Appendix I Background and Objectives, Scope, and Methodology Background The Securities Act of 1933 and the Securities Exchange Act of 1934 SEC receives corporate filings in multiple copies in paper form at its When SEC's reference room was moved to its current location at 450 5th St., N.W., Washington, D.C., the microfiche files were initially closed to the public, and SEC staff filled the public's requests. (The files were completely open to the public in the prior location.) However, increased demand for microfiche files without a commensurate increase in SEC staff soon led the agency to open the files to the public again. According to SEC staff, the microfiche files became disorderly. On June 20, 1988, SEC closed direct public access to the microfiche files to regain control of and restore order to the files and to implement a new filing system. Regular users expressed concern over being denied direct access to the files and also expressed dissatisfaction with other aspects of the reference room's operation. The reference room in Washington, D.C., is used primarily by employees of companies (called regular users) who research and sell to clients copies of and information from corporate filings and other documents. The number of filings made with the SEC has increased significantly in recent years, as has the demand for information from those filings and the number of regular users. Regular users may be assigned space in the Appendix I Background and Objectives, Scope, and Methodology reference room (designated desks or carrels) at no charge and are permitted to install telephones at their own expense. Of 64 carrels, 48 are assigned to regular users, with the remaining 16 designated for the public. The microfilm contractor does not charge SEC for the microfiche it produces for the agency. The contractor provides photocopying and microfiche copying machines in the reference room and charges the public (including regular users) SEC-approved prices for these copying services. The contractor also sells information from and copies of corporate filings and other documents to clients in competition with regular users of the reference room. In contrast to regular users, the contractor is not assigned space in the reference room and uses its own copies of filings, received for microfilming purposes, and the copies and microfiche it produces from them to provide these services. During the interval between the time SEC receives a filing in paper form and the time the microfiche copy is made, a paper copy is available in the reference room for inspection and copying. There is considerable demand for many of these filings, particularly when they are initially received in the reference room. In order to facilitate initial access, paper copies are systematically circulated among regular users who wish to use or copy them (“rotation"). Each regular user may use the paper documents on rotation for specified periods of time, from 1 to 1-1/2 hours, depending on the type of filing. Demand is especially great for certain filings called Williams Act (82 Stat. 454, as amended) filings. These filings contain particularly timesensitive information relating to mergers and acquisitions that can be extremely valuable to potential investors. Recognizing this demand, SEC makes two copies of these filings available hourly in the reference room for inspection and copying and has provided two separate rotations among users for these filings. An additional single copy of Williams Act filings is also made available hourly to SEC's contractor for producing microfiche copies, and these copies are placed in a tray separate from the container in which all other filings are placed. The contractor picks up other filings in batches twice daily. The contractor's copies are made available in SEC's document control center, a room across the lobby from the public reference room. Appendix I Background and Objectives, Scope, Objectives, Scope, and Until July 1988, the contractor's copies of Williams Act filings were made available before these filings were delivered to the reference room. Since then, the contractor's copies have not been made available until after copies have been delivered to the public reference room. As stated previously, our objectives were to (1) identify the concerns of regular users of SEC's Washington, D.C., public reference room, (2) obtain SEC staff views on these concerns, (3) provide any observations and recommendations we had on areas of concern, and (4) identify and give opinions on relevant legal issues. In August 1988, we interviewed nine regular users of the reference room who contacted us or were referred to us. The regular users related many complaints. We identified six areas that were of concern to more than one regular user, that is, at least two of the nine users had the same complaints. (See app. II.) After changes in the reference room rules became effective in November 1988, we again interviewed regular users. We broadened our contacts to include all regular users of the reference room who were assigned carrels (21 firms) plus 2 other regular users. Eighteen regular users responded, and they indicated that two of the original six areas of concern remained after November 1988. To qualify as a remaining area of concern, a complaint had to be common to at least 4 of the 18 regular users, equivalent to the same proportion used for identifying the earlier six concerns.1 'The same two remaining areas of concern would have emerged if the threshold level of commonality had been three instead of four. We also note that each of the two remaining areas of concern were common to 10 or more regular users. Appendix II Earlier Concerns of Regular Users Six areas of concern emerged from our interviews with regular users in Closed microfiche files forced users who needed such materials quickly to buy them from SEC's microfiche contractor. SEC's contractor for producing microfiche copies of corporate filings received paper copies of certain time-sensitive filings (Williams Act filings) before they were available in the reference room. This provided the contractor with an unfair advantage over other vendors in marketing this information. SEC did not provide sufficient notice and opportunity for comment on changes in reference room procedures. The rotation system for circulating paper copies of new filings among regular users in the reference room was not a true rotation but a fixed routing favoring older, established regular users. SEC did not establish clear and fair criteria for assigning carrels in the reference room to regular users. Those users assigned carrels were allowed to install phones (at their own expense), thereby facilitating their ability to market information to customers. Staff was insufficient and inadequately trained. Appendix III SEC Actions and Remaining Concerns of SEC Actions About the time we began our work, management of the reference room SEC reallocated carrels in November 1988 to provide at least one SEC also adopted new rules for the operation of its reference room in November 1988. Among the changes in rules was a new system for rotating filings among regular users. This system eliminates the fixed routing system that favored older, established regular users. SEC now prepares lists governing the order in which each regular user will receive a copy of each type of paper filing. Regular users must apply in writing for this privilege. Each week SEC issues a new rotation list for each filing type such as corporate annual reports (10K) or quarterly reports (10Q). Each week the regular user that was first to receive the particular filing type the prior week moves to last place on the list for that filing type, and in each succeeding week the user will move up one place on the list. When we again interviewed regular users after the SEC actions described above became effective, we found that the number of areas of concern had declined to two. In these latter interviews, regular users frequently commented favorably upon management efforts and changes in the reference room. While they were opposed to closed microfiche files, many users noted a more rapid turnaround for microfiche requests. Many firms also noted the fairness of the criteria for allocating carrels, improved staffing, and the fairness of the system for rotating filings. |