[Federal Register Volume 73, Number 153 (Thursday, August 7, 2008)]
[Rules and Regulations]
[Pages 45862-45874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-18148]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 241 and 271
[Release Nos. 34-58288, IC-28351; File No. S7-23-08]
Commission Guidance on the Use of Company Web Sites
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation; solicitation of comment.
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SUMMARY: We are publishing this interpretive release to provide
guidance regarding the use of company Web sites under the Exchange Act
and the antifraud provisions of the federal securities laws. We are
soliciting comment on issues relating to company use of technology
generally in providing information to investors.
DATES: Effective Date: August 7, 2008. Comment Date: Comments should be
received on or before November 5, 2008.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/interp.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-23-08 on the subject line; or
Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number S7-23-08. This file
number should be included on the subject line if e-mail is used. To
help us process and review your comments more efficiently, please use
only one method. The Commission will post all comments on the
Commission's Web site (http://www.sec.gov/rules/interp.shtml). Comments
are also available for public inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549 on official business days between the hours of 10 a.m. and 3 p.m.
All comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Jeffrey Cohan, Kim McManus or Mark
Vilardo, Special Counsels in the Office of Chief Counsel, Division of
Corporation Finance, at (202) 551-3500, 100 F Street, NE., Washington,
DC 20549.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction and Overview
A. Introduction
B. Overview of Exchange Act Rules on the Use of Company Web
sites
II. Application of Certain Provisions of the Federal Securities Laws
to Information Presented on Company Web sites
A. Evaluation of ``Public'' Nature of Information on Company Web
sites
1. Whether and When Information Is ``Public'' for Purposes of
the Applicability of Regulation FD
2. Satisfaction of Public Disclosure Requirements of Regulation
FD
B. Antifraud and Other Exchange Act Provisions
1. Effect of Accessing Previously Posted Materials or Statements
on Company Web sites
2. Hyperlinks to Third-Party Information
3. Summary Information
4. Interactive Web site Features
C. Disclosure Controls and Procedures
D. Format of Information and Readability
III. Request for Comment
I. Introduction and Overview
A. Introduction
In its February 2008 Progress Report, the Federal Advisory
Committee on Improvements to Financial Reporting recommended that we
provide more guidance as to how companies can use their Web sites to
provide information to investors in compliance with the federal
securities laws, particularly with respect to the Securities Exchange
Act of 1934 (the ``Exchange Act'').\1\ Prompted, in part, by this
report, we believe that to encourage the continued development of
company Web sites as a significant vehicle for the dissemination to
investors of important company information, it is an appropriate time
to provide additional Commission guidance specifically addressing
company Web sites.\2\ While we addressed certain discrete Internet
issues relating to the Securities Act of
[[Page 45863]]
1933 (the ``Securities Act'') in 2005,\3\ we last provided guidance in
2000 on the electronic delivery of disclosure documents, company
liability for Web site content, as well as other matters.\4\ We noted
then that, given the speed at which technological advances are
developing, and the translation of those technologies into investor
tools, we expected to revisit the guidance provided at that time in
order to update and supplement it as appropriate.\5\
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\1\ See Progress Report of the SEC Advisory Committee on
Improvements to Financial Reporting, Release No. 33-8896 (Feb. 14,
2008) (``CIFiR Progress Report''), available at http://www.sec.gov/rules/other/2008/33-8896.pdf.
\2\ In this release the term ``company Web site'' and the use of
the term ``Web site'' in the context of companies refer to public
(Internet) company sites, as distinguished from private (intranet)
sites. A company Web site is maintained by or for the company and
contains information about the company.
\3\ See Securities Offering Reform, Release No. 33-8591 (Aug. 3,
2005) [70 FR 44721] (``Securities Offering Reform Release'').
\4\ See Use of Electronic Media, Release No. 33-7856 (Apr. 28,
2000) [65 FR 25843] (``2000 Electronics Release'').
\5\ See id. at Section II.D.
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Given the development and proliferation of company Web sites since
2000, and our expectation that continued technological advances will
further enhance the quality, not just the quantity, of information
delivered and available to investors on such Web sites, as well as the
speed at which such information reaches the market, we are issuing this
interpretive release \6\ to provide additional guidance on the use of
company Web sites with respect to the antifraud provisions and certain
relevant Exchange Act provisions of the federal securities laws.\7\ Our
guidance focuses principally on: \8\
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\6\ We do not view the guidance in this release as a delineation
of the outer limits of how technology can or should be used on
company Web sites.
\7\ In addition to the Exchange Act, companies must also
consider whether their Web sites may involve issues under the
Securities Act, which we discussed in our 2000 Electronics Release.
For example, a company in registration must consider the application
of Section 5 of the Securities Act to all of its communications with
the public--including information on a company's Web site. See 2000
Electronics Release, supra note 4. This consideration is important
with regard to any company engaged in offering and selling its
securities, including companies engaged in continuous offerings of
their securities, such as mutual funds. Because our rules adopted as
part of Securities Offering Reform in 2005 answered many of the key
issues relating to company Web site use under the Securities Act,
this release will focus on the antifraud provisions and certain
Exchange Act provisions only. See Securities Offering Reform
Release, supra note 3; Securities Act Rule 433 [17 CFR 230.433].
\8\ For purposes of this release generally, we are using the
term ``company'' to refer to entities that are corporations,
partnerships and other types of registrants subject to the periodic
reporting and antifraud provisions of the Exchange Act, including
registered investment companies.
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When information posted on a company Web site is
``public'' for purposes of the applicability of Regulation FD;
Company liability for information on company Web sites--
including previously posted information, hyperlinks to third-party
information, summary information and the content of interactive Web
sites;
The types of controls and procedures advisable with
respect to such information; and
The format of information presented on a company Web site,
with the focus on readability, not printability.
We have long recognized the vital role of the Internet and
electronic communications in modernizing the disclosure system under
the federal securities laws and in promoting transparency, liquidity
and efficiency in our trading markets.\9\ Central to the effective
operation of our trading markets is the ongoing dissemination of
information by companies about themselves and their securities. A
reporting company's reports that it files under the Exchange Act and
other publicly available information form the basis for the market's
evaluation of the company and the pricing of its securities, and
investors in the secondary market use that information in making their
investment decisions.
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\9\ See, e.g., The Impact of Recent Technological Advances on
the Securities Markets (Sept. 1997) (available at http://www.sec.gov/news/studies/techrp97.htm). In this report, we stated
that we were mindful of the benefits of increasing use of new
technologies for investors and the markets, and have encouraged
experimentation and innovation by adopting flexible interpretations
of the federal securities laws. We noted that our approach has
balanced the goals of promoting the benefits of electronic media,
with the need to protect investors and the integrity of the markets
from fraud and abuse. We also emphasized the importance of continued
coordination with market participants and federal, state and
international regulators as technological advances develop. See also
Securities Offering Reform Release, supra note 3.
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Ongoing technological advances in electronic communications have
increased both the markets' and investors' demand for more timely
company disclosure and the ability of companies to capture, process and
disseminate this information to market participants. Indeed, one of the
key benefits of the Internet is that companies can make information
available to investors quickly and in a cost-effective manner.
Recently, we noted that approximately 80% of investors in mutual funds
in the United States have access to the Internet in their homes.\10\
Investors are turning increasingly to electronic media and to company
and third-party Web sites as sources of information to aid in their
investment decisions, particularly since many types of investment-
related company information are available only in electronic form. We
believe that the Internet has helped to transform the trading markets
by enabling many retail investors to have ready access to company
information.\11\
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\10\ See Internet Availability of Proxy Materials, Release No.
34-55146, at Section I (Jan. 22, 2007) [72 FR 4147] (``Internet
Proxy Release''). The Investment Company Institute reported that, in
2006, 92% of mutual fund shareholders had Internet access. See
Sandra West & Victoria Leonard-Chambers, Ownership of Mutual Funds
and Use of the Internet, 2006, Investment Company Institute Research
Fundamentals (Oct. 2006), available at http://ici.org/stats/res/fm-v15n6.pdf. In 2005, that figure was at 88%. Additionally, the
Investment Company Institute reported that 79% of all U.S. adults
had Internet access in 2005. See Sandra West & Victoria Leonard-
Chambers, Mutual Fund Shareholders' Use of the Internet, 2005,
Investment Company Institute Research Fundamentals (Feb. 2006),
available at http://www.ici.org/pdf/fm-v15n2.pdf. According to the
Pew Internet & American Life Project, as of an October-December 2007
survey, 75% of adults use the Internet. See http://www.pewinternet.org/trends/User_Demo_2.15.08.htm.
\11\ See, e.g., Acceleration of Periodic Report Filing Dates and
Disclosure Concerning Web site Access to Reports, Release No. 33-
8128, at Section II.D.1 (Sept. 5, 2002) [67 FR 58480] (``Accelerated
Periodic Report Filing Release'') (``Online access to Internet
information also helps to democratize the capital markets by
enabling many small investors to access corporate information.'').
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Through the years, we have taken a number of steps to encourage the
dissemination of information electronically via the Internet, as we
believe that widespread access to company information is a key
component of our integrated disclosure scheme, the efficient
functioning of the markets, and investor protection. Today, all
companies must make their Commission filings electronically through our
Electronic Data Gathering, Analysis and Retrieval (``EDGAR'')
system,\12\ and we provide free access to EDGAR on a real-time basis
through our Internet Web site, www.sec.gov.\13\ In addition to our
ongoing efforts to improve and modernize EDGAR, we have encouraged, and
recently proposed requiring,\14\ companies to provide
[[Page 45864]]
financial information on EDGAR in interactive data files, which would
make financial information easier for investors to analyze, as well as
help automate regulatory filings and business information processing.
We also proposed rule amendments requiring mutual funds to provide
certain key information from their prospectuses in interactive data
format.\15\ Interactive data has the potential to increase the speed,
accuracy and usability of financial and other disclosure, and
eventually to reduce costs.\16\
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\12\ A limited number of forms continue to be permitted to be
filed in paper. For example, we permit paper filing of Form 1-A [17
CFR 239.90] and Form 144 [17 CFR 239.144]. In addition, SEC
registered investment advisers make some of their filings
electronically through the Investment Adviser Registration
Depository.
\13\ Since 1983, when the Commission first began to develop an
electronic disclosure system, we have been continually improving and
modernizing electronic access to companies' Commission filings, as
well as requiring more forms to be filed electronically rather than
in paper. The pilot program for EDGAR was established in the early
1980s pursuant to a Congressional mandate and the system was fully
implemented, effective January 30, 1995. For a summary of the
development of EDGAR, see the staff's report, ``Electronic Filing
and the EDGAR System: A Regulatory Overview,'' (Oct. 3, 2006),
available at http://www.sec.gov/info/edgar/regoverview.htm.
