[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Proposed Rules]
[Pages 41877-41890]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15571]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240 and 249

[Release No. 34-46079; File No. S7-21-02]
RIN 3235-AI54


Certification of Disclosure in Companies' Quarterly and Annual 
Reports

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We propose to require a company's principal executive officer 
and principal financial officer to certify that, to their knowledge, 
the information in the company's quarterly and annual reports is true 
in all important respects and that the reports contain all information 
about the company of which they are aware that they believe is 
important to a reasonable investor. In addition, we propose to require 
a company to maintain procedures to provide reasonable assurance that 
the company is able to collect, process and disclose the information 
required in the company's quarterly and annual reports, as well as 
current reports on Form 8-K, and also to require periodic review and 
evaluation of these procedures. We believe that it is important both to 
the quality of disclosure and investor confidence for a company's 
principal executive officer and principal financial officer to provide 
the proposed certification and for companies to maintain procedures 
that enable the company to satisfy its disclosure obligations under the 
federal securities laws and that are subject to periodic evaluation by 
senior management.

DATES: Comments should be received on or before August 19, 2002.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0609. Comments also may be submitted 
electronically at the following electronic mail address: [email protected]. All comment letters should refer to File No. S7-21-
02; this file number should be included in the subject line if 
electronic mail is used. Comment letters will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, NW., Washington, DC 20549. Electronically submitted 
comment letters will be posted on the Commission's Internet website 
(http://www.sec.gov).\1\
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    \1\ We do not edit personal identifying information, such as 
names or electronic mail addresses, from electronic submissions. You 
should submit only information that you wish to make availabale 
publicly.

FOR FURTHER INFORMATION CONTACT: Mark A. Borges, Special Counsel, or 
Elizabeth M. Murphy, Chief, Office of Rulemaking, at (202) 942-2910, 
Division of Corporation Finance, U.S. Securities and Exchange 
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Commission, 450 Fifth Street, NW, Washington, DC 20549-0312.

SUPPLEMENTARY INFORMATION: We are proposing new Rules 13a-14,\2\ 13a-
15,\3\ 15d-14 \4\ and 15d-15 \5\ under the Securities Exchange Act of 
1934 (``Exchange Act'') \6\ and amendments to Forms 10-Q,\7\ 10-QSB,\8\ 
10-K \9\ and 10-KSB \10\ under the Exchange Act and to Rule 302 of 
Regulation S-T.\11\
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    \2\ 17 CFR 240.13a-14.
    \3\ 17 CFR 240.13a-15.
    \4\ 17 CFR 240.15d-14.
    \5\ 17 CFR 240.15d-15.
    \6\ 15 U.S.C. 78a et seq.
    \7\ 17 CFR 249.308a.
    \8\ 17 CFR 249.308b.
    \9\ 17 CFR 249.310.
    \10\ 17 CFR 249.310b.
    \11\ 17 CFR 232.302.
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I. Introduction

    Our system of federal securities regulation is based on full and 
fair disclosure. Congress, in enacting the federal securities laws, 
embraced full disclosure as the best way to permit markets to allocate 
capital. For this system to function most effectively, investors must 
have access to disclosure that is clear, accurate and timely.
    The Exchange Act requires companies to make information publicly 
available to investors on a continuing basis to aid in their investment 
and voting decisions.\12\ In addition, we permit seasoned issuers (that 
is, companies that have been subject to the reporting requirements of 
the Exchange Act for an extended period of time) to incorporate 
information from their Exchange Act reports into their registration 
statements filed under the Securities Act of 1933.\13\ Therefore, 
investors purchasing securities from these companies in public 
offerings also rely on the companies' Exchange Act disclosure.
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    \12\ See Release No. 33-8089 (Apr. 12, 2002) [67 FR 19896] at n. 
11. The Exchange Act reporting system contemplates an ongoing 
disclosure system for the purpose of ``keep[ing] reasonably current 
the information and documents required to be included or filed with 
the application or registration statement filed pursuant to Section 
12.''
    \13\ 15 U.S.C. Sec. 77a et seq.
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    Investors depend on companies' quarterly and annual reports to 
present a clear picture in all important respects of the company's 
business and financial condition. Investors trust and rely upon a 
company's management to ensure that these reports are accurate. Unless 
this belief is well-founded, we risk an erosion of investor confidence 
in our securities markets.
    Our existing antifraud and disclosure rules are designed to elicit 
full and fair corporate disclosure. Questions have arisen as to whether 
senior corporate officials devote sufficient attention to the 
preparation of their companies' quarterly and annual reports and to the 
internal procedures that generate the data from which they are 
prepared. We are concerned that investor confidence has suffered 
because of a real or perceived absence of such participation. We 
believe that it is important both to the quality of disclosure and 
investor confidence for senior executives to provide assurance that 
they have reviewed and evaluated the information contained in their 
companies' quarterly and annual reports. We therefore propose to 
require a company's principal executive officer and principal financial 
officer each to certify that, to his or her knowledge, the company's 
quarterly and annual reports are true in all important respects and 
that the reports contain all information about the company of which he 
or she is aware that he or she believes is important to a reasonable 
investor.\14\
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    \14\ See proposed Rules 13a-14 and 15d-14. Our proposal is 
consistent with President Bush's objective to make corporate leaders 
more accountable to the investing public by requiring a company's 
senior executives to certify to their security holders that all of 
the information about the company known to them that a reasonable 
investor would consider important in making a decision to purchase 
or sell a security of the company has been disclosed, completely, 
fairly and in an understandable format. See Remarks of President 
George W. Bush at the Malcolm Baldrige National Quality Award 
Ceremony, March 7, 2002, available at http://www.whitehouse.gov/ 
news/releases/2002/03/20020307-3.html.

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[[Page 41878]]

    Companies also must have internal communications and other 
procedures to ensure that important information flows to the 
appropriate collection and disclosure points on a timely basis. Given 
the growing size, complexity and sophistication of corporate 
organizations and operations and the increasing importance of timely 
information, we believe that it is necessary and appropriate, in 
furthering our investor protection mission, to propose requiring 
companies to maintain these procedures and to periodically evaluate 
them. We also believe that management should supervise these periodic 
evaluations and that the company's principal executive officer, 
principal financial officer and members of the company's board of 
directors should review the evaluations.\15\
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    \15\ See proposed Rules 13a-15 and 15d-15.
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II. Proposed Rules

A. Certification of Disclosure in Quarterly and Annual Reports

1. Reasons for Proposal
    Investors require accurate and materially complete information to 
make informed investment and voting decisions and to ensure that 
capital is allocated efficiently to business enterprises. While our 
corporate disclosure system is the best in the world, it can be better. 
Where it is practicable, existing disclosure practices should be 
improved to better suit the needs of investors and to ensure the 
integrity and fairness of the securities markets. We believe that a 
company's senior management should be intimately involved in these 
practices and that investors would benefit from seeing evidence of that 
involvement.
    In 1977, the ``Report of the Advisory Committee on Corporate 
Disclosure to the Securities and Exchange Commission,''\16\ which led 
to the establishment of the integrated disclosure system, first 
advanced the idea of requiring senior executives to review the Exchange 
Act reports filed on behalf of the company they manage.\17\ This 
recommendation was based on the Advisory Committee's finding that the 
disclosures made in Exchange Act reports tended to be of a lesser 
quality than the disclosures made in Securities Act filings.
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    \16\ See Report of the Advisory Committee on Corporate 
Disclosure to the Securities and Exchange Commission (Nov. 3, 1977) 
(the ``Advisory Committee Report'').
    \17\ The Advisory Committee also suggested that the Commission 
require senior management to address and submit a report to the 
audit committee of the board of directors describing the procedures 
employed to ensure compliance with disclosure and accounting 
standards and requirements. See the Advisory Committee Report, 
Appendix B at pp. 50-54.
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    In 1980, the Commission amended Form 10-K to require that this 
report be signed on behalf of a company by the company's principal 
executive officer or officers, its principal financial officer, its 
controller or principal accounting officer and by at least the majority 
of the board of directors.\18\ While many commenters objected to the 
proposal to require directors to sign the Form 10-K, most commenters 
either did not address or did not object to the proposal to require 
executive officers to sign. The Commission adopted the proposal, 
including the director signature requirement, because it expected 
corporate officers and directors to pay more attention to the 
disclosures made in their companies' Form 10-K reports and to 
participate more fully in the preparation of these reports if they had 
to sign them.\19\
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    \18\ See Release No. 34-17114 (Sept. 2, 1980) [45 FR 63630].
    \19\ Id. at 27.
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    In our 1998 release proposing reform of the Securities Act offering 
process,\20\ we proposed revisions to the signature sections of all 
registration statements and periodic reports filed under the Exchange 
Act to mandate that the persons required to sign those documents 
certify that they had read them and that they knew of no untrue 
statement of a material fact or omission of a material fact necessary 
in order to make the statements made, in light of the circumstances 
under which they were made, not misleading.\21\ The proposals also 
would have expanded the number of corporate officials required to sign 
Forms 10-Q and 10-QSB,\22\ and other Commission filings,\23\ to include 
the principal executive officer or officers of the company and a 
majority of the board of directors of the company.\24\ We received 
several comments on these proposals. While some commenters supported 
the proposed certification requirement,\25\ a larger number opposed it, 
primarily as it related to directors.\26\ In addition, many commenters 
opposed an expansion of the signature requirements for Exchange Act 
reports.\27\ Generally, these commenters asserted that the requirements 
would impose unreasonable administrative burdens \28\ and expose 
corporate officers to increased liability.\29\
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    \20\ See Release No. 33-7606A (Nov. 13, 1998) [63 FR 67174]. In 
that release, we solicited comment on whether we should expand the 
existing signature requirements as well as require certification of 
Exchange Act reports. Comments received on that release are 
available through our Public Reference Room under File No. S7-30-98.
    \21\ Id. at Section XI.C.1.
    \22\ Id. Currently, a quarterly report on Form 10-Q or 10-QSB 
must be signed on the registrant's behalf by a duly authorized 
officer of a registrant and the principal financial officer or the 
chief accounting officer of the registrant. See General Instruction 
G to Form 10-Q and General Instruction F.2 to Form 10-QSB.
    \23\ These filings would have included Forms 8-A, 10, 10-SB, 20-
F and 40-F. See Release No. 33-7606A at Section XI.C.1.
    \24\ Id.
    \25\ See, for example, the Letter dated June 30, 1999 from the 
North American Securities Administrators Association, the Letter 
dated June 29, 1999 from the Pennsylvania Securities Commission and 
the Letter dated June 30, 1999 from the American Federation of Labor 
and Congress of Industrial Organizations.
    \26\ See, for example, the Letter dated June 30, 1999 from the 
American Corporate Counsel Association, the Letter dated July 2, 
1999 from the Financial Executives Institute and the Letter dated 
June 28, 1999 from the Ford Motor Company.
    \27\ See, for example, the Letter dated May 24, 1999 from Credit 
Suisse First Boston, the Letter dated June 30, 1999 from the John 
Hancock Mutual Life Insurance Company and the Letter dated June 30, 
1999 from the Mortgage Bankers Association of America.
    \28\ See, for example, the Letter dated September 28, 1999 from 
the American Bar Association and the Letter dated June 30, 1999 from 
Charles Schwab & Co., Inc.
    \29\ See, for example, the Letter dated March 16, 1999 from the 
Association of Publicly Traded Companies and the National Venture 
Capital Association, the Letter dated April 7, 1999 from Diamond 
Home Services, Inc. and the Letter dated June 29, 1999 from Wells 
Fargo & Company.
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    We believe that all members of a company's senior management, 
including members of the company's board of directors, should accept 
and acknowledge an active role in the disclosure that their company 
makes in its quarterly and annual reports and reinforce their 
accountability for the accuracy and completeness of this disclosure. We 
believe that any senior corporate official who considers his or her 
personal involvement in determining the disclosure to be presented in 
quarterly or annual reports to be an ``administrative burden,'' rather 
than an important and paramount duty, seriously misapprehends his or 
her responsibility to security holders.\30\ Existing antifraud law, as 
well as the disclosure rules governing documents

