addressing ``societal issues unrelated to investor protection'' in
periodic filings.\672\ One of these commenters acknowledged the
importance of sustainability information to a variety of stakeholders
but opined that these issues ``are not typically material to an
understanding of the company's financial performance'' and therefore
are not appropriate for inclusion in Exchange Act reports.\673\ The
other commenter raised similar materiality concerns, stating that
``some groups are seeking to use the federal securities laws to address
various societal concerns, without giving effect to the bedrock
materiality principle.'' \674\
---------------------------------------------------------------------------

    \671\ See SCSGP (stating that sustainability disclosure can be
effectively communicated outside of SEC filings).
    \672\ See Business Roundtable (suggesting that Commission
guidance about when disclosure might be warranted in this area would
be more appropriate than expanding the disclosure requirements).
    \673\ See SCSGP (also noting that when these issues are material
to a registrant's financial performance, registrants generally
provide disclosure under existing Commission requirements).
    \674\ See Business Roundtable.
---------------------------------------------------------------------------

    We received several comment letters that specifically mentioned
climate change disclosure.\675\ Many of these commenters expressed
concern that disclosures made in response to the Commission's current
rules do not adequately address the risks associated with climate
change.\676\ Some commenters cited specific risks that they believe are
not adequately disclosed, such as stranded assets and regulatory
risk.\677\ Other commenters referenced the Commission's 2010
Interpretive Guidance on Climate Change and stated that registrants are
not following that guidance.\678\
---------------------------------------------------------------------------

    \675\ See, e.g., First Affirmative Financial Network; US SIF 1;
ICCR; SASB; Wallace Global Fund; letter from US SIF and US SIF
Foundation (Dec. 19, 2014) (``US SIF 2''); CTI; GRI; Ceres; UCS;
Allianz.
    \676\ See, e.g., First Affirmative Financial Network; Wallace
Global Fund; Ceres; UCS.
    \677\ See, e.g., Wallace Global Fund (stating that failure to
disclose ``stranded assets,'' which are fossil fuel assets that must
stay in the ground because of caps imposed by treaty, law or
regulation, may result in a material misrepresentation of a
corporation's balance sheet); Ceres (noting an absence of disclosure
regarding material risks to the oil and gas industry due to
increased capital expenditures on high-cost projects, regulatory
risk, and carbon asset risk); UCS.
    \678\ See, e.g., First Affirmative Financial Network; SASB; US
SIF 1.
---------------------------------------------------------------------------

    A few commenters suggested that we adopt new line-item disclosure
requirements for climate change matters.\679\ One suggested that we
adopt a requirement to disclose anticipated full-cycle costs of future
capital expenditures and a requirement to disclose the carbon content
of a registrant's reserves and resources.\680\ Another suggested that
we require oil and gas companies to disclose carbon costs alongside the
company's disclosure of proved reserves.\681\ A third commenter
suggested a rule that requires an annual reporting of the risks to the
registrant of the effects of climate change, if any.\682\ We also
received many letters recommending the Commission adopt a rule
requiring disclosure of political spending.\683\
---------------------------------------------------------------------------

    \679\ See, e.g., US SIF 1; CTI; Allianz; UCS.
    \680\ See CTI.
    \681\ See Allianz.
    \682\ See UCS.
    \683\ See, e.g., Form Letter Type A; UCS; Ceres; Daniel A.
Simon, et al. (Apr. 21, 2015); Business Roundtable; GRI; CTI; IEHN;
Wallace Global Fund; CFA Institute; SASB; Harrington Investments;
ICCR; SCSGP; Sustainability Group; Agenda Project Action Fund;
Corporate Reform Coalition; First Affirmative Financial Network; US
SIF 1; Allianz.
---------------------------------------------------------------------------

2. Discussion
    In 1975, the Commission considered a variety of ``environmental and
social'' disclosure matters, as well as its own authority and
responsibilities to require disclosure under the federal securities
laws.\684\ Following extensive proceedings on these topics, the
Commission concluded that it generally is not authorized to consider
the promotion of goals unrelated to the objectives of the federal
securities laws when promulgating disclosure requirements, although
such considerations would be appropriate to further a specific
congressional mandate.\685\ The Commission also noted that disclosure
to serve the needs of limited segments of the investing public, even if
otherwise desirable, may be inappropriate, because the cost to
registrants, which must ultimately be borne by their shareholders,
would likely outweigh the resulting benefits to most investors.\686\
---------------------------------------------------------------------------

    \684\ See 1975 Environmental Disclosure Release, supra, note
663. The Commission instituted public proceedings in response to a
court order that required the Commission to ``undertake further
rulemaking action to bring the Commission's corporate disclosure
regulations into full compliance with the letter and spirit of
NEPA'' and to ``provide a statement of reasons for the denial of the
equal employment portion of Plaintiff's Rulemaking Petition.'' Id.
at 51657. The order relates to plaintiffs' 1971 rulemaking petition
in which the plaintiffs made specific proposals for new disclosure
requirements pertaining to the environment and disclosure about the
employment of minorities and women. Regarding the equal employment
portion of the petition, the plaintiffs sought to require that the
Commission require registrants to provide disclosure of statistics
on equal employment practices. The court found that the Commission's
denial of this portion of the plaintiffs' rulemaking petition failed
to comply with the Administrative Procedures Act. See Natural
Resources Defense Council.
    \685\ See id. See also, supra, note 61. The Commission was
ordered to resolve two overriding factual issues as part of the
proceeding, ``the extent of `ethical investor' interest in the type
of information which Plaintiffs have requested'' and ``what avenues
of action are available which ethical investors may pursue and which
will tend to eliminate corporate practices that are inimical to the
environment and equal employment opportunity.'' See Natural
Resources Defense Council at 701.
    \686\ See 1975 Environmental Disclosure Release at 51666. See
also id. at note 26 (``If the Commission were required to promulgate
rules by plebiscite at the behest of any member of the public, its
functions would be purely ministerial, a result clearly not intended
by Congress . . . '').
---------------------------------------------------------------------------

    In 1975, the Commission also concluded that it would require
disclosure relating to social and environmental performance ``only if
such information . . . is important to the reasonable investor--
material information.'' \687\ While the Commission concluded that its
proceedings did not support a specific requirement for all registrants
to disclose information describing ``corporate social practices,'' the
Commission noted that in specific cases, some information of this type
might be necessary in order to make the statements in a filing not
misleading or otherwise complete.\688\
---------------------------------------------------------------------------

    \687\ See id. at 51660. The Commission's conclusions in the 1975
proceedings were endorsed by the Sommer Report. The Sommer Report
recommended that the Commission ``should require disclosure of
matters of social and environmental significance only when the
information in question is material to informed investment or
corporate suffrage decision-making or required by laws other than
the securities laws.'' Id. at 395. The Sommer Report further
expressed the view that the Commission should classify social and
environmental information as material ``only when it reflects
significantly on the economic and financial performance of the
Company.'' Id. at 326-327. However, the Sommer Report noted that a
minority of the Advisory Committee on Corporate Disclosure believed
that disclosure of social and environmental information is material
to an investment decision regardless of its economic impact on the
financial performance of the company. The minority argued that this
kind of information reflects on the quality and character of
management, which ``clearly plays an important role in both
investment and corporate suffrage decision-making,'' and urged the
Commission to require increased disclosure in the social and
environmental area. Id. at 397.
    \688\ See id. at 51656; Exchange Act Rule 12b-20 [17 CFR
240.12b-20].
---------------------------------------------------------------------------

    The current statutory framework for adopting disclosure
requirements remains generally consistent with the framework that the
Commission considered in 1975.\689\ However, the Commission has
recognized that the task of identifying what information is material to
an investment and voting decision is a continuing one in the field of
securities regulation.\690\ The role of sustainability and public
policy information in investors' voting and

investment decisions may be evolving as some investors are increasingly
engaging on certain ESG matters.\691\ According to one study, investors
are more likely to engage registrants on sustainability issues than on
financial results or transactions and corporate strategy.\692\ One
observer expressed the view that ESG is not only a public policy issue
but also a financial issue, noting a positive correlation between a
``strong ESG record'' and excellence in operations and management.\693\
Moreover, this observer specifically noted that regulatory risks posed
by climate change are investment issues.\694\ Recent studies have also
found that asset managers increasingly incorporate or have committed to
incorporating ESG considerations into their financial analyses.\695\
---------------------------------------------------------------------------

    \689\ Since 1996, the Commission also has been statutorily
required to consider, in addition to the protection of investors,
whether an action will promote efficiency, competition, and capital
formation. See Section 2(b) of the Securities Act [15 U.S.C.
77b(b)]; Section 3(f) of the Exchange Act [15 U.S.C. 78c(f)]. See
also Section 23(a)(2) of the Exchange Act [15 U.S.C. 78w(a)(2)].
    \690\ See 1980 Proposed Revisions.
    \691\ See Bill Libit and Todd Freier, The Corporate Social
Responsibility Report and Effective Stakeholder Engagement, Harvard
Law School Forum on Corporate Governance and Financial Regulation,
Dec. 28, 2013, available at https://corpgov.law.harvard.edu/2013/12/28/the-corporate-social-responsibility-report-and-effective-stakeholder-engagement (discussing increasing stakeholder engagement
on ESG issues); Matteo Tonello, Global Trends in Board-Shareholder
Engagement, Harvard Law School Forum on Corporate Governance and
Financial Regulation, Oct. 25, 2013, available at http://corpgov.law.harvard.edu/2013/10/25/global-trends-in-board-shareholder-engagement (describing representative shareholder
engagement examples that ``indicate that much engagement activity
involves executive compensation practices, corporate governance
structure, and environmental and social issues'').
    \692\ See Institutional Shareholder Services for the Investor
Responsibility Research Center Institute, Defining Engagement: An
Update on the Evolving Relationship Between Shareholders, Directors
and Executives, Apr. 10, 2014, (stating this trend in engagement
``may reflect that investors are satisfied with existing levels of
disclosure on financials and strategy, and do not feel a need to
engage further; or it may reflect that some of the survey
respondents were corporate governance and proxy voting specialists,
who are more likely to engage on governance or environmental and
social matters than on financial matters.''). See also supra note
691.
    \693\ See BlackRock Investment Institute, The Price of Climate
Change, Oct. 2015, at 7, available at https://www.blackrock.com/corporate/en-us/literature/whitepaper/bii-pricing-climate-risk-us.pdf (indicating that ``ESG factors cannot be divorced from
financial analysis. We view a strong ESG record as a mark of
operational and management excellence. Companies that score high on
ESG measures tend to quickly adapt to changing environmental and
social trends, use resources efficiently, have engaged (and,
therefore, productive) employees, and face lower risks of regulatory
fines or reputational damage.'').
    \694\ Id. at 2 (indicating that ``[c]limate change risk has
arrived as an investment issue. Governments are setting targets to
curb greenhouse gas emissions. This may pave the way for policy
shifts that we could see ripple across industries. The resulting
regulatory risks are becoming key drivers of investment returns.'')
    \695\ See US SIF Foundation, Unlocking ESG Integration, Sept.
2015, at 7, available at http://www.ussif.org/files/Publications/UnlockingESGIntegration.pdf, (stating that inclusion of ESG criteria
in the financial analysis of surveyed asset managers increased over
three times in terms of U.S.-domiciled assets managed (from about
$1.4 trillion to about $4.8 trillion) over a two-year period).
    See also, UNEP Finance Initiative, United Nations Principles for
Responsible Investment Report on Progress 2015, available at http://2xjmlj8428u1a2k5o34l1m71.wpengine.netdna-cdn.com/wp-content/uploads/PRI_Report-on-Progress_2015.pdf (stating that approximately 1,000
financial firms with aggregate assets under management of
approximately $59 trillion had signed on to the U.N.'s six
Principles for Responsible Investment (PRI) as of 2015. Among other
things, the signatories to the PRI committed to incorporate ESG
issues into their investment analyses and decision making processes,
be active owners around these issues, seek appropriate disclosure on
ESG issues by companies in which they invest, and collaborate to
promulgate the PRI broadly and enhance implementation, while
reporting on their own activities).
---------------------------------------------------------------------------

