Is it time for more deregulation at the SEC? With a new chairman and a recent move to deregulate in one area, is it time to ask the SEC to consider a second (but much smaller) deregulatory action: eliminating the second phase of accelerated 10-K and 10-Q filings?

• Author: Copenhafer, David
• Position: Governance

Last June, the U.S. Securities and Exchange Commission (SEC) approved the release of final rules for what it hailed as a significant deregulatory initiative--new rules designed to streamline the offering process. The commission was obviously pleased with itself, as it discussed the new rules at an open meeting. Most observers would probably agree that the chairman at the time (William Donaldson) and commissioners had every right to give themselves a pat on the back for acting not only to make the process of capital formation a bit easier, but to preserve the levels of disclosure needed to ensure investor protection.

It's an unfortunate fact of life, but regulation usually means an ever-expanding set of rules and guidelines that almost always make life more complex, more difficult and more expensive for the regulated. SEC rules are no exception. Nevertheless, as the SEC's 28th Chairman, Christopher Cox, (confirmed in August) aptly observed in his introductory remarks to the commission's staff on August 4, that while investor protection comes first at the SEC, "... it is not necessary for the interests of investors and the interests of business to be in conflict." He further suggested that these are not mutually exclusive, and, in fact, often embrace the same objective.

Given that the SEC has just approved one significant deregulatory move, and the new chairman immediately addressed the need to balance the interests of business with the interests of investors, one wonders if this is this not perhaps a good time to ask the SEC to consider a second (but much smaller) deregulatory action: eliminating the second phase of accelerated 10-K and 10-Q filings.

Recall that shortly after the collapse of Enron in late 2001, both the SEC and Congress concluded generally that "faster is better" when it comes to corporate reporting and disclosure. The first changes along these lines were made to Section 16 reporting. As prescribed by Section 403 of the Sarbanes-Oxley Act of 2002, the SEC issued final rules that August that immediately brought reporting deadlines under Section 16 down to two days following a trade by an officer or a director. This was from the prior requirement that allowed reports to lag events by as much as a month.

Another set of reporting requirements to get the faster-is-better treatment led to the complete overhaul of current-event reporting on Form 8-K. Although not issued in final form until March 2004, the new 8-K rules increased...