\14\ On May 30, 2008, we published proposed rule amendments
requiring companies to provide their financial statements, including
financial statement footnotes and schedules, in interactive data
format on EDGAR. The proposed rules would require a company to
provide such interactive data in its annual and quarterly reports,
transition reports, and Securities Act registration statements.
Companies that maintain Web sites also would be required to post
this new interactive data on their Web sites. See Interactive Data
to Improve Financial Reporting, Release No. 33-8924 (May 30, 2008)
[73 FR 32794] (``Interactive Data Proposing Release'').
\15\ See Interactive Data For Mutual Fund Risk/Return Summary,
Release No. 33-8929 (June 10, 2008) [73 FR 35442] (``Mutual Fund
Interactive Data Proposing Release,'' together with the Interactive
Data Proposing Release supra note 14, the ``Interactive Data
Proposing Releases'').
\16\ Companies create interactive data files by defining--or
``tagging''--their financial statements using elements and labels
from a standard list of interactive data tags. Data tagging provides
a format for enhancing financial and other reporting data using
electronic formats such as eXtensible Mark-Up Language (XML) and its
derivatives, such as eXtensive Business Reporting Language (XBRL).
General information concerning interactive data is available on our
Web site at http://www.sec.gov/spotlight/xbrl.shtml. See also XBRL
Voluntary Financial Reporting Program on the EDGAR System, Release
No. 33-8529 (Feb. 3, 2005) [70 FR 6556]; and Extension of
Interactive Data Voluntary Reporting Program on the EDGAR System to
Include Mutual Fund Risk/Return Summary Information, Release No. 33-
8823 (July 11, 2007) [72 FR 39290].
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As we have developed EDGAR to facilitate and promote electronic
availability of information, we also have encouraged companies to make
their Commission filings and other company information available on
their Web sites. We believe that company disclosure should be more
readily available to investors in a variety of locations and formats to
facilitate investor access to that information. Although our rules do
not require reporting companies to establish or maintain Web sites, our
rules do promote and, in some cases require, companies to use Web sites
to make required disclosures.\17\
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\17\ See Section I.B, infra. See also Exchange Act Section
16(a)(4)(C) [15 U.S.C. 78(p)(a)(4)(C)]. This section was enacted
pursuant to the Sarbanes-Oxley Act of 2002 [Pub. L. No. 107-204, 116
Stat. 745 (2002)] and requires that companies post Section 16
reports on their Web site if they maintain one. Section 16(a)(4)(C)
evidences Congress's recognition of the informational utility of
company Web sites. While our rules do not require companies to
establish Web sites, the New York Stock Exchange does require its
listed companies, with certain exceptions, to establish and maintain
their own Web sites. See NYSE Listed Company Manual, Section
303A.14.
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A company's Web site is an obvious place for investors to find
information about the company,\18\ and a substantial majority of large
public companies already provide access to their Commission filings
through their Web sites.\19\ Technological advances, and the reduced
costs associated with the implementation of technologies over time, now
allow companies to include more ``interactive'' and current information
on their Web sites than was the case previously, thereby moving Web
sites away from the filing cabinet or ``static'' paradigm to a
``dynamic'' paradigm, one shaped by the market's desire for more
current, searchable and interactive information.\20\ We recognize that
allowing companies to present data in formats different from those
dictated by our forms or more technologically advanced than EDGAR may
be beneficial to investors.\21\ Indeed, because we recognize the
enormous potential for the Internet to promote the goals of the federal
securities laws,\22\ we wish to continue to encourage companies to
develop their Web sites in compliance with the federal securities laws
so that they can serve as effective information and analytical tools
for investors.\23\ Enhanced company Web site presentation of
information can benefit investors of all types by enabling them to
gather information about a company at a level of detail they believe is
satisfactory for their purposes.\24\
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\18\ Since their first appearance on the World Wide Web, company
Web sites typically have included copies of Commission filings or a
hyperlink to the Commission's EDGAR database, along with certain
other previously posted historical information, such as earnings
releases. Some companies also have provided limited ``real-time''
information, such as stock data links. For a discussion of the
content of company Web sites in 1998 and prior years, see generally
Robert Prentice et al., Corporate Web site Disclosure and Rule 10b-
5: An Empirical Evaluation, 36 Am. Bus. L.J.531 (``Prentice'');
Howard M. Friedman, Securities Regulation in Cyberspace Sec. 10.01
(3rd ed. Supp. 2006) (``Friedman'').
\19\ A 2002 study by our Office of Economic Analysis revealed
that approximately 83% of companies with a public float of at least
$75 million (other than registered investment companies) provide
some form of access to their Commission filings through their Web
sites, either via a hyperlink with a third-party service providing
real-time access to the filings (45%), by posting the filings
directly on their Web sites (29%) or via a hyperlink to our EDGAR
database (15%). See Accelerated Periodic Report Filing Release,
supra note 11.
\20\ For example, web pages created in a ``dynamic'' format,
such as ``active server page,'' are database driven, permitting
automatic updating of the content. This differs from the
traditional, ``static'' HTML pages that can only be altered by the
webmaster. ``Push'' technology, such as e-mail alerts or ``RSS''
feeds, enables the automatic, electronic dissemination of new
information on the site to subscribers. ``Interactive'' investor-
related tools and functionality, such as ``blogs'' and electronic
shareholder forums, promote direct communications with companies,
their officers and other representatives.
\21\ As we noted in a recent release, Shareholder Choice
Regarding Proxy Materials, Release No. 34-56135, at Section VI.C.1
(Jul. 26, 2007) [72 FR 42221] (``Shareholder Choice Release''):
``Information in electronic documents is often more easily
searchable than information in paper documents. Shareholders will be
better able to go directly to any section of the document that they
are particularly interested in. The amendments also will permit
shareholders to more easily evaluate data and transfer data using
analytical tools such as spreadsheet programs. Such tools enable
users to compare relevant data about several companies more
easily.''
\22\ See, e.g., SEC v. Capital Gains Research Bureau, Inc., 375
U.S. 180, 186 (1963) (explaining that the purpose common to the
securities laws was to ``substitute a philosophy of full disclosure
for the philosophy of caveat emptor'').
\23\ While EDGAR and the Commission's Web site continue to serve
as the core source of companies' securities-related information
online, we recognize that the technological capacities of company
Web sites may allow for presentation and manipulation of large
quantities of data in ways that exceed EDGAR's current capacities.
For example, while the recently introduced RSS feed on the
Commission's Web site allows access to documents in interactive data
format in the pilot program, some commercial and company Web sites
enable users to receive the filings of companies of their choice.
\24\ In discussing the use of company Web sites to provide
information in a tiered format, the Federal Advisory Committee on
Improvements to Financial Reporting recently observed in its
February 2008 Progress Report: ``A valuable element of many of such
[company] Web site presentations is that they present the most
important general information about a company on the opening page,
with embedded links that enable the reader to drill down to more
detail by clicking on the links. In this way, viewers can follow a
path into, and thereby obtain increasingly greater details about,
the financial statements, a company's strategy and products, its
management and corporate governance, and its many other areas in
which investors and others may have an interest.'' See CIFiR
Progress Report, supra note 1.
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B. Overview of Exchange Act Rules on the Use of Company Web Sites
We have issued a series of interpretive releases and rules that
promote the use of company Web sites as a means for companies to
communicate and provide information to investors under the Securities
Act and the Exchange Act.\25\ A fundamental principle underlying these
interpretations and rules is that, where access is freely available to
all, use of electronic media is at least equal to other methods of
delivering information or making it available to investors and the
market. Further, we have recognized that, in some cases, allowing
companies to provide information on their Web sites has advantages for
investors over mandating that EDGAR serve as the exclusive venue and
format for company
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disclosures.\26\ Indeed, today we have reached a point where the
availability of information in electronic form--whether on EDGAR or a
company Web site--is the superior method of providing company
information to most investors, as compared to other methods.
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\25\ See generally 2000 Electronics Release, supra note 4; Use
of Electronic Media for Delivery Purposes, Release No. 33-7233 (Oct.
6, 1995) [60 FR 53458] (``1995 Electronics Release''); Use of
Electronic Media by Broker-Dealers, Release No. 33-7288 (May 9,
1996) [61 FR 24643] (``1996 Electronics Release'').
\26\ See, e.g., Regulation G [17 CFR 244.100]; Instruction 2 to
Item 407(b)(2) of Regulation S-K [17 CFR 229.407(b)(2)]; Exchange
Act Rule 12d-2(c)(2)(iii) [17 CFR 240.12d-2(c)(2)(ii)]. See
generally Accelerated Periodic Report Filing Release, supra note 11,
at Section IV.B.1.
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Our rules and interpretations that promote the use of Web sites
generally work in two different respects. First, when delivery of
documents is required under the federal securities laws, we have
encouraged the delivery in electronic format or recognized that
electronic access can satisfy delivery--hence, prospectuses and proxy
materials can be delivered or otherwise made available using electronic
communications and the Internet in certain circumstances.\27\ Indeed
with respect to proxy materials, certain companies are required to post
their proxy materials on a specified, publicly accessible Internet Web
site (other than EDGAR) and provide record holders with a notice
informing them that the materials are available and explaining how to
access those materials.\28\ Second, where disclosure of information is
required under the Exchange Act, we have allowed companies to make such
information available to investors on their Web sites with their Web
sites serving, depending on the circumstance, as a supplement to EDGAR,
as an alternative to EDGAR, or as a stand-alone method of providing
information to investors independent of EDGAR.
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\27\ See Securities Act Rule 172 [17 CFR 230.172]; Securities
Offering Reform Release, supra note 3; Internet Proxy Release, supra
note 10; Enhanced Disclosure and New Prospectus Delivery Option for
Registered Open-End Management Investment Companies, Release No. 33-
8861 (Nov. 30, 2007) [72 FR 67790] (``Mutual Fund Summary Prospectus
Proposing Release'') (proposing to permit funds to satisfy their
prospectus delivery obligations by sending or giving key information
directly to investors in the form of a summary prospectus and
providing the statutory prospectus on an Internet Web site).
\28\ See Shareholder Choice Release, supra note 21. While large
accelerated filers, not including registered investment companies,
are currently required to comply with these rules, starting January
1, 2009, these rules will apply to all filers and other soliciting
parties. Perhaps the most significant change effected by this
rulemaking is the shift whereby electronic availability can serve as
the default means of delivery, with shareholders having to ``opt
out'' to receive paper delivery. The requirement that any
shareholder lacking Internet access, or preferring delivery of a
paper copy of the proxy materials, can make a permanent request to
receive a paper copy of the proxy materials (and all future proxy
materials) at no charge mitigates concerns about Internet access. In
adopting these notice and access model rules, we recognized that
``[a]s technology continues to progress, accessing the proxy
materials on the Internet should increase the utility of our
disclosure requirements to shareholders. Information in electronic
documents is often more easily searchable than information in paper
documents. Shareholders will be better able to go directly to any
section of the document that they are particularly interested in.''