    In seeking public input on sustainability and public policy
disclosures, we recognize that some registrants historically have not
considered this information material. Some observers continue to share
this view and have expressed concern that sustainability or policy-
driven disclosure requirements do not always result in disclosure that
a reasonable investor would consider material.\696\ Some have expressed
concerns that policy-driven disclosure requirements represent a shift
away from the Commission's mission to protect investors, maintain fair,
orderly, and efficient markets, and facilitate capital formation, and
that such requirements could risk burdening both registrants and
investors with costly disclosure that is not material to any investment
or voting decision.\697\ Similarly, concerns have been expressed that
adopting sustainability or policy-driven disclosure requirements may
have the goal of altering corporate behavior, rather than producing
information that is important to voting and investment decisions.\698\
Additionally, one observer has noted numerous attempts to use the
Commission's regulatory apparatus to address societal issues.\699\ As
the costs of compiling and disclosing information about sustainability
and public policy issues are borne by the registrant, and ultimately
its shareholders, as is all disclosure, we are seeking input on whether
these disclosures are important to investors' voting and investment
decisions.
---------------------------------------------------------------------------

    \696\ See David M. Lynn, The Dodd-Frank Act's Specialized
Corporate Disclosure: Using the Securities Laws to Address Public
Policy Issues, 6 J. Bus. & Tech. L. 327 (Spring 2011) (``Lynn'');
Business Roundtable; SCSGP.
    \697\ See, e.g., Business Roundtable; Lynn.
    \698\ See generally, Cynthia A. Williams, The Securities and
Exchange Commission and Corporate Social Transparency, 112 Harv. L.
Rev. 1197 at 1297 (Apr. 1999) (describing what the author refers to
as the ``Corporate Management Constraint,'' which is an argument
against requiring social disclosure, particularly social disclosure
with the explicit or implicit purpose of changing the way
registrants are managed, because the Commission has no authority to
do so); Lynn; Business Roundtable.
    \699\ See Matt Levine, Climate Change and Sovereign Debt,
Bloomberg View (Jan. 25, 2016).
---------------------------------------------------------------------------

3. Request for Comment
    216. Are there specific sustainability or public policy issues are
important to informed voting and investment decisions? If so, what are
they? If we were to adopt specific disclosure requirements involving
sustainability or public policy issues, how could our rules elicit
meaningful disclosure on such issues? How could we create a disclosure
framework that would be flexible enough to address such issues as they
evolve over time? Alternatively, what additional Commission or staff
guidance, if any, would be necessary to elicit meaningful disclosure on
such issues?
    217. Would line-item requirements for disclosure about
sustainability or public policy issues cause registrants to disclose
information that is not material to investors? Would these disclosures
obscure information that is important to an understanding of a
registrant's business and financial condition? Why or why not?
    218. Some registrants already provide information about ESG matters
in sustainability or corporate social responsibility reports or on
their Web sites.\700\ Corporate sustainability reports may also be
available in databases aggregating such reports.\701\ Why do some
registrants choose to provide sustainability information outside of
their Commission filings? Is the information provided on company Web
sites sufficient to address investor needs? What are the advantages and
disadvantages of registrants providing

such disclosure on their Web sites? How important to investors is
integrated reporting,\702\ as opposed to separate financial and
sustainability reporting? If we permitted registrants to use
information on their Web sites to satisfy any ESG disclosure
requirement, how would this affect the comparability and consistency of
the disclosure?
---------------------------------------------------------------------------

    \700\ See, e.g., Center for Political Accountability and Zicklin
Center for Business Ethics at the Wharton School of the University
of Pennsylvania, The 2015 CPA-Zicklin Index of Corporate Political
Disclosure and Accountability, Oct. 8, 2015 at 8, available at
http://files.politicalaccountability.net/index/CPA-Zicklin_Index_Final_with_links.pdf; KPMG LLP, Currents of Change:
The KPMG Survey of Corporate Responsibility Reporting 2015, Nov. 24,
2015 (``2015 KPMG''), available at https://assets.kpmg.com/content/dam/kpmg/pdf/2016/02/kpmg-international-survey-of-corporate-responsibility-reporting-2015.pdf; Governance & Accountability
Institute, Sustainability--what matters?, 2014, available at http://www.ga-institute.com/fileadmin/user_upload/Reports/G_A_sustainability_-_what_matters_-FULL_REPORT.pdf.
    \701\ See, e.g., CorporateRegister.com for a database of
corporate responsibility reports from over 900 companies in the
United States and about 8,100 companies internationally, available
at http://www.corporateregister.com; Sustainability Disclosure
Database of the Global Reporting Initiative available at http://database.globalreporting.org.
    \702\ See International Integrated Reporting Council, The
International IR Framework, Dec. 2013, available at http://integratedreporting.org/wp-content/uploads/2015/03/13-12-08-THE-INTERNATIONAL-IR-FRAMEWORK-2-1.pdf; Robert G. Eccles and George
Serafeim, Corporate and Integrated Reporting: A Functional
Perspective (Harvard Business School, Working Paper 14-094 May 5,
2014).
---------------------------------------------------------------------------

    219. In an effort to coordinate ESG disclosures, several
organizations have published or are working on sustainability reporting
frameworks.\703\ Currently, some registrants use these frameworks and
provide voluntary ESG disclosures.\704\ If we propose line-item
disclosure requirements on sustainability or public policy issues,
which, if any, of these frameworks should we consider in developing any
additional disclosure requirements?
---------------------------------------------------------------------------

    \703\ See WFE Guidance at 8 (describing sustainability reporting
frameworks established by CDP (formerly, the Carbon Disclosure
Project), Global Reporting Initiative, the International Integrated
Reporting Council, SASB, and the United Nations Global Compact).
    \704\ For example, according to an industry study, about seventy
percent of corporate responsibility reporting in the Americas uses
the Global Reporting Initiative reporting framework. See 2015 KPMG
at 42.
---------------------------------------------------------------------------

    220. Are there sustainability or public policy issues for which
line-item disclosure requirements would be consistent with the
Commission's rulemaking authority and our mission to protect investors,
maintain fair, orderly and efficient markets and facilitate capital
formation, as described in Section III.A.1 of this release? If so, how
could we address the evolving nature of such issues and keep our
disclosure requirements current?
    221. What, if any, challenges would registrants face in preparing
and providing this information? What would be the additional costs of
complying with sustainability or public policy line-item disclosure
requirements, including the administrative and compliance costs of
preparing and disseminating disclosures, beyond the costs associated
with current levels of disclosure? Please quantify costs and expected
changes in costs where possible.
    222. If we propose line-item disclosure requirements that require
disclosure about sustainability or public policy issues, should we
scale the disclosure requirements for SRCs or some other category of
registrant? Similarly, should we exempt SRCs or some other category of
issuer from any such requirements?
    223. In 2010, the Commission published an interpretive release to
assist registrants in applying existing disclosure requirements to
climate change matters. As part of the Disclosure Effectiveness
Initiative, we received a number of comment letters suggesting that
current climate change-related disclosures are insufficient. Are
existing disclosure requirements adequate to elicit the information
that would permit investors to evaluate material climate change risk?
Why or why not? If not, what additional disclosure requirements or
guidance would be appropriate to elicit that information?

G. Exhibits

    Exhibits to Commission filings provide detailed information about
the registrant that generally is not available in the form itself. Item
601 of Regulation S-K specifies, by form type, the exhibits that
registrants must file with Securities Act and Exchange Act forms. The
exhibit requirements for Exchange Act forms overlap with many--but not
all--of the exhibit requirements for Securities Act forms. Similarly,
although there are some differences between the exhibit requirements
for Forms 8-K, 10-Q and 10-K, many of the required exhibits are the
same. Exhibits required in Exchange Act reports cover such categories
as certain transactions,\705\ corporate organization and
governance,\706\ rights of securities holders,\707\ matters relating to
the financial statements (including certifications),\708\ and material
contracts.\709\
---------------------------------------------------------------------------

    \705\ E.g., Item 601(b)(2) of Regulation S-K (plan of
acquisition, reorganization, arrangement, liquidation or succession)
[17 CFR 229.601(b)(2)].
    \706\ E.g., Items 601(b)(3)(i)-(ii) (articles of incorporation,
bylaws); (b)(14) (code of ethics); (b)(20) (documents or statements
to security holders); (b)(21) (subsidiaries of the registrant);
(b)(22) (published report regarding matters submitted to vote of
security holders); (b)(24) (power of attorney); (b)(31) (Exchange
Act Rule 13a-14(a)/15d-14(a) certifications) and (b)(32) (Exchange
Act Section 1350 certifications) of Regulation S-K [17 CFR
229.601(b)(3)(i)-(ii), (b)(14), (b)(20), (b)(21), (b)(22), (b)(24),
(b)(31) and (b)(32)].
    \707\ E.g., Items 601(b)(4) (instruments defining the rights of
security holders) and (b)(9) (voting trust agreement) of Regulation
S-K [17 CFR 229.601(b)(4) and (9)].
    \708\ E.g., Items 601(b)(15) (letter re unaudited interim
financial information); (b)(16) (change in certifying accountant);
(b)(18) (change in accounting principles); (b)(31) (Exchange Act
Rule 13a-14(a)/15d-14(a) certifications) and (b)(32) (Exchange Act
Section 1350 certifications) of Regulation S-K [17 CFR
229.601(b)(15), (b)(16), (b)(18), (b)(31) and (b)(32)].
    \709\ Item 601(b)(10) (material contracts) of Regulation S-K [17
CFR 229.601(b)(10)].
---------------------------------------------------------------------------

    The requirement to file exhibits originated in Schedule A of the
Securities Act, which requires registrants to file copies of certain
agreements, opinions and governing instruments.\710\ Over time, the
Commission has adopted additional requirements for exhibits as part of
different forms under the Securities Act and the Exchange Act.\711\ In
1980, the Commission standardized and centralized the exhibit
requirements by moving them from individual forms to Item 601 in
Regulation S-K.\712\ The exhibit requirements adopted in 1980 remain
substantially the same today.\713\ In 2003, however, the Commission
adopted additional exhibit requirements mandated by the Sarbanes-Oxley
Act.\714\

In 2009, the Commission adopted rules to require filing of interactive
data-tagged financial statements as part of its 21st Century Disclosure
Initiative.\715\ More recently, the Commission adopted additional
exhibit requirements mandated by the Dodd-Frank Act.\716\
---------------------------------------------------------------------------

    \710\ See Securities Act of 1933 Schedule A Paragraphs (28)
through (32) [15 U.S.C. 77aa(28)-(32)], which require registrants to
file underwriting agreements, opinions of counsel regarding the
legality of the offering, material contracts, governing instruments
(such as articles of incorporation, bylaws and partnership
agreements) and agreements or indentures affecting the offered
securities.
    \711\ For instance, in 1971, the Commission adopted a new
exhibit requirement for a report on a material change in accounting
principles or practices accompanied by a letter from the independent
accountant approving or otherwise commenting on such changes. See
Section IV.G.6. Similarly, in 1977, the Commission began requiring
companies to file as exhibits copies of every contract specifically
referred to in the company's discussion of its reportable industry
segments. See infra note 754 and accompanying text.
    \712\ See Amendments Regarding Exhibit Requirements, Release No.
33-6230 (Aug. 27, 1980) [45 FR 58822 (Sept. 5, 1980)] (``1980
Exhibits Adopting Release''). Prior to 1980, exhibit requirements
were included in each registration statement form or periodic report
form and many requirements were inconsistent from form to form. The
changes were intended to simplify and codify the exhibit
requirements.
    \713\ With the adoption of the integrated disclosure system in
1982, the Commission made technical changes to the exhibit
requirements and re-designated the requirements from Item 7 to Item
601. See 1982 Integrated Disclosure Adopting Release.
    \714\ See, e.g., Management's Report on Internal Control over
Financial Reporting and Certification of Disclosure in Exchange Act
Periodic Reporting, Release No. 33-8238 (June 5, 2003) [68 FR 36636
(June 18, 2003)] (adopting Items 601(b)(31) and (b)(32) requiring
companies to file the certifications mandated by Sections 302 and
906 respectively of the Sarbanes-Oxley Act as exhibits to certain
periodic reports); Disclosure Required by Sections 406 and 407 of
the Sarbanes-Oxley Act of 2002, Release No. 33-8177 (Jan. 23, 2003)
[68 FR 5110 (Mar. 31, 2003)] (``Audit Committee Financial Expert and
Code of Ethics Adopting Release'') (adopting Item 601(b)(14), which
requires companies to file a copy of any code of ethics that applies
to the company's CEO, CFO and senior accounting personnel with their
annual reports, as mandated by Section 406 of the Sarbanes-Oxley
Act).
    \715\ See supra note 41.
    \716\ See, e.g., Mine Safety Disclosure Release (adopting Item
601(b)(95) requiring companies that operate coal or other mines to
provide information about mine safety required by Item 104 in an
exhibit).
---------------------------------------------------------------------------

