes to make a prompt recommendation to the Commission.

The staff is developing a plan to conduct targeted reviews of the new executive compensation disclosure and plans to issue a report in time for the next proxy season. The staff is also reviewing comments submitted in response to the interim final amendments to the rules that were adopted in December. White advised that the comments and the targeted reviews could result in rulemaking refinements for the next proxy season.

The staff has been looking at possible rulemaking with respect to shareholder access to corporate proxies for the past six months, according to White. He referred to the issue as "the elephant in the room" at every conference at which he speaks. The Division has been working on a proposal to address the issues raised by the Second Circuit in AFSCME v. AIG, he said, and shareholder access to proxy statements in general. The project has proved more difficult than originally anticipated, according to White. The goal is to act in time for the 2008 proxy season.

The SEC's interactive data initiative is one of great importance to SEC Chairman Christopher Cox, according to White. The SEC will hold another in its series of XBRL roundtables in March. The SEC is considering the application of interactive data tags to some of the new executive compensation disclosure to provide to users on a demonstration basis. White said the demonstration would showcase the potential of XBRL.

The staff is focusing on some of the disclosure associated with private investment, public equity offerings, known as PIPEs. The staff's concerns are with convertible securities that convert into a large number of common shares relative to the issuer's outstanding shares, and where there is insufficient disclosure about the market impact and cost of the transactions, White explained. The staff is also concerned that the shelf registration system is used in circumstances that were not intended by the rules. White made clear that the staff is not reconsidering its approach to PIPE transactions, but is addressing developments where convertible note transactions are structured in an abusive manner.

Another initiative under consideration is whether to adopt a rule to require companies to report on Form 8-K when they determine that the public should not rely on previously filed financial statements. Some companies have reported the information in periodic reports rather than on Form 8-K, a practice referred to as "stealth restatements." The staff hopes to have a recommendation ready for Commission consideration in the next few months.

The staff continues to review the recommendations of the Advisory Committee on Smaller Public Companies. White said a number of initiatives may be relatively easy to adopt, such as the electronic filing of Forms D. The staff continues to study the other proposals and may have recommendations by this summer. White added that he has learned not to make that kind of promise.

White also talked about the redesign of the Division's Web site and said the staff is in the process of updating all of its guidance. He expects that all of the guidance will be updated within the next six months. The Web site will include all of the staff's opening statements at every public meeting during his tenure, which White said is one of his key initiatives.

Jacquelyn Lumb