[[Page 41879]]

filed with or submitted to the Commission, already place responsibility 
for the accuracy and completeness of disclosure, and liability for 
failure to satisfy disclosure requirements, on corporate management and 
directors.\31\
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    \30\ We note, as the Advisory Committee did, that improved 
Exchange Act report disclosure may improve disclosure for Securities 
Act purposes, since seasoned issuers generally incorporate their 
Exchange Act reports into their Securities Act registration 
statements. Consequently, investors in general stand to benefit from 
greater involvement by members of the company's board of directors 
and senior executives in the preparation of these reports.
    \31\ See, for example, Howard v. Everex Systems, Inc., 228 F.3d 
1057 (9th Cir. 2000); SEC v. Kalvex, Inc., 425 F.Supp. 310 (SDNY 
1975).
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    We believe that expressly requiring a company's principal executive 
officer and principal financial officer to certify that they have 
conducted this kind of review of the company's periodic reports would 
cause these officials to review more carefully the disclosure in their 
companies' quarterly and annual reports and to participate more 
extensively in the preparation of these reports. We expect that the 
quality and transparency of this disclosure would improve as a result 
of this type of mandated review. As discussed below, we do not believe 
that the proposed certification would create any untoward risk of 
increased individual liability for the certifying officers. Finally, 
unlike the 1998 proposals, we do not propose to require additional 
corporate officials to sign a company's quarterly and annual reports. 
We do, however, propose to require a company's principal executive 
officer to certify the company's quarterly reports.\32\
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    \32\ While we propose to require the principal executive officer 
to sign the certification included in a quarterly report, we do not 
propose to require the principal executive officer to otherwise sign 
the report. Similarly, if a company's chief accounting officer signs 
the company's quarterly reports, the principal financial officer 
only would have to certify, but not otherwise sign, the reports.
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2. Description of Proposal
    We propose to add an explicit certification requirement in 
connection with the filing of quarterly and annual reports pursuant to 
the Exchange Act.\33\ Under our proposal, a company's principal 
executive officer and principal financial officer each would have to 
certify in an annual report that:
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    \33\ The proposal relates to Exchange Act Forms 10-Q, 10-QSB, 
10-K and 10-KSB.
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     He or she has read the report;
     To his or her knowledge, the information in the report is 
true in all important respects as of the end of the period covered by 
the report; and
     The report contains all information about the company of 
which he or she is aware that he or she believes is important to a 
reasonable investor as of the end of the period covered by the 
report.\34\
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    \34\ As permitted under our rules, a registrant may satisfy its 
disclosure obligations under Part III of Forms 10-K and 10-KSB by 
incorporating the required information by reference from its 
definitive proxy or information statement, if that statement 
involves the election of directors and is filed not later than 120 
days after the end of the fiscal year covered by the annual report. 
See General Instruction G(3) to Form 10-K and General Instruction 
E(3) to Form 10-KSB. For purposes of this provision, the 
certification in the annual report on Form 10-K or 10-KSB would be 
considered to cover the Part III information in a registrant's proxy 
or information statement as and when filed.
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    The proposed certification also would contain a statement 
explaining that information would be ``important to a reasonable 
investor'' if:
     There is a substantial likelihood that a reasonable 
investor would view the information as significantly altering the total 
mix of information in the report; and
     The report would be misleading to a reasonable investor if 
the information was omitted from the report.
    The certification in a quarterly report would be similar, but would 
take account of the narrower disclosure required in these reports. 
Because quarterly report disclosure requirements include financial 
statements and management's discussion and analysis of financial 
condition and results of operation, the certification clearly addresses 
areas that we believe are important to investors.
    We intend the proposed certification to reflect the current 
disclosure standards for ``material'' information.\35\ We believe that 
the certification faithfully follows the standard of ``materiality'' as 
set out in the leading cases on the subject, TSC Industries, Inc. v. 
Northway, Inc.\36\ and Basic, Inc. v. Levinson,\37\ namely that 
information is material if ``there is a substantial likelihood that a 
reasonable shareholder would consider it important'' in making an 
investment decision.\38\ To fulfill the materiality requirement, there 
must be a substantial likelihood that a fact ``would have been viewed 
by the reasonable investor as having significantly altered the ``total 
mix'' of information made available.'' \39\ In addition, the 
certification follows the general materiality standard contained in 
Exchange Act Rule 12b-20.\40\ The certification would, however, speak 
in terms of the officers' knowledge and belief. A principal executive 
officer or principal financial officer providing a false certification 
potentially could be subject to Commission action for violating Section 
13(a) of the Exchange Act \41\ and to both Commission and private 
actions for violating Section 10(b) of the Exchange Act \42\ and 
Exchange Act Rule 10b-5.\43\
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    \35\ In other words, we do not intend for the proposed 
certification to establish a standard of materiality that does not 
already exist under current law.
    \36\ 426 U.S. 438 (1976).
    \37\ 485 U.S. 224 (1988).
    \38\ TSC Industries, Inc. v. Northway, Inc., at 449. See Basic, 
Inc. v. Levinson, at 231 (materiality with respect to contingent or 
speculative events will depend on a balancing of both the indicated 
probability that the event will occur and the anticipated magnitude 
of the event in light of the totality of company activity).
    \39\ Id.
    \40\ 17 CFR 240.12b-20. This rule states that ``[i]n addition to 
the information expressly required to be included in a statement or 
report, there shall be added such further material information, if 
any, as may be necessary to make the required statements, in the 
light of the circumstances under which they are made not 
misleading.''
    \41\ 15 U.S.C. 78m(a).
    \42\ 15 U.S.C. 78j(b).
    \43\ 17 CFR 240.10b-5. See also Virginia Bankshares, Inc. v. 
Sandberg, 501 U.S. 1083 (1991).
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    We do not believe that the proposed certification requirement would 
change the underlying liability standard as to materiality or create an 
unacceptable risk of increased liability for a company's principal 
executive officer and principal financial officer. These senior 
officers already are responsible as signatories for their company's 
disclosure under the Exchange Act liability provisions \44\ and can be 
liable for material misstatements or omissions under general antifraud 
standards \45\ and under our authority to seek redress against those 
who cause or aid or abet securities law violations.\46\ The proposed 
certification requirement would reinforce the responsibility of these 
corporate officers to security holders for the content of companies' 
quarterly and annual reports.\47\ Similarly, the proposed rule is not 
intended to affect other existing bases of liability for principal 
executive officers and principal financial officers or to increase, 
decrease or otherwise alter the potential liability of other corporate 
officers and directors, whether or not signatories, who are not 
required to provide the proposed certification.
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    \44\ See Sections 13(a) and 18 of the Exchange Act [15 U.S.C. 
78m(a) and 78r].
    \45\ See, for example, Howard v. Everex Systems, Inc., 228 F.3d 
1057 (9th Cir. 2000) (a corporate officer who signs a Commission 
filing containing representations ``makes'' the statement in the 
filing and can be liable as a primary violator of Section 10(b) of 
the Exchange Act).
    \46\ See Sections 20, 21, 21C and 21D of the Exchange Act [15 
U.S.C. 78t, 78u, 78u-3 and 78u-4].
    \47\ To further emphasize the importance of the proposed 
certification, a principal executive officer or principal financial 
officer would not be permitted to have the certification signed on 
their behalf pursuant to a power of attorney or other form of 
confirming authority. The certifications also would be subject to 
the signature requirements of our rules. See the proposed amendment 
to Rule 302(a) and (b) of Regulation S-T [17 CFR 232.302(a) and 
(b)].
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    In addition, as noted above, by its terms, the proposed 
certification is subjective in nature, in that it is limited

