[Federal Register Volume 75, Number 187 (Tuesday, September 28, 2010)]
[Proposed Rules]
[Pages 59866-59891]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23743]



[[Page 59865]]

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Part III





Securities and Exchange Commission





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17 CFR Parts 229 and 249



Short-Term Borrowings Disclosure; Proposed Rule

  Federal Register / Vol. 75 , No. 187 / Tuesday, September 28, 2010 / 
Proposed Rules  

[[Page 59866]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229 and 249

[Release Nos. 33-9143; 34-62932; File No. S7-22-10]
RIN 3235-AK72


Short-Term Borrowings Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to enhance the disclosure that 
registrants provide about short-term borrowings. Specifically, the 
proposals would require a registrant to provide, in a separately 
captioned subsection of Management's Discussion and Analysis of 
Financial Condition and Results of Operations, a comprehensive 
explanation of its short-term borrowings, including both quantitative 
and qualitative information. The proposed amendments would be 
applicable to annual and quarterly reports, proxy or information 
statements that include financial statements, registration statements 
under the Securities Exchange Act of 1934, and registration statements 
under the Securities Act of 1933. We are also proposing conforming 
amendments to Form 8-K so that the Form would use the terminology 
contained in the proposed short-term borrowings disclosure requirement.
    In a companion release, we are providing interpretive guidance that 
is intended to improve overall discussion of liquidity and capital 
resources in Management's Discussion and Analysis of Financial 
Condition and Results of Operations in order to facilitate 
understanding by investors of the liquidity and funding risks facing 
the registrant.

DATES: Comments should be received on or before November 29, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an e-mail to [email protected]. Please include 
File Number S7-22-10 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-22-10. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Christina L. Padden, Attorney Fellow 
in the Office of Rulemaking, at (202) 551-3430, or Stephanie L. 
Hunsaker, Associate Chief Accountant, at (202) 551-3400, in the 
Division of Corporation Finance; or Wesley R. Bricker, Professional 
Accounting Fellow, Office of the Chief Accountant at (202) 551-5300; 
U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, 
DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Item 303 \1\ 
of Regulation S-K \2\ and amendments to Forms 8-K \3\ and 20-F \4\ 
under the Securities Exchange Act of 1934 (``Exchange Act'').\5\
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    \1\ 17 CFR 229.303.
    \2\ 17 CFR 229.10 et al.
    \3\ 17 CFR 249.308.
    \4\ 17 CFR 249.220f.
    \5\ 15 U.S.C. 78a et seq.
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    The proposed amendments include:
     A new disclosure requirement in Management's Discussion 
and Analysis of Financial Condition and Results of Operations 
(``MD&A'') relating to short-term borrowings that would be designated 
as Item 303(a)(6) of Regulation S-K;
     Amendments to Item 303(b) of Regulation S-K that would 
require interim period disclosure of short-term borrowings with the 
same level of detail as is proposed for annual presentation;
     Conforming amendments to Item 5 of Form 20-F to add short-
term borrowings disclosure requirements;
     Conforming amendments to the definition of ``direct 
financial obligations'' in Items 2.03 and 2.04 of Form 8-K; and
     Revisions to Item 303 of Regulation S-K and Item 5 of Form 
20-F to update the references to United States generally accepted 
accounting principles (``U.S. GAAP'') to reflect the release by the 
Financial Accounting Standards Board (``FASB'') of its FASB Accounting 
Standards Codification (``FASB Codification'').

Table of Contents

I. Background and Summary
II. Discussion of the Proposed Amendments
    A. Short-Term Borrowings Disclosure
    B. Treatment of Foreign Private Issuers and Smaller Reporting 
Companies
    C. Leverage Ratio Disclosure Issues
    D. Technical Amendments Reflecting FASB Codification
    E. Conforming Amendments to Definition of ``Direct Financial 
Obligation'' in Form 8-K
    F. Transition
III. General Request for Comment
IV. Paperwork Reduction Act
    A. Background
    B. Burden and Cost Estimates Related to the Proposed Amendments
    C. Request for Comment
V. Cost-Benefit Analysis
    A. Introduction and Objectives of Proposals
    B. Benefits
    C. Costs
    D. Request for Comment
VI. Consideration of Impact on the Economy, Burden on Competition 
and Promotion of Efficiency, Competition and Capital Formation
VII. Small Business Regulatory Enforcement Fairness Act
VIII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Action
    D. Reporting, Recordkeeping, and other Compliance Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comments
    IX. Statutory Authority and Text of the Proposed Amendments

I. Background and Summary

    Over the past several years, we have provided guidance and have 
engaged in rulemaking initiatives to improve the presentation of 
information about funding and liquidity risk.\6\ As we have

[[Page 59867]]

emphasized in past guidance, MD&A disclosure relating to liquidity and 
capital resources is critical to an assessment of a company's prospects 
for the future and even the likelihood of its survival.\7\ We believe 
that leverage and liquidity continue to be significant areas of focus 
for investors,\8\ particularly as many failures in the financial crisis 
arose due to liquidity constraints.\9\
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    \6\ See, e.g., Disclosure in Management's Discussion and 
Analysis About Off-Balance Sheet Arrangements, Contractual 
Obligations and Contingent Liabilities and Commitments, Release No. 
33-8144 (Nov. 4, 2002) [67 FR 68054] (the ``OBS Proposing 
Release''); Disclosure in Management's Discussion and Analysis About 
Off-Balance Sheet Arrangements, Contractual Obligations and 
Contingent Liabilities and Commitments, Release No. 33-8182 (Jan. 
28, 2003) [68 FR 5982] (the ``OBS Adopting Release'') (adopting 
rules for disclosure in MD&A of off-balance sheet arrangements and 
aggregate contractual obligations); and Commission Guidance 
Regarding Management's Discussion and Analysis of Financial 
Condition and Results of Operations, Release No. 33-8350 (Dec. 19, 
2003) [68 FR 75056] (the ``2003 Interpretive Release'') (providing 
interpretive guidance on disclosure in MD&A, including liquidity and 
capital resources).
    \7\ See 2003 Interpretive Release, supra note 6, at 75062. See 
also Commission Statement About Management's Discussion and Analysis 
of Financial Condition and Results of Operations, Release No. 33-
8056 (Jan. 22, 2002) [67 FR 3746] (the ``2002 Interpretive 
Release'') and the OBS Adopting Release, supra note 6.
    \8\ See L. H. Pedersen, When Everyone Runs for the Exit, 5 Int'l 
J. Cent. BankING 177 (2009) (``[t]he global crisis that started in 
2007 provides ample evidence of the importance of liquidity risk * * 
* [t]he crisis spilled over to other credit markets, money markets, 
convertible bonds, stocks and over-the-counter derivatives.''); M. 
Brunnermeier, Deciphering the Liquidity and Credit Crunch 2007-2008, 
23 J. Econ. Persp. 77 (2009); M. Brunnermeier & L. Pedersen, Market 
Liquidity and Funding Liquidity, 22 Rev. Fin. Stud. 2201 (2009); R. 
Huang, How Committed Are Bank Lines of Credit? Evidence from the 
Subprime Mortgage Crisis, (working paper) (Aug. 2010), available at 
http://www.phil.frb.org/research-and-data/publications/working-papers/2010/wp10-25.pdf; P. Strahan et al., Liquidity Risk 
Management and Credit Supply in the Financial Crisis, (working 
paper) (May 2010), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1601992.
    \9\ See, e.g., K. Ayotte & D. Steele, Bankruptcy or Bailouts?, 
35 J. CORP. L. 469 (2010) (discussing illiquidity and insolvency for 
financial institutions in the context of the recent financial 
crisis); When the River Runs Dry, ECONOMIST, Feb. 11, 2010 (``Many 
of those clobbered in the crisis were struck down by a sudden lack 
of cash or funding sources, not because they ran out of capital.'').
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    A critical component of a company's liquidity and capital resources 
is often its access to short-term borrowings for working capital and to 
fund its operations.\10\ Traditional sources of funding, such as trade 
credit, bank loans, and long-term or medium-term debt instruments, 
remain important for many types of businesses.\11\ However, other 
short-term financing techniques, including commercial paper, repurchase 
transactions and securitizations, have become increasingly common among 
financial institutions and industrial companies alike.\12\
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    \10\ See D. Booth & J. Renier, Fed Policy in the Financial 
Crisis: Arresting the Adverse Feedback Loop, FRBD Economic Letter 
(Sept. 2009), available at http://www.dallasfed.org/research/eclett/2009/el0907.html (``Many businesses were hampered by the squeeze on 
short-term financing, a key source of working capital needed to 
prevent deeper reductions in inventories, jobs and wages.'').
    \11\ See, generally, B. Becker & V. Ivashina, Cyclicality of 
Credit Supply: Firm Level Evidence (May 2010) (Harvard Working 
Paper); C. M. James, Credit Market Conditions and the Use of Bank 
Lines of Credit, FRBSF Economic Letter 2009-27 (Aug. 2009), 
available at http://www.frbsf.org/publications/economics/letter/2009/el2009-27; M. Campello et al., Liquidity Management and 
Corporate Investment During a Financial Crisis (July 2010) (working 
paper) (examining how non-financial companies choose among various 
sources of liquidity), available at http://faculty.fuqua.duke.edu/
~charvey/Research/Working--Papers/W99--Liquidity--management--
and.pdf; V. Ivashina & D. Scharfstein, Bank Lending During the 
Financial Crisis of 2008, J. FIN. ECON. (forthcoming), available at 
http://ssrn.com/abstract=1297337 (examining the increase in draw-
downs or threats of draw-downs of existing credit lines by 
commercial and industrial firms and the related impact on bank 
lending).
    \12\ See S. Sood, Is the Ride Coming to an End?, Global 
Investor, May 1, 2009 (``Treasurers need to look harder at a broader 
range of funding alternatives, e.g., debt factoring, invoice 
factoring and trade finance which are essentially forms of 
collateralized financing''); M. Lemmon et al., The Use of Asset-
backed Securitization and Capital Structure in Industrial Firms: An 
Empirical Investigation (May 2010), available at http://www.fma.org.
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    Recent events have shown that these types of arrangements can be 
impacted, sometimes severely and rapidly, by illiquidity in the markets 
as a whole.\13\ When market liquidity is low, short-term borrowings 
present increased risks: that financing rates will increase or terms 
will become unfavorable, that it will be more costly or impossible to 
roll over short-term borrowings, or for financial institutions, that 
demand depositors will withdraw funds.\14\
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    \13\ See J. Tirole, Illiquidity and All Its Friends (Bank for 
International Settlements, Working Paper No. 303, 2010), available 
at http://www.bis.org (``[t]he recent crisis, we all know, was 
characterized by massive illiquidity.'' In addition, ``Overall there 
has been a tremendous increase in the proportion of short-term 
liabilities in the financial sector''). See also, e.g., P. Eavis, 
Lehman's Racy Repo, WALL ST. J., Mar. 12, 2010 (suggesting that repo 
financing ``is highly vulnerable in times of panic, as the credit 
crisis showed''); A. Martin et al., Repo Runs, FRBNY Staff Report 
No. 444 (Apr. 2010) (demonstrating that institutions funded by 
short-term collateralized borrowings are subject to the threat of 
runs similar to those faced by commercial banks).
    \14\ See, e.g., Brunnermeier, supra note 8, at 79-80; see also 
C. Borio, Market Distress and Vanishing Liquidity: Anatomy and 
Policy Options (Bank for International Settlements, Working Paper 
No. 158, 2004), available at http://www.bis.org (``Under stress, 
risk management practices, funding liquidity constraints, and in the 
most severe cases, concerns with counter-party risk become 
critical.'').
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    Moreover, short-term financing arrangements can present complex 
accounting and disclosure issues, even when market conditions are 
stable.\15\ Due to their short-term nature, a company's use of such 
arrangements can fluctuate materially during a reporting period, which 
means that presentation of period-end amounts of short-term borrowings 
alone may not be indicative of that company's funding needs or 
activities during the period. For example, a bank that routinely enters 
into repurchase transactions during the quarter might curtail that 
activity at quarter-end,\16\ resulting in a period-end amount of 
outstanding borrowings that does not necessarily reflect its business 
operations or related risks. Likewise, a retailer may have significant 
short-term borrowings during the year to finance inventory that is sold 
by year-end (and where those short-term borrowings are repaid by year-
end). In that case, where the need to finance inventory purchases 
fluctuates, impacted by the timing and volume of inventory sales, the 
ability to have access to short-term borrowings may be very important 
to the company. Therefore, although the financial services sector has 
been in the spotlight, the issues arising from short-term borrowings 
are not limited to that sector.\17\
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    \15\ See, e.g., the Division of Corporation Finance, Sample 
Letter Sent to Public Companies Asking for Information Related to 
Repurchase Agreements, Securities Lending Transactions, or Other 
Transactions Involving the Transfer of Financial Assets (Mar. 2010) 
(the ``2010 Dear CFO Letter''), available at http://www.sec.gov/divisions/corpfin/guidance/cforepurchase0310.htm.
    \16\ See V. Kotomin & D. Winters, Quarter-End Effects in Banks: 
Preferred Habitat or Window Dressing?, 29 J. FIN. RES. 1 (2006); M. 
Rappaport & T. McGinty, Banks Trim Debt, Obscuring Risks, WALL ST. 
J., May 25, 2010.
    \17\ See, e.g., W. Dudley, President & CEO, FRBNY, Remarks at 
the Center for Economic Policy Studies Symposium: More Lessons From 
the Crisis, (Nov. 13, 2009), available at http://newyorkfed.org/newsevents/speeches/2009/dud091113.html (noting ``[a] key 
vulnerability turned out to be the misplaced assumption that 
securities dealers and others would be able to obtain very large 
amounts of short-term funding even in times of stress.''); J. 
Lahart, U.S. Firms Build Up Record Cash Piles, WALL ST. J., June 10, 
2010 (``In the darkest days of late 2008, even large companies faced 
the threat that they wouldn't be able to do the everyday, short-term 
borrowing needed to make payrolls and purchase inventory.'').
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    Recent events have suggested that investors could benefit from 
additional transparency about companies' short-term borrowings, 
including particularly whether these borrowings vary materially during 
reporting periods compared to amounts reported at period-end without 
investor appreciation of those variations.\18\ Although current MD&A 
rules generally require disclosure of a registrant's use of short-term 
borrowing arrangements and the registrant's exposure to related risks 
and uncertainties,\19\ without a specific

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requirement to disclose information about intra-period short-term 
borrowings, investors may not have access to sufficient information to 
understand companies' actual funding needs and financing activities or 
to evaluate the liquidity risks faced by companies during the reporting 
period. To address these issues, we are proposing to amend the MD&A 
requirements to enhance disclosure that registrants provide regarding 
the use and impact of short-term financing arrangements during each 
reporting period. The principal aspects of the proposals are outlined 
below.
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    \18\ See, e.g., Financial Crisis Inquiry Commission, Hearing on 
``The Shadow Banking System'' (May 5, 2010) (transcript available at 
http://www.fcic.gov/hearings/pdfs/2010-0505-Transcript.pdf).
    \19\ See Item 303(a)(1) and (2) of Regulation S-K and 
Instruction 5 to paragraph 303(a) [17 CFR 229.303] (noting that 
liquidity generally shall be discussed on both a long-term and 
short-term basis); see also 2002 Interpretive Release, supra note 7 
(providing interpretive guidance on MD&A, noting ``registrants 
should consider describing the sources of short-term funding and the 
circumstances that are reasonably likely to affect those sources of 
liquidity'').
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    First, the proposed amendments would add new disclosure 
requirements relating to short-term borrowings, similar to the 
provisions for annual disclosure of short-term borrowings that are 
currently applicable to bank holding companies in accordance with the 
disclosure guidance set forth in Industry Guide 3, Statistical 
Disclosure by Bank Holding Companies (``Guide 3'').\20\ The proposed 
amendments would codify the Guide 3 provisions for disclosure of short-
term borrowings in Regulation S-K, would require disclosure on an 
annual and quarterly basis, and would be expanded to apply to all 
companies that provide MD&A disclosure, not only to financial 
institutions. If the proposals are adopted, we expect to authorize the 
Commission's staff to eliminate the corresponding provisions of Guide 3 
to avoid redundant disclosure requirements.\21\
    Second, we are proposing amendments to the requirements applicable 
to ``foreign private issuers'' in the ``Operating and Financial Review 
and Prospects'' item in Form 20-F to add short-term borrowings 
disclosure requirements, which would be substantially similar to the 
proposed amendments to MD&A, but without the requirement for quarterly 
reporting since foreign private issuers are not subject to quarterly 
reporting requirements.
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    \20\ See 17 CFR 229.801, Item VII.
    \21\ Guide 3, as originally promulgated in 1968 under the 
designations Guide 61 and Guide 3, served as an expression of the 
policies and practices of the Commission's Division of Corporation 
Finance in order to assist issuers in the preparation of their 
registration statements and reports. See Guides for Preparation and 
Filing of Registration Statements, Release No. 33-4936 (Dec. 9, 
1968) [33 FR 18617]. In 1982, these guides were redesignated as 
Securities Act Industry Guide 3 and Exchange Act Industry Guide 3, 
and were included in the list of industry guides in Items 801 and 
802 of Regulation S-K, but were not codified as rules. See 
Rescission of Guides and Redesignation of Industry Guides, Release 
No. 33-6384 [47 FR 11476], at 11476 (``The list of industry guides 
has been moved into Regulation S-K, which serves as the central 
repository of disclosure requirements under the Securities Act and 
Exchange Act, in order to more effectively put registrants on notice 
of their existence. These guides remain as an expression of the 
policies and practices of the Division of Corporation Finance and 
their status is unaffected by this change.'') If the proposed 
amendments are adopted, the Commission would authorize its staff to 
amend Guide 3 to eliminate Item VII in its entirety.
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    Third, we are proposing conforming amendments to the definition of 
``direct financial obligations'' in Items 2.03 and 2.04 of Form 8-K.
    Finally, the proposed amendments would update the references to 
U.S. GAAP in Item 303 of Regulation S-K and Item 5 of Form 20-F to 
reflect the FASB Codification.
    Over time, to enhance the information provided to investors through 
MD&A we have supplemented the principles-based disclosure requirements 
governing MD&A with more detailed and specific MD&A disclosure 
requirements, such as the contractual obligations table and the off-
balance sheet arrangements disclosure requirements.\22\ Our proposal to 
require quantitative and qualitative information about short-term 
borrowings is similarly designed to enhance investor understanding of a 
company's financial position and liquidity. We emphasize, however, that 
the addition of these specific disclosure requirements to MD&A 
supplements, and is not a substitute for the required discussion and 
analysis that enables investors to understand the company's business as 
seen through the eyes of management.\23\
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    \22\ See Items 303(a)(4) and (5) of Regulation S-K [17 CFR 
229.303(a)(4) and (5)].
    \23\ See 2003 Interpretive Release, supra note 6, at 75056.
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    In a companion release, we are providing interpretive guidance that 
is intended to improve the overall discussion of liquidity and funding 
in MD&A in order to facilitate understanding by investors of the 
liquidity and funding risks facing registrants.

