Do Public Comment Letters on Proposed SEC Regulations Matter?

Do Public Comment Letters on Proposed SEC Regulations Matter?

Authors

Abstract

The U.S. Securities and Exchange Commission (SEC) encourages the public to comment on proposed rules during an open comment period. Various constituents, including companies, individual investors, associations, and audit firms, frequently provide comments on these proposed rules. Constituents may wonder whether or not their comments influence the final rules. This research report examines two proposed rules that were recently finalized by the SEC after a public comment period. The report assesses the impact of the comment letters by analyzing the letters submitted by stakeholder groups, identifying letters referenced by the SEC in the final rule, and interviewing a group of subject matter experts. The report describes the criteria for good comment letters, discusses reasons why companies may choose not to write a comment letter, and provides insights into whether or not comment letters affect the final rules. Financial Executives Research Foundation (FERF) interviewed subject matter experts who have participated in drafting rules, sent comment letters to the SEC, or have experience in reviewing SEC letters. Additionally, researchers at Case Western University examined comment letters received and used to finalize Crowdfunding (Release Nos. 33-9974) and Pay Ratio Disclosure (Release Nos. 33-9877) rules to determine if comment letters seem to influence the final rules issued by the SEC. The report also analyzes comment letters submitted by various stakeholders, such as individuals, companies, and associations, and their opinions (neutral, favorable, unfavorable) to determine whether the SEC considers certain types or sources of letters more seriously than others. Our research revealed the following: • The quantity of letters received by the SEC does not outweigh the quality of the letters received. The SEC received an overwhelming response from individual stakeholders, but favored unique, well articulated letters received from businesses and associations when considering a final rule. • Stakeholders appear to be considered equally. However, the SEC is more likely to consider letters that provide specific suggestions and alternatives • Interviewees suggest that the SEC finds comment letters that include examples and alternatives more effective and influential. This observation is consistent with analysis of the individual letters—and how often they’re referenced by the SEC. • For the Crowdfunding release, approximately 50 percent of the comment letters submitted by constituents were referenced by the SEC. Letters received from businesses and associations provided the most influence when it came to the changes made to the proposed rule • For the Pay Ratio release, approximately seven percent of the comment letters received were referenced in the consideration for the final rule. Even though individuals sent the most comments, businesses and associations were referenced most frequently.