    To the extent that exhibits contain confidential and proprietary
information, Commission rules permit registrants to omit this
information from their public filings. For Exchange Act filings,
registrants may obtain confidential treatment of information under Rule
24b-2. This rule requires registrants seeking confidential treatment to
submit an application to the Commission objecting to disclosure of such
information along with an analysis of the applicable exemption under
FOIA.\717\ Most applicants rely on the exemption that covers trade
secrets and commercial or financial information obtained from a person
and privileged or confidential.\718\ If the Commission grants the
application, the registrant may omit the information from its public
filings for a limited period of time identified in the
application.\719\
---------------------------------------------------------------------------

    \717\ Exchange Act Rule 24b-2 [17 CFR 240.24b-2]. The rule
requires an application containing: An identification of the
confidential portion; a statement of the grounds of objection
referring to, and containing an analysis of, the applicable
exemption(s) from disclosure under the Commission's rules and
regulations adopted under FOIA, and a justification of the period of
time for which confidential treatment is sought; a written consent
to the furnishing of the confidential portion to other government
agencies, offices or bodies and to the Congress; and the name of
each exchange, if any, with which the material is filed. Id.
    \718\ See FOIA Section 552(b)(4) [5 U.S.C. 552(b)(4)] and Staff
Legal Bulletin 1A.
    \719\ Exchange Act Rule 24b-2(b)(2)(ii) [240.24b-2(b)(2)(ii)].
In interpreting Rule 24b-2, the staff has indicated that the time
period for confidential treatment generally will be limited to the
duration of the contract, but no more than ten years. See Staff
Legal Bulletin 1A.
---------------------------------------------------------------------------

    We are seeking input on Item 601 of Regulation S-K to determine
whether its requirements continue to provide investors with information
important to making informed investment and voting decisions.
Consistent with the scope of this release, we are considering only
those exhibits required in quarterly and annual reports filed under the
Exchange Act, which are identified in the following table.\720\ While
we do not specifically address each exhibit in our discussion, we
welcome comments on any of the items listed below.\721\
---------------------------------------------------------------------------

    \720\ Many of the exhibits addressed in quarterly and annual
reports are also required in current reports on Form 8-K. Though not
within the scope of this release, the table includes exhibits
required in current reports on Form 8-K to provide additional
context.
    \721\ As part of its work to develop recommendations for the
Commission for potential changes to update or simplify certain
disclosure requirements, the staff is separately considering
paragraphs (b)(11), (b)(12), (b)(19), (b)(22) and (b)(26) of Item
601. The staff is also separately considering recommendations to
aspects of Item 601(b)(25)(ii) and 601(a)(2) as part of this effort.
For a description of this project, see Section I.
    \722\ A Form 8-K exhibit is required only if it is relevant to
the subject matter reported on the Form 8-K report. For example, if
the Form 8-K pertains to the departure of a director, only the
exhibit described in paragraph (b)(17) of Item 601 must be filed.

----------------------------------------------------------------------------------------------------------------
                                                                                Forms
                                                              --------------------------------------------------
                                                                  8-K \722\           10-Q             10-K
----------------------------------------------------------------------------------------------------------------
(1) Underwriting agreement...................................               X   ...............  ...............
(2) Plan of acquisition, reorganization, arrangement,                       X                X                X
 liquidation or succession...................................
(3)(i) Articles of incorporation.............................               X                X                X
    (ii) Bylaws..............................................               X                X                X
(4) Instruments defining the rights of security holders,                    X                X                X
 including indentures........................................
(7) Correspondence from an independent accountant regarding                 X   ...............  ...............
 non-reliance on a previously issued audit report or
 completed interim review....................................
(9) Voting trust agreement...................................  ...............  ...............               X
(10) Material contracts......................................  ...............               X                X
(11) Statement re computation of per share earnings..........  ...............               X                X
(12) Statements re computation of ratios.....................  ...............  ...............               X
(13) Annual report to security holders, Form 10-Q or           ...............  ...............               X
 quarterly report to security holders........................
(14) Code of Ethics..........................................               X   ...............               X
(15) Letter re unaudited interim financial information.......  ...............               X   ...............
(16) Letter re change in certifying accountant...............               X   ...............               X
(17) Correspondence on departure of director.................               X   ...............  ...............
(18) Letter re change in accounting principles...............  ...............               X                X
(19) Report furnished to security holders....................  ...............               X   ...............
(20) Other documents or statements to security holders.......               X   ...............  ...............
(21) Subsidiaries of the registrant..........................  ...............  ...............               X
(22) Published report regarding matters submitted to vote of   ...............               X                X
 security holders............................................
(23) Consents of experts and counsel.........................               X                X                X
(24) Power of attorney.......................................               X                X                X
(31)(i) Rule 13a-14(a)/15d-14(a) Certifications..............  ...............               X                X
    (ii) Rule 13a-14/15d-14 Certifications...................  ...............  ...............               X
(32) Section 1350 Certifications.............................  ...............               X                X
(33) Report on assessment of compliance with servicing         ...............  ...............               X
 criteria for asset-backed issuers...........................
(34) Attestation report on assessment of compliance with       ...............  ...............               X
 servicing criteria for asset-backed securities..............
(35) Servicer compliance statement...........................  ...............  ...............               X
(95) Mine Safety Disclosure Exhibit..........................  ...............               X                X
(99) Additional exhibits.....................................               X                X                X
(100) XBRL-Related Documents.................................               X                X                X
(101) Interactive Data File..................................               X                X                X
----------------------------------------------------------------------------------------------------------------

1. Request for Comment
    224. Should we modify or eliminate any of the exhibit requirements
in Item 601? If so, which ones and why? Should we add any new exhibit
requirements to Item 601? If so, what requirements should we add and
why?
    225. Should we revise any of our exhibit requirements to change the
presentation or format of the exhibits?
    226. Should the Commission consider changes to improve the
usefulness of the exhibits? For example, should the exhibits be
provided in a tagged or searchable manner?
    227. What types of investors or audiences are most likely to value
the information that registrants disclose in the exhibits?
    228. What is the cost of providing the disclosure required under
Item 601, including administrative and compliance costs of preparing
and disseminating this disclosure? How would these costs change if we
made any of the changes contemplated here? Please provide quantified
estimates if possible and include only those costs associated with Item
601.
2. Schedules and Attachments to Exhibits
    In response to Item 601, registrants generally must file exhibits
as complete documents, including any schedules or attachments. These
schedules and attachments can be lengthy and sometimes contain
proprietary information. The only exception to the requirement to file
schedules and attachments applies to a plan of acquisition,
reorganization, arrangement, liquidation or succession filed under Item
601(b)(2).\723\ The rule provides that schedules or similar attachments
to these exhibits shall not be filed unless they contain information
which is material to an investment decision and has not been disclosed
otherwise.\724\
---------------------------------------------------------------------------

    \723\ See Item 601(b)(2) of Regulation S-K [17 CFR
229.601(b)(2)].
    \724\ Id. The exhibit filed must include a list briefly
identifying the contents of all omitted schedules along with an
agreement to provide a supplemental copy of any omitted schedules to
the Commission upon request. Id.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter suggested adding
a new instruction to Item 601 permitting the omission of schedules to
all exhibits required to be filed, unless such schedules contain
material information that is not otherwise disclosed in the exhibit or
in the filing, as is the case with current Item 601(b)(2).\725\
Alternatively, this commenter suggested that we revise Item 601 to
permit companies to omit personally identifiable and similar
information, such as bank account numbers and home addresses, without
having to apply for confidential treatment to protect the
information.\726\
---------------------------------------------------------------------------

    \725\ See ABA 2.
    \726\ Id.
---------------------------------------------------------------------------

b. Discussion
    The Commission first permitted registrants to omit schedules and
attachments for Item 601(b)(2) exhibits in 1980.\727\ In revising the
exhibit requirement, the Commission stated that many of the schedules
received by the staff pursuant to the exhibit requirement were not
material for investor information or protection and were unnecessary
for Commission review purposes.\728\
---------------------------------------------------------------------------

    \727\ See 1980 Exhibits Adopting Release.
    \728\ See id.
---------------------------------------------------------------------------

    Material contracts filed under Item 601(b)(10) often include
schedules that contain information that is not material to investors or
that has been disclosed or sufficiently described elsewhere in the
exhibit or in the disclosure. Examples of schedules and attachments
providing information that may be immaterial include detailed product
specifications attached to royalty agreements; implementation plans
attached to service agreements; premises descriptions and plots as
schedules to real estate leases; and licensing agreements with
schedules listing immaterial patents. To the extent these schedules
contain confidential and proprietary information, registrants may be
permitted to omit such information from the public filing.\729\
---------------------------------------------------------------------------

    \729\ See supra notes 717, 718 and 719 and accompanying text.
---------------------------------------------------------------------------

c. Request for Comment
    229. Should we continue to allow registrants to omit schedules and
attachments for exhibits filed under Item 601(b)(2)? Why? If so, what
qualitative or quantitative factors should be considered when
determining if omission is appropriate?
    230. Should we allow registrants to omit immaterial schedules and
attachments from their filed exhibits? If so, should we expand this
approach to all exhibits, or should we limit it to material contracts
filed under Item 601(b)(10)? Should we provide examples or other
guidance on how registrants could evaluate materiality for purposes of
including schedules and attachments? If so, what type of guidance would
be most useful for assessing the importance of the information (e.g.,
quantitative thresholds, qualitative factors)? What would be the
potential benefits and challenges associated with such an approach? If
registrants omit schedules and attachments based on immateriality,
should we require registrants to disclose how they assessed materiality
for these purposes?
    231. If we allow the omission of immaterial schedules and
attachments from all or certain filed exhibits, should we require
registrants to include with such exhibits a list briefly identifying
the contents of all omitted schedules, together with an agreement to
provide a supplemental copy of any omitted schedule to the Commission
upon request, similar to the requirement in Item 601(b)(2)?
    232. Schedules and attachments to exhibits sometimes contain
personally identifiable information (``PII''), and registrants may
request confidential treatment of that information. Division staff
generally does not object to the omission of PII from exhibits without
a formal confidential treatment request, provided the registrant does
not omit any other information from its exhibits. If we retain the
requirement for registrants to file schedules and attachments to
exhibits, should we codify current staff practice and permit
registrants to omit PII without making a formal request under Rule 24b-
2 of the Exchange Act? Should we limit such an accommodation to
information contained in schedules and attachments to exhibits, or
should we expand it to all exhibit filings?
3. Amendments to Exhibits
    Any amendment or modification to a previously filed exhibit to a
Form 10-K or Form 10-Q must be filed as an exhibit to a Form 10-K or
Form 10-Q.\730\ Registrants generally must file such amendments or
modifications regardless of the significance of the change.\731\ As a
result, registrants may be required to file a significant number of
amendments that are not necessarily material to investors. However,
registrants are not required to file amendments or modifications when
the previously filed exhibit would not currently be required.\732\
---------------------------------------------------------------------------

    \730\ Item 601(a)(4) of Regulation S-K [17 CFR 229.601(a)(4)].
    \731\ For a discussion of changes to exhibits and Instruction 1
to Item 601, see Section IV.G.4.
    \732\ For example, a previously filed exhibit may no longer be
material to a registrant as a result of the registrant's growth or
change in business focus. The Commission revised Item 601 in 1982 to
clarify that amendments and modifications must be filed only for
currently required exhibits as opposed to previously filed exhibits
that are no longer material and required to be filed. See 1982
Integrated Disclosure Adopting Release.