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to the knowledge of the principal executive officer and the principal 
financial officer and to their belief as to whether the information 
would be important to a reasonable investor. The principal executive 
officer or principal financial officer would not, as a result of the 
proposed certification requirement, have to separately inquire as to 
information not known to him or her by virtue of his or her 
certification of the contents of the company's periodic reports.\48\ In 
summary, our proposal is consistent with an appropriate level of 
liability where a principal executive officer or principal financial 
officer fails to review his or her company's quarterly or annual 
reports or certifies the accuracy and completeness of these reports 
when, based on his or her knowledge and belief, the certification is 
false. We believe that these corporate officers should be involved in 
the approval process for these reports and that they should not approve 
them without first reviewing them thoroughly and thinking critically 
about the disclosure that they should contain. Similarly, while these 
corporate officers would not have to undertake a separate inquiry as to 
information not known to them, their critical review of a report would 
necessarily include other inquiries where appropriate, including, 
without limitation, regarding disclosures they do not understand or the 
materiality of information known to them.
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    \48\ This is not meant to change the current duty of inquiry by 
corporate officers and directors in connection with the discharge of 
their duties. See, for example, In re W.R. Grace & Co., Release No. 
34-39157 (Sept. 30, 1997); In re Cooper Companies, Inc., Release No. 
34-35082 (Dec. 12, 1994); SEC v. Starr Broadcasting Group, Inc., 
Release No. 34-8667 (Feb. 7, 1979).
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    While the proposed certification would be in addition to, and thus 
not alter, the current signature requirements for quarterly and annual 
reports, it would require a company's principal executive officer to 
sign the certification included in the company's quarterly reports on 
Form 10-Q or 10-QSB. Our current rules do not expressly require a 
company's principal executive officer to sign a quarterly report.\49\ 
The proposed certification is intended to ensure that both the 
principal executive officer and principal financial officer read and 
sign the report. Thus, under our proposal, the principal executive 
officer would have to sign a certification each time the company files 
a quarterly report.\50\ We believe that this proposed change is 
warranted in view of this officer's leadership role in the company and 
the importance of the information contained in the report.
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    \49\ Forms 10-Q and 10-QSB currently require the report to be 
signed on a registrant's behalf by a duly authorized representative 
of the registrant and by the principal financial officer or the 
principal accounting officer of the registrant. See General 
Instruction G of Form 10-Q and General Instruction F.2 of Form 10-
QSB. The registrant may or may not choose to have its principal 
executive officer sign as its ``duly authorized representative.''
    \50\ We do not believe that this would change the officer's 
potential liability with respect to the quarterly report.
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    Questions regarding the objectives of the proposed certification 
requirement:
     Would the proposed certification cause the principal 
executive officer and principal financial officer to be more involved 
in the preparation of quarterly and annual reports? Given that the 
principal executive officer and principal financial officer already are 
responsible for a company's disclosure pursuant to the Exchange Act, 
would the proposed certification have the desired effect?
     Would the proposed certification improve the quality of 
quarterly and annual reports? Are there other ways that we can improve 
the quality of these reports in lieu of, or in addition to, the 
proposed certification requirement?
     Would the proposed certification contribute to investor 
confidence in the accuracy and completeness of the information 
contained in quarterly and annual reports?
    Questions regarding the form of the proposed certification:
     Is it necessary to have both the principal executive 
officer and the principal financial officer certify the quarterly and 
annual reports? Should additional or different corporate officers be 
required to make the proposed certification? Should all of the 
signatories to quarterly and annual reports be required to make the 
proposed certification?
     Should the same corporate officials that currently must 
sign a company's annual reports be required to sign the company's 
quarterly reports? If not, should at least a company's principal 
executive officer be required to sign the company's quarterly reports? 
Is it incongruous to require a company's principal executive officer 
and principal financial officer to certify, but not also require them 
to sign, the company's quarterly reports?
     Should the proposed certification in an annual report be 
considered to cover the information required by Part III of Forms 10-K 
and 10-KSB that is typically incorporated by reference from a proxy or 
information statement as and when filed? \51\
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    \51\ See note 34 above.
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     Should the proposed certification requirement extend to 
amendments to quarterly and annual reports? Currently, an amendment to 
a quarterly and annual report need only be signed on behalf of a 
company by a duly authorized representative of the company.\52\ Should 
we require the same individuals that must sign the reports to also sign 
any related amendments? Alternatively, should we specify the persons 
required to sign amendments to quarterly and annual reports?
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    \52\ Exchange Act Rule 12b-15 [17 CFR 240.12b-15].
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     Should the proposed certification requirement extend to 
other documents and reports filed pursuant to the Exchange Act, such as 
registration statements on Forms 10 and 10-SB,\53\ current reports on 
Form 8-K \54\ and the portions of proxy and information statements not 
incorporated by reference into annual reports?
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    \53\ 17 CFR 249.210 and 249.210b.
    \54\ 17 CFR 249.308.
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     Does the form of the proposed language of the 
certification result in a standard for disclosure that is comparable to 
that enunciated in TSC Industries, Inc. v. Northway, Inc. and Basic, 
Inc. v. Levinson? Is that standard of disclosure appropriate? What 
alternative formulation, if any, would be more appropriate?
    Questions regarding the potential liability consequences of the 
proposed certification requirement:
     Should we specifically provide in the proposed rule that 
the certification is not intended to extend the concept of 
``materiality'' beyond that imposed by Exchange Act Rules 10b-5 and 
12b-20?
     As proposed, a false certification could give rise to 
Commission action under Sections 13(a) or 15(d). Is this appropriate?
     As proposed, a false certification could give rise to a 
cause of action under Exchange Act Rule 10b-5. Should there be 
circumstances where a false certification should not give rise to Rule 
10b-5 liability? Should we specifically provide an exemption from Rule 
10b-5 liability? If so, under what circumstances or conditions?

B. Internal Controls and Procedures

1. Reasons for Proposal
    In carrying out their responsibilities to provide accurate and 
complete information to security holders, it is necessary for companies 
to ensure that their internal communications and other procedures 
operate so that important information flows to the appropriate 
collection and disclosure points in a timely manner. In order for a 
company's management to be in a position to evaluate whether the 
company's periodic and current reports provide

[[Page 41881]]

appropriate disclosure of the company's business and financial 
performance and condition, the company must have sufficient procedures 
to bring potentially material information to the attention of 
management and others responsible for disclosure.
    Currently, reporting companies are required to establish and 
maintain systems of internal procedures and controls with respect to 
their financial information.\55\ Our proposal has a complementary 
focus; it is intended to ensure that a company maintains commensurate 
procedures for gathering, analyzing and disclosing all information that 
is required to be included in its periodic and current reports.
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    \55\ See Section 13(b)(2) of the Exchange Act [15 U.S.C. 
78m(b)(2)] and Rules 13b2-1 and 13b2-2 [17 CFR 240.13b2-1 and 
240.13b2-2].
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2. Description of Proposal
    We propose to require every company subject to the reporting 
requirements of Section 13(a) or Section 15(d) \56\ of the Exchange Act 
to:
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    \56\ 15 U.S.C. 78m(a) and 78o(d).
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     Maintain sufficient procedures to provide reasonable 
assurance that the company is able to collect, process and disclose, 
within the time periods specified in our rules and forms, the 
information, including non-financial information, required to be 
disclosed in its periodic and current reports filed pursuant to the 
Exchange Act; and
     Before the filing of its annual report on Form 10-K or 10-
KSB,
     Conduct an evaluation of the effectiveness of the design and 
operation of these procedures under the supervision of company 
management; \57\ and
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    \57\ The annual evaluation should identify, at a minimum, any 
material weakness in the company's procedures, any other deficiency 
that would significantly adversely affect the company's ability to 
collect, process or disclose required information on a timely basis 
and any material changes in these procedures, including any 
corrective actions, that the company has taken or is taking with 
regard to the identified weaknesses or deficiencies.
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     Ensure that those conducting the evaluation communicate the 
results of the evaluation to the company's principal executive officer 
and principal financial officer and board of directors.
    As previously discussed, these procedures are intended to cover a 
broader range of information than are covered by a company's internal 
procedures and controls for the processing and disclosure of financial 
information. For example, the procedures would ensure timely collection 
and evaluation of information potentially subject to disclosure under 
the requirements of Regulation S-K or S-B.\58\ The procedures also 
should capture information that is relevant to an assessment of the 
need to disclose developments and risks that pertain to the company's 
businesses.\59\ They also would cover information that must be 
evaluated in the context of the disclosure requirement of Exchange Act 
Rule 12b-20. We believe that most companies already maintain internal 
systems, either formal or informal, for gathering this information to 
satisfy their Exchange Act reporting obligations, typically in 
conjunction with their internal financial procedures and controls. The 
proposed rule would enhance investor confidence that these systems are 
adequate and are regularly monitored and evaluated to ensure that 
shortcomings are corrected. The proposed rule also would help to ensure 
that a company's systems grow and evolve with its business and are 
capable of producing quarterly, annual and current reports that are 
accurate and reliable.\60\
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    \58\ 17 CFR 229.10 et seq. or 17 CFR 228.10 et seq.
    \59\ For example, for some businesses, an assessment and 
evaluation of operational and regulatory risks may be necessary.
    \60\ Accordingly, a company that failed to maintain adequate 
procedures, review them and otherwise comply with the rule could be 
subject to Commission action for violating Section 13(a) of the 
Exchange Act even where the failure did not lead to flawed 
disclosure.
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    We are not proposing to require any particular procedures for 
conducting this evaluation. Instead, we would rely on each company to 
develop a process that is consistent with its business and internal 
management and supervisory practices. We do recommend, however, that a 
company create a committee with responsibility for considering the 
materiality of information and determining disclosure obligations on a 
timely basis. It seems logical that such a committee would report to 
senior management, including the principal executive officer and the 
principal financial officer. Officers and employees of the company who 
have an interest in and the expertise to serve on the committee could 
include:
     The principal accounting officer or the controller;
     The general counsel or other senior legal official with 
responsibility for disclosure matters who reports to the general 
counsel;
     The principal risk management officer;
     The chief investor relations officer (or an officer with 
equivalent responsibilities); and
     Such other officers or employees, including individuals 
associated with company's business units, as the company deems 
appropriate.
    Questions regarding the proposed internal procedures and controls:
     How do companies currently ensure that required 
information is reported in an accurate and timely manner? What is the 
role of senior management in this process?
     To what extent do companies already have committees of 
senior management or other procedures in place to identify and consider 
disclosure issues?
     Should the proposed rule require a company to establish a 
formal committee to identify and consider disclosure issues? If yes, 
should the proposed rule specify the composition of the committee? 
Would it be preferable for companies to establish committees that are 
comparable in terms of their composition?
     To what extent do companies already have committees of 
senior management or other procedures in place to identify and consider 
performance-related issues?
     Should the proposed rule set out specific procedures that 
companies should follow in conducting the annual evaluation of the 
effectiveness of the design and operation of a company's internal 
communications and reporting system? If so, what type of procedures are 
appropriate?
     What other mechanisms would ensure adequate procedures for 
collecting, processing and disclosing information on a timely basis?
     Should the annual evaluation contemplated by the proposed 
rule be replaced or accompanied by a duty of inquiry on the part of a 
company's principal executive officer and principal financial officer?