II. Discussion of the Proposed Amendments

A. Short-Term Borrowings Disclosure

1. Existing Requirements for Disclosure of Short-Term Borrowings
    Existing MD&A requirements call for discussion and analysis of a 
registrant's liquidity and capital resources. With respect to 
liquidity, registrants must identify any known trends or any known 
demands, commitments, events or uncertainties that will result in or 
that are reasonably likely to result in the registrant's liquidity 
increasing or decreasing in any material way.\24\ Registrants are also 
required to identify and separately describe internal and external 
sources of liquidity.\25\ With respect to capital resources, a 
registrant is required to describe any known material trends, favorable 
or unfavorable, in its capital resources, indicating any expected 
material changes in the mix and relative cost of such resources.\26\ In 
its discussion of capital resources, a registrant is also required to 
consider changes between equity, debt and any off-balance sheet 
financing arrangements.\27\ However, other than in connection with this 
discussion of liquidity and capital resources under Item 303(a)(1) and 
(2) of Regulation S-K, companies that do not provide Guide 3 disclosure 
are not subject to any line item requirements for the reporting of 
specific data regarding short-term borrowing amounts or information 
about intra-period borrowing levels.
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    \24\ See Item 303(a)(1) of Regulation S-K [17 CFR 
229.303(a)(1)].
    \25\ Id.
    \26\ See Item 303(a)(2)(ii) of Regulation S-K [17 CFR 
229.303(a)(2)].
    \27\ Id.
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    Registrants that are bank holding companies provide statistical 
disclosures in accordance with the industry guidance set forth in Guide 
3.\28\ Guide 3 is primarily intended to provide supplemental data to 
facilitate analysis and to allow for comparisons of sources of income 
and evaluations of exposures to risk.\29\ One of the important 
provisions of Guide 3 is annual disclosure of average, maximum month-
end, and period-end amounts of short-term borrowings.\30\ Registrants 
that follow the provisions of Guide 3 provide three years of annual 
data, broken out into three categories of short-term borrowings, 
namely: Federal funds purchased and securities sold under agreements to 
repurchase, commercial paper, and other short-term borrowings.\31\ We 
believe that this data

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is useful to show the types of short-term financings constituting a 
portion of the bank holding company's liquidity profile, as well as to 
highlight differences between period-end and intra-period short-term 
financing activity and the overall liquidity risks it faces during the 
period. Given the utility of this data in analyzing liquidity and 
funding risks, we are proposing to require all registrants to provide 
disclosure in their MD&A similar to the short-term borrowings 
information called for by Guide 3.\32\ Further, since liquidity and 
funding risks can change rapidly over the course of a year, we are 
proposing to require the information for both annual and interim 
periods.
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    \28\ See 17 CFR 229.801. Bank holding companies typically 
include this disclosure in the MD&A section of their filings.
    \29\ See Proposed Revision of Financial Statement Requirements 
and Industry Guide Disclosures for Bank Holding Companies, Release 
No. 33-6417 (July 9, 1982) [47 FR 32158] at 32159.
    \30\ See Item VII of Guide 3.
    \31\ Id. Item VII of Guide 3 calls for the presentation of 
information for each category of short-term borrowings that is 
reported in the financial statements pursuant Article 9 of 
Regulation S-X. Rule 9-03.13(3) of Regulation S-X [17 CFR 210.9-
03.13(3)] requires separate balance sheet disclosure of ``amounts 
payable for (1) Federal funds purchased and securities sold under 
agreements to repurchase, (2) commercial paper, and (3) other short-
term borrowings.''
    \32\ As described below in this release, in codifying the Guide 
3 short-term borrowings provisions in Regulation S-K, we are 
proposing several changes from the existing provisions of Item VII 
of Guide 3. The changes include: Expanding the categories of short-
term borrowings that require disclosure; expanding the applicability 
to all registrants that are required to provide MD&A disclosure; 
requiring financial companies to provide disclosure of the daily 
maximum amount during the period, as well as averages on a daily 
average basis; requiring a discussion and analysis of short-term 
borrowings arrangements; and requiring quarterly reporting of short-
term borrowings. See ``Proposed New Short-Term Borrowings Disclosure 
in MD&A.''
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    We note that, in 1994, in connection with the elimination of 
various financial statement disclosure schedules, the Commission 
eliminated a short-term borrowings disclosure requirement for 
registrants that were not bank holding companies, which was similar to 
the existing Guide 3 short-term borrowings disclosure guidance.\33\ 
Former Rule 12-10 of Regulation S-X \34\ required those registrants to 
include with their financial statements a schedule of short-term 
borrowings that disclosed the maximum amount outstanding during the 
year, the average amount outstanding during the year, and the weighted-
average interest rate during the period, with amounts broken out into 
specified categories of short-term borrowings.\35\
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    \33\ See Financial Statements of Significant Foreign Equity 
Investees and Acquired Foreign Businesses of Domestic Issuers and 
Financial Schedules, Release No. 33-7118 (Dec. 13, 1994) [59 FR 
65632].
    \34\ 17 CFR 210.12-10.
    \35\ The categories in former Rule 12-10 were amounts payable 
to: banks for borrowings; factors or other financial institutions 
for borrowings; and holders of commercial paper.
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    While former Rule 12-10 of Regulation S-X was similar to the short-
term borrowing requirements proposed in this release, we believe there 
are important differences. In proposing to eliminate the schedule, the 
Commission noted that ``the disclosures concerning the registrant's 
liquidity and capital resources that are required in MD&A would appear 
to be sufficiently informational to permit elimination of the short-
term borrowing schedule.'' \36\ Although we believe that a thorough 
discussion of liquidity and capital resources under existing MD&A 
requirements often would provide qualitative information comparable to 
that elicited by the proposed requirements, we expect that the proposed 
requirements would serve as a useful framework for the provision of 
both quantitative and qualitative information about short-term 
borrowings that would supplement the registrant's discussion of 
liquidity and capital resources. We also believe that, in contrast to 
the presentation required in the financial statement schedule that was 
eliminated in 1994, the information would be more useful to investors 
if it is provided in MD&A, in tabular form, coupled with a discussion 
and analysis to provide context for the quantitative data.
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    \36\ See Financial Statements of Significant Foreign Equity 
Investees and Acquired Foreign Businesses of Domestic Issuers and 
Financial Schedules, Release No. 33-7055 (Apr. 19, 1994) [59 FR 
21814], at 21818.
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    Among the primary reasons cited for the repeal of Rule 12-10 were 
the practical difficulties involved in gathering the data and preparing 
meaningful disclosure.\37\ We note that some of those practical 
difficulties may be less relevant today because of technological 
advancements in accounting systems that have become more widely used by 
companies since 1994. In addition, the requirements proposed today 
contain a number of features designed to address some of the practical 
difficulties cited by prior commentators in connection with former Rule 
12-10. More importantly, however, recent events suggest that more 
detailed information about average short-term borrowings would 
facilitate a better understanding of whether a registrant's period-end 
figures are indicative of levels during the period. In light of these 
changes, we believe the balance of factors may have shifted, such that 
the utility of the disclosure justifies the burden of preparing it.
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    \37\ See Release No. 33-7118, supra note 30, at 65635.
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2. Proposed New Short-Term Borrowings Disclosure in MD&A
Summary of Proposed Requirements
    We are proposing to amend our MD&A requirements to include a new 
section that would provide tabular information about a company's short-
term borrowings, as well as a discussion and analysis of those short-
term borrowings. We note that the current Guide 3 disclosure of short-
term borrowings does not call for a qualitative discussion of the 
reasons for use by a registrant of the particular types of financing 
techniques, or of the drivers of differences between average amounts 
and period-end amounts outstanding for the period. We believe that 
including a requirement for a narrative explanation together with 
tabular data would provide important information so that investors can 
better understand the role of short-term financing and its related 
risks to the registrant as viewed through the eyes of management.
    The proposed amendments would codify in Regulation S-K the Guide 3 
provisions for disclosure of short-term borrowings applicable to bank 
holding companies and would apply to all companies that provide MD&A 
disclosure, not only to bank holding companies and other financial 
institutions. If the proposals are adopted, we expect to authorize the 
Commission's staff to eliminate the corresponding provisions of Guide 3 
in their entirety to avoid redundant disclosure requirements for bank 
holding companies. As proposed, registrants would be required to 
provide disclosure in MD&A of:
     The amount in each specified category of short-term 
borrowings at the end of the reporting period and the weighted average 
interest rate on those borrowings;
     The average amount in each specified category of short-
term borrowings for the reporting period and the weighted average 
interest rate on those borrowings;
     For registrants meeting the proposed definition of 
``financial company,'' the maximum daily amount of each specified 
category of short-term borrowings during the reporting period; and
     For all other registrants, the maximum month-end amount of 
each specified category short-term borrowings during the reporting 
period.
    We believe that the largest amount of short-term borrowings 
outstanding during the period is an important data point for assessing 
the intra-period fluctuation of short-term borrowings and, thus, of 
liquidity risk. Given the critical nature of liquidity and funding 
matters to a financial company's business activities, we believe it may 
be important for an investor to know the maximum amount that a 
financial company has borrowed in any given period as an indication of 
its short-term financing needs. We are proposing that financial 
companies be required to

[[Page 59870]]

disclose the maximum daily amount of short-term borrowings outstanding. 
Both Guide 3 and former Rule 12-10 called for disclosure of the maximum 
month-end amounts, which is the standard we are proposing to require 
for registrants that are not ``financial companies.'' As explained 
below, we are proposing monthly, rather than daily, maximum amounts for 
non-financial companies in view of the costs that non-financial 
companies may encounter in recording daily amounts and the information 
needs of investors.
Definition of Short-Term Borrowings
    Under the proposed rule, ``short-term borrowings'' would be defined 
by reference to the various categories of arrangements that comprise 
the short-term obligations reflected in a registrant's financial 
statements, and all registrants would be required to present 
information for each category of short-term borrowings.\38\ 
Specifically, as proposed, ``short-term borrowings'' would mean amounts 
payable for short-term obligations that are:
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    \38\ Consistent with the approach taken in Guide 3 and in former 
Rule 12-10 of Regulation S-X, we propose to define ``short-term 
borrowings'' by reference to the amounts payable for various 
categories of short-term obligations that are typically stated 
separately on the balance sheet in accordance with Regulation S-X. 
Under U.S. GAAP, short-term obligations are those that are scheduled 
to mature within one year after the date of an entity's balance 
sheet or, for those entities that use the operating cycle concept of 
working capital, within an entity's operating cycle that is longer 
than one year. See FASB ASC 210-10-20. As such, the proposed 
definition of short-term borrowings is intended to be a subset of 
short-term obligations under U.S. GAAP.
---------------------------------------------------------------------------

     Federal funds purchased and securities sold under 
agreements to repurchase;
     Commercial paper;
     Borrowings from banks;
     Borrowings from factors or other financial institutions; 
and
     Any other short-term borrowings reflected on the 
registrant's balance sheet.\39\
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    \39\ This last category is derived from the balance sheet line 
item in Rule 9-03.13(3) of Regulation S-X [17 CFR 210.9-03.13(3)] 
for ``other short-term borrowings.'' Amounts that a registrant 
includes on its balance sheet under a line item for ``other short-
term borrowings'' that do not fall into one of the other proposed 
categories would be disclosed under this category.

These categories are derived from the categories of short-term 
borrowings specified in Guide 3 and Rule 9-03 of Regulation S-X,\40\ as 
well as certain categories of current liabilities set forth in Rule 5-
02 of Regulation S-X.\41\ Registrants that are bank holding companies 
and other companies that follow Guide 3 prepare their financial 
statements in accordance with Article 9 of Regulation S-X and present 
separate line items for categories of short-term borrowings on the face 
of their balance sheets under Rule 9-03 of Regulation S-X. Registrants 
that are commercial or industrial companies prepare their financial 
statements in accordance with Article 5 of Regulation S-X and present 
separate categories of current liabilities on the face of their balance 
sheets under Rule 5-02 of Regulation S-X.\42\
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    \40\ 17 CFR 210.9-03.
    \41\ Rule 5-02.19(a) of Regulation S-X [17 CFR 210.5-02.19(a)] 
also requires separate disclosure in the balance sheet of amounts 
payable to trade creditors, related parties, and underwriters, 
promoters and employees (other than related parties). Consistent 
with the approach taken in former Rule 12-10 of Regulation S-X and 
in existing Guide 3 provisions, we are proposing to define short-
term borrowings more narrowly than ``current liabilities'' or 
``short-term obligations.''
    \42\ Registrants that are insurance companies follow Article 7 
of Regulation S-X, which also incorporates certain standards of 
Article 5. For example, under Rule 7-03.16(b), insurance companies 
must include disclosure required by Rule 5-02.19(b), if the 
aggregate short-term borrowings from banks, factors and other 
financial institutions and commercial paper issued exceeds five 
percent of total liabilities. See 17 CFR 210.5-02.19(b) and 17 CFR 
210.7-03.16(b).
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Categories and Disaggregation
    Rather than creating different disclosure categories for 
registrants based solely on existing financial reporting rules 
applicable to certain types of entities, the proposed requirement draws 
on the categories from both Rule 9-03 and Rule 5-02 so that a 
registrant must present each of the categories that is relevant to the 
types of short-term financing activities it conducts, even if that 
category is not required to be reported as a separate line item on its 
balance sheet under Regulation S-X.\43\ As a result, for example, 
registrants currently subject to Guide 3 would need to provide 
disclosure for the same categories as all other registrants. We believe 
this approach will result in more meaningful disclosure, since it will 
elicit more specific information regarding the borrowing methods 
actually used by the registrant. Foreign private issuers that do not 
prepare financial statements under U.S. GAAP would be permitted to 
provide disclosure of categories that correspond to the classifications 
used for such types of short-term borrowings under the comprehensive 
set of accounting principles that the company uses to prepare its 
primary financial statements, so long as the disclosure is provided at 
a level of detail that satisfies the objective of the disclosure 
requirement.\44\
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    \43\ In such circumstances, a registrant should consider whether 
additional information should be provided to identify the financial 
statement line items where the period-end short-term borrowings 
amounts are reported.
    \44\ See proposed Instruction 1 to Item 5.H of Form 20-F. This 
approach is consistent with the existing Instruction 5 to Item 5 of 
Form 20-F for issuers that file financial statements that comply 
with International Financial Reporting Standards (``IFRS'') as 
issued by the International Accounting Standards Board (``IASB''). 
It is also consistent with the approach taken for tabular disclosure 
of contractual obligations in Form 20-F for filers that do not use 
U.S. GAAP.
---------------------------------------------------------------------------

    The proposed requirements do not include a quantitative threshold 
for purposes of disaggregating amounts into categories of short-term 
borrowings. For bank holding companies, this would be a change from 
existing Guide 3 instructions, which allow categories to be aggregated 
where they do not exceed 30% of the company's stockholders' equity at 
the end of the period.\45\ On the one hand, including such a threshold 
could ease the compliance burden for a company where the distinction 
among categories of short-term borrowings is not material. On the other 
hand, including such a quantitative threshold could diminish the 
comparability of information across companies and, more fundamentally, 
could defeat the objective of specifically highlighting the types of 
short-term borrowing arrangements that expose registrants to liquidity 
risks. Accordingly, the allocation of amounts into the various 
categories is intended to achieve this purpose so that investors can 
assess the proportionate exposure to the funding risk and market risk 
inherent in the borrowing arrangements.
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    \45\ See Instruction to Item VII of Guide 3. If the proposals 
are adopted, we expect to authorize our staff to eliminate Item VII 
of Guide 3 in its entirety. In that case, a registrant that provides 
Guide 3 information would need to follow the proposed Item 303(a)(6) 
for its short-term borrowings disclosure in MD&A.
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    In circumstances where aggregate amounts within a category of 
short-term borrowings are subject to a wide range of interest rates and 
exchange rates, we note that disclosure of those aggregate amounts may 
not be comparable or meaningful. For example, a company with operations 
outside of the United States may have, for a variety of reasons (such 
as the need to finance its subsidiaries in local currency or as a hedge 
against an asset denominated in that currency), foreign currency-
denominated borrowings that have a significantly higher interest rate 
than the rate on its dollar-denominated borrowings. Under those 
circumstances, combining the dollar-denominated borrowings with the 
foreign currency-denominated borrowings could distort the presentation 
of the interest rates for the company, causing the combined weighted 
average interest rate on the

[[Page 59871]]

borrowings to be much higher than the company would incur to borrow in 
U.S. dollars alone. This would be particularly true if the borrowings 
are denominated in the currency of an economy that has experienced high 
rates of inflation. To address this issue, the proposal would include a 
requirement to further disaggregate amounts by currency or interest 
rate to the extent necessary to promote understanding or to prevent 
aggregate amounts from being misleading. Additional footnote disclosure 
describing the method for disaggregation is proposed to be required 
where necessary to an understanding of the data, stating, for example, 
the timing and exchange rates used for currency translations and any 
other pertinent data relating to the calculation of the amounts 
provided.
Requirements for ``Financial Companies'' and Other Companies
    As noted above, the proposed rule would distinguish between 
registrants that engage in financial activities as their business and 
all other registrants for purposes of calculating and reporting maximum 
amounts outstanding and average amounts outstanding during the 
reporting period. Registrants that are ``financial companies'' would be 
required to compile and report data for the maximum daily amounts 
outstanding (meaning the largest amount outstanding at the end of any 
day in the reporting period) and the average amounts outstanding during 
the reporting period computed on a daily average basis (meaning the 
amount outstanding at the end of each day, averaged over the reporting 
period). Registrants that are not ``financial companies'' would be 
required to report the maximum month-end amounts outstanding (meaning 
the largest amount outstanding at the end of the last day of any month 
in the reporting period) and would be required to disclose the basis 
used for calculating the average amounts reported. These registrants 
would not be required to present average outstanding amounts computed 
on a daily average basis, but, under the proposal, the averaging period 
used must not exceed a month.
    For purposes of the proposed requirement, a ``financial company'' 
would mean a registrant that, during the relevant reported period, is 
engaged to a significant extent \46\ in the business of lending, 
deposit-taking, insurance underwriting or providing investment advice, 
or is a broker or dealer as defined in Section 3 of the Exchange 
Act,\47\ and includes, without limitation, an entity that is, or is the 
holding company of, a bank, a savings association, an insurance 
company, a broker, a dealer, a business development company,\48\ an 
investment adviser, a futures commission merchant, a commodity trading 
advisor, a commodity pool operator, or a mortgage real estate 
investment trust.\49\ Although this non-exclusive list \50\ would be 
provided in the rule as guidance to registrants, the proposed 
definition itself is intentionally flexible, so that disclosure of 
maximum daily amount outstanding and the average amount outstanding 
during the reporting period computed on a daily average basis would be 
required to be provided by registrants that are engaged to a 
significant extent in the business of lending, deposit-taking, 
insurance underwriting, providing investment advice, or are brokers or 
dealers or any of the other enumerated types of entities, regardless of 
their nominal industry affiliation, organizational structure or primary 
regulator.
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    \46\ We are not proposing a specific threshold or definition of 
``significant'' for this purpose. As described below, we are 
proposing an instruction that allows a registrant to present the 
short-term borrowings attributable to any non-financial operations 
separately using the reporting rules for non-financial companies.
    \47\ 15 U.S.C. 78c. See also proposed Item 303(a)(6)(iv) of 
Regulation S-K and Item 5.H.4 of Form 20-F.
    \48\ Business development companies are a category of closed-end 
investment companies that are not registered under the Investment 
Company Act of 1940, but are subject to certain provisions of that 
Act. See Section 2(a)(48) and Sections 54-65 of the Investment 
Company Act of 1940 [15 U.S.C. 80a-2(a)(48) and 80a-53-64].
    \49\ A mortgage real estate investment trust, or mortgage REIT, 
is a type of real estate investment trust that invests in mortgages 
and interests in mortgages. Mortgage REITs typically rely on the 
exemption from registration under the Investment Company Act of 1940 
provided by Section 3(c)(5)(C) of that Act. [15 U.S.C. 80a-
3(c)(5)(C)].
    \50\ We note that the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010 (Pub. L. 111-203) (``Dodd-Frank Act'') 
includes defined terms for ``financial institution,'' ``financial 
company,'' and ``non-bank financial company'' which are used in 
various contexts in that legislation. Our proposed definition of 
``financial company'' is informed by the terms used in the 
legislation, but is not exactly the same. Because each of those 
terms has a definition specific to the regulatory purpose of the 
section of the legislation in which it is used, none is perfectly 
aligned with the disclosure aim of our proposed requirement. 
Therefore, in keeping with the over-arching principles-based 
approach to MD&A requirements, we are proposing a definition of 
``financial company'' based on the types of business activities that 
expose a company to similar liquidity risks that banks face.
    The enumerated examples of entities that would be considered 
``financial companies'' for purposes of the proposed rule are 
similar to the entities covered by the definition of ``financial 
institution'' contained in Sec. 803 of the Dodd-Frank Act, which 
includes: A depository institution, as defined in Section 3 of the 
Federal Deposit Insurance Act (12 U.S.C. 1813); a branch or agency 
of a foreign bank, as defined in Section 1(b) of the International 
Banking Act of 1978 (12 U.S.C. 3101); an organization operating 
under Section 25 or 25A of the Federal Reserve Act (12 U.S.C. 601-
604a and 611 through 631); a credit union, as defined in Section 101 
of the Federal Credit Union Act (12 U.S.C. 1752); a broker or 
dealer, as defined in Section 3 of the Securities Exchange Act of 
1934 (15 U.S.C. 78c); an investment company, as defined in Section 3 
of the Investment Company Act of 1940 (15 U.S.C. 80a-3); an 
insurance company, as defined in Section 2 of the Investment Company 
Act of 1940 (15 U.S.C. 80a-2); an investment adviser, as defined in 
Section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-
2); a futures commission merchant, commodity trading advisor, or 
commodity pool operator, as defined in Section 1a of the Commodity 
Exchange Act (7 U.S.C. 1a); and any company engaged in activities 
that are financial in nature or incidental to a financial activity, 
as described in Section 4 of the Bank Holding Company Act of 1956 
(12 U.S.C. 1843(k)).
    In addition, we expect that registrants that meet the existing 
definition of ``bank holding company'' in Rule 1-02 of Regulation S-
X [17 CFR 210.1-02] would be ``financial companies'' under the 
proposed definition.
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    Some registrants that are engaged in both financial and non-
financial businesses may meet the definition of ``financial company,'' 
such as manufacturing companies that have a subsidiary that provides 
financing to its customers to purchase its products. For those 
registrants, the costs involved in providing averages computed on a 
daily average basis and maximum daily amounts of short-term borrowings 
may not be justified by the benefit to investors, where only a portion 
of their activities are financial in nature. To address this, the 
proposal would provide an instruction that would permit a company to 
provide separate short-term borrowings disclosure for its financial and 
non-financial business operations. A company relying on the instruction 
would be required to provide averages computed on a daily average basis 
and maximum daily amounts for the short-term borrowings arrangements of 
its financial operations, and would be permitted to follow the 
requirements and instructions applicable to non-financial companies for 
purposes of the short-term borrowings arrangements of its non-financial 
operations. The instruction would also require the company to provide 
an explanatory footnote to the table with information to enable readers 
to understand how the operations were grouped for purposes of the 
disclosure.
    Although investors could benefit from having all registrants 
provide data for maximum daily amounts and average amounts computed on 
a daily average basis, we preliminarily believe that it is appropriate 
to limit these daily requirements to entities that are engaged