---------------------------------------------------------------------------

    For amendments to articles of incorporation or bylaws, Item 601
requires registrants to file a complete copy of the document as
amended.\733\ Item 601 does not include a similar requirement for other
exhibits, and registrants typically file amendments to these exhibits
without filing a complete, amended and restated version of the
agreement.
---------------------------------------------------------------------------

    \733\ Item 601(b)(3) of Regulation S-K [17 CFR 229.601(b)(3)].
If such amendment is being reported on Form 8-K, however, the
registrant is required to file only the text of the amendment as a
Form 8-K exhibit. In such case, a complete copy of the articles of
incorporation or bylaws as amended must be filed as an exhibit to
the next Securities Act registration statement or periodic report
filed by the registrant to which this exhibit requirement applies.
Id.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter suggested
revising Item 601(a)(4) to exclude amendments to material contracts
that do not affect the economics of such contracts (e.g., technical
amendments) from the requirement to file any amendment or modification
to a previously filed exhibit.\734\
---------------------------------------------------------------------------

    \734\ See ABA 2.
---------------------------------------------------------------------------

b. Discussion
    With adoption of the integrated disclosure system, the Commission
consolidated several requirements in Forms 10-Q and 10-K for amendments
and modifications to previously filed exhibits.\735\ The new item
required registrants to file as exhibits all amendments or
modifications to exhibits that were previously filed with those
forms.\736\ The requirement was moved to paragraph (a)(4) of Item 601
in 1993 and has remained unchanged since.\737\
---------------------------------------------------------------------------

    \735\ See 1980 Exhibits Adopting Release. For example, prior to
1980, Form 10-K required registrants to file copies of all
amendments or modifications, not previously filed, to all exhibits
previously filed, or copies of such exhibits as amended or modified.
See, e.g., 1965 Amendments to Form 10-K Adopting Release.
    \736\ Id.
    \737\ See Rulemaking for EDGAR System, Release No. 33-6977 (Feb.
23, 1993) [58 FR 14628 (Mar. 18, 1993)] at note 388.
---------------------------------------------------------------------------

    Registrants frequently amend agreements, such as credit facilities,
licensing agreements, manufacturing agreements and supply agreements,
to extend their duration. Registrants also amend credit facilities to
increase the amount available for borrowing. Other than amended
articles of incorporation or bylaws, multiple amendments to the same
agreement may be dispersed among different periodic reports.
c. Request for Comment
    233. Should we continue to require registrants to file all
amendments or modifications to previously filed exhibits as required
under Item 601(a)(4)? Should we instead amend Item 601(a)(4) to exclude
immaterial amendments? If so, should we provide guidance to registrants
about how to determine whether an amendment is immaterial? Instead of
materiality, should we permit registrants to exclude amendments based
on a different standard? If so, what standard would be appropriate?
    234. Does an amendment-only exhibit provide investors with the
information they need to evaluate the impact of the amendment on the
registrant? Should we instead require registrants to file a complete,
amended and restated agreement each time an exhibit is modified,
consistent with the requirement for amendments to articles of
incorporation and bylaws? If so, should we require registrants to
identify changes in the amended and restated contracts such as by
underlining or highlighting the changes? Would complying with such a
requirement be more burdensome for agreements than for articles of
incorporation or bylaws? If so, why?
4. Changes to Exhibits (Instruction 1 to Item 601)
    If an exhibit to a registration statement is filed in preliminary
form, Instruction 1 to Item 601 provides that registrants are not
required to file an amendment to the exhibit if it has been changed
only (1) to insert certain information that appears elsewhere in an
amendment to the registration statement or a prospectus filed pursuant
to Securities Act Rule 424(b), or (2) to correct typographical errors,
insert signatures or make other similar immaterial changes.\738\ No
similar provision exists for exhibits to Exchange Act reports.
Instruction 1 also provides that any such incomplete exhibit may not be
incorporated by reference in any subsequent filing under any Act
administered by the Commission.
---------------------------------------------------------------------------

    \738\ Instruction 1 to Item 601 of Regulation S-K [17 CFR
229.601]. The instruction states that if an exhibit to a
registration statement (other than an opinion or consent), filed in
preliminary form, has been changed only (A) to insert information as
to interest, dividend or conversion rates, redemption or conversion
prices, purchase or offering prices, underwriters' or dealers'
commissions, names, addresses or participation of underwriters or
similar matters, which information appears elsewhere in an amendment
to the registration statement or a prospectus filed pursuant to Rule
424(b) under the Securities Act (230.424(b) of this chapter), or (B)
to correct typographical errors, insert signatures or make other
similar immaterial changes, then, notwithstanding any contrary
requirement of any rule or form, the registrant need not refile such
exhibit as so amended. Any such incomplete exhibit may not, however,
be incorporated by reference in any subsequent filing under any Act
administered by the Commission. Id.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter recommended
eliminating the last sentence of Instruction 1 to Item 601, which
states that incomplete exhibits already on file that do not reflect the
modifications described in the instruction may not be incorporated by
reference in any subsequent filing.\739\
---------------------------------------------------------------------------

    \739\ See ABA 2.
---------------------------------------------------------------------------

b. Discussion
    The Commission adopted the predecessor to Instruction 1 of Item 601
in 1954 in connection with new rules designed to simplify the
registration procedure for offers involving competitive bidding.\740 \
Those rules provided that, if certain conditions were met, post-
effective amendments reflecting the results of the bidding would become
effective without the need for a Commission order.\741\ This provision
was intended to avoid the delay and attendant uncertainty that occurred
between the filing and effectiveness of post-effective amendments.\742\
Consistent with this goal, the Commission eliminated a requirement for
registrants to refile exhibits solely to insert interest rate,
redemption prices and certain other offering-related information.\743\
The Commission retained this provision as Instruction 1 to Item
601.\744\
---------------------------------------------------------------------------

    \740\ See Adoption of Rule 415 Relating to Competitive Bidding
Registration Statements, Amendment of Rules 424, 427, 455, 471 and
472 and Rescission of Rule 460, Release No. 33-3494 (Jan. 13, 1954)
[not published in the Federal Register] (``1954 Adopting Release'').
    \741\ See id. At the time, registrants engaged in offerings
involving competitive bidding were required to file post-effective
amendments to registration statements at the time the bids were
opened to reflect the results of the bidding. These post-effective
amendments were only effective pursuant to an order from the
Commission.
    \742\ See Notice of Proposal to Adopt Rule 415 Relating to
Competitive Bidding Registration Statements, To Amend Rules 424,
427, 455, 471 and 472 and to Rescind Rule 460, Release No. 33-3491-Z
(Nov. 10, 1953) [not published in the Federal Register].
    \743\ See 1954 Adopting Release.
    \744\ See 1982 Integrated Disclosure Adopting Release. See also
Proposed Rescission of Guides for the Preparation and Filing of
Registration Statements and Reports, Release No. 33-6332 (Aug. 6,
1981) [46 FR 41925 (Aug. 18, 1981)] (``Proposed Revision of
Regulation S-K (1981)'') (proposing to incorporate the predecessor
to Instruction 1 into the instructions to Item 601) and 1981
Proposed Revisions (proposing to delete Rule 472(d), which addressed
immaterial changes in exhibits, because its substance was proposed
to be included in Item 601). In connection with the adoption of Rule
430A, the Commission amended Instruction 1 to include a reference to
prospectus supplements under Rule 424. See Elimination of Certain
Pricing Amendments and Revision of Prospectus Filing Procedures,
Release No. 33-6714 (May 27, 1987) [52 FR 21252 (June 5, 1987)].

---------------------------------------------------------------------------

    While Instruction 1 is intended to address timing concerns in
certain registered offerings, it also affects registrants' ability to
incorporate exhibits by reference to other filings. To the extent a
registrant modifies an incomplete exhibit that was filed in preliminary
form, as permitted under Instruction 1, the incomplete exhibit already
on file may not be incorporated by reference into its Exchange Act
reports. Instead, the registrant would be required to file the complete
exhibit with an Exchange Act report for the relevant reporting period.
c. Request for Comment
    235. Should we eliminate Instruction 1?
    236. Should we expand the applicability of Instruction 1 to all
filings? Should we expand the type of information in clauses (A) and
(B) of Instruction 1 to cover additional types of information that, if
changed, do not need to be refiled as an amendment to the exhibit?
    237. Instruction 1 states that any incomplete exhibit may not be
incorporated by reference in any subsequent filing.\745\ Should we
eliminate this limitation?
---------------------------------------------------------------------------

    \745\ For a discussion of incorporation by reference, see
Section V.B.
---------------------------------------------------------------------------

5. Material Contracts (Item 601(b)(10))
    Item 601(b)(10) of Regulation S-K requires registrants to file
material contracts that fall into one of three broad categories:
     All contracts not made in the ordinary course of business
that are material to the registrant (Item 601(b)(10)(i));
     Contracts made in the ordinary course of business of a
type that are specified in the rule (Item 601(b)(10)(ii)); and
     Management contracts and compensatory plans in which any
director, named executive officer, or other executive officer of the
registrant participates (Item 601(b)(10)(iii)).\746\
---------------------------------------------------------------------------

    \746\ As this release is focused on our business and financial
disclosure requirements, we are not addressing Item 601(b)(10)(iii)
of Regulation S-K [17 CFR 229.601(b)(10)(iii)].
---------------------------------------------------------------------------

    Any material contract that is executed or becomes effective during
a reporting period must be filed as an exhibit to the Forms 10-Q or 10-
K for the corresponding period.\747\
---------------------------------------------------------------------------

    \747\ Item 601(a)(4) of Regulation S-K [17 CFR 229.601(a)(4) and
Instruction 2 to Item 601(b)(10) of Regulation S-K [17 CFR
229.601(b)(10)].
---------------------------------------------------------------------------

a. Contracts Not Made in the Ordinary Course--Item 601(b)(10)(i)
    Item 601(b)(10)(i) requires registrants to file every contract not
made in the ordinary course of business that is material to the
registrant and is to be performed in whole or in part at or after the
filing of the report, or was entered into not more than two years
before such filing.\748\ Registrants are required to file only those
contracts to which the registrant or subsidiary of the registrant is a
party or has succeeded to a party by assumption or assignment or in
which the registrant or such subsidiary has a beneficial interest.
---------------------------------------------------------------------------

    \748\ Item 601(b)(10)(i) of Regulation S-K [17 CFR
229.601(b)(10)(i)]. This requirement is virtually identical to
paragraph 24 of Schedule A of the Securities Act. [15 U.S.C.
77aa(24)].
---------------------------------------------------------------------------

i. Comments Received
    S-K Study. Two commenters stated that the agreements required to be
filed pursuant to Item 601(b)(10)(i) often contain confidential
information.\749\ These commenters also stated that the process of
filing the agreements and obtaining confidential treatment is
burdensome on registrants and provides information of limited value to
investors.\750\
---------------------------------------------------------------------------

    \749\ See Silicon Valley; M. Liles.
    \750\ Id.
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative. None.
ii. Discussion
    In 1964, Congress expanded the information requirements for
registration statements filed under Section 12 of the Exchange Act by
adding a requirement to include material contracts not made in the
ordinary course of business.\751\ Following these Exchange Act
amendments, the Commission revised Form 10-K to make the form available
for annual reports of all Exchange Act registrants and expanded the
form's disclosure requirements.\752\ Among other changes, these
amendments included a requirement in Form 10-K to file material
contracts not made in the ordinary course of business, not previously
filed and performed or to be performed at or after the beginning of the
fiscal year covered by the report.\753\ This requirement was similar to
the new requirement to file such exhibits with Exchange Act
registration statements which, however, required this information for
two years prior to filing of the registration statement.
---------------------------------------------------------------------------

    \751\ See Summary and Interpretation of Amendments to Securities
Act of 1933 and Securities Exchange Act of 1934 Contained in the
Securities Acts Amendments of 1964, Release No. 34-7425 (Sept. 15,
1964) [29 FR 13455 (Sept. 30, 1964)].
    As amended, Section 12(b) required registrants to file material
contracts, not made in the ordinary course of business, which are to
be executed in whole or in part at or after the filing of the
Exchange Act registration statement or which were made not more than
two years before such filing. Schedule A includes a similar
requirement for Securities Act registration statements. [15 U.S.C.
77aa(24)]. As noted at the time, the amendment to Section 12(b)
followed the Commission's recommendation that registration under
both the Exchange Act and the Securities Act be made as similar as
possible. See Lee J. Sclar, The Securities Acts Amendments of 1964:
Selected Provisions and Legislative Deficiencies, 53 Cal. L. Rev.
1494, 1515 (1965).
    The two-year requirement was intended as a ``cutoff period'' so
registrants would not have to file all material contracts executed
as early as 1932, even though they may have been fully performed
years ago. See H.R Rep. No. 88-1418, 83rd Cong., 2nd Sess., 1964.
See also Richard M. Phillips and Morgan Shipman, An Analysis of the
Securities Acts Amendments of 1964, 1964 Duke L.J. 706, 788-789
(1964).
    \752\ See 1965 Amendments to Form 10-K Adopting Release.
    \753\ Id. Similar to the language in amended Section 12(b) of
the Exchange Act, the new requirement called for ``[c]opies of every
material contract not made in the ordinary course of business and
not previously filed which was performed or to be performed in whole
or in part at or after the beginning of the fiscal year covered by
the report on this form.'' Id. at 3433. The Commission adopted
additional exhibit requirements with these amendments, which we
discuss below in Section IV.G.5.b.
---------------------------------------------------------------------------

    In 1977, with the adoption of Regulation S-K, the Commission
expanded the exhibit requirements for contracts not made in the
ordinary course of business to include those that were material to an
understanding of the registrant's overall business or specifically
referred to in the registrant's discussion of its reportable industry
segments.\754\ In 1980, the Commission eliminated the latter
requirement,\755\ noting that many contracts referred to in the
disclosure may not be material to the registrant.\756\ With this
revision, the Commission sought to reduce the number of contracts
required to be filed without impairing investor information or
protection.\757\ In 1982, the Commission adopted the current
requirements described in Items 601(b)(10)(i) and (ii) with the
adoption of the integrated disclosure system.\758\
---------------------------------------------------------------------------

    \754\ See 1977 Regulation S-K Adopting Release.
    \755\ See 1980 Exhibits Adopting Release.
    \756\ See Proposed Amendments Regarding Exhibit Requirements,
Release No. 33-6149 (Nov. 16, 1979) [44 FR 67143 (Nov. 23, 1979)]
(``Proposed Amendments Regarding Exhibit Requirements Release'').
    \757\ See 1980 Exhibits Adopting Release. See also Proposed
Amendments Regarding Exhibit Requirements Release.
    \758\ See 1982 Integrated Disclosure Adopting Release. See also
Proposed Revision of Regulation S-K (1981). In connection with these
amendments, the Commission revised Item 601(b)(10)(ii)(D) to require
that only material leases be filed as exhibits and revised Item
601(b)(10)(iii) regarding management contracts and compensatory
plans.

