The SEC has issued a proposed rule that would require issuers to increase disclosure of short-term borrowing arrangements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") section in their public filings. The SEC issued the proposed rule in response to concerns that period-end disclosures may not accurately present an issuer's ongoing liquidity and investment risks. In this regard, an issuer's short-term borrowings may fluctuate widely during a given reporting period.
The SEC also issued an interpretive release providing additional guidance regarding the liquidity and capital resources disclosure requirements applicable to MD&A. This release identified several trends and uncertainties that should be considered in preparing MD&A liquidity disclosure, including (i) ability to access debt markets; (ii) dependence on short-term financing (such as commercial paper); (iii) maturity mismatches between financing sources and the assets funded by such sources; (iv) changes in terms requested by counterparties; (v) possible liquidity issues that may arise in the middle of a financial reporting period; (vi) repurchase agreements and other short-term borrowings that may not be fully disclosed on period-end balance sheets; (vii) material cash and risk management policies; (viii) collateral valuation issues; and (ix) any industry-specific or issuer-specific leverage ratio issues.
SEC Rel. Nos. 33-9143 (Sept. 17, 2010) & 33-9144 (Sept. 17, 2010)