La proximidad cognitiva y la generación de una sociedad del conocimiento

Some categories of transactions do not fall within the principle for disclosure and therefore Item 404(a) as amended includes disclosure exceptions that we believe are consistent with our principles-based approach.445 The first category of transactions involves compensation. Disclosure of compensation to an executive officer will not be required if:

• the compensation is reported pursuant to Item 402 of Regulation S-K; or

• the executive officer is not an immediate family member and such compensation would have been reported under Item 402 as compensation earned for services to the company if the executive officer was a named executive officer, and such compensation had been approved, or recommended to the board of directors of the company for approval, by the compensation committee of the board of directors (or group of independent directors performing a similar function) of the company.446

As proposed, this disclosure exception would have required compensation committee approval of an executive officer’s compensation if that executive officer’s compensation

442 _{See letter from Sullivan.}

443 _{This requirement had been set forth in Instruction 4 to Item 404(c) prior to these amendments.} 444 _{See letter from SCSGP.}

was not reported under Item 402. However, one commenter noted that in accordance with listing standards, compensation committees may only need to recommend to the board of directors, rather than approve, the compensation of executive officers (other than the chief executive officer).447 We believe that it is appropriate for this disclosure

exception to apply a standard that is consistent with the listing standards and we have thus modified this exception from the proposal accordingly. Finally, as proposed disclosure of compensation to a director will not be required if the compensation is reported pursuant to the director compensation disclosure requirement in Item 402(k).448

As we explained in the Proposing Release, since the disclosure either would be reported under Item 402, or would not be required under Item 402, we do not believe that these particular compensation transactions fall within our Item 404 disclosure principle, or they will have already been disclosed. Transactions involving

compensation that do not fall within these exceptions, such as compensation of immediate family members, are within the scope of the principle for disclosure in amended Item 404(a).449 These exceptions thus clarify the limited situations in which disclosure of compensation to related persons is not required under Item 404.

The second category of transactions involves three types of situations that we believe do not raise the potential issues underlying our principle for disclosure. First, in the case of transactions involving indebtedness, as proposed we have adopted

446 _{Instruction 5.a. to Item 404(a).} 447 _{See letter from NYCBA.} 448 _{Instruction 5.b. to Item 404(a).}

449 _{One commenter believed that the proposals would have eliminated disclosure of related person}

transactions involving the employment of immediate family members. See letter from CRPTF. Item 404(a), as amended, continues to require disclosure of these types of related person

amendments so that the following items of indebtedness may be excluded from the calculation of the amount of indebtedness and need not be disclosed because they do not have the potential to impact the parties as do the transactions for which disclosure is required: amounts due from the related person for purchases of goods and services subject to usual trade terms, for ordinary business travel and expense payments and for other transactions in the ordinary course of business.450 Also, in the case of a transaction involving indebtedness, the amendments provide, as proposed, that if the lender is a bank, savings and loan association, or broker-dealer extending credit under Federal Reserve Regulation T451 and the loans are not disclosed as nonaccrual, past due, restructured or potential problems,452 disclosure under paragraph (a) of Item 404 may consist of a statement, if correct, that the loans to such persons satisfied the following conditions:

• they were made in the ordinary course of business;

• they were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the lender; and

• they did not involve more than the normal risk of collectibility or present other unfavorable features.453

transactions when the threshold for disclosure has been met and the immediate family member has or will have a direct or indirect material interest.

450 _{Instruction 4.a. to Item 404(a), which is based on Instruction 2 to Item 404(c) as it was stated prior}

to today’s amendments.

451 _{12 CFR Part 220.}

452 _{See Item III.C.1. and 2. of Industry Guide 3, Statistical Disclosure by Bank Holding Companies}

[17 CFR 229.802(c)].

This exception is based on the exception that was included in Instruction 3 to Item 404(c) prior to these amendments, and has been modified as proposed to be more consistent with the prohibition of the Sarbanes-Oxley Act on personal loans to officers and directors.454

Second, we are adopting as proposed an instruction indicating that a person who has a position or relationship with a firm, corporation, or other entity that engages in a transaction with the company shall not be deemed to have an indirect material interest within the meaning of paragraph (a) of Item 404 if:

• the interest arises only: (i) from the person’s position as a director of another corporation or organization that is a party to the transaction; or (ii) from the direct or indirect ownership by such person and all other related persons, in the

aggregate, of less than a ten percent equity interest in another person (other than a partnership) which is a party to the transaction; or (iii) from both such position and ownership; or

• the interest arises only from the person’s position as a limited partner in a partnership in which the person and all other related persons, have an interest of less than ten percent, and the person is not a general partner of and does not have another position in the partnership.455

454 _{Specifically, the language that was in Instruction 3 to paragraph (c) of Item 404 prior to these}

amendments has been modified to replace the reference “comparable transactions with other persons” with the phrase “comparable loans with persons not related to the lender.”