---------------------------------------------------------------------------

    In 2004, the Commission adopted Items 1.01 and 1.02 of Form 8-K,
which require disclosure when a registrant enters into, amends or
terminates an agreement that is material to the registrant and is not
made in the ordinary course of business.\759\ In the proposing release,
the Commission sought comment on whether it should use a disclosure
threshold that is tied to a financial measure, rather than
materiality.\760\ The Commission ultimately adopted the reporting
requirements with a materiality threshold because the standard was
``already familiar to reporting companies,'' noting that the
materiality threshold parallels the materiality threshold for filing
this type of agreement under Item 601(b)(10) of Regulation S-K.\761\
---------------------------------------------------------------------------

    \759\ See 2004 Form 8-K Adopting Release. See also Items 1.01
and 1.02 of Form 8-K.
    \760\ See 2002 Form 8-K Proposing Release at 42917 (``Because we
believe that agreements can be material for reasons other than the
monetary amount involved, we propose to require disclosure under
this item based on a `materiality' standard and do not propose to
tie the disclosure to a financial measure.'').
    \761\ See 2004 Form 8-K Adopting Release at 15596. See also
Instruction 1 to Item 1.01 of Form 8-K.
---------------------------------------------------------------------------

iii. Request for Comment
    238. Item 601(b)(10)(i) does not include any guidance for
determining whether a contract not made in the ordinary course of
business is material to a registrant. Should we consider revising the
requirement to provide quantitative or other thresholds for determining
when a contract is material to the registrant? If so, how should we
define these thresholds? Would such a change facilitate registrants'
compliance with this item requirement? Would such a change result in
disclosure that is useful to investors?
    239. Does ``not made in the ordinary course of business'' provide a
clear standard for agreements covered by the rule? Should a different
standard to apply? Should we revise Item 601(b)(10)(i) to define the
types of contracts not made in the ordinary course of business that
companies are required to file as exhibits? If so, how should we define
such contracts?
    240. Item 601(b)(10)(i) requires registrants to file material
contracts that either (i) are to be performed in whole or in part at or
after the filing of the periodic report, or (ii) were entered into not
more than two years before such filing. This requirement was enacted in
the context of requiring material contracts for newly reporting
registrants that were entered into within the last two years but may
have been fully performed before the period covered by the report. Do
such contracts continue to be important to investors? Should we limit
subparagraph (ii) to newly reporting registrants? For registrants that
are already subject to reporting requirements, should we eliminate
subparagraph (ii) and require registrants to file only material
contracts that are to be performed in whole or in part at or after the
filing of the report? Should we revise Item 601(b)(10)(i) to require
all material agreements to be filed regardless of when they were
entered into, as long as such agreements remain material to the
registrant? Under what circumstances could a contract remain material
to a registrant if it has been fully performed in a prior period?
b. Certain Contracts Made in the Ordinary Course--Item 601(b)(10)(ii)
    Contracts made in the ordinary course of business conducted by a
registrant and its subsidiaries generally do not need to be filed. Item
601(b)(10)(ii), however, establishes specific exceptions to the general
rule and requires certain contracts to be filed even when they
ordinarily accompany the kind of business conducted by the registrant
and its subsidiaries. The following types of contracts must be filed,
except where immaterial in amount or significance:
     Any contract to which directors, officers, voting
trustees, security holders named in the registration statement or
report, or underwriters are parties, other than contracts involving
only the purchase or sale of current assets that have a determinable
market price, at such market price; \762\
---------------------------------------------------------------------------

    \762\ Item 601(b)(10)(ii)(A) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(A)].
---------------------------------------------------------------------------

     Any contract upon which the registrant's business is
substantially dependent, such as continuing contracts to sell the major
part of the registrant's products or services or to purchase the major
part of the registrant's requirements of goods, services or raw
materials or any franchise or license or other agreement to use a
patent, formula, trade secret, process or trade name upon which the
registrant's business depends to a material extent; \763\
---------------------------------------------------------------------------

    \763\ Item 601(b)(10)(ii)(B) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(B)].
---------------------------------------------------------------------------

     Any contract calling for the acquisition or sale of any
property, plant or equipment for a consideration exceeding fifteen
percent of such fixed assets of the registrant on a consolidated basis;
\764\ or
---------------------------------------------------------------------------

    \764\ Item 601(b)(10)(ii)(C) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(C)].
---------------------------------------------------------------------------

     Any material lease under which a part of the property
described in the filing is held by the registrant.\765\
---------------------------------------------------------------------------

    \765\ Item 601(b)(10)(ii)(D) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(D)].
---------------------------------------------------------------------------

i. Comments Received
    S-K Study. We received letters from two commenters addressing the
requirement in Item 601(b)(10)(ii)(B) to file any contract upon which
the registrant's business is substantially dependent, as in the case of
a continuing contract to sell the major part of a registrant's products
or services or to purchase the major part of a registrant's
requirements for goods, services or raw materials. Both commenters
requested guidance interpreting the phrase ``the major part'' to mean
agreements involving a majority of the products or services sold or
purchased.\766\ Both commenters also noted that the filing threshold
for agreements that are ``immaterial in amount or significance'' as it
relates to Item 601(b)(10)(ii)(A) leads to a disproportionate burden on
EGCs, which frequently enter into agreements with parties that have a
five percent or greater ownership of the registrant.\767\ These
commenters suggested that other disclosure provisions require the
filing or disclosure of ``relevant information'' regarding these
related party agreements.\768\
---------------------------------------------------------------------------

    \766\ See Silicon Valley; M. Liles.
    \767\ Id.
    \768\ Id. (referring to Item 404(a) for disclosure of related
party agreements, Item 601(b)(4) for agreements establishing the
terms of the registrant's securities, and financial statement
footnotes for disclosure about joint venture agreements).
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative. One commenter noted that the
reference in Item 601(b)(10)(ii)(B) to contracts to sell the major part
of a registrant's products or services is tied neither to a specific
quantitative threshold nor to materiality.\769\ This commenter
recommended that the Commission undertake a study to harmonize various
qualitative disclosure thresholds in Regulation S-K, such as ``major
part'' in Item 601(b)(10)(ii)(B) and ``major significance'' in Item
102, to reduce the ambiguity in their application. This commenter also
suggested revising Item 601(b)(10)(ii) so that contracts with certain
insiders or other parties identified in the item need not be filed if
they contain terms no less favorable to the registrant than terms that
could have been obtained from unrelated third parties. Another
commenter

recommended eliminating the requirement in Item 601(b)(10)(ii)(D) to
file material leases and suggested that disclosure about physical
properties usually does not provide investors with meaningful
information.\770\
---------------------------------------------------------------------------

    \769\ See ABA 2.
    \770\ See Shearman.
---------------------------------------------------------------------------

ii. Discussion--Background and Scope of Item 601(b)(10)(ii)
    The Commission's 1965 amendments to Form 10-K included a
requirement for registrants to file as exhibits certain specified
contracts made in the ordinary course of business.\771\ The contracts
specified in Form 10-K at that time were similar to those identified
today in Item 601(b)(10)(ii).\772\ In addition, Form 10-K included a
catch-all requirement to file an exhibit when the ``amount of the
contract, or its importance to the business of the registrant and its
subsidiaries, [is] material, and the terms and conditions are of a
nature of which investors reasonably should be informed.'' \773\
---------------------------------------------------------------------------

    \771\ See 1965 Amendments to Form 10-K Adopting Release.
    \772\ See id. The 1965 amendments consisted of the following six
categories: ``(1) Directors, officers, promoters, voting trustees,
or security holders named in answer to Item 5 [Principal Holders of
Voting Securities] are parties thereto except where the contract
merely involves purchase or sale of current assets having a
determinable market price, at such price; (2) It is of such
materiality as to call for specific reference to it in answer to
Item 4 [Changes in the Business] or 9 [Interest of Management and
Others in Certain Transactions]; (3) The registrant's business is
substantially dependent upon it, as in the case of continuing
contracts to sell the major part of registrant's production in the
case of a manufacturing enterprise or to purchase the major part of
registrant's requirements of goods in the case of a distribution
enterprise, or licenses to use a patent or formula upon which
registrant's business depends to a material extent; (4) It calls for
the acquisition or sale of fixed assets for a consideration
exceeding 10 percent of all fixed assets of the registrant and its
subsidiaries; (5) It is a lease under which a material amount of
property is held by the registrant; or (6) The amount of the
contract, or its importance to the business of the registrant and
its subsidiaries, are material, and the terms and conditions are of
a nature of which investors reasonably should be informed.'' Id. at
3433.
    \773\ Id. at 3433.
---------------------------------------------------------------------------

    In 1980, the Commission codified in Regulation S-K the exhibit
filing requirements, including the filing requirements for material
contracts.\774\ The requirements adopted in 1980 modified the existing
requirements and were substantially similar to the current requirements
in Item 601(b)(10)(ii)(A)-(D). The Commission modified the requirement
to file agreements for the acquisition or sale of ``fixed assets,''
adopting instead a requirement to file contracts for the acquisition or
sale of any ``property, plant or equipment.''
---------------------------------------------------------------------------

    \774\ See 1980 Exhibits Adopting Release.
---------------------------------------------------------------------------

iii. Request for Comment
    241. Should we expand Item 601(b)(10)(ii) to include other types of
contracts that, although made in the ordinary course of business,
should be filed?
    242. Should we revise our overall approach to Item 601(b)(10)(ii)
and if so, how? Rather than specifying categories of contracts, is
there an alternative approach that would appropriately capture those
ordinary course contracts that are important to investors? For example,
should we replace the current requirements in Item 601(b)(10)(ii)(A)-
(D) with a requirement for registrants to file all ordinary course
contracts entered into (i) since the beginning of the last fiscal year,
(ii) that exceed a percent of some measure, such as revenue or net
income and (iii) where the registrant has a direct or indirect material
interest? If we took this approach, how should we establish the
relevant time frame and percentage threshold and what measures should
we use? What would be the benefits and challenges of such an approach?
    243. Do contracts that are required to be filed pursuant to Item
601(b)(10)(ii) contain information that is important to an
understanding of the registrant or its business? Are the types of
contracts identified in Item 601(b)(10)(ii) sufficiently significant
that they should be filed, notwithstanding that they were made in the
ordinary course of business?
    244. Is ``immaterial in amount or significance'' a helpful standard
by which to determine when a contract need not be filed? How do
registrants currently apply this standard? Should we revise the item to
provide guidance on the meaning of that phrase? Is it possible for
contracts to be material in amount but not in significance? Should we
revise the item to exclude only contracts that are immaterial in amount
and significance? Would it facilitate compliance if we revised Item
601(b)(10)(ii) to state in the affirmative that registrants must file
all material contracts made in the ordinary course of business that
fall within one or more of the categories listed?
    245. Item 404(a) of Regulation S-K requires disclosure of any
related party transaction since the beginning of the registrant's last
fiscal year if the amount involved exceeds $120,000.\775\ Unlike this
bright-line disclosure threshold in Item 404(a), Item 601(b)(10)(ii)(A)
generally requires registrants to file related party contracts as
exhibits unless immaterial in amount or significance. Do the two
different disclosure thresholds provide investors with the information
they need to evaluate related party contracts? Should we revise Item
601(b)(10)(ii) to require registrants to file as exhibits all contracts
involving related party transactions disclosed pursuant to Item 404(a)?
What would be the benefits and challenges associated with such a
revision?
---------------------------------------------------------------------------

