Alert December 23, 2008

SEC Approves New Interactive Data Tagging Requirements for Public Company Financial Statements by Public Companies and for Mutual Funds

At its open meeting last week, the SEC voted to approve additional requirements regarding the use of interactive data in SEC filings by public companies and mutual funds.  Interactive data tags labels the elements of an electronic filing with unique computer-readable “tags” that make the information more searchable on the Internet and more readable by spreadsheets and other software.  Because the SEC has not issued formal adopting releases, this summary is based on the SEC press release announcing action at the open meeting and published remarks of the SEC staff from the open meeting.

Public Companies.  Under the new requirements, public companies will be required to use interactive data in financial statements that are part of their (a) periodic annual and quarterly reports, (b) reports on forms 8‑K and 6-K that contain updated or revised versions of financial statements that appeared in a periodic report and (c) registration statements under the Securities Act of 1933, as amended (the “1933 Act”).  The disclosure in interactive data format will supplement, but not replace or change, disclosure using the traditional formats for electronic filings with the SEC.

A company will have to file its tagged financial statements with the SEC and post them on its website at the same time as the related report or registration statement, subject to a thirty day grace period for first time filers.  Tagged financial statements will have to remain posted on company websites for 12 months.  Filers that fail to provide a post required interactive data will be deemed not current with their reports under the Securities Exchange Act of 1934, as amended and (the “1934 Act”), as a result, would not be eligible to use the short form registration and will not be deemed to have available adequate current public information for purposes of the resale extension safe harbor provided by Rule 144 under the 1933 Act until they make the required filing or posting.  Interactive data files will be excluded from the officer certification requirements under 1934 Act rules, and issuers will not be required to obtain auditor assurance on their interactive data financial statements.

Domestic and foreign large accelerated filers using U.S. GAAP with a public float above $5 billion will be required to comply with the new requirements starting with their first quarterly report for fiscal periods ending on or after June 15, 2009.  The remaining large accelerated filers using U.S. GAAP will be required to comply with the new requirements on a phased-in schedule over the next two years.  All remaining companies using U.S. GAAP and foreign private issuers using International Financial Reporting Standards issued by the International Accounting Standards Board will be required to comply with the new requirements starting with fiscal years ending on or after June 15, 2011.  Public companies may choose to meet the new interactive data requirements in advance of their respective compliance dates. 

Mutual Funds.  Mutual funds will be required to begin including data tags in their public filings that include information on objectives and strategies, risks, performance, and costs.  Mutual funds will also be required to post this interactive data on their websites.  The impact of this rulemaking depends to a significant extent on the precise details of the changes to the mutual statutory prospectus recently adopted by the SEC as part of its summary prospectus initiative (see the November 25, 2008 Alert) because the portions of the mutual fund prospectus proposed to be submitted in interactive data format were the ones affected by the summary prospectus disclosure changes, for which an adopting release detailing those changes has not been issued.