C. Certification as to Review of Evaluation of Reporting Procedures in 
Annual Reports

    In the case of an annual report on Form 10-K or 10-KSB, in addition 
to the statements described above, a company's principal executive 
officer and principal financial officer would have to certify that they 
have reviewed the results of their company's evaluation of the 
procedures maintained by the company to collect, process and disclose 
the information required in the periodic and current reports filed by 
the company.\61\ The proposed certification would ensure that a 
company's senior executives give appropriate attention to the company's 
means for communicating important information within the organization 
and for ensuring that its procedures for transmission of this 
information as part of the

[[Page 41882]]

company's reporting process are both reliable and timely. For example, 
these procedures may identify categories of information that are 
relevant to the disclosure required about a company's principal 
business activities and provide timeframes for the internal 
dissemination of this information so that it reaches the appropriate 
decision-makers.
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    \61\ See proposed Rules 13a-14(c) and 15d-14(c).
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    Although we propose to require only the principal executive officer 
and principal financial officer to certify that they have reviewed the 
results of their company's evaluation of its internal procedures, we 
believe that it would be beneficial if the company's board of directors 
also participates in the review of this evaluation. Not only will the 
company benefit from the different perspectives and experience of the 
directors, this participation should aid individual directors in 
fulfilling their fiduciary responsibilities to the company.
    Question regarding certification of review of evaluation of 
procedures:
     Would the proposed certification cause the principal 
executive officer and principal financial officer to be more involved 
in the oversight of a company's internal reporting system?
     Should the certification be expanded to include a 
statement regarding the substance or results of the evaluation of a 
company's internal procedures?
     Should we require directors to also certify that they have 
reviewed the evaluation of procedures? Rather than the full board, 
should a company's audit committee be required to certify that it has 
reviewed the results of the evaluation of the company's system of 
internal procedures and controls with respect to the financial 
information included in a company's periodic and current reports?
     The Corporate Accountability and Listing Standards 
Committee appointed by the New York Stock Exchange to review its 
current listing standard has recommended a certification requirement 
for the chief executive officer of listed companies.\62\ Consistent 
with this recommendation, should we require a company to certify that 
it has established procedures for verifying the accuracy and 
completeness of the information provided to investors and that those 
procedures have been carried out?
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    \62\ Under this recommendation, the chief executive officer of 
each listed company would certify each year that the company has 
established procedures for verifying the accuracy and completeness 
of the information provided to investors; that those procedures have 
been carried out; and that, based on his or her assessment of the 
adequacy of those procedures and of the diligence of those carrying 
them out, he or she has no reasonable cause to believe that the 
information provided to investors is not accurate and complete in 
all material respects. The chief executive officer would further be 
required to certify that he or she has reviewed with the board those 
procedures and the company's compliance with them. See Report of the 
NYSE Corporate Accountability and Listing Standards Committee (June 
6, 2002), at 23, available at http://www.nyse.com/abouthome.html?query=/about/report.html.
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D. Application to Small Entities and Foreign Registrants

    The proposed rules generally do not distinguish between large and 
small companies. Because of the importance of the certification 
requirement, we believe that it would be appropriate to apply the 
proposed rules to all companies that file Exchange Act reports. 
Although we don't believe that the proposed rules would impose a 
significant burden on small companies, we nevertheless request comment 
on whether we should exclude a company considered to be a ``small 
business issuer'' under our rules \63\ from the proposed rules or make 
other accommodations for companies based on their size.
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    \63\ For purposes of the Exchange Act, a ``small business 
issuer'' is a U.S. or Canadian issuer that is not an investment 
company with revenues and a public ``float'' (the aggregate market 
value of the issuer's outstanding common equity held by non-
affiliates) of less than $25 million. See Exchange Act Rule 12b-2 
[17 CFR 240.12b-2].
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    The proposed rules would not apply to foreign private issuers 
subject to the reporting requirements of Section 13(a) or 15(d) of the 
Exchange Act.\64\ Form 20-F,\65\ the disclosure document used by 
foreign private issuers for annual reporting obligations under the 
Exchange Act, does not impose signature requirements similar to those 
required on Form 10-K.\66\ Form 20-F need only be signed on behalf of 
the company by any authorized officer (which generally would include 
the principal executive officer or principal financial officer). Unlike 
Form 10-K, it does not have to be signed by the company's principal 
executive officer or officers, principal financial officer, controller 
or principal accounting officer and a majority of the board of 
directors. Furthermore, foreign private issuers are not required to 
file quarterly reports on Form 10-Q or Form 10-QSB.\67\
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    \64\ The definition of a ``foreign private issuer'' is set forth 
in Exchange Act Rule 3b-4 [17 CFR 240.3b-4].
    \65\ 17 CFR 249.220f.
    \66\ See General Instruction D to Form 20-F.
    \67\ Instead, a foreign private issuer is required to file, on 
Form 6-K [17 CFR 249.306], copies of all information that the issuer 
makes or is required to make public under the laws of its 
jurisdiction of incorporation, files or is required to file under 
the rules of any stock exchange and which is made public by the 
exchange, or otherwise distributes or is required to distribute to 
its security holders. See Exchange Act Rule 13a-16 [17 CFR 240,13a-
16].
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    In addition, mandatory requirements regarding internal procedures 
raise several issues, since those requirements may be inconsistent with 
the laws or practices of the foreign private issuers' home jurisdiction 
and stock exchange requirements. For these reasons, applying the 
proposed rules to foreign private issuers would raise additional issues 
that do not exist for domestic companies. Therefore, we do not propose 
to apply the certification and procedural requirements to foreign 
private issuers at this time. Nonetheless, we are interested in 
soliciting comment on whether we should apply the proposed rules to 
foreign registrants.
    Questions regarding the scope of the proposed rules:
     Should we exclude small entities from the proposed rules?
     If so, should we limit the exclusion to ``small business 
issuers'' as defined under our rules, or is some other threshold more 
appropriate?
     Should we subject foreign private issuers to proposed 
Rules 13a-14 and 15d-14?
     Should we require Form 20-F (whether used as a 
registration statement or an annual report under the Exchange Act) to 
be signed by a company's principal executive officer or officers, its 
principal financial officer, its controller or principal accounting 
officer and by at least a majority of the board of directors?
     Should we subject foreign private issuers to proposed 
Rules 13a-15 and 15d-15? Would requiring foreign private issuers to 
maintain procedures as contemplated by the proposed rules conflict or 
unduly interfere with the legal obligations or internal operations of 
foreign companies?
     What impact would the proposed rules have on the 
willingness of foreign companies to raise capital in the public U.S. 
capital markets, to list on U.S. markets and to register their 
securities under the Securities Act or the Exchange Act?

III. General Request for Comment

    We are proposing these rules to improve the quality and reliability 
of the disclosure contained in companies' periodic and current reports 
filed pursuant to the Exchange Act. We solicit comment, both specific 
and general, upon each aspect of the proposed rules. If you would like 
to submit written comments on the proposed rules, to suggest changes or 
to

[[Page 41883]]

submit comments on other matters that might affect the proposed rules, 
we encourage you to do so.
    We also solicit comment on the following general aspects of the 
proposed rules:
     What is the current level of principal executive officer 
and principal financial officer participation in the preparation of 
periodic and current reports?
     What is the current level of principal executive officer 
and principal financial officer participation in the review and 
evaluation of the company's internal information collection and 
reporting procedures?
     What level of participation would ensure adequate 
disclosure to investors?
     Would the proposed certification requirement be useful to 
investors, other users of corporate disclosure and readers of corporate 
financial statements? If not, how can we improve proposed certification 
to achieve that goal?
     In addition to the requirements we propose, are there 
particular aspects of a company's preparation and filing of its 
periodic and current reports that the proposed rules should 
specifically require companies to address? If so, what are they?
     Is additional disclosure or regulation necessary or 
appropriate concerning the role of the principal executive officer and 
the principal financial officer in preparing Exchange Act reports?
     Are there aspects of the proposed rules that we should 
eliminate? Are there aspects that we should supplement? We solicit 
comment on the desirability of adopting some, but not all, sections of 
the proposed rules.
    In addition, we request comment on whether any further changes to 
our rules and forms are necessary or appropriate to implement the 
objectives of the proposed rules.

IV. Paperwork Reduction Act

    The proposed new rules and amendments to existing rules and forms 
contain ``collection of information'' requirements within the meaning 
of the Paperwork Reduction Act of 1995 (``PRA'').\68\ We are submitting 
the proposal to the Office of Management and Budget (``OMB'') for 
review in accordance with the PRA.\69\ The titles for these collections 
of information are ``Form 10-K,'' ``Form 10-KSB,'' ``Form 10-Q'' and 
``Form 10-QSB.'' An agency may not conduct or sponsor, and a person is 
not required to respond to, an information collection unless it 
displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \68\ 44 U.S.C. 3501 et seq.
    \69\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    Form 10-K (OMB Control No. 3235-0063) prescribes information that a 
registrant must disclose annually to the market about its business. 
Form 10-KSB (OMB Control No. 3235-0420) prescribes information that a 
registrant that is a ``small business issuer'' as defined under our 
rules must disclose annually to the market about its business.
    Form 10-Q (OMB Control No. 3235-0070) prescribes information that a 
registrant must disclose quarterly to the market about its business. 
Form 10-QSB (OMB Control No. 3235-0416) prescribes information that a 
registrant that is a ``small business issuer'' as defined under our 
rules must disclose quarterly to the market about its business.