455 _{Instruction 6 to Item 404(a). This amendment is based on the language that was in parts A and B}

of Instruction 8 to Item 404(a) prior to these amendments. This amendment omits the portion of that instruction (Instruction 8.C.) regarding interests arising solely from holding an equity or a creditor interest in a person other than the company that is a party to the transaction, when the transaction is not material to the other person. This exception may have resulted in inappropriate non-disclosure of transactions without regard to whether they were material to the company. In addition, we are eliminating the language that had been set forth in Instruction 6 to Item 404(a) prior to these amendments, which had covered a subset of transactions now covered by Instruction 6, as amended, and therefore was duplicative.

Finally, disclosure will not be required under paragraph (a) of Item 404 in three other types of circumstances. First, disclosure will not be required under paragraph (a) of Item 404 as to any transaction where the rates or charges involved in the transaction are determined by competitive bids, or the transaction involves the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority.456 We had proposed to eliminate this exception because we considered such bright-line presumptions as inconsistent with our principles-based approach to the rule. We are persuaded, however, by a commenter who indicated that the prior exception embodied a conclusion that the terms of these types of transactions would likely not be influenced by the related persons and therefore should be excluded as not material.457 As a result, the instruction is retained in the rule as adopted.

Second, disclosure need not be provided under paragraph (a) of Item 404 if the transaction involves services as a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture, or similar services.458 We had proposed to eliminate this exception. We are persuaded by commenters’ concerns that eliminating this exception may be detrimental to financial institutions and may not result in additional meaningful disclosure.459 Accordingly, we are retaining this exception.

Third, we are adopting an exception indicating that disclosure need not be provided pursuant to paragraph (a) of Item 404 if the interest of the related person arises solely from the ownership of a class of equity securities of the company and all holders of

456 _{Instruction 7.a. to Item 404(a).} 457 _{Letter from SCSGP.}

458 _{Instruction 7.b. to Item 404(a).}

459 _{See, e.g., letters from American Bankers Association (“American Bankers”); Compass}

that class of equity securities of the company received the same benefit on a pro rata basis.460 Commenters expressed concern that our proposal to eliminate the former exception461 would require disclosure if a related person receives over $120,000 in dividends on company stock in a year, even though those dividends are paid on the same terms as for all other stockholders.462 We are persuaded by the commenters that related person transaction disclosure is not necessary for transactions where a related person receives pro rata dividends or returns on the ownership of equity securities, and therefore we have adopted an instruction to provide an exception from disclosure in these limited circumstances.463

Some commenters requested that we create a new exception for transactions undertaken in the ordinary course of business of the company and conducted on the same terms that the company offers generally in transactions with persons who are not related persons.464 Former Item 404(a) did not include such an “ordinary course of business” disclosure exception, and we are not persuaded that it should be expanded to include one. In this regard, we note that transactions which should properly be disclosed under Item 404(a) might be excluded under an ordinary course of business exception, such as employment of immediate family members of officers and directors. However, we note

460 _{Instruction 7.c. to Item 404(a).}

461 _{Before the adoption of these amendments, Instruction 7.C. to Item 404(a) provided that no}

information was required under Item 404(a) for transactions where the interest of the related person arose solely from the ownership of securities of the company and such person received no extra or special benefit not shared on a pro rata basis.

462 _{See, e.g., letters from SCSGP and Sullivan.}

463 _{The instruction as adopted differs from the language of Instruction 7.C. prior to these amendments}

in that it is limited to ownership of a class of equity securities rather than securities generally and focuses on benefits being provided pro rata to the holders of that class rather than the absence of certain extra or special benefits.

that whether a transaction which was not material to the company or the other entity involved and which was undertaken in the ordinary course of business of the company and on the same terms that the company offers generally in transactions with persons who are not related persons, are factors that could be taken into consideration when

performing the materiality analysis for determining whether disclosure is required under the principle for disclosure.