Id. at Section VI.C.1. It is significant to note that these rules
neither require, nor permit, solicitations pursuant to the notice
and access model with respect to business combination transactions.
Based on statistics compiled by Broadridge, a proxy distribution
service provider, beneficial owner (which include retail investors)
participation in proxy voting has diminished since the adoption of
the notice and access model rules. See Broadridge, Notice & Access:
Statistical Overview of Use with Beneficial Shareholders as of May
31, 2008, available at http://broadridge.com/notice-and-access/NAStatsStory.pdf.
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When a company Web site serves as a supplement to EDGAR, company
information is available both on EDGAR and on the company's Web site.
We have promoted this supplemental use of Web sites by requiring, for
example, that:
Companies disclose their Web site addresses in annual
reports on Form 10-K and state whether their Exchange Act reports are
available on their Web sites; \29\
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\29\ Accelerated filers and large accelerated filers are
required to disclose this information. Non-accelerated filers are
encouraged to do so. See Item 101(e) of Regulation S-K [17 CFR
229.101(e)].
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Mutual funds disclose in their prospectuses whether
shareholder reports are available on their Web sites, and if not, why
not; \30\
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\30\ See Item 1(b) of Form N-1A. See also Item 1.1.d. of Form N-
2 (providing a similar requirement for closed-end funds).
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Companies make their Exchange Act reports available on
their Web sites as a condition to incorporating by reference previously
filed reports into prospectuses filed as part of registration
statements on Form S-1 or Form S-11; \31\
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\31\ See Form S-1, General Instruction VII.F [17 CFR 239.11];
Form S-11, General Instruction H.6 [17 CFR 239.18]. In the adopting
release for the Form S-11 amendments, we noted that companies could
satisfy this requirement by ``including hyperlinks directly to the
reports or other materials filed on EDGAR or on another third-party
Web site where the reports or other materials are made available in
the appropriate timeframe and access to the reports or other
materials is free of charge to the user.'' See Revisions to Form S-
11 to Permit Historical Incorporation by Reference, Release No. 33-
8909, at Section I.B.1(a) (Apr. 10, 2008) [73 FR 20512].
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Companies post on their Web sites, if they have one, all
beneficial ownership reports filed by officers, directors and principal
security holders under Section 16(a) of the Exchange Act; \32\ and
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\32\ See Exchange Act Section 16(a)(4)(C) and Rule 16a-3(k) [17
CFR 240.16a-3(k)]. See also Mandated Electronic Filing and Web site
Posting for Forms 3, 4 and 5, Release No. 33-8230 (May 7, 2003) [68
FR 25787].
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Companies post on their Web sites, if they have one,
notice of their intent to delist or deregister their securities.\33\
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\33\ See Exchange Act Rule 12d2-2(c)(2)(iii) [17 CFR 240.12d2-
2(c)(2)(iii)]. See also Exchange Act Rule 12d2-2(c)(3) [17 CFR
240.12d2-2(c)(3)] (imposing a similar requirement on a national
securities exchange to post on its Web site any notice it receives
from a company indicating the company has determined to withdraw a
class of securities from listing and/or registration on the
exchange).
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In addition, we have proposed in the Interactive Data Proposing
Releases that companies that maintain Web sites be required to post
their interactive data files on their Web sites.\34\
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\34\ See Interactive Data Proposing Release, supra note 14; and
Mutual Fund Interactive Data Proposing Release, supra note 15.
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In some situations, we have given companies the choice and
flexibility of satisfying an Exchange Act disclosure requirement either
by filing the disclosure on EDGAR or by making it available on the
company's Web site, thereby using company Web sites as an alternative
to EDGAR. For example:
A company may disclose non-GAAP financial measures and
Regulation G required information on its Web site; \35\
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\35\ See Conditions for Use of Non-GAAP Financial Measures,
Release No. 33-8176 (Jan. 22, 2003) [68 FR 4819]. In that release,
we recommended that companies provide ongoing Web site access to
this information for a period of at least 12 months. Although we
understand that some companies may be reducing such Web site access
to a single quarter, we continue to believe that companies should
retain the information on their Web sites for 12 months. We believe
such a retention time period is appropriate to enable quarter-to-
quarter comparisons. Financial information disclosed on Web sites is
still subject to the limitations on disclosure of non-GAAP financial
information set forth in Regulation G. See id.
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An asset-backed issuer may post disclosure of static pool
data on its Web site rather than filing it on EDGAR; \36\
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\36\ See Asset-Backed Securities, Release No. 33-8518, at
Section III.B.4.b. (Dec. 22, 2004) [70 FR 1505] (``Asset-Backed
Release'') (discussing the ability to post disclosure of static pool
data that is required in registered sales of asset-backed securities
on Web sites rather than filing it on EDGAR, subject to certain
conditions). In this context, we resolved the potential conflict
between the need to include material information in a prospectus
offering asset-backed securities and the technical limitations of
EDGAR that may have limited the ability of asset-backed issuers to
provide that information in the format most useful for investors by
adopting an alternative accommodation via which the information
posted on a Web site will be deemed to be included in the prospectus
when done in compliance with Item 312 of Regulation S-T [17 CFR
232.312].
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A company may provide its audit, nominating or
compensation committee charters on its Web site as an alternative to
providing them in its proxy or information statement; \37\
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\37\ See Instruction 2 to Item 407(b)(2) of Regulation S-K [17
CFR 229.407(b)(2)]. As we noted above, the New York Stock Exchange
has also implemented rules that recognize the value of company Web
sites as an important source of corporate governance information.
See, e.g., NYSE Listed Company Manual, Sections 303A.10 and 303A.14
and note 17 supra.
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[[Page 45866]]
A company may disclose a material amendment to its code of
ethics, or a material waiver of a provision of its code of ethics, by
posting the information on its Web site rather than filing a Form 8-K;
\38\ and
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\38\ See Item 406(d) of Regulation S-K [17 CFR 229.406(d)]; Item
5.05(c) of Form 8-K [17 CFR 249.308].
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A company may provide information regarding board member
attendance at the annual shareholder meeting on its Web site rather
than in its proxy statement.\39\
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\39\ See Instruction to Item 407(b)(2) of Regulation S-K.
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Finally, we have recently recognized that, in very limited
circumstances, a company's Web site can even serve as a standalone
method of providing information to investors wholly independent of
EDGAR. We have permitted certain foreign private issuers to use their
Web sites as the primary or stand-alone source of information about the
company as a basis for maintaining an exemption from Exchange Act
registration and reporting requirements, under certain
circumstances.\40\
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\40\ We recently adopted new Exchange Act Rule 12h-6 [17 CFR
240.12h-6] and accompanying rule amendments to extend the Exchange
Act Rule 12g3-2(b) [17 CFR 240.12g3-2(b)] exemption to a foreign
private issuer and prior Form 15 filer immediately upon its
termination of reporting under Rule 12h-6. To maintain that
exemption, the company must publish specified home country documents
in English on its Internet Web site or through an electronic
information delivery system generally available to the public in its
primary trading markets. See Termination of a Foreign Private
Issuer's Registration of a Class of Securities under Section 12(g)
and Duty to File Reports Under Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, Release No. 34-55540 (Mar. 27,
2007) [72 FR 16933]. The purpose of these provisions, and the
additional changes that have been proposed to the availability of
the exemption from registration pursuant to Rule 12g3-2(b), is to
provide U.S. investors with Internet access to ongoing material
information about a foreign private issuer that is required by its
home country following its termination of reporting under Rule 12h-
6. See Exemption from Registration under Section 12(g) of the
Securities Exchange Act of 1934 for Foreign Private Issuers, Release
No. 34-57350 (Feb. 19, 2008) [73 FR 10101]. We also recently
proposed rules that would permit exchange-traded funds to be
actively managed provided certain conditions are met, including that
fund composition information is maintained every business day on a
publicly accessible Web site, with such Web site posting being the
standalone method of providing such information to the public. See
Exchange-Traded Funds, Release No. 33-8901 (Mar. 11, 2008) [73 FR
14618].
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II. Application of Certain Provisions of the Federal Securities Laws to
Information Presented on Company Web Sites
A. Evaluation of ``Public'' Nature of Information on Company Web Sites
As we note above, there has been a dramatic increase in the use of
company Web sites since our 2000 Electronics Release and the adoption
of Regulation FD.\41\ Companies are providing greater amounts and types
of information on their Web sites, which, as a result, are increasingly
viewed by investors as key sources of information about the
company.\42\ As companies use their Web sites to a greater extent to
provide comprehensive information about themselves, some have raised
questions as to the treatment of information posted on a company Web
site under the federal securities laws.\43\ We note that such questions
have numerous implications under the federal securities laws.\44\
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\41\ See Selective Disclosure and Insider Trading, Release No.
33-7881, at Section II.B.2 (Aug. 15, 2000) [65 FR 51715]
(``Regulation FD Adopting Release'').
\42\ See Section I, supra. There also has been significant
growth in the use of the Internet by the public. As noted in the
Internet Proxy Release, research submitted to the Commission during
the comment period indicated that approximately 80% of mutual fund
investors in the United States have access to the Internet in their
homes. See Internet Proxy Release, supra note 10, at Section I.
\43\ The Federal Advisory Committee on Improvements to Financial
Reporting requested that the Commission clarify this point in its
CIFiR Progress Report. See CIFiR Progress Report, supra note 1, at
Chapter 4, Section III.
\44\ See 2000 Electronics Release, supra note 4.
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Although we have not addressed the question of whether and when
information on a company's Web site is considered public for purposes
of determining if a subsequent selective disclosure of such information
may implicate Regulation FD, we believe that in view of the significant
technological advances and the pervasive use of the Internet by
companies, investors and other market participants since 2000, it is
now an appropriate time to provide additional guidance regarding the
public nature of disclosures on company Web sites for purposes of
Regulation FD. Accordingly, we are providing guidance as to the
circumstances under which information posted on a company Web site
(whether by or on behalf of such company) would be considered
``public'' for purposes of evaluating the (1) applicability of
Regulation FD to subsequent private discussions or disclosure of the
posted information and (2) satisfaction of Regulation FD's ``public
disclosure'' requirement.\45\
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\45\ We are not addressing issues relating to insider trading
that may be implicated by disclosures on company Web sites. In
addition, our guidance is not intended to modify the positions we
have expressed regarding the Securities Act implications of
disclosures on company Web sites, including when such disclosures
may constitute offers or the implications for private offerings. For
example, in the 2000 Electronics Release, we discussed the extent to
which a company's use of an Internet Web site could constitute a
``general solicitation.'' See 2000 Electronics Release, supra note
4, at Section II.C.2.
