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Perhaps the Securities and Exchange Commission already knew it was time to be as technologically savvy as the business and financial world it regulated. Perhaps all of this would have happened anyway. But now, in the wake of the adoption of the Sarbanes-Oxley Act and last year’s corporate scandals, more real- and quasi-real-time information about public companies will be available at the SEC’s Web site ( www.sec.gov) or directly through the Web sites of companies themselves than could have been imagined last spring. Before Internet trading, anyone interested in trading stock had little choice but to call up his or her broker. In many cases, the reverse happened — the broker called the client and said: “Hey, I have a great stock tip. You should buy Hoss Enterprise Inc.” The client would listen to the advice and decide to buy (or sell). The advice generally came not from some “hot tip,” but from the public-company filings or research available to the broker. This was generally the only way the client had access to this information unless he or she lived in Washington, D.C., Chicago or New York and could go to the SEC offices to review the information in a public reading room. Even if Joe Investor had the information, he still had to sort through it all and find what information really mattered. As a result, brokers provided (and in many instances still do) a useful function — culling public-company filings to find out what information would be of interest to their client base and disseminating that knowledge as efficiently as possible. THE AGE OF EDGAR At the cusp of the explosion of the information age, in 1984 — when the term PC was coined and products like the Macintosh made computers friendly to the average Joe — the SEC began considering an electronic system for public filings. Nine long years later, in 1993, the SEC began requiring filings to be made on the Electronic Data Gathering, Analysis and Retrieval system, known as EDGAR. Initially, the rules applied only to domestic companies and limited types of filings. For instance, companies had to file registration statements used in public offerings or annual reports on Form 10-K via EDGAR, but not insider-ownership reports on forms 3, 4 or 5. The notion behind EDGAR was laudable, but the system has always been limited: It allows official filings only in ASCII text format (although companies may now also file a copy in HTML format), online versions of filings are hard to read and print and, until only recently, filed information was not available for public access from the SEC’s Web site for at least three days. Real-time information was available from commercial sites, generally on a subscription basis. In fairness to the SEC, it adopted this approach to allow private enterprise time to find the most efficient way to disseminate EDGAR filings. This has worked. All the best electronic copies of EDGAR filings are on commercial sites. The SEC’s rationale for this slow progress was that it had to work at the level of the lowest common denominator, so that every company, regardless of size and resources, could use EDGAR. Individual filers were in even more of a bind, frequently having to hire companies to “EDGARize” their SEC filings, that is, turn a standard Word or WordPerfect document into the ASCII format required by the SEC. About the time the corporate scandals began to hit over the last year — and after a big push from Sarbanes-Oxley — the SEC realized that the cost or burden to smaller companies did not outweigh the public interest in getting real-time access to a greater amount of information in an easier fashion, most notably by increasing the amount of information filed electronically with the SEC and requiring companies with Web sites to post certain filings to those sites. By the late 1990s, Joe Investor had become less reliant on brokers, and he could do his own research and make his own trades. After all the recent corporate scandals, however, Joe Investor realized that not all the information he wanted was out there and what information there was might not even be available on a company’s Web site. For instance, even if Joe had no way of knowing that Hoss Enterprise was engaged in accounting scandals, he still may have sold his interests in Hoss Enterprise if he’d been able to find out in real time that its executives were dumping large chunks of their holdings. Congress and the SEC, also taking note of this, realized they must take action to restore the public’s trust in public companies. Knowing that the public now demanded accountability, Congress adopted Sarbanes-Oxley, catapulting the SEC into the 21st century and resulting in a host of new rules on electronic filing and Web site posting of important company information. In a shift from its lowest-common-denominator and EDGAR-only philosophy, the SEC (together with parallel new rules required by the stock exchanges) will now require certain items to be posted on a public company’s Web site (generally, only if it has one), recognizing that investors rely on public companies directly for important information. Assuming that Joe Investor wants to continue doing his own research and/or investing, or he simply wants to do research after visiting with his stock broker, here, in summary form, are some of the major changes he can expect in the next year. INSIDER STOCK TRADES Section 16 of the Securities Exchange Act of 1934 sets forth the stock-ownership disclosure rules that apply to “insiders” of a public company, i.e., every person who is the beneficial owner of more than 10 percent of any class of equity security registered under � 12 of the Exchange Act and each officer and director of that issuer. Currently, insiders may file ownership reports either on forms 3, 4 and 5 in paper form with the SEC or electronically on EDGAR. Section 403 of Sarbanes-Oxley amended � 16(a) of the exchange act, effective for transactions on or after Aug. 29, 2002, to require insiders to file these reports “before the end of the second business day following the day on which the subject transaction has been executed.” Previously, most transactions did not have to be reported any earlier than 10 days after the end of the month in which they occurred. Now, if an insider sells stock on Monday, the sale must be reported to the SEC on Form 4 no