(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

SEC Plans New Corporate Disclosure Rules

As the first in a planned series of steps to improve the financial disclosure and reporting system, the SEC has announced that it intends to propose several changes in corporate disclosure rules. "These steps will provide significant improvements quickly while other proposals are considered," explained SEC Chairman Harvey Pitt. He added that "we anticipate further reform proposals covering financial reporting and disclosure requirements, accounting standard setting, regulation of the auditing process and profession and corporate governance."

Initially, the Commission is considering ways to improve public disclosure of trading activities by executive officers, directors and beneficial owners of 10 percent of a company's stock. The SEC supports a legislative solution to dramatically shorten the time in which insider trades must be reported from the current requirement to file reports up to 40 days after the trade date.

Further, the agency intends to propose that companies disclose on a current basis any significant transactions in the company's stock by their executive officers and directors. The SEC also is seeking ways to provide for electronic filing of reports of insider transactions, possibly with the companies filing electronically the information they receive from their insiders. Another proposal will be for companies to report on a current basis any transactions involving securities of the company entered into with any of its executive officers or directors. Currently, officers and directors who sell stock back to the company can delay reporting until 45 days after the end of the fiscal year in which the transaction took place.

To speed up secondary market disclosure, the SEC will propose that public companies file their annual reports on Exchange Act Form 10-K within 60 days after the end of their fiscal year. Presently, reports are due within 90 days. Quarterly reports on Form 10-Q will be due within 30 days after the end of the first three fiscal quarters as compared with the current 45 days. The significantly reduced time periods for the capture and analysis of information and significant technological advances since these time periods were last revised necessitate a new consideration of the timing of mandated disclosure to the markets, reasoned the Commission.

Since markets and investors need timely access to a greater range of important data than is currently available, the SEC intends to expand the types of information that companies must report on Form 8-K. Some of the items that the Commission is evaluating for inclusion in Form 8-K reports include:

• changes in raging agency decisions and other rating agency contacts;

• transactions in the company's securities, including derivative securities, with executive officers and directors;

• defaults and other events that could trigger acceleration of direct or contingent obligations;

• transactions that result in material direct or contingent obligations not included in a prospectus filed by the company with the SEC;

• offerings of equity securities not included in a filed prospectus;

• waivers of corporate ethics and conduct rules for officers, directors and other key employees;

• material modifications to rights of security holders;

• departures of the company's CEO, CFO, COO or president;

• notices that reliance on a prior audit is no longer permissible or that the auditor will not consent to the use of its report in a Securities Act filing;

• definitive agreements that are material to the company;

• loss or gain of a material customer or contract;

• material write-offs, restructurings or impairments;

• material changes in accounting policies or estimates;

• movement or de-listing of the company's securities from one quotation system or exchange to another; and

• material events, including the beginning and end of lock-out periods, regarding the company's employee benefit, retirement and stock ownership plans.

The Commission intends to propose that companies file reports of these events no later than the second business day following their occurrence.

In addition to the normal filing requirements, the SEC intends to propose that public companies will be required to make their Exchange Act filings available on their Web sites at the same time as they are filed.

Finally, the SEC intends to propose that companies should be required to disclose critical accounting policies in the management's discussion and analysis section of their financial statements. Critical accounting policies are those that are both most important to the portrayal of a company's financial conditions and results, and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The proposals may require public companies to include in their MD&A full explanations of 1) their critical accounting policies, in clear and understandable format and language, 2) the judgments and uncertainties affecting the application of those policies and 3) the likelihood that materially different amounts would be reported under different conditions or using different assumptions.