Our guidance also is not intended to address issues under
Securities Act Rule 144(c) [17 CFR 230.144(c)]. We note, for
example, that the concept of ``public information'' for non-
reporting companies contained in Rule 144(c)(2) is based on access.
We believe that non-reporting companies should focus on the
availability of information required by Rule 144 rather than on
dissemination of that information as further discussed in this
section. Likewise, under Rule 144A(d)(1)(i) [17 CFR
230.144A(d)(1)(i)], sellers and persons acting on their behalf may
look to publicly available financial statements for a prospective
purchaser; and under Rule 144A(d)(4)(i), certain companies are
required to provide access to specified company information to
security holders and prospective purchasers. As with Rule 144, the
concept of dissemination as we discuss in this section is not a
condition to reliance on Rule 144A.
Regulation FD applies to closed-end investment companies but
does not apply to other investment companies. Exchange Act Rule
101(b) [17 CFR 243.101(b)(definition of issuer for purposes of
Regulation FD).
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1. Whether and When Information Is ``Public'' for Purposes of the
Applicability of Regulation FD
Evaluating whether and when information posted on a company Web
site is public so that a subsequent disclosure of that information to
an enumerated person in Regulation FD is not a disclosure of non-public
information implicates many of the same issues that Regulation FD
itself was adopted to address.\46\ In particular, Regulation FD was
adopted to address the problem of selective disclosure of material
information by companies, in which ``a privileged few gain an
informational edge--and the ability to use that edge to profit--from
their superior access to corporate insiders, rather than from their
skill, acumen, or diligence.'' \47\ We must, therefore, keep that in
mind when providing guidance on when information is considered public
for purposes of assessing whether a subsequent selective disclosure may
implicate Regulation FD.
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\46\ See Regulation FD [17 CFR 243.100 et seq.].
\47\ See Regulation FD Adopting Release, supra note 41 at
Section II.A. In the Regulation FD Adopting Release, we stated our
belief that Regulation FD struck an appropriate balance. It
established a clear rule prohibiting unfair selective disclosure and
encouraged broad public disclosure. We also believed that Regulation
FD should not impede ordinary course business communications. See
id. at Section II.A.4.
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[[Page 45867]]
``In order to make information public, it must be disseminated in a
manner calculated to reach the securities market place in general
through recognized channels of distribution, and public investors must
be afforded a reasonable waiting period to react to the information.''
\48\ Thus, in evaluating whether information is public for purposes of
our guidance, companies must consider whether and when: (1) A company
Web site is a recognized channel of distribution, (2) posting of
information on a company Web site disseminates the information in a
manner making it available to the securities marketplace in general,
and (3) there has been a reasonable waiting period for investors and
the market to react to the posted information.
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\48\ Faberge, Inc., 45 S.E.C. 249, 255 (1973). See also
Regulation FD Adopting Release, supra note 41, at Section II.B
(``Information is nonpublic if it has not been disseminated in a
manner making it available to investors generally.'').
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With respect to the first element of this analysis, as we have
noted above, we believe that a company's Web site can be a valuable
channel of distribution for information about a company, its business,
financial condition and operations.\49\ As we discuss below, whether a
company's Web site is a recognized channel of distribution of
information will depend on the steps that the company has taken to
alert the market to its Web site and its disclosure practices, as well
as the use by investors and the market of the company's Web site.
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\49\ See Section I.B, supra. See Interactive Data Proposing
Release, supra note 14.
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With respect to the second element of the analysis, the question of
what ``disseminated'' means in the context of Web site disclosure, we
recognize that, today, news is disseminated in an electronic world--one
in which the accessibility to the information is not limited to reading
a newspaper or the ``broad tape.'' There are now many different
channels of distribution of news and other information which account
for the rapid dissemination of news today (and also the corresponding
capacity for rapid trading based on such information). Because
companies of all sizes now have the capacity to present information on
their Web sites to all investors on a broadly accessible basis, and
because investors correspondingly have the capability to easily find
and retrieve information about companies by searching the World Wide
Web, we now analyze the concept of ``dissemination'' through a changed
lens. Consequently, we believe that, in the context of a company Web
site that is known by investors as a location of company information,
the appropriate approach to analyzing the concept of ``dissemination''
for purposes of the ``public'' test as it relates to the applicability
of Regulation FD to a subsequent disclosure should be to focus on (1)
the manner in which information is posted on a company Web site and (2)
the timely and ready accessibility of such information to investors and
the markets.\50\
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\50\ In our recent proposals regarding interactive data, we
stated that we believed that ``Web site availability of the
interactive data would encourage its widespread dissemination.''
Interactive Data Proposing Release, supra note 14, at Section
II.B.5. In that release, we recognized the increasing role that
company Web sites perform in supplementing the information filed
electronically with the Commission by delivering financial and other
disclosure directly to investors. Id.
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Some factors, though certainly non-exclusive ones, for companies to
consider in evaluating whether their company Web site is a recognized
channel of distribution and whether the company information on such
site is ``posted and accessible'' and therefore ``disseminated,''
include:
Whether and how companies let investors and the markets
know that the company has a Web site and that they should look at the
company's Web site for information. For example, does the company
include disclosure in its periodic reports (and in its press releases)
of its Web site address and that it routinely posts important
information on its Web site?
Whether the company has made investors and the markets
aware that it will post important information on its Web site and
whether it has a pattern or practice of posting such information on its
Web site;
Whether the company's Web site is designed to lead
investors and the market efficiently to information about the company,
including information specifically addressed to investors, whether the
information is prominently disclosed on the Web site in the location
known and routinely used for such disclosures, and whether the
information is presented in a format readily accessible to the general
public;
The extent to which information posted on the Web site is
regularly picked up by the market and readily available media, and
reported in, such media or the extent to which the company has advised
newswires or the media about such information and the size and market
following of the company involved. For example, in evaluating
accessibility to the posted information, companies that are well-
followed by the market and the media may know that the market and the
media will pick up and further distribute the disclosures they make on
their Web sites. On the other hand, companies with less of a market
following, which may include many companies with smaller market
capitalizations, may need to take more affirmative steps so that
investors and others know that information is or has been posted on the
company's Web site and that they should look at the company Web site
for current information about the company;
The steps the company has taken to make its Web site and
the information accessible, including the use of ``push''
technology,\51\ such as RSS feeds, or releases through other
distribution channels either to widely distribute such information or
advise the market of its availability. We do not believe, however, that
it is necessary that push technology be used in order for the
information to be disseminated, although that may be one factor to
consider in evaluating the accessibility to the information; \52\
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\51\ Push technology, or server push, describes a type of
Internet-based communication where the request for the transmission
of information originates with the publisher or central server. It
is contrasted with pull technology, where the request for the
transmission of information originates with the receiver or client.
\52\ Companies should also consider the extent to which their
Internet infrastructure can accommodate spikes in traffic volume
that may accompany a major company development.
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Whether the company keeps its Web site current and
accurate;
Whether the company uses other methods in addition to its
Web site posting to disseminate the information and whether and to what
extent those other methods are the predominant methods the company uses
to disseminate information; and
The nature of the information.
The third element in evaluating whether and when information posted
on a company's Web site would be public for purposes of evaluating
whether a subsequent selective disclosure may implicate Regulation FD
is whether investors and the market have been afforded a reasonable
waiting period to react to the information. What constitutes a
reasonable waiting period depends on the circumstances of the
dissemination, which, in the context of company Web sites, may include:
The size and market following of the company;
The extent to which investor oriented information on the
company Web site is regularly accessed;
The steps the company has taken to make investors and the
market aware that it uses its company Web site as a key source of
important information
[[Page 45868]]
about the company, including the location of the posted information;
Whether the company has taken steps to actively
disseminate the information or the availability of the information
posted on the Web site, including using other channels of distribution
of information; and
The nature and complexity of the information.\53\
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\53\ See Securities and Exchange Commission v. Texas Gulf
Sulphur Co., 401 F.2d 833, 854 (2d Cir. 1968) (noting that ``where
the news is of a sort which is not readily translatable into
investment action, insiders may not take advantage of their advance
opportunity to evaluate the information by acting immediately upon
dissemination'').
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We emphasize that companies must look at the particular facts and
circumstances in determining whether the reasonable waiting period
element is satisfied. What may be a reasonable waiting period after
posting information on a company Web site for a particular company and
a particular type of information may not be one for other companies or
other types of information. For example, a large company that
frequently uses its Web site as a key resource for providing
information, has taken steps to make investors and the market aware of
this, and reasonably believes that its Web site is well-followed by
investors and other market participants, may get comfortable with a
waiting period that is shorter than a waiting period for a company that
is not in the same situation.
If the information is important, companies should consider taking
additional steps to alert investors and the market to the fact that
important information will be posted--for example, prior to such
posting, filing or furnishing such information to us or issuing a press
release with the information. Adequate advance notice of the particular
posting, including the date and time of the anticipated posting and the
other steps the company intends to take to provide the information,
will help make investors and the market aware of the future posting of
information, and will thereby facilitate the broad dissemination of the
information.
The question of what constitutes a reasonable waiting period has
been frequently litigated in the context of insider trading.\54\ While
we are not addressing when information is ``public'' for purposes of
insider trading, the cases in this area may provide guidance to
companies for purposes of Regulation FD. As we have noted, what
constitutes a reasonable waiting period is a facts and circumstances
determination.
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\54\ See SEC v. Ingoldsby, No. 88-1001-MA, 1990 U.S. Dist. LEXIS
11383 (D. Mass. May 15, 1990); SEC v. MacDonald, 568 F.Supp. 111,
113 (D.R.I. 1983), aff'd, 725 F.2d 9 (1st Cir. 1984); SEC v.
Materia, No. 82 Civ. 6225, 1983 U.S. Dist. LEXIS 11130 (S.D.N.Y.
Dec. 5, 1983); DuPont Glore Forgan, Inc. v. Arnold Bernhard & Co.,
Inc., No. 73 Cov. 3071, 1978 U.S. Dist. LEXIS 20385 (S.D.N.Y. Mar.
6, 1978). See also In re Apollo Group Inc. Sec. Litig., 509 F.Supp.
2d 837, 846 (D. Ariz. 2007) (In this securities-fraud class action,
the Court declined to adopt a bright-line rule presuming an
immediate market reaction, based on the efficient market theory, and
instead focused on the specific facts of each case.); In re
Crossroads Sys., Inc., 2002 U.S. Dist. LEXIS 26716, (W.D. Tex. Nov.
22, 2002), aff'd, Greenberg v. Crossroads Sys., Inc., 364 F.3d 657,
660-661 (5th Cir. 2004) (In this securities-fraud class action, the
Court employed a two-day window, concluding that an efficient market
will digest unexpected new information within two days of its
release.).
