Today, the SEC approved a proposed rule and interpretive release regarding the disclosure of short-term borrowing by public companies in the Management’s Discussion and Analysis (MD&A) disclosure of liquidity and capital resources. The rule is intended to address controversial “Repo 105” transactions, which structure borrowings as sales, and “window dressing.” The SEC and banking agencies sought to address these both for financial firms and clients in guidance several years ago against structuring transactions (see Client Reports in the STRUCTURE series), but the SEC now plans to get tougher through rules governing all publicly-traded firms. The proposed rule would create a new section in MD&A, which would require companies to report quantitative information on a firm’s short-term borrowings during a reporting period, not merely on the reporting date, as well as a qualitative analysis of those borrowings.
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