SEC Proposes Amendments Requiring Electronic Filing; Expands FOCUS Reporting

The SEC proposed rule amendments that "modernize" filing procedures through the use of electronic filings. The amendments impact numerous rules and forms.

Electronic Filings on EDGAR

The SEC proposal would require SROs to file various forms on EDGAR and amend Exchange Act Rule 19b-4 ("Filings with respect to proposed rule changes by self-regulatory organizations.") to:

• rescind Form 19b-4(e) and instead require that SROs post on their websites information currently collected on Form 19b-4(e) regarding the trading of a new derivatives securities product; and
• remove the requirement that a signatory to an electronically submitted Form 19b-4 authenticate their signature by manually signing another signature page.

The SEC proposed amending Exchange Act Rule 17a-22 ("Supplemental material of registered clearing agencies") by:

• requiring registered clearing agencies to post materials, such as manuals, notices or bulletins on their websites rather than filing the materials with the SEC in paper form; and
• reducing the timeframe to comply with posting the materials from ten business days to two.

The proposal would also require the following submissions on EDGAR:

• broker-dealers to file (i) Form X-17A-5 Part III ("Annual reports and related annual filings") and (ii) Form 17-H ("Risk Assessment Report for Brokers and Dealers");
• security-based swap ("SBS") dealers to file (i) Form X-17A-5 Part III ("Annual reports and related annual filings"), (ii) notices and (iii) compliance reports; and
• exchanges and associations to file Form X-17A-19 regarding a report of change in membership status.

Under the proposal, Rule 101 of Regulation S-T ("Mandated electronic submissions and exceptions") would be updated to require broker-dealers and OTC derivatives dealers to file required forms electronically. The proposed amendments would also make conforming technical amendments under Rule 202.3 under the Exchange Act ("Processing of filings").

FOCUS Reports

The proposal would also update the FOCUS Report to require, in addition to broker-dealers, OTC derivatives dealers and SBS dealers to submit a FOCUS Report Part II as part of the SEC’s new regime to regulate SBS activity.

The proposed amendments would further revise FOCUS Report Part II to (i) clarify the calculation of minimum net capital requirement under its "Minimum Regulatory Capital Requirements" section, (ii) revise the revenue section of the income statement to include types of commission revenue other than just securities commission, such as commodity transactions and insurance products, (iii) require CFTC registrants to complete the "Computation of CFTC Minimum Capital Requirements" section, (iv) codify filing requirements for bank SBS dealers and (v) require OTC derivatives dealers to file a FOCUS Report Part II on the SEC eFOCUS system run by FINRA.

Comments on the proposal are due the later of 30 days after publication in the Federal Register or by May 22, 2023.

SEC Commissioner Statements

SEC Chair Gary Gensler applauded the proposal for advancing the SEC's efforts to modernizing filing procedures saving both registrants and the SEC time and resources when submitting and reviewing required materials.

Commissioner Jaime Lizárraga commended the proposal for building on the relief provided during COVID-19 from paper filings. He said that the proposal benefits investors by offering efficient analysis and dissemination of information. Mr. Lizárraga added that by requiring information to be submitted as structured data, it will strengthen the SEC's collection of information and analysis.

Commissioner Caroline A. Crenshaw described the proposal as "consist[ing] of common-sense updates" that build upon the success of electronic filing during COVID-19.

Commissioner Mark T. Uyeda said that there is "little doubt" the SEC is on the right trajectory in making the transition from paper to electronic filings. However, he asked commenters to provide input on whether the SEC was correct in the "long" list of rules and forms that it included to be affected under the proposal.

Commissioner Hester M. Peirce supported the proposal's "important step" in transitioning from paper to electronic filing requirements. While she said that the proposal would reduce compliance burdens for registrants and increase information availability, she expressed concern over the necessary attention that will be required of registrants to comply with "this highly technical release." She acknowledged that commenters are "overwhelmed" with proposals but asked for input on the proposed changes to (i) filing requirements and (ii) the "significant" increase in the use of structured data, which she added could be "overly prescriptive."