SEC to Propose New Rules Regarding 'Window Dressing'
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The Securities and Exchange Commission is preparing to propose new rules aimed at mitigating "window dressing", a measure banks and other funds often take in order to temporarily lower debt levels ahead of quarterly or annual performance results.
As highlighted in a WSJ article today, the agency could propose the new rules as early as Friday, when the regulator is expected to issue proposals for public comment.
Window dressing -- which is not illegal -- has been heavily-scrutinized by the media as of late as many view it as a way for banks to mask true levels of borrowing and risk taking. Window dressing helps funds appear to be in better financial shape than they likely actually are.
“A Journal analysis of financial data from 18 large banks known as primary dealers showed that as a group, they have consistently lowered debt at the end of each of the past six quarters, reducing it on average by 42 percent from quarterly peaks,” the Journal said on Thursday.
The rules set to be proposed will likely require greater disclosure from banks and other companies regarding their short-term borrowings, which pumps up risk taking and allows firms to make bigger trading bets.
At this time, banks are required to only disclose their average borrowings on an annual basis, while non-financial firms companies are not at any time required to disclose their borrowings.
"Rather than relying on carefully staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation," the senators wrote to SEC Chairman Mary Schapiro, according to the Journal report.
As highlighted in a WSJ article today, the agency could propose the new rules as early as Friday, when the regulator is expected to issue proposals for public comment.
Window dressing -- which is not illegal -- has been heavily-scrutinized by the media as of late as many view it as a way for banks to mask true levels of borrowing and risk taking. Window dressing helps funds appear to be in better financial shape than they likely actually are.
“A Journal analysis of financial data from 18 large banks known as primary dealers showed that as a group, they have consistently lowered debt at the end of each of the past six quarters, reducing it on average by 42 percent from quarterly peaks,” the Journal said on Thursday.
The rules set to be proposed will likely require greater disclosure from banks and other companies regarding their short-term borrowings, which pumps up risk taking and allows firms to make bigger trading bets.
At this time, banks are required to only disclose their average borrowings on an annual basis, while non-financial firms companies are not at any time required to disclose their borrowings.
"Rather than relying on carefully staged quarterly and annual snapshots, investors and creditors should have access to a complete real-life picture of a company's financial situation," the senators wrote to SEC Chairman Mary Schapiro, according to the Journal report.
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