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Hence, under the foregoing analysis, if information on a company's
Web site is public, then subsequent selective disclosure of that
information--such as to an analyst in a private conversation--would not
trigger Regulation FD because such information, even if material, would
not be non-public.\55\ It is important to note that, although posting
information on a company's Web site in a location and format readily
accessible to the general public would not be ``selective'' disclosure,
the information may not be ``public'' for purposes of determining
whether a subsequent selective disclosure implicates Regulation FD. If,
however, under the foregoing analysis, information on a company's Web
site is not public, then subsequent selective disclosure of that
information, if material, may trigger the application of Regulation FD.
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\55\ The standard to satisfy ``public disclosure'' in Regulation
FD following a selective disclosure is governed by Rule 101(e).
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2. Satisfaction of Public Disclosure Requirement of Regulation FD
Rule 101(e) of Regulation FD requires that once a selective
disclosure has been made, the company must file or furnish a Form 8-K
or use an alternative method or methods of disclosure that is
reasonably designed to provide broad, non-exclusionary distribution of
the information to the public--simultaneously, in the case of an
intentional disclosure, or promptly, in the case of an unintentional
disclosure.\56\ In adopting Regulation FD in 2000, we discussed the
role of company Web sites in satisfying the alternative public
disclosure provisions of the regulation. At the time, we stopped short
of concluding that disclosure on a company Web site would, itself, be
an acceptable method of ``public disclosure'' of material non-public
information for purposes of compliance with Regulation FD, but we
recognized that Web site disclosure and webcasting could constitute
integral parts of a model method of disclosure in satisfaction of the
regulation. With regard to disclosure solely via a company Web site, we
stated that ``[a]s technology evolves and as more investors have access
to and use the Internet * * * we believe that some companies, whose Web
sites are widely followed by the investment community, could use such a
method.'' \57\
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\56\ See Rules 100(a) and 101(e) of Regulation FD.
\57\ See Regulation FD Adopting Release, supra note 41, at
Section II.B.4.b.
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As we stated above in the context of whether information posted on
a company Web site would be ``public'' so that a subsequent selective
disclosure would not implicate Regulation FD, we now believe that
technology has evolved and the use of the Internet has grown such that,
for some companies in certain circumstances, posting of the information
on the company's Web site, in and of itself, may be a sufficient method
of public disclosure under Rule 101(e) of Regulation FD. Companies will
need to consider whether and when postings on their Web sites are
``reasonably designed to provide broad, non-exclusionary distribution
of the information to the public.'' \58\ To do so, companies can look
to the factors we have outlined above regarding the first two elements
of the analysis--whether the company Web site is a recognized channel
of distribution and whether the information is ``posted and
accessible'' and, therefore, ``disseminated.'' \59\ As part of that
evaluation, companies also will need to consider their Web sites'
capability to meet the simultaneous or prompt timing requirements for
public disclosure once a selective disclosure has been made.\60\
Because the company has the responsibility for evaluating whether a
method or combination of methods of disclosure would satisfy the
alternative public disclosure provision of Regulation FD, it remains
the company's responsibility to evaluate whether a posting on its Web
site would satisfy this requirement.\61\
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\58\ See Rule 101(e)(2) of Regulation FD.
\59\ Under Regulation FD, when an issuer makes a selective
disclosure, it must also provide general public disclosure, either
simultaneously or promptly. Thus, the third element of the public
test we discuss above--whether investors and the market have been
afforded a reasonable waiting period to react to the information--
does not apply in analyzing whether the general public disclosure
requirements of Regulation FD have been satisfied.
\60\ For purposes of Regulation FD, a posting on a blog, by or
on behalf of the company, would be treated the same as any other
posting on a company's Web site. The company would have to consider
the factors outlined above to determine if the blog posting could be
considered ``public.''
\61\ We recognized in Regulation FD that ``the issuer may use a
method `or combination of methods' of disclosure, in recognition of
the fact that it may not always be possible or desirable for an
issuer to rely on a single method of disclosure as reasonably
designed to effect broad public disclosure.'' ``[A]n issuer's
methods of making disclosure in a particular case should be judged
with respect to what is `reasonably designed' to effect broad, non-
exclusionary distribution in light of all the relevant facts and
circumstances.'' Regulation FD Adopting Release, supra note 41.
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[[Page 45869]]
B. Antifraud and Other Exchange Act Provisions
The antifraud provisions of the federal securities laws apply to
company statements made on the Internet in the same way they would
apply to any other statement made by, or attributable to, a
company.\62\ This includes postings on and hyperlinks from company Web
sites that satisfy the relevant jurisdictional tests.\63\ As we noted
in the 2000 Electronics Release, companies should be mindful that they
``are responsible for the accuracy of their statements that reasonably
can be expected to reach investors or the securities markets regardless
of the medium through which the statements are made, including the
Internet.'' \64\
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\62\ See, e.g., 1995 Electronics Release, supra note 25, at n.
11 (``The liability provisions of the federal securities laws apply
equally to electronic and paper-based media. For instance, the
antifraud provisions of the federal securities laws as set forth in
Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5
[17 CFR 240.10b-5] thereunder would apply to any information
delivered electronically, as it does to information delivered in
paper.''); 1996 Electronics Release, supra note 25, at Section I, n.
4 (``The substantive requirements and liability provisions of the
federal securities laws apply equally to electronic and paper-based
media. For example, the antifraud provisions of the Exchange Act and
Rule 10b-5 thereunder * * * apply to information delivered and
communications transmitted electronically, to the same extent as
they apply to information delivered in paper form.''); 2000
Electronics Release, supra note 4, at Section II.B. (``It is
important for companies * * * to keep in mind that the federal
securities laws apply in the same manner to the content of their Web
sites as to any other statements made by or attributable to
them.'').
\63\ See 2000 Electronics Release, supra note 4, at Section
II.B.
\64\ See 2000 Electronics Release, supra note 4, at Section
II.B.1.
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Accordingly, a company should keep in mind the applicability of the
antifraud provisions of the federal securities laws, including Exchange
Act Section 10(b) and Rule 10b-5, to the content of its Web site.\65\
These provisions contain a general prohibition on making material
misstatements and omissions of fact in connection with the purchase or
sale of securities.\66\
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\65\ Rule 10b-5 [17 CFR 240.10b-5] makes it unlawful to ``make
any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not
misleading'' (emphasis added). See 2000 Electronics Release, supra
note 4. In addition, Securities Act Section 17(a) [15 U.S.C. 77q(a)]
applies to the offer and sale of securities. See also Prentice,
supra note 18, at 542 (noting that the Commission's antifraud legal
regime under Section 10(b) and Rule 10b-5 applies to all manner of
electronic disclosure).
\66\ Section 10(b) and Rule 10b-5 have a scienter requirement,
unlike some other provisions in the federal securities laws. See,
e.g., Securities Act Section 17(a)(2)[15 U.S.C. 77l(a)(2)]. For
cases discussing the scienter requirement of Section 10(b) and Rule
10b-5, see, e.g., SEC v. McNulty, 137 F.3d 732 (2d Cir. 1998), cert.
denied, 525 U.S. 931 (1998); Lanza v. Drexel & Co., 419 F.2d 1277
(2d Cir. 1973); Hollinger v. Titan Capital, Inc., 914 F.2d 1564,
1569 (9th Cir. 1990); Aaron v. SEC, 446 U.S. 680 (1980).
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In the Rule 10b-5 context, to satisfy the materiality requirement,
``there must be a substantial likelihood that the disclosure of the
omitted fact would have been viewed by the reasonable investor as
having significantly altered the ``total mix'' of information made
available.'' \67\ Whether information posted on a company's Web site is
considered part of the ``total mix'' for purposes of analyzing
materiality is a facts and circumstances determination. As we discuss
below, we believe that companies can take certain steps that affect
whether information located on or hyperlinked from a company's Web site
is part of such ``total mix'' of information.\68\ In this release, we
are providing guidance regarding certain issues that arise under the
antifraud provisions relating to disclosures on company Web sites.
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\67\ TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448-
449 (1976). See also Basic v. Levinson, 485 U.S. 224, 231 (1988). In
Basic v. Levinson, the U.S. Supreme Court ``expressly adopt[ed] the
TSC Industries standard of materiality for the Sec. 10(b) and Rule
10b-5 context.'' Id. at 232.
\68\ In this regard, we believe the ``buried facts'' doctrine
applies to electronic disclosures. Under this doctrine, a court
would consider disclosure to be false and misleading if its overall
significance is obscured because material information is ``buried,''
for example, in a footnote or appendix. We have addressed the
application of the buried facts doctrine in the context of an
introduction or overview section of Item 303 of Regulation S-K--
Management's Discussion and Analysis of Financial Condition and
Results of Operations and summary disclosure in plain English. In
addition, in the context of the use of summary information in the
electronics disclosure context we discuss in Part II.B.3 below, we
note that the failure to include every material disclosure that is
being summarized should not automatically trigger the ``buried
facts'' doctrine. See Commission Guidance Regarding Management's
Discussion and Analysis, Release No. 33-8350 (Dec. 19, 2003) [68 FR
75056] (``MD&A Release''); Plain English Disclosure, Release No. 33-
7497 (Jan. 28, 1998) [63 FR 6370].
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In addition, under certain of our rules, companies may disclose
information exclusively on their Web sites rather than filing such
disclosures or materials on EDGAR. While the provisions of Exchange Act
Section 13(a) and Exchange Act Rules 13a-1 and 12b-20 apply to Exchange
Act filings made by companies with the Commission, such provisions
generally do not apply to disclosures on company Web sites. However, if
a company fails to satisfy a Web site disclosure option that is an
alternative to filing or furnishing an Exchange Act report, an action
could be brought under the Exchange Act reporting provisions based on
the company's failure to file the report.\69\
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\69\ See, e.g., Exchange Act Section 13(a)[15 U.S.C.
78m](requiring companies with a class of securities registered under
the Exchange Act to file reports prescribed by the Commission) and
Exchange Act Rule 13a-1 [17 CFR 240.13a-1](requiring such companies
to file an annual report with the Commission).
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1. Effect of Accessing Previously Posted Materials or Statements on
Company Web sites
In our 2000 Electronics Release, we discussed liability concerns
arising from accessing previously posted materials or statements on a
company's Web site.\70\ Since the publication of our 2000 Electronics
Release, we understand that some companies continue to be concerned
about whether previously posted materials or statements on their Web
site that are accessed at a later time will be considered
``republished'' at that later date, with attendant securities law
liability.\71\ We understand that companies may continue to be
concerned that they may have a duty to update the previously posted
materials or statements if they are considered to be a new statement by
being ``republished'' each time the materials or statements are
accessed on the Web site.\72\ In 2005, we addressed the treatment of
previously posted (which we called historical) information on a
company's Web site in the context of registered offerings under the
Securities Act.\73\ We believe it is now appropriate to provide clarity
with respect to the treatment of such previously posted materials or
statements under the
[[Page 45870]]
antifraud provisions of the federal securities laws.
