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Appendix II
SEC Actions and Remaining Concerns of
Regular Users

The SEC actions described may be the main reason for the decline in the number of areas of concern by regular users and the favorable comments about SEC reference room management.

Remaining Concerns of Regular Users

The two remaining areas of concern were the closed microfiche files and the contractor's earlier access to filings.

Closed Microfiche Files

After SEC closed the microfiche files, regular users told us that SEC staff were taking too long to fill their microfiche requests and frequently were unable to locate them at all.

According to SEC staff, microfiche files must be maintained in an orderly condition so that the information will be readily available to the public. Only by controlling access to the microfiche files could they ensure the orderly condition of those files. They cited 15 years of experience with open files in a disorderly condition in supporting their decision to keep the files closed. They were also concerned with theft of the microfiche, and they claimed that if the files were open they could not control theft. They stated further that if the files were open they could not ensure that charge-out slips would be left when microfiche was in use, that microfiche would be returned in the allowable charge-out time periods, or that the microfiche would be properly filed after it had been used.

GAO Observations

Open microfiche files might provide operating economies to SEC because
fewer staff may be required if files are open and users help themselves.
Researchers could also benefit by being able to browse through material
when they are uncertain about the specific document they seek. How-
ever, on balance, we agree with SEC's closing of the files. Closed
microfiche files may increase the time for obtaining materials, but such
a policy makes it easier to maintain orderly and secure files so that the
materials will be available to all. Moreover, an open files policy may also
increase the time for obtaining materials if files thereby become so dis-
orderly that it is difficult to locate materials.

Closed microfiche files require more staff than an open system of files in which a self-help policy is permitted. SEC tried a closed access system before and returned to open access because of increased demand for microfiche without a commensurate staff increase. The current closed

SEC Actions and Remaining Concerns of
Regular Users

access system can be satisfactorily maintained only if SEC sufficiently staffs the reference room to meet the demand for information.

We analyzed summary records provided by SEC of the time required to fill microfiche requests for 1 week in December 1988. Each record may have included one to six pieces of microfiche. Our analysis of these records indicates that SEC's goal of 1 to 2 hours' turnaround time for microfiche covering the most recent 3 years was met in 93 percent of the requests; the goal of 24 hours' turnaround time for microfiche between 4 and 10 years old was met in 100 percent of the requests.

The reason why some regular users might have concluded that some microfiche could not be located was that SEC staff did not or could not explain the category of “unobtainable" marked on the request slips when microfiche requests were returned unfilled. A new policy was adopted in February 1989 that should eliminate such cases. If a request is returned as unobtainable, it must be further marked by SEC staff to indicate the reason; for example, "unobtainable-charged out” or “unobtainable-nonpublic request."

Earlier Access to Filings

According to regular users, SEC's contractor for producing microfiche copies of corporate filings received paper copies of certain time-sensitive (Williams Act) filings in the document control center before they were made available in the reference room. Thus the contractor could have an unfair advantage over other vendors in marketing the information contained in these filings.

GAO Observations

SEC's method of distributing filings enabled its contractor to gain access to Williams Act filings before regular users did. Although these filings were delivered first to the reference room, they were processed to facilitate subsequent shelving and retrieval before they were released to users of the reference room.' From the perspective of the regular users, information from SEC filings is not public until that information is released to users in SEC's public reference room.

While the filings were being processed in the reference room, the messenger delivered the contractor's copy in the document control center. Because the processing time in the reference room could exceed the time

The processing consisted mainly of labeling each filing with a control number, and labeling printouts of document titles and file folders with corresponding control numbers.

Appendix II
SEC Actions and Remaining Concerns of
Regular Users

it took the messenger to deliver the filings to the contractor, the contractor could receive earlier access. Indeed, in most of the instances we observed, this processing enabled the contractor to pick up his copies before they were released in the reference room.

We discussed the need to eliminate the contractor's earlier access to information with SEC reference room officals. They told us they planned to eliminate nearly all SEC staff processing of Williams Act filings which they later said had been accomplished. Regular users decided among themselves to give these filings the batch numbers SEC staff had been assigning to help the users later find and retrieve the information.