[[Page 59872]]

in activities that are financial in nature. Because of the nature of 
their business activities, we believe it may be important for an 
investor to have information about the daily amounts of borrowings of 
financial companies, particularly where borrowed funds are invested in 
assets that contribute to their earnings activities. We believe that 
most banks would be able to track daily short-term borrowings without 
unreasonable effort or expense, and some companies that engage in 
financial businesses may already track this type of information for 
their own risk management purposes.
    We expect that many other non-bank companies that engage in these 
types of activities do not currently track this information on a daily 
basis, so this proposed requirement could impose significant costs on 
these entities. On balance, however, we preliminarily believe that the 
importance of the information in the financial company setting 
justifies the increased costs. By contrast, for companies that are not 
financial companies, we are not proposing to require maximum daily 
amounts or averages calculated on a daily average basis because we 
preliminarily believe that the information with respect to those 
issuers is less important to investors than in the context of financial 
companies, and that the combination of our existing and proposed 
requirements should provide sufficient information about their use of 
short-term borrowings. However, we request comment on this issue below.
Narrative Discussion of Short-Term Borrowings
    In order to provide context for the short-term borrowings data, we 
are also proposing to require a narrative discussion of short-term 
borrowings arrangements.\51\ This narrative discussion is not currently 
included in Guide 3. The topics proposed to be included would be:
---------------------------------------------------------------------------

    \51\ See proposed Item 303(a)(6)(ii) of Regulation S-K.
---------------------------------------------------------------------------

     A general description of the short-term borrowings 
arrangements included in each category (including any key metrics or 
other factors that could reduce or impair the registrant's ability to 
borrow under the arrangements and whether there are any collateral 
posting arrangements) and the business purpose of those arrangements; 
\52\
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    \52\ A discussion of the business purpose of the arrangements 
might encompass topics such as the use of proceeds of the borrowings 
and the reasons for the particular structure of the arrangements.
---------------------------------------------------------------------------

     The importance to the registrant of its short-term 
borrowings arrangements to its liquidity, capital resources, market-
risk support, credit-risk support or other benefits; \53\
---------------------------------------------------------------------------

    \53\ Similar to the existing requirement in Item 303(a)(4)(i)(B) 
of Regulation S-K, this proposed requirement is intended to provide 
investors with an understanding of the importance to the registrant 
of its short-term borrowings as a financial matter and as they 
relate to the funding of its operations and to its risk management 
activities.
---------------------------------------------------------------------------

     The reasons for the maximum amount for the reporting 
period, including any non-recurring transactions or events, use of 
proceeds or other information that provides context for the maximum 
amount; and
     The reasons for any material differences between average 
short-term borrowings for the reporting period and period-end short-
term borrowings.
    This proposed short-term borrowings discussion and analysis is 
intended to highlight short-term financing activities and to complement 
the other MD&A requirements relating to liquidity and capital 
resources, but it is not intended to be repetitive of other disclosures 
relating to liquidity and capital resources. In preparing the short-
term borrowings disclosure, we anticipate that a registrant would need 
to consider its disclosures of cash requirements presented in the 
contractual obligations table, its disclosures of off-balance sheet 
arrangements, as well as its other liquidity and capital resources 
disclosures.\54\ For example, the company may have significant payments 
under operating leases or may have entered into a significant 
repurchase agreement that is accounted for as a sale that will be 
settled shortly after the balance sheet date and that are disclosed in 
the contractual obligations table. To be able to settle these amounts, 
the company may plan to use existing short-term financing arrangements 
that will limit its ability to borrow for other purposes, such as 
making loans or financing inventory, which in turn can impact 
operations. In this example, the company should discuss these items 
together and explain the implications. A registrant would need to 
consider ways to integrate the proposed disclosures, together with 
disclosures made under existing MD&A requirements, into a clear, 
comprehensive description of its liquidity profile. For example, a 
registrant could consider organizing its discussion to address overall 
liquidity, and then short-term and long-term borrowings and liquidity 
needs.
---------------------------------------------------------------------------

    \54\ See Item 303(a)(1) and (a)(2) of Regulation S-K.
---------------------------------------------------------------------------

    As discussed above, we believe investors would benefit from an 
expanded discussion and analysis about a company's use of short-term 
borrowings. We believe that disclosure of a company's short-term 
borrowings data, with a comprehensive discussion of its overall 
approach to short-term financings and the role of short-term borrowings 
in the company's funding of its operations and business plan, can 
provide investors with additional information necessary to better 
evaluate a registrant's current short-term liquidity profile and 
potential future trends in its liquidity and funding risks.
Request for Comment
    1. Is information about short-term borrowings and intra-period 
variations in the level of short-term borrowings useful to investors? 
If so, should we require specific line item disclosure of this 
information in MD&A, as proposed, or would existing MD&A requirements 
for disclosure of liquidity and capital resources provide sufficient 
disclosure about these issues? If a specific MD&A requirement would be 
appropriate, does the proposed requirement capture the type of 
information about short-term borrowings that is important to investors? 
If not, how should we change the proposed requirement? For example, 
should we require disclosure of the weighted average interest rate on 
the short-term borrowings, as proposed?
    2. Consistent with the approach taken in Guide 3 and in former Rule 
12-10 of Regulation S-X, we propose to define ``short-term borrowings'' 
by reference to the amounts payable for various categories of short-
term obligations that are typically reflected as short-term obligations 
on the balance sheet and stated as separate line items in accordance 
with Regulation S-X. Is the proposed definition sufficiently clear? If 
not, what changes should be made to the proposed definition? For 
example, should the definition refer to ``short-term obligations'' as 
defined in U.S. GAAP? \55\ In connection with any response, please 
provide information as to the costs associated with the implementation 
of any changes to the proposed definition.
---------------------------------------------------------------------------

    \55\ See, e.g., FASB ASC 210-10-20 (``Short-term obligations are 
those that are scheduled to mature within one year after the date of 
an entity's balance sheet or, for those entities that use the 
operating cycle concept of working capital described in paragraphs 
210-10-45-3 and 210-10-45-7, within an entity's operating cycle that 
is longer than one year.'').
---------------------------------------------------------------------------

    3. Are the proposed categories of short-term borrowings 
appropriate? If not, why not, and how should we change the proposed 
requirement? For example, should we apply different categories to Guide 
3 companies as compared to other companies, as was the case when former 
Rule 12-10 of

[[Page 59873]]

Regulation S-X was in effect? Are the proposed categories appropriately 
tailored so that companies can monitor and provide the proposed 
disclosure? In particular, is the category for ``any other short-term 
borrowings reflected on the registrant's balance sheet'' too broad? If 
so, how should it be narrowed? Are there other categories of short-term 
borrowings that should be broken out? For example, should amounts 
relating to repurchase arrangements be disaggregated into those that 
are collateralized by U.S. Treasury securities and those that are 
collateralized by other assets? If so, please include in your 
discussion the reasons such information would be meaningful to 
investors and provide an indication of the costs and burdens associated 
with providing that level of detail.
    4. Is disaggregation by currency or other grouping useful to the 
understanding of aggregate short-term borrowing amounts? Would the 
proposed requirement for disaggregation provide an appropriate level of 
detail? Is it sufficiently clear? Instead, should we prescribe a 
specified method or threshold for disaggregation? If so, describe it. 
For example, should we require information to be presented separately 
by currency where there is a significant amount of borrowings that are 
not denominated in the company's reporting currency? If so, should we 
specify a threshold amount (e.g., 5, 15 or 20% of borrowings) and what 
should that threshold be? Or should the amounts instead be 
disaggregated into more generalized categories, such as ``domestic'' 
and ``foreign'' borrowings? Please provide details about the costs and 
benefits of any alternatives to the proposed disaggregation provision, 
and discuss whether requiring companies to follow a specific 
disaggregation method would impose practical difficulties on companies 
(or particular types of companies) when they are gathering and 
compiling the proposed short-term borrowings disclosure.
    5. We note that Guide 3 currently provides a quantitative threshold 
for separate disclosure of short-term borrowings by category. The 
proposed short-term borrowings provision does not contain a specific 
quantitative disclosure threshold for separate disclosure of amounts in 
the different categories of short-term borrowings. Should we establish 
a quantitative disclosure threshold for the separate categories of 
short-term borrowings, such as above a specified percentage of 
liabilities or stockholders' equity (e.g., 5, 10, 20, 30 or 40%)? If 
so, how should the threshold be computed? Should this quantitative 
disclosure threshold apply to all companies?
    6. As proposed, ``financial companies'' would be required to 
provide the largest daily amount of short-term borrowings. We 
understand that banks and bank holding companies track this information 
on a daily basis in connection with the preparation of reports to 
banking regulators. We also expect that other non-bank companies 
engaged in financial businesses that would fall within the scope of the 
proposed requirement do not currently track this type of information on 
a daily basis. Is this information useful to investors? What are the 
burdens and costs of requiring registrants that meet the definition of 
``financial company'' but are not banks to meet that requirement?
    7. Is the activities-based definition of ``financial company'' 
sufficiently clear? Are the activities identified (lending, deposit 
taking, insurance underwriting, providing investment advice, broker or 
dealer activities) as part of the definition appropriate, or are they 
overly-inclusive (or under-inclusive)? Should we provide a definition 
of the term ``significant'' as used in the proposed definition? If so, 
should we provide a numerical, threshold-based definition (e.g., 10% of 
total assets)? If so, what should the threshold be? Should it relate to 
assets or should it relate to revenues and income? Should we specify 
certain types of entities in the definition, as proposed? Should other 
entities be added to or excluded from the definition? If so, please 
provide details. Are there any circumstances that would cause an entity 
to come under the proposed definition that should be excluded, and if 
so, why?
    8. Should all registrants that are financial companies be required 
to provide the maximum daily amount of short-term borrowings, as 
proposed? Should registrants that are not financial companies be 
required to provide the maximum daily amount of short-term borrowings, 
rather than permitting them to provide the maximum month-end amount as 
is proposed? Do registrants that are not financial companies have 
systems to track and calculate this information on a daily basis? What 
are the burdens and costs of requiring companies engaged in non-
financial businesses to meet that requirement? Should registrants that 
are not financial companies be required to disclose each month-end 
amount rather than the maximum, as proposed? Should registrants also be 
required to provide the minimum month-end (or daily for financial 
companies) amount outstanding? What are the burdens and costs of 
requiring companies to meet those requirements?
    9. Is the proposed accommodation for reporting that would allow 
financial companies to present information about their non-financial 
businesses on the same basis as other non-financial companies 
appropriate? Would this address cause concerns for these companies? Is 
the proposed instruction to implement this accommodation sufficiently 
clear?
    10. Should registrants be required to provide the largest amount of 
short-term borrowings outstanding at any time during the reporting 
period (meaning intra-day as opposed to close of business)? Would this 
amount be difficult for registrants to track?
    11. As proposed, registrants that are financial companies would be 
required to provide average amounts outstanding computed on a daily 
average basis. Should averages computed on a daily average basis be 
required only for certain companies (for example, bank holding 
companies, banks, savings associations, broker-dealers)? If so, why and 
which companies? In this connection, please describe whether financial 
companies that are not banks typically close their books on a daily 
basis and whether they have the systems to track and calculate this 
daily balance information used to compute averages on a daily average 
basis. What are the burdens and costs for a registrant (that is not a 
bank) to meet the proposed requirement? Are some types of businesses, 
such as multi-nationals, disproportionately affected by such costs? If 
so, please explain why. Is there an alternative requirement for such a 
business that would still meet the disclosure objective?
    12. As proposed, registrants that are not financial companies would 
be permitted to use a different averaging period, such as weekly or 
monthly, so long as the period used is not longer than a month. Is it 
appropriate to allow this type of flexibility given the possibility 
that longer averaging periods could mask fluctuations? Are certain 
borrowing practices more likely to be impacted than others, such as 
overdrafts used as financing? Is there an alternative requirement or 
instruction that could eliminate this issue while not imposing undue 
costs and burdens and still meeting the disclosure objective?
    13. Should we require a narrative discussion of short-term 
borrowing arrangements, as proposed? Are the narrative discussion 
topics useful to investors? Are there other discussion topics that 
would be useful to investors? If so, what other topics should we 
require to be discussed? Should we

[[Page 59874]]

tailor the disclosure to omit information that may be unimportant to 
investors? If so, what information, and why, and which registrants 
would be affected?
    14. Do the proposed discussion topics provide enough flexibility to 
companies to fully and clearly describe their short-term borrowings 
arrangements?
    15. If the proposals are adopted, we expect to authorize our staff 
to amend Guide 3 to eliminate Item VII in its entirety. Are there any 
other technical amendments that would be appropriate, such as the 
elimination of cross-references in other Commission rules or forms, if 
the staff removes Item VII from Guide 3?
3. Reporting Periods
    As proposed, the requirements would be applicable to annual and 
quarterly reports and registration statements. For annual reports, 
information would be presented for the three most recent fiscal years 
and for the fourth quarter. In addition, registrants preparing 
registration statements with audited full-year financial statements 
would be required to include short-term borrowings disclosure for the 
three most recent full fiscal year periods and interim information for 
any subsequent interim periods, consistent in each case with general 
MD&A requirements and instructions applicable to the relevant 
registration statement form requirements. For quarterly reports, 
information would be presented for the relevant quarter, without a 
requirement for comparative data. For registrants that are not subject 
to Guide 3, we are proposing a yearly phase-in of the requirements for 
comparative annual data until all three years are included in the 
annual presentation. This is described under the heading ``Transition'' 
in this release. Notwithstanding this transitional accommodation, all 
registrants would be permitted to provide three full years during the 
transition period.
    A principal objective of the proposed disclosure is to provide 
transparency about intra-period borrowings activity, as a supplement to 
disclosure of period-end amounts. To achieve this purpose in each 
reporting period, we are proposing that disclosure in quarterly reports 
and interim period disclosure in registration statements include short-
term borrowings information presented with the same level of detail as 
would be provided for annual periods.\56\ Companies would need to 
include the full presentation of quantitative and qualitative 
information for short-term borrowings during the interim period, rather 
than only disclosing material changes that have occurred since the 
previous balance sheet date. In addition, registrants would be required 
to identify material changes from previously reported disclosures in 
the discussion and analysis, so that any material changes would be 
highlighted. This layered approach is intended to enhance transparency 
of short-term borrowing activities during the specific quarterly 
period, while still emphasizing material changes so that investors can 
more easily understand how the exposures have evolved from past 
reporting periods.
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    \56\ We are proposing to revise the ``Instructions to Paragraph 
303(b)'' in Item 303 of Regulation S-K to accomplish this change to 
interim period reporting requirements. The proposed instructions 
would only apply to disclosure pursuant to Item 303(a)(6). See 17 
CFR 229.303(b).
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    In addition, registrants would be required to provide quarterly 
short-term borrowings information for the fourth fiscal quarter in 
their annual report. Because the disclosure is intended to provide 
additional transparency about a registrant's short-term borrowing 
practices, including the ability of the registrant to obtain financing 
to conduct its business, and the costs of that financing, during the 
year, we believe that short-term borrowings data for the fourth quarter 
would be useful to investors. As this type of reporting requirement 
would be a departure from our long-standing approach to the 
presentation of fourth quarter financial information in MD&A contained 
in annual reports, we specifically request comment below on this issue, 
and particularly whether material information as to short-term 
borrowing activities prior to year-end would be lost without separate 
quarterly disclosure for the fourth quarter.
    As proposed, interim period disclosures would be presented without 
comparative period data.\57\ We believe that this data is most 
meaningful to show changes from annual borrowing amounts and any intra-
period variations from period-end amounts. In addition, because any 
seasonal trends in the information should generally already be 
disclosed under existing MD&A requirements, we preliminarily do not 
believe it is necessary to specifically require prior period 
comparisons to identify seasonality in borrowing levels. Moreover, 
other than the presentation of short-term borrowings information for 
the fourth fiscal quarter, registrants would not be required to include 
a quarterly breakdown of short-term borrowings information in their 
annual report. Because quarterly information would be available in 
Forms 10-Q for all quarters other than the fourth quarter, we do not 
believe that repeating that quarterly information in the annual report 
would be useful to investors.
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    \57\ Proposed Instruction 8 to Paragraph 303(b) would require 
the registrant to include narrative discussion that highlights any 
material changes from prior periods. In doing so, registrants should 
consider whether including comparative period data would make the 
presentation of those material changes more clear.
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    These interim period requirements would not apply to registrants 
that are foreign private issuers or smaller reporting companies. In 
addition, smaller reporting companies would be permitted to disclose 
two fiscal years rather than three, in accordance with existing 
disclosure accommodations for small entities. For a discussion of the 
treatment of these types of entities, see the discussion under 
``Treatment of Foreign Private Issuers and Smaller Reporting 
Companies'' in this release.
Request for Comment
    16. Are the proposed reporting periods appropriate? Should we 
require annual short-term borrowings information in annual reports, as 
proposed? Should annual reports instead include a quarterly breakdown 
of short-term borrowings information? Should annual reports include 
quarterly information for the fourth fiscal quarter in addition to 
annual information, as proposed? For example, would disclosure of 
information for the fourth fiscal quarter be necessary to highlight any 
efforts to reduce borrowings at year-end, below the levels prevailing 
throughout the fourth fiscal quarter? Is the presentation of this 
information for the fourth fiscal quarter, in isolation without 
corresponding quarterly financial statements and MD&A for that period, 
potentially misleading? If so, what additional information should be 
required? Should quarterly reports be required to include quarterly 
information, as proposed? Should registration statements be required to 
include annual and interim information, as proposed? In each case, 
explain the reasons for requiring the applicable reporting periods and 
provide information as to whether investors would find the information 
useful. Please also include details about additional costs involved.
    17. Should we require quarterly disclosure at the same level of 
detail as annual period disclosure, as proposed? Does the proposed 
presentation provide information that is useful to investors? Describe 
in detail the costs and benefits of providing full (rather than 
material changes) interim period disclosures of the proposed short-term 
borrowings information. Instead, should we require quarterly reports to 
include disclosure

