2026 03 12 Investor Advisory Committee Part 01

Good morning and welcome to the March 2026 meeting of the SEC's Investor Advisory Committee. I'm Brian Schorr and I'm the Chair of the IAC. Before we get started, I'd like to turn the mic over to Adam Anisich, who'll conduct a roll call.

Good morning, everyone. Thank you, Mr. Chairman. When I call your name, please respond "here present" and we'll mark you. So. James Andrus, present. Thank you, James. Rodney Comegy, present. Thank you, Rodney. James Copland, present. Thank you, Jim. Gina Gail-Fletcher, wonderful, welcome, Gina. GAIL. George Georgiev, present. Thank you, George. John Gulliver, present. Thank you, John. Colleen Hoenigsberg, present. Thank you, Colleen. Craig Knocke, present. Thank you, Craig. Christine Lazaro. Christine Lazaro. Nothing heard. Nancy Lamond present. Thank you, Nancy. Amy McGarrity, present. Thank you, Amy. Andrew Park, present. Thank you, Andrew. Doctor David Rhoiney. Doctor David Rhoiney. Nothing heard. Sergio Rodriguera, present. Thank you, Sergio. Paul Roy, present. Thank you, Paul. Brian Schorr, Thank you, Brian. I heard you, Andrew. Sight present. Thank you, Andrew. Alvin Velasquez present. Thank you, Alvin. Back to you, Mr. Chairman.

We will begin with the opening remarks from Chairman Atkins and Commissioners Peirce and Uyeda. We'll have two panels today. The first, our morning panel, will be public disclosure reform and it will run from 10:30 this morning to 12:15. It will be moderated by two members of our committee, John Gulliver and Craig Knocke. John is the Executive Director of the Committee on Capital Markets, Regulations and the Program on International Financial Systems, and Craig is Chief Investment Officer at Turtle Creek Trust. As we know, disclosure requirements for public companies have increased dramatically over the last decades with a significant cost to public companies. The Commission is exploring various ways to reduce these regulatory requirements, including shifting from quarterly reporting to semi-annual reporting and reforming Regulation SK, which sets the standards for non-financial disclosures in public company filings. This morning's panel will bring together academics, practitioners, institutional investors with active management strategies who are all involved in public company disclosure. They'll be providing insight into potential reforms that could be made to the public disclosure framework, all of this without compromising investor protection and capital formation.

We'll be breaking after that for lunch and an administrative session, which will be from 12:15 to 2:30 PM, after which the afternoon panel, fund proxy voting challenges, costs and pathways to modernization, will commence at 2:30 PM. The afternoon panel will also be moderated by two IAC members, Rodney Comegys and Paul Roy. Rodney is the global head of Vanguard's Equity Index group, and Paul is a former senior Vice President of Capital Research and Management Company. As we know, public investment funds across the industry face persistent challenges in obtaining a quorum of the fund shareholder meetings. As retail participation patterns evolve and intermediated account structures complicate outreach, achieving this special has become increasingly difficult and costly. This panel will explore the current proxy voting framework for funds, the operational and behavioral factors that influence shareholder dissipation, and the cost drivers that are associated with today's solicitation practices. The panelists will also discuss potential avenues for modernization within the context of existing regulatory protections. Finally, our panelists will discuss fund proxy reform in the context of other efforts to provide effective ways of evolving retail investors in proxy voting, including at the issuer level and with respect to investor choice in a fund stewardship of issuer proxies.

Following the afternoon panel, the IAC members will consider a recommendation of our market structure subcommittee regarding the tokenization of equity securities. I look forward to engaging discussions to come, both during the panels and regarding our recommendation. We'll now turn to opening remarks, first from Chairman Atkins and then Commissioners Peirce and Uyeda.

Oh, well, thank you very much, Mr. Chairman, and good morning, ladies and gentlemen. Welcome to our first Investor Advisory Committee meeting of the year. It's a pleasure for me to be here and to see you all again. So before I make my remarks, I guess I have to make all of our compliance folks happy around here to say that the views I express are from my own as Chairman and not necessarily those of the SEC as an institution or the other two commissioners who will kick me in the shins if I go off rail. But anyway, but anyway, it's good to be here. I, I should also like to acknowledge those of you for whom what today is your last, your final IAC meeting. So this committee has an important mission to give considered input to the Commission, and I'm very much grateful for the service that you all have given and for the contributions that you've made.

So in just a few moments, your first panel will discuss ways in which we can reduce unnecessary disclosure burdens, which have increased dramatically in recent decades. At a high level, achieving what I often call the minimum effective dose of regulation requires the Commission to follow a few ideals. First is rationalizing. Our rules should be sensible and disciplined with materiality as our North Star. Second, these requirements must scale with a company's size and maturity. Balancing disclosure obligations with a company's ability to bear the burdens of compliance is especially important where Congress has directed the SEC to promulgate a disclosure rule whose costs may fall unevenly or be completely askew. And for newly public companies, the SEC should consider building upon the IPO on-ramp that Congress established back in the JOBS Act. For example, allowing companies to remain on the on-ramp for a minimum number of years rather than forcing them off as soon as the first year after the initial offering could provide companies with greater certainty and incentivize more IPOs, especially among smaller companies.

So third theme involves the SEC's tendency to write, regulate indirectly or set expectations for matters of corporate governance through so-called comply or explain disclosure requirements. Absent a clear congressional directive, it's not the SEC's role to enforce notions of best practice governance standards through what I call regulation by shaming. Our mandate is disclosure rooted in materiality, not to enforce government orthodoxy by embarrassment. These decisions, of course, should be left ultimately to shareholders and their directors to sort out according to the aspects of their particular companies.

Later today, your second panel will then focus on the persistent challenges that publicly offered funds face in obtaining a quorum for shareholder meetings. As retail patterns evolve and intermediated nature of account structures complicate outreach, attaining that threshold has become more and more difficult and ever more costly. The Commission is attuned to these dynamics, and I look forward to the panel's insights on potential avenues for modernization that preserve investor protections.

Finally, the committee will vote on recommendations regarding tokenization of equity securities. I want to thank the IAC for engaging thoughtfully with this topic, as well as for your recognition that tokenization can enhance settlement efficiency, reduce settlement risk and eliminate unnecessary intermediaries. As I've previously discussed in public, I expect the Commission to soon consider an innovation exception to facilitate limited trading of certain tokenized securities with an eye towards developing a long-term regulatory framework. To help inform our work in this area and to provide for robust public input, our Crypto Task Force, headed by Commissioner Peirce, has hosted several roundtables, met with hundreds of market participants and solicited broad public feedback, including receiving scores of written input submissions over the last 13 months on how best to calibrate our rules to new and novel types of trading. We continue to welcome comments on the design of a potential innovation exemption, which would be limited in time and scope, but long enough so that we can craft more durable rules that harness the full potential of these new technologies.

So with that, I want to close where I began, which is by thanking you for your service on this committee, especially our departing members. Your work here has been careful and rigorous. You have given the Commission the benefit of your experience with the interests of investors foremost in your minds. And I know that while public service of this kind rarely draws headlines, it very much strengthens the foundations on which our markets depend. So each of you has my sincere thanks and best wishes for today's meeting and in the endeavors that lie ahead. Don't be strangers to us. So thank you very much.

Thank you, Chairman. Next will be Commission. Thank you, chairman. Next will be Commissioner Peirce for her opening remarks.

Thank you, Brian, and thank you to the committee and panelists for graciously giving your time today to the first meeting of the year. I do echo the chairman's disclaimer, which is that my views are my own as a commissioner, not necessarily those of the SEC or my fellow commissioners. I'm sorry that it's the last meeting for a number of you, James Andrus, Gina Gail-Fletcher, Colleen Honigsburg, Christine Lazaro, Andrew Park, Dr. David Rhoiney, Paul Roy, and Brian Schorr. Thank you very much for devoting your time and expertise and energy to the service of improving the capital markets for the benefit of American investors.

As Chairman Atkins noted earlier this week, March 9th was the 250th anniversary of Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations. The book reflects Smith's classical liberalism, which is relevant to the Commission's work and therefore relevant to yours. As you advise us in ours. Smith's version of liberalism liberates and celebrates the individual who contributes to society. Economist Marianne Keating explained that the resulting policy principles for constructive reform are not those of utilitarian dreamers who seek to change human nature and control outcomes, but rather Adam Smith's system prioritizes the liberty to act in congruence with an individual's natural sense of morality and societal norms and a nation. Granting people the liberty to pursue immeasurable personal goals increases the probability of attaining outcomes that increase individual and aggregate well-being. In his own words, Smith warned, "The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with the most unnecessary attention, but assume an authority which could be safely trusted not only to no single person, but to no counselor Senate whatever, and which would be nowheres, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it." That's a humbling admonition for a regulator. What a regulator I am.

And so let me turn to the topic of the first panel, which is public company disclosure reform. The SEC requires companies to spend a lot of time and attention preparing disclosures that may obfuscate rather than add to the mix of information on which investors rely. Certain mandated executive compensation tables, for example, are about as interesting to investors as the chart on the bounties paid on herring from 1771 to 1781, which is appended to the end of The Wealth of Nations. The laundry list of disclosure obligations public companies face is long, and I welcome your thoughts on how we can pare it back.

I'm pleased that in the, its second panel, the committee is taking up the important issue of fund proxy voting. A discussion on potential solutions regarding funds' difficulty in obtaining a quorum for votes on certain matters under the Investment Company Act is overdue. The generally required quorum of more than 50% of the outstanding voting securities of a fund to approve many changes is difficult and costly for funds. Many fund shareholders are retail investors and are much less likely to vote than their institutional investor counterparts. I look forward to hearing the investor perspective on possible solutions that industry has posited. As part of this panel, the committee will discuss fund proxy reform in the context of investor choice in a fund's stewardship of issuer proxies. I reminded you of this before, but remind you again that the fund vote belongs to the fund, not to any individual shareholder and not to the advisor.

I look forward to the continued discussion of securities tokenization. I found last meeting's discussion very helpful, and I hope that today's discussion will continue that trend and be useful to us. Genuine public discussion among committee members of these difficult and important issues informs our own consideration of the issues. Competing views are welcome and should be expressed so that you can all hear them before a vote is taken on the draft recommendation. Chairman Atkins and I discussed recently, and the Chairman just mentioned now, that the Commission staff is working on an innovation exemption to facilitate limited trading of certain tokenized securities. It's much narrower than the blanket exemption mentioned in the draft recommendation. Within this narrower revision, I would appreciate the committee's consideration of several key questions I have about the draft recommendation. And, and we're trying to get to a place, obviously, that both protects investors and enables firms to participate in experimentation with this new technology. So with that, let me run through these questions.

First, the draft suggests that mandatory disclosures should seek to provide investors in tokenized securities with a clear understanding of their ownership rights. How are the SEC's existing issuer disclosure requirements insufficient in this regard? Second, does the Committee believe that broker-dealers and clearing agencies that tokenize security entitlements should be subject to new disclosure requirements relating to such security entitlements? If so, why should tokenized security entitlements be treated differently than security entitlements that are not tokenized? Third, the draft states that allowing for the atomic settlement of tokenized equity securities requires exemptive relief or reforms to the SEC's existing T+1 settlement rules. Would you clarify why you believe that relief or reforms would be necessary for transactions that settle faster than T+1? Would atomic settlement face friction under other existing SEC rules? Fourth, and I'll just, these will be posted before you guys get to your discussion. So I know this is a lot, but they'll be there for you to see. Fourth, the draft posits that intermediaries for tokenized security should be regulated and that the trading of tokenized equity securities should be subject to protections that seek to ensure that all investors receive the best terms for their orders. What if there are no intermediaries to regulate? One of the beauties of this technology is that people are able to transact without intermediaries, or if there are intermediaries, what if they do not clearly fit within the existing definitions in the Exchange Act: broker-dealer, exchange, or clearing agency? For example, does the SEC have statutory authority to impose requirements that the draft recommends in such cases? Fifth, should the Commission consider allowing different tokenization models in an innovation exemption to help inform the risks, benefits, and regulatory treatment? Should an innovation exemption require a third party to obtain issuer consent to issue tokenized versions of existing equity securities of that issuer? And sixth, what conditions should apply in an innovation exemption to preserve the fundamental investor protections listed in the recommendation and to minimize regulatory arbitrage? That's a long list. You've got a lot to discuss, so I will stop there. But thank you all for your participation today and thank you to the staff who have made this possible, which involves Mark Sharma, Adam Moore, Adam Anasich and Charles Kwan. Thank you so much.