A. Summary of Proposed Rules

    Proposed Rules 13a-14 and 15d-14,\70\ if adopted, would require a 
company's principal executive officer and principal financial officer 
to certify that, to his or her knowledge, the information in the 
company's quarterly and annual reports is true in all important 
respects as of the end of the relevant reporting period and that the 
reports contain all information about the company of which he or she is 
aware that he or she believes is important to a reasonable investor as 
of the end of the relevant reporting period. This certification 
requirement would become part of the ``collection of information'' 
required by Forms 10-Q, 10-QSB, 10-K and 10-KSB because a company's 
principal executive officer and principal financial officer would have 
to review the reports in order to provide the proposed certification.
---------------------------------------------------------------------------

    \70\ References to proposed Rule 13a-14 in this section also 
refer to proposed Rule 15d-14.
---------------------------------------------------------------------------

    Proposed Rules 13a-15 and 15d-15,\71\ if adopted, would require a 
company to maintain sufficient procedures to provide reasonable 
assurance that the company is able to collect, process and disclose the 
information required to be in the company's periodic and current 
reports, and to periodically review and evaluate these procedures. 
While we believe that companies generally maintain these types of 
procedures already, the annual evaluation and certification of these 
procedures involves new requirements. These procedures would become 
part of the ``collection of information'' required by Forms 10-Q, 10-
QSB, 10-K and 10-KSB because a company would have to conduct an 
evaluation of its internal reporting procedures and the company's 
principal executive officer and principal financial officer would have 
to certify that they have reviewed the results of the evaluation.
---------------------------------------------------------------------------

    \71\ References to proposed Rule 13a-15 in this section also 
refer to proposed Rule 15d-15.
---------------------------------------------------------------------------

    Compliance with the proposed rules would be mandatory. Under our 
rules for the retention of manual signatures, companies would have to 
maintain the certification statements for five years.\72\ The 
information required by the proposed rules would not be kept 
confidential.
---------------------------------------------------------------------------

    \72\ See the proposed amendment to Rule 302(b) of Regulation S-T 
[17 CFR 232.302(b)].
---------------------------------------------------------------------------

B. Reporting and Cost Burden Estimates

    The compliance burden estimates for the proposed collections of 
information are based on several assumptions. The reporting 
requirements of Section 13 of the Exchange Act apply to entities that 
have a class of securities registered under Section 12 of the Exchange 
Act.\73\ The reporting requirements of Section 13 also apply, via 
Section 15(d) of the Exchange Act, to entities with an effective 
registration statement under the Securities Act that are not otherwise 
subject to the registration requirements of Section 12 of the Exchange 
Act. We estimate that there are approximately 13,200 entities that fit 
these descriptions.\74\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78l.
    \74\ This estimate is based on the total number of companies 
that filed annual reports on Form 10-K (9,384) or Form 10-KSB 
(3,789) during the 2001 fiscal year, which are required of all 
companies with a class of securities registered under Section 12 of 
the Exchange Act and all companies subject to Section 15(d) of the 
Exchange Act.
---------------------------------------------------------------------------

    Proposed Rule 13a-14 would require a company's and to make certain 
representations about the contents of those reports in the 
certification that must be included in the quarterly and annual 
reports. The compliance burden associated with proposed Rules 13a-14 
and 15d-14 would be the reporting burden associated with having a 
company's principal executive officer and principal financial officer 
read and think critically about each quarterly and annual report to be 
filed by the company so that these individuals could make the required 
certification. We estimate that the proposed certification requirement 
would result in an increase of five burden hours \75\ per company in 
connection with preparing each quarterly report on Form 10-Q or 10-QSB 
and the annual report on Form 10-K or 10-KSB.
---------------------------------------------------------------------------

    \75\ This estimate is based on consultations with several law 
firms and other persons who regularly assist registrants in 
preparing and filing quarterly and annual reports with the 
Commission.
---------------------------------------------------------------------------

    Proposed Rule 13a-15 would require a company to maintain sufficient

[[Page 41884]]

procedures to collect, process and disclose the information required in 
its periodic and current reports filed with the Commission. We expect 
that companies already maintain procedures, whether formal or informal, 
to comply with their Exchange Act disclosure obligations and for their 
own internal purposes. We do not believe that the proposed evaluation 
requirement would result in any change in either the reporting or cost 
burden associated with preparing quarterly reports on Form 10-Q or 10-
QSB and annual reports on Form 10-K or 10-KSB.
    Based on a burden hour estimate of 20 hours per respondent per 
year,\76\ we estimate that, in the aggregate, all respondents will 
incur 263,460 burden hours \77\ to comply with the proposed rules. The 
total burden hours of complying with Form 10-Q and Form 10-QSB, revised 
to include the burden hours expected from the proposed rules, is 
estimated to be 3,162,715 hours for Form 10-Q, an increase of 133,730 
hours \78\ from the current annual burden of 3,028,985 hours, and 
1,302,998 hours for Form 10-QSB, an increase of 58,040 hours \79\ from 
the current annual burden of 1,244,958 hours. The total burden hours of 
complying with Form 10-K and Form 10-KSB, revised to include the burden 
hours expected from the proposed rules, is estimated to be 12,356,382 
hours for Form 10-K, an increase of 46,920 hours\80\ from the current 
annual burden of 12,309,462 hours, and 3,443,254 hours for Form 10-KSB, 
an increase of 18,945 hours \81\ from the current annual burden of 
3,424,309 hours.
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    \76\ Three quarterly reports and one annual report  x  five 
hours each = 20 hours.
    \77\ 13,173 companies  x  20 hours = 263,460 hours.
    \78\ 26,746 quarterly reports  x  five hours = 133,730 hours.
    \79\ 11,608 quarterly reports  x  five hours = 58,040 hours.
    \80\ 9,384 annual reports  x  five hours = 46,920 hours.
    \81\ 3,789 annual reports  x  five hours = 18,945 hours.
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C. Request for Comment

    We request comment in order to: (a) Evaluate whether the proposed 
amendments to our existing information collections are necessary for 
the proper performance of the functions of the Commission, including 
whether the information will have practical utility; (b) evaluate the 
accuracy of our estimate of the burden of the proposed amendments; (c) 
determine whether there are ways to enhance the quality, utility and 
clarity of the information to be collected; and (d) evaluate whether 
there are ways to minimize the burden of the proposed amendments on 
those who respond, including through the use of automated collection 
techniques or other forms of information technology.\82\
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    \82\ Comments are requested pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
the burdens. Persons who desire to submit comments on the proposed 
collections of information requirements should direct their comments to 
the OMB, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and send a copy of the comments to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street NW, 
Washington, DC 20549-0609, with reference to File No. S7-21-02. 
Requests for materials submitted to the OMB by us with regard to this 
collection of information should be in writing, refer to File No. S7-
21-02 and be submitted to the Securities and Exchange Commission, 
Records Management, Office of Filings and Information Services, 450 
Fifth Street NW, Washington, DC 20549. Because the OMB is required to 
make a decision concerning the collections of information between 30 
and 60 days after publication, your comments are best assured of having 
their full effect if the OMB receives them within 30 days of 
publication.

V. Costs And Benefits

    We propose to require a company's principal executive officer and 
principal financial officer to certify that, to his or her knowledge, 
the information in the company's quarterly and annual reports is true 
in all important respects as of the end of the relevant reporting 
period and that the reports contain all information about the company 
of which he or she is aware that he or she believes is important to a 
reasonable investor as of the end of the relevant reporting period. In 
addition, we propose to require a company to maintain sufficient 
procedures to provide reasonable assurance that the company is able to 
collect, process and disclose the information required in the company's 
periodic and current reports, and to periodically review and evaluate 
these procedures. These proposals would help ensure that information 
about a company's business and financial condition is adequately 
reviewed by the company's senior executives, thereby enhancing investor 
confidence in the quality of the company's disclosures.

A. Benefits

    We believe that investor confidence in corporate disclosure has 
suffered because of a belief that senior corporate officials may not 
devote sufficient attention to the preparation of their companies' 
quarterly and annual reports and the internal procedures that generate 
the data from which they are prepared. Requiring a company's principal 
executive officer and principal financial officer to certify the 
contents of these reports should help reinforce for these officers the 
importance of these reports and reinvigorate their participation in the 
preparation of these reports. The proposed rule also should refocus 
these officers on assessing whether the reports accurately reflect the 
company's business and financial condition as of the date of the 
report.
    In addition, the proposed rules should help to ensure that 
companies maintain sufficient internal procedures to provide reasonable 
assurance that they can collect, process and disclose the information 
that is required in periodic and current reports required under the 
Exchange Act. To the extent that companies do not maintain adequate 
procedures, the proposed rules should lead to the development, or 
enhancement and modernization, of these procedures. The proposed annual 
evaluation of these procedures should ensure that companies devote 
adequate resources and attention to the maintenance of their reporting 
systems. Additionally, the required evaluation should help to identify 
potential weaknesses and deficiencies in advance of a system breakdown, 
thereby ensuring the continuous, orderly and timely flow of information 
within the company and, ultimately, to investors and the marketplace.
    The proposed rules also would require companies' principal 
executive officers to provide a certification in connection with 
quarterly reports. In view of the fact that principal executive 
officers may not always be directly involved in the preparation of 
these reports, any duly authorized representative of the company may 
sign. The proposed certification requirement should lead to greater 
involvement of principal executive officers in the preparation of these 
reports.
    By emphasizing the importance of the role of senior management in 
the reporting process, the proposed rules should help to bolster 
investor confidence in the quality of the disclosure in companies' 
Exchange Act reports. This, in turn, should help to bolster investor 
confidence in the

[[Page 41885]]

securities markets. These benefits are difficult to quantify.

