October 18, 2010

Reg FD Repeal: The Rating Agencies Evolve Their Approach to Confidentiality Agreements

In the wake of the SEC’s adoption of a rule change to Regulation FD that carries out the repeal of the rating agency exemption – as dictated by Dodd-Frank – I conducted a poll about how companies would try to handle rating agency communications going forward. The poll results showed that 53% would try to negotiate stand-alone agreements with the agencies – with 23% being comfortable relying on the internal confidentiality policies of the agencies (15% were too busy with access to know about the rule changes; 13% said “what me worry?”).

Initially after the repeal, the major rating agencies had differing approaches as to whether they would enter into confidentiality agreements (most would upon request; but some wouldn’t) – but during the past few days, it seems that they have all come around to routinely including uniform confidentiality agreements into their agreements with issuers going forward. It doesn’t appear that the rating agencies are willing to negotiate the terms of their uniform agreements – but I have heard that they may be willing to responded to questions with “interpretations” that may be helpful. (So for those keeping track of this fluid situation, these statements from Moody’s and Fitch appear to be old news already).

Does it matter that companies enter into a confidentiality agreement with a rating agency? I think so. I recently polled my advisory board about whether they have ever heard of circumstances where a rating agency has leaked confidential information – and I did hear of a few aberrations where it did happen. So getting some extra protection beyond an agency’s own code of conduct seems like a smart thing to do…

As noted in some of the memos posted in our “Regulation FD” Practice Area, some rating agencies have issued statements that say that they believe that Reg FD doesn’t apply to them notwithstanding the exemption repeal dictated by Dodd-Frank.

SEC Seeks Comment Ahead of Internal Controls Study

Last Thursday, the SEC posted this request for comment ahead of a study mandated by Section 989G(b) of Dodd-Frank regarding how the SEC could reduce the burden of complying with Section 404(b) of Sarbanes-Oxley for companies with a public float between $75 million and $250 million. The study seeks to determine whether Dodd-Frank’s exemption for companies with a float under $75 million should be extended to more companies – and it must be completed within nine months of Dodd-Frank’s passage.

The SEC’s request identifies 23 specific items for comment. This new study was mandated notwithstanding the SEC’s Office of Economic Analysis publishing a 139-page study on the same topic last October…

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– RealNetworks’ Rule 10b5-1 Trading Plan Disclosure
– Diversity in the Boardroom is Important and, Unfortunately, Still Rare
– Insider Trading and Suspicious Trading, Not the Same
– Marty Lipton’s “The Spotlight on Boards”
– SEC Approves PCAOB Disciplinary Order

– Broc Romanek