later than the close of business on Wednesday (Eastern Standard Time). Effective on July 30, 2003, all such filings must be made electronically; paper filings will no longer be permitted. Furthermore, the SEC has proposed to amend Rule 16a-3 to require that if an issuer maintains a corporate Web site, it must post all forms 3, 4 and 5 filed with respect to its equity securities by the end of the business day after filing, i.e., no later than Thursday if the Monday sale was reported on Wednesday. Proposed Rule, Release No. 33-1870, Dec. 20, 2002, available at www.sec.gov/rules/proposed/33-8170.htm. How a public company “posts” such information to its Web site is quite flexible. It can post the actual filing or an issuer can satisfy the requirement by linking directly to the SEC’s Web site or to a third-party service that carries such information. The SEC filings portion on the investor-relations page of many public company Web sites is often just a link to a service they subscribe to in an effort to grant investors access to such information. Under the proposal, this may now only be done if the following conditions are met: The forms are made available in the appropriate time frame; Access to the reports is free; The display format allows retrieval of all information in the forms; The medium to access the forms is not so burdensome that the intended users cannot effectively access the information; The access includes any exhibits or attachments; The forms are accessible for at least a 12-month period; Access to the forms is through the issuer’s Web site address normally used for disseminating information to investors; and Any hyperlink is directly to the � 16 forms (or to a list of the � 16 forms) instead of just to the home page or general search page of the third-party service. Id. ANNUAL AND QUARTERLY REPORTS The exchange act also requires public companies to file certain periodic and current reports such as forms 10-K, 10-Q and 8-K. The SEC issued a final rule on Sept. 5, 2002, to require a company’s annual, quarterly and current reports to be posted on the company’s Web site, if it maintains one. The most efficient method of providing access to a public company’s filings will be to provide a hyperlink on its Web site directly to that company’s filings on the SEC’s EDGAR site. Under the proposed rule, hyperlinking to a third-party Web site is also acceptable, provided that the reports are made available in the appropriate time frame and access to the reports is free. This rule requires the hyperlink to be directly to the precise report, not just to the home page or general search page. Final Rule, Release No. 33-8128, Sept. 5, 2002, available at www.sec.gov/rules/final/33-8128.htm. In addition, all amendments, exhibits and schedules related to the reports must be made available on the Web site. Companies are encouraged to provide ongoing online access to their reports for at least a 12-month period, and they are encouraged to provide access to their previous reports on an appropriately archived portion of their Web site for even longer. Id. Though this proposal preceded the forms 3, 4 and 5 rule change and did not include all the particulars as to providing a hyperlink to a third-party service, it is fair to assume that the SEC will eventually adopt similar requirements for all items that a company provides access to through its Web site. CODES OF ETHICS Section 406 of Sarbanes-Oxley requires public companies to have certain codes of ethics. In lieu of filing the code of ethics applicable to its senior officers with the SEC, the SEC has issued rules permitting the issuer to post such codes on its Web site. It is not enough that the code itself be posted and left to gather cyberdust. Any amendments to or waivers from the code must be either filed with the SEC on Form 8-K or posted on the company Web site within five business days following the amendment or waiver and must remain there for 12 months. Final Rule, Release No. 33-8177, Jan. 23, 2003, available at www.sec.gov/rules/final/33-8177.htm. Not to be outdone by its government counterpart, the New York Stock Exchange and the other exchanges are also proposing rules affecting Web site disclosure, several of which go beyond Sarbanes-Oxley or the SEC’s requirements. One rule would require each company listed on the exchange to provide its newly required corporate governance guidelines online. Another would require each listed company’s Web site to include the charters of its most important committees, e.g., audit committee, compensation committee and nominating/corporate governance committee. In the past, generally only the audit committee was required to have a charter and the only requirement for it to be publicly available was an SEC proxy-statement rule. A third proposal would require each listed company’s Web site to include the public company’s broad-based code of business conduct and ethics. This code would apply to more people and include more particulars than the similar SEC requirement for a code of ethics. For non-U.S. companies referred to as “foreign private issuers,” one proposal would require foreign private issuers listed on the exchange to disclose any significant ways in which their corporate governance practices differ from those followed by domestic listed companies. From the time before Internet trading to the explosion of the information age, the manner in which investors obtain and analyze information and buy and sell stocks has dramatically changed. While the SEC recognized over the last two decades the need for information filed with it to be somehow available electronically, the corporate scandals of the last year finally pushed the SEC to start adopting a program that will provide more meaningful access to information to a greater number of people than ever before, better allowing those people to find and digest the information and then make investment decisions. Jonathan B. Newton is head of Baker & McKenzie’s corporate and securities group in the firm’s Houston office and may be reached at [email protected]. Amar Budarapu is head of the firm’s North American securities practice group, and is based in the Dallas office. He may be reached at [email protected]. Todd W. Taylor, a senior associate in the firm’s Houston office, contributed to this article.

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