B. Costs

    While the proposed amendments may lead to some additional costs for 
companies, we believe that these costs should be minimal. The proposed 
certification requirement would require a company's principal executive 
officer and principal financial officer to read the company's quarterly 
and annual reports and to make the required certification. We assume 
that these corporate officers already read the company's annual report, 
so this should impose no additional burden. To the extent that a 
corporate officer would need to spend additional time thinking 
critically about the overall context of his or her company's 
disclosure, the company would incur costs. For purposes of the PRA,\83\ 
we estimate that the paperwork burden would be approximately 263,500 
hours.
---------------------------------------------------------------------------

    \83\ See Section IV above.
---------------------------------------------------------------------------

    The required certification of quarterly and annual reports by the 
principal executive officer and the principal financial officer creates 
a new legal obligation for these individuals, but does not change the 
standard of legal liability. We believe that the potential, incremental 
cost of litigation arising from signing a certification is justified by 
the benefit to security holders of knowing that the principal executive 
officer has been involved in the preparation of this report.
    We believe that most reporting companies already maintain internal 
procedures for identifying and processing the information needed to 
satisfy their disclosure obligations under the Exchange Act. The 
proposed rule does not dictate that companies follow any particular 
procedure. Some companies may need to institute appropriate procedures. 
Other companies may need to enhance existing informal or ad hoc 
procedures. These incremental costs are difficult to quantify. We do 
not have data to quantify the cost of implementing, or upgrading and 
strengthening existing, internal reporting procedures, and we seek 
comments and supporting data on these costs.
    The proposed annual evaluation of the internal reporting procedures 
would result in costs for companies. Many companies may already 
regularly monitor and evaluate their procedures. Because the size and 
scope of these internal systems is likely to vary among companies, it 
is difficult to provide an accurate cost estimate. For purposes of the 
PRA,\84\ we estimate that the paperwork burden would be approximately 
263,500 hours. Assuming a cost of $200.00 per hour, we believe that the 
total cost would be approximately $4,000 per year for each company.\85\ 
Thus, we believe that the aggregate cost of the proposed rules would be 
approximately $52,700,000 each year.\86\
---------------------------------------------------------------------------

    \84\ See Section IV above.
    \85\ 20 hours  x  $200 per hour = $4,000.
    \86\ 263,460 hours  x  $200 = $52,692,000. See note 77 above.
---------------------------------------------------------------------------

C. Request for Comments

    We request comment on all aspects of this cost-benefit analysis, 
including identification of any additional costs or benefits of, or 
suggested alternatives to, the proposed rules. Commenters are requested 
to provide empirical data and other factual support for their views to 
the extent possible.

VI. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis, or IRFA, has been 
prepared in accordance with the Regulatory Flexibility Act.\87\ It 
involves proposed rules under the Exchange Act that would require a 
company's principal executive officer and principal financial officer 
to certify that, to his or her knowledge, the information in the 
company's quarterly and annual reports is true in all important 
respects as of the end of the relevant reporting period and that the 
reports contain all information about the issuer of which he or she is 
aware that he or she believes is important to a reasonable investor as 
of the end of the relevant reporting period. In addition, the proposed 
rules would require a company to maintain procedures to provide 
reasonable assurance that the company is able to collect, process and 
disclose the information required in the company's periodic and current 
reports, and also to require periodic review and evaluation of these 
procedures.
---------------------------------------------------------------------------

    \87\ 5 U.S.C. Sec. 603.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, Proposed Rules

    The purpose of the proposed rules is to improve the quality of 
corporate disclosure and to promote investor confidence in the quality 
of the disclosure contained in quarterly and annual reports. By 
improving the quality of disclosure, the proposed rules would enhance 
investor confidence in the fairness and integrity of the securities 
markets.

B. Legal Basis

    We are proposing the rules under the authority set forth in 
Sections 10(b), 13, 15(d) and 23(a) of the Exchange Act.

C. Small Entities Subject to the Proposed Rules

    The proposed rules would affect small entities that are subject to 
the reporting requirements of Section 13(a) or 15(d) of the Exchange 
Act. For purposes of the Regulatory Flexibility Act, the Exchange Act 
\88\ defines the term ``small business,'' other than an investment 
company, to be an issuer that, on the last day of its most recent 
fiscal year, has total assets of $5 million or less.\89\ We estimate 
that there are approximately 2,500 companies subject to the reporting 
requirements of Section 13(a) or 15(d) of the Exchange Act that are not 
investment companies and that have assets of $5 million or less.\90\
---------------------------------------------------------------------------

    \88\ 17 CFR 240.0-10(a).
    \89\ A similar definition is provided under Securities Act Rule 
157 [17 CFR 230.157].
    \90\ This estimate is based on filings with the Commission.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed rules would require companies to include a 
certification in their quarterly and annual reports, signed by the 
company's principal executive officer and principal financial officer, 
stating that, to their knowledge, the information contained in the 
report is true in all important respects and that they believe the 
reports contain all information about the company of which they are 
aware that is important to a reasonable investor. In addition, the 
proposed rules would require companies, including ``small businesses,'' 
to maintain sufficient procedures to provide reasonable assurance that 
the company is able to collect, process and disclose the information 
required in periodic and current reports filed with the Commission, and 
to periodically review and evaluate these procedures. Consequently, the 
proposed rules would increase the costs associated with compliance with 
companies' Exchange Act reporting obligations.

E. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no rules that duplicate, overlap or 
conflict with the proposed rules, except as follows. Our rules require 
that designated corporate officials sign quarterly and annual 
reports.\91\ The proposed rules would

[[Page 41886]]

add a certification by a company's principal executive officer and 
principal financial officer to these signature requirements. While the 
proposed certification involves an additional signature 
requirement,\92\ we believe that any potential duplication is warranted 
as the proposed certification should cause these officials to review 
more carefully the disclosure in their companies' quarterly and annual 
reports and to participate more extensively in the preparation of these 
reports. We expect that the quality and transparency of this disclosure 
would improve as a result of this type of mandated review.
---------------------------------------------------------------------------

    \91\ Annual reports must be signed by a registrant and on a 
registrant's behalf by its principal executive officer or officers, 
its principal financial officer, its controller or principal 
accounting officer and by at least the majority of the board of 
directors. See General Instruction D(2)(a) of Form 10-K and General 
Instruction C.2 of Form 10-KSB. Quarterly reports must be signed on 
a registrant's behalf by a duly authorized representative of the 
registrant and by the principal financial officer or the principal 
accounting officer of the registrant. See General Instruction G of 
Form 10-Q and General Instruction F.2 of Form 10-QSB.
    \92\ Except in the case of a certification of a quarterly report 
by a company's principal executive officer. Currently, a quarterly 
report on Form 10-Q or 10-QSB need not be signed by a registrant's 
principal executive officer. See General Instruction G to Form 10-Q 
and General Instruction F.2 to Form 10-QSB.
---------------------------------------------------------------------------

    Section 13(b)(2)(B) of the Exchange Act \93\ requires companies 
that are subject to the reporting requirements of Section 13(a) or 
15(d) to devise and maintain a system of internal accounting controls 
sufficient to provide reasonable assurances that the transactions and 
information are recorded as necessary to permit the preparation of the 
company's financial statements. Proposed Rules 13a-15 and 15d-15 are 
intended to address the company's procedures for collecting and 
processing the non-financial information that is required to be 
disclosed in periodic and current reports files pursuant to the 
Exchange Act.
---------------------------------------------------------------------------

    \93\ 15 U.S.C. 78m(b)(2)(B).
---------------------------------------------------------------------------

F. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objectives, while 
minimizing any significant adverse impact on small entities. In that 
regard, we are considering the following alternatives: (a) Establishing 
different compliance or reporting requirements that take into account 
the resources of small entities, (b) clarifying, consolidating or 
simplifying compliance and reporting requirements under the rules for 
small entities and (c) exempting small entities from all or part of the 
proposed rules. The proposed rules are intended to help ensure that 
information about a company's business and financial condition is 
adequately reviewed by the company's senior executives, thereby 
enhancing investor confidence in the quality of the company's 
disclosures. We solicit comment as to whether small business issuers 
should be excluded from the proposed rules.
    The proposed certification requirement should result in minimal 
cost for companies. It is possible that a failure to comply with this 
requirement could be harmful to small entities because it may lead 
investors to conclude that an entity has inadequate management and 
reporting controls and, consequently, presents an unacceptable 
investment risk. The proposed certification requirement involves a 
design standard in that the form and content of the certification is 
dictated by the proposed rules and could be comparable for all 
companies, including small, as well as large, entities.
    The annual evaluation of information collection and reporting 
procedures contemplated by the proposed rules involves a performance 
standard. The proposed rules do not mandate how companies should 
conduct this evaluation. This flexibility will enable small and large 
entities to develop approaches for the evaluation that are appropriate 
to their individual circumstances.

G. Request for Comments

    We encourage the submission of comments with respect to any aspect 
of the IRFA. In particular, we request comment on the number of small 
businesses that would be affected by the proposed rules, the nature of 
the impact, how to quantify the number of small businesses that would 
be affected and how to quantify the impact of the proposed rules. 
Commenters are requested to describe the nature of any effect and 
provide empirical data and other factual support for their views to the 
extent possible. These comments will be considered in the preparation 
of the Final Regulatory Flexibility Analysis, if the proposed rules are 
adopted, and will be placed in the same public file as comments on the 
proposed rules.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996, or ``SBREFA,'' \94\ we must advise the Office of 
Management and Budget as to whether the proposed rules constitute a 
``major'' rule. Under SBREFA, a rule is considered ``major'' where, if 
adopted, it results or is likely to result in:
---------------------------------------------------------------------------

    \94\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    Where a rule is ``major,'' its effectiveness will generally be 
delayed for 60 days pending Congressional review. We request comment on 
the potential impact of the proposed rules on the economy on an annual 
basis. Commenters are requested to provide empirical data and other 
factual support for their views to the extent possible.

