SEC Forms
All companies are required to file various forms with the Securities and Exchange Commission (SEC). Filings can be made electronically through the EDGAR system, and are available to the public to view and read. This article provides a brief description of some of the more commonly used forms.
Registration Statements
Pursuant to Section 5 of the Securities Act of 1933, all securities offered for sale must be registered with the SEC unless otherwise exempted. The registration statement is the primary way for a company to disclose information about the security to potential investors so that they can make informed decisions. There are various types of registration statements:
S-1 is the basic registration form all companies can use. This form is generally used by companies with publicly held securities, but a limited number of shareholders. In addition, first-time issuers with large offerings often use this form. The S-1 form should include all information that is required by the prospectus including information about the company's general business, any risk to the company, names and salaries of officers and directors, the plan for distribution of the securities, an independently audited financial statement, and any other information necessary to make the disclosure complete and not misleading.
S-2 is the registration statement used by an issuer that has been filing reports under the 1934 Exchange Act for at least three years. Information from the issuer's Form 10-K is incorporated into the prospectus by reference. The registrant must provide a description of the offering, and an annual report or comparable information, in the prospectus.
S-3 can only be used by issuers that have reported under the 1934 Exchange Act for at least one year. Its use is also restricted to certain kinds of offerings. This form allows for incorporation by reference to reports filed under the Exchange Act. The issuer must only include a transaction-specific description of the offering in the prospectus.
S-4 is the registration form used to register securities issued in mergers, consolidations, recapitalizations, acquisitions and other types of transactions that must be registered under Rule 145 of the Securities Act.
SB-1 may be used by small-business issuers if the aggregate offering is not more than $10 million and no more than $10 million worth of securities is registered in any 12-month period.
SB-2 can be used by small-business issuers to register an unlimited dollar value of securities. Companies with less than $25 million in revenues in the previous fiscal year and outstanding publicly traded stock worth no more than $25 million may qualify as small-business issuers.
Reports
Under the federal securities laws, public companies are required to disclose various types of information on an ongoing basis. Companies do this by filling out and filing various forms with the SEC. Some of these forms include:
Form 10-K is an annual report that provides an overview of the company's business and financial condition. The form must include audited financial statements. This is different from a company's annual report to shareholders.
Form 10-KSB is the annual report form used by small-business issuers. It provides general business and financial information, but is not as detailed as the Form 10-K.
Form 10-Q is the form used by a company to file its quarterly report. It must include an unaudited financial statement and give a continuing view of the company's finances throughout the year. Form 10-Q must be filed for each of the first three quarters of the company's fiscal year.
Form 10-QSB is basically the same as the Form 10-Q, but used by small-business issuers.
Form 8-K is the current report that companies must file with the SEC when certain events that about which shareholders should know occur. The following types of events prompt a company's obligation to file a current report: bankruptcy, completion of acquisition or disposition of assets, material modification to rights of security holders, amendments to articles of incorporation or bylaws, changes in control of registrant and failure to make a required distribution.
Proponents of universal banking argue that allowing banks to engage in the full range of financial services has substantial benefits, both for banks and for consumers. The addition of banks to the securities market would increase competition, in turn lowering underwriting and transaction costs. Allowing banks to handle additional financial services would also be more convenient and efficient, as the information and funds relevant to various financial needs and objectives would be centralized. Customers could easily transfer funds and conduct a variety of business in one place, and banks could generate greater revenues at limited additional advertising and administrative cost. And perhaps the biggest benefit, from a national perspective, would be increased competitiveness for U.S. banks in the world market. For each bank that is made more competitive, the economy of the surrounding region, city or town, may also benefit.
Critics of a universal banking system rest their objections on two main grounds. One of these is the potential for conflicts of interest; the other is the increased risk to the banking and financial systems posed by a merger of the two.
Advisers to Congress, which has rejected universal banking, and to the German government, which embraces it, have identified several potential conflicts of interest that can arise when banks engage in securities transactions. An obvious conflict is the temptation for banks, which investors perceive as safeguarding their money, to promote to its clients, securities the bank has underwritten. Banks could also use their position as creditors to influence customers to use their other financial services--a form of economic tie-in. Or the bank might loan money to third parties to buy its securities, thus influencing the price of the securities.
A bank's conflict of interest may be harmful in a less direct way, as when the bank compromises its own financial well being. For example, a bank might attempt to cover itself over some unprofitable loans by issuing new securities. The effect of this may be to transfer the risk of loss to the bank's clients. A similar situation could arise where the bank wishes to aid a failing affiliate, perhaps one whose securities the bank has underwritten. In addition, a bank could profit from inside information secured from its corporate clients, upon which it could base financial services such as lending and underwriting. The vast accumulation of personal and financial information a universal bank could acquire is one of the reasons some people oppose universal banking.
In addition to the possible conflicts of interest, the increased risks to the financial and banking systems posed by universal banks is another reason many legislators and regulars oppose them. In the securities world, the customer typically bears the risk that a legitimate security will lose its value. The banking world is different. In the United States, the Federal Deposit Insurance Corporation insures bank deposits. Thus, even when a bank fails, the bank's clients are reimbursed for their losses. If banks move into the riskier arena of securities, the public may not appreciate or be willing to accept the risk of loss. The result could be demands on federal reserves that cannot be met.
As bank crises in many countries have proven, banks can run into serious financial problems very quickly once customers lose confidence. Banks trade on their customers' deposits to make money. Commitments made by a given bank each day are substantial. If a significant number of customers withdraw their deposits, the bank can get caught short. A New York bank also got caught short when its computer system failed. It had to be bailed out by the government. Allowing banks to enter the securities market, which is often riskier than core banking activities, could multiply the risk of loss. It could also, goes the argument, translate to instability in the securities market if a large bank with significant holdings ran into trouble. The domino effect when investors sense trouble can rapidly turn a small crisis into a large one.
The question of whether to allow U.S. banks to become universal financial services companies remains unsettled. Proponents can point to universal banking systems like those in Germany and the United Kingdom. These banks are more competitive on the world market because they have more to offer. But bank failures have also wreaked havoc in many countries, and the U.S. system of separated banks and securities firms is designed to reduce that risk.
Conclusion
Increasing globalization of financial services favors banks with the most power and versatility. U.S. banks, limited in the range of financial services they can provide, have slipped in size and influence in the world market. Some deregulation over the years has eliminated the more severe restraints imposed by the Glass-Steagall Act of the 1930s. Banking advocates argue, however, that additional liberalization of bank laws is essential to restore U.S. banks to prominence. Opposing them are more cautious government officials who are in no hurry to remove regulations they see as stabilizing the system. Until Congress introduces further reforms, banks will continue to seek new ways to remain competitive.
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