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SEC Meeting on Electronic Submissions

U.S. Securities and Exchange Commission

Open Meeting

Wednesday, March 22, 2023

Topline

  • Commissioners voted unanimously to approve the staff’s recommendation on the proposal related to electronic submissions for filers under the Exchange Act.

ITEM 1: Electronic Submission of Certain Materials Under the Securities Exchange Act of 1934; Amendments Regarding the FOCUS Report

The Commission will consider whether to:

  1. Propose to require the electronic filing or submission on the Commission’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system, using structured data where appropriate, of several forms, notices, and reports required under the Exchange Act;
  2. Propose to rescind Form 19b-4(e) and require the information currently contained in Form 19b-4(e) instead to be publicly posted on the listing self-regulatory organization’s website; and remove the requirement in Form 19b-4 for a manual signature and the related manual signature retention requirement;
  3. Propose to amend the Commission’s Informal and Other Procedures to reflect that Form 1 and Form 1-N would be submitted electronically and to make certain technical revisions;
  4. Propose to amend the requirement for supplemental materials for registered clearing agencies to require that a clearing agency post to its website the required supplemental information, rather than submit such material in paper copy to the Commission;
  5. Propose to allow electronic signatures in certain broker-dealer filings and propose amendments regarding the Financial and Operational Combined Uniform Single Report  (Form X-17A-5) to harmonize with other rules, make technical corrections, and provide clarifications; and
  6. Propose to require that notices made pursuant to Rule 3a71-3(d)(1)(vi) be withdrawn in specified circumstances.

Staff Discussion

David Saltiel, Division of Trading and Markets

Saltiel introduced the proposal to modernize the delivery of certain forms, filings, notices, and other materials made my registrants pursuant to the Securities Exchange Act of 1934. He explained that today’s recommendation is part of the SEC’s response to COVID-19, during which electronic submissions of filings, forms, and other submissions were proven to be practical and efficient. He said that based in part on these positive experiences during the pandemic, and as part of modernization efforts, the staff is proposing amendments to require electronic filing submissions that are required to be filed or submitted under the Securities Act. Saltiel said the amendments will modernize the provisions of this information and methods of analyzing it and would require the use of structured data where appropriate. Finally, he stated that the proposal should expedite Commission staff access to these materials, improving the Commission’s ability to oversee securities markets and streamlining the submission process for these materials.

Raymond Lombardo, Division of Trading and Markets

Lombardo explained the proposal in more detail. First, he said that self regulatory organizations (SRO) would be required to file the following forms on EDGAR electronically: 1, 1-N, 15A, and CA-1. Second, he said that broker dealers, security-based swap dealers, and major security-based swap participants would be required to file form X-17A-5 Part 3 on EDGAR. Broker dealers would file form 17-H on EDGAR. Third, the Commission would rescind form 19b-4(e) and require an SRO to list the information publicly on its website. It would also remove manual signature requirements to the form which is already electronically filed. Fourth, the proposed amendments would eliminate the requirements to file certain clearing agency materials in paper with the SEC, and instead they would be required to post materials to internet websites. Fifth, registrants would be required to use EDGAR for notices related to a change in SRO membership, notices made pursuant to Rule 17a-19, security-based swap valuation dispute notices, annual chief compliance reports, and withdraw of notices pursuant to rule 3a71. Sixth, notices made pursuant to Rule 3a71-3(d)(1)(vi) would be withdrawn in specified circumstances. And finally, the proposed amendments would require the use of certain machine-readable data language in preparation of filings, forms, and notices.

Jessica Wachter, Division of Economic and Risk Analysis

Wachter began by explaining that the 1934 Exchange Act rules and regulations require the submission of flings, and today’s proposal considers allowing these to be submitted electronically. She noted that in some cases where there is a paper or electronic option, registrants would be required to submit electronically. She continued by stating that it is more efficient to process a form submitted electronically in machine readable format, as machine readability reduces costs in accessing and processing. As it relates to costs, Wachter said the Division expects some registrants would have to pay initial cost to update systems or use outside groups to file electronically.