VIII. Consideration of Burden on Competition

    Section 23(a)(2) of the Exchange Act \95\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.
---------------------------------------------------------------------------

    \95\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The proposed rules are intended to enhance investor confidence in 
the quality of the information available to them in quarterly and 
annual reports filed pursuant to the Exchange Act. We do not believe 
that the proposed rules would impose any burden on competition. 
Companies would incur some costs in complying with the proposed rules. 
These costs would include conducting an annual evaluation of the 
company's procedures to collect, process and disclose, on a timely 
basis, the information required in periodic and current reports filed 
by the company pursuant to the Exchange Act. We request comment on 
whether the proposed rules, if adopted, would impose a burden on 
competition. Commenters are requested to provide empirical data and 
other factual support for their views to the extent possible.

IX. Promotion of Efficiency, Competition and Capital Formation

    Section 3(f) of the Exchange Act \96\ requires us, when engaging in 
rulemaking where we are required to consider or determine whether an 
action is necessary or appropriate in the public

[[Page 41887]]

interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition and capital 
formation. The proposed rules are intended to enhance investor 
confidence in the quality of the information available to them in 
quarterly and annual reports filed pursuant to the Exchange Act. We 
believe that by requiring a company's principal executive officer and 
principal financial officer to certify that, to their knowledge, the 
information contained in these reports is true in all important 
respects and that they believe the reports contain all information 
about the company of which they are aware that is important to a 
reasonable investor, investor confidence in the securities markets will 
be enhanced, thereby leading to a more efficient market.
---------------------------------------------------------------------------

    \96\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We do not believe that the proposed rules would impose any burden 
on competition. Companies would incur some costs in complying with the 
proposed rules. These costs would include conducting an annual 
evaluation of the company's procedures to collect, process and 
disclose, on a timely basis, the information required in periodic and 
current reports filed by the company pursuant to the Exchange Act. We 
request comment on whether the proposed rules, if adopted, would impose 
a burden on competition. Commenters are requested to provide empirical 
data and other factual support for their views to the extent possible.

X. Statutory Authority

    The rules and amendments contained in this release are being 
proposed under the authority set forth in Sections 10(b), 13, 15(d) and 
23(a) of the Exchange Act.

Text of Proposed Rules and Amendments

List of Subjects in 17 CFR Parts 232, 240 and 249

    Securities.

    In accordance with the foregoing, Title 17, Chapter II, of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 232--GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS

    1. The authority citation for Part 232 continues to read as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 
78c(b), 781, 78m, 78n, 78o(d), 78w(a), 7811(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.

    2. By amending Sec. 232.302 by revising paragraphs (a) and (b) to 
read as follows:


Sec. 232.302  Signatures.

    (a) Required signatures to or within any electronic submission 
(including, without limitation, signatories within the certifications 
required by Secs. 240.13a-14 and 240.15d-14 of this chapter) must be in 
typed form rather than manual format. Signatures in an HTML document 
that are not required may, but are not required to, be presented in an 
HTML graphic or image file within the electronic filing, in compliance 
with the formatting requirements of the EDGAR Filer Manual. When used 
in connection with an electronic filing, the term ``signature'' means 
an electronic entry in the form of a magnetic impulse or other form of 
computer data compilation of any letters or series of letters or 
characters comprising a name, executed, adopted or authorized as a 
signature. Signatures are not required in unofficial PDF copies 
submitted in accordance with Sec. 232.104.
    (b) Each signatory to an electronic filing (including, without 
limitation, each signatory to the certifications required by 
Secs. 240.13a-14 and 240.15d-14 of this chapter) shall manually sign a 
signature page or other document authenticating, acknowledging or 
otherwise adopting his or her signature that appears in typed form 
within the electronic filing. Such document shall be executed before or 
at the time the electronic filing is made and shall be retained by the 
filer for a period of five years. Upon request, an electronic filer 
shall furnish to the Commission or its staff a copy of any or all 
documents retained pursuant to this section.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    3. The authority citation for Part 240 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 781, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 7811, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
    3. By adding Sec. 240.13a-14 to read as follows:


Sec. 240.13a-14  Certification of disclosure in annual and quarterly 
reports.

    (a) Each annual and quarterly report filed pursuant to section 
13(a) of the Act (15 U.S.C. 78m(a)) must include the certification 
described in paragraph (b) of this section. Each principal executive 
officer and principal financial officer of the issuer at the time of 
filing of the report each must sign the certification.
    (b) The certification included in each report specified in 
paragraph (a) of this section must contain the following provisions:
    (1) A statement of the officer certifying that he or she has read 
the [specify the report in which the certification is included];
    (2) A statement of the officer certifying that to his or her 
knowledge, the information in the report is true in all important 
respects as of the last day of the period covered by the report;
    (3)(i) In annual reports, a statement of the officer certifying 
that the report contains all information about the issuer of which he 
or she is aware that he or she believes is important to a reasonable 
investor as of the last day of the period covered by the report; or
    (ii) In quarterly reports, a statement of the officer certifying 
that the report contains all information about the issuer of which he 
or she is aware that he or she believes is important to a reasonable 
investor, in light of the subjects required to be addressed in the 
report, as of the last day of the period covered by the report; and
    (4) A statement that, for purposes of the certification required by 
paragraph (a) of this section, information is ``important to a 
reasonable investor'' if:
    (i) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering the total mix of 
information in the report; and
    (ii) The report would be misleading to a reasonable investor if the 
information was omitted from the report.
    (c) The certification included in each annual report filed pursuant 
to section 13(a) of the Act (15 U.S.C. 78m(a)) also must contain a 
statement that each officer signing this certification has reviewed the 
results of the evaluation of the issuer's internal reporting procedures 
undertaken pursuant to Sec. 240.13a-15(b) and (c).
    5. By adding Sec. 240.13a-15 to read as follows:


Sec. 240.13a-15  Issuer's internal procedures related to preparation of 
required reports.

    (a) Every issuer that has a class of securities registered pursuant 
to section 12 of the Act (15 U.S.C. 781) must maintain sufficient 
procedures to provide reasonable assurances that the issuer is able to 
collect, process and disclose, within the time periods specified in the 
Commission's rules and forms, the information required to be disclosed 
in the periodic and current reports filed by it under the Act.
    (b) Within the 12-month period immediately preceding the filing of 
each

[[Page 41888]]

annual report pursuant to section 13(a) of the Act (15 U.S.C. 78m(a)), 
an evaluation must be carried out under the supervision of the issuer's 
management of the effectiveness of the design and operation of the 
procedures of the issuer maintained in accordance with paragraph (a) of 
this section. Without limiting the subjects that the evaluation must 
cover, at a minimum the evaluation must identify any material weakness 
in the procedures, any other deficiency that would significantly 
adversely affect the issuer's ability to collect, process or disclose 
on a timely basis required information and any material changes in 
these internal procedures and controls, including any corrective 
actions that have been or are being taken with regard to identified 
weaknesses and deficiencies.
    (c) Before the filing of the annual report, each principal 
executive officer and principal financial officer of the issuer and the 
board of directors of the issuer must review the results of the 
evaluation described in paragraph (b) of this section.
    6. By adding Sec. 240.15d-14 to read as follows:


Sec. 240.15d-14  Certification of disclosure in annual and quarterly 
reports.

    (a) Each annual and quarterly report filed pursuant to section 
15(d) of the Act (15 U.S.C. 78o(d)) must include the certification 
described in paragraph (b) of this section. Each principal executive 
officer and principal financial officer of the issuer at the time of 
filing of the report each must sign the certification.
    (b) The certification included in each report specified in 
paragraph (a) of this section must contain the following provisions:
    (1) A statement of the officer certifying that he or she has read 
the [specify the report in which the certification is included];
    (2) A statement of the officer certifying that to his or her 
knowledge, the information in the report is true in all important 
respects as of the last day of the period covered by the report;
    (3)(i) In annual reports, a statement of the officer certifying 
that the report contains all information about the issuer of which he 
or she is aware that he or she believes is important to a reasonable 
investor as of the last day of the period covered by the report; or
    (ii) In quarterly reports, a statement of the officer certifying 
that the report contains all information about the issuer of which he 
or she is aware that he or she believes is important to a reasonable 
investor, in light of the subjects required to be addressed in the 
report, as of the last day of the period covered by the report; and
    (4) A statement that, for purposes of the certification required by 
paragraph (a) of this section, information is ``important to a 
reasonable investor'' if:
    (i) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering the total mix of 
information in the report; and
    (ii) The report would be misleading to a reasonable investor if the 
information was omitted from the report.
    (c) The certification included in each annual report filed pursuant 
to section 15(d) of the Act (15 U.S.C. 78o(d)) also must contain a 
statement that each officer signing this certification has reviewed the 
results of the evaluation of the issuer's internal reporting procedures 
undertaken pursuant to Sec. 240.15d-15(b) and (c).
    7. By adding Sec. 240.15d-15 to read as follows:


Sec. 240.15d-15  Issuer's internal procedures related to preparation of 
required reports.