[[Page 59875]]

of material changes only? If so, why? How would disclosure of material 
changes address the issue of transparency of intra-period borrowings?
    18. For annual periods, should we require, as proposed, three years 
of comparative data? Or would data for the current year, without 
historical comparison periods, provide investors with adequate 
information? Describe in detail the costs and benefits of providing 
comparative period disclosures in this context.
    19. Is the proposed disclosure for the current interim period 
sufficient, or should we also require comparative period data? If so, 
which comparative periods would be most useful? Explain how prior 
period comparisons would be useful to investors; for example, would 
prior period comparisons be needed to identify seasonality in borrowing 
levels? If so, instead of requiring comparative data, should we 
specifically require companies to qualitatively describe trends or 
seasonality in borrowing levels? Describe in detail the costs and 
benefits of providing comparative period disclosures in this context.
    20. Should we require year-to-date information in addition to 
quarterly information for interim periods? Would year-to-date 
information be useful to investors? Describe in detail the costs and 
benefits of providing year-to-date information in this context.
4. Application of Safe Harbors for Forward-Looking Statements
    In some instances, the disclosure provided in response to the 
proposed short-term borrowings narrative discussion requirements could 
include disclosure of forward-looking information.\58\ We are not, 
however, proposing to extend the safe harbor in Item 303(c) of 
Regulation S-K to include disclosures of forward-looking information 
made pursuant to proposed Item 303(a)(6). This safe harbor was adopted 
in connection with the adoption of Items 303(a)(4) and (a)(5) and 
explicitly applies the statutory safe harbors of Sections 27A\59\ of 
the Securities Act and 21E \60\ of the Exchange Act to those Items in 
order to remove possible ambiguity about whether the statutory safe 
harbors would be available for that information.\61\ The disclosure 
required by Items 303(a)(4) and (a)(5) consists primarily of forward-
looking information, and as such, issuers and market participants 
expressed particular concerns about the application of existing safe 
harbors to that disclosure.\62\ In the proposing release for Item 
303(c), we requested comment as to whether the safe harbor in Item 
303(c) should be expanded to cover all forward-looking information in 
MD&A.\63\ We declined to adopt such an expansion. We preliminarily 
believe that the proposed short-term borrowings disclosure 
requirements, which primarily concern disclosure of historical amounts 
together with qualitative information about the registrant's use of 
short-term borrowings, would not present any distinctive issues under 
the application of the statutory safe harbor, and, accordingly, we are 
not proposing to provide any specific provision or guidance as to its 
application to this information. Companies would need to treat forward-
looking information disclosed pursuant to proposed Item 303(a)(6) in 
the same manner as other MD&A disclosure for purposes of the statutory 
safe harbor. We further note that nothing in the proposed requirements 
would limit (or expand) the scope of the statutory safe harbor, the 
safe harbor rules under Securities Act Rule 175 or Exchange Act Rule 
3b-6, or Item 303(c) of Regulation S-K.
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    \58\ See generally proposed Item 303(a)(6)(ii)(B), (C) and (D) 
of Regulation S-K.
    \59\ 15 U.S.C. 77z-2.
    \60\ 15 U.S.C. 78u-5.
    \61\ See OBS Adopting Release, supra note 6, at 5993.
    \62\ See, e.g., Letter of Committee on Federal Regulation of 
Securities of the American Bar Association's Section of Business Law 
in Response to the OBS Proposing Release, available at http://www.sec.gov/rules/proposed/s74202.shtml (``[B]ecause of the inherent 
predictive nature of disclosures of contingent liabilities and 
commitments. * * * [W]e are concerned that the failure to include 
that provision would lead to a negative inference that such 
disclosure is not covered by the safe harbor.'').
     In the OBS Adopting Release, the Commission emphasized that 
notwithstanding the safe harbor provided in Item 303(c) of 
Regulation S-K, the statutory safe harbor, by its terms, as well as 
the safe harbor rules under Securities Act Rule 175 [17 CFR 230.175] 
and Exchange Act Rule 3b-6 [17 CFR 240.3b-6] may be available for 
the forward-looking disclosure required by Items 303(a)(4) and (5) 
of Regulation S-K.
    \63\ See OBS Proposing Release, supra note 6, at 68065-68066.
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Request for Comment
    21. Is there any need for further guidance from the Commission with 
respect to the application of either the statutory or the rule-based 
safe harbors to the information called for by the proposed short-term 
borrowings disclosure requirement? If so, please provide details as to 
the potential ambiguity in the application of existing safe harbors. In 
particular, what information called for by the proposed requirements 
raises doubt as to the applicability of the statutory safe harbor or 
the safe harbor rules under Securities Act Rule 175 or Exchange Act 
Rule 3b-6?
    22. Should Item 303(c) of Regulation S-K be revised to also cover 
forward-looking information disclosed pursuant to the proposed short-
term borrowings disclosure requirement?

B. Treatment of Foreign Private Issuers and Smaller Reporting Companies

1. Foreign Private Issuers (Other Than MJDS Filers)
    The proposed amendments would apply to foreign private issuers that 
are not MJDS filers.\64\ The existing MD&A-equivalent disclosure 
requirements in Form 20-F \65\ currently mirror the substantive MD&A 
requirements for U.S. companies, and we believe that our proposed 
changes to the MD&A requirements for U.S. companies would provide 
important disclosure to investors that should also be provided by 
foreign private issuers. Accordingly, we are proposing a new paragraph 
H under Item 5 (Operational and Financial

[[Page 59876]]

Review and Prospects) in Form 20-F covering short-term borrowings.
---------------------------------------------------------------------------

    \64\ The term ``MJDS filers'' refers to registrants that file 
reports and registration statements with the Commission in 
accordance with the requirements of the U.S.-Canadian 
Multijurisdictional Disclosure System (the ``MJDS''). The definition 
for ``foreign private issuer'' is contained in Exchange Act Rule 3b-
4(c) [17 CFR 240.3b-4(c)]. A foreign private issuer is any foreign 
issuer other than a foreign government, except for an issuer that 
has more than 50% of its outstanding voting securities held of 
record by U.S. residents and any of the following: A majority of its 
officers and directors are citizens or residents of the United 
States, more than 50% of its assets are located in the United 
States, or its business is principally administered in the United 
States.
    \65\ Form 20-F is the combined registration statement and annual 
report form for foreign private issuers under the Exchange Act. It 
also sets forth disclosure requirements for registration statements 
filed by foreign private issuers under the Securities Act.
    In designing the integrated disclosure regime for foreign 
private issuers the Commission endeavored to ``design a system that 
parallels the system for domestic issuers but also takes into 
account the different circumstances of foreign registrants.'' 
Integrated Disclosure System for Foreign Private Issuers, Release 
No. 33-6360 (Nov. 20, 1981) [46 FR 58511]. As such, the requirements 
of Item 5 of Form 20-F are analogous to those in Item 303 of 
Regulation S-K. Although the wording is not identical, we interpret 
Item 5 as requiring the same disclosure as Item 303 of Regulation S-
K. See Rules, Registration and Annual Report for Foreign Private 
Issuers, Release No. 34-16371 (Nov. 29, 1979) [44 FR 70132] 
(adopting Form 20-F and stating that the Commission would consider 
revisions when MD&A requirements in Regulation S-K were adopted); 
Integrated Disclosure System for Foreign Private Issuers, Release 
No. 33-6360 (revising Form 20-F to add requirements consistent with 
the MD&A requirements in Regulation S-K); International Disclosure 
Standards, Release No. 33-7745 (Sept. 28, 1999)[64 FR 53900] 
(adopting revisions to Form 20-F to conform to international 
disclosure standards endorsed by the International Organization of 
Securities Commissions in 1998); see also OBS Adopting Release, 
supra note 6, at 5992 n. 135.
---------------------------------------------------------------------------

    Because foreign private issuers using a comprehensive set of 
accounting principles other than U.S. GAAP might capture data and 
prepare their financial statements using different categories of short-
term borrowings, we propose to include an instruction to paragraph H 
that would permit a foreign private issuer to base the categories of 
short-term borrowings used in the rule on the classifications for such 
types of short-term borrowings under the comprehensive set of 
accounting principles which the company uses to prepare its primary 
financial statements, so long as the disclosure is provided in a level 
of detail that satisfies the objective of the Item 5.H disclosure 
requirement.\66\ This approach is consistent with the approach to 
contractual obligations disclosure in Item 5.F, for which foreign 
private issuers are instructed to base their tabular disclosure on the 
classifications of obligations used in the generally accepted 
accounting principles under which the company prepares its primary 
financial statements.\67\ Similarly, in connection with references to 
FASB pronouncements used in Item 5 of Form 20-F, issuers that file 
financial statements that comply with IFRS as issued by the IASB are 
instructed to ``provide disclosure that satisfies the objective of Item 
5 disclosure requirements.'' \68\ Other than this instruction regarding 
the categorization of short-term borrowings, the short-term borrowings 
disclosure requirement proposed for Form 20-F is substantially similar 
to the proposed provision applicable to U.S. issuers.
---------------------------------------------------------------------------

    \66\ See proposed Instruction 1 to Item 5.H of Form 20-F.
    \67\ See Instruction 2 to Item 5.F of Form 20-F.
    \68\ See Instruction 5 to Item 5 of Form 20-F.
---------------------------------------------------------------------------

    The reporting periods applicable to U.S. issuers are proposed to 
also apply to foreign private issuers, except with respect to quarterly 
reporting. For annual reports on Form 20-F, foreign private issuers 
would present three years of annual short-term borrowings data, subject 
to the proposed transition accommodation applicable to all registrants 
that are not bank holding companies. Foreign private issuers preparing 
registration statements with audited full-year financial statements 
would be required to include short-term borrowings disclosure for the 
three most recent full fiscal year periods and quarterly information 
for any subsequent interim periods included in the registration 
statement in accordance with the requirements of the relevant 
registration statement form. The proposed amendments for U.S. issuers 
would require quarterly disclosure of short-term borrowings in 
quarterly reports on Form 10-Q.\69\ Foreign private issuers, however, 
are not required to file quarterly reports with the Commission, and 
therefore the proposed amendments would not apply to Form 6-K \70\ 
reports submitted by foreign private issuers.\71\ Thus, unless a 
foreign private issuer (other than an MJDS filer) files a Securities 
Act registration statement that must include interim period financial 
statements and related MD&A-equivalent disclosure,\72\ it would not be 
required to update its disclosure under proposed Item 5.H of Form 20-F 
more than annually.
---------------------------------------------------------------------------

    \69\ 17 CFR 249.308a. See proposed Instruction 8 to Item 303(b) 
of Regulation S-K [17 CFR 229.303(b)].
    \70\ 17 CFR 249.306. A foreign private issuer must furnish under 
cover of Form 6-K material information that it: Makes public or is 
required to make public under its home country laws, files or is 
required to file with a stock exchange on which its securities are 
traded and which was made public by that exchange under the rules of 
the stock exchange or distributes or is required to distribute to 
security holders. In instances where a foreign private issuer is 
furnishing interim information on short-term borrowings under those 
circumstances, we would encourage the foreign private issuer to 
consider providing an update to its annual short-term borrowings 
disclosure, although it would not be required to do so.
    \71\ This treatment is consistent with the approach we took when 
adopting off-balance sheet arrangements and contractual obligations 
disclosure. See OBS Adopting Release, supra note 6, at 5992 n. 139.
    \72\ The proposed amendments would apply to Securities Act 
registration statements on Forms F-1 [17 CFR 239.31], F-3 [17 CFR 
239.33] and F-4 [17 CFR 239.34]. Each of these registration 
statements references the disclosure requirements in Form 20-F.
---------------------------------------------------------------------------

Request for Comment
    23. Should we apply the proposed amendments to foreign private 
issuers' annual reports on Form 20-F, as proposed? Or should we exclude 
these annual reports from the scope of the amendments? If so, why?
    24. Should we apply the proposed amendments to foreign private 
issuers' registration statements, as proposed? Or should these 
registration statements be excluded from the scope of the proposed 
rules? In particular, should we not require the interim period short-
term borrowings information to be included in the registration 
statements of foreign private issuers? If not, why?
    25. Should we limit the application of the new disclosure 
requirements to foreign private issuers that are banks or bank holding 
companies, or that are financial companies? If so, why?
    26. Is the instruction to proposed Item 5.H regarding the 
categories of short-term borrowings appropriate? Is the instruction 
clear? If not, how can it be clarified?
2. MJDS Filers
    The proposed amendments would not affect MJDS filers. The 
disclosure provided by Canadian issuers is generally that which is 
required under Canadian law, and we do not propose to depart from our 
approach with respect to financial disclosure provided by MJDS filers. 
Accordingly, we are not proposing to further amend Form 40-F at this 
time.
Request for Comment
    27. Should we amend Form 40-F to include the new short-term 
borrowings disclosure requirements? If so, why?
3. Smaller Reporting Companies
    Smaller reporting companies currently provide disclosure pursuant 
to Item 303, subject to the special accommodation provided in Item 
303(d) that, among other things, permits the exclusion of tabular 
disclosure of contractual obligations under Item 303(a)(5). The 
proposed short-term borrowings disclosure requirements would apply to 
smaller reporting companies, except that quarterly disclosures would 
not be required unless material changes have occurred during that 
interim period (as is the case under existing requirements for interim 
period disclosure) and information for the fourth fiscal quarter would 
not be required in annual reports. To this end, we propose to amend 
Item 303(d) to clarify that smaller reporting companies need only 
provide the proposed Item 303(a)(6) information on an annual basis and, 
in interim periods, if any material changes have occurred.\73\ In 
addition, for smaller reporting companies providing financial 
information on net sales and revenues and on income from continuing 
operations for only two years, only two years of short-term borrowings 
information would be required, consistent with the scaled MD&A 
disclosure requirement for smaller reporting companies under existing 
Item 303(d).
---------------------------------------------------------------------------

    \73\ Proposed ``Instruction 8 to Paragraph 303(b)'' would 
exclude smaller reporting companies from the requirement to provide 
all the information specified in paragraph (a)(6) in interim 
periods. As proposed, Item 303(d) would state that smaller reporting 
companies are only required to provide material changes to the 
information specified in proposed Item 303(a)(6) in interim periods. 
The proposed revisions to Item 303(d) would not affect the existing 
accommodation for disclosure of Item 303(a)(5) information.
---------------------------------------------------------------------------

    This accommodation for interim period disclosure is intended to 
balance the practical impact of the disclosure requirement with the 
need to enhance

[[Page 59877]]

disclosure of liquidity risks facing smaller reporting companies. While 
liquidity risks, particularly those arising from short-term borrowings, 
are equally important for smaller reporting companies, we also believe 
that smaller reporting companies are likely to have fewer complex 
financing alternatives available. Accordingly, we believe that smaller 
reporting companies would not likely have as many significant changes 
to the liquidity profile presented in periodic reports as other 
reporting companies. Thus, we do not believe that the burden of 
preparing expanded interim period reporting is justified by the 
incremental information that would be provided compared to that 
provided under the existing interim updating model applicable to 
smaller reporting companies.
Request for Comment
    28. Does the proposal strike the proper balance between imposing 
proportional costs and burdens on smaller reporting companies while 
providing adequate information to investors? Would the proposed new 
short-term borrowings disclosure be useful to investors in smaller 
reporting companies? Are there any features of the proposed 
requirements that would impose unique difficulties or significant costs 
for smaller reporting companies? If so, how should we change the 
requirements to reduce those difficulties or costs while still 
achieving the disclosure objective?
    29. Should we provide the proposed exemption for interim period 
updating to smaller reporting companies? If not, please discuss whether 
the expanded level of interim period disclosure by smaller reporting 
companies would be useful to investors and why.
    30. Would the gathering of data and preparation of expanded interim 
period disclosure be burdensome to smaller reporting companies? Could 
the proposed requirement be structured a different way for smaller 
reporting entities so as to enable interim period reporting without 
imposing a significant cost? If so, please provide details of such an 
alternative.
    31. Are the nature of the short-term borrowings and the related 
risks different for smaller reporting companies such that additional or 
alternate disclosure would be appropriate? In particular, would the 
proposed annual requirement for disclosing short-term borrowings 
information cause a smaller reporting company to collect the same data 
it would need to collect for interim reporting, such that the expanded 
level of interim period disclosure proposed for registrants that are 
not smaller reporting companies would not be unduly burdensome?

