SEC Commissioners voted unanimously today to propose rules that would heighten disclosure connected to some banks's practice of curtailing debt at the end of a quarter, The NYTimes and The WSJournal report.  The SEC said it also would consider whether to issue guidance about current disclosure requirements related to liquidity and funding levels.

The SEC’s proposals specifically would require all publicly traded companies to report quarterly their average daily amount of outstanding short-term debt and the weighted average interest rate on the borrowings. Bank holding companies are already required to report that information annually, but nonbank companies will be facing these rules for the first time.  Nonbanks include any lending institution, hedge fund or broker-dealer.

"Under these proposals, investors would have better information about a company’s financing activities during the course of a reporting period — not just a period-end snapshot.  With this information, investors would be better able to evaluate the company’s ongoing liquidity and leverage risks."  -- SEC Chairman Mary Schapiro. .  

The SEC proposal is aimed at concerns heightened by Lehman Brothers's "Repo 105" strategies, in which debt securities were repo'd off the balance sheet, and by reports that other banks engage in similar types of transactions.  As proposed, all affected companies would be required to disclose more about their short-term borrowings quarterly and annually.  The rule would apply to borrowing from the Federal Reserve, commercial paper and any short-term borrowing reflected on a company's balance sheet, among others.  

In addition, companies would be required to explain in their filings the business purpose behind the borrowing, the importance of the borrowing to the company's liquidity and capital and any meaningful fluctuations between the average and maximum levels compared with the quarter-end level.  Financial institutions would face a higher level of disclosure requirements.  Banks would be required to disclose averages on a daily basis and the maximum amount on any given day within the period. 

The proposed regulations will be subject to 60 days of public comment before final action by the commission.  While the reporting requirements do not go into effect immediately, the SEC also approved an interpretive release reminding companies that under current law they cannot use financing structures - including off-balance-sheet securities or investments - that are intended to mask their reported financial condition.

Stay tuned for additional reports.  In the meantime, click to access the following relevant speeches or news articles: 

• [NYT Dealbook ] 
  
• [WSJournal] 
  
• [SEC Speech - Comm. Luis Aguilar ]  
  
• [SEC Speech - Chairman Mary Schapiro]