Thank you, Commissioner Peirce. Next will be Commissioner Uyeda.

Well, good morning, and thank you, Brian. You know, nearly four years ago, I returned to the SEC as a commissioner, and that time frame roughly corresponds to when a particular cohort of individuals were named to the SEC's Investor Advisory Committee and began their terms. And now today is the final committee meeting for this cohort who will complete their terms in the near future. Brian Shore, Paul Roy, Colleen Honigsburg, James Andrus, Gina Gail Fletcher, Christine Lazaro, Andrew Park, and Dr. David Rhoiney, you know, each, I think that was the first group of new members that, so each of you stand out in my memory. But many of you, I actually knew far before that. You know, Brian, thank you very much for your leadership as Chairman. It did take me a minute when you took over for the chairman to realize it was no longer Brian from SWIB, but now Brian from, from, from Trayon. But you readily established yourself and to make sure that you provided the perfect guidance and to make this committee productive. And Paul Roy, although we never overlapped while I was on the staff here, you were certainly well known as the former director of I am and then in your subsequent role where I think we had a lot of mutual acquaintance. So thanks for you brought. Colleen, I remember getting a petition on SEC or reviewing a petition that was co-signed by you on human capital disclosure and said, who is this person, and professor of accounting before you became named to this committee. And James, your time with CalPERS when you would come in and I was counsel to legal counsel to one of our prior commissioners, and I, I think as everyone should know from my public disclosures, when you're with CalPERS, and I am still a member of CalPERS, and I would first want to ask you is, how are you maximizing my pecuniary gains, my retirement? Gina-Gail, I was on, I think I was on detail at the Senate Banking Committee, and you were a witness, and the task fell to me to review every single publication on your CV in preparation for the members. And then Christine Lazaro, I, I saw you, you're on the web. I know of all your work to deal with the law student clinics, which predated your service to this committee. And Andrew, all of your comment letters that you wrote before you joined as part of AFR, trust me, they were carefully, carefully read. So anyway, thank you very much for your service to this committee and the investing public. I very much appreciate the significant time and effort that you put into being a member here.

As previously mentioned, today's meeting will have panel discussions on company disclosure reforms and fund proxy voting. Regulation SK is the core public company disclosure framework governing non-financial information. Over the decades, Regulation SK has ballooned into a laundry list of requirements that are sometimes duplicative, outdated, and or immaterial. Earlier this year, Commission staff were instructed to start a comprehensive review of Regulation SK. Or I should tell you, last year, Commission staff were instructed, and we solicited public input as part of our effort to modernize these long-standing disclosure requirements. I don't think a lot of people appreciate the significant effort it takes to provide good disclosure. It is much more than simply writing sentences on a document. For every disclosure, there needs to be controls, procedures, documentation, approvals that stand behind them. This is not a costless exercise. Thus, it's timely for the committee to have a discussion on public company disclosure, especially as to what reforms might reduce unnecessary burdens on public companies without compromising investor protection and capital formation.

Today's second panel will discuss fund proxy voting. Satisfying the quorum requirement has long been a challenge for funds, particularly when many retail investors hold their fund shares through intermediaries such as investment advisors or broker-dealers. The rising costs associated with conducting fund proxy campaigns ultimately fall directly on the fund shareholders themselves and have a net negative effect on fund performance. A well-functioning proxy voting system is needed to ensure that funds can take actions in the interests of shareholders, such as adding additional board members, amending fundamental policies, or pursuing certain fund mergers to reduce expenses. So I look forward to hearing your ideas on practical ways to modernize the fund proxy voting framework and the role the SEC should play in that effort.

Lastly, the Committee will be considering a draft recommendation on tokenization of equity securities. This recommendation follows the Committee's prior discussion last December. Throughout its history, the SEC has witnessed financial innovation in the federal securities laws that the federal securities laws did not originally contemplate back in 1933 and 1934 and 1940. In the 1970s, money market funds emerged as an instrument to deal with sky-high interest rates, which prompted the Commission to issue exemptive relief until these products were ultimately codified in Rule 2A7. A similar pattern followed with ETFs, which began as a way to provide investors with intraday liquidity. And for years, we granted individual exceptions to allow ETFs to operate until adopting Rule 6c11. Tokenization of equity securities may be the next example of an innovation that could bring significant benefits to investors, but that does not neatly fit into the existing regulatory framework. So I appreciate the committee's efforts to recognize that the advent of new technologies means that our rules may need to evolve, but keeping in mind the goal is protecting investors and maintaining fair, orderly, and efficient markets. So thank you very much to the committee members, and thank you very much to the panelists who have spent time to prepare for this meeting. And I look forward to your discussions today.

Thank you very much, Mr. Chairman and Commissioners, thank you for your kind remarks about the committee, especially the cohort that's going to be leaving shortly. We all appreciate the opportunity to work with each of you. Thank you. Let us now turn to the next item on our agenda, which is the approval of minutes for the December 4, 2025 meeting. Those minutes have been circulated prior to the meeting. Do I have a motion to approve the minutes? So moved. Second. All those in favor? Aye. Aye. Opposed? Aye. The minutes are approved. Wonderful. Now I'd like to turn to our morning panel, public company Disclosure Reform, which we moderated by John Gulliver and Craig Knocke. John, Craig, should we move up there? Just a second. Okay. John, Craig, great. Take it away.

Sure. Maybe I'll get us started by sort of overviewing the issue and the format and the plan for the panel, and then Craig will do the review the bios and who we'll be hearing from. So obviously the issue at hand is public company disclosure reform. I think, you know, it's clear that this is a top issue for the Commission and, you know, with good reason. I think, in my view, the number of public companies today is about 50% as many as there were 25 years ago, and in large part that could be due to an increase in regulatory burden over that time. And the most fundamental requirement that applies to public companies is the disclosure framework. So I think this SEC has decided to take that, take a close look at that in a holistic way. And I think in this panel we're going to hear from our, from the experts about whether or not there are opportunities to reduce those burdens without harming investors. I think there's two primary issues that we're going to focus on in this panel, which is precisely what the SEC is also focused on, and that is whether or not there should be a shift from quarterly mandatory disclosures to a biannual mandate. This would be a major change. We've had quarterly mandatory disclosures since 1970, and over that time, obviously there's been a lot of success in our capital markets despite the recent downtrend in the number of public companies. Also, we are going to consider Reg SK, which is basically the fundamental standard that applies to all non-financial disclosures for public companies. And I think, you know, it, it, it kind of should come as no surprise to anyone listening today and anyone with us today that the, the sheer scale of disclosures mandated by Reg SK has dramatically increased in recent decades. So we're going to look at whether or not there are, whether or not there are opportunities to scale that back within reason. So maybe I'll turn it over to Craig now, and Craig can quickly go through the high-level bios of our speakers and then I'll then I'll speak to format a little bit. Craig.

Yeah, great. Thanks. Thanks, John. Appreciate it. We have a great panel assembled here this morning. We want to thank everyone for joining us. With us today, starting out in order from from my right to the left, is Steven Berger, Managing Director, Global Head of Government and Regulatory Policy at Citadel. Steven is a Managing Director and he analyzes and coordinates the firm's response to legislative and regulatory initiatives affecting the financial industry globally. Mr. Berger serves as Chair of the Managed Funds Association's Derivatives and Swaps Committee and is an active participant in a number of MFA, AIMA, and ISDA committees. Prior to joining Citadel, he was most recently an executive director at UBS Investment Bank where he led UBS's U.S. financial regulatory reform team. Mr. Berger received his bachelor's degree from Princeton University. Thank you, Steven, for being here today.

Next is Neil Constable, Head of Quantitative Research and Investments in the Quantitative Research and Investments division at Fidelity. Fidelity Investments, of course, as a leader in investment management, retirement planning, portfolio guidance, benefits outsourcing, other financial products and services to financial intermediaries and individuals. His group supports their investors with timely and actionable insights and manages systematic products and solutions enabling scale through adoption of common platforms. Prior to assuming his current role, Neil was Chief Investment Officer at Circle Up, a consumer goods venture capital firm based in San Francisco, and he oversaw their investment strategies while developing and managing their research agenda at the firm. Neil spent 13 years at Grantham, Mayo, and Van Otterloo, most recently as head of Global Equity division. In that role, he served as lead portfolio manager for the firm's global quant equity and derivative strategy. More than 20 researchers and portfolio managers were under his governance. Neil joined Fidelity in 2020 and has been in the financial services industry since 2004. Bachelor of Science from University of Calgary and a Master's in Mathematics from Cambridge University, PhD from McGill. Thank you for being here.

Bob Downs, Partner at Sullivan & Cromwell. Bob joined Sullivan & Cromwell in '91, in 1991, and became a partner of the firm in January of 2000. He's the Co-Head of Sullivan & Cromwell's Capital Markets group. Prior to attending law school, Mr. Downs worked as a certified public accountant in the DC office of, excuse me, of Coopers & Lybrand. Thank you for being here, Bob.

Rick Warner, Co-Chair. Rick is a member, I'm sorry, Co-Chair of the Capital Markets and Securities practice group at Hanson Boone in the New York office. Rick is a member of the firm's Executive Committee and co-chairs the firm's Capital Markets and Securities practice. Rick represents issuers, investment banks, and investors in a wide range of corporate transactions that include securities offerings, cross-border listings, venture capital financing, and other forms of private equity investment, M&A, joint ventures, recapitalizations. Rick's experience with public and private securities offerings includes secondary offerings of equity and convertible securities, at-the-market offerings, rights offerings, restricted direct offerings, and private equity investments, among other things. Rick also advises clients on alternative public offering transactions such as reverse mergers and SPACs and spin-offs. He stays very busy. Thank you, Rick, for being here with us today.

And finally, on the phone, I believe we have dialing in, Professor Joel Seligman. Professor, are you with us? Not yet. Okay. Hopefully he'll jump in. I'll text him while we're sort of in between here. I'll read his bio. Professor Seligman is President Emeritus and University Professor at the University of Rochester, where he served as president from 2005 to 2018. He's the Dean Emeritus and Professor at Washington University, where he served as Dean and Ethan A. Shepley University Professor from 1999 to 2005. His scholarship has largely been in the field of securities regulation, and he is co-authored with Louis Loss and Troy Paredes, the the 11-volume treatise Securities Regulation, and is author of two histories of financial regulation. He's joining us remotely, so he might be having a bit of trouble getting in. So we'll, we'll, we'll make that happen. So I'll turn it back over to you to kick it off.

Great, great. Thanks, Craig. So we're hearing sort of a diverse range of perspectives, and I think we're going to ask different questions to each of them. So first, we're going to hear from Steven and Neil, who are going to present a perspective of what is actually useful from public company disclosures for active managers. What disclosures do you care about? What disclosures do you not care about? And then we're going to, I think Craig and I have a couple questions that we've discussed and we're going to ask Neil and Steven a couple questions. And then we're going to actually open it up to the room, and IAC members will have an opportunity to ask them questions so that they can provide a specific institutional investor active management perspective. Then we're going to shift to hear a legal expert perspective. So we'll hear from Rick and Bob about, you know, what is actually most challenging for public companies with respect to disclosures and what are specific reforms that the SEC could enact, right? Because these are obvious, you know, complex issues. How could a materiality standard, for example, be appropriately applied to Reg SK? So we'll hear a legal perspective. And then again, we'll open it up to the room and have a dialogue on the legal side. And then finally, we'll hear the academic perspective. So Professor Seligman is, I think, an expert in what's the overall goal for the framework and how can some reform, you know, how would reforms to quarterly disclosures or reforms to Reg SK fit within that framework? And then finally, we'll open up the room for continued discussions. So with that introduction on format, I'll turn it over to Steven first to start us off in the first section, Steven.