Legal Issues

The following legal issues were raised by the former Subcommittee Chairman's July 14, 1988, letter, and we are providing Gao's opinions on these issues.

Issue 1

Did SEC's action in closing direct user access to microfiche files in its public reference room violate any applicable statute or regulation?

GAO Opinion

No. Neither the statutes nor regulations governing SEC's actions in making its files available to the public address this specific issue. In our opinion, this action is a matter of internal reference room management and operations.

Two separate sets of statutory requirements regulate SEC's actions in making information available to the public. First, provisions in a variety of securities laws, including the Securities Act of 1933, 15 U.S.C. Sec. 77f(d); the Securities Exchange Act of 1934, 15 U.S.C. Sec. 78m(f)(3); the Public Utility Holding Company Act of 1938, 15 U.S.C. Sec. 79v(a); the Investment Company Act of 1940, 15 U.S.C. Sec. 80a-44(a)(b); and the Investment Advisors Act of 1940, 15 U.S.C. Sec. 80b-10(a) govern public disclosure of SEC filings.


Second, under the separate requirements of the Freedom of Information Act (FOIA), 5 U.S.C. Sec. 552, every federal agency must (unless specifically exempted by FOIA provisions found at 5 U.S.C. Sec. 552[b), upon any reasonably descriptive request for records in compliance with the agency's FOIA procedures, provide these records promptly to the requester (5 U.S.C. Sec. 552[a[3]).

SEC's regulations implementing both its own securities disclosure statutes and FOIA are found at 17 C.F.R. Part 200. Under 17 C.F.R. Sec. 200.80(c)(1), SEC provides that:

“In order to disseminate records, including those listed in Appendix A to this section, the Commission has a specially staffed and equipped public reference room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. (202-272-7450) and public reference facilities in some regional offices."

As a representative example, 15 U.S.C. Sec. 77f(d) provides: "The information contained in or filed with any registration statement shall be made available to the public under such regulations as the Commission may prescribe, and copies thereof, photostatic or otherwise, shall be furnished to every applicant at such reasonable charge as the Commission may prescribe."

Appendix IV
Legal Issues

Requests for access to records available through the Commission's public reference facilities may be made in person during normal business hours at those facilities or by mail (17 C.F.R. Sec. 200.80[d]1]).

Either closed or open microfiche files are plainly permissible under the applicable statutes and SEC regulations. SEC went from an open-stack policy to closed stacks for a brief period of time, then back to open stacks when the staffing level of the reference room could not handle the demand—all without significant change in the applicable regulation.? This change is a matter of SEC's internal operation of its public reference facility.

Issue 2

Did the manner in which SEC changed microfiche access provisions in its public reference room (without notice and opportunity for comment) violate any applicable statutes or regulations?

GAO Opinion

No. SEC's decision to close direct public access to its microfiche files was an internal policy decision. SEC's decision to change this policy on very short notice did not violate the Freedom of Information Act or any general requirements for regulatory notice and comment as found in the Administrative Procedures Act.

Under FOIA, at 5 U.S.C. Sec. 552(a)(1)(A), an agency must publish in the
Federal Register descriptions of the places at which, employees from
whom, and methods by which the public may obtain information, make
submittals or requests for information, or obtain decisions. Furthermore,
an agency must publish in the Federal Register any amendment, revi-
sion, or repeal of the above material (5 U.S.C. Sec. 552[a]1[ED). As dis-
cussed in response to issue 1, the provisions of 17 C.F.R. Part 200,
specifically at 200.80(a), set out in general terms the procedures by
which the public may obtain information from SEC's public reference
rooms. These regulations are sufficiently general to give SEC the discre-
tion to provide open or closed microfiche access. And as already noted,
SEC has changed its reference room policy several times over the past 10

2 Although the language at 17 C.F.R. Sec. 200.80(a) was revised in June 1987, exchanging the term "requests for inspection of records" to "requests for access to records," this change is not significant for purposes of this discussion. (See 52 Fed. Reg. 24146 (1987).)

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