Dear Mr. Mirable:
The U.S. Chamber of Commerce (“Chamber”) urges the Securities and Exchange Commission (“SEC” or “Commission”) Investor Advisory Committee (“IAC”) to reject any changes to the materiality standard for corporate disclosure during the March 7th meeting. Changes to the materiality standard would not improve our capital markets. The materiality standard – grounded in U.S. Supreme Court precedent has been a critical guardrail for corporate disclosure, that ensures companies do not bury investors in an ‘avalanche’ of trivial information.
U.S. governance and accounting requirements are the gold standard globally. It is one of the reasons why American public capital markets are the largest in the world – double that of Europe and China combined.2 The Chamber is concerned that the materiality discussion at the IAC could lead to proposals to water down the materiality standard, which we believe would weaken investor protections and could ultimately cede the competitive advantage of U.S. capital markets.
Importance of the Materiality
Standard For 90 years, materiality has been the guiding principle of corporate disclosure under the federal securities laws. The materiality standard – information that is important to a reasonable investor who is focused on investment returns – is critical to providing investors with confidence in the integrity and accuracy of information provided by corporate issuers. This standard has endured through presidential administrations and changes in the makeup of SEC. And as a bedrock for disclosure of information to investors, the standard continues to ensure that the SEC remains faithful to its mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.
In the landmark 1976 case of TSC Industries, Inc. v. Northway, Inc., 3 Justice Marshall, writing for a unanimous Supreme Court, articulated a meaningful standard of materiality that was designed to provide investors with the significant information they need to make informed voting and investing decisions. This decision also cautions that “disclosure policy” under securities law “is not without limit” because investors should be safeguarded from being overwhelmed with information that runs counter to the goal of better investor decision making.
Read the full letter here.