Thank you, John. Thank you to the Investor Advisory Committee and its members for hosting this important dialogue today and to John and Craig for moderating this discussion. Equities represents one of the largest and longest tenured strategies at Citadel. Our investment approach is grounded in deep fundamental research and financial analysis, and access to timely, accurate, and comparable financial information from public companies is integral to making smart, data-driven investments, thoughtful portfolio construction, and rigorous and disciplined risk management. That said, reforming public company disclosure is an instance, I think, where investors and the market as a whole can have their cake and eat it too. We can preserve the benefits of having trusted, robust, and timely reporting of material financial information by public companies while streamlining that reporting to the benefit of investors and public companies by rerouting disclosure and financial materiality and eliminating extraneous and duplicative reporting.

So there's five topics I'd like to just touch on briefly in my opening remarks and then look forward to your questions on the more in-depth discussion. The topics are frequency, substance, materiality, risk factors, and litigation risk. So on the first topic of frequency, I do believe that the quarterly reporting benefits investors, benefits the broader market, and benefits issuers themselves. So having quarterly reporting, having that timely, accurate, and comparable information from all publicly listed companies allows investors to make more informed investment decisions. That leads to more accurate market valuations that better optimize the allocation of capital to the real economy. I think the discipline of quarterly reporting also keeps corporate management accountable, in turn enhancing investor confidence. And it benefits, I think, the issuers themselves because it increases the amount and quality of analyst research coverage, and academic research has also shown that it can help lower bid-ask spreads and increase trading liquidity in their publicly traded stocks. There is, and we can go into this in more detail, but particularly around the changes that occurred in the UK and the EU, there's a wealth of academic research that was conducted that showed some of the benefits I just articulated. And we're going to discuss other board burdens that I think clearly exist with respect to current public company disclosure requirements, but I don't think that the reporting of the financial information themselves on a quarterly basis is that much of a burden, and it's probably done internally anyway already on frequency, that's even more frequently, quarterly, probably monthly if not more often internally already. So that's with respect to the frequency.

With respect to the substance, I think, look, what matters most to investors is the financial information and then having, you know, a crisp and digestible management discussion and analysis and review of risk factors. So there are, as alluded to, I think plenty of opportunities to look at Reg SK and to reduce redundancy, take out boilerplate disclosures that don't add much or are immaterial. So, and I think I'm, you know, I'm heartened that the SEC already has an open comment file on this. And I think we'll get a lot of, you know, specific line-item recommendations for how we can improve and better tailor the substance.

A third point, because I think this is a key part of it, is going to be better defining the materiality standards. And not to bleed into the legal discussion that will occur, but I think it's important for the Commission to better define materiality and adopt an overarching material standard so companies can be more confident in what they choose to include and exclude from their regular disclosures.

The fourth topic is the risk factors themselves. I think Chair Atkins was spot on in the speech on this last month where he noted that, you know, as intended, the risk factors were supposed to be a concise discussion of what keeps management up at night. And if we look at the length of the risk factor disclosures in, in, you know, 10-Ks these days, I think it's less what keeps management up at night and more what puts investors to sleep at night. I think, I think the risk factor discussion can be more concise. It shouldn't be one of the longest sections of the 10-Ks. I was taking a look at a one energy company's 10-K last night, and it included such illuminating statements as, "When temperatures are higher than normal, there's increased demand for air conditioning, and when temperatures are lower than normal, there's increased demand for heating." So, you know, I don't think self-evident statements are necessary, the material ones that we need in our public company disclosures. That said, and I think this is another observation that Chair Atkins appropriately made, risk factors have evolved more into not disclosures by management for investors, but by lawyers for other lawyers. And so it has turned into more of a tool for establishing liability defenses more than anything else.

So that brings me to the final topic that I want to touch on, which is litigation risk. So I think it's true that companies have included voluminous risk factors to seek to reduce litigation risk, and private securities fraud claims are increasingly targeting risk factors disclosures. So I think we're in a little bit of a paradox where public companies, they don't have the right to remain silent, but anything they say can and will be used against them in court. And so I think we need to find a better balance on that front. Part of it's going to be again, rerouting disclosure materiality, but it may also, it may also be relevant for the SEC to look at new, where appropriate, litigation safe harbors with respect to risk factors, for example, and other aspects of disclosure. That's not to say that the legal system still doesn't have a valuable role to play as a potential remedy to hold management accountable when there are misdeeds, but I think we again need to strike a better balance. So I'll pause there and turn it over to Neil.

Great, thanks. Neil, please go ahead.

Great. Neil, thank you, Steven. And certainly thank you to the IAC for having us here. And of course, thank you to Chairman Atkins, Chairman Gwade, and Chairman Peirce for inviting us. Yeah, we at Fidelity, we definitely think now is a good time to talk about all things regulatory and the burdens it places on companies. And within the spirit, it's always a good time. The regulatory frameworks themselves are probably things that should be relatively slowly moving, but at the end of the day, the details, you know, if you allow me a very simple analogy, the details are much like a guard that needs constant tending, and they have to both be, you know, they're actually relevant, and they also have to serve multiple constituency needs. So with that in mind, I, I wanted to go through, much like Steven just did, a set of principles that I think are relevant for thinking about this problem and make some comments along the way as to the trade-offs, because it's, with everything, it's a trade-off.

So as active managers, just putting what was said previously, either way, as active managers, all else equal, we want more data, not less data, right? But "all else equal" is a very dangerous statement because rarely are all things equal, right? We all know that. But more data as a principle, less data is hard to argue with. But also, I want to echo actually something that Chairman Atkins said earlier, because I like the turn of phrase with this idea of "minimum effective dose of regulation." I think that's also an interesting way of putting it. And of course, what comes down to what it all comes down to is debating about what "minimum" means, what "effective" means, and ultimately, what ought to be regulated, not regulated, right? So not that's not to diminish the import of what he's trying to get across, but that's where all rubber meets the road, and finding definitions for what all those things mean, and more importantly, what they mean to each person around this table.

But anyway, back to the active management problem. So, you know, the basic principle here is that the first principle I want to talk about is just this idea of ensuring timely access to material and relevant information. All right. At the end of the day, these companies, corporations that are publicly traded are stewards of investors' capital, and they need to be reporting back to all investors on how effectively to deploy that capital, the returns they're generating on that capital primarily, and how they're doing. So there's a real role to play, though, also for disclosing information about future opportunities, future risks, and of all manner, right? Financial, financial risks, but also the risks about the environment in which the company is operating in. And that can include the regulatory environment in which they're operating. But not least because many of the companies that we're talking about here operate not just under the jurisdiction of the United States, they operate globally. So, so no, but then we do need, as investors based in the United States, we do need to know what global multinationals are subject to in other jurisdictions. So disclosures on those fronts are, I also consider that types of certain types of risks that can impact not just their capital allocation decisions, but their opportunities, both good and bad, for returning risk. So these types of disclosures of all manner are definitely critical.

But then the other principle that I'd like to highlight here, and I'm not going in any particular order, but is this idea of balancing with this notion of consistency and comparability with materiality. All right. And so we actually find ourselves, and I think one of the reasons we get into this situation of, you know, it's whether it's SK where you've got like this gigantic list of things that need to be reported on a regular basis, is it just can't be the case that for different types of companies, the same types of things are material, right? And it'll be, again, all really simplistic, but a company that is heavily dependent on human capital, so think of like an asset-light company, a software company, or something like that. Should they be reporting to investors about how much they have to spend to hire high-end talent for software developers, how much they have to spend on all manner of like the human capital, because that's what drives their business? Of course they should. That matters to investors greatly. It matters to investors, this huge war for talent among software firms. That's a big cost to run up for the software companies. But how much, you know, how much power consumption they have in their office building? Is that really right? I mean, probably not. But if you take it to say, an industrial company, like a chemical company, of course they employ people, right? Of course we need some regular update on their other human capital. But it's much more important to get regular, timely, detailed analysis of how much the raw materials, the power they consume, and so on and so forth is needed to run their business. And so, and so what we get to here is, I think it is a little bit simplistic. And I don't know how the, I'll let the lawyers and the academics figure out how to make this real. But it's a little bit simplistic to think that we should take the superset of every single thing that's material to software companies and material to industrial companies, all goes on the list for everybody, right? That creates a giant amount of immaterial reporting for both companies, right?

I also, I also think that there's a time horizon thing here. It's not as though human capital, just to pick on one, I apologize for that, Colleen, but to pick on one, it's not as though human capital is not relevant for industrial companies. It's just probably relevant to update the investor base less frequently, right? So is there a way to have annual disclosures for things that are less material for certain types of companies, but more of the disclosures for things that are relevant in the here and now always for the companies, right? So considerations like that, I think, are important.

The next principle I wanted to sort of make sure is acknowledged or at least stated out loud at Fidelity is to acknowledge that there are market-based solutions to a certain level for this type of, these types of considerations. If companies are not disclosing enough material information, that will be reflected in a real increase in their cost of capital. Whether that shows up, you know, it's not. It's rare that large, mature companies come to market and issue new equity, but they do on occasion. But they do come to market and issue debt on a regular basis. And if companies are not disclosing enough, they will find out very quickly from their investor base or future investors that they need to disclose more. So I think there's a role to be played for allowing, after some minimal, this minimal set of effective regulations, what's required, allowing the market to play a role here. And you actually see that in some of the with the EU and the UK changes to semi-annual reporting. There are many of those companies that choose to disclose quarterly in the US, right? And that's not, that's not net. Sometimes that's required by the SEC for certain listings they have here, but other times it's not because the investor base, US expects them to give that granulated information if they expect capital from American investors. And so, so creating some optionality for these companies to report beyond what would be regulated required anyway, I think is an important, another consideration if you're thinking about reducing the frequency with which they report, given the option to report material things more frequently, I think is important.

And then the last thing is, is a little bit is, is going to be, is somewhat specific to Fidelity, but I think it's an important perspective to offer because, yes, I represent the active management part of Fidelity. Yes, I oversee teams or partner with teams that have managed trillions of dollars of equity money, and therefore all the care matters greatly to us. But we also at Fidelity, there are millions and millions and millions of Americans who invest through Fidelity on our broker-dealer platforms or through our managed account platforms or have 401(k)s with Fidelity and so on and so forth. And I think it's really important to consider, and this is a little bit speaking against our interests, but I think it's important to say it as active managers for someone like Citadel or Fidelity's active management group, we have a lot of resources to deploy to fill gaps in information that the average retail investor doesn't, right? And so it's not as though we should, like we could set everyone up to have the perfect act, you know, to bend over backwards to make it so you give everyone information. But the idea of leveling the playing field and creating, you know, and not tilting it too far to one side for institutional, in favor of institutional investors, I think is important because we will find a way to get most of the information we need or something that approximates the information we need when that, and the resources to do so aren't available to everybody who's participating in the capital markets. And I think that's something that needs to be considered in this balancing act as well.

And then the last thing I want to focus on, I could talk about capital formation and the importance of removing regulatory burden because I think that will increase the number of public listings. I think that's a real issue. And it's not just the explicit cost that I think it was Chairman Atkins was mentioning earlier, the staffing required, the time required, sometimes hiring external counsels to provide opinions on how you're reporting certain things.

Like this is a real material cost that hits the profitability of companies. But it's also the implicit costs, right?

Working inside a very large organization, we are private and we none the last report on things internally. Every single thing that has to go into one of these, one of these reports has something that has to get measured. And if it's something that gets measured, it goes on some manager, but like a middle manager, some of the reports down the chain for me onto their their scorecard. And then they spend time focusing their team working on it. And if they're, if something they have to measure and report on is not material to the business, that is real time spent by otherwise very talented associates inside our our organization. And as I think it's even more burdensome inside public organizations doing things that don't matter to the ultimate profitability of the business. So it's it the, and those implicit costs are very difficult to measure, but they're very real. And so finding ways to reduce that at every stage that at every stage of the game is really important.

