Paper Taper: Statement on Proposed Regulation E-Delivery

Today, in a long-awaited move, the Commission proposed Regulation E-Delivery to make electronic delivery the default under the securities laws for issuers, investment advisers, investment companies, and broker-dealers. This rulemaking focuses on the default delivery method; not the content of disclosure or its format. I am happy to support what I expect will be the first step in rethinking, modernizing, and improving disclosure of information to investors.

The proposal should benefit investors, issuers, and market intermediaries. By reducing printing and mailing, an e-delivery default should lower costs. A more important consequence of the shift to default e-delivery is facilitating the incorporation of technological advances to improve investor engagement with the information being delivered. I hope to see interactive and customized disclosures, something that is not possible with paper.

This proposal is a great first step, but the SEC's paper mentality is still alive and well. The SEC still assumes and sometimes requires that firms, in the first instance, will design disclosures for viewing on paper (whether it is paper that firms mail or, now with Reg E-Delivery, paper that customers can print from home printers). Sure, we contemplate that once firms have crafted paper disclosures, they might gussy them up with some bells and whistles for e-delivery. This paper preference shows up in requirements that registrants have paper versions ready for inspection or file multiple paper copies with the Commission. Other paper-as-the-standard disclosure rules talk about font size, relative prominence, and disclosures appearing on the same page. Even this rule, however, thinks small-woohoo we get to email pdfs of paper documents!

In taking the position that disclosures can be retrofitted for electronic delivery as long as they are designed first for paper, we are depriving investors of the great benefits of technological changes over the last half-century. We have made it hard for firms to experiment with cellphone apps, streaming video, podcasts, virtual conference room presentations, and anything else that is not an e-delivered pdf. If we gave registrants the freedom to design disclosure with new technologies as the baseline, we would unleash innovations that could help investors engage with and understand the information being presented. Investors could get more timely information and disclosure better tailored to their unique circumstances.

Setting aside the SEC's deeply ingrained preference for paper, most of our rules do not explicitly require paper delivery or prohibit electronic delivery, which means that Reg E-Delivery is only one approach to satisfying delivery requirements. Firms complying with the conditions in Reg E-Delivery would have assurance that they have met their delivery obligations, but electronic delivery that does not comply with all the conditions of proposed Reg E-Delivery nevertheless might meet regulatory delivery obligations. For example, a firm could refuse customers who do not agree to e-delivery even though Reg E-Delivery requires firms to provide paper if a customer requests it. I suspect that most firms will want to serve customers who demand paper, but forcing them to do so in a competitive market seems unnecessary. The market will sort it out; people who want paper will find their way to firms that are willing to provide it.

I look forward to receiving comments on this proposal from issuers, intermediaries, and particularly, investors. I would welcome feedback on, along with the questions in the proposing release, the following questions:

1. For investors: how do you prefer to receive information? What we can do to make it more likely that you will engage with required disclosures?
2. A firm that, by agreement with its clients or customers only delivers disclosures electronically or charges extra for paper disclosures, would not be able to rely on the proposed rule for assurance that it has satisfied its delivery obligations. Should we expand the rule's scope to cover such arrangements?
3. Under Proposed Regulation E-Delivery, if an e-delivery recipient requests a paper copy of such information during the period the information is required to be retained under the Federal securities laws, an issuer or firm generally would have to send a paper copy of that information, free of charge, within three business days after receiving a request. If the Federal securities laws do not prescribe a retention period for the information, an e-delivery recipient could request a paper copy of any information received during the preceding two years.1 In other words, a recipient could request a lot of paper. Is three business days enough time within which to prepare and send the information?
4. Thinking bigger than this proposal, what can the SEC do to encourage and support firms that want to experiment with new technology to convey information in ways that will enhance investors' ability and desire to understand and use that information in making investment decisions?

Thank you to the staff in the Division of Investment Management, Division of Corporation Finance, Division of Trading and Markets, Division of Economic and Risk Analysis, and Office of the General Counsel for their hard work and excellent collaboration on this much-needed proposal.

• 1See proposed Regulation E-Delivery § 303.102(f)(1).