Securities reporting, SEC regulation

1. CONCEPTRELEASE: BUSINESSAND FINANCIALDISCLOSUREREQUIREDBY REGULATION
Request
comment
number
Personal comments
145 SEC shouldrevise itsrulestorequire thatriskfactorbe accompaniedbyspecifieddiscussionof howthe
registrantisaddressingthe risk
146 Registrantcan discussthe effectonperformance forriskfactorif it’smaterial. SECcan ask registrantto
discussthe extentof riskanditspotential impactonfuture financial conditionandoperatingresults,disclose
the anticipatedrisks andtheirpotential impactonfinancial conditionandresultsof operation,describe the
quantitative andqualitativemagnitude of those risksincludingpotential costs,disclose if the registrant
recognize anyrisksfactorswithmaterial effect,describe the adequacyof preventive actiontakentoreduce
thse risksinthe future,describe the costsforremediation,protectionandlitigationaswell investigations,
describe howthe registrantaddresseseachof those risksandotherrelatedandcontingencyconsequences,
describe the risksandtheirimpactsonfuture declines,disclose anyriskmanagementstrategiesputinplace
by registrantandany limitationsontheireffectiveness,describe the methodsandquantifiedparameters
usedto monitorandcontrol riskmanagementactivities
147 SEC can modifyitsrulestorequire registrantstodisclose the specificfactsandcircumstancesthatmake a
givenriskmaterial tothe registrants. Witha guidance of prescriptive checklists,registrantwill be as
transparentas possible abouttheseriskfactors. But,SEC shouldnotrequire registranttoeitherrate or
prioritize theseriskfactors
148 Vaguenesscanincrease the opacityof the informationfromaregistrant’sriskfactors. Itisnot aboutthe
lengthof the information,itisaboutitsquality. If itisclear,it will be desirable andattractive tothe investing
publicandunderstoodbythem.
149 I believethatitisnot possible forthe SECto revise itsrulestodiscourage registrantfromprovidingriskfactor
disclosure thatisnotspecificto the registrantbutinsteaddescribe risksthatare commonto an industry.
Some genericrisksfactorsare importantto investors
150 SEC can specifygenericrisksthatregistrantsare notrequiredtodisclose themif theycanidentifythem.
Anotherwayisto try to developalistof material risksif possible
151 Once the SEC developthatlistif material risks,theywill becomeapart of the new list. That saidthe newlist
will be clear,attractive andprescriptive.
152 No,SEC shouldnotrequire the registranttoidentifyanddisclose inorderits10 most significantriskfactors
because itwill require more efforts (cost) andnoreal ROI.Will itrequire more expertise andexpertsinrating
riskfactors or face SEC commentsandday in court?May be. The goal of thisprocessisto make sure that
registrantismanagingitsriskproperly. Thatsaid rankingand ratingof riskfactors can affectthe way
registrantprioritizesitsriskmanagement. Registrantscanprovide riskfactors summarybecause this
informationwill helpanaverage investorinunderstandingthese risksinafew wordseasyto ‘digest’. Itis
not that challengingif the registrantistrulymanagingthese risksthatmeansidentifythemfirst.
153 A little guidance (checklistornot) canhelp
154 If we couldpreventall the risks,we will notspendall the money,time andenergy relatedtorisk
management. Idoubtthat we can create a differentprocessthatmeansone entitystartsexperiencing
problemsthenotherscontrol andpreventthemfromreachingordamagingtheircompanies. Ibelieveany
revisionof item503c will notimprove the qualityof thatprocess
155 Sophisticatedinvestorsare more likelytovalue item503c
156 Providingthe currentitem503c informationtothe investingpublicisnottooexpensive. Aswe knowthe
cost will change forthe worse to provide anenhanceddisclosure withlimitedbenefitsfromit. We must
balance thisprocessinorderto focuson increasingitsquality,desirabilityandattractivenesstherefore

