United States: Governance & Securities Law Focus: Latin America Edition - May 2017

US Developments

SEC and NYSE/Nasdaq Developments SEC Announces XBRL Requirements Will Apply to Companies Reporting Under IFRS

On March 1, 2017, the US Securities and Exchange Commission ("SEC") announced that foreign private issuers ("FPIs") that prepare financial statements in accordance with International Financial Reporting Standards ("IFRS") will be required to provide a version of their financial statements in interactive data format using eXtensible Business Reporting Language ("XBRL") in addition to providing financial statements in their traditional format. As of now, FPIs may voluntarily file financial data in XBRL format, however, this will be obligatory beginning with their annual reports on Form 20-F filed in 2018 relating to their first fiscal year ending on or after December 15, 2017. Previously, FPIs were not required to comply with XBRL reporting because the SEC had not specified tags for certain pieces of data—known as "taxonomy"—specifically applicable to IFRS.

XBRL enables financial analysts and regulators to easily compare and analyze a company's financial reporting by making the data machine-readable which enables it to be searched, reorganized or downloaded into spreadsheets. Many companies use financial printers or other outside service providers to prepare their financial statements in XBRL format as using software for the XBRL tagging can be both costly and time-consuming.

The inclusion of an XBRL exhibit will be required in the following filings:

  • Form 20-F annual reports, more specifically: the balance sheet, the income statement, the statement of cash flows, the statement of stockholders' equity, the statement of comprehensive income (if presented separately), the notes to the financial statements and any applicable schedules to the financial statements; and
  • Form 6-K reports that contain interim financial statements which were included pursuant to the nine-month updating requirement of Item 8.A.5 of Form 20-F or a revised version of financial statements previously filed with the SEC.

By the end of the day, on which the report is filed with the SEC or is required to be filed (whichever is earlier), the XBRL data will also need to be posted on the public website and remain on the website for 12 months. Providing issuer's a hyperlink to the SEC's website will not be sufficient.

The relevant SEC announcement is available at: https://www.sec.gov/news/pressrelease/2017-58.html

SEC Adopts Rules Requiring Hyperlinks for Corporate Exhibits

On March 1, 2017, the SEC adopted rule and form amendments aimed at making access to exhibits in registration statements and periodic reports easier for market participants to locate. The final rules will be effective for filings submitted on or after September 1, 2017.

Currently, someone seeking to retrieve and access an exhibit that has been incorporated by reference to a previous filing must review the exhibit index to determine the filing in which the exhibit is included, and then search through the registrant's filings to locate the relevant filing. This will change under the revised rules, as issuers will now be required to include a hyperlink to each exhibit in the filing's exhibit index.

The new rules apply to companies that file registration statements and periodic and current reports that are subject to the exhibit requirements under Item 601 of Regulation S-K, or that file on Forms F-10 or 20-F, but will not apply to exhibits filed with Form 6-Ks. Registrants must also submit all such filings in HTML format to enable the inclusion of hyperlinks, as opposed to ASCII format, which does not support hyperlink capabilities.

Companies will be required to rectify non-functioning or incorrect exhibit hyperlinks. For example, if the Company's Form 20-F contains such an error, its next Form 20-F must contain the correct hyperlink.

The relevant SEC announcement is available at: https://www.sec.gov/news/pressrelease/2017-55.html

Our related client publication can be found at: http://www.shearman.com/en/newsinsights/publications/2017/03/sec-adopts-t2-settlement-cycle-for-exhibits

SEC Adopts T+2 Settlement Cycle for Securities Transactions

On March 22, 2017, the SEC adopted a rule amendment to shorten by one business day the standard settlement cycle for most broker-dealer securities transactions following the trade date. The current settlement cycle of three business days, known as T+3, will thus be shortened to two business days, i.e. T+2. This will bring the US settlement cycle in line with most markets in Europe that have already moved to a T+2 settlement cycle.

Express agreements between parties to a transaction to vary the standard settlement cycle will still be permitted. This change will apply the T+2 settlement cycle to the same transactions currently covered by the T+3 settlement cycle, which includes transactions for stocks, bonds, exchange-traded funds, municipal securities and certain mutual funds.

The amended rule is designed to enhance efficiency, to prevent market and liquidity risk arising from unsettled securities trades and ensure a coordinated and expeditious transition by market participants to a shortened standard settlement cycle. Compliance with the amended rule by broker-dealers will be required beginning on September 5, 2017. The SEC further stated that T+1 and end-of-day settlement cycles may be considered in the future.

For further detail, see the SEC's press release, which is available at: https://www.sec.gov/news/press-release/2017-68-0

Our related client publication is available at: http://www.shearman.com/en/newsinsights/publications/2017/03/sec-adopts-t2-settlement-cycle-for-exhibits

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