Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, September 17, 2010

SEC Proposes New Disclosure Rules on Short-Term Borrowing

The SEC today voted unanimously to propose measures that would require public companies to disclose additional information to investors about their short-term borrowing arrangements.  The SEC's proposal would shed a greater light on a company's short-term borrowing practices, including what some refer to as balance sheet "window-dressing." The proposed rules are aimed to enable investors to better understand whether amounts of short-term borrowings reported at the end of reporting periods are consistent with amounts outstanding throughout the reporting periods.

Many financial institutions and other companies engage in short-term borrowing in order to fund operations. These financing arrangements can range from commercial paper, repurchase agreements, letters of credit, promissory notes and factoring. They generally mature in a year or less.  The additional short-term borrowing disclosure information required under the proposed rules would be presented in the Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) section of a company's quarterly and annual reports.

The Commission also voted to issue an interpretive release that will provide guidance about existing requirements for MD&A disclosure about liquidity and funding.

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