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\70\ See 2000 Electronics Release, supra note 4, at Section
II.D.
\71\ See id. at Section II.D.5. As discussed in the 2000
Electronics Release, ``a press release disseminated over a wire
service or through other customary means is considered to have been
`issued' once, and thereafter is not recirculated to the
marketplace. The same press release posted on a company's Web site
potentially has a longer life because it provides a record that can
be accessed by investors at any time and upon which investors
potentially could rely when making an investment decision without
independent verification. In effect, a statement may be considered
to be `republished' each time that it is accessed by an investor or,
for that matter, each day that it appears on the Web site.
Commentators have suggested that if a statement is deemed to be
republished, it may potentially give rise to liability under Section
10(b) of the Exchange Act and Rule 10b-5.'' Id.
\72\ Specifically, if previously posted information is
considered republished, companies may be concerned that even if the
information was accurate when initially posted or issued, it may no
longer be current or accurate when it is accessed at a later date.
\73\ See Securities Offering Reform Release, supra note 3, at
Section III.D.3.b.iii.(E)(2).
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We do not believe that companies maintaining previously posted
materials or statements on their Web sites are reissuing or
republishing such materials or information for purposes of the
antifraud provisions of the federal securities laws just because the
materials or statements remain accessible to the public. Of course, the
antifraud provisions would apply to statements contained in posted
materials when such statements were initially made. If a company
affirmatively restates or reissues a statement, the antifraud
provisions would apply to such statements when the company restates or
reissues the statement. This affirmative restatement or reissuance may
create a duty to update the statement so that it is accurate as of the
date it is restated or reissued. As a general matter, we believe that
the fact that investors can access previously posted materials or
statements on a company's Web site does not in itself mean that such
previously posted materials or statements have been reissued or
republished for purposes of the antifraud provisions of the federal
securities laws, that the company has made a new statement, or that the
company has created a duty to update the materials or statements.
In circumstances where it is not apparent to the reasonable person
that the posted materials or statements speak as of a certain date or
earlier period, then to assure that investors understand that the
posted materials or statements speak as of a date or period earlier
than when the investor may be accessing the posted materials or
statements, we believe that previously posted materials or statements
that have been put on a company's Web site should be:
Separately identified as historical or previously posted
materials or statements, including, for example, by dating the posted
materials or statements; and
Located in a separate section of the company's Web site
containing previously posted materials or statements.\74\
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\74\ These considerations mirror those found in Rule 433(e)(2)
under the Securities Act [17 CFR 230.433(e)(2)].
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2. Hyperlinks to Third-Party Information
Another area we addressed previously that continues to raise
questions involves the use of hyperlinks to third-party
information.\75\ Companies include on their Web sites hyperlinks to
third-party information for a variety of reasons, including as part of
their ongoing communications to their customers, investors and the
markets. In our 2000 Electronics Release, we discussed the implications
for the use of hyperlinks from company Web sites to third-party
information in the context of both the Securities Act and the antifraud
provisions of the federal securities laws. While we believe that the
treatment of hyperlinks for purposes of the Securities Act is clear
from our prior interpretation, we understand that companies continue to
be concerned about their liability for hyperlinks to third-party
information included on their Web sites as part of their ongoing
communications to the public, including investors and the markets.\76\
In light of these concerns, we believe it is appropriate to provide
additional guidance to companies as to the circumstances under which
they may have liability for posted information outside the context of
the offer and sale of securities under the Securities Act.
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\75\ A ``hypertext link,'' or ``hyperlink,'' is an electronic
path often displayed in the form of highlighted text, graphics or a
button that associates an object on a web page with another web page
address. It allows the user to connect to the desired web page
address immediately by clicking a computer-pointing device on the
text, graphics or button. See 2000 Electronics Release, supra note
4, at n. 7 (citing Harvey L. Pitt & Dixie L. Johnson, Avoiding
Spiders on the Web: Rules of Thumb for Companies Using Web sites and
E-Mail, in Practising Law Institute, Securities Law & the Internet,
No. 1127 (1999), at 107-118, n. 5).
\76\ See CIFiR Progress Report, supra note 1, at Chapter 4,
Section III.
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Under Section 10(b) of the Exchange Act and Rule 10b-5, a company
can be held liable for third-party information to which it hyperlinks
from its Web site and which could be attributable to the company. As we
explained in the 2000 Electronics Release, whether third-party
information is attributable to a company depends upon whether the
company has: (1) involved itself in the preparation of the information,
or (2) explicitly or implicitly endorsed or approved the
information.\77\ In the case of company liability for statements by
third parties such as analysts, the courts and we have referred to the
first line of inquiry as the ``entanglement'' theory and the second as
the ``adoption'' theory.\78\ While we are addressing the use of
hyperlinks to third-party information in the context of the antifraud
provisions, this guidance does not affect our interpretation regarding
the use of hyperlinks to third-party information in the context of
offers and sales of securities under the Securities Act.\79\
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\77\ See 2000 Electronics Release, supra note 4, at Section
II.B. Of course, as stated in the 2000 Electronics Release, ``in the
context of a document required to be filed or delivered under the
federal securities laws, we believe that when a company embeds a
hyperlink to a Web site within the document, the company should
always be deemed to be adopting the hyperlinked information. In
addition, when a company is in registration, if the company
establishes a hyperlink (that is not embedded within a disclosure
document) from its Web site to information that meets the definition
of an ``offer to sell,'' ``offer for sale'' or ``offer'' under
Section 2(a)(3) of the Securities Act, a strong inference arises
that the company has adopted that information for purposes of
Section 10(b) of the Exchange Act and Rule 10b-5.'' But see
Exemption from Section 101(c)(1) of the Electronic Signatures in
Global and National Commerce Act for Registered Investment
Companies, Release No. 33-7877 (Jul. 27, 2000) [65 FR 47281] at
notes 18-24 and accompanying text (clarifying how this guidance
applies to mutual funds).
\78\ See generally 2000 Electronics Release, supra note 4 at
Sections II.A.4. and II.B.1. As we stated in the 2000 Electronics
Release, ``[i]n the case of hyperlinked information, liability under
the `entanglement' theory would depend upon a company's level of
pre-publication involvement in the preparation of the information.
In contrast, liability under the `adoption' theory would depend upon
whether, after its publication, a company, explicitly or implicitly
endorses or approves the hyperlinked information.''
\79\ See Securities Offering Reform Release, supra note 3, at
Section III.D.3.b.iii.(E); 2000 Electronics Release, supra note 4,
at Section II.B.1.; Securities Act Rule 433.
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Our focus in the 2000 Electronics Release was to help companies
understand what factors may be relevant in determining whether they
have adopted hyperlinked information.\80\ We explained that the
following, non-exhaustive list of factors may influence that analysis:
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\80\ Some commenters on the 2000 Electronics Release criticized
the ``facts-and-circumstances'' approach we adopted, arguing that it
leads to uncertainty and could result in companies providing less
useful information to investors. See, e.g., comment letters from The
Bond Market Association and Fidelity Investments, which are publicly
available at http://www.sec.gov/rules/interp/s71100.shtml or at our
Public Reference Room at 100 F Street, NE., Washington DC 20549 in
File No. S7-11-00.
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Context of the hyperlink--what the company says about the
hyperlink or what is implied by the context in which the company places
the hyperlink;
Risk of confusing the investors--the presence or absence
of precautions against investor confusion about the source of the
information; and
Presentation of the hyperlinked information--how the
hyperlink is presented graphically on the Web site, including the
layout of the screen containing the hyperlink.\81\
---------------------------------------------------------------------------
\81\ See 2000 Electronics Release, supra note 4, at Section
II.B.1.
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We understand that some companies may still wish for further
elaboration of some of the issues addressed regarding the application
of the adoption theory. Accordingly, we are providing further guidance
on these issues as they relate to the adoption theory.
[[Page 45871]]
In evaluating the potential antifraud liability of a company under
the adoption theory with respect to third-party information to which
the company provides a hyperlink in the context of providing
information about the company and its business, we believe the focus
should be on whether a company has explicitly or implicitly approved or
endorsed the statement of a third-party such that the company should be
liable for that statement. Because an explicit approval or endorsement
is, by definition, plainly evident, the analytical scrutiny is on the
circumstances or conditions under which a company can fairly be said to
have implicitly approved or endorsed a third-party statement by
hyperlinking to that information. The key question in the hyperlinking
context, therefore, is: Does the context of the hyperlink and the
hyperlinked information together create a reasonable inference that the
company has approved or endorsed the hyperlinked information?
We believe that in evaluating whether a company has implicitly
approved or endorsed information on a third-party Web site to which it
has established a hyperlink, one important factor is what the company
says about the hyperlink, including what is implied by the context in
which the company places the hyperlink.\82\ In considering the context
of the hyperlink, we begin with the assumption that providing a
hyperlink to a third-party Web site indicates that the company believes
the information on the third-party Web site may be of interest to the
users of its Web site. Otherwise, it is unclear to us why the company
would provide the link. To avoid potential confusion or
misunderstanding about what the company's view or opinion is with
respect to the information to which the company has provided a
hyperlink, the company should consider explaining the context for the
hyperlink--and thereby make explicit, rather than implicit, why the
hyperlink is being provided. For example, a company might explicitly
endorse the hyperlinked information or suggest that the hyperlinked
information supports a particular assertion on the company's Web site.
Alternatively, a company might simply note that the third-party Web
site contains information that may be of interest or of use to the
reader.
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\82\ We note that companies can have different audiences for
different pages on their Web sites. For example, a consumer products
company may have customer-oriented pages, or supplier-oriented
pages, on its Web site, as well as investor-oriented pages, such as
an investor relations page. Because of its context, a third-party
hyperlink on a customer-oriented page--for example, the company
manufactures laundry detergent and provides a link to a third-party
clothing care Web site--has different implications from a securities
law perspective than a hyperlink to a research analyst's report on
an investor-oriented page.
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The nature and content of the hyperlinked information also should
be considered in deciding how to explain the context for the hyperlink.
The degree to which a company is making a selective choice to hyperlink
to a specific piece of third-party information likely will indicate the
extent to which the company has a positive view or opinion about that
information. For example, a company including a hyperlink to a news
article that is highly laudatory of management should consider
explanatory language about the source and why the company is providing
the hyperlink in order to avoid the inference that the company is
commenting on or even approving its accuracy, or was involved in its
preparation. Conversely, the more general or broad-based the
hyperlinked information is, the company may consider providing a more
general explanation. For example, if a company has a media page and
simply provides hyperlinks to recent news articles, both positive and
negative, about the company, the risk that a company may have liability
regarding a particular article or that it endorses or approves of each
and every news article may be reduced. In this case, a title such as
``Recent News Articles'' may be all the explanation that a company may
determine is needed to avoid being considered to have adopted the
materials.\83\
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\83\ Of course, a further explanation may be necessary depending
on the manner by which a company limits the sources of its recent
news articles. For example, if a company only includes recent news
articles published by bullish industry journals, the limited nature
of the sources should be clear and the company should explain why it
selected the sources identified.
