SEC Confidential Treatment Orders: Balancing Competing Regulatory Objectives
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This study examines how the Securities and Exchange Commission balances competing regulatory objectives in its decisions to approve requests to withhold proprietary information from firms' financial reports. The confidential treatment process requires the SEC to balance the public interest in protecting proprietary information with the public interest in promoting disclosures to investors. I draw upon the economic and political science literatures on regulatory decision-making to test the strength of these interests on three aspects of the SEC's decisions to grant confidential treatment: the duration of time required to approve the request, the duration of time the SEC agrees to protect proprietary information from disclosure, and whether the firm is successful in securing confidential treatment for all redacted information. I find that the public interest in promoting disclosure and protecting proprietary information influence different aspects of the SEC's decisions to grant regulatory exemptions for confidential treatment. Firms requiring greater monitoring by the SEC receive greater scrutiny and have lower odds of successful redaction. High proprietary costs are associated with significantly longer protection periods but proprietary costs generally are not associated with duration to approval or the success of the application. Finally, I find that the SEC applies greater scrutiny to firms exhibiting objective and salient measures of low financial reporting quality although these firms have higher odds of success. These findings are consistent with the SEC reviewing CTRs to reduce the risk of legislative oversight. This study contributes to the literature on disclosure regulation by providing evidence as to how securities regulators balance competing interests when reviewing requests for disclosure exemptions. These findings also contribute to the role of political influence on disclosure policy, as the SEC's exemption decisions are consistent with avoiding the threat of legislative oversight. Second, these findings contribute to the literature on the SEC's regulatory decisions by demonstrating that the SEC staff appears to allocate resources and apply scrutiny to applications for disclosure exemptions using aspects of registered firms' financial reporting quality. Third, these findings contribute to the literature on redaction as a disclosure choice by providing evidence suggesting that firms with low financial reporting quality are more likely to redact, and I provide evidence on the success of this disclosure choice. Overall, these findings suggest that the public interest in promoting disclosure, as well as the threat of legislative oversight, influence the SECs decisions when granting regulatory exemptions to protect proprietary information.
Thompson, Anne Margaret (2011). SEC Confidential Treatment Orders: Balancing Competing Regulatory Objectives. Doctoral dissertation, Texas A&M University. Available electronically from