    \775\ Item 404(a) of Regulation S-K [17 CFR 229.404(a)].
Registrants must describe any transaction, since the beginning of
the registrant's last fiscal year, or any currently proposed
transaction, in which the registrant was or is to be a participant
and the amount involved exceeds $120,000, and in which any related
person had or will have a direct or indirect material interest. Id.
---------------------------------------------------------------------------

    246. Taken together, Items 601(b)(10)(i) and (ii) require
registrants to file material contracts not made in the ordinary course
of business as well as certain contracts made in the ordinary course of
business that are material to the registrant. Should we revise Item
601(b)(10)(ii) to require registrants simply to file all contracts that
are material to an understanding of the registrant or its business,
whether or not entered in the ordinary course of business? Are there
any contracts currently required to be filed as exhibits under Item
601(b)(10)(ii) that would not be captured by such a principles-based
approach? Conversely, would this approach require registrants to file
material ordinary course contracts that they are not currently required
to file? Would this change enhance the information available to
investors? What would be the benefits and challenges of this approach?
iv. Discussion--Disclosure Thresholds under Item 601(b)(10)(ii)
    Qualitative Thresholds. Item 601(b)(10)(ii)(B) requires registrants
to file any contract upon which the registrant's business is
substantially dependent. The item provides examples of contracts upon
which a registrant may be substantially dependent, such as continuing
contracts to sell the major part of a registrant's products or services
or to purchase the major part of a registrant's requirements of goods,
services or raw materials.\776\ A registrant's business also may be
substantially dependent on any franchise or license or other agreement
to use a patent, formula, trade secret, process or trade name upon
which the registrant's business depends to a material extent.\777\
Since the item's adoption in 1965, the Commission has not provided
registrants with additional guidance about how to determine

``substantial dependence'' or ``major part,'' as those terms are used
in the exhibits requirements.
---------------------------------------------------------------------------

    \776\ Item 601(b)(10)(ii)(B) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(B)].
    \777\ Id.
---------------------------------------------------------------------------

    To enhance consistency and clarity, we are considering whether to
quantify ``substantial dependence'' as used in the item. Possible
alternatives include establishing a dollar amount or percentage
threshold, similar to the thresholds used in Item 601(b)(10)(ii)(C), as
described below. While an objective requirement may provide clarity for
registrants in their efforts to comply with the exhibit requirements,
this approach could inadvertently exclude material contracts or result
in a large number of contracts being filed that contain information
that is neither material nor useful for investors.
    Quantitative Thresholds. Unlike subparagraph (B), which relies on a
qualitative threshold, subparagraph (C) provides a quantitative
threshold for filing exhibits. Specifically, Item 601(b)(10)(ii)(C)
requires registrants to file any contract calling for the acquisition
or sale of any property, plant or equipment for a consideration
exceeding fifteen percent of such fixed assets of the registrant on a
consolidated basis.\778\
---------------------------------------------------------------------------

    \778\ Item 601(b)(10)(ii)(C) of Regulation S-K [17 CFR
229.601(b)(10)(ii)(C)].
---------------------------------------------------------------------------

    As originally adopted in 1965, this requirement used a threshold of
ten percent of all fixed assets of a registrant and its subsidiaries.
In 1980, the Commission raised the threshold to fifteen percent,\779\
consistent with similar requirements on Form S-1 at the time. In doing
so, the Commission increased the threshold triggering the filing of
such an agreement from consideration exceeding ``10 percent of all
fixed assets of the registrant and its subsidiaries'' to consideration
exceeding ``15 percent of such fixed assets of the registrant on a
consolidated basis.'' \780\ In the adopting release, the Commission
stated that the higher threshold was consistent with the purpose of
reducing the burden that exhibit filing requirements impose on
registrants ``without materially impairing investor information or
protection.'' \781\
---------------------------------------------------------------------------

    \779\ See 1980 Exhibits Adopting Release.
    \780\ See Technical Amendments to Rules, Forms and Schedules;
Delegation of Authority to the Director of the Division of
Corporation Finance, Release No. 33-6260 (Nov. 13, 1980) [45 FR
76974 (Nov. 21, 1980)]. This release corrected the regulatory text
adopted in the 1980 Exhibits Adopting Release, which ``inadvertently
chang[ed] the materiality test from a percentage of fixed assets to
a percentage of all assets.'' Id. at 76976.
    \781\ 1980 Exhibits Adopting Release at 58823.
---------------------------------------------------------------------------

    In contrast to Item 601(b)(10)(ii)(C), Item 2.01 of 8-K requires a
registrant to report the acquisition or disposition of a ``significant
amount of assets.'' \782\ Instruction 4 to Item 2.01 provides that an
acquisition or disposition shall be deemed to involve a significant
amount of assets (i) if the registrant's and its other subsidiaries'
equity in the net book value of such assets or the amount paid or
received for the assets upon such acquisition or disposition exceeded
ten percent of the total assets of the registrant and its consolidated
subsidiaries; or (ii) if it involved a business that is
significant.\783\ In addition, Form 8-K encompasses any acquisition or
disposition, while Item 601(b)(10)(ii)(C) is limited to the acquisition
of property, plant or equipment. Accordingly, an acquisition could
trigger a disclosure requirement under Item 2.01 of Form 8-K without
triggering a requirement to file the related contract under Item
601(b)(10)(ii)(C).
---------------------------------------------------------------------------

    \782\ A registrant must file a Form 8-K report if it has
completed the acquisition or disposition of a significant amount of
assets otherwise than in the ordinary course of business.
    \783\ Form 8-K [17 CFR 249.308]. For the definitions of
``business'' and ``significant,'' Instruction 4 refers to Rule 11-
01(d) and (b), respectively, of Regulation S-X [17 CFR 210.11-01].
---------------------------------------------------------------------------

    When proposing amendments to Form 8-K in 2002, the Commission
sought comment on whether to remove the ten percent test from Item 2.01
and replace it with the more general ``materiality'' test used in Item
1.01 of Form 8-K.\784\ Although several commenters supported
harmonization between the reporting thresholds in Items 1.01 and 2.01,
the Commission retained the ten percent test for Item 2.01, stating its
intention that Item 1.01 address a different scope of agreements than
those that trigger disclosure under Item 2.01. The Commission also
indicated it did not believe that the use of two different thresholds
will cause undue confusion.\785\
---------------------------------------------------------------------------

    \784\ See 2002 Form 8-K Proposing Release. The Commission
proposed retaining the ten percent threshold in Instruction 4 of
Item 2.01 due to ``companies' familiarity with th[e] test.'' Id. at
42919.
    \785\ See 2004 Form 8-K Adopting Release.
---------------------------------------------------------------------------

    We are seeking public input on whether the fifteen percent
threshold in Item 601(b)(10)(ii)(C) continues to provide investors with
information that is important for an understanding of a registrant's
business. We are interested in receiving input on whether a
quantitative threshold is useful and, if so, whether fifteen percent of
fixed assets is the appropriate measure. We also seek comment on the
scope of contracts covered by subparagraph (C) and whether we should
broaden the scope to better harmonize the exhibit filing requirements
with the Form 8-K disclosure requirements. In addition, we are seeking
public input on whether quantitative thresholds would be appropriate
for other types of agreements required to be filed under Item
601(b)(10)(ii).
v. Request for Comment
    247. Should we adopt additional or different qualitative or
quantitative thresholds for determining when contracts identified in
Item 601(b)(10)(ii) must be filed as exhibits? If so, what should these
qualitative or quantitative thresholds be? Why?
    248. Should we revise Item 601(b)(10)(ii)(B) to provide qualitative
or quantitative standards for what constitutes ``substantial
dependence''? Should we define the term ``major part'' in addition to
or in lieu of defining ``substantial dependence''? What factors should
we consider in developing definitions or quantitative thresholds? What
other alternatives should we consider to clarify which contracts must
be filed under Item 601(b)(10)(ii)?
    249. How could we design a quantitative threshold that would
accommodate the diversity of registrants and business models? What
would be the disadvantages of a quantitative threshold? If we used
quantitative measures based on registrants' financial statements, what
would be the appropriate measures to use? Alternatively, should we tie
the threshold to a registrant's market capitalization?
    250. Should we provide guidance on the phrase ``depends to a
material extent'' in Item 601(b)(10)(ii)(B)? If so, should we adopt a
similar approach to the one discussed in the preceding request for
comment? Alternatively, should our requirements distinguish franchise
or license agreements to use a patent, formula, trade secret, process
or trade name from contracts to sell the major part of a registrant's
products or services or to purchase the major part of a registrant's
requirements of goods, services or raw materials?
    251. Should we revise Item 601(b)(10)(ii)(C) to either increase or
decrease the fifteen percent threshold for exhibits relating to
acquisitions of property, plant or equipment? Should the threshold
continue to be based on fixed assets? Alternatively, should we
eliminate the threshold in favor of a principles-based requirement,
such as ``material'' or ``significant'' acquisitions of property, plant
or equipment?
    252. Should Item 601(b)(10)(ii)(C) continue to focus on property,
plant and equipment? Should we expand the scope to require registrants
to file contracts for the acquisition or

disposition of other assets, including intangible assets such as
patents, licenses and other intellectual property? If so, should we
consider a disclosure threshold consistent with Item 2.01 of Form 8-K?
Would a different threshold be more appropriate?
6. Preferability Letter (Item 601(b)(18))
    Registrants will, at times, make a voluntary change in accounting
principles or practices when two or more generally accepted accounting
principles apply. For example, a registrant may choose to switch its
inventory valuation from last-in, first-out to first-in, first-out.
When such a change occurs, Item 601(b)(18) requires a registrant to
file a letter from its independent accountant indicating whether, in
the independent accountant's judgment, the change is preferable under
the circumstances.\786\ No letter is required for changes made in
response to a standard adopted by the FASB that creates a new
accounting principle, expresses a preference for an accounting
principle, or rejects a specific accounting principle.\787\
---------------------------------------------------------------------------

    \786\ Item 601(b)(18) of Regulation S-K [17 CFR 229.601(b)(18)].
Item 601(b)(18) refers to ``independent accountant.'' We also refer
to ``independent accountant,'' as ``independent auditor'' in this
release.
    \787\ Id.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. None.
b. Discussion
    The precursor to Item 601(b)(18), adopted in 1971, required
registrants to describe and state the reasons for any change in
accounting principles or practices that would materially affect the
financial statements filed or to be filed for the current year.\788\
Registrants also were required to file as an exhibit to Form 10-K or
Form 10-Q a letter from the independent accountant approving or
otherwise commenting on such changes.\789\
---------------------------------------------------------------------------

    \788\ See Notice of Adoption of Amendments to Form 8-K, Form 7-
Q, Form 10-Q, Form 10-K and Form N-1Q, Release No. 34-9344 (Sept.
27, 1971) [not published in the Federal Register].
    \789\ See id.
---------------------------------------------------------------------------

    In 1975, the Commission amended Form 10-Q to require the
accountant's letter to state whether the change, in the accountant's
judgment, is preferable.\790\ Several commenters objected to the
requirement, stating that no standards existed for judging
preferability among generally accepted accounting principles and that
authoritative accounting principles only required management to justify
that a change was preferable. The Commission concluded, however, that
management's justification for a change in accounting principle must
convince an independent accountant that, in the accountant's judgment,
the new accounting principle is an improvement over alternative
principles.\791\ The requirement for a preferability letter was
included in Form 10-K in 1980 when the Commission centralized all
exhibit requirements within Regulation S-K.\792\
---------------------------------------------------------------------------

    \790\ See 1975 Interim Financial Reporting Release.
    \791\ See id. The Commission based its rationale on the
Accounting Principles Board Opinion No. 20 (since replaced by
Statement of Financial Accounting Standards No. 154 (ASC Topic
250)), which stated that (i) there is a presumption that an
accounting principle once adopted should not be changed, (ii) that
presumption may be overcome only if the company justifies the use of
an alternative acceptable accounting principle on the basis that it
is preferable, and (iii) the burden of justifying a change in
accounting principle rests with the company proposing the change.
See Proposals to Increase Disclosure of Interim Results by
Registrants.
    \792\ See 1980 Exhibits Adopting Release. See also supra note
712 and accompanying text.
---------------------------------------------------------------------------