In addition, any SEC-registered investment adviser (or
investment adviser that is required to be SEC registered) that
includes, in its Web site or in other electronic communications, a
hyperlink to postings on third-party Web sites, should carefully
consider the applicability of the advertising provisions of the
Investment Advisers Act of 1940 (``Advisers Act''). Under the
Advisers Act, it is a fraudulent act for an investment adviser to,
among other things, refer to testimonials in its advertisements. See
Section 206(4) of the Advisers Act [15 U.S.C. 806-6(4)]; Rule
206(4)-1(a)(1) [17 CFR 275.206(4)-1(a)(1)].
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In addition to an explanation of why a company is including
particular hyperlinks on its Web site, a company also may determine to
use other methods, including ``exit notices'' or ``intermediate
screens,'' to denote that the hyperlink is to third-party information.
While the use of ``exit notices'' or ``intermediate screens'' helps to
avoid confusion as to the source of the third-party information, no one
type of ``exit notice'' or ``intermediate screen'' will absolve
companies from antifraud liability for third-party hyperlinked
information.\84\ For example, if there is only one analyst report out
of many that provides a positive outlook on the company's prospects,
and the company provides a hyperlink to the one positive analyst report
and to no other, and does not mention the fact that all the other
analyst reports are negative on the company's prospects, then even the
use of an ``exit notice'' or ``intermediate screen'' or explanatory
language may not be sufficient to avoid the inference that the company
has approved or endorsed the one positive analyst's report.
---------------------------------------------------------------------------
\84\ We do not believe that the failure to use ``exit notices''
or ``intermediate screens'' should automatically result in a
determination that a company has adopted third-party information.
---------------------------------------------------------------------------
With regard to the use of disclaimers generally, as we noted in the
2000 Electronics Release, we do not view a disclaimer alone as
sufficient to insulate a company from responsibility for information
that it makes available to investors whether through a hyperlink or
otherwise.\85\ Accordingly, a company would not be shielded from
antifraud liability for hyperlinking to information it knows, or is
reckless in not knowing, is materially false or misleading. This would
be the case even where the company uses a disclaimer and/or other
features designed to indicate that it has not adopted the false or
misleading information to which it has provided the hyperlink. Our
concern is that an alternative approach could result in unscrupulous
companies using disclaimers as shields from liability for making false
or misleading statements. We again remind companies that specific
disclaimers of antifraud liability are contrary to the policies
underpinning the federal securities laws.\86\
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\85\ See 2000 Electronics Release, supra note 4, at Section
II.B.1.a. and n. 61.
\86\ See id.
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3. Summary Information
A third area in which we are providing guidance is with respect to
companies' use of summaries or overviews to present information,
particularly financial information, on their Web sites.\87\ We
understand that
[[Page 45872]]
some companies may be concerned as to the treatment of summary or
overview information contained on their Web sites under the antifraud
provisions of the federal securities laws.\88\ By definition, these
summaries or overviews do not, without more, include the more detailed
information from which they are derived or on which they are based.
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\87\ Our discussion is intended to provide guidance generally
regarding a company's use of summarized information. This guidance
does not supersede more specific requirements covering the use of
summaries or their content that are or may be contained in our
rules. See e.g., Mutual Fund Summary Prospectus Proposing Release,
supra note 27.
\88\ See CIFiR Progress Report, supra note 1, at Chapter 4,
Section III.
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We have encouraged and, in some cases, required the inclusion of
summaries or overviews in prospectuses and in Exchange Act reports to
highlight important information for investors.\89\ We believe that
summary information can be particularly appropriate and helpful to
investors, such as when it relates to lengthy or complex information.
For similar reasons, we believe the use of summaries or overviews on
Web sites can be helpful to investors. We note, however, that summaries
or overviews standing alone and which a reasonable person would not
perceive as summary, and which do not provide additional information to
alert a reader as to where more detailed information is located, could
result in investors not necessarily understanding that the statements
should be read in the context of the information being summarized.
Consequently, when using summaries or overviews on Web sites, companies
should consider ways to alert readers to the location of the detailed
disclosure from which such summary information is derived or upon which
such overview is based, as well as to other information about a company
on a company's Web site.
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\89\ We have encouraged or required summaries or overviews in
the following contexts:
We have suggested that Management's Discussion and
Analysis disclosures could benefit from an introductory section or
overview providing context for the more detailed information
following it and thereby facilitating a reader's understanding of
the disclosures. See MD&A Release, supra note 68. In that release,
we also encouraged companies to consider using other means of
providing clearer disclosure, such as tabular presentations and the
use of section headings to assist readers in following the flow of
the MD&A. We have also encouraged companies to use a ``layered''
approach in their MD&A disclosures.
We adopted the Compensation Discussion and Analysis
section in Regulation S-K Item 402 to provide a narrative,
analytical overview to executive compensation disclosure. See
Executive Compensation and Related Person Disclosure, Release No.
33-8732A, at Section I (Aug. 29, 2006) [71 FR 53158].
We require prospectuses to include a plain English
``summary of the information in the prospectus where the length or
complexity of the prospectus makes a summary useful.'' See Item
503(a) of Regulation S-K [17 CFR 229.503(a)].
We recently proposed rules that would require key
information to appear in a summary section at the front of mutual
fund prospectuses. See Mutual Fund Summary Prospectus Proposing
Release, supra note 27.
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In presenting information in a summary format or as part of an
overview, companies should consider the context in which such
information is presented. Just as with hyperlinks to third-party
information, companies should consider using appropriate explanatory
language to identify summary or overview information. As an example, a
summary page on a company Web site that is identified and presented in
a manner similar to an introductory page in a ``glossy'' annual
report--with graphs and charts illustrating key performance metrics
derived from financial statements contained in later pages of the same
document--would likely be viewed as a summary. Conversely, where
summary information is not identified as such, the reader may be
confused and fail to appreciate that the information is not complete.
We encourage companies that use summaries or overviews of more
complete information located elsewhere on their Web sites to consider
employing disclosure and other techniques designed to highlight the
nature of summaries or overviews in order to help minimize the chance
that investors would be confused as to the level of incompleteness
inherent in these disclosures. To this end, companies may wish to
consider the following techniques that may highlight the nature of
summary or overview information:
Use of appropriate titles. An appropriate title or heading
that conveys the summary, overview or abbreviated nature of the
information could help to avoid unnecessary confusion;
Use of additional explanatory language. Companies may
consider using additional explanatory language to identify the text as
a summary or overview and the location of the more detailed
information;
Use and placement of hyperlinks. Placing a summary or
overview section in close proximity to hyperlinks to the more detailed
information from which the summary or overview is derived or upon which
the overview is based could help an investor understand the appropriate
scope of the summary information or overview while making clearer the
context in which the summary or overview should be viewed; \90\ and
---------------------------------------------------------------------------
\90\ We believe this approach is analogous to the ``envelope''
theory, which describes how and when information from different
sources may be deemed to have been delivered together. In the 1995
Electronics Release, supra note 25, we explained that documents
appearing in close proximity to each other on the same Web page and
documents hyperlinked together will be considered delivered
together, analogizing it to delivery of the information in paper
form in the same envelope. Id. at Questions 15 and 16. Similarly,
providing hyperlinks to the complete information from which the
summary is derived or upon which an overview is based can lead to
this information being considered to be provided together or, at a
minimum, directing the reader to the location of the more detailed
information.
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Use of ``layered'' or ``tiered'' format. In addition to
providing hyperlinks to more complete information, companies can
organize their Web site presentations such that they present the most
important summary or overview information about a company on the
opening page, with embedded links that enable the reader to drill down
to more detail by clicking on the links.\91\ In this way, viewers can
follow a logical path into, and thereby obtain increasingly greater
details about, the financial statements, a company's strategy and
products, its management and corporate governance, and the many other
areas in which investors and others may have an interest.
---------------------------------------------------------------------------
\91\ We have taken a similar approach in our proposed rules
regarding prospectus delivery for open-end mutual funds. See the
Mutual Fund Summary Prospectus Proposing Release, supra note 27.
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4. Interactive Web Site Features
We believe that it is important to provide guidance that will
promote robust use by companies of their Web sites. One example of such
robust use is making the company Web site interactive. We note that
companies are increasingly using their Web sites to take advantage of
the latest interactive technologies for communicating over the Internet
with various stakeholders, from customers to vendors and investors.
These communications can take various forms, ranging from ``blogs'' to
``electronic shareholder forums.'' Since all communications made by or
on behalf of a company are subject to the antifraud provisions of the
federal securities laws, companies should consider taking steps to put
into place controls and procedures to monitor statements made by or on
behalf of the company on these types of electronic forums.\92\
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\92\ Whether an individual is acting on behalf of a company
will, as always, be a facts and circumstances determination. We note
that companies generally have policies on who may speak on behalf of
the company and on maintaining the confidentiality of company
information for purposes of Regulation FD compliance and insider
trading and tipping liability.
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Company-sponsored ``blogs,'' which can include CEO blogs and
investor relations blogs, among others, are recent additions to company
Web sites.\93\
[[Page 45873]]
Companies can use these for a variety of purposes, including allowing
for the exchange of opinions and ideas between a company's management
or certain other employees and its various stakeholders.\94\ The open
format of blogs makes them an attractive forum for ongoing
communications between and among companies and their clients,
customers, suppliers, shareholders and other stakeholders.
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\93\ A ``blog'' has been defined as ``[a] Web site (or section
of a Web site) where users can post a chronological, up-to-date e-
journal entry of their thoughts. [I]t is an open forum communication
tool that, depending on the Web site, is either very individualistic
or performs a crucial function for an organization or company. There
are three basic varieties of blogs: those that post links to other
sources, those that compile news and articles, and those that
provide a forum for opinions and commentary.'' See http://www.netlingo.com/lookup.cfm?term=blog.
\94\ For example, a manufacturing company could sponsor a blog
for its staff tasked with designing, developing and troubleshooting
products. Vendors and end-users likely would find such a forum
helpful. Shareholders also may welcome the opportunity to view and/
or join a discussion of the uses of a company's existing products to
better understand one of the means a company derives revenues,
especially with the ``front-line'' employees responsible for those
products.
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Similar to blogs, electronic shareholder forums can serve as a
means for investors to communicate with companies and each other and to
provide investor feedback on various issues in a real-time basis, and
we have adopted rules to encourage their use.\95\ These forums are
designed to promote interactive communication--between and among the
company and its various stakeholders and with the public at large.