It's especially important for small companies as they're trying to IPF, they have to all of a sudden hire 15 people to work on all the filing the forms, but also debt to their, their cash strapped. They're raising money in the equity markets for a reason. They want to grow. If half that money has to go towards hiring people to, to manage these scorecards internally, right.

I, so I, I've made the point there. The last thing and the last thing I'm going to say is something I, I don't have an answer for, but I think is worth considering as we think about not just what's reported, but also start talking about how things are reported and how those reports are consumed. The the very real that we live in a reality today with all the, the generative AI, ChatGPT, whatever model you want to call about it, the ability for people to consume the information that's reported by companies and extract useful to them, at least information is going up very, very quickly. Should we change how companies are expected to report information knowing that it's going to be consumed in a different way? I think it's very possible that some of the things that are reported today can be reported in a different way, in a less burdensome way, because the technology enables the consumers of that information to get their hands on it more easily organized, sift through it more effectively. And I think it would be a missed oortunity not to consider not just what's reported and how often it's reported, but how it's reported because how it's being consumed in in the modern world is, is it's going through a step function change as we speak. So with that, I'll, I'll see the floor.

Great. Thanks, Neil. Thank you, Steven, and thanks Steve both for being very specific about your issues with the the current framework and also specific about proactive recommendations that that you think the SEC could consider. So I had a question for each of you and then maybe I'd turn it over to Craig and see if he has a couple questions. And then as I mentioned before, open to the room for any any IAC members to to ask questions.

So Neil, my first question is for you and I really thought it was interesting your idea of shifting to biannual or annual for certain disclosures that are less important, you know that then then some of the more fundamental disclosures. But one point that I I wasn't entirely clear on is and, and I know the Commission is considering is a shift entirely away from quarterly to biannual. What do you think about that? Like for example, like that would mean public companies no longer being mandated to disclose on a quarterly basis their financial statements, right? Like that would be biannual. Do you have a view as to how that would affect investors?

I, I, think that there, there's certainly, we know the pros of that, that argument. It's, it's less time spared filing all that burdensome stuff. I, I actually think that would be a net negative, especially when it comes to the financial disclosures. I'll, I'll like what what Steven was saying a few minutes ago, like the, the, the, the, the discipline that puts on, on companies to report back, back out information is, is, is meaningful, especially the financial metrics, right? You know, think, you know, parking sales, capital expenditures, that kind of stuff that, that they would be if that wasn't available to our portfolio managers. I, I actually believe the cost of capital is going to go out for, for companies because then then they can't make, you know, the, the speed with which an active manager makes it an active management is, is where right, Where the, the real, the cost of capital set on the margin, right, Because it's not passive by, by index funds is people actively choosing to believe in a particular growth set of opportunities for a company. And so, and so the price for capital is being set there. And and if if people have less certainty and are receiving information that updates their views less frequently, I mean, this is real material stuff. All the people are going to do is they're going to be slower to build conviction. That means capital flow into good, profitable companies more slowly, which is effectively raising the cost of capital because ton value of money type idea. I also think it create a create itchy trigger fingers to get out of positions because you become less certain people are going to sell stuff if they have the clarity that things look rocky in the market or you're able to get like all this, you know, data that we can avail of ourselves after indicating that sales are going to be bad this year, right throughout our Black Friday, if we're not hearing from the company directly, we've got indirect information, people are going to start selling more. So it could create more volatility in the markets. It'll in some way disincentivize long term holding, which sounds paradoxical, right? But if you've got a thesis and you can build conviction, that thesis you buy sooner if you continue to get updated information on that thesis. That is holding true even through periods where the all the stuff you're triangulating from is giving you maybe contraindicators, but you've got information from the company you're going to hold on to a longer. So I, I, I think it's anyway, that's a very long answer your question, but I'm moving entirely away from quarterly reporting, I think is probably in that negative, but moving to semiannual or even annual on some things that aren't material for a particular company or or lat or or that are less about the actual operating efficiency and profitability of companies. I think there's a lot of scope for that in addition just to removing some stuff outright probably.

That's very helpful. And then over to you, Stephen. 1 issue you didn't address is scale disclosure. And I think that's something that the Chair and the Commission has mentioned that that's something they're considering. So by scale disclosure, I mean lower reporting burdens for newer, smaller companies. Obviously the JOBS Act created emerging growth companies, they're smaller reporting companies, another category that has existed for for longer. And I believe the commission's considering expanding that category In terms of scope of the the companies that are covered by that or the number of years where where lower disclosure obligations apply. What's your perspective on that? Is that a net positive, net negative for from an investor perspective?

I think it's a, I think it's a topic we need to be very careful and thoughtful with respect to. So I appreciate there are already categories of companies like you just alluded to that, that have different standards with respect to either the frequency of the substance of their disclosure. At the same time, as I, as I noted, there's benefits to companies themselves of having that more timely or frequent disclosure in terms of more eyeballs on them from investors, more eyeballs on them from research analysts in terms of coverage and even academic as research has shown better performance of their own shares in the secondary market trading capacity. So I think there's, there's probably, there's probably a balance to be struck here, but I, I would be concerned if we were, you know, materially expanding the universe of publicly listed companies that had either less frequent or less material substantive disclosure. So I think it'd be very important to actually, you know, run the numbers and figure out what percentage of issuers or prospective issuers would fall into those new categories and for how long to make sure we appropriately, you know, assess the cost of benefits of it. And again for investors, I think it's that cost benefit is is pretty clear For more information is going to be more helpful. But I think we shouldn't just assume it's only a one way street. in terms of that additional disclosure is only a cost to the companies themselves. Like I think I think again, if we right size the disclosure that's required that we can sort of better reduce the cost associated with the reporting and disclosure, but preserve the benefits that what companies would get in terms of investor eyeballs, research analyst eyeballs and that the better quality metrics in in the market. The Secretary of market treat see a lot see a lot of 10 cards. That's a good thing. Yeah, that's goodwill.

Just just quickly appreciate the comments and and I guess maybe if you could, you guys, both of you could just expand a little bit on what you feel like the most, you know, critical parts of making a an investment decision are within the the financial statements and, and in those are there disclosures that are really unnecessary that, that could in your mind very easily be be separated out, you know, as as something that is a, an addendum or something that is available by request differently such that it would take away from some of the voluminous boilerplate etcetera. That on that, some of that probably will go to the lawyers as we as we move into that. But I'm, I'm just curious on kind of what as as direct investment investors day-to-day looking at at at companies. Specifically that you're looking at and looking for kind of that commonality among among the reporting around those things.

I could start a yeah. So, so this will inevitably run aground a little bit on my comment earlier about what's material for one company may not material for another. So, but, but with that said, I think a lot of the disclosures that are not easily mappable to financial outcomes for the companies are probably the ones that that make that make the most sense to either you either remove reduce the frequency or the the the the depth of reporting on it or, and I suppose in some cases maybe just removing the requirement altogether is where I would focus. And so it can be thing, you know, it can be things that, and, and this might becomes a loaded issue very quickly, but things that things that may well be of interest to the the body politic, right as it were, or politicians, perhaps, but, but actually have nothing to do with the running of the company. And, and this is where you start getting into some of the, you know, the so some of the issues around you know, this, But what this is a social value a company might bring to the to to to the society. Not, not an irrelevant topic, but definitely not. And that's why we have other part, you know, the, the broader economy and politics interact, but for the purpose of making an active management decision that those types of things are, are almost never considered, right? It it's literally about what is the opportunity set in front of the company because they have capital to deploy, right? Are they going to, are they going to deploy in a data center that is going to increase, you know, either bring new customers to them because that's their business, or the data center is going to increase efficiency or their enable them to use new technology and build on their business. That matters, right? How much are they going to spend on and what kind of returns are they getting on it? Those types of things. And once you start straying too far away from that, people pay the investment are my my team and the other teams that pay less and less attention to it because it simply doesn't matter. We're not paid by our clients right to to worry about those issues. I'm not saying those issues don't need to be worried about by somebody, but that's not what we're paid about. Our clients are hiring us to generate the return their money and so and so our we're based the proxy here to hold the company's feet to the fire to make sure that they're doing a good return on capital on the places we choose to put our clients money. So that, that that's how I would answer that question. But again, that the details, the things I might leave off or or deemphasize would quite likely vary from industry to industry.

I couldn't agree with everything Neil just said. And I guess the perspective I would add is, you know, as a fundamentally driven investor, we're looking to have our own models and forecasts of what the future earnings of companies are going to be and the dividends that they're going to pay as a result, right. So that's first and foremost going to be driven by analyzing their financial statements beyond the income statement, balance sheet, cash flow statement and all the notes there too. So that's, that's the biggest and most material portion. And then you know, again, to the extent that it's illuminating and crisp, the management discussion analysis that the companies that and the discussion of risk factors, because you want to, you know, in, in putting together your own forecasts and financial models of a company, you want to understand, you know, not just what your baseline is, but what's the, what are, what's the, what's the bull and the bear case and what are the downsides associated with those forecasts. So you know that that's the most valuable information that's in the the annual and quarterly reports and there's, you know, at a certain point diminishing value to, to every extra work.

Just a quick follow up, if smaller companies and issuers are given the option, you know, to go to you know, biannual porting, supplementing material changes with 8K filings etcetera. Do you what risks is there that that some of those companies will become constrained with respect to raising capital being covered by analyst on Wall Street, the different, all the different things and, and how do we how do we sort of think about how we might adjust accordingly, you know, some of the reporting so that we can with can bridge some of that. Is it, is it, through something more regular with respect, maybe 88K filing and things that come up that to give better guidance? Is it, you know, is it more robust, you know, quarterly reporting's in the 2 reports that they might do? Or is it, is it using, you know, the fact that you might have the option of filing quarterly to do something on the off quarter, so to speak? That is, you know, perhaps I'd be less robust than the typical biennial might be. I, I don't know. I'm just sort of, I'm curious what you think about how this really impacts some of these smaller companies that likely would be targeted for try to, trying to, to take advantage of, of only having to file a couple of times a year.

Look, I, I in that regard, I think I think it's important to have a consistent baseline across the universe of public listed companies with respect to a minimum set of at least, you know, financial reporting. I think there's probably plenty of opportunities to simplify and streamline the way the disclosure reporting obligations are met with, you know, no, no respect to to the building that we're within. But you know, the Edgar system is not necessarily fit for purpose and is largely a document based repository. And I think a lot of the reporting and disclosure we're talking about could be maintained in a new version of that system in a way that it didn't have to be. Repeat it every quarter, every year, because some of that information doesn't change all that regularly. For example, you know, the employment history of all the executives of a company doesn't change even though you have to reprint it every year if you're 10K. So I think we could look at what's static, what is updated every quarter, what's updated as needed based on material change and have a different method of delivering that. For example, that could be a lot more efficient for again both investors and issues. I think you hit on smaller companies there and, and I and that this is where this, this trade off, what I think we're both talking about happened. And it needs to be considered because yes, the burden on smaller companies is proportionally much greater for them to report. However, when they're newly, if they're not reporting on a very regular basis and basically the same frequency as every other company, all this, all their financial metrics. But and I'm going to echo this, this risk thing, the biggest thing when you're investing company like what what's going well for a company, right? It, it, everyone knows, right? It's what's what's, what's not going to, what's not going to go well, where that where, where they likely take counter headwinds of their own making or the environment around their competitors. And getting granny information on that is particularly important for smaller companies because most of them are in a growth phase, right? And then the risks are are that much greater that the, that the, the, the hopes and dreams they have aren't going to materialize. And, and if you, if you remove the frequencies, which with that informations has assessed the risk of the, the, the story, if you will, the, if that goes down, all that's going to happen is people are going to, it's it that, that increases the risk and the perspective of the investment manager, right? Our portfolio managers about both Fidelity and Sillilog are going to say, I think I like the story, but I don't have information to make a big bet on it. And what does that actually mean in aggregate? Higher cost of capital for the company. OK. And so, and so that, that's exactly 1 of the trade-offs I was, I was sort of alluding to. And then actually on this, this, this EDGAR system, so that I agree with what he's saying. Well, not just put a highlight on it as I, as so I do, I've done a lot of fundamental and quant and even venture investing. So I've kind of got a perspective here maybe, but, but those 10 KS, right? The ecosystem is great for quants, right? We started using it years ago extensively because we could download automatically download every single file, and we basically taught early versions of machine learning to read it for us and sift through all the stuff he was just pointing out as completely irrelevant and find the relevant stuff, right? That that actually gave us an edge over fundamental investors even 1015 years ago because we could come through all this stuff very quickly right now. But what? Why? Why persist? All right, I'm not trying to. And at this point, I'm not giving up the goods because like every quality up in the world is doing this. So it's not like a competitive edge of this point. But, but my point, my point is, but in the world of modern technology, like let's rethink how that was my point earlier. How we report all this, right? It can be rethought and in the process probably strip away a lot of this that the regular updating of various things because, you know, like Stephen was saying, some of it's just static. It can be maintained in a static place that anyone can get when they need it without having it be folded into into these regular, these regular updates that take time. So I great, thank, thank you.

