The SEC has issued final rules with respect to electronic reporting and has also issued a release covering frequently asked questions on the new reporting system. All Section 16 filings must be made electronically on and after June 30, 2003. That date is quickly approaching and Section 16 reporting persons and all U.S. public companies filing on behalf of reporting persons need to make sure they are fully versed in the new electronic filing process. Specifically, the following steps should be taken promptly:
Determine whether the Section 16 reporting persons already have EDGAR access codes and if not apply for them immediately.
Many company's Section 16 reporting persons have not obtained SEC access codes. Some CEOs who serve on other boards of directors may already have access codes. It is important not to apply for a second set of access codes for any reporting person who has already obtained access codes. Obtaining new codes will inactivate previous codes.
Once the list of persons needing access codes has been compiled, prepare one Form ID with an exhibit that lists the names and addresses of each insider in an attachment to the form. The Form ID can be filled out by an outside attorney or by an attorney or other person at the company authorized to prepare Section 16 filings. This Form ID should be faxed to the SEC at 202/504-2474. It could take up to a week to receive the access codes for all of the reporting persons. As the deadline nears, the turn-a-round time may increase.
Determine which electronic filing system will be used.
Many companies are using software-based systems that must be loaded on computer hard drives. Examples of these systems are the Romeo & Dye Section 16 Filer, Equity Edge and CCH Equity Compliance. In addition, the SEC offers an online service and the major printers are all offering web-based systems for specific fees. McDermott Will & Emery lawyers have tested the Romeo & Dye system, the SEC system and the systems provided by the three major financial printers, and we can make specific recommendations on these systems. Web-based systems allow the continuing storage and retrieval of information about the issuer and the reporting persons and a general body of footnotes. The SEC's online system used by itself does not allow for the storage and retrieval of past information. This means that if you use only the SEC's system you start from scratch each time you use it. The SEC's system is also constricted for the time being because it uses a new coding system that needs further revision. The frequently asked questions release that the SEC issued indicates a number of glitches in its system. Unfortunately, it has mandated that its chosen system be used for all third party providers. This means that all systems, including the Romeo & Dye system and the web-based systems provided by the printers, contain the same restricted coding. Even if a company has done electronic filings in the past using ASCII or HTML, it will have to adjust to the new web-based XML system.
Create database and start doing test filings immediately.
Once a particular system has been selected, the person designated as the Section 16 filing agent for a particular company’s insiders should (1)input and archive issuer and reporting persons’ codes and other information and (2)begin test filings immediately to work out the bugs contained in all of these systems with respect to the reporting of different types of ownership, the reporting of different classes of stock and the use of footnotes and exhibits.
Obtain powers of attorney and consider making all voluntary filings in paper right now.
To facilitate the new electronic system, to the extent that reporting persons have not already done so, they should give powers of attorney to someone at the company to sign their Section 16 reports and, to the extent that a filing is due now, those powers of attorney should be filed in paper with the SEC. Otherwise, they will have to be filed electronically, which adds to the complexity of the filing. Similarly, for convenience, if a reporting person has been holding off reporting a transaction eligible for deferred reporting (e.g. a gift), consideration should be given to making that filing voluntarily now in paper.