2. disclosure effectiveness
157 Yes,item305 is importanttoinvestors
158 Item305’s informationhelpsitsinvestorstoassessthe registrant’saggregate marketriskexposure. Idonot
believethatitdoeseffectivelyhelpinvestorstoassessthe impactof market risksensitiveinstrumentsonthe
registrant’sresultsof operationsandfinancial condition
159 Disclosure alternative onitem305 (a) somehow helpregistrantwithqualitative disclosureaboutmarketrisk.
These rulesdonot discourage registrantfromevaluatinganddisclosingtheirmarketrisk. Itwill be helpful if
the ruleswere more prescriptive
160 There isa needfora revisioninthe marketrisk disclosure requirementstoincludeadditional disclosure
aboutrisks.
161 Financial institutions,financial servicesand othersystemicallyimportantfinancial institutiondesignated
institutions shouldprovide anenhanceddisclosure aboutmarketriskbecause theymanage otherpeople
moneyandtheyare veryimportanttothe economy
162 Sophisticatedinvestorsare more likelytovalue the informationrequiredbyitem305
163 The cost of providing item305 disclosure thatmeanstracking,collecting,assessing,reviewingand
disseminatingthisdisclosureishuge because itdoesnottolerate mistake inanuncertainfuture. The costs
will increase withdemandforenhanceddisclosure. Unfortunately,I cannotquantifythese costs.
164 Since the Clintonera,the worldof complex structuredfinancial transactionhave witnessedthe birthsof
numerousresearchpapersandfindingsrelatedtothe understandingof evaluation,monitoringand
managementof marketrisk. We have moral,intellectual andprofessional obligationstoreview,assessand
selectthe bestof the intellectual propertiesandadjustthe rulestothisnew reality. Icannotsay what will fit
as alternative disclosures,butthe restwill be decidedbythe reviewteaminthe bestinterestof investors
165 It dependsof the size andproductsof the registrants
166 No,for commonalityreasons,we don’tneedamanagementorientedapproachbecause all of the registrants
will provide differentandconfusingdisclosuretotheirinvestors,itiswhywe mustmake sure that we couple
thisrule to prescriptive requirements
167 No,item305 is not repetitive toRule 4-08 of Reg S-X. The rule 4-08 requiresthatdisclosuresregarding
accountingpoliciesshallincludedescriptionsof the accounting usedforderivative financialinstrumentsand
derivative commodityinstrumentsandthe methodof applyingthosepoliciesthatmateriallyaffectthe
determinationof financialposition,cashflows,orresults of operations.While item305 rule generally
requiresdisclosuresdisclosure of quantitativeandqualitative marketriskmeasuresof financialinstruments
heldandissuedbylarge publiccompanies.Itdoesnotmeanthe policiesaspectonly. Item305 is notfound
inits full elsewhere inthe registrantfiling. Investorsbenefitfromdisclosure aboutmarketriskexposure
outside of the auditedfinancial statements
168 The problemisnot thatthe rulesallow standardizedoptional methodsof disclosure,the true problemisthat
the rule doesnot provide proceduresspecifyinghow tocomplywitheachalternative. Curingthis
malpractice will resultincomparabilityinthe disclosure acrossregistrantsadoptingspecifiedmethod. A
lookat the CDI, Market RiskDisclosure,datedJuly31,1997 provide some guidance aboutkeyassumptions
necessaryforthe understandingof the tabularpresentation(Q&A 43), sensitivityanalysis(Q&A 50) and
value at riskdisclosures(Q&A 60)
169 SEC can revise the rules torequire registrantstodescribe theirriskmanagementprocess. Itwill make sense
to require registrantsmostlythosewithnoorinsignificantrisktodisclose how theyprevent,monitorand
evaluate risks
170 Once again,I believe thatitwill make sensetorequire registrantstodescribe theirassessmentof anyrisk
managementprocesstheyelect. Afteryearsof targetedreview of these disclosure,SECwill probablycome
up withbetterguidance (specifictothe industryorglobal)
171 Registrantswithcomplex riskmanagementapproachesorprocessesshouldhave anERM(Enterprise risk

3. Management) policiesinplace,describingitwill be appropriateandmaterial informationtoitsinvestorsand
the investingpublic
172 Registrantsshouldalsodisclose anymaterial change orwaiverof riskmanagementapproach
173 Registrantsshouldidentifyfortheirinvestorsmaterialprimaryriskexposuresnotalreadyaddressedand
disclose tothemanyactionstakento manage those risks
174 The bestway to help investorsunderstandintegrateddiscussionof riskmitigationwill startwithrisk
exposure andthenmitigation(interestrisk,riskexposure,monitory,preventive control,detectivecontrol,
reputational risk,foreignexchange risk,franchise risk,equity risk,custodianrisk,regulatoryriskif applicable,
transferof riskand control,identifyrisk,describeitsmanagement,describe how itminimizerisk and
potential impact,describe the role of the BoD,segregationof duties). Managementshouldalsodisclose
theirviewsaboutthe material riskexposure andhow riskmitigationactionsare connected
175 Like I saidSEC shouldrevise itsrules toinsertthe disclosure aboutthe extentof aBoD’s oversightof risk
fromitem407(h) or somethingclose toitem407(h). But, there isno material reasontoprovide any
compensationriskdisclosure tohandicapCDA.
176 Item305(b)(1)(ii) statesthat“how thoseexposuresaremanaged. Such descriptionsshallinclude,butnot
limited to, a discussion of the objectives,generalstrategies,and instruments,if any,used to managethose
exposures;”,Ibelieve thatSECcan require registrantstoprovide thistype of disclosure inlieuof disclosure of
theireffortstomanage or mitigate eachriskfactor. The disclosure of strategiescanpose competitive harm
to the registrantif it’sexecutedimproperly
177 Too much informationaboutriskmitigationwill nothelpinvestorstounderstandthe significance of risk
especiallywhenitisprovidedinaboilerplatelanguage. Itispossible thatrequiringregistrantstoexplain
howit addressesadisclosedriskcanreduce numberof genericorinsignificantrisksdisclosures.
178 Again,SEC can require registrantstoaddressmitigationormanagementof eachriskfactor as part of the risk
managementdiscussionwhile allowingacross industryreference tothe appropriate portionsof MD&A or
financial statement
179 Yes,SEC shouldrequire registrantstodisclose theirknownuncertaintiesabouttheirriskmanagementand
riskmanagementpoliciesandtheirimpactonthe registrantfinancial condition,resultsof operationsand
future prospects
180 SEC shouldconsideradrasticchange witha revisionof rulestocreate anitemfocusingonprovidinga
consolidateddiscussion of riskandriskmanagementincludinglegalproceedinginasingle filing. Thatmeans
a consolidationof itemsIA,3,7A andother riskrelateddisclosures
181 The benefitsforinvestorsare thattheywill have all risksinone item, readerswillnotneedtofurnishmore
effortstosearcha lotof locationstounderstandall the risks. Itwill be like CDA-Compensationdiscussion
and analysis. The challengeisthatitmay turn outto be toolong to ‘digest’
182 The cost of buildingacomprehensiveconsolidateddiscussionof risksisrelated tonew ideas(newformat,
newlearning);the breakingevenwill be whenSECwill startissuingcomment lettersaboutthisdisclosure. I
believethatsophisticatedinvestorswillapprove thisideaandwill nothold 1sttimersaccountable totheir
mistakes. Itwill be like waitandsee inthe investingpublic