So I'd like, I'd like to keep us moving. I see 410 cards up and I think we have time to for all four comments. I just asked Neil and Steven, if you keep, you know, just to a few minutes your response. It's not quite a lightning round, but you know, just a little bit shorter because I, I want to get Rick and and Bob in on the discussion and I don't see professor Seligman on the screen. So I'm going to assume technical difficulties that we should plan otherwise, sadly, he's had a travel issue and he's stuck on an airplane. He texted me and he's going to submit something for our for our review. Great in writing for the IAC. Got it. Yeah, sorry about that. No problem. That's that's no problem at all. So that gives us a little bit more time. So with that said, I'll turn it over to Colleen.

So I was actually going to ask Neil if you could elaborate a little bit more on your thoughts on how we should change what is reported. And I don't know if that goes beyond what you were just saying regarding EDGAR, but if there is more, I would love to hear. And then second, just very quickly, you don't have to answer this now, but as a general thought, when we talk about disclosure, I feel like I love the conversation so far. And I thought it was really interesting when you were talking about holding managers accountable and sort of how this might change managerial incentives. And on the other side of that, you know, there's some academic literature and I think some concern that maybe when we have too much disclosure, we have, say, under investment or other types of unintended consequences. So if you have any thoughts on how, you know, more or less disclosure could change managerial incentives, what sort of unintended consequences might arise? I would be really interested to hear that as well.

I can start in the. So, yeah, the how I, I don't have AI, don't have a great answer to that other than I think because no, probably because the technology is evolving so quickly. Also partly because I'm not the person to ask about what actually would satisfy the legal requirements and and so on and so forth. What I can tell you though, is is, you know, right now, it's put what I referring to the, you know, individual investors or even small investment shops a a few moments a few moments ago. It is very easy today to type into to pick your favorite large language model, ChatGPT or whatever. I'm not I don't have a favorite per SE, but and ask lots of questions about the financial statements, right. I actually got chat GP to write me a Python script to get to be a nerd for a second. That pulled down the most recent earnings and the most sales, most recent sales numbers for the top 100 companies in the S&P 500 from their most recent 10 KS. It did in 30 seconds in less than 30 seconds. I have script and I didn't actually check it got the right answer, but it would have taken me 10 seconds to make it get the right answer, right. So this is but this is and this is just getting faster and faster and faster. It's not going to require someone hit look at a Python script, right? That's that's a bit more advanced than most people are more nerdy than most people, but, but the very quickly you'll type that into Google or an equivalent of a Google front end and get all the relevant information you need. So if we're living in that world and we really are, right, how should we think about how companies are required to put that information out into that world? It doesn't. They don't need to spend all the time with these highly formatted documents anymore, right? And I actually might even question, and this is a maybe a bit controversial, but food for thought. It as long as a company has its auditor sign off in the process that produces the numbers the auditors and everyone else have to sign off and the numbers that are coming out all the time, right? That would reduce the, the, the number of touch oints that the, the auditors and everyone and the internal control people have to have with every number that's generated. And then because these automated consumption systems effectively can, can then collect and format and all that for people. So right there, I don't know if that would fly, but let's open up the box. Let's think into those terms because it's not, it'd kind of be a loss if we just paired back the size, you know, the size of the 10K and Mchugh's and stuff like that. I mean, yes, but I think we can do better than that with modern technology. And, and then your second question was on unintended consequences and what I was focusing on my comments, I'm sure Stephen has some more, was basically the under 10 consequences right now are that managers push KPISK performance indicators to their to their lower level managers to focus on a metric that that manager is held responsible for even though it's irrelevant. That eats up tons of time. That is a huge unintended consequence that has nothing to do with adding to the profitability of the company. OK, so let's I think we should pare back those your questions is valid. We should ask what what other unintended consequences might come from that. But I think that the, the immediate wars are gained are just greater efficiency and more focus on what matters for the company. The unintended consequences, I suppose could be if you start how how you tie executive compensation to to various metrics. I think that might I don't need to be rethought, but you might not need to redefine how executives are pointed in their compensation structures to to acknowledge any of these changes we're talking about. But I don't have any. Nothing stands out to me is a huge risk off the top of my head, but that's most I'm focused on the immediate benefits we can get.

Just one other observation. I would add that your, your question prompted me to think of that. I don't have, I don't have the solution for you. But as investors, I think we probably have an insatiable appetite for material information, particularly with respect to various business and financial metrics and probably would he push for an even greater level of granularity on some of those. But at the same time, corporate management, everything they disclose to their investor base, they're just causing their competitors. So there's a tension, there's legitimate tension there, which we can't ignore as well. So in all these things, there's just an effort to find the right balance.

Thank you. So just in terms of the order, we'll go George, Alvin, James and then Paul and then we're going to have to close questions and and move on. So we'll go, George.

Thank you, Neil and Steven for this illuminating discussion. So I have two quick questions for you and I'd be grateful if each of you could answer the question. So in terms of reviewing the data, isn't it the case that these proprietary models, large language models that you're talking about in the kind of the precursors to those are based on training data and the model is as good as the training data. And we've had more than 1/2 century of kind of structured training data that those models have been trained on. And if we change the format now, all of those models that you find useful will become more or less obsolete or more imprecise. Maybe not your models, but maybe the models kind of the general purpose model that the average retail investor can go in and look at and ask GPT all sorts of things and kind of have some confidence that the output would be reliable. So that's question one. And then question 2 is if you can, just for a second, imagine 2 regulatory regimes. So in the first regime, you have a specific disclosure requirement about, let's just say, human capital, and the company basically tells you about its human capital policies, human Capital Management, and provides that material information. So that's one. And then in the second regime, you don't have that specific disclosure requirement and you rely on the company to provide the disclosure only if the company thinks that the information is material. So isn't there value in the first system where even the absence of disclosure is actually material, Right. So even the absence of of material information about human capital for that industrial company is material information to you because industrial companies change all the time and maybe in this quarter human capitalism material, but maybe the next quarter it will become. So between those two systems one and two, which one do you think is more valuable?

I opened up a can of worms with these large language models, didn't I? OK, we all think about them so well, no, I think we need to think about it because it's real right. I the idea this is going away is is not is crazy talk right now. So I don't, but I don't have I can't promise you full answers. What I will say briefly on training day. Yeah so so yes, the, the, the models are so the models I've used to use when I was pulling down say Edgar filings, right. If if I build these proprietary models is this is before out large light. So this is stuff we have to build entirely internally. Yeah, if you change the format, right, If EDGAR completely changes his format or whatever, we're going to have to do a lot of work to stitch together backward compatible data sets and all that. I that's annoying to me, but I don't think you should care, right? No, no, honestly, I mean, that's very annoying to me, but, but honestly that I don't think we should get hung up. And will that matter? Like I wouldn't have offered that up as a reason not to make these changes when it comes to large language models, however, right? These things are a very different beast because because I don't train my own large language model right. I I wanted to do that, but I was told I can't have the hundreds of millions of dollars required to do it. But, but, but no, and seriously though, I, I these these things are, they'll be these maybe get maintained by very large tech companies, right, mostly US based currently, which is a good thing, I think. But either way. And those those actually don't net. Yes, they're trained. They're they're learning from AST datasets, But the it's not, it's not so rigid. It doesn't require as much of the structure that we would have had from the old, old system. So yeah, yes, you have to be able to. It's learning how to. How should I put it, if you actually, if you actually ask these models to do something that's historical study based, how is something compared to today versus yesterday or the long term, it's going to come, it'll become problematic. But the use case I had in mind was much more like a super, super efficient, like, you know, Google on steroids right? Where it's just really good at doing a search about the information today, right, because it's not it's not other than quantitative investors like some of my teams like the fundamental investors at Citadel or the fundamental investor, the Fidelity, they care about the history stuff, but they care about getting the information that's relevant today. What's happened with the company today and these things becomes just very, very powerful search engines. And I don't think that I don't think this changing with historical standard matters too much for that. And then I'll let, I'll let Stephen take the other one.

I came in capital, but we're we're time constrained. Well, yeah, I certainly echo what what Neil said on to your to your first question. I think that the pace of evolution and that we're seeing on that front to the extent there even were any like if the change in the underlying reporting framework, like I think they're quickly adapt to figure out how to still integrate the new information with the old information like that. I don't have any doubt. So I don't think there'd be a gap or a big loss on that front. I think with respect to your second question, I think it's a very interesting 1 and I would say that we sort of already have examples of that. So you know every 10K Part 1 item 1C is cybersecurity and item 4 of that is mind safety disclosure and most 10 KS. The mind safety disclosure section is one word law it says not right. And the cybersecurity 1 I think most everyone has a discussion of of cybersecurity. So there are instances where we've already prescribed, here's a topic we need you to specifically discuss and address. The question is we have an example of once where that was done that is probably pretty relevant to most public listed companies. And then we have another instance where that was done, where it's relevant to, you know, a very small number of companies in the S&P 500 today. So the question is, do we want to itemize 50 or 100 items where half of the answers are going to be none, but everybody has to go through that exercise or is the instruction to management, you tell us what are the 10 that are actually the most important risk factors for your firm at this point in time? And we could debate the merits of each approach, but I think I guess I'd land more in the second.

Great. Thank you, Alvin. Yeah. So something I find so fascinating about what we're discussing is that we're discussing changing the disclosure regime because of cost imposed on issuers, yet we don't have an issuer voice on this panel. But I'm curious, right, because I give and this is inspired actually by teaching this like all of a week and a half ago, you know, the disclosure regime to my students in their corpse class, right? I asked them, OK, you got this information read on a company. Tell me what's useful and what's not. And I literally asked them, what would you take away from this because it's not useful to your views, investor. I have a lot of students who went to the Kelly School of Business. So they're very sympathical, right? To like doing it and they couldn't come up with anything. Now I asked a further question I'm going to ask here, which is, OK, if we're talking about AI creating incredible cost savings, right, on human capital and also on the time you spend reviewing time lawyers spend reviewing stuff. How much are we talking about saving this in terms of finance for this company disclosures? And how much does that impact on investment returns? Are we talking about a material amount in terms of like what do we have any empirics from your perspective? Are you looking at a disclosure and saying, hey, if the SEC rolled back significant amounts of its disclosure regime, we would see a 1 1/2 percent increase in returns that could be distributed to shareholders? That's my question.