C. Leverage Ratio Disclosure Issues

    Many observers believe that high leverage at financial 
institutions, in the U.S. and globally, was a contributing factor to 
the financial crisis.\74\ As a result, investors and market 
participants are increasingly focused on leverage ratio disclosures, 
particularly for banks and for non-bank financial institutions.\75\ 
Similarly, we believe that investors may benefit from additional 
transparency about the capitalization and leverage profile of non-
financial companies, particularly for those companies that rely heavily 
on external financing and credit markets to fund their businesses and 
future growth.
---------------------------------------------------------------------------

    \74\ See, e.g., Financial Stability Board, Report of the 
Financial Stability Forum on Addressing Pro-cyclicality in the 
Financial System (2009) available at http://www.financialstabilityboard.org/publications/r_0904a.pdf; S. Deng, 
SIVs, Bank Leverage and Subprime Mortgage Crisis, (Dec. 2009), 
available at http://ssrn.com/abstract=1319431.
    \75\ See, e.g., K. D'Hulster, The Leverage Ratio, WORLD BANK 
PUB. POL'Y J. (2009); J. Gabilondo, Financial Moral Panic! Sarbanes-
Oxley, Financier Folk Devils, and Off-Balance Sheet Arrangements, 36 
SETON HALL L. REV. 781 (2006) (proposing that a financial 
transparency ratio would reduce the public information gap arising 
from off-balance sheet arrangements); P. M. Hildebrand, Vice-
Chairman of the Governing Board of the Swiss National Bank, Is Basel 
II Enough? The Benefits of a Leverage Ratio, London School of 
Economics Financial Markets Group Lecture, Dec. 15, 2008, available 
at http://www.bis.org/review/r081216d.pdf; Standard & Poor's, The 
Basel III Leverage Ratio is a Raw Measure but Could Supplement Risk 
Based Capital Measures, April 15, 2010, available at http://www.bis.org/publ/bcbs165/splr.pdf.
---------------------------------------------------------------------------

    Under U.S. GAAP, bank holding companies are currently required to 
disclose certain capital and leverage ratios (calculated in accordance 
with the requirements of their primary banking regulator) in the 
financial statements that are included in filings with the 
Commission.\76\ The Commission's staff has observed that some bank 
holding companies also include disclosure of these ratios in their MD&A 
presented in annual and quarterly reports. The financial statement 
disclosure by bank holding companies of their capital and leverage 
ratios provides to investors some of the same information that banking 
regulators use to assess a bank's capital adequacy and leverage 
levels.\77\ For U.S. banks and thrifts, the standards applied by the 
various banking agencies are substantially uniform,\78\ which means 
that the ratios that bank holding companies are required to include in 
their financial statements filed with the Commission should be 
calculated using consistent methodology. Consistent with existing 
disclosure rules, where disclosed ratios are likely to be materially 
impacted by known events such as short-term borrowings, contractual 
obligations or off-balance sheet arrangements, or are not otherwise 
indicative of the registrant's leverage profile, additional disclosure 
would be required in order to provide an understanding of the 
registrant's financial condition and prospects.\79\
---------------------------------------------------------------------------

    \76\ See FASB ASC 942-505-50, Regulatory Capital Disclosures. 
Specifically, bank holding companies must present their required and 
actual ratios and amounts of Tier 1 leverage, Tier 1 risk based 
capital, and total risk based capital, (for savings institutions) 
tangible capital, and (for certain banks and bank holding companies) 
Tier 3 capital for market risk. Under U.S. GAAP, bank holding 
companies are required to include this information in the footnotes 
to their financial statements.
    \77\ See Regulation Y, Appendices A (Risk-Based Capital), B 
(Leverage Measure) and D (Tier I Leverage Measure) [12 CFR 225].
    \78\ See The Federal Reserve Board et al., Joint Report: 
Differences in Capital and Accounting Standards among the Federal 
Banking and Thrift Agencies (Feb. 5, 2003) [68 FR 5976].
    \79\ See, e.g., Item 303(a)(1) of Regulation S-K, and 
Instructions 1, 2 and 3 to Paragraph 303(a).
---------------------------------------------------------------------------

    We are considering whether to extend a leverage ratio disclosure 
requirement to companies that are not bank holding companies. We 
understand that, outside the banking industry, a variety of metrics are 
used to evaluate a company's debt levels and capital adequacy. There 
does not appear to be a ``one-size-fits all'' leverage ratio that is 
used by companies or investors. For example, we understand that 
financial analysts, credit analysts and other sophisticated users of 
financial statements tend to apply their own models and calculate their 
own ratios for use in their analyses of a registrant's financial 
health, using their own proprietary calculation methods.\80\ We also 
understand that there is not a consensus on how to measure and treat 
``off-balance sheet'' leverage for purposes of calculating leverage or 
capital ratios. We are requesting comment today as to the scope of a 
potential disclosure requirement, and importantly, how such a 
requirement would take into account the differences among metrics and 
industries while still providing comparability.
---------------------------------------------------------------------------

    \80\ See, e.g., P. Kraft, Rating Agency Adjustment to GAAP 
Financial Statements and Their Effect on Ratings and Bond Yields 
(Nov. 1, 2009) at http://ssrn.com/abstract=1266381.
---------------------------------------------------------------------------

Request for Comment
    32. Should all types of registrants be required to provide leverage 
ratio disclosure and discussion? Are there differences among industries 
or types of businesses that would need to be addressed in such a 
requirement so that

[[Page 59878]]

it is meaningful to investors? If so, how should ``leverage ratio'' be 
defined in this context? Is comparability across companies and 
industries important, or is the disclosure more meaningful if it is 
presented in the context of the particular registrant's business?
    33. Rather than extending the leverage ratio disclosure requirement 
to include all registrants, should we extend it only to other financial 
institutions or financial services companies? If so, how should the 
scope of included companies be defined? Would the proposed definition 
of ``financial company'' used in proposed Item 303(a)(6) work for this 
purpose? How should ``leverage ratio'' be defined in this context? Is 
there a different metric that would be more useful to investors? Should 
the ratio include ``off-balance sheet'' leverage or off-balance sheet 
equity adjustments? If so, describe how such a ratio would be 
calculated. What are the costs and benefits of defining a leverage 
ratio that would be applicable to all registrants? Where relevant, 
discuss the usefulness of a standardized ratio requirement given that 
many users of financial statements make their own calculations.
    34. Should bank holding companies be required to include the same 
level of disclosure of leverage and capital ratios for quarterly 
financial statements as they do for annual financial statements, rather 
than quarterly reporting of material changes? Should additional 
disclosures be required to accompany existing ratio disclosure that 
would make it more meaningful?

D. Technical Amendments Reflecting FASB Codification

    On June 30, 2009, the FASB issued FASB Statement of Financial 
Accounting Standards No. 168, The FASB Accounting Standards 
Codification and the Hierarchy of Generally Accepted Accounting 
Principles--a replacement of FASB Statement No. 162, to establish the 
FASB Codification as the source of authoritative non-Commission 
accounting principles recognized by the FASB to be applied by 
nongovernmental entities in the preparation of financial statements in 
conformity with U.S. GAAP. In August 2009, we issued guidance regarding 
the interpretation of references in the Commission's rules and staff 
guidance to specific standards under U.S. GAAP in light of the FASB 
Codification.\81\ As noted in that interpretive release, the Commission 
and its staff intend to embark on a longer term rulemaking and updating 
initiative to revise comprehensively specific references to specific 
standards under U.S. GAAP in the Commission's rules and staff guidance. 
Although we plan to make those comprehensive changes at a later date, 
we believe it is appropriate, at the same time that we propose to make 
other amendments to Item 303 of Regulation S-K and Item 5 of Form 20-F, 
to propose technical amendments to these provisions to reflect the FASB 
Codification. These proposed technical amendments include:
---------------------------------------------------------------------------

    \81\ See Commission Guidance Regarding the Financial Accounting 
Standards Board's Accounting Standards Codification, Release No. 33-
9062A (Aug. 19, 2009)[74 FR 42772] (stating that, concurrent with 
the effective date of the FASB Codification, references in the 
Commission's rules and staff guidance to specific standards under 
U.S. GAAP should be understood to mean the corresponding reference 
in the FASB Codification).
---------------------------------------------------------------------------

     Updating the U.S. GAAP references in the definition of 
``off-balance sheet arrangement'' in Item 303(a)(4)(ii) of Regulation 
S-K and Item 5.E.2 of Form 20-F;
     Updating U.S. GAAP references in the existing definitions 
of ``Long-Term Debt Obligation,'' ``Capital Lease Obligation'' and 
``Operating Lease Obligation'' in Item 303(a)(5)(ii) of Regulation S-K; 
\82\ and
---------------------------------------------------------------------------

    \82\ The instructions to Item 5.F (Tabular Disclosure of 
Contractual Obligations) of Form 20-F direct registrants to provide 
disclosure of contractual obligations (other than purchase 
obligations, for which a definition is provided) based on the 
classifications used in the generally accepted accounting principles 
under which the registrant prepares its primary financial 
statements. Accordingly, no update for FASB codification is 
necessary for Item 5.F of Form 20-F.
---------------------------------------------------------------------------

     Updating U.S. GAAP references in instructions 8 and 9 of 
the Instructions to Paragraph 303(a) of Regulation S-K.

As part of our continuing initiative to update the references in the 
Commission's rules and staff guidance, we believe that these proposed 
technical amendments would assist registrants in applying the relevant 
definitions and instructions, without needing to spend time and 
resources to identify the corresponding FASB provision as contemplated 
by the interpretive guidance.
Request for Comment
    35. Are there any additional revisions to the provisions of 
Regulation S-K or Form 20-F affected by the proposal that would be 
necessary or appropriate to reflect the release by the FASB of its FASB 
codification?

E. Conforming Amendments to Definition of ``Direct Financial 
Obligation'' in Form 8-K

    We are proposing revisions to the definition of ``direct financial 
obligation'' used in Items 2.03 and 2.04 of Form 8-K to conform to the 
definition of short-term borrowings used in proposed Item 303(a)(6). 
Specifically, the proposed amendment would revise paragraph (4) of the 
definition of ``direct financial obligation'' contained in Item 2.03(c) 
of Form 8-K.\83\
---------------------------------------------------------------------------

    \83\ Item 2.03(c) defines a ``direct financial obligation'' as 
any of the following: (1) a long-term debt obligation, as defined in 
Item 303(a)(5)(ii)(A) of Regulation S-K [17 CFR 
229.303(a)(5)(ii)(A)]; (2) a capital lease obligation, as defined in 
Item 303(a)(5)(ii)(B) of Regulation S-K [17 CFR 
229.303(a)(5)(ii)(B)];(3) an operating lease obligation, as defined 
in Item 303(a)(5)(ii)(C) of Regulation S-K [17 CFR 
229.303(a)(5)(ii)(C)]; or (4) a short-term debt obligation that 
arises other than in the ordinary course of business. The item 
defines ``short-term debt obligation'' as a payment obligation under 
a borrowing arrangement that is scheduled to mature within one year, 
or, for those companies that use the operating cycle concept of 
working capital, within a company's operating cycle that is longer 
than one year.
---------------------------------------------------------------------------

    The current definition of ``direct financial obligation'' was 
adopted as part of the 2004 adoption of Items 2.03 and 2.04 of Form 8-
K, in connection with updates to Form 8-K to require real-time 
disclosure of material information regarding changes in a company's 
financial condition or operations as mandated by Section 409 of the 
Sarbanes-Oxley Act of 2002.\84\ Items 2.03 and 2.04 of Form 8-K are 
intended to provide real-time disclosure when a company becomes 
obligated under a direct financial obligation or off-balance sheet 
arrangement that is material to the company, and upon the triggering of 
an increase or acceleration of any of those types of transactions where 
the impact would be material to the company. This real-time disclosure 
was intended to supplement and align with the requirements for annual 
and quarterly disclosure of off-balance sheet arrangements and 
contractual obligations under Items 303(a)(4) and (a)(5) of Regulation 
S-K. Acknowledging the importance of short-term financing disclosure to 
an understanding of a company's financial condition and risk profile, 
we included certain short-term debt obligations in the definition of 
``direct financial obligations,'' along with the long-term debt, leases 
and purchase obligations identified by reference to Item 303(a)(5) of 
Regulation S-K.
---------------------------------------------------------------------------

    \84\ Public Law 107-204, 116 Stat. 745 (2002). See Additional 
Form 8-K Disclosure Requirements and Acceleration of Filing Date, 
Release No. 33-8400 (Mar. 16, 2004) [69 FR 15594].
---------------------------------------------------------------------------

    We believe it is appropriate to align the existing reporting 
requirements for short-term debt obligations under Items 2.03 and 2.04 
of Form 8-K with the new proposed definition of short-term borrowings 
in Item 303(a)(6), in order to continue to provide consistency of 
disclosure. Accordingly, we are

[[Page 59879]]

proposing to amend clause (4) of the definition of direct financial 
obligation to refer to ``a short-term borrowing, as defined in Item 
303(a)(6)(iii) of Regulation S-K (17 CFR 229.303(a)(6)(iii) that arises 
other than in the ordinary course of business.'' \85\ In doing so, 
however, we propose to retain the existing carve-out in the definition 
of direct financial obligation for obligations that arise in the 
ordinary course of business, in order to maintain the focus of Items 
2.03 and 2.04 on real-time disclosure of individual transactions that 
are not routine or ``ordinary course'' financing transactions. If we 
were to eliminate the ordinary course of business carve-out in the 
definition, we do not believe that the level of material information 
provided would justify the burden on registrants to prepare, and the 
burden on investors to review and understand, potentially voluminous 
disclosure about routine transactions. In addition, we believe that the 
proposed short-term borrowings disclosures in MD&A would provide 
investors with timely information about fluctuations in short-term 
borrowings levels and about short-term borrowings practices, such that 
current reporting on Form 8-K of particular instances of significant 
fluctuations that arise due to ordinary course transactions would not 
necessarily provide additional insight to investors. Moreover, a 
registrant that experiences a material increase in short-term 
borrowings during a reporting period that is not consistent with past 
practices would likely need to consider carefully whether the 
underlying transactions causing the fluctuations fall within the 
meaning of ``ordinary course of business'' for purposes of Items 2.03 
and 2.04.
---------------------------------------------------------------------------

    \85\ See proposed revisions to Item 2.03(c)(4) of Form 8-K.
---------------------------------------------------------------------------

Request for Comment
    36. Instead of amending the definition of ``direct financial 
obligation'' to refer to proposed Item 303(a)(6), should the category 
of short-term financings included in the definition of ``direct 
financial obligation'' for purposes of Items 2.03 and 2.04 of Form 8-K 
differ from the standard used in proposed Item 303(a)(6)? Describe how 
the standards should differ and explain why. For example, should we 
retain the existing reference to ``short-term debt obligation'' 
instead?
    37. Is the proposed definition of short-term borrowings 
sufficiently tailored so as to exclude borrowing obligations that arise 
in the ordinary course of business, so that the carve-out in the 
definition of direct financial obligation is unnecessary? Should the 
carve-out for obligations that arise in the ordinary course of business 
be retained, as proposed? Describe the costs and burdens for companies 
if the carve-out were eliminated, particularly the burden on management 
to make an assessment of materiality of each short-term borrowing 
transaction within the filing timeframe. Is current reporting of 
routine short-term borrowing transactions that are material to the 
registrant sufficient? Would the new reporting requirements regarding 
short-term borrowing practices and average borrowings sufficiently 
improve reporting on this topic, so that Form 8-K reporting of ordinary 
course short-term borrowings would be unnecessary? Explain why or why 
not.

F. Transition

    In connection with the proposed short-term borrowings disclosure, 
we are proposing a transition accommodation for registrants that are 
not bank holding companies or subject to Guide 3 that would, for 
purposes of the annual reporting requirement, permit those companies to 
phase in compliance with the comparable annual period disclosure under 
proposed Item 303(a)(6). In the initial year of the transition period, 
these companies would be required to include short-term borrowings 
information for the most recent fiscal year and permitted to omit 
information for the two preceding fiscal years. In the second year of 
the transition period, these companies would be required to include the 
two most recent fiscal years, and permitted to omit the third preceding 
fiscal year. In the third year of the transition period, and 
thereafter, these companies would be required to include disclosure for 
the each of the three most recent fiscal years as prescribed in 
proposed Item 303(a)(6)(v). This transition accommodation would not 
apply to bank holding companies or other companies subject to Guide 3, 
since those companies already provide this disclosure for the three 
most recent fiscal years (or two fiscal years for certain smaller bank 
holding companies).\86\
---------------------------------------------------------------------------

    \86\ See General Instruction 3 of Guide 3.
---------------------------------------------------------------------------

Request for Comment
    38. Is the proposed transition accommodation appropriate? Should we 
require all companies to present all required periods at the outset?
    39. Would the proposed transition accommodation be useful for 
registrants? Is it sufficiently clear? Should we extend it to cover 
bank holding companies? If so, why?
    40. Are any other transition accommodations necessary for any 
aspects of the proposed requirements? Would any of the proposed 
requirements present any particular difficulty or expense that should 
be addressed by a transition accommodation? If so, please explain what 
would be needed and why. For example, should we provide a transition 
period to allow smaller reporting companies and/or non-bank companies 
time to set up systems to gather the data for the proposed disclosure? 
If so, what should that period be?

III. General Request for Comment

    We request and encourage any interested person to submit comments 
on any aspect of our proposals, other matters that might have an impact 
on the amendments, and any suggestions for additional changes. With 
respect to any comments, we note that they are of greatest assistance 
to our rulemaking initiative if accompanied by supporting data and 
analysis of the issues addressed in those comments and by alternatives 
to our proposals where appropriate.

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed amendments contain ``collection 
of information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (PRA).\87\ We are submitting the proposed 
amendments to the Office of Management and Budget (OMB) for review in 
accordance with the PRA.\88\ The titles for the collection of 
information are:
---------------------------------------------------------------------------

    \87\ 44 U.S.C. 3501 et seq.
    \88\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    (A) ``Regulation S-K'' (OMB Control No. 3235-0071); \89\
---------------------------------------------------------------------------

    \89\ The paperwork burden from Regulation S-K and the Industry 
Guides is imposed through the forms that are subject to the 
disclosures in Regulation S-K and the Industry Guides and is 
reflected in the analysis of those forms. To avoid a Paperwork 
Reduction Act inventory reflecting duplicative burdens, for 
administrative convenience, we estimate the burdens imposed by each 
of Regulation S-K and the Industry Guides to be a total of one hour.
---------------------------------------------------------------------------

    (B) ``Form 10-K'' (OMB Control No. 3235-0063);
    (C) ``Form 10-Q'' (OMB Control No. 3235-0070);
    (D) ``Form 8-K'' (OMB Control No. 3235-0060);
    (E) ``Form 20-F'' (OMB Control No. 3235-0288);
    (F) ``Form 10'' (OMB Control No. 3235-0064);

[[Page 59880]]

    (G) ``Form S-1'' (OMB Control No. 3235-0065);
    (H) ``Form F-1'' (OMB Control No. 3235-0258);
    (I) ``Form S-4'' (OMB Control No. 3235-0324);
    (J) ``Form F-4'' (OMB Control No. 3235-0325);
    (K) ``Proxy Statements--Regulation 14A (Commission Rules 14a-1 
through 14a-15) and Schedule 14A'' (OMB Control No. 3235-0059);
    (L) ``Information Statements--Regulation 14C (Commission Rules 14c-
1 through 14c-7) and Schedule 14C'' (OMB Control No. 3235-0057); and
    (M) ``Form N-2'' (OMB Control No. 3235-0026).
    These regulations, schedules and forms were adopted under the 
Securities Act and the Exchange Act, and in the case of Form N-2, the 
Investment Company Act of 1940.\90\ They set forth the disclosure 
requirements for periodic and current reports, registration statements, 
and proxy and information statements filed by companies to help 
investors make informed investment and voting decisions. The hours and 
costs associated with preparing, filing and sending each form or 
schedule constitute reporting and cost burdens imposed by each 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \90\ 15 U.S.C. 80a-1 et seq.
---------------------------------------------------------------------------

    We anticipate that the proposed amendments to Item 303 of 
Regulation S-K and to Item 5 of Form 20-F would increase existing 
disclosure burdens for annual reports on Form 10-K and Form 20-F, 
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and 
information statements, and registration statements on Forms 10, S-1, 
F-1, S-4, F-4 and N-2 by requiring new disclosure and discussion of 
short-term borrowings to be provided on an annual and interim basis.
    At the same time, the proposed technical amendments to Item 303 of 
Regulation S-K and Item 5.E of Form 20-F that update references to U.S. 
GAAP to reflect the FASB Codification would not increase existing 
disclosure burdens for annual reports on Form 10-K and Form 20-F, 
quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and 
information statements, and registration statements on Forms 10, S-1, 
F-1, S-4, F-4 and N-2.
    We also estimate that the amendments to the definition of ``direct 
financial obligation'' for purposes of disclosure requirements in Items 
2.03 and 2.04 of Form 8-K would not increase existing disclosure 
burdens for filings of Form 8-K. Although we propose to amend the 
existing definition to conform to the terminology used in the proposed 
MD&A requirements, we propose to retain the existing carve-out for 
ordinary course obligations. Thus, we assume that the proposed change 
in the definition would not substantially change the existing scope of 
the disclosure requirement, and, therefore, the proposed amendments 
would not increase the number of Form 8-K filings nor add incremental 
costs and burdens to the existing disclosure burden under Form 8-K. We 
solicit comment on whether our assumption is correct, and if not, how 
to estimate the additional number of Forms 8-K that would be filed 
pursuant to the proposed amendments to the definition of ``direct 
financial obligation.'' We note that, based on the number of filings 
made under Items 2.03 and 2.04 of Form 8-K in 2009, only approximately 
4% of all Form 8-K filings would be made in connection with those 
Items.
    Compliance with the proposed amendments would be mandatory. 
Responses to the information collections would not be kept 
confidential, and there would be no mandatory retention period for the 
information disclosed.