    (a) Every issuer that is required to file reports pursuant to 
section 15(d) of the Act (15 U.S.C. 78o(d)) must maintain sufficient 
procedures to provide reasonable assurances that the issuer is able to 
collect, process and disclose, within the time periods specified in the 
Commission's rules and forms, the information required to be disclosed 
in the periodic and current reports filed by it under the Act.
    (b) Within the 12-month period immediately preceding the filing of 
each annual report pursuant to section 15(d) of the Act (15 U.S.C. 
78o(d)), an evaluation must be carried out under the supervision of the 
issuer's management of the effectiveness of the design and operation of 
the procedures of the issuer maintained in accordance with paragraph 
(a) of this section. Without limiting the subjects that the evaluation 
must cover, at a minimum the evaluation must identify any material 
weakness in the procedures, any other deficiency that would 
significantly adversely affect the issuer's ability to collect, process 
or disclose on a timely basis required information and any material 
changes in these internal procedures and controls, including any 
corrective actions that have been or are being taken with regard to 
identified weaknesses and deficiencies.
    (c) Before the filing of the annual report, each principal 
executive officer and principal financial officer of the issuer and the 
board of directors of the issuer must review the results of the 
evaluation described in paragraph (b) of this section.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    8. The authority citation for Part 249 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.
* * * * *
    9. By amending Form 10-Q (referenced in Sec. 249.308a) by revising 
General Instruction G and by adding a Certifications section after the 
Signatures section to read as follows:

    Note: The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-Q

* * * * *

General Instructions

* * * * *

G. Signature and Filing of Report

    If the report is filed in paper pursuant to a hardship exemption 
from electronic filing (see Item 201 et seq. of Regulation S-T (17 CFR 
232.201 et seq.), three complete copies of the report, including any 
financial statements, exhibits or other papers or documents filed as a 
part thereof, and five additional copies which need not include 
exhibits must be filed with the Commission. At least one complete copy 
of the report, including any financial statements, exhibits or other 
papers or documents filed as a part thereof, must be filed with each 
exchange on which any class of securities of the registrant is 
registered. At least one complete copy of the report filed with the 
Commission and one such copy filed with each exchange must be manually 
signed on the registrant's behalf by a duly authorized officer of the 
registrant and by the principal financial or chief accounting officer 
of the registrant. (See Rule 12b-11(d) (17 CFR 240.12b-11(d).) Copies 
not manually signed must bear typed or printed signatures. In the case 
where the principal executive officer, principal financial officer or 
chief accounting officer is also duly authorized to sign on behalf of 
the registrant, one signature is acceptable provided that the 
registrant clearly indicates the dual responsibilities of the 
signatory. In addition, each principal executive officer and principal 
financial officer of the registrant must provide the certification 
required by Rule 13a-14 (17 CFR 240.13a-14) or Rule 15d-14 (17 CFR 
240.15d-14).
* * * * *

Signatures

* * * * *

[[Page 41889]]

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have read this quarterly report on Form 10-Q of [identify 
registrant];
    2. To my knowledge, the information in this report is true in all 
important respects as of [specify last date of the period covered by 
the report]; and
    3. This report contains all information about the company of which 
I am aware that I believe is important to a reasonable investor, in 
light of the subjects required to be addressed in this report, as of 
[specify last date of the period covered by the report].
    For purposes of this certification, information is ``important to a 
reasonable investor'' if:
    (a) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering the total mix of 
information in the report; and
    (b) The report would be misleading to a reasonable investor if the 
information is omitted from the report.

Date:-----------------------------------------------------------------

----------------------------------------------------------------------
  [Signature]        [Title]

    * Provide a separate certification for each principal executive 
officer and principal financial officer of the registrant. See Rules 
13a-14 and 15d-14.

    10. By amending Form 10-QSB (referenced in Sec. 249.308b) by 
revising General Instruction F and by adding a Certifications section 
after the Signatures section to read as follows:


    Note: The text of Form 10-QSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM 10-QSB

* * * * *

GENERAL INSTRUCTIONS

* * * * *

F. Signature and Filing of Report

    1. If the report is filed in paper pursuant to a hardship exemption 
from electronic filing (see Item 201 et seq. of Regulation S-T (17 CFR 
232.201 et seq.), file three ``complete'' copies and five 
``additional'' copies of the report with the Commission and file at 
least one complete copy with each exchange on which any class of 
securities of the small business issuer is registered. A ``complete'' 
copy includes financial statements, exhibits and all other papers and 
documents. An ``additional'' copy excludes exhibits.
    2. Manually sign at least one complete copy of the report filed 
with the Commission and with each exchange; other copies should have 
typed or printed signatures. (See Rule 12b-11(d) (17 CFR 240.12b-
11(d).) In the case where the principal executive officer, principal 
financial officer or chief accounting officer is also duly authorized 
to sign on behalf of the small business issuer, one signature is 
acceptable provided that the issuer clearly indicates the dual 
responsibilities of the signatory. Each principal executive officer and 
principal financial officer of the small business issuer must provide 
the certification required by Rule 13a-14 (17 CFR 240.13a-14) or Rule 
15d-14 (17 CFR 240.15d-14).
* * * * *

Signatures

* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have read this quarterly report on Form 10-QSB of [identify 
small business issuer];
    2. To my knowledge, the information in this report is true in all 
important respects as of [specify last date of the period covered by 
the report]; and
    3. This report contains all information about the company of which 
I am aware that I believe is important to a reasonable investor, in 
light of the subjects required to be addressed in this report, as of 
[specify last date of the period covered by the report].
    For purposes of this certification, information is ``important to a 
reasonable investor'' if:
    (a) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering the total mix of 
information in the report; and
    (b) The report would be misleading to a reasonable investor if the 
information was omitted from the report.

Date:-----------------------------------------------------------------

[Signature]        [Title]

    * Provide a separate certification for each principal executive 
officer and principal financial officer of the small business 
issuer. See Rules 13a-14 and 15d-14.

    11. By amending Form 10-K (referenced in Sec. 249.310) by revising 
General Instruction D.(2)(a) and by adding a Certifications section 
after the Signatures section and before the reference to ``Supplemental 
information to be furnished with reports filed pursuant to Section 
15(d) of the Act by registrant which have not registered securities 
pursuant to Section 12 of the Act'' to read as follows:


    Note: The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-K

* * * * *

General Instructions

* * * * *

D. Signature and Filing of Report

    (1) * * *
    (2)(a) The report must be signed by the registrant, and on behalf 
of the registrant by its principal executive officer or officers (who 
also must provide the certification required by Rule 13a-14 (17 CFR 
240.13a-14) or Rule 15d-14 (17 CFR 240.15d-14)), its principal 
financial officer (who also must provide the certification required by 
Rule 13a-14 (17 CFR 240.13a-14) or Rule 15d-14 (17 CFR 240.15d-14)), 
its controller or principal accounting officer, and by at least the 
majority of the board of directors or persons performing similar 
functions. Where the registrant is a limited partnership, the report 
must be signed by the majority of the board of directors of any 
corporate general partner who signs the report.
* * * * *

Annual Report Pursuant to Section 13 or 15(d) of the Securities 
Exchange Act of 1934

* * * * *

Signatures

* * * * *

Certifications*

    I, [identify the certifying individual], certify that:
    1. I have read this annual report on Form 10-K of [identify 
registrant];
    2. To my knowledge, the information in this report is true in all 
important respects as of [specify last date of the period covered by 
the report];
    3. This report contains all information about the company of which 
I am aware that I believe is important to a reasonable investor as of 
[specify last date of the period covered by the report]; and
    4. I have reviewed the results of the evaluation of the procedures 
maintained by the company to collect, process and disclose, in a timely 
manner, the information required to be disclosed in the company's 
quarterly and annual reports.
    For purposes of this certification, information is ``important to a 
reasonable investor'' if:
    (a) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering

[[Page 41890]]

the total mix of information in the report; and
    (b) The report would be misleading to a reasonable investor if the 
information was omitted from the report.

Date:-----------------------------------------------------------------

----------------------------------------------------------------------
      [Signature]        [Title]

    * Provide a separate certification for each principal executive 
officer and principal financial officer of the registrant. See Rules 
13a-14 and 15d-14.
* * * * *
    12. By amending Form 10-KSB (referenced in Sec. 249.310b) by 
revising General Instruction C.2. and by adding a Certifications 
section after the Signatures section and before the reference to 
``Supplemental information to be furnished with reports filed pursuant 
to Section 15(d) of the Act by registrant which have not registered 
securities pursuant to Section 12 of the Act'' to read as follows:


    Note: The text of Form 10-KSB does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 10-KSB

* * * * *

General Instructions

* * * * *

C. Signature and Filing of Report

    1. * * *
    2. Who must sign. The small business issuer, its principal 
executive officer or officers (who also must provide the certification 
required by Rule 13a-14 (17 CFR 240.13a-14) or Rule 15d-14 (17 CFR 
240.15d-14)), its principal financial officer (who also must provide 
the certification required by Rule 13a-14 (17 CFR 240.13a-14) or Rule 
15d-14 (17 CFR 240.15d-14)), its controller or principal accounting 
officer and at least a majority of the board of directors or persons 
performing similar functions. If the small business issuer is a limited 
partnership, then the general partner and a majority of its board of 
directors if a corporation must sign the report. Any person who 
occupies more than one of the specified positions must indicate each 
capacity in which he or she signs the report. See Rule 12b-11 
concerning manual signatures under powers of attorney.
* * * * *

Signatures

* * * * *

Certifications *

    I, [identify the certifying individual], certify that:
    1. I have read this annual report on Form 10-KSB of [identify small 
business issuer];
    2. To my knowledge, the information in this report is true in all 
important respects as of [specify last date of the period covered by 
the report];
    3. This report contains all information about the company of which 
I am aware that I believe is important to a reasonable investor as of 
[specify last date of the period covered by the report]; and
    4. I have reviewed the results of the evaluation of the procedures 
maintained by the company to collect, process and disclose, in a timely 
manner, the information required to be disclosed in the company's 
quarterly and annual report.
    For purposes of this certification, information is ``important to a 
reasonable investor'' if:
    (a) There is a substantial likelihood that a reasonable investor 
would view the information as significantly altering the total mix of 
information in the report; and
    (b) The report would be misleading to a reasonable investor if the 
information was omitted from the report.

Date:-----------------------------------------------------------------

----------------------------------------------------------------------
      [Signature]        [Title]

    * Provide a separate certification for each principal executive 
officer and principal financial officer of the small business 
issuer. See Rules 13a-14 and 15d-14.
* * * * *

    Dated: June 14, 2002.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 02-15571 Filed 6-19-02; 8:45 am]
BILLING CODE 8010-01-P