So I'm going to actually answer that question. I don't think that question is specifically about AI, but if I'm not getting it right, correct me, I think that's a very difficult exact number to come come up to us. However, if I were to do a study on that, I can suggest how I would do that study. I would look at the small companies we're talking about a few moments ago and and and you can you can probably actually be of current disclosures, possibly figure out how much staff increase there was in accounting departments and operations departments in compliance, in compliance as they went from private to IPO post IPO right to or probably real. I don't know if you get blame me. You'd have to do a pre IPO just a list. But either way, the fine getting data on that, because I think that's the clearest sign. Just figure out what the staff costs are and you're not going to see an inside of a giant company, right. A company employs 10s of thousands or hundreds of thousands of people. It'd be very, very difficult to fix, to disentangle that actual direct cost line on that you just suggested from what I was calling the implicit costs earlier, right, that they just got to spend time on other things. You can't, that's very difficult to measure. But with the early stage companies, just how much more burden is there on, on the legal fees, on the compliance fees? And that's probably something you can either do via surveys with recently IPO companies or or so on and so forth. But it's going to be material having been inside small companies by one point in my life, it it it it adds U very quickly they become it can become ercentage points of costs. And so just imagine a company is running, I'll make it U 10 or 12% margins if, if they can shave 1 or 2% off their costs, that that matters materially. And if the investor base realizes they're able to do that, they can, if they can use them tech, if they can figure out how to do it within the current regime. If someone comes to one of our analysts and says, Hey, I figured out how to reduce this particular cost base by deploying something like AI, that's going to be like, oh, wait a minute, your margins are going to go from 12% to 14% or whatever that that's very bullish for that stock potentially, right. So like, I think I think it should be measured and it's real for small companies, for very large companies, I don't know how you would measure it. And I think would vary from company. Company.

Thank you. I think it was James. Yeah, yes, thank you. This was extremely useful and I learned a lot. I I correct me if I'm wrong. I mean, what I, what I hear is sort of a, a, a distinction between SK and SX and, and you know, the, the financial disclosures, absolutely essential. SK a lot of this you might take a hacksaw to. And we, how do we, how do we think about it? And, and what I, I loved you talking about, Steven, was things like how should we think about materiality and how do we define it? And should we think about litigation risk? And we talked to the lawyers about that later. And, and, and you from you, you, Neil, you, we want to avoid creating incentives on the equivalent of the Office space TPS reports where you're getting people doing a bunch of stuff that's just a waste of time. And, and, and that's not good for companies. And the smaller you are or the newer you are, the more of a problem it is. I guess my question here is on the periodicity of the financial reporting itself. I mean, I'm, I'm hearing, I, I hear a little tension here. I hear and I'm persuaded by cost of capital matters having the, the, the, the quarterly reporting is, is, is good for you to assess investments, of course. And, and listen, I, I, I, I'm, I've been a director of privately owned companies, public boards, universities, all of which do quarterly reporting about monthly reporting and I review them regularly. So it's not as if the financial reporting isn't done in non public context, right? It, it is so, so I'm sensitive to that. But on the other hand, I I hear you say, well, well, you know, but the European companies are doing it quarterly here anyway. And so from what you were saying, deal in terms of like, why not market solutions? If the SEC were to go to say biannual, would the market, you know, push this? And why would A1 size fits all rule make sense versus, you know, letting the the corporate leadership decide I'm so yeah, letting the corporate leader, yeah.

So how should I put it? So the option, the optionality has a lot to be said for I think, but, but, you know, but you get into a problem with especially with the financial side of it, right, where, you know, we also have this thing that I strongly believe in, I'm pretty sure everyone here does as well called Reg FD. OK. And the corporate, you know, so if, if this, if the, the information that is deemed material by professional asset managers at Fidelity, Citadel or elsewhere, they're going to put pressure on corporate CEO, CFOS, investor relations teams to to put this information. Now they're going to follow Regev to e-mail us to them and they're not going to tell us and we're going to keep pressure on them. But, but, and we will, and, you know, there will be ways to triangulate your way to some of that information with, you know, the myriad data sources available. So it'll be far from perfect. And what's going to happen is what I was saying before, there'll be less certainty about the conclusions you make and therefore higher risk, perceived higher cost of capital, right. But, but when it comes to, so, so, but when it comes to the other things that are less material, there's going to be gradations here. And this is like the debate we have to everyone has to have about what's material, what's not material, how material as, as it attenuates further away from the obviously material, adding on optionality there, sure, you know, and, but maybe if they get enough pressure from their investor base, maybe they start disclosing it quarterly anyway, I don't know, right? I, I, but I, I think that that's what I meant by the market mechanism. I, I think there should be some role for that, but, but we have to draw a lot. It can't be, you can't let them be optional until May. So otherwise, otherwise the cost of capitals go up. You know, our investors will just say, well, I can't invest. That's uninvestable. Like, yeah, that like it's, it's a fair question. I, I agree that many companies would still opt for quarterly reporting. But I, you know, I, I think there are, there are just instances where markets or societies benefit from having, you know, rules of the road. If we if we if we told everybody they didn't have to drive on the right side of the road anymore, I think the vast majority of people would still drive on the right side of the road. But the instances, the instances where people didn't would you know, not be not be great. And also, I think, you know, again, we sort of talked about some of the overall market quality conclusions that have been reached. And I think, you know, again, I think the comparability across markets as of companies across sectors is important. So it would be unhelpful to have different issuers within a given sector adopting different reporting frequencies, for example. And then if you take a step back and think about index composition and components of ETFs and other things like that, again, I think the more inconsistency you start seeing within something as fundamental as the frequency of material financial disclosure, I think it creates issues beyond just that one company.

Great. And finally over to Paul. Yeah, my question was really a follow up to James's question. I mean, it's if Citadel and Fidelity say we want quarterly disclosure, other large institutional managers say we want quarterly disclosure. Is anything going to change here if if I'm a company in a certain industry segment and I see my competitors doing quarterly disclosure when I feel pressure to do quarterly disclosure. So I, I guess I'm just wondering about the practical impact of a move to mandatory semi annual reporting and will will anything really change if you guys are saying this, we want quarterly disclosure, probably not.

Well, I, I don't know, but where it could change those and that's why I was referring to market stuff earlier on the helping us understand what, what's material right. Your quarterly disclosure. I, I just can't, I'm a Stevens. I can't imagine the world where our organizations or almost every other one on our side of the the business are going are going to be happy with anything less than quarterly on material financial stuff, the obvious stuff, right? And even some slightly less. But when it gets to some of the stuff around, like I said, like some like the, the social value stuff and all that, some people care, some people care less and it matters more or less in different parts of the industries and sectors. I think you'll find that's what I remember the market. But let's find out how many people like us or Citadel are asking because you'll see you'll that's where you'll see maybe us diverge. Our two organization diverge. Well, how much we care about. I'm not saying they will, but we're a different organization, right. And if that if they can get away with semi annual and that then that reduces the burden from the I don't know if we'll ever get to conduct that experiment, but as if we're having a thought, a thought experiment here. I think that's worth considering and look at at at the same time, I think there's value in having certain minimum standards that prevent a race to the bottom. And you know there are a wide spectrum of publicly listed companies and there are some where there's not a lot of institutional participation. And so that wouldn't be a big factor in forming management. And then if it's companies that are attracting much more speculative retail interest, for example, I also want to think about, you know, the impact on that subgroup of investors if they're not, if they're relying on outdated, you know, information to inform their own investment decisions rather than something that's more robust and timely. So thank, thank you.

OK, great. So we'll turn it over now to to Bob and then Rick and then and then we'll open it up again again for questions. I'll be interested to hear from you.

All maybe sort of specific thoughts on reforms that could be beneficial, specific issues that public companies face in, in complying with the with the existing requirements. So Bob, over to you.

Great. Thanks and thanks to Brian and our moderators, John and Craig for inviting me to appear today. Jay Clayton first focused me on the work of this committee about a decade ago. And since then I've been following the work you do, the reports you put out with great interest and thanks for the work that you do. As Craig Lew to in my practice, I represent a range of issuers, different sizes, different ages across a bunch of industries as well who bring sort of the one-size-fits-all perspective to the issues we're going to talk about.

So let me first talk about periodic reporting. My issuer clients every quarter go through two different work stream processes. One work stream is investor facing that focus on is on an earnings release, a script or A and or a set of slides for an earnings call. A sample set of questions where they focus on hot topics so they can get ready to respond to the questions the investors want to ask. And maybe a supplemental disclosure package to be posted on the issuer's website to include a lot of detailed information that they know that the investors and the analysts are very focused on. That work stream is the focus of the CEO, the CFO, and usually the investor relations team.

Then there's a second compliance work stream that's focused on the 10K and the 10Q or A10Q. That's the focus of the corporate controller on the accounting team as well as the legal team. For some issuers, that form 10K is filed on the same day as the earnings call. For others that trails by weeks or days from what that earnings call is. But in all cases, the issuer decides that the material information to be disseminated to investors is done once the earnings release and the other materials go out and those investor facing work streams are complete. Therefore, the issuer can open its trading windows and it can go to the capital markets if it wants to. Based on that information.

I illustrate the separate work streams for to make two points. 1 issuers are already focused on what's important and periodic reporting to investors, neither the earnings release or the earnings calls required by any SEC rule at all. The issuers do that to create an efficient and well informed market for their securities. They also do that because they want to issue and repurchase securities in the market and they want their management team and insiders to be able to do so as well. Secondly, there's no one-size-fits-all to the various approaches. Quarterly earnings vary significantly among issuers for say a pre revenue life sciences company. Investors aren't really focused on financial metrics. They might be focused on cash burn, but they're really focused on product developments. For a lot of other established companies as issuers do care about financial performance, but they're also very focused on every word and every number in the guidance that that company may put out.

So this brings me to our semi annual reporting question, what issuer and a question many of you have asked. What issuers dispense with the first and third quarter earnings releases and earnings calls? If a Form 10K was not going to follow, maybe the pre revenue life science company, would they just report their information at the next investor conference they go to? Probably. There would also be smaller reporting companies without immediate capital needs who would decide that the additional burden to release quarterly financial information outweighs the benefits of getting more information to their investors. But generally issuers want to open their trading windows and they want to go to the capital markets to raise, raise securities. And for them the the issue is really more the second topic I'll discuss in a minute, which is the nature of the quarterly reporting and the nature of the information they give to investors, not really the frequency of that information. And this is that there clearly is an opportunity for scale disclosure. And I think Chair Atkins and, and this committee are right to focus on that opportunity as part of it.

But let me turn to disclosure reform. It sounds like a consistent theme on this panel is materiality. Since 2016, my firm has been advocating for imposing an overarching materiality standard on Regulation SK. That could be done simply by putting in an open and in the opening part of Reg SK item 10, which deals with things like use of projections, non GAAP financial information securities ratings. To expand that to say that the issuer may omit any information that's otherwise called for by a line item of Regulation SK on the grounds that it's not material. Interesting. We already have kind of the inverse of this. Rule 12 B 20, under the Exchange Act says that in addition to information expressly required to be included in a statement or report, under the 34 Act, there shall be added such further material information, if any, to make the required statements in light of the circumstances in which they're made. Not misleading. As Chair Atkins has noted consistently, materiality should be the North Star, and it should go both ways.

With that said, my clients and my litigation colleagues don't believe that a materiality qualifier alone is enough. Good faith materiality judgments can be questioned with the benefit of hindsight. In light of those views, issuers would ask the staff to focus on specific line items of regulation SK and we'll submit a letter to that effect. But just some examples. The legal proceedings disclosure and item 103 of SK requires multibillion dollar companies to report environmental issues down to $1,000,000 materiality level. The litigation disclosure is already included in the financial statements to the extent it's material and that should really be sufficient for litigation disclosure. Item 201 which requires a lot of securities based information includes for example, a performance graph which is already outdated by the time it gets filed with Commission and can be prepared on a number of trading apps and other things much more efficiently than the work that goes into creating that. The staff has already focused on executive compensation and rightly so. I mean for comments on that today. Item 404 for related party transactions includes $120, 000 threshold which which interestingly was doubled for inflation 20 years ago in 2006. Since then it has not been updated for inflation or to focus on materiality to investors. Securities Act registration requirements require a dilution calculation which can be very complicated to prepare and I defer to my investor colleagues, but at least we don't understand it's of of use to investors who look at that dilution calculation. We'd also ask to re examine the exhibit requirements which call for as an as an example, a host of executive compensation exhibits to be filed sometimes more than material contracts and other exhibits that are filed which when investors are really focused on the NEO level and not the the depth of information there.

