The US stock market is arguably the most scrutinized financial institution in the country. Nervous citizens, diligent reporters, and investors alike request access to company records, whether it’s in an attempt to keep things honest or to gain intel on the competition. One thing is certain, company information held by the Securities and Exchange Commission is being seen by a lot of people. It seems like the easy answer would be to redact your company’s information before submitting it to the SEC, but its strict disclosure requirements prevent companies from conducting their own redaction processes. To ensure investors can make the most informed investment and voting decisions possible, and incorporate the broad spectrum of investor needs from independent individuals to hedge fund managers, companies must submit a prospectus that is all-encompassing, including a cover letter, summary, thorough risk assessment, as well as any and all pertinent information that could be used in determining valuation.
Understandably, private firms are reluctant to disclose proprietary information when they go public, especially if that information has previously given them a competitive edge. That’s not to say they can’t keep proprietary information private, but they have to follow regulatory guidelines to ensure that they don’t withhold any useful information an investor might use to make a decision. Information that’s considered proprietary is usually granted confidential treatment, but the requirements were put into place largely to keep companies from disguising their business practices or financial activities in order to manipulate their valuations. Companies seeking redactions must stamp each qualifying document – every page where redactions are requested must be marked with an identifying number and formal request with the company’s name. These identifiers are then submitted to the SEC to be reviewed for approval.
It sounds like a fair process, but it creates a nightmare backlog. After approval, the SEC then has to apply any and all redactions, hopefully before someone requests access – either through the SEC’s own EDGAR database (used mostly internally and by investors determining where to put their money) or through FOIA requests from the general public. In 2015, the SEC received almost 17,000 FOIA requests. They still had 1300 pending by the end of the year – double the amount left unfinished at the end of the previous year. Hardly efficient at processing the FOIA requests, the amount of confidentiality requests they receive merely adds to the workload.
By using automated redaction with a tool like Blackout, the SEC could quickly process confidential treatments and turn around information requests in short order. Every time a company submits for an IPO they’re likely to have tons of proprietary information and are also likely to be somewhat overprotective going public for the first time. The review period for approval will be lengthy, and it’s equally likely that there are many investors and companies investigating the company’s state of affairs and requesting information. Once confidentiality has been established, those redactions need to be applied quickly and accurately to speed up the valuation, IPO, and early trading stages once shares hit the market. Blackout can identify and redact sensitive information 90% faster than manual redaction, leaving more time for the SEC to address other requests and for things like compliance control and monitoring misconduct. Disclosure is tricky and the SEC is under a strong microscope, but with automated redaction they can unclog the funnel and alleviate some of their notorious stonewalling.