B. Burden and Cost Estimates Related to the Proposed Amendments

    As discussed below, we have estimated the average number of hours a 
company would spend preparing and reviewing the proposed disclosure 
requirements and the average hourly rate for outside professionals. In 
deriving our estimates, we recognize that some companies would 
experience costs in excess of those averages in the first year of 
compliance with the proposed amendments, and some companies may 
experience less than the average costs. The estimates of reporting and 
cost burdens provided in this PRA analysis address the time, effort and 
financial resources necessary to provide the proposed collections of 
information and are not intended to represent the full economic cost of 
complying with the proposal.
    For purposes of the PRA, we estimate that over a three year period, 
the average annual incremental paperwork burden for all companies to 
prepare the disclosure that would be required under the proposals to be 
approximately 872,458 hours of company personnel time and a cost of 
approximately $144,061,000 for the services of outside 
professionals.\91\ These estimates include the time and the cost of 
implementing data gathering systems and disclosure controls and 
procedures, the time and cost of in-house preparers, review by 
executive officers, in-house counsel, outside counsel, in-house 
accounting staff, independent auditors and members of the audit 
committee, and the time and cost of filing documents and retaining 
records.
---------------------------------------------------------------------------

    \91\ We calculated an annual average over a three-year period 
because OMB approval of PRA submissions covers a three-year period. 
For administrative convenience, the presentation of totals related 
to the paperwork burden hours have been rounded to the nearest whole 
number. The estimates reflect the burden of collecting and 
disclosing information under the PRA. Other costs associated with 
the proposed amendments are discussed in below under ``Cost-Benefit 
Analysis.''
---------------------------------------------------------------------------

    Our methodologies for deriving the burden hour and cost estimates 
presented in the tables below represent the average burdens for all 
registrants who are required to provide the disclosure, both large and 
small. As discussed elsewhere in this release, the time required to 
prepare the proposed disclosures could vary significantly depending on, 
among other factors, the nature of the registrant's business, its 
capital structure, its internal controls and disclosure controls 
systems, its risk management systems and other applicable regulatory 
requirements. In addition, the estimates do not distinguish between 
registrants that are bank holding companies and other registrants. 
Although bank holding companies and other companies that currently 
provide Guide 3 disclosure would already collect and disclose on an 
annual basis some of the information covered by the new requirements, 
the new requirements are not identical to the provisions of Guide 3. 
Accordingly, for purposes of these estimates, we assume that bank 
holding companies would have the same burden as other registrants, 
although they might not actually incur additional expenses for those 
portions of the new requirements that are the same as the existing 
provisions of Guide 3.
    Because our estimates assume that 100% of public companies engage 
in short-term borrowings from time to time, we estimate that the same 
percentage of companies would be impacted by the proposed disclosure 
requirements for short-term borrowings.\92\ Therefore, for those 
companies that do not engage in short-term borrowing activities during 
a reporting period, the incremental burdens and costs may be lower than 
our estimate. However, because these

[[Page 59881]]

companies may still need to implement systems and controls to capture 
short-term borrowings data that is not currently collected, we have 
assumed that they would share the same average burden and cost 
estimate. In addition, we assume that the burden hours of the proposed 
amendments would be comparable to the burden hours related to similar 
disclosure requirements, such as off-balance sheet arrangements 
disclosure requirements,\93\ contractual obligations disclosure 
requirements,\94\ and requirements for the qualitative and quantitative 
disclosure of market risk,\95\ which call for quantitative and/or 
qualitative discussion and analysis of financial data.
---------------------------------------------------------------------------

    \92\ We further assume that the proposed amendments would not 
affect the number of filings.
    \93\ OBS Adopting Release, supra note 6, at 5994 (which we 
estimated to be 14.5 hours for annual reports and proxy statements, 
16 hours for registration statements and 10 hours for quarterly 
reports).
    \94\ OBS Adopting Release, supra note 6, at 5994 (which we 
estimated to be 7.5 hours for annual reports and proxy statements, 
8.5 hours for registration statements and 3 hours for quarterly 
reports).
    \95\ Disclosure of Accounting Policies for Derivative Financial 
Instruments and Derivative Commodity Instruments and Disclosure of 
Qualitative and Quantitative Information About Market Risk Inherent 
in Derivative Financial Instruments, Other Financial Instruments and 
Derivative Commodity Instruments, Release No. 33-7386 (Jan. 31, 
1997) [62 FR 6044] (which we estimated to be 80 hours total per 
registrant).
---------------------------------------------------------------------------

    We derived the estimates by estimating the total amount of time it 
would take a company to implement systems to capture the data, 
implement related disclosure controls and procedures, prepare and 
review the disclosure pursuant to the proposed short-term borrowings 
requirements. We first estimated the total amount of time it would take 
a company to prepare and review the proposed disclosure for each form, 
using the estimates for the comparable disclosure requirements 
identified above as a starting point. Because we believe that the 
proposed rules would impose an increased burden on companies in 
connection with the implementation of data gathering systems and the 
implementation of related disclosure controls and procedures as 
compared to those comparable disclosure requirements, we added hours to 
those estimates, to reflect our best estimate of the additional time 
needed to implement the new systems.
    The tables below illustrate the total incremental annual compliance 
burden of the collection of information in hours and in cost under the 
proposed amendments for annual reports, proxy and information 
statements, quarterly reports and current reports on Form 8-K under the 
Exchange Act (Table 1) and for registration statements under the 
Securities Act and Exchange Act (Table 2). There is no change to the 
estimated burden of the collection of information under Regulation S-K 
because the burdens that Regulation S-K imposes are reflected in our 
revised estimates for the forms. The burden estimates were calculated 
by multiplying the estimated number of annual responses by the 
estimated average number of hours it would take a company to prepare 
and review the proposed disclosure requirements. We recognize that some 
registrants may need to include MD&A disclosure in more than one filing 
covering the same period, accordingly actual numbers may be lower than 
our estimates.
    We have based our estimated number of annual responses on the 
actual number of filings during the 2009 fiscal year, with three 
exceptions. First, we reduced the number of annual responses for 
Schedules 14A and 14C, based on our belief that only a minimal number 
of companies that file these schedules would need to prepare MD&A 
disclosure for the filing, rather than incorporating by reference from 
a periodic report. Second, we reduced the number of annual responses 
for Form N-2, based on our estimate of the number of Form N-2 filings 
made by business development companies in 2009 because only business 
development companies are required to include MD&A disclosure in a Form 
N-2.\96\ In addition, we recognize that smaller reporting companies 
would be exempted from ``full'' interim period reporting in their 
quarterly reports rather than only reporting material changes on a 
quarterly basis. To reflect this, we reduced the number of annual 
responses of Forms 10-Q by our estimate of the number of Forms 10-Q 
filed by smaller reporting companies.\97\
---------------------------------------------------------------------------

    \96\ The current estimate of annual responses for Form N-2 is 
205. Our best estimate of the total number of Forms N-2 filed in 
2009 by business development companies is 29. Accordingly, for 
purposes of Table 2, we reduced the current estimate of annual 
responses for Form N-2 (205 Form N-2 filings) to 29 Form N-2 
filings.
    \97\ This adjustment is based on our best estimate of the number 
of Forms 10-Q filed by smaller reporting companies in 2009.
---------------------------------------------------------------------------

    For Exchange Act reports and proxy and information statements, we 
estimate that 75% of the burden of preparation is carried by the 
company internally and that 25% of the burden of preparation is carried 
by outside professionals retained by the company at an average cost of 
$400 per hour.\98\ For registration statements, we estimate that 25% of 
the burden of preparation is carried by the company internally and that 
75% of the burden of preparation is carried by outside professionals 
retained by the company at an average cost of $400 per hour. The 
portion of the burden carried by outside professionals is reflected as 
a cost, while the portion of the burden carried by the company is 
reflected in hours.
---------------------------------------------------------------------------

    \98\ For Form 20-F, we estimate that 25% of the burden is 
carried by the company and 75% by outside professionals because we 
assume that foreign private issuers rely more heavily on outside 
counsel for preparation of the Form.

     Table 1--Incremental Paperwork Burden Under the Proposed Amendments for Annual Reports, Quarterly Reports, Forms 8-K and Proxy and Information
                                                                       Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Annual        Incremental        Total        75% Company         25%        Professional
                                                           responses 99    burden hours/    incremental  ----------------  Professional        costs
                                                         ----------------      form        burden hours                  -------------------------------
                                                                         --------------------------------  (D)=(C)*0.75
                                                                (A)             (B)         (C)=(A)*(B)                    (E)=(C)*0.25    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K....................................................          13,545              40         541,800         406,350         135,450     $54,180,000
20-F....................................................             942              30          28,260           7,065          21,195       8,478,000
10-Q....................................................          28,841              20         574,840         431,130         143,710      57,484,000
8-K.....................................................         115,795               0               0               0               0               0
SCH 14A.................................................             365              30          10,950         8,212.5         2,737.5       1,095,000
SCH 14C.................................................              34              30           1,020             765             255         102,000
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................         159,522             150       1,156,860       853,522.5       303,347.5     121,339,000
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 59882]]


                             Table 2--Incremental Paperwork Burden Under the Proposed Amendments for Registration Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Annual        Incremental        Total        25% Company         75%        Professional
                                                           responses 100   burden hours/    incremental  ----------------  Professional        costs
                                                         ----------------      form        burden hours                  -------------------------------
                                                                         --------------------------------  (D)=(C)*0.25
                                                                (A)             (B)         (C)=(A)*(B)                    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
S-1.....................................................           1,168              35          40,880          10,220          30,660     $12,264,000
F-1.....................................................              42              35           1,470           367.5         1,102.5         441,000
S-4.....................................................             619              35          21,665        5,416.25       16,248.75       6,499,500
F-4.....................................................              68              35           2,380             595           1,785         714,000
10......................................................             238              35           8,330         2,082.5         6,247.5       2,499,000
N-2.....................................................              29              35           1,015          253.75          761.25         304,500
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................           2,164             210          75,740          18,935          56,805      22,722,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Annual Reports and Proxy/Information Statements
---------------------------------------------------------------------------

    \99\ Except as described above, the number of responses 
reflected in the table equals the actual number of forms and 
schedules filed with the Commission during the 2009 fiscal year.
    \100\ Except as described above, the number of responses 
reflected in the table equals the actual number of forms filed with 
the Commission during the 2009 fiscal year.
---------------------------------------------------------------------------

    We estimate that the preparation of annual reports currently 
results in a total annual compliance burden of 21,986,455 hours and an 
annual cost of outside professionals of $3,591,562,980. We estimate 
that the preparation of proxy and information statements currently 
result in a total annual compliance burden of 735,122 hours and an 
annual cost of outside professionals of $86,608,526.
    As set forth in Table 1 above, if the proposals were adopted, we 
estimate that the incremental cost of outside professionals for annual 
reports would be approximately $62,658,000 per year and the incremental 
company burden would be approximately 413,415 hours per year; and, for 
proxy and information statements, the total incremental cost of outside 
professionals would be approximately $1,197,000 per year and the 
incremental company burden would be approximately 8,978 hours per year. 
For purposes of our submission to the OMB under the PRA, if the 
proposals were adopted, the total cost of outside professionals for 
annual reports would be approximately $3,654,220,980 per year and the 
total company burden would be approximately 22,399,870 hours per year; 
and the total cost of outside professionals for proxy and information 
statements would be approximately $87,805,526 per year and the total 
company burden would be approximately 744,100 hours per year.
2. Quarterly Reports
    We estimate that Form 10-Q preparation currently results in a total 
annual compliance burden of 4,559,793 hours and an annual cost of 
outside professionals of $607,972,400. As set forth in Table 1 above, 
if the proposals were adopted, we estimate that the incremental cost of 
outside professionals for quarterly reports would be approximately 
$57,484,000 per year and the incremental company burden would be 
approximately 431,130 hours per year. For purposes of our submission to 
the OMB under the PRA, if the proposals were adopted, the total cost of 
outside professionals for quarterly reports would be approximately 
$665,456,400 per year and the total annual company burden for quarterly 
reports would be approximately 4,990,923 hours per year.
3. Current Reports on Form 8-K
    Form 8-K prescribes information about significant events that a 
registrant must disclose on a current basis. We are proposing 
amendments to the definitions used in Items 2.03 and 2.04 of Form 8-K 
that revise the terminology used, but which we assume would not 
significantly impact the scope of information required to be disclosed 
under those items. Accordingly, we estimate that the proposed 
amendments would not increase the number of current reports filed on 
Form 8-K nor add incremental costs and burdens to the existing 
disclosure burden under Form 8-K. If the proposed revisions to Items 
2.03 and 2.04 of Form 8-K were adopted, we estimate that, on average, 
completing and filing a Form 8-K would require the same amount of time 
currently spent by entities completing the form--approximately 4 hours.
    We estimate that Form 8-K preparation currently results in a total 
annual compliance burden of 493,436 hours and an annual cost of outside 
professionals of $65,791,500.
4. Registration Statements
    We estimate that the preparation of registration statements that 
would be affected by the proposed amendments currently has a total 
annual compliance burden of 1,023,273 hours and an annual cost of 
outside professionals of $1,127,687,401. As set forth in Table 2 above, 
if the proposals were adopted, we estimate that the incremental cost of 
outside professionals for registration statements would be 
approximately $22,722,000 per year and the incremental company burden 
would be approximately 18,935 hours per year. For purposes of our 
submission to the OMB under the PRA, if the proposals were adopted, the 
total cost of outside professionals for registration statements would 
be approximately $1,150,409,401 per year and the total company burden 
would be approximately 1,042,208 hours per year.

C. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information would have practical 
utility;
     Evaluate the accuracy of our estimates of the burden of 
the proposed collections of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collections of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments would have any 
effects on any other collections of information not previously 
identified in this section.
    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 collection of

[[Page 59883]]

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 Elizabeth M. Murphy, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090, with reference to File No. S7-22-10. Requests for materials 
submitted to the OMB by us with regard to these collections of 
information should be in writing, refer to File No. S7-22-10 and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street, NE., Washington, DC 20549-0213. 
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. Cost-Benefit Analysis

A. Introduction and Objectives of Proposals

    We are proposing amendments to enhance the disclosure that 
companies provide about short-term borrowings in order to provide more 
useful disclosure to investors about liquidity and short-term 
financings and to enhance investor understanding of issuers' liquidity. 
The proposed amendments are intended to improve disclosure by expanding 
and supplementing existing requirements.
    First, the proposals would require a registrant to provide a 
comprehensive explanation of its short-term borrowings, including both 
quantitative and qualitative information. In addition, we are proposing 
conforming amendments to Form 8-K so that the Form uses the terminology 
contained in the proposed short-term borrowings disclosure requirement. 
Finally, we are making technical amendments to Item 303 of Regulation 
S-K to revise references to U.S. GAAP to reflect the FASB Codification.
    The proposals seek to improve transparency of a company's short-
term borrowings in order to provide investors with comprehensive 
information about a company's liquidity profile and demands on capital 
resources in each reporting period. The proposals also aim to clarify 
existing MD&A requirements in these areas to assist registrants in 
preparing disclosure that is meaningful, useful and clear. Ultimately, 
the proposals are expected to enhance the ability of investors to make 
informed investment decisions and to allocate capital on a more 
efficient basis.
    We considered alternative regulatory approaches for achieving these 
objectives, including providing further interpretive guidance on 
existing MD&A disclosure requirements and encouraging companies to 
voluntarily provide quantitative and qualitative information on short-
term borrowings where material to their financial condition. Although 
some public companies are voluntarily providing more detailed 
information as to short-term financings in their MD&A, we have observed 
that some companies generally do not provided investors with the 
desired level of detail in their disclosure absent a specific 
disclosure requirement or guidance, such as Guide 3. To elicit more 
detailed and comparable disclosures regarding a company's short-term 
borrowings activities in each reporting period as part of its overall 
liquidity profile, we are proposing mandated disclosure of short-term 
borrowings to complement existing MD&A disclosures.

B. Benefits

    The proposed disclosures would benefit investors by informing them 
about the fluctuations in short-term borrowings during the reporting 
period. Information about the variability of borrowing levels and 
variations in types of borrowing activities over the course of the 
reporting period should enable investors to better understand the 
ability of a registrant to obtain the financing it needs to conduct its 
business operations and the costs of that financing, and how those may 
vary during the reporting period. The transparency of the financial 
statements should increase because investors would be able to learn 
more about the amount of financial risk taken by the company, its 
liquidity and capital resources, and the amount of capital deployed in 
earning activities by the company on an on-going basis during the year, 
including at quarter-ends. The proposed narrative discussion of the 
short-term borrowings arrangements, including the importance of those 
arrangements to the registrant in terms of its liquidity and capital 
resources, should provide investors with insight into the magnitude of 
the registrant's short-term borrowing activities, the specific material 
impact of the short-term borrowing arrangements on the registrant, and 
the factors that could affect its ability to continue to use those 
short-term borrowing arrangements.
    The proposed disclosures would inform investors about the amount of 
financial risk taken by the company.\101\ For some businesses, short-
term borrowings may decrease or increase at quarter- and year-ends due 
to innate fluctuations in cash flow obligations. In other cases, 
management may be deliberately reducing short-term debt at period 
ends.\102\ Regardless of the cause, period-end financial statements 
could be less informative regarding the financial risks taken by 
companies during the period. The proposed disclosures should add 
transparency to the ongoing risks taken by companies. These disclosures 
should also help facilitate a more accurate understanding of a 
company's liquidity and capital resources.
---------------------------------------------------------------------------

    \101\ K. Kelly et al., Big Banks Move To Mask Risk Levels--
Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period 
Progresses, Wall St. J., Apr. 9, 2010; and M. Rappaport & T. 
McGinty, supra note 16 (reporting that ``the practice, known as end-
of-quarter `window dressing' on Wall Street, suggests that the banks 
are carrying more risk most of the time than their investors or 
customers can easily see. This activity has accelerated since 2008 * 
* *''.).
    \102\ M. Griffiths & D. Winters, The Turn of the Year in Money 
Markets: Tests of the Risk-Shifting Window Dressing and Preferred 
Habitat Hypotheses, J. BUS, 2005, vol. 78, no. 4.; M. Griffiths & D. 
Winters, On a Preferred Habitat for Liquidity at the Turn-of-the-
Year: Evidence From the Term-Repo Market, 12 J. FIN. SERV. RES. 1, 
1997; V. Kotomin & D. Winters, Quarter-End Effects in Banks: 
Preferred Habitat or Window Dressing?, 29 J. FIN. SERV. RES. 1, 
2006.
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    The proposed disclosures should also inform investors about the 
amount of capital deployed in earning activities by a company and thus 
help evaluate its overall source of profitability. Investors should 
benefit from knowing whether the period-end balance sheet fully 
reflects all intra-period activities and assets. The disclosure should 
also enable more accurate comparisons between companies that engage in 
a pattern of borrowing and those that do not.
    Thus, the new disclosures should enhance transparency and 
competition especially in industries where short-term borrowing 
practices are common. Similar disclosure requirements exist in a more 
limited fashion for banks and bank holding companies under applicable 
banking regulations.\103\ Therefore, bank regulators find this 
information to be useful in monitoring the risk of these 
institutions.\104\
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    \103\ Banks and bank holding companies report the quarterly 
average for Federal funds sold and securities purchased under 
agreements to resell (FFIEC 031 and 041 Schedule RC-K, and FR Y-9C 
Schedule HC-K).
    \104\ See e.g., Board of Governors of the Federal Reserve 
System, Announcement of Board Approval Under Delegated Authority and 
Submission to OMB, (March. 18, 2006) [71 FR 11194]. (``The FR Y-9 
family of reports historically has been, and continues to be, the 
primary source of financial information on [bank holding companies] 
between on-site inspections. Financial information from these 
reports is used to detect emerging financial problems, to review 
performance and conduct pre-inspection analysis, to monitor and 
evaluate capital adequacy, to evaluate [bank holding company] 
mergers and acquisitions, and to analyze a [bank holding company's] 
overall financial condition to ensure safe and sound operations.'').

