SEC Tightens Up on Disclosure

Financial regulators in the United States yesterday announced plans to further tighten the rules governing public companies as part of the continuing effort to restore the credibility of Wall Street.

The securities and exchange commission detailed a series of new rules including plans to "dramatically shorten" the time directors have to report share transactions.

Under the present rules, executives have up to a year to disclose dealings.

The time given to companies to file their results will also be reduced. The SEC is proposing that full-year results must be filed within 60 days of the fiscal year ending, instead of 90 days. The first three, quarterly filings must be within 30 days of the end of period, instead of the present 45 days.

Accounting watchdogs also put forward rule changes relating to "special purpose entities" such as the ventures that hid debts at the failed American energy firm Enron.

The New York-based financial accounting standards board aims to change the so-called 3% rule on special purpose entities. At present if a third party investor holds 3% of a partnership it can be kept off the balance sheet. The watchdog is planning to lift that to 10%.

Both shake-ups are part of a wider attempt to calm investors made nervous by the bankruptcies of energy trader Enron and the telecoms company Global Crossing.

The chairman of the SEC, Harvey Pitt, said the rules were just the beginning of a process to improve the transparency of financial reporting in corporate America. "These steps will provide significant improvements quickly while other proposals are considered," he said.

Among the other rules laid out by the SEC yesterday, companies will be forced to expand the list of what needs to be made public in "significant event" filings, which require immediate disclosure.

They will include waivers of corporate ethics and conduct rules, changes in debt ratings, loss of material customers and directors' share transactions.

The SEC, alongside other American regulators, last week announced more stringent rules governing the role of research analysts in investment banks.

The SEC, which carries out spot checks on companies annual results filings, is about to embark on an unprecedented trawl through the top 500 companies in the US to ensure there are no other problems lurking on - or off - their balance sheets.