These changes may seem incremental, but they are meaningful and combined with scale disclosure and greater use of the shelf registration process I think would make going public more attractive to companies. When the SEC took on disclosure reform in 2005, they created a new category of issuers called Wixies, $700 million of equity market capitalization was the by non affiliates was the seemed like the appropriate level then. But given the success of automatically effective registration statements and the availability overall of information to issuers seems like a one year period until S3 eligibility and a $700 million level for WICC status are both worth a cost benefit analysis.

Finally, on disclosure reform, issuers firmly believe that SK reform is not the only part of the picture. They're anticipating that the staff will work with the Fast B to assess financial information requirements, including the content of the financial statement notes and the investor usefulness of other required financial statements, including, for example, SK SX3O9, which requires financial statements of about equity investment companies that the company does not consolidate in certain instances. When considering the length of financial statement notes, this is usually where I pose the following question. I was part of the team that worked on the Goldman Sachs IPO in 1999. Guess how long the audited financial statements including the notes were? The answer is 23 pages that included 10 notes covering 17 pages. 2 weeks ago I reviewed a a form 10K that had 150 pages of financial statements, including 35 accompanying notes there. So that's complicated company, but that's an example of of why it's important to an issuer to really take a look at those financial statement notes.

Finally, I will take a moment to address whether SEC reforms could alleviate the risk of merit litigation related to disclosure. Chair Atkins is justifiably frustrated by the length of the risk factor section that covers both particular and generic risks. Although most of the requirements around disclosure are driven by public reporting, litigation risk clearly drives the risk factors disclosure. Chair Atkins has tabled a number of proposals including mandatory arbitration, fee shifting, and disclosure A disclosure safe harbor. The SEC could also follow the lead of Nevada with books and records request, in Texas with derivative litigation and think about whether or not there should be a minimum shareholding requirement to bring Securities Litigation. But each of these comes with limitations and complications. But regardless, issuers believe that this is a topic that should be assessed. And while our disclosure reform is important to attract companies to our public markets, this disclosure is important, especially if investors, which we've heard today, want to see more focused risk factor disclosures that highlight the material risks. With that I'll turn it over to Brett.

Thank you. Bob, that was you covered a lot of what I was going to touch on. So it's nice to be no, no, it is, it is what makes makes this going to be probably a lot shorter. So enhancing capital formation and increasing public companies. I think you need to look more at more than just the disclosure regime. You kind of have to look at the whole ecosystem if that is the ultimate goal. So when we speak to companies that are thinking about going public, it's not the disclosure burden necessarily that they raise as their first concern. It's the cost of D& O insurance and strike suits in dealing with that. And that really becomes the main trepidation that we hear. The disclosure itself is quite robust and duplicative and as as they said, can be unhelpful to some, but that burden itself is not overwhelming I don't think. As it currently stands right now, I think if you run a red line between most 10Ks, you're not going to see a ton of changes. So it's a lot of copy paste with a few updates here and there. For the most part. Of course it's process, it takes time and auditors and lawyers, but it's not like everyone is doing this whole cloth each year. So that itself doesn't necessarily trouble me as a practitioner.

I think you have to kind of think as well as you know who is in the securities. It's not just as you know, as Steven mentioned, it's not just Fidelity and Citadel, but you know, since COVID and other we have the Robin Hood accounts and we have a lot of E*Trade. So there's a significant amount of retail investors in higher volatility in the last, you know, six years that you see and they also you'll probably benefit most even though they probably are the ones who read, at least it's going to benefit them the most, the more robust disclosure system. So rather than completely scaling it back, you know, to me, perhaps in a more organized presentation is a better approach and you can then read what you want to read. But just stripping it all out in itself, I don't necessarily think is the best path.

So, so, but in terms of actual provisions that are probably unhelpful and and Bob definitely hit on a number of these is the capitalization and dilution sections. Those I would say most Ivy League educated attorneys don't understand, let alone a retail investor, quantitative and qualitative, you know, market risk disclosures, same answer. Nobody understands those except very few people. You know, the executive compensation, I think that has been overcorrected. Everyone discussed that. I think the scale disclosures that smaller reporting companies provide is more than sufficient to read ACDNA cover to cover is exhausting and I don't think you get particularly relevant information out of it either. I think it's just, it's, it goes far too much. But in terms of where I see the most benefit for potential reforms in terms of the goal of increasing public companies, the number of them and their capital raising abilities is on the shelf registration statement Form S3. So there's multiple tiers and Bob touched on it before. You have the WICC level, which is allowed to have an automatic shelf registration statement so they can tap the equity markets at any time. Then you have the IB 6 and IB 1 instructions, which is if your market cap right, your public float is under $75 million, you're limited to selling in any 12 month period 1:30 or non affiliate float. And so that really does limit public companies and what they can do in terms of raising capital that IB 6 limitation. And I understand there's some concerns about, you know, it started with sort of a potential to protect to protect investors from toxic financings that were occurring before that and so on. But it really at this point just arbitrarily impairs the ability of the smaller companies who need capital the most to raise equity the most to actually raise equity. I'm not saying eliminate the restriction entirely, but 75,000, 000 is probably too low. So then in addition or miss 3IN itself in the Wixie level, whether that number is the right number or not, I would actually argue it's too high that there's 2300 million market cap companies which don't present any increased risk to investors. Should more or less be able to take advantage of that as well. I mean, again, in terms of when you submit a universal shelf registration statement, again, you guys probably know the numbers better than me, but I'd say 95% if not higher go through with no review anyway. So you're just sort of delaying the ability to raise capital or forcing those companies to, you know, you sort of preview to the market that they're going to raise capital in advance, which can disadvantage their capital raising efforts and then addition the loss of S3 eligibility. All right. Because right now the rule states that if you miss AAK, you lose that eligibility for 12 calendar months and then there's sort of some kind of arbitrary exemptions to that in certain matters of the AK. But again, the one year penalty seems to be quite arbitrary. I'm not. And once the disclosure is cured, it would seem that the market is protected to allow those companies to raise capital again. So I just want to mention that as well in terms of, you know the disclosures itself. I'm just going to kind of roll back to my initial statement is I don't necessarily think it's cutting back the disclosure. We'll just talk on risk factors like smaller reporting companies are not even required to have risk factors in their ten KS, right. So there is relief for smaller companies. But again, as as Bob mentioned, the issue is plaintiff's bar and grappling with that. And that leads to the exhaustive risk factors and the redundancies. And so in terms of making the document shorter, you know, again, you'll have the exact same 4 paragraphs sometimes in the MDNA, the business section and the risk factors because of the fear that a plaintiff's lawyer is going to put you on the stand to ask you why disclosure may have been different in each of these three places. And so you end up just saying, well, just copy paste the same thing three times. And so you would until we sort of, you know, institute some level of, you know, securities bar tort reform because many of the suits, you know, that's a separate topic, right? But many of the suits are not meritorious. But nonetheless, you have to deal with the issues. In terms of other things there. There actually are some disclosures that maybe could be enhanced. I would say form AK for business days is probably too long for some developments that occur for a corporation to not be disclosed to the public market and the ability to defer the exhibits to some of those transactions to your next quarterly filing, your 10K also probably impairs, you know, people to fully understand the transaction if the AK disclosure is inadequate. So I would actually say it's a balance. It's not just cutting back the disclosures at this point, it's perhaps better organizing them, making them more user friendly than just stripping it down. And then I do again reiterating my point, I do think the S3 ecosystem itself needs to be re examined in. Is it really being done in a way that enhances the small company's ability to access capital?