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[[Page 59884]]

    The proposed amendments are likely to increase transparency. 
Therefore, information asymmetry and information risk would be lower 
and investors should demand a lower risk premium and rate of 
return.\105\ Thus, the proposed disclosures would help reduce cost of 
capital and improve capital allocation and formation in the overall 
economy.
---------------------------------------------------------------------------

    \105\ See D. Easley & M. O'Hara, Information and the Cost of 
Capital, 59 J. Fin. 1553 (2004) (arguing that the information 
composition between public and non-public information affects the 
cost of capital because investors demand a higher return from their 
investments when they face asymmetric information); R. Lambert et 
al., Accounting Information, Disclosure, and the Cost of Capital, 45 
J. ACCT. RES. 385 (2007) (deriving conditions under which an 
increase in information quality leads to an unambiguous decline in 
the cost of capital).
---------------------------------------------------------------------------

C. Costs

    The proposals to require short-term borrowings disclosure on an 
annual and quarterly basis are new. In connection with the new 
disclosure requirements, registrants would be required to incur 
additional direct costs to which they were previously not subject, and 
could incur indirect costs as well. Because the proposed requirements 
require additional disclosures that are not currently provided in 
connection with Guide 3 compliance, bank holding companies would also 
incur additional direct and indirect costs to which they were 
previously not subject. Furthermore, as noted in our PRA analysis, we 
estimate that registrants would incur higher costs in the initial 
reporting periods than would be incurred in ongoing reporting periods.
    We estimate that the proposals would impose new disclosure 
requirements on approximately 10,380 public companies.\106\ We estimate 
that the collection of information and the preparation of the 
disclosure would involve multiple parties, including in-house 
preparers, senior management, in-house accounting staff, in-house 
counsel, information technology personnel, outside counsel, outside 
auditors and audit committee members. For purposes of our PRA analysis, 
we estimated that company personnel would spend approximately 872,204 
hours per year (84 hours per company) to prepare, review and file the 
proposed disclosure. We also estimated that companies would spend 
approximately $143,756,500 ($13,849 per company) on outside 
professionals to comply with the proposed requirements.
---------------------------------------------------------------------------

    \106\ We estimate that all registrants who filed annual reports 
in 2009 would be required to provide the proposed disclosures.
---------------------------------------------------------------------------

    We believe that the proposed amendments could increase the costs 
for some companies to collect the information necessary to prepare the 
disclosure. We also believe that the proposed amendments will impose 
different costs for companies, depending on whether they are bank-
holding companies that currently provide Guide 3 information, financial 
companies as defined in the proposed rule, non-financial companies, or 
smaller reporting companies, as described below. Although management 
must already consider short-term borrowing information as it prepares 
its financial statements and MD&A under existing requirements, the 
proposed amendments could impose significant incremental costs for the 
collection and calculation of data, particularly in connection with the 
registrant's initial compliance.
    In particular, this disclosure requires the production of new data 
for companies that are not already reporting this type of data 
voluntarily or to their primary regulators. In some industries, 
companies may readily have access to this information in their systems 
while others may not be producing it on a daily basis as would be 
required for financial companies under the proposals. For example, 
insurance companies may find it difficult to produce daily balances for 
each day that is necessary for the average and maximum short-term 
borrowing disclosures applicable to them. In addition, companies that 
are not financial companies under the proposed definition, particularly 
those with multi-national operations, may not currently be producing 
the data necessary for the monthly average and maximum short-term 
borrowings disclosures, and they may be faced with complex calculation 
issues when gathering the data from multiple jurisdictions. For many 
companies, the costs of data production may be high.
    For bank holding companies currently subject to Guide 3, costs will 
likely arise primarily from the preparation of incremental disclosure 
in MD&A (i.e., the proposed requirements for maximum daily amounts 
instead of maximum monthly amounts and the proposed narrative 
discussion of short-term borrowings arrangements) as well as quarterly 
reporting of this information (rather than on an annual basis alone). 
These bank holding companies already report to the Commission average 
short-term borrowings data computed based on daily averages on an 
annual basis, pursuant to Item VII of Guide 3. Of the approximately 
10,380 public companies, we estimate that approximately 800 are bank 
holding companies.
    For registrants that meet the proposed definition of ``financial 
company'' but that are not bank holding companies, such as insurance 
companies, broker-dealers, business development companies, and 
financing companies, the costs imposed could be substantial because, as 
requirements that are newly applicable to these entities, costs would 
likely include implementing or adjusting data gathering systems to 
capture daily balance information, implementing new disclosure controls 
and procedures, time spent by internal accounting staff to compile the 
data, as well as the preparation of narrative disclosure. As a portion 
of these costs would arise from data collection, the costs of 
compliance in the initial reporting period would likely be higher 
because systems may need to be implemented or adjusted. We estimate 
that, in addition to the approximately 800 bank holding companies, 
approximately 700 registrants would meet the proposed definition of 
``financial company.''
    Registrants that do not meet the definition of ``financial 
companies'' could have lower costs than those registrants that are 
financial companies, because they would not be required to compile data 
based on daily balances. Again, the requirements would be newly 
applicable, and could require these registrants to incur costs to 
implement or adjust data gathering systems to capture month-end balance 
information, the implementation of new disclosure controls and 
procedures, time spent by internal accounting staff to compile the 
data, as well as preparation of narrative disclosure. For companies 
that do not currently close their books on a monthly basis, the costs 
of gathering the data would likely be higher than those that do, 
because monthly balances would not be readily available from existing 
books and records systems. The implementation or adjustment of data 
gathering systems would likely cause costs to be higher for these 
companies in the initial compliance period. We estimate that the number 
of registrants that are not financial companies and that are not 
smaller reporting companies, is approximately 7,640.

[[Page 59885]]

    For smaller reporting companies, the proposed requirements would 
also be newly applicable, and costs incurred would be similar to those 
applicable to large reporting companies, except that, as proposed, 
smaller reporting companies would only be required to provide two years 
of annual short-term borrowings information, rather than three years, 
and would not be required to provide quarterly disclosure on the same 
level of detail as annual disclosure. Accordingly, in addition to the 
costs to prepare and review the disclosure, smaller reporting companies 
that do not currently track the data needed to compile the short-term 
borrowings disclosure or that do not currently close their books on a 
monthly basis, would incur costs to implement or adjust data collection 
systems and disclosure controls and procedures. On the other hand, 
small entities without such systems would be more likely to engage in 
financing activities that are less complex, where the compilation and 
calculation of such data would not raise significant burdens. In 
addition, the cost estimates set forth in our PRA analysis may be lower 
for a small entity to the extent its costs for personnel and outside 
professionals are lower than our assumed amounts. As discussed 
elsewhere in this release, we estimate that there are approximately 
1,240 smaller reporting companies.
    In addition, registrants that are not smaller reporting companies 
could incur increased costs in connection with the preparation of their 
quarterly reports, as the amendments call for disclosure in quarterly 
reports at the same level of detail as in annual reports. To provide 
this increased level of detail, registrants may need to alter their 
existing disclosure controls and procedures for quarterly reporting. 
For purposes of our PRA analysis, we estimated that company personnel 
would spend approximately 18 additional hours per year to prepare, 
review and file the proposed disclosure in Form 10-Q. We estimate that 
approximately 8,200 registrants (based on our estimated number of 
annual report filers, less smaller reporting companies and foreign 
private issuers) would be subject to the requirement to provide 
quarterly disclosure at the same level of detail as in annual reports.
    Companies may also be faced with indirect costs arising from the 
amendments. For example, companies may need to consider the impact of 
the amendments on their financing plans, to the extent the gathering of 
data and preparation of disclosure imposes significant time burdens. 
Specifically, companies could decide to delay registered offerings or 
conduct unregistered offerings if they are unable to gather data and 
prepare the new disclosures without significant time and expense. This 
indirect cost should decrease over time, as companies implement 
disclosure controls and procedures to comply with the new disclosures. 
In other cases, companies may alter their short-term borrowings 
activities in response to the proposed disclosure, in order to avoid 
incurring the cost of compliance, and in doing so could incur 
transaction costs or opportunity costs that they would not face without 
a mandatory disclosure requirement.
    In certain cases, mandatory required disclosure requirements can 
have adverse effects for companies and their shareholders if the 
disclosures reveal confidential information and trade secrets of a 
company. In the case of the proposed short-term borrowings, however, 
such indirect costs should be minimal due to the non-proprietary nature 
of short-term borrowings. There is some possibility that a company's 
competitors could be able to infer proprietary or sensitive information 
about a company's business operations or strategy from disclosure about 
short-term borrowings arrangements. If this were the case, it could 
disproportionately impact companies that meet the proposed definition 
of ``financial company,'' to the extent that amounts calculated based 
on daily balance information provide a more accurate basis for such 
inferences. We preliminarily believe that the likelihood of this impact 
is low.

D. Request for Comment

    We request data to quantify the costs and the value of the benefits 
described above. We seek estimates of these costs and benefits, as well 
as any costs and benefits not already defined, that may result from the 
adoption of these proposed amendments. We also request qualitative 
feedback on the nature of the benefits and costs described above and 
any benefits and costs we may have overlooked.

VI. Consideration of Impact on the Economy, Burden on Competition, and 
Promotion of Efficiency, Competition, and Capital Formation

    Section 23(a)(2) of the Exchange Act requires us,\107\ 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.
---------------------------------------------------------------------------

    \107\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Section 2(b) of the Securities Act \108\ and Section 3(f) of the 
Exchange Act\109\ require us, when engaging in rulemaking where we are 
required to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action will promote efficiency, 
competition, and capital formation.
---------------------------------------------------------------------------

    \108\ 15 U.S.C. 77b(b).
    \109\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The proposed amendments are intended to enhance disclosure in MD&A 
relating to registrants' liquidity profile in each reporting period by 
highlighting and expanding disclosure requirements for short-term 
borrowings. The proposed amendments to Form 8-K, which would conform 
the disclosure requirements in the Form to the proposed amendments to 
Regulation S-K, are intended to continue to provide real-time 
disclosure in connection with these topics.
    The proposed amendments may increase the usefulness of MD&A. The 
ability of users of financial information to understand registrants' 
financial statements and to determine the existence of trends in 
borrowing and funding activity is expected to improve as a result of 
the disclosure of average and maximum short-term borrowings during each 
reporting period.
    The proposed amendments also should increase the efficiency of U.S. 
capital markets by providing investors with additional and more timely 
information about registrants' borrowing and funding activities, 
including borrowing activities that are not apparent on the face of 
period-end financial statements and exposures to market and funding 
liquidity risks. This information could be used by investors in 
allocating capital across companies, and toward companies where the 
risk incentives appear better aligned with an investor's appetite for 
risk. Furthermore, these reductions in the asymmetry of information 
between registrants and investors could reduce registrants' cost of 
capital as investors may demand a lower risk premium when they have 
access to more information.\110\
---------------------------------------------------------------------------

    \110\ See D. Easley & M. O'Hara, supra note 98, and R. Lambert 
et al., supra note 98.
---------------------------------------------------------------------------

    In certain cases, mandatory required disclosure requirements can 
have adverse effects for companies and their shareholders if the 
disclosures reveal confidential information and trade secrets of a 
company. In the case of the proposed short-term borrowings,

[[Page 59886]]

however, such indirect costs should be minimal due to the non-
proprietary nature of short-term borrowings. There is some possibility 
that a company's competitors could be able to infer proprietary or 
sensitive information about a company's business operations or strategy 
from disclosure about short-term borrowings arrangements. If this were 
the case, it could disproportionately impact companies that meet the 
proposed definition of ``financial company,'' to the extent that 
amounts calculated based on daily balance information provide a more 
accurate basis for such inferences. We preliminarily believe that the 
likelihood of this impact is low.
    We request comment on whether the proposed amendments would promote 
efficiency, competition, and capital formation or have an impact or 
burden on competition. Commentators are requested to provide empirical 
data and other factual support for their view to the extent possible.

VII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (SBREFA)\111\ we solicit data to determine whether the 
proposed rule amendments constitute a ``major'' rule. Under SBREFA, a 
rule is considered ``major'' where, if adopted, it results or is likely 
to result in:
---------------------------------------------------------------------------

    \111\ Public Law 104-121, tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     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.
    Commentators should provide empirical data on (a) the potential 
annual effect on the economy; (b) any increase in costs or prices for 
consumers or individual industries; and (c) any potential effect on 
competition, investment or innovation.

VIII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Analysis (IRFA) has been 
prepared in accordance with the Regulatory Flexibility Act.\112\ It 
relates to proposed revisions to the rules and forms under the 
Securities Act and Exchange Act to enhance disclosure that registrants 
provide in MD&A regarding short-term borrowings.
---------------------------------------------------------------------------

    \112\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    The proposed amendments are intended to enhance disclosure in MD&A 
relating to registrants' liquidity profile by highlighting and 
expanding disclosure requirements for short-term borrowings. The 
proposed amendments to Form 8-K, which would conform the disclosure 
requirements in the Form to the proposed amendments to Regulation S-K, 
are intended to continue to provide real-time disclosure in connection 
with these topics. These amendments are being proposed to increase 
transparency in the presentation of registrants' borrowing and funding 
activities and exposure to liquidity risks in connection with that 
activity. This increased transparency in areas of increasing importance 
to investors is intended to maintain investor confidence in the full 
and fair disclosure required of all registrants.

B. Legal Basis

    We are proposing the amendments pursuant to Sections 6, 7, 10, 
19(a) and 28 of the Securities Act and Sections 12, 13, 14, 15(d), 
23(a) and 36 of the Exchange Act.

C. Small Entities Subject to the Proposed Action

    The proposed amendments would affect some companies that are small 
entities. The Regulatory Flexibility Act defines ``small entity'' to 
mean ``small business,'' ``small organization,'' or ``small 
governmental jurisdiction.'' \113\ The Commission's rules define 
``small business'' and ``small organization'' for purposes of the 
Regulatory Flexibility Act for each of the types of entities regulated 
by the Commission. Securities Act Rule 157 \114\ and Exchange Act Rule 
0-10(a) \115\ define a company, other than an investment company, to be 
a ``small business'' or ``small organization'' if it had total assets 
of $5 million or less on the last day of its most recent fiscal year. 
We estimate that there are approximately 1,240 companies that may be 
considered small entities.\116\ The proposed amendments would affect 
small entities that (i) have a class of securities that are registered 
under Section 12 of the Exchange Act, or are required to file reports 
under Section 15(d) of the Exchange Act and (ii) are required to 
provide MD&A disclosure under applicable rules and forms or disclosure 
under Items 2.03 and 2.04 of Form 8-K. In addition, the proposals also 
would affect small entities that file, or have filed, a registration 
statement (that is required to include MD&A disclosure under the 
applicable rules and forms) that has not yet become effective under the 
Securities Act and that has not been withdrawn.
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    \113\ 5 U.S.C. 601(6).
    \114\ 17 CFR 230.157.
    \115\ 17 CFR 240.0-10(a).
    \116\ This includes approximately 30 business development 
companies that are small entities. For purposes of the Regulatory 
Flexibility Act, an investment company (including a business 
development company) is a small entity if it, together with other 
investment companies in the same group of related investment 
companies, has net assets of $50 million or less as of the end of 
its most recent fiscal year. 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

    The data underlying the proposed short-term borrowing disclosures 
should be available from a company's books and records, although it may 
not currently be collected on month-end basis or daily basis, as 
proposed in the rule. As discussed in our PRA analysis, we believe that 
the collection and calculation of short-term borrowing data in the form 
proposed may have a cost impact on registrants, including small 
entities, that do not currently maintain information technology systems 
for the collection of the required data. On the other hand, small 
entities without such systems would be more likely to engage in 
financing activities that are less complex, where the compilation and 
calculation of such data would not raise significant burdens. In 
addition, the cost estimates set forth in our PRA analysis may be lower 
for a small entity to the extent its costs for personnel and outside 
professionals are lower than our assumed amounts.
    We are proposing an accommodation for smaller reporting companies, 
such that expanded disclosures of short-term borrowings would not be 
required for interim periods and annual period data would only be 
required for two years rather than three years.

D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed amendments are intended to enhance disclosure about 
short-term borrowings. These proposals would require a small entity to:
     Provide, in a separately captioned subsection of MD&A, a 
comprehensive explanation of its short-term borrowings, including both 
quantitative and qualitative information; and
     Use a revised definition of ``direct financial 
obligation'' for purposes of disclosure requirements in Items 2.03 and 
2.04 of Form 8-K.

These proposed amendments largely would apply to both large and small 
entities equally, except that smaller reporting companies would benefit 
from the proposed exclusion from expanded interim reporting of short-
term borrowings and would provide two

[[Page 59887]]

years of annual data rather than three. As noted above, the proposed 
short-term borrowings disclosure should be available from a company's 
books and records and tracked with existing internal controls without a 
significant incremental burden imposed on small entities, except to the 
extent that it doesn't track the data on a monthly basis.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe the proposed amendments would not duplicate, overlap, or 
conflict with other Federal rules. The proposed new requirements for 
short-term borrowings disclosures provide specific, additional 
information that would be complementary to existing MD&A requirements.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. In connection with the 
proposed disclosure amendments, we considered the following 
alternatives:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     Clarifying, consolidating or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    Currently, small entities are subject to the same MD&A requirements 
as larger registrants under Item 303 of Regulation S-K, except that 
smaller reporting companies are permitted to exclude information as to 
their contractual obligations.\117\ The proposed amendments would not 
alter the exclusions applicable to smaller reporting companies, except, 
as discussed above, an additional exclusion would be provided for 
smaller reporting companies so that they would not need to provide the 
proposed expanded interim period disclosures of short-term borrowings 
and would be permitted to provide two years of annual data instead of 
three years. The remaining proposed disclosure requirements would apply 
to small entities to the same extent as larger registrants, and would 
require clear, straightforward disclosure about short-term borrowings.
---------------------------------------------------------------------------

    \117\ Item 303(d) of Regulation S-K provides an exclusion for 
smaller reporting companies from the requirements of Item 303(a)(5), 
and permits smaller reporting companies to provide, if they meet 
specified conditions, only two fiscal years of information on the 
impact of inflation and changing prices pursuant to Item 
303(a)(3)(iv).
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    Except for the exclusions noted above, we are not proposing to 
change existing alternative reporting requirements under Item 303 of 
Regulation S-K, or establish additional different compliance 
requirements or an exemption from coverage of the proposed amendments 
for small entities. The proposed amendments would provide investors 
with greater transparency into the liquidity profile of registrants, by 
highlighting short-term borrowings. With potentially fewer financing 
options available to small entities, information about critical funding 
risks and future commitments is important to investors in the context 
of small entities as it is in the context of larger entities. 
Therefore, we do not believe it is appropriate to develop separate 
requirements for small entities that would involve clarification, 
consolidation, or simplification of the proposed disclosure 
requirements, other than the proposed exclusions discussed above. We do 
not believe that these proposed disclosures would create a significant 
new burden for small entities, and, we believe that uniform, comparable 
disclosures across all companies would be beneficial for investors and 
the markets.
    We have used design standards and performance standards in 
connection with the proposed amendments. We rely on design standards 
for two reasons. First, based on our past experience, we believe that 
the proposed requirements would result in disclosure that is more 
useful to investors than if there were specific, enumerated 
informational requirements. The proposed requirements are intended to 
elicit more comprehensive and clear disclosure, while still affording 
registrants the ability to tailor the disclosure to reflect their 
specific activities and to provide the information that is most 
important in the context of their specific business. Second, the 
proposed amendments would promote consistent disclosure among all 
companies, providing information that is increasingly important to 
investors. Our existing MD&A requirements are largely performance 
standards, designed to elicit disclosure unique to the particular 
company.
    Finally, we believe that requiring additional short-term borrowings 
information in MD&A is the most effective way to elicit the disclosure 
both for small entities. MD&A's existing emphasis on liquidity and 
capital resources, as well as identification of significant 
uncertainties and events, makes the placement of the disclosure as part 
of MD&A an appropriate choice. Because the proposed disclosure of 
short-term borrowings is intended to supplement the discussions of 
liquidity and capital resources already required to be provided by 
smaller reporting companies under existing rules, we believe the 
inclusion of the proposed requirements in MD&A would reduce redundant 
disclosure requirements and promote investors' understanding of this 
important and, at times highly complex, information.
    We seek comment on whether we should exempt small entities from any 
of the proposed amendments or scale the proposed disclosure 
requirements to reflect the characteristics of small entities and the 
needs of their investors.

