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The SEC Rethinks Disclosure

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At a time when the markets are at their worst, the Securities and Exchange Commission, via its 21st Century Disclosure Initiative, is examining how to help investors understand companies’ detailed financial reports and the complex financial instruments being used today.

The Disclosure Initiative, established by SEC Chairman Christopher Cox, is designed to not only examine how well the SEC is using its current system, “but also guide our planning in addressing the insufficient transparency that is at the heart of today’s market problems,” Cox told attendees October 8 at the Commission’s roundtable discussion on modernizing the Disclosure Initiative. By the end of 2008, the SEC’s Disclosure Initiative hopes to issue a report that describes a modernized disclosure system and recommends future Commission action.

A ticking time bomb, Cox said, is the credit default swaps market. “The regulatory black hole for credit default swaps is one of the most significant issues we are confronting in the current credit crisis, and it requires immediate legislative action,” Cox said. “No one has regulatory authority over credit default swaps–not even to require basic reporting or disclosure.”

During the roundtable, Andrew “Buddy” Donohue, head of the SEC’s Division of Investment Management, asked participants about the information sources investors use. Panelist John Bajkowski, VP and senior financial analyst of the American Association of Individual Investors, replied that most investors turn to TV programs, newsletters, and Web sites like Yahoo!Finance to research companies. Tim Thornton, principal, Web services at Vanguard, another panelist, said that since the market turmoil hit fever pitch, Vanguard is seeing 200,000 hits per day to its Web site, up from the normal 100,000 hits, Thornton reported. But investors aren’t just looking at the prospectuses, he said, “they are looking at the actual fund holdings.”


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