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\95\ See Electronic Shareholder Forums, Release No. 34-57172
(Jan. 18, 2008) [73 FR 4450] (``Shareholder Forum Release''). In
this release, we adopted amendments to the proxy rules to clarify
that participation in an electronic shareholder forum that could
potentially constitute a solicitation subject to the proxy rules is
exempt from most of the proxy rules if all of the conditions to the
exemption are satisfied. In addition, the amendments state that a
shareholder, company, or third party acting on behalf of a
shareholder or company that establishes, maintains or operates an
electronic shareholder forum will not be liable under the federal
securities laws for any statement or information provided by another
person participating in the forum. The amendments did not provide an
exemption from Rule 14a-9 [17 CFR 240.14a-9], which prohibits fraud
in connection with the solicitation of proxies. The general
disclosure obligations under the federal securities laws continue to
apply to these forums as well. See id. at n. 88 (referring
participants in shareholder forums to the requirements of Regulation
FD); and id. at n. 24 (reminding participants that the antifraud
provisions of Rule 14a-9 may require a participant in a forum that
otherwise allows anonymity to identify itself if failure to do so in
the circumstance would result in omission of a ``material fact
necessary in order to make the statements therein not false or
misleading.'').
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We acknowledge the utility these interactive Web site features
afford companies and shareholders alike, and want to promote their
growth as important means for companies to maintain a dialogue with
their various constituencies. As we noted in the Shareholder Forum
Release, companies may find these forums ``of use in better gauging
shareholder interest with respect to a variety of topics,'' and the
forums ``could be used to provide a means for management to communicate
with shareholders by posting press releases, notifying shareholders of
record dates, and expressing the views of the company's management and
board of directors.'' \96\ Accordingly, we are providing the following
guidance for companies hosting or participating in blogs or electronic
shareholder forums:
---------------------------------------------------------------------------
\96\ See id. at Section I.
---------------------------------------------------------------------------
The antifraud provisions of the federal securities laws
apply to blogs and to electronic shareholder forums. As stated above,
companies are responsible for statements made by the companies, or on
their behalf, on their Web sites or on third party Web sites, and the
antifraud provisions of the federal securities laws reach those
statements. While blogs or forums can be informal and conversational in
nature, statements made there by the company (or by a person acting on
behalf of the company) will not be treated differently from other
company statements when it comes to the antifraud provisions of the
federal securities laws. Employees acting as representatives of the
company should be aware of their responsibilities in these forums,
which they cannot avoid by purporting to speak in their ``individual''
capacities.
Companies cannot require investors to waive protections
under the federal securities laws as a condition to entering or
participating in a blog or forum. Any term or condition of a blog or
shareholder forum requiring users to agree not to make investment
decisions based on the blog's or forum's content or disclaiming
liability for damages of any kind arising from the use or inability to
use the blog or forum is inconsistent with the federal securities laws
and, we believe, violates the anti-waiver provisions of the federal
securities laws.\97\ A company is not responsible for the statements
that third parties post on a Web site the company sponsors, nor is a
company obligated to respond to or correct misstatements made by third
parties. The company remains responsible for its own statements made
(including statements made on its behalf) in a blog or a forum.\98\
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\97\ See Securities Act Section 14 [15 U.S.C. 77n]; Exchange Act
Section 29(a) [15 U.S.C. 78cc]; Section 47(a) of the Investment
Company Act of 1940 (``Investment Company Act'') [15 U.S.C. 80a-
46(a)] and Section 215(a) of the Advisers Act [15 U.S.C. 806-15].
\98\ See, e.g., Rule 14a-17(b) [17 CFR 240.14a-17(b)]. Of
course, the company may be held responsible under the ``adoption
theory'' or ``entanglement theory'' if the company adopts, endorses,
or approves the statement. See generally Section II.B.2., supra.
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C. Disclosure Controls and Procedures
Postings on a company's Web site also may implicate Exchange Act
rules governing certification requirements relating to disclosure
controls and procedures.\99\ Under these rules, a company's principal
executive officer and principal financial officer must certify that
they are responsible for establishing and maintaining disclosure
controls and procedures, that such controls and procedures have been
designed to ensure that material information relating to the company is
made known to them, that they have evaluated the effectiveness of the
disclosure controls and procedures as of the end of a reporting period,
and that they have disclosed in the company's periodic report for that
reporting period their conclusions about the effectiveness of those
controls and procedures.\100\
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\99\ Exchange Act Rules 13a-15(e) [17 CFR 240.13a-15(e)] and
15d-15(e) [17 CFR 240.15d-15(e)] and Investment Company Act Rule
30a-3(c) [17 CFR 270.30a-3(c)] define ``disclosure controls and
procedures'' as those controls and procedures designed to ensure
that information required to be disclosed by the company in the
reports that it files or submits under the Exchange Act is:
(1) ``recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms,'' and
(2) ``accumulated and communicated to the company's management *
* * as appropriate to allow timely decisions regarding required
disclosure.''
\100\ See Exchange Act Rule 13a-14(a) [17 CFR 240.13a-14(a)];
Exchange Act Rule 15d-14(a)[17 CFR 240.15d-14(a)]; Item
601(b)(31)(i) of Regulation S-K [17 CFR 229.601(b)(31)(i)];
Investment Company Act Rule 30a-2(a) [17 CFR 270.30a-2(a)].
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As discussed above in Section I.B, we have adopted rules permitting
companies to satisfy certain Exchange Act disclosure obligations by
posting that information on their Web sites as an alternative to
providing that information in an Exchange Act report.\101\ If a company
elects to satisfy such disclosure obligations by posting the
information on its Web site, disclosure controls and procedures would
apply to such information because it is information required to be
disclosed by the company in Exchange Act reports. Failure to make those
disclosures on the company's Web site would result in an Exchange Act
report being incomplete. For example, if the company failed to disclose
waivers of its code of ethics on its Web site, it would need to file an
Item 5.05 Form 8-K; if the company
[[Page 45874]]
failed to disclose its board policy on director attendance at the
annual meeting of security holders on its Web site, it would need to do
so in its proxy statement.\102\ Hence, companies must make sure that
their disclosure controls and procedures are designed to address the
disclosure of such information on their Web sites.
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\101\ See Section I.B, supra.
\102\ See Instruction to Item 407(b)(2) of Regulation S-K [17
CFR 229.407(b)(2)].
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On the other hand, disclosure controls and procedures do not apply
to other disclosures of information on a company's Web site. This means
that the principal executive officer and principal financial officer
will not be disclosing their conclusions regarding the effectiveness of
any controls that a company may have in place regarding its Web site
disclosure of information, other than those controls with respect to
information that is posted as an alternative to being provided in an
Exchange Act report. That said, other disclosures on a company's Web
site are subject to antifraud liability, and companies also need to
consider whether such disclosures are in compliance with Regulation FD,
the Securities Act, and the federal proxy rules, among others.
D. Format of Information and Readability
The nature of online information is increasingly interactive, not
static. The inability to print a particular browser screen or
presentation, particularly one designed for interactive viewing and not
for reading outside the electronic context, is not inherently
detrimental to its readability. We do not think it is necessary that
information appearing on company Web sites satisfy a printer-friendly
standard \103\ unless our rules explicitly require it.\104\ For
example, our notice and access model requires that electronically
posted proxy materials be presented in a format ``convenient for both
reading online and printing on paper.'' \105\ Hence, all other
information on a company's Web site need not be made available in a
format comparable to paper-based information.\106\
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\103\ See 1996 Electronics Release, supra note 25 at Section
II.A.2. We use the term ``printer-friendly'' to describe a version
of a web page that is formatted for printing. For example, if a web
page includes advertising and navigation, those items may be removed
to format the relevant content for printing on standard size paper.
\104\ For example, Exchange Act Rule 14a-16(c) [17 CFR 240.14a-
16(c)] requires proxy materials to be presented in a format
convenient for both reading online and printing in paper when
delivered electronically. See the text accompanying note [97] supra.
See Shareholder Choice Release, supra note 21, at n. 35: ``We
believe that requiring readable and printable formats is important
so that shareholders have meaningful access to the proxy
materials.'' Similarly, proposed Rule 498 under the Securities Act
would permit the obligation to deliver a statutory prospectus
relating to a mutual fund to be satisfied by sending or giving a
summary prospectus and providing the statutory prospectus online. If
provided online, proposed Securities Act Rule 498(f)(2)(i) would
require that the statutory prospectus be presented in a format that
is ``convenient for both reading online and printing on paper.'' See
Mutual Fund Summary Prospectus Proposing Release, supra note 27, at
Section II.B.3. and n. 113.
\105\ See Exchange Act Rule 14a-16(c); Internet Proxy Release,
supra note 10, at n. 82.
\106\ See 1996 Electronics Release, supra note 25, at Section
II.A.2. As we noted in the 2000 Electronics Release, if special
software is required in order to view information aimed at investors
that a company puts on its Web site, we believe the company should
make a free, downloadable version of the software available on the
Web site or the site should contain information on the location
where the required software may be downloaded free of charge so that
all investors can effectively access the information provided. In
the case of interactive data, we have taken a different approach. We
have proposed that companies that maintain Web sites post on their
Web sites the same interactive data they file or furnish with
certain Exchange Act reports and Securities Act registration
statements. We have not proposed, however, that registrants also
provide interactive data viewers (or information on how to obtain
viewers) on their Web sites. Instead, we have determined to allow
third parties to develop viewers, anticipating that these viewers
will, over time, become more readily accessible at a little or no
cost to investors. The Commission makes several interactive data
viewers available through its Web site at http://www.sec.gov/spotlight/xbrl/xbrlwebapp.shtml. See Interactive Data Proposing
Releases, supra note 14, at Section II.A, and supra note 15.
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III. Request for Comment
We invite interested parties to submit written comment on any other
approaches or issues involved in facilitating the use of electronic
media, including as a result of technological developments, to further
the disclosure purposes of the federal securities laws.
List of Subjects in 17 CFR Parts 241 and 271
Securities.
Amendment of the Code of Federal Regulations
0
For the reasons set out in the preamble, Title 17 Chapter II of the
Code of Federal Regulations is amended as set forth below:
PART 241--INTERPRETIVE RELEASES RELATING TO THE SECURITIES EXCHANGE
ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER
0
Part 241 is amended by adding Release No. 34-58288 and the release date
of August 1, 2008, to the list of interpretive releases.
PART 271--INTERPRETIVE RELEASES RELATING TO THE INVESTMENT COMPANY
ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER
0
Part 271 is amended by adding Release No. IC-28351 and the release date
of August 1, 2008, to the list of interpretive releases.
By the Commission.
Dated: August 1, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-18148 Filed 8-6-08; 8:45 am]
BILLING CODE 8010-01-P