SIFMA Recommends Expanding Accommodations of SEC Financial Disclosure Requirements

SIFMA recommended changes to Regulation S-X to improve the quality of disclosure for investors while making the registration process less burdensome for the [SEC] and registrants.

SIFMA made the following recommendations:

• S-X Rule 1-02(w): (i) replace the income test with a test based on the revenues of each entity; (ii) eliminate the asset test; and (iii) replace the investment test with a test based on the purchase price as a percentage of the market capitalization of the registrant for certain public company registrants;
• S-X Rule 3-05: adjust the significance thresholds that determine the number of required historical years of financial statements of an acquiree;
• S-X Rule 3-09: apply two significance tests to disclosure about equity method investees under the rule that would limit the requirement to provide historical financial statements of equity method investees only to those circumstances where the investees are truly significant to the registrant;
• S-X Rule 3-10: consider expanding the rule's accommodations by: (i) permitting condensed consolidating disclosure for any majority-owned guarantor subsidiary; (ii) eliminating the requirement that a guarantee be full and unconditional for reliance on the accommodations provided by the rule; (iii) eliminating the requirement that full historical financial statements be provided for a recently acquired subsidiary guarantor until certain conditions have been met; (iv) changing the rule's definition of minor; and (v) permitting certain accommodations in filings under the Securities Exchange Act;
• S-X Rule 3-16: reduce the costs and burdens associated with the rule's required historical statements of affiliates where securities collateralize those of a registrant by: (i) raising the threshold for financial statements of pledgors; and (ii) permitting registrants to include majority-owned subsidiary pledgor financial information in a condensed consolidating footnote; and
• S-X Rule 11-01: confirm that the facts and circumstances test for determining whether a lesser component of an entity constitutes a business can also serve to rebut the presumption that a separate entity, subsidiary or division is a business.