Very good, thank you, Rick. So I think, you know, in the interest of time, I'm just going to open it up to the room and give the the members an opportunity to ask questions. I have a number of questions too, but why don't we just just open it up since we only have about about 20 minutes and I see that James has a 10 card up. So, James, thank you much and I really appreciate each of the commenters and especially Bob, who basically brought us back to 10 years ago. So 10 years ago, this topic was intensely hot and there was a concept release on regulation SK. Were the panelists able to review the information that was provided 10 years ago? Yes. Are you, are you aware, are you aware that the, this committee also provided a letter regarding SK? I don't, I, I'm sure I read it in 2016. I, I, I did not read it in a lead up to this meeting. And, and so this, this gets into a number of topics because during 2016, a large percentage of the investor market took time to provide comments. And I think there's a somewhat of a frustration among those who took the time to comment and the focus was on providing better disclosures. And the frustration comes in whether or not the SEC actually took time to review and consider the comments from various different portions of the investor community. Some of the themes are exactly the same, but some going a different direction. For example, the use of technology. We all recognize that technology substantially better than it was 10 years ago and we can do a lot more. One of the things we can do as investors is actually consume this information far more efficiently, far more quickly. And it was also pointed out. And so the question becomes in a future market where investors are able to consume information far more efficiently, why would we limit the disclosures that companies have to provide when using technology they can provide the information for more efficiently? And I'll and I'll take it to put it into context, one of the topics, one of the issues that was addressed in 2016 by comparison. So basically we make the assumption that somehow there's this dramatic increase in disclosure requirements. In 1970, Walmart went public with quite thin disclosure, but they raised $5 million. Last year, Circle went public. They raised $500 million, though there was an increase in the requirements of disclosures, maybe the number of pages and what it took, it was not 100 X. And so first, before we just conclude that the current system is not fit for purpose and there's been this explosion that's unnecessary for the market, can we use some other data points to show that, hey, maybe this system we've created is working quite well, thus we need to be substantially more careful. So we as we nip away at it. And so basically the, the, the thing I'd like for you is to comment on my statement from the perspective of some of the investors that you commented on that, you know, the retail investors, the pension funds and the like the people who really the commenters in 2016 on the concept release. James, is your question directed to all panelists or my question is directed to any of the panelists who'd like to take it up? I think we can hear from the investor side as well, but from from issuers. What we're hearing is what they hear from investors is that the information they put out in connection with their earnings call, which could include, if I go back to, I worked on a lot of Reed IPOs back in the 90s and there was a lot of very detailed information that a real estate investment trust puts out on a quarterly basis in a supplemental information packet. They knew that information was important to their investors and they put it out with their earnings release. What I'm hearing from them is that that's the information the investors are looking for most. To go back to the introductory comments of Chairman Uyeda, it takes a lot of time to include information in your financial statements and to include information. We want to have internal controls to make sure that we have the integrity of that information. But the issuer time that's spent putting together information that investors tell them that they're not using is a is a use of resources that issuers would like like to see part of history as opposed to part of the part of their future. And so to me into what I hear from issuers, this isn't so much about the material information to investors. I think you've heard every panelist today say that a focus on materiality is appropriate. I think it's really trying to find the information that the issuer has put together, could put together in the future. But they're not seeing a, a user sort of focus on that information going out there, but are spending significant internal resource. The performance graph is a, you know, probably a, you know, very small particular example, but I've had issuers spend, you know, 20 or 30 hours because the index they used before was no longer being used. What do they adjust? What are the rules say on shifting to another index? And, you know, you can pull an app up. I, I can pull it up on my Fidelity app. I do all the time if I want to look at comparisons of, of trading. So I'm not sure what that chart does, but it does take time to prepare. And these are incremental. That's just one example, but they are incremental. But you know, I'd be happy to hear from the investor side as well. But I think what issuers are hearing is there's a lot of information in 10Ks and 10 Qs that. Is is not, you know, it is out there could could be put into a large language model, but people are not really consuming. So what one additional follow up and and it goes to who consumes the SKII do know that you talked about the earnings release, but basically the consumers of the SK are more commonly those in corporate governance who are going to vote. And consistent with the definition of materiality that's consistently used by the SEC throughout and the reference to TSC versus Northway, the holding is materiality is determined by providing information necessary in order to vote. Materiality is a voting materiality, not the materiality that comes up in the earnings release. So with regard to the consumers of SK, the the people at institutions that would read SK as well as retail investors that may choose to vote or may not choose to vote or whatever, the question is, is it fit for purpose? I I think the comments I had made earlier James, were fairly consistent with the arguments you were making, that we should not be looking to tear down the system and that the system itself is not fundamentally flawed. It just needs to be updated with the times in some senses and maybe there have been some overcorrection in some time and for some provisions. But just stripping it away completely, I agree is not the answer. And I am not as troubled with the the burden that it presents to issuers. I represent a lot of small issuers and there's become a whole cottage industry to do pavers of performance charts and this and that. Like it's, it's not a huge burden for them. And I just think creating a more, as I said, organized format to synthesize it all is really the answer because it's I do think there are a lot more retail investors in the market today than there were 20 years ago. And you know, whether they choose to read it or not, they do need the protection. So they should have the menu of options to learn about the companies that they're day trading in. So that is where I stand. Good answer, tough questions. All right, great. So we only have 15 minutes left and I see 510 cards up. So I think we're going to need to close questions. If you don't already have your 10 card up, I'm going to do my best to go and order. And I think Brian, I think you were next. Thank you. First panel of some terrific presentation question following up on something Bob said. You know the UK practice of having semi annual reporting, but a number of Fair number of UK companies do provide voluntarily reporting on a quarterly basis, not to the same level. Maybe more along the, you know, what might be done at an earnings call or an earnings release. I'm curious if if there's any reaction to that kind of practice of of having mandatory semi annual, but then either recommending or or having, you know, again scaled down reporting on a quarterly basis similar to the earnings call. Any thoughts? I mean, we, sorry, what we say is when you see a foreign private issuer who goes public in the United States and is only required to do the semi annual reporting by the exchange is the underwriting agreement will often require quarterly reporting. So they're required to do it. Then if they want to raise capital in the future, they're going to need reviewed financials in order to get a comfort letter and stuff. So I think in many ways kind of the the the banking industry police is that and requires the reporting regime. I was looking slightly differently, not not that it's required either because the underwriters. But if you had some sort of scaled down a voluntary point, not at the same level that you would need for, you know, to doing the public offering. But again, the sort of thing you might do the top line that you would do it in earnings call or for, you know, earnings release level, which would be scaled down from a from a queue. Yeah. I mean, I think, I guess I mean we can talk about Form 10Q generally which is a fairly not a very robust document in itself. And the burden really is on the reviewed financial statements in the controls and procedures brings down, right. And, I, I do think that you will still see companies do that, but maybe they will avoid doing reviewed quarterly numbers to cut back on the auditor expenses and such. But again, I, if they do that and they want to raise money, they may not be able to get a comfort letter. So I, I, it's, not entirely clear to me if they can just not do it. If they want to take capital markets. I, I, I think you are going to see different categories of issuers and maybe scaling is part of the answer there. But as as Rick said, if somebody wants to go out and do a capital markets offering at at least in the current world, looking for a set of reviewed financial statements is going to be critical to capital markets. I think once you get beyond that, you still will see earnings release type of disclosure to Stevens Point about indexing if everybody else in your index is doing that. Opening trading windows, yeah, we're all used to opening a trading window and deciding that by the end of March you have too much information to to trade. You know, those issuers are going to have an incentive to put out earnings release type information. So I think you will still see most issuers even without a requirement put out and file on Form 8K and earnings release that is giving the investors the information they're looking for. OK, over to Sergio and then and then George. Thanks John. So I have the privilege of building AI and automation, which are two different things for financial services companies and and corporates, some some being issuers. So Neil, a lot of your comments resonated with me, especially the no code loco tools make me who's not a great programmer a lot better and faster. So I appreciated those. Rick, touching on your point about better organizing information for financial disclosures and what I understand is in many of the points touch on the nature of, of the reporting. So with greater adoption of artificial intelligence to streamline and automate internal workflows for many pre IPO companies. Do you Rick or Bob, do you, do you see a potential increase in the number of, of, of companies that may seek to IPO and, and, and tap capital or public markets due to this increase in, in, in AI, although we know it's not widely being adopted today, but pretty soon here in the next 5 or so years? I mean, I think the analysis goes a lot further than AI on whether to go public or not. I think yes, that could make it easier to put together a form S1. You can go into Harvey or ChatGPT or whatever and ask them to do a first cut of one. But I think the analysis on whether to go public is going to be a lot more dependent on what investors of those companies want the ability to access capital in the private markets, the requirements for liquidity and stuff. And I, I, I think AI is going to be much more tertiary in that analysis. Nothing that OK, George, thanks for this. It's really illuminating. So my question is for Rick and Bob and it pertains to materiality analysis. So obviously we all love materiality. Materiality as an overarching principle is already embedded in the disclosure system, but how do we determine materiality? You know, that is that is the big problem. And so I just want you to compare how much we'll save by getting rid of SK 104 mine safety disclosures. If we stipulated those are not material, how much are we going to save in terms of a short time and preparation time? And are we going to really save anything if we turn the the threshold in SK404 in terms of related party transactions, If we get rid of the one $20, 000 bright line rule and turn it into an open-ended materiality analysis, because materiality analysis take time, they have to be painstaking, they involve risk. You have to weigh the probability of an adverse event occurring, the magnitude of that event occurring. It's it's expensive, it involves the auditors, it involves the the lawyers. So are we really going to save actually issuer time and legal costs by turning something which is well known in the market, $120,000, which is already built into internal controls and procedures and it just flags it and, and reports it versus actually having to engage in all of those related party transactions and analyze them from materiality? So I, I guess what I, what the issuer respond to that is we're making those materiality judgments already. You know, technically Rule 12b-20 requires them to make that because it doesn't come up in practice because 120,000 is so low. But you know, technically if there was a, a related party transaction, but it was all be at material, even below the 120 level, Rule 12b-20 is going to tell you that you need to disclose that to investors. So I think what the issue is to say is we're already making those materiality judgments, what the various rules do, and I agree these are all incremental. These are all each sort of small points. You know, what, whether it be the 120 going up to a larger number, whether it being not having to disclose environmental issues down to 300,000 or 1,000,000 depending on what you elect, are all incremental. But we're used to making materiality judgments about our business. We can't keep our trading window open if we believe that we haven't disclosed all material information to the market. And so let us make those materiality judgments and let us look to the staff to give us their guidance and their thoughts like they've done with cyber, like they've done with human capital and like they've done with other issues about how the staff thinks about those across a range of industries, how they've done with tariffs and other and other issues. But but don't have a specific SK requirement that's going to drive us to disclose information that is clearly a material to our business. So I hope that sort of gets to your question. But I, I agree, these are all incremental changes, but I think they're incrementally helpful. And frankly, there's a little bit of an optic cause companies think about going public as to I'm going to have to disclose all this information that I other wise need to set up systems to capture in my business that I don't have a need to. It's sort of to Neil's point before is you are going to have to have some manager who's monitoring that and you're going to have to have Sarbanes-Oxley type of controls in place to capture that information that you know is otherwise not useful to business decision making. Great. I mean, I think on the materiality though, it's, it's, I think of it a little bit differently too though, because it's also very nice to have sort of bright line test from the SEC as to what's material and what's not. And so whether that's 120, 000 should be increased, you know, versus eliminated, you know, I, I would, because then you're going to have so much consternation as to what is material and what's not. And you're going to over include, I feel. And some ways you're going to have a lot of extra things potentially at least we would say, you know, just throw it in there. Better to put it in there versus if we were to say, hey, you know, sort of like in the material litigation, I think there's a rule, if it's under 10% of your assets or something, you can, you can omit it. So I, I, I do think it is helpful to have a bright line determine a factor and not just leave it to be a subjective analysis. Thank you. I think we just have a few minutes left and I'm just going to try and get to all of our all of our members if possible. James, if you could. Sure. I liked the discussion of, of litigation risk that Steven brought up. I, I testified on that in the context of IPOs 20 years ago for the first time, the same time we, we hosted Hal Scott, you know, when he's forming what, what John runs. I don't have time, I think probably to, to get in depth into what could be done by the SEC with this regard for, for what's effectively a, a, a judicially created litigation risk in the federal level and being sensitive to your high billable hour rates, etcetera. It would be useful, I think, to the committee and the Commission if, if we got, you know, ideas for, you know, how that litigation risk and how that interacts with disclosure and, and, and what might be done within the framework here federally to, to, to lower those risks related disclosure. So I, I, I think Chair Atkins has tabled 3 very pertinent examples, which are arbitration, fee shifting and a safe harbor. But each of those are difficult. You know, arbitration first you have to get through the Delaware issue. Majority of our companies are incorporated in Delaware. But then our, our litigators would argue, you know, is our individual arbitrations really the more effective and economic way for a company to deal with Securities Litigation as opposed to the heightening heightened pleading standards that you have and the applicability to the putative class which you don't have an arbitration. So there, there there is a debate going on over which one is better. I mentioned that both Nevada for books and records and taxes for derivative claims have adopted minimum shareholding requirements for those. Most times in a a litigation with merit, you will have pension funds and other institutional investors who will get you up to a minimum shareholding. That is at least a a recognizable number. But maybe having a minimum shareholding is something to think about. I've heard different views as to whether that's something the SEC could do or whether we need congressional action to, to do that. So again, my statement on those, I, I think those are worth study and they're worth the cost benefit analysis to do because I, I think we're all agreed that companies will not have an incentive to shorten their risk factor sections unless you can tackle that issue in one way. Thank you, Bob. OK, so final question for for Rodney and then have Craig close. So Rodney, hey, one of you, Rick mentioned the fact and maybe coming into this panel, I had a belief that this topic was one of the reasons we were getting less companies going public. Rick sort of said, no, it's not, it's do you know insurance, it's litigation and other things. I'm just curious from the other panels, do you think this has anything to do with a redux, not a reduced number of companies going public? I, I think scale to the scale disclosure aspect of it is important to companies. I, I don't think it's necessary necessarily periodic reporting or the level of disclosure that is disincentivizing companies to go public. I think there are other things going on in our economy which account for the fact that we have 50% less public companies than we did a long time ago, including the strength of the private markets. But, I, I do believe the scale disclosure is important to those companies. You know, what that study that Neil proposed that you could talk about, which is what are the extra sort of public company costs that are imposed, whether it's a spin off, whether it's an IPO, whether it's a de SPAC transaction or the various transactions that companies are taking on to do that. If you can defer that to a a longer glide path until you are a more established public company with a level of certainty, not thinking that it could roll off within a year, I think that would be helpful for public companies, for private companies, thinking about the public company route. Neil or Stephen, any thoughts? Yeah, I like I said that experiment I was proposing was meant to try and actually measure the material materiality of this. And maybe it's not that material, but I think there's a real issue with it's not so much that getting getting the data together and actually to James's point earlier, right, I mean, it is ever easier with all this technology to keep get all this data. It's an all SQL world. Why not just put it out there, right. That's, that's a very valid point. And the, the real question is, but it's, it's what all entails, right? The fact they have to put all the stuff out there and it has to be in a very precise way and it has to be in every section of the 10K. You know, if it's a 2 but not the third section, then they open up the litigation risk is that whole ecosystem of things that actually is probably if there's an impact on the number of companies or their willingness to go public, it's not so much necessarily producing reports. It's more about why they have to do it and what they what, what consequences or potential consequences of not getting it, quote UN quote right or whatever like that and all that overhang that project that's probably preventing the public listings. I don't, I doubt it's the actual push and go on a 10K thing, but everything behind it and around it. Very good. I think we've come to the end of our time. It's been a very robust discussion. Very much appreciate all you taking time to come in today and and and to join us. As you heard from the beginning of the the meeting today from the chairman and the other commissioners Reg esque reform is, is high on the list of of things going on around here at the SEC right now. And, and no doubt the, the IAC will take what we've heard today and and further discuss it among our committees and and have some things to hopefully say on this at a future meeting. So with that, we wish you safe travels back to where your where your homes are and thank you so much for being here today. And we'll we'll adjourn now for. So our Q& A session for the morning panel has come to a close. On behalf of the committee, I'd like to thank everyone again, moderators and our panelists for sharing their expertise and our thoughtful engagement. Just one note for the record, Christine Lazaro had joined us this morning virtually. We'll now recess for lunch and our executive session. The public segment of the meeting will reconvene at 2:30 PM. Thank you.