The Securities and Exchange Commission recently published its annual list of rules scheduled for review in the next twelve months in accordance with the Regulatory Flexibility Act’s requirement to conduct a periodic review of rules that have, or will have, a significant economic impact upon on covered companies (with a focus on smaller reporting entities) within ten years.

The legislation also requires that the identified rules be assessed as to whether they should remain unchanged, be amended, or be rescinded. That review includes an assessment of the continued need for a rule; the nature of complaints or comments received concerning the rule from the public; the complexity of the rule; the extent to which the rule overlaps, duplicates, or conflicts with other Federal state, or local governmental rules; and the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.

The requirement is well intentioned, but very few companies take advantage of the review process, Commissioner Michael Piwowar lamented in a public statement.

“I am pleased that the Commission has this annual occasion to conduct retrospective reviews of our rules,” Piwowar said. “I have repeatedly emphasized the need to measure whether the rules and policies the agency implements are actually achieving their intended objectives.”

Public comment is a key component of such retrospective reviews, he stressed, but “historically the lists have generated little or no public comment. “ In recent years the annual rule list has prompted, on average, only one comment.

In particular, Piwowar is urging greater public comment on Regulation NMS. The regulation includes a series of initiatives intended “to modernize and strengthen the National Market System for equity securities.”

Regulation NMS includes an “Order Protection Rule” that requires trading centers to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the execution of trades at prices inferior to protected quotations displayed by other trading centers. The "Access Rule" requires fair and non-discriminatory access to quotations and establishes a limit on access fees to harmonize the pricing of quotations across different trading centers. The "Sub-Penny Rule" prohibits market participants from accepting, ranking, or displaying orders, quotations, or indications of interest in a pricing increment smaller than a penny, except for orders, quotations, or indications of interest that are priced at less than $1.00 per share.

“When Regulation NMS was adopted, there was uniform support for enhancing the efficiency of our markets, but how the Commission sought to achieve that goal was quite complex and controversial,” he said. “And, there have been substantial changes in technology, economic conditions, and other factors in the last decade. For these reasons, I have been urging the Commission to conduct a comprehensive equity market structure review program.”

This year’s Regulatory Flexibility Act reviews provide “an opportunity for the public to spur the Commission to conduct a Regulation NMS ‘lookback,’ and specifically consider whether the rules should be modified, streamlined, or rescinded,” he added.

The list of rules under review, all of them adopted by the Commission in 2005, include:

XBRL voluntary financial reporting program on the EDGAR sytstem: Amendments that enable registrants to submit voluntarily supplemental tagged financial information using the eXtensible Business Reporting Language (XBRL) format as exhibits to specified EDGAR filings. Registrants choosing to participate in the voluntary program also continue to file their financial information in HTML or ASCII format, as currently required.

Mutual fund redemption fees: The Commission adopted a new rule that allows registered open-end investment companies to impose a redemption fee, not to exceed two percent of the amount redeemed, to be retained by the fund. The redemption fee is intended to allow funds to recoup some of the direct and indirect costs incurred as a result of short-term trading strategies, such as market timing.

First-time application of International Financial Reporting Standards: The Commission adopted amendments to Form 20-F to provide a one-time accommodation (in 2007) relating to financial statements prepared under International Financial Reporting Standards for foreign private issuers registered with the SEC.

Regulation NMS: The Commission adopted rules and amendments to the joint industry plans for disseminating market information.

Amendments to the penny stock rules: The Commission amended the definition of “penny stock” as well as the requirements for providing certain information to penny stock customers. The amendments were designed to address market changes, evolving communications technology and legislative developments.

Use of Form S-8, Form 8-K, and Form 20-F by shell companies:  The Commission adopted rules and rule amendments relating to filings by reporting shell companies.

Rulemaking for EDGAR system: The Commission adopted amendments requiring that certain open-end management investment companies and insurance company separate accounts identify in their Electronic Data Gathering Analysis, and Retrieval (EDGAR) submissions information relating to their series and classes (or contracts, in the case of separate accounts).

Securities offering reform: The rules eliminate unnecessary and outmoded restrictions on offerings.

Ownership reports and trading by officers, directors and principal security holders: The Commission adopted amendments that exempt certain transactions from the private right of action to recover short-swing profit provided by Section 16(b) of the Exchange Act. The amendments were intended to clarify the exemptive scope of these rules.

Revisions to accelerated filer definition and accelerated deadlines for filing periodic reports: The Commission adopted amendments to the accelerated filing deadlines that apply to periodic reports so that a “large accelerated filer” (an Exchange Act reporting company with a worldwide market value of outstanding voting and non-voting common equity held by non-affiliates of $700 million or more) became subject to a 60-day Form 10-K annual report filing deadline, beginning with the annual report filed for its first fiscal year ending on or after December 15, 2006.

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