Commissioner Questions and Comments

Commissioner Hester Peirce

Peirce began by stating that the proposal represents an important step in the transition to electronic filing, and she supports it. She said technologies have contributed to making markets more efficient, faster moving, and more accessible to investors, but paper filings can be cumbersome for firms to prepare and for investors and regulators to use. She continued by noting that today’s proposal would move a number of forms to electronic format, which would reduce compliance burdens. She also expressed concerns about registrants’ ability to devote attention to this proposal, however, as they have been overloaded by a wide swath of regulations. Peirce asked for commenters to respond to a number of questions, including how the substantive changes on where certain information is published would impact the required filings, whether it is prudent to embed overly prescriptive standards on the use of structured data, and whether the proposal gets the balance right between costs and benefits.

Peirce also asked the staff if it makes sense to have data that is only meant for the Commission in structured data form. Wachter said that these changes will benefit the Commission because it is more efficient to process forms that are machine readable. Wachter noted that the Commission has used this in recent releases but added that there is a request for comment on it. Peirce also asked if it makes sense to propose specific data standards in the rulemaking. Megan Barbero, the General Counsel, replied that the proposal contains some specific requirements but noted that it is out for comment and staff looks forward to commenters weighing in on the issue. She added that it would be a little premature to make a determination about what could be important in the future, so future Commissions can consider those guidance questions.

Peirce closed by arguing that the Commission should consider building in more generic requirements and listing principles with guidance around the kinds of technologies people can use, so that is easier to change later.

Commissioner Caroline Crenshaw

Crenshaw said the proposal consists of commonsense updates to filing procedures for certain Commission forms. She added that these changes would build upon the success of electronic filing during the COVID-19 pandemic, which has proven to be practical and efficient for staff and has been well received by registrants. Crenshaw also said that the changes would not result in any individuals losing access to paper delivery, since these forms are only submitted to the Commission. She expressed her support for this much needed modernization.

Commissioner Mark Uyeda

Uyeda opened by stating that the Commission is on the right trajectory in transitioning filings to electronic. He said the technological revolution suggests that paper processes can be tied to unnecessary costs. He also noted that transparency is at the heart of the Commission’s regulatory model, and information should be readily available to intended beneficiaries. Requiring machine readability of the disclosures would enable more efficient retrieval and aggregation, he said. Uyeda also argued that electronic submission can expedite the availability of public disclosures, which improves price efficient of markets. He concluded by noting that this switch to electronic is needed, but the Commission may have not gotten this transformation exactly right so comments will be important.

Commissioner Jaime Lizarraga

Lizarraga stated that the SEC is taking another step to keep up with technological change in capital markets. He noted that relief during COVID-19 worked well, and the proposal builds on this success to facilitate more efficient analysis. He also said the proposal should facilitate more efficient review and analysis by investors. To conclude, Lizarraga expressed his support for the proposed amendments, and he encouraged the public to participate in the comment process.

Chair Gary Gensler

Gensler said that today’s proposal would advance the Commission’s effort to modernize filings for a wide range of registrants. He noted that paper certificates for U.S. treasuries have long been a thing of the past, adding that in 2023 one might think all filings to the Commission could be made electronically, but that is not true. He continued by noting that the proposal builds on a long line of Commission actions and provides the opportunity to require electronic filing for nearly all the remaining filings required under the Exchange Act. Gensler said this would help the SEC to more quickly analyze filings to ensure compliance with Congress’s rules. He also said that the proposal would save registrants and the Commission time and resources and modernize how the SEC processes important filings from brokers and other registrants. Finally, in response to Peirce’s comments, Gensler said he feels comfortable proposing this and hearing from the public about the standards. He noted that standardization helps lower cost sand comparability but said he also appreciates the comments about flexibility.

Vote

The item was approved unanimously.

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.