G. Solicitation of Comments

    We encourage the submission of comments with respect to any aspect 
of this Initial Regulatory Flexibility Analysis. In particular, we 
request comments regarding:
     How the proposed amendments can achieve their objective 
while lowering the burden on small entities;
     The number of small entities that may be affected by the 
proposed amendments;
     The existence or nature of the potential impact of the 
proposed amendments on small entities discussed in the analysis; and
     How to quantify the impact of the proposed amendments.
    Respondents are asked to describe the nature of any impact and 
provide empirical data supporting the extent of the impact. Such 
comments will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if the proposed rule amendments are adopted, and 
will be placed in the same public file as comments on the proposed 
amendments themselves.

IX. Statutory Authority and Text of the Proposed Amendments

    The amendments contained in this release are being proposed under 
the authority set forth in Sections 6, 7, 10, 19(a) and 28 of the 
Securities Act and Sections 12, 13, 14, 15(d), 23(a) and 36 of the 
Exchange Act.

List of Subjects in 17 CFR Parts 229 and 249

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendments

    For the reasons set out in the preamble, the Commission proposes to

[[Page 59888]]

amend Title 17, Chapter II, of the Code of Federal Regulations as 
follows:

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    1. The authority citation for Part 229 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38(a), 80a-39, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *
    2. Amend Section 229.303 by:
    a. Removing the phrase ``paragraphs (a)(1) through (5) of this 
Item'' and adding in its place ``paragraphs (a)(1) through (a)(6) of 
this Item'' in the second sentence of the introductory text of 
paragraph (a);
    b. Revising paragraphs (a)(4)(ii)(A), (a)(4)(ii)(C) and 
(a)(4)(ii)(D), and (a)(5)(ii)(A), (a)(5)(ii)(B) and (a)(5)(ii)(C);
    c. Redesignating the ``Instructions to paragraph 303(a) (4)'' to 
directly follow paragraph (a)(4)(ii)(D);
    d. Adding a new paragraph (a)(6) directly above the ``Instructions 
to paragraph 303(a)'';
    e. Revising the fourth sentence of Instruction 8 to paragraph 
303(a);
    f. Revising Instruction 9 to paragraph 303(a);
    g. Adding the phrase ``, except as provided in Instruction 8 to 
paragraph 303(b)'' at the end of the first sentence of Instruction 3 of 
the Instructions to paragraph (b) of Item 303;
    h. Adding Instruction 8 to the Instructions to paragraph (b) of 
Item 303; and
    i. Revising paragraph (d).
    The revisions and additions read as follows:


Sec.  229.303  (Item 303) Management's Discussion and Analysis of 
Financial Condition and Results of Operations.

* * * * *
    (a) * * *
    (4) * * *
    (ii) * * *
    (A) Any obligation under a guarantee contract that has any of the 
characteristics identified in FASB ASC Topic 460, Guarantees, paragraph 
460-10-15-4, as may be modified or supplemented, and that is not 
excluded from the initial recognition and measurement provisions of 
FASB ASC paragraphs 460-10-15-7, 460-10-25-1, and 460-10-30-1;
    (B) * * *
    (C) Any obligation, including a contingent obligation, under a 
contract that would be accounted for as a derivative instrument, except 
that it is both indexed to the registrant's own stock and classified in 
stockholders' equity in the registrant's statement of financial 
position, and therefore excluded from the scope of FASB ASC Topic 815, 
Derivatives and Hedging, pursuant to FASB ASC subparagraph 815-15-
74(a), as may be modified or supplemented;
    (D) Any obligation, including a contingent obligation, arising out 
of a variable interest (as defined in the FASB ASC Master Glossary, as 
may be modified or supplemented) in an unconsolidated entity that is 
held by, and material to, the registrant, where such entity provides 
financing, liquidity, market risk or credit risk support to, or engages 
in leasing, hedging or research and development services with, the 
registrant.
    (5) * * *
    (ii) * * *
    (A) Long-Term Debt Obligation means a payment obligation under 
long-term borrowings referenced in FASB ASC Topic 470, Debt, paragraph 
470-10-50-1, as may be modified or supplemented.
    (B) Capital Lease Obligation means a payment obligation under a 
lease classified as a capital lease pursuant to FASB ASC Topic 840, 
Leases, as may be modified or supplemented.
    (C) Operating Lease Obligation means a payment obligation under a 
lease classified as an operating lease and disclosed pursuant to FASB 
ASC Topic 840, as may be modified or supplemented.
* * * * *
    (6) Short-term Borrowings. (i) In tabular format, provide for each 
category of short-term borrowings specified in paragraph (a)(6)(iii) of 
this Item and for the periods specified in paragraph (a)(6)(v) of this 
Item:
    (A) The average amount outstanding during each reported period and 
the weighted average interest rate thereon;
    (B) The amount outstanding at the end of each reported period and 
the weighted average interest rate thereon;
    (C) (1) For registrants that are financial companies, the maximum 
daily amount outstanding during each reported period or
    (2) For registrants that are not financial companies, the maximum 
month-end amount outstanding during each reported period; and
    (D) For any of the amounts referred to in paragraphs (a)(6)(i)(A), 
(B) or (C) of this Item, disaggregate the amounts in the table by 
currency, interest rate or other meaningful category, to the extent 
presentation of separate amounts is necessary to promote understanding 
or to prevent aggregate amounts from being misleading, and include a 
footnote to the table indicating the method of disaggregation and any 
other pertinent data relating to the calculation of the amounts 
presented, including, without limitation, the timing and exchange rates 
used for currency translations.
    (ii) Discuss the registrant's short-term borrowings, including the 
items specified in paragraphs (a)(6)(ii)(A) through (D) of this Item to 
the extent necessary to an understanding of such borrowings and the 
current or future effect on the registrant's financial condition, 
changes in financial condition, revenues or expenses, results of 
operations, liquidity, capital expenditures or capital resources:
    (A) A general description of the short-term borrowings arrangements 
included in each category (including any key metrics or other factors 
that could reduce or impair the company's ability to borrow under any 
of such arrangements and whether there are any collateral posting 
arrangements) and the business purpose to the registrant of such short-
term borrowings;
    (B) The importance to the registrant of such short-term borrowings 
in respect of its liquidity, capital resources, market-risk support, 
credit-risk support or other benefits;
    (C) The reasons for any material differences between average short-
term borrowings and period-end borrowings; and
    (D) The reasons for the maximum outstanding amounts in each 
reported period, including any non-recurring transactions or events, 
use of proceeds or other information that provides context for the 
maximum amount.
    (iii) As used in this paragraph (a)(6), the term ``short-term 
borrowings'' includes amounts payable for short-term obligations that 
are:
    (A) Federal funds purchased and securities sold under agreements to 
repurchase;
    (B) Commercial paper;
    (C) Borrowings from banks;
    (D) Borrowings from factors or other financial institutions; and
    (E) Any other short-term borrowings reflected on the registrant's 
balance sheet.
    (iv) As used in this paragraph (a)(6), the term ``financial 
company'' means a registrant that, during the reported period, is 
engaged to a significant extent in the business of lending, deposit-
taking, insurance underwriting or providing investment advice, or is a

[[Page 59889]]

broker or dealer as defined in Section 3 of the Exchange Act (15 U.S.C. 
78c), and includes, without limitation, an entity that is, or is the 
holding company of, a bank, a savings association, an insurance 
company, a broker, a dealer, a business development company as defined 
in Section 2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 
80a-2(a)(48)), an investment adviser, a futures commission merchant, a 
commodity trading advisor, a commodity pool operator, or a mortgage 
real estate investment trust.
    (v) Information required by this paragraph (a)(6) shall be 
presented for each of the three most recent fiscal years, and, in the 
case of annual reports filed on Form 10-K (referenced in Sec.  
249.310), information for the registrant's fourth fiscal quarter 
presented in accordance with the requirements for interim periods set 
forth in Instruction 8 to paragraph (b) of this Item 303; provided that 
a registrant that is a smaller reporting company may provide the 
information required for each of the two most recent fiscal years in 
accordance with paragraph (d) of this Item 303 and, in the case of 
annual reports filed on Form 10-K (referenced in Sec.  249.310), is not 
required to include information for the fourth fiscal quarter.
    Instruction 1 to Paragraph 303(a)(6): Where a registrant meets the 
definition of financial company, but also has operations that do not 
involve lending, deposit-taking, insurance underwriting, providing 
investment advice, or broker or dealer activities, it may present the 
information specified in Item 303(a)(6)(i) separately for such 
operations. In doing so, the registrant may disclose averages and 
maximum amounts for such operations using the rules and instructions 
applicable to registrants that are not financial companies, provided 
that it must disclose averages computed on a daily average basis and 
maximum daily amounts for its operations that fall within the 
definition of financial company. For purposes of making this 
segregation, the registrant should make the distinction assuming the 
business in question were itself a registrant. Additional information 
should be presented by footnote to enable readers to understand how the 
registrant's operations have been grouped for purposes of the 
disclosure.
    Instruction 2 to Paragraph 303(a)(6): For registrants that are 
financial companies, averages called for by paragraph (a)(6) of this 
Item are averages computed on a daily average basis (which means the 
amount outstanding at the end of each day, averaged over the reporting 
period). For all other registrants, the basis used for calculating the 
averages must be identified, and the averaging period used must not 
exceed a month.
    Instruction 3 to Paragraph 303(a)(6): As used in this Item 
303(a)(6), the maximum daily amount outstanding during a reported 
period means the largest amount outstanding at the end of any day in 
the reported period, and the maximum month-end amount outstanding 
during a reported period means the largest amount outstanding at the 
end of the last day of any month in the reported period.
    Instructions to Paragraph 303(a):
* * * * *
    8. * * * However, registrants may elect to voluntarily disclose 
supplemental information on the effects of changing prices as provided 
for in FASB ASC Topic 255, Changing Prices, or through other 
supplemental disclosures. * * *
    9. Registrants that elect to disclose supplementary information on 
the effects of changing prices as specified by FASB ASC Topic 255 may 
combine such explanations with the discussion and analysis required 
pursuant to this Item or may supply such information separately with 
appropriate cross-reference.
* * * * *
    (b) * * *
    Instructions to Paragraph 303(b):
* * * * *
    8. Notwithstanding anything to the contrary in this Item 303, a 
registrant that is not a smaller reporting company must include the 
disclosure required pursuant to (a)(6) of this Item for each interim 
period for which financial statements are included or required to be 
included by Article 3 of Regulation S-X (17 CFR 210.3-01 to 3.18), and 
for the registrant's fourth fiscal quarter in the case of an annual 
report filed on Form 10-K (referenced in Sec.  249.310), and must 
provide an updated discussion and analysis of the information 
presented. The discussion and analysis should also highlight any 
material changes from prior periods. For purposes of interim period 
disclosures of short-term borrowings required by paragraph (a)(6) of 
this Item, the term ``reported period'' used in paragraph (a)(6) of 
this Item means the most recent interim period presented or, in the 
case of an annual report filed on Form 10-K (referenced in Sec.  
249.310), the registrant's fourth fiscal quarter.
* * * * *
    (d) Smaller reporting companies. A smaller reporting company, as 
defined in Sec.  229.10(f)(1) of this Chapter, may provide the 
information required in paragraphs (a)(3)(iv) and (a)(6) of this Item 
for the last two most recent fiscal years of the registrant if it 
provides financial information on net sales and revenues and on income 
from continuing operations for only two years. For interim periods, a 
smaller reporting company is not required to follow Instruction 8 to 
paragraph 303(b) and, instead, must discuss material changes to the 
information specified in paragraphs (a)(4) and (a)(6) of this Item from 
the end of the preceding fiscal year (and, if included, from the 
corresponding interim balance sheet date of the preceding fiscal year) 
to the date of the most recent interim balance sheet provided. In the 
case of an annual report filed on Form 10-K (referenced in Sec.  
249.310), a smaller reporting company is not required to provide 
information for the fourth quarter of the most recent fiscal year.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

    3. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *
    4. Form 8-K (referenced in Sec.  249.308) is amended by:
    a. Revising paragraph (c)(4) of Item 2.03; and
    b. Removing paragraph (e) of Item 2.03.
    The revisions read as follows:

    Note: The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K

* * * * *

Item 2.03 Creation of a Direct Financial Obligation or an Obligation 
Under an Off-Balance Sheet Arrangement of a Registrant

* * * * *
    (c)* * *
    (4) A short-term borrowing, as defined in Item 303(a)(6)(iii) of 
Regulation S-K (17 CFR 229.303(a)(6)(iii)), that arises other than in 
the ordinary course of business.
* * * * *
    5. Form 20-F (referenced in Sec.  249.220f) Item 5 is amended by:
    a. Revising paragraphs (a) and (d) of Item 5.E.2;
    b. Adding Item 5.H; and
    c. Adding Instructions to Item 5.H after the ``Instructions to Item 
5.F''.
    The revisions and additions read as follows:


[[Page 59890]]


    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *

Item 5. Operating and Financial Review and Prospects

* * * * *
    E. Off-balance sheet arrangements.
* * * * *
    2. * * *
    (a) Any obligation under a guarantee contract that has any of the 
characteristics identified in FASB ASC Topic 460, Guarantees, paragraph 
460-10-15-4, as may be modified or supplemented, excluding the types of 
guarantee contracts described in FASB ASC paragraphs 460-10-15-7, 460-
10-25-1, and 460-10-30-1;
    (b) * * *
    (c) * * *
    (d) Any obligation, including a contingent obligation, arising out 
of a variable interest (as defined in the FASB ASC Master Glossary, as 
may be modified or supplemented) in an unconsolidated entity that is 
held by, and material to, the company, where such entity provides 
financing, liquidity, market risk or credit risk support to, or engages 
in leasing, hedging or research and development services with, the 
company.
* * * * *
    H. Short-Term Borrowings
    1. In tabular format, provide for each category of short-term 
borrowings specified in Item 5.H.3 of this Form and for the periods 
specified in Item 5.H.5 of this Form:
    (a) The average amount outstanding during each reported period and 
the weighted average interest rate thereon;
    (b) The amount outstanding at the end of each reported period and 
the weighted average interest rate thereon;
    (c)(i) For companies that are financial companies, the maximum 
daily amount outstanding during each reported period or
    (ii) For companies that are not financial companies, the maximum 
month-end amount outstanding during each reported period; and
    (d) For any of the amounts referred to in (a), (b) or (c) of this 
Item 5.H.1, disaggregate the amounts in the table by currency, interest 
rate or other meaningful category, to the extent presentation of 
separate amounts is necessary to promote understanding or to prevent 
aggregate amounts from being misleading, and include a footnote to the 
table indicating the method of disaggregation and any other pertinent 
data relating to the calculation of the amounts presented, including, 
without limitation, the timing and exchange rates used for currency 
translations.
    2. Provide a discussion of the company's short-term borrowings, 
including the items specified in paragraphs (a) through (d) of this 
Item 5.H.2 to the extent necessary to an understanding of such 
borrowings and the current or future effect on the company's financial 
condition, changes in financial condition, revenues or expenses, 
results of operations, liquidity, capital expenditures or capital 
resources:
    (a) A general description of the short-term borrowings included in 
each category (including any key metrics or other factors that could 
reduce or impair the company's ability to borrow under any of such 
arrangements and whether there are any collateral posting arrangements) 
and the business purpose to the company of such short-term borrowings;
    (b) The importance to the company of such short-term borrowings in 
respect of its liquidity, capital resources, market-risk support, 
credit-risk support or other benefits;
    (c) The reasons for any material differences between average short-
term borrowings and period-end borrowings; and
    (d) The reasons for the maximum outstanding amounts in each 
reported period, including any non-recurring transactions or events, 
use of proceeds or other information that provides context for the 
maximum amount.
    3. As used in this Item 5.H, the term ``short-term borrowings'' 
means amounts payable for short-term obligations that are:
    (a) Federal funds purchased and securities sold under agreements to 
repurchase;
    (b) Commercial paper;
    (c) Borrowings from banks;
    (d) Borrowings from factors or other financial institutions; and
    (e) Any other short-term borrowings reflected in the company's 
balance sheet.
    4. As used in this Item 5.H, the term ``financial company'' means a 
company that, during the reported period, is engaged to a significant 
extent in the business of lending, deposit-taking, insurance 
underwriting or providing investment advice, or is a broker or dealer 
as defined in Section 3 of the Exchange Act (15 U.S.C. 78c), and 
includes, without limitation, an entity that is or is the holding 
company of, a bank, a savings association, an insurance company, a 
broker, a dealer, a business development company as defined in Section 
2(a)(48) of the Investment Company Act of 1940 (15 U.S.C. 80a-
2(a)(48)), an investment adviser, a futures commission merchant, a 
commodity trading advisor, a commodity pool operator, or a mortgage 
real estate investment trust.
    5. Information required by this Item 5.H shall be presented for 
each of the three most recent fiscal years.
* * * * *
    Instructions to Item 5.H:
    1. Notwithstanding Item 5.H.3, the categories of short-term 
borrowings disclosed pursuant to Item 5.H of this Form may be based on 
the classifications for such types of short-term borrowings used under 
the comprehensive set of accounting principles that the company uses to 
prepare its primary financial statements, so long as the disclosure is 
provided at a level of detail that satisfies the objective of this Item 
5.H disclosure requirement.
    2. Where a company meets the definition of financial company, but 
also has operations that do not involve lending, deposit-taking, 
insurance underwriting, providing investment advice, or broker or 
dealer activities, it may present the information specified in Item 
5.H.1 of this Form separately for such operations. In doing so, the 
company may disclose averages and maximum amounts for such operations 
using the rules and instructions applicable to companies that are not 
financial companies, provided that it must disclose averages computed 
on a daily average basis and maximum daily amounts for its operations 
that fall within the definition of financial company. For purposes of 
making this segregation, the company should make the distinction 
assuming the business in question were itself a registrant. Additional 
information should be presented by footnote to enable readers to 
understand how the company's operations have been grouped for purposes 
of the disclosure.
    3. For companies that are financial companies, averages called for 
by this Item 5.H are averages computed on a daily average basis (which 
means the amount outstanding at the end of each day, averaged over the 
reporting period). For all other companies, the basis used for 
calculating the averages must be identified, and the averaging period 
used must not exceed a month.
    4. As used in this Item 5.H, the maximum daily amount outstanding 
during a reported period means the largest amount outstanding at the 
end of any day in the reported period, and the maximum month-end amount

[[Page 59891]]

outstanding during a reported period means the largest amount 
outstanding at the end of the last day of any month in the reported 
period.
* * * * *

    Dated: September 17, 2010.
    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-23743 Filed 9-27-10; 8:45 am]
BILLING CODE P