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The Commission May Not Be So Quick to Grant Your Next Confidential Treatment Request

The Office of Inspector General has been conducting an audit of the Securities and Exchange Commission’s processes and procedures for handling confidential treatment requests under Securities Act Rule 406 and Exchange Act Rule 24b-2.  In September OIG released its final report containing eight recommendations designed to improve these processes and procedures; the Commission has agreed, or partially agreed, with seven of them and will provide OIG with a written action plan to address the agreed upon recommendations by November 12, 2010.

A Brief Overview of Confidential Treatment Requests

There are generally two types of confidential treatment requests, those made pursuant to:

  • Securities Act Rule 406 or Exchange Act Rule 24b-2 with respect to information required to be filed with the Commission, such as a material agreement filed as an exhibit to a registration statement or periodic report; and
  • Rule 83 of the Commission’s Rules of Practice with respect to information not required to be filed with the Commission, such as supplemental information provided in the context of the comment and review process.

Requests Made Pursuant to Securities Act Rule 406 or Exchange Act Rule 24b-2

When making a request for confidential treatment pursuant to Securities Act Rule 406 or Exchange Act Rule 24b-2 the request must:

  • be sufficiently narrow, so that only information eligible for exemption under the Freedom of Information Act is covered;
  • contain legal and factual analyses substantiating the exemption;
  • contain an affirmative representation as to the confidentiality of the information; and
  • set forth the duration for which the exemption is being sought;

The Commission will not generally grant a request for confidential treatment with respect to information that is specifically required to be disclosed under applicable securities laws or information that is material to investors.

Requests Made Pursuant to Rule 83 of the Commission’s Rules of Practice

As with a request for confidential treatment made pursuant to Securities Act Rule 406 or Exchange Act Rule 24b-2, a request made pursuant to Rule 83 of the Commission’s Rules of Practice must be sufficiently narrow so as only to include information eligible for exemption under the FOIA.  However, it is not necessary to substantiate a request for confidential treatment made pursuant to Rule 83 until such time as a FOIA request is made.  Additionally, it is possible to request that the Commission return any supplemental materials, thus rendering them unavailable for production in a FOIA request.  The Commission will generally do so provided returning the materials is consistent with the protection of investors and the provisions of the FOIA. Any request for confidential treatment that is granted under Rule 83 will expire after 10 years, unless renewed prior to its expiration.

How the OIG’s Recommendations Might Apply

Two of the OIG’s eight recommendations focus on the processes and procedures for the Commission’s initial screening and selective full review of requests for confidential treatment that are based on the required disclosures causing competitive harm and not being necessary for the protection of investors.  Specifically, that such requests are overly broad, use conclusory statements and contain boilerplate language.  The Commission has agreed, or partially agreed, to address these recommendations by revising its internal processes and procedures.  So as to avoid delay, or even further review, issuers should also consider whether they have fully addressed these concerns in their next confidential treatment request.

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