    While Item 601(b)(18) requires an auditor to articulate the
preferability of a change in accounting principle or policy, the nature
of the auditors' statements varies.\793\ In addition, there is no
standard methodology for determining preferability. Since 2000, the
number of preferability letters filed in a given year has fluctuated
from a high of 108 in 2000 to a low of 57 in 2007.\794\
---------------------------------------------------------------------------

    \793\ As an example, one auditor's letter reads: ``There are no
authoritative criteria for determining a `preferable' presentation
method based on the particular circumstances; however, we conclude
that such change in the method of accounting is to an acceptable
alternative method which, based on your business judgment to make
this change and for the stated reasons, is preferable in your
circumstances.'' Another states: ``Based on our review and
discussion, with reliance on management's business judgment and
planning, we concur that the newly adopted method of accounting is
preferable in the Company's circumstances.'' Another auditor's
letter provides: ``We believe, on the basis of the facts so set
forth and other information furnished to us by appropriate officials
of the Company, that the accounting change described in your Form
10-Q is to an alternative accounting principle that is preferable
under the circumstances.'' One preferability letter briefly states:
``In our judgment, such change is an alternative accounting
principle that is preferable under the circumstances.''
    \794\ See Audit Analytics, Preferability Letters: A 15 Year
Review, Jan. 2, 2015, available at http://www.auditanalytics.com/blog/preferability-letters-a-15-year-review. Over the last fifteen
years the most common reasons for filing preferability letters have
been changes in accounting principles or practices related to: (1)
Goodwill Impairment Measurement Date; (2) Inventory Valuation; (3)
Expense Recognition; (4) Classification; and (5) Benefits Program.
---------------------------------------------------------------------------

    In addition to the exhibit requirement of Item 601(b)(18),
disclosure about a voluntary change in accounting principles is
required under Rule 10-01(b)(6) of Regulation S-X and under U.S. GAAP.
In certain instances, Public Company Accounting Oversight Board
(``PCAOB'') Auditing Standards require auditors to address such changes
in their opinions. While U.S. GAAP and PCAOB Auditing Standards require
consideration of a registrant's change in accounting principle or
practice, they differ from the Commission's requirements in terms of
nature, timing and extent of reporting by the auditor. We are
interested in commenters' views on whether existing disclosure
requirements provide investors with sufficient information about a
change in accounting principle without the need for registrants to file
a preferability letter.
    Commission Requirements. Rule 10-01(b)(6) of Regulation S-X
requires registrants to (1) state in the notes to the financial
statements the date and reasons for any material accounting change and
(2) file, in accordance with Item 601(b)(18), a letter from the
registrant's independent accountant as an exhibit to Form 10-Q.\795\
---------------------------------------------------------------------------

    \795\ Rule 10-01(b)(6) of Regulation S-X [17 CFR 210.10-
01(b)(6)]. Rule 8-03(b)(5) of Regulation S-X is the equivalent
requirement for SRCs. As part of its work to develop recommendations
for the Commission for potential changes to update or simplify
certain disclosure requirements, the staff is separately considering
Rules 8-03(b)(5) and 10-01(b)(6) of Regulation S-X which require
registrants to disclose the date and reasons for any material
accounting change. For a description of this project, see Section I.
---------------------------------------------------------------------------

    U.S. GAAP. U.S. GAAP requires disclosure in the notes to the
financial statements about the nature of and reason for a change in
accounting principle, including an explanation of why the newly adopted
principle is preferable.\796\ Registrants must report the change in
accounting principle in the financial statements of both the interim
and annual period of the change.\797\
---------------------------------------------------------------------------

    \796\ See ASC 250-10-50-1(a). ASC 250-10-45-12 also requires
companies to justify the use of an alternative accounting principle
on the basis that it is preferable.
    \797\ See ASC 250-10-50-2.
---------------------------------------------------------------------------

    PCAOB Auditing Standards. PCAOB Auditing Standard No. 6 (``AS No.
6'') requires auditors to evaluate a change in accounting principle to
determine whether, among other things, the registrant ``has justified
that the alternative accounting principle is preferable.'' \798\ AU
Section 722

addresses the review of interim financial statements and requires the
auditor to, among other things, make inquiries of management on changes
in accounting principles or methods of application. AU 722 does not
require the auditor to specifically express a view on the preferability
of the change as part of an interim review.
---------------------------------------------------------------------------

    \798\ AS No. 6, paragraph 7. See also Auditing Standard No. 6--
Evaluating Consistency of Financial Statements and Conforming
Amendments, PCAOB Release No. 2008-001, Jan. 29, 2008, at note 14,
available at http://pcaobus.org/Rules/Rulemaking/Docket023/PCAOB_Release_No._2008-001--Evaluating_Consistency.pdf (noting that
the language in AS No. 6 was updated ``to be consistent with SFAS
No. 154''). The PCAOB adopted AS No. 6, in part, in response to the
FASB's issuance of Statement of Financial Accounting Standards No.
154 (ASC 250). See supra note 791. AS No. 6 requires the auditor to
assess whether the company has met its burden of justifying the
change in accounting principle as set forth in SFAS No. 154 (ASC
250).
---------------------------------------------------------------------------

    The auditor's opinion on the annual financial statements must
discuss the nature of the change in accounting principle if the change
has a material effect on the financial statements, but may not
necessarily address preferability.\799\ Under AU 508, the auditor is
not required to opine explicitly on the preferability of the change.
Rather, if the auditor concludes a registrant has justified that the
alternative accounting principle is preferable (as required by AS No. 6
and U.S. GAAP), then it must include an explanatory paragraph in its
report identifying the nature of the change, if the change has a
material effect on the financial statements.\800\ If the auditor
concludes that the registrant has not justified the preferability of
the alternative accounting principle, the auditor should consider the
matter a departure from U.S. GAAP and, if the effect of the change in
accounting principle is material, issue either a qualified or adverse
opinion.\801\ Consequently, where the change in accounting principle is
material, an auditor's report without a qualified or adverse opinion
and identifying the nature of the change is akin to the preferability
letter filed under Item 601(b)(18) as both documents convey the
auditor's conclusion that the registrant has justified that the
alternative accounting principle is preferable.
---------------------------------------------------------------------------

    \799\ See AU 508, Paragraph 17A.
    \800\ See id.
    \801\ See AU 508, Paragraph 17E.
---------------------------------------------------------------------------

    Unlike a preferability letter filed under Item 601(b)(18), the
audit opinion will include an explicit statement as to preferability
only when the registrant has not provided a reasonable justification
that the alternative accounting principle is preferable.\802\
Additionally, while Item 601(b)(18) requires registrants to file a
preferability letter with the first Form 10-Q following the date of the
accounting change, AU 508 requires a statement in the opinion about
this change only in the annual financial statements on Form 10-K. U.S.
GAAP requires disclosure about this change in the notes to the interim
financial statements.\803\
---------------------------------------------------------------------------

    \802\ See AU 508, Paragraph 52.
    \803\ See supra note 797 and accompanying text. Under U.S. GAAP,
companies should, whenever possible, adopt any accounting changes
during the first interim period of a fiscal year. See ASC Topic 250-
10-45-16.
---------------------------------------------------------------------------

    We are seeking public input on whether to eliminate the exhibit
requirement of Item 601(b)(18) in light of the significant overlap with
the accounting requirements under U.S. GAAP and the PCAOB auditing
standards. We are also interested in whether requirements in U.S. GAAP
and PCAOB auditing standards are sufficient to alert investors to
changes in a registrant's accounting policies or principles. We also
seek input on the utility of Item 601(b)(18) given the small number of
preferability letters filed and whether the small number of
preferability letters reflects decreased utility and importance of this
requirement or if, alternatively, these limited occurrences make this
disclosure more valuable to investors.
c. Request for Comment
    253. Given the development of auditing and accounting standards
over the past 40 years, including the adoption of more prescriptive
standards such as SFAS No. 154 \804\ and AS No. 6, do preferability
letters continue to provide incremental information to investors that
is not otherwise available in either the auditor's opinion on the
annual financial statements or in the notes to the interim financial
statements? If so, is this incremental information important to
investors and how could it be improved?
---------------------------------------------------------------------------

    \804\ See supra note 791.
---------------------------------------------------------------------------

    254. Should we revise Item 601(b)(18) to specify the language that
must be included in a preferability letter? Is there any particular
language that gives investors more insight into the determination that
the change is preferable? In light of the lack of a standard for
assessing preferability, do investors receive more information from a
preferability letter than from an auditor's report? Does it depend on
the nature of the change in accounting principle?
    255. Should we eliminate Item 601(b)(18) in light of the current
requirements under U.S. GAAP and the PCAOB's auditing standards? When a
change in accounting principle is material, is an auditor's report
without a qualified or adverse opinion sufficient to convey the
independent accountant's conclusion that the registrant has justified
the change to be preferable? Would eliminating the exhibit requirement
affect the independent accountant's analysis of whether an accounting
change is preferable?
    256. Would it be more appropriate for the independent accountant to
indicate in the auditor's report whether a change in accounting
principle is to an alternative principle that in the auditor's judgment
is preferable under the circumstances?
7. Subsidiaries and Legal Entity Identifiers
    Item 601(b)(21) requires registrants to list all of their
subsidiaries, the state or other jurisdiction of incorporation or
organization of each, and the names under which such subsidiaries do
business.\805\ The names of particular subsidiaries may be omitted if
the unnamed subsidiaries, considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary as of the end
of the year covered by the report.\806\
---------------------------------------------------------------------------

    \805\ Item 601(b)(21)(i) of Regulation S-K [17 CFR
229.601(b)(21)(i)].
    \806\ Item 601(b)(21)(ii) of Regulation S-K [17 CFR
229.601(b)(21)(ii)]. This exception does not apply to banks,
insurance companies, savings and loan associations or to any
subsidiary subject to regulation by another Federal agency.
    The term ``significant subsidiary'' is defined by reference to
Rule 1-02(w) of Regulation S-X [17 CFR 210.1-02(w)]. Under that
rule, a significant subsidiary means any subsidiary that meets any
of the following conditions: (1) The registrant's and its other
subsidiaries' investments in and advances to the subsidiary exceed
ten percent of the total assets of the registrant and its
subsidiaries consolidated as of the end of the most recently
completed fiscal year (for a proposed combination between entities
under common control, this condition is also met when the number of
common shares exchanged or to be exchanged by the registrant exceeds
ten percent of its total common shares outstanding at the date the
combination is initiated); or (2) The registrant's and its other
subsidiaries' proportionate share of the total assets (after
intercompany eliminations) of the subsidiary exceeds ten percent of
the total assets of the registrants and its subsidiaries
consolidated as of the end of the most recently completed fiscal
year; or (3) The registrant's and its other subsidiaries' equity in
the income from continuing operations before income taxes,
extraordinary items and cumulative effect of a change in accounting
principle of the subsidiary exclusive of amounts attributable to any
noncontrolling interests exceeds ten percent of such income of the
registrant and its subsidiaries consolidated for the most recently
completed fiscal year. Id.
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    A legal entity identifier (``LEI'') is a 20-character, alpha-
numeric code that connects to key reference information that allows for
unique identification of entities engaged in financial transactions.
Recently, the Commission has adopted rules requiring disclosure of LEIs
in certain circumstances, if available, and in one instance the
Commission has mandated use of

