August 28, 2013

Poll Results: CDIs vs. CD&Is vs. CD&Is, Etc.

A long while back, I conducted a poll regarding which nomenclature is most used by members when referring to Corp Fin’s “Compliance & Disclosure Interpretations.” Here are the results:

– C&DIs – 6.6%
– CDIs – 56.9%
– CD&Is – 7.6%
– Phone Interps – 20.8%
– What me worry – 8.1%

That’s good news as it aligns with what the Staff has been using when out speaking. Here is a comment that I received from a member:

Both CD&I and C&DI are jargon that obscure rather than illuminate meaning. “Staff Interps” is a better short-hand reference that is more consistent with the SEC’s Plain English initiative, and is easier to vocalize. Imagine you are training a new associate but in a hurry. Telling him or her to check the Staff Interps provides a lot more direction that “go to the CD&Is.”

Investment Advisers & Investment Companies Oppose Shortened 13F Filing Deadlines

Here’s a blog by Davis Polk’s Ning Chiu:

The Investment Adviser Association (IAA) and the Investment Company Institute (ICI) have written to the SEC, arguing against the rulemaking petition submitted by the NYSE, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute to change the deadline for 13F filings from 45 after the last day of each calendar quarter to two business days after the last day of each calendar quarter. We previously discussed the petition.

The letters claim that the deadline change would increase free-riding, by allowing other investors to capitalize on investment managers’ investment ideas or replicate successful proprietary trading strategies. Forcing the disclosure of this information earlier could also lead to front-running, trading for one’s own account ahead of trading for clients’ accounts in order to take advantage of advance knowledge of pending trades or otherwise profiting from anticipating fund trades. Larger funds with concentrated portfolios, funds that specialize in thinly traded stocks or when an extended time is needed to build or reduce positions could be especially vulnerable to front-running, the letters stated. Vanguard’s comment letter focused on the risks of front-running as well, and argues that the two-day reporting period would benefit short-term hedge funds or speculators at the expense of long-term investors, including mutual fund shareholders. IAA predicts that requests for confidential treatment would “increase drastically, perhaps by thousands each quarter.”

Advances in technology do not eliminate the operational components necessary to fully reconcile trades, including identifying and resolving different valuations allocated to the same securities in the same firm, and makes the proposed two-business-day reporting “virtually impossible in practice,” according to IAA. In addition, both organizations assert that the purpose of the 13F reporting system is not to help issuers identify their shareholders, but rather to create uniform reporting standards and centralize databases for investment managers. They recommend that issuers use other existing mechanisms to better communicate with shareholders, given the risk of expanding predatory trading practices if the petition succeeds.

More than 70 letters in support of the petition, with the vast majority from issuers following largely the same form, have also been filed.

An Australian Judge Holds a Whole Board Liable

How best to whip a board into shape? This excerpt from this old Agenda article gives us some pretty remarkable food for thought:

The Federal Court of Australia handed down a remarkable ruling last June that hasn’t gotten much exposure in the U.S. A judge there decided that an entire corporate board plus the CFO had breached their duties when they overlooked a huge mistake in the company’s financial statement.

Directors were held liable even though their external auditor had also missed the errors. The court decided that the embarrassing judgment was punishment enough and imposed only small penalties, and only on a few board members.

– Broc Romanek