LEI.\807\ LEI disclosure is not required in Exchange Act reports.
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    \807\ See infra notes 831 to 835 and accompanying text.
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a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter recommended that
we require disclosure of all subsidiaries instead of only significant
subsidiaries, asserting that registrants use the Commission's
significance test to hide material information from investors.\808\
This commenter also recommended requiring disclosure of additional
information for each subsidiary, such as profits earned and number of
employees, for investors to understand registrants' structures and
their international strategies, on the grounds that this information is
necessary to understand a registrant's corporate structure and tax
strategy.
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    \808\ See US SIF 1.
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    Another commenter recommended requiring registrants to disclose
each country of operation and the name of each entity domiciled in each
country of operation; the number of employees physically working in
each country of operation; the total pre-tax gross revenue of each
entity in each country of operation; and the total amount of payments
made to governments by each entity in each country of operation.\809\
This commenter stated that investors have an interest in understanding
how much of a registrant's profits are generated from business
operations and how much is a function of tax strategies. This commenter
added that a registrant's filings should explain to investors the tax
liabilities it incurred for the year, how much it paid, and where.
While not addressing Item 601(b)(21) specifically, one commenter
recommended revising the test for determining whether a subsidiary is a
significant subsidiary by replacing the existing pre-tax income,
investment and asset test with a revenue test and a fair value
test.\810\
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    \809\ See AFL-CIO.
    \810\ See ABA 1 (stating that, compared to existing tests,
revenue and fair value-based tests are more reliable indicators of
the significance of a tested entity to the registrant, easier to
calculate and calculated using more consistently measured amounts
that are not affected by different bases of accounting). See also
supra note 806.
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    We received two comment letters addressing LEIs.\811\ One of these
commenters recommended the Commission consider ``a commitment to
adopt'' the LEI endorsed by the G20 as an ``authoritative, unique, and
common identifier for entities subject to financial regulators,
throughout existing forms.'' \812\ This commenter specified that a
registrant's list of subsidiaries would be more useful to investors if
the Commission required issuers to disclose each subsidiary's LEI. The
other commenter recommended the Commission move away from ``proprietary
identifiers such as the CUSIP and toward an open source identifier such
as the Legal Entity Identifier'' stating this ``will make it easier for
investors to connect other datasets with structured data from the
Commission.'' \813\
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    \811\ See Data Transparency Coalition and letter from TagniFi,
LLC (Jan. 27, 2016) (``TagniFi'').
    \812\ See Data Transparency Coalition (noting that the
``Commission has already proposed requiring the LEI to be included
in security-based swap reports where available, but has not yet
committed to use the LEI in its corporate disclosure system'' and
that the ``Commission should incorporate commonly-used data fields
wherever applicable, starting with the LEI . . .'').
    \813\ See TagniFi.
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b. Subsidiaries
i. Discussion
    Before the adoption of Regulation S-K, Form 10-K required
registrants to disclose a list or diagram of all parents and
subsidiaries of the registrant in the text of the annual report.\814\
In addition, for each entity identified, registrants were required to
disclose the percentage of voting securities owned or other bases for
control by the immediate parent.\815\ Registrants were permitted to
omit the names of particular subsidiaries if those subsidiaries,
considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.\816\ In 1970, the Commission
revised Form 10-K to permit registrants to omit the names of certain
consolidated wholly-owned multiple subsidiaries carrying on the same
line of business.\817\ This exclusion was similar to one recommended in
the Wheat Report.\818\
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    \814\ See, e.g., 1965 Amendments to Form 10-K Adopting Release.
    Item 1(a) of former 10-K required disclosure of subsidiaries of
``material significance in relation to the total enterprise
represented by the registrant and its subsidiaries, in respect of
either (1) the investment in and advances to such subsidiary, or (2)
the sales or operating revenues of such subsidiary, or (3) the
essential nature of the function performed by such subsidiary in the
total enterprise represented by the registrant and its
subsidiaries.'' The item also required certain disclosures of
omitted subsidiaries such as the number of subsidiaries omitted and
the total investment of the registrant in such omitted subsidiaries.
Id.
    \815\ This disclosure was required under Item 3 of prior Form
10-K. See 1965 Amendments to Form 10-K Adopting Release.
    \816\ See, e.g., 1965 Amendments to Form 10-K Adopting Release.
The item requirement did not define the term ``significant
subsidiary.'' Registrants were also required to indicate (i)
subsidiaries for which separate financial statements are filed; (ii)
subsidiaries included in the respective consolidated financial
statements; (iii) subsidiaries included in the respective group
financial statements filed for unconsolidated subsidiaries; and (iv)
other subsidiaries, indicating briefly why statements of such
subsidiaries are not filed. Id.
    \817\ See 1970 Revised Form 10-K Adopting Release. Current Item
601(b)(21)(ii) contains substantially the same exception, permitting
the omission of consolidated wholly-owned multiple subsidiaries
carrying on the same line of business, such as chain stores or small
loan companies, provided the name of the immediate parent, the line
of business, the number of omitted subsidiaries operating in the
United States and the number operating in foreign countries are
given.
    \818\ See Wheat Report at Appendix X-3 (recommending that the
names of consolidated totally-held subsidiaries may be omitted on a
Form 10-K, provided that the number of such subsidiaries shall be
given together with an explanation of the basis for omission of
names).
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    With the adoption of the integrated disclosure system, the
Commission replaced the Form 10-K subsidiary disclosure requirement
with a less-detailed requirement to file as an exhibit a list of
subsidiaries and each subsidiary's jurisdiction of incorporation or
organization.\819\ This change was based on the Sommer Report which
recommended that Form 10-K contain only a ``list of all subsidiaries,''
as opposed to the additional disclosure requirements mentioned above,
such as the bases for control of each subsidiary.\820\ In the adopting
release, the Commission also noted that, although a few commenters
stated that no such exhibit relating to subsidiaries, in any form,
should be required, most commenters did not object to the exhibit
requirement if insignificant subsidiaries were not required to be
disclosed.\821\ The Commission agreed with the commenters that listing
all subsidiaries would be too burdensome and adopted the exhibit
requiring only the names of significant subsidiaries.\822\ In 1982, the
Commission amended the item to allow registrants to incorporate by
reference their lists of subsidiaries if an accurate and complete list
is contained in a document previously filed with the Commission.\823\
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    \819\ See 1980 Form 10-K Adopting Release.
    \820\ See 1980 Form 10-K Proposing Release. The Commission also
stated that after consideration, it had determined that the value of
parent and subsidiary data is not sufficient to warrant its
inclusion in Form 10-K itself. In addition, it noted its belief that
occasional references to such data may be useful. Accordingly, the
Commission proposed a new exhibit requirement rather than including
this disclosure in Form 10-K itself. See id.
    \821\ See 1980 Form 10-K Adopting Release.
    \822\ See id.
    \823\ See 1982 Integrated Disclosure Adopting Release.
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    Disclosure provided under Item 601(b)(21) has decreased in the last
several years. Specifically, the average number of subsidiaries
reported by

registrants under Item 601(b)(21) is estimated to have decreased
approximately twenty percent in the five years from 2009 to 2014.
However, this decrease is roughly equivalent to the increase observed
in the previous five years, from 2004 to 2009.\824\ According to one
press report, in recent years certain large registrants have reduced
the number of subsidiaries listed pursuant to Item 601(b)(21) by
omitting subsidiaries that are not significant.\825\ While omission of
insignificant subsidiaries from the exhibit is permitted under Item
601(b)(21), the report suggested such registrants may be seeking to
avoid disclosing subsidiaries located in countries regarded as tax
havens at a time when government officials and academics are
scrutinizing the use of offshore tax havens.\826\ We are interested in
commenters' views on the impact of the rule's exclusion for
insignificant subsidiaries.
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    \824\ These estimates are based on DERA staff analysis of Item
601(b)(21) data collected using text analysis techniques by academic
researchers. The estimates represent approximations and may be
affected by, among other things, the limitations of text analysis
and sample composition changes over this time frame. The data is
available at https://sites.google.com/site/scottdyreng/Home/data-and-code. For more information about this dataset, see S. Dyreng and
B. Lindsey, Using Financial Accounting Data to Examine the Effect of
Foreign Operations Located in Tax Havens and Other Countries on U.S.
Multinational Firms' Tax Rates, 47 J. Acct. Res. 1283, 1283-1316
(2009); and S. Dyreng, B. Lindsey and J. Thornock, Exploring the
Role Delaware Plays as a Domestic Tax Haven, 108 J. Fin. Econ. 751,
751-772 (2013).
    \825\ See Jessica Holzer, From Google to FedEx: The Incredible
Vanishing Subsidiary, The Wall Street Journal, May 22, 2013,
available at http://www.wsj.com/articles/SB10001424127887323463704578497290099032374 (noting the number of
subsidiaries disclosed has declined from over 100 subsidiaries to
single digits among certain large registrants).
    \826\ Id. See also U.S. PIRG Education Fund and Citizens for Tax
Justice, Offshore Shell Games 2015, The Use of Offshore Tax Havens
by Fortune 500 Companies, Oct. 2015, available at http://ctj.org/pdf/offshoreshell2015.pdf (stating that, based on information in
Exhibit 21 to Form 10-K, 358 of Fortune 500 companies operated
subsidiaries in tax haven jurisdictions at the end of 2014 and
noting that ``it is possible that many of the remaining 142
companies simply do not disclose their offshore tax haven
subsidiaries''); and United States Government Accountability Office,
International Taxation, Large U.S. Corporations and Federal
Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens
or Financial Privacy Jurisdictions, Report to Congressional
Requestors, Dec. 2008, available at http://www.gao.gov/assets/290/284522.pdf (concluding that 83 of the 100 largest publicly traded
U.S. corporations in terms of 2007 revenue reported having
subsidiaries in jurisdictions listed as tax havens or financial
privacy jurisdictions. Findings were based on information filed in
Exhibit 21 to Form 10-K, and the report notes that the findings may
be understated because ``the SEC only requires public companies to
report significant subsidiaries . . .'').
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ii. Request for Comment
    257. Should we revise Item 601(b)(21) to eliminate the exclusions
and require registrants to disclose all subsidiaries? What would be the
benefits and challenges associated with this alternative?
    258. Should we expand the exhibit requirement to include additional
disclosure about the registrant's subsidiaries? What additional
information would be important to investors and why?
    259. Should we require registrants to include an organization or
corporate structure chart or similar graphic depicting their
subsidiaries and their basis of control? How could such a graphic
facilitate investors' understanding of a registrant's corporate
structure? Should we require this chart or graphic as an exhibit or in
the text of the annual report? What would be the challenges associated
with this approach?
    260. For purposes of identifying which subsidiaries a registrant
may omit from the exhibit, Item 601(b)(21) relies on the definition of
``significant subsidiary'' in Rule 1-02(w) of Regulation S-X. Does this
definition appropriately exclude subsidiaries that are not important to
investors? Does it exclude any subsidiaries that should be included?
Should we consider a different definition or test for excluding certain
subsidiaries from the exhibit? If so, what factors should we consider?
c. Legal Entity Identifiers
i. Discussion
    While there are currently many ways to identify entities, there is
no unified global identification system for legal entities across
markets and jurisdictions. The LEI is a reference code to uniquely
identify a legally distinct entity that engages in a financial
transaction.\827\ It is based on an international standard published by
the International Organization for Standardization in June 2012.\828\
Efforts to expand the use of a universal LEI have progressed
significantly over the last few years.\829\
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    \827\ For further information about LEIs, see Frequently Asked
Questions: Global Legal Entity Identifier (LEI), Aug. 2012 available
at http://www.treasury.gov/initiatives/wsr/ofr/Documents/LEI_FAQs_August2012_FINAL.pdf.
    \828\ See International Organization for Standardization,
Financial Services--Legal Entity Identifier, 2012, Reference No. ISO
17442-2012(E).
    \829\ See, e.g., The Global LEI System and regulatory uses of
the LEI, Nov. 5, 2015, available at http://www.leiroc.org/publications/gls/lou_20151105-1.pdf (progress report by the Legal
Identifier Regulatory Oversight Committee, including an annex
listing regulatory actions in the United States, the EU countries,
and eight other countries which require, request, or allow the use
of LEIs). The global LEI system currently has over 419,000
registrations and is growing. See the Global LEI Foundation daily
updated ``concatenated file,'' which includes all LEIs issued
globally and related LEI reference data, available at https://www.gleif.org/en/lei-data/gleif-concatenated-file/lei-download# or
http://openleis.com.
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    Obtaining an LEI entails both initial registration and annual
maintenance fees and is done through local operating utilities such as
the Global Market Entity Identifier utility in the United States.\830\
Fees are not imposed to use or access LEIs, and all of the associated
reference data needed to understand, process, and utilize the LEIs is
widely and freely available.
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    \830\ As of December 7, 2015, the cost of obtaining an LEI from
the Global Markets Entity Identifier (``GMEI'') Utility in the
United States was $200, plus a $19 per record surcharge for the LEI
Central Operating Unit. The annual cost of maintaining an LEI from
the GMEI Utility was $100, plus a $19 surcharge for the LEI Central
Operating Unit. See https://www.gmeiutility.org/frequentlyAskedQuestions.jsp.
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    In recent rulemakings, the Commission has prescribed disclosure of
LEI, if available, for parties to certain financial transactions. For
example, the Commission recently prescribed disclosure of an obligor's
LEI, if available, with respect to a rating action involving a credit
rating of an obligor as an entity.\831\ In doing so, it stated that use
of an LEI can promote accuracy and standardization of NRSRO data and
therefore can further the purpose of allowing users of credit ratings
to compare the performance of credit ratings by different NRSROs.\832\
As another example, the Commission recently adopted an LEI disclosure
requirement related to credit risk retention for open market
collateralized loan obligations (``CLOs''), if an LEI has been obtained