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U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

The United States Securities and Exchange Commission is the agency of the federal government that establishes policy for, administers, and coordinates most federal assistance to education. Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934 and established the Securities and Exchange Commission (SEC) in 1934 to enforce the newly-passed securities laws, to promote stability in the markets and, most importantly, to protect investors.

The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. To fulfill its mission, the Securities and Exchange Commission will:

• Enforce compliance with federal securities laws;
• Sustain an effective and flexible regulatory environment;
• Encourage and promote informed investment decision making; and
• Maximize the use of SEC resources.

The SEC's Office of Information Technology operates the Electronic Data Gathering Analysis and Retrieval (EDGAR) system, which electronically receives, processes, and disseminates more than 500,000 financial statements every year. This is a proprietary electronic record submission system.

The United States Securities and Exchange Commission is regulated by the Code of Federal Regulations (17 CFR Chapter II). The SEC regulations concerning electronic signatures can be found in 17 CFR Chapter II. These can be found in HTML.

17 CFR II § 232.302 Signatures

a) Required signatures to, or within, any electronic submission (including, without limitation, signatories within the certifications required by §§240.13a–14, 240.15d–14 and 270.30a–2 of this chapter) must be in typed form rather than manual format. Signatures in an HTML document that are not required may, but are not required to, be presented in an HTML graphic or image file within the electronic filing, in compliance with the formatting requirements of the EDGAR Filer Manual. When used in connection with an electronic filing, the term “signature” means an electronic entry in the form of a magnetic impulse or other form of computer data compilation of any letters or series of letters or characters comprising a name, executed, adopted or authorized as a signature. Signatures are not required in unofficial PDF copies submitted in accordance with §232.104.

A electronic signature capturing process can create a Signature Confirmation Receipt that is presented in "typed form" from a printed digital file.

(b) Each signatory to an electronic filing (including, without limitation, each signatory to the certifications required by §§240.13a-14, 240.15d–14 and 270.30a–2 of this chapter) shall manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the electronic filing is made and shall be retained by the filer for a period of five years. Upon request, an electronic filer shall furnish to the Commission or its staff a copy of any or all documents retained pursuant to this section.

A esign system can comply with (b) as it refers to internal processes that can be used in conjuction with any electronic signature service. Each company filing certifications required by Sarbanes-Oxley ( §§240.13a-14, 240.15d–14 and 270.30a–2) must have a physical copy of a physical signature from each officer, board member and other qualified personnel on file for at least a period of 5 years.

When the company submits the required certifications to the SEC a copy of the physical signature should accompany any materials that have been electronically signed through the system.

(c) Where the Commission's rules require a registrant to furnish to a national securities exchange or national securities association paper copies of a document filed with the Commission in electronic format, signatures to such paper copies may be in typed form.

§ 240.19b-4 Filings with respect to proposed rule changes by self-regulatory organizations.

(j) Filings with respect to proposed rule changes by a self-regulatory organization submitted on Form 19b–4 (17 CFR 249.819) electronically shall contain an electronic signature. For the purposes of this section, the term electronic signature means an electronic entry in the form of a magnetic impulse or other form of computer data compilation of any letter or series of letters or characters comprising a name, executed, adopted or authorized as a signature. The signatory to an electronically submitted rule filing shall manually sign a signature page or other document, in the manner prescribed by Form 19b–4, authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing. Such document shall be executed before or at the time the rule filing is electronically submitted and shall be retained by the filer in accordance with §240.17a–1.

Again each company filing Form 19b-4 must have a physical copy of the physical signature of the signatory along with an acknowledgement that the signatory has adopted the signature into an electronic format.

 

Securities And Exchange Commission: Use Of Electronic Media (covering 17 CFR Parts 231, 241, 271, and 276) section D(II)(A)

The interpretation in this release is intended to cover all optional and required communications under the Exchange and Advisers Acts between broker-dealers, transfer agents, and investment advisers, and customers, securities holders, and clients. This interpretation is intended to provide broker-dealers,
transfer agents, and investment advisers with guidance in using
electronic media to satisfy delivery requirements under the
federal securities laws.

A(2). "Access ...the use of a particular medium should not be
so burdensome that intended recipients cannot effectively access
the information provided.

This portion is very important as most esign solutions work only with one file format (MS Word or Adobe PDF) and usually only on Windows operating systems. This limitation occurs when a software solution is developed to be installed on a individual computer. Electronic signature solutions that are web based can easily handle mulitple operating systems and file types.

This becomes crutial to esign compliance because the courts could look unfavorably on systems that limit user's access to signed files. Requiring a user to purchase an expensive operating system rather than a free alternative that they may already own might be defined as "burdensome".

A(3). Evidence to Show Delivery ...reasonable assurance that the delivery requirements of the federal securities laws have been satisfied.

Unlike traditional email or faxes, ESIGN solutions can capture the exact time that the message was viewed and when the attached file was downloaded.

Broker-dealers, transfer agents, and investment advisers may be able to evidence satisfaction of delivery obligations, for example, by: (1) obtaining the intended recipient's informed consent to delivery through a specified electronic medium (2) obtaining evidence that the intended recipient actually received the information, such as by an electronic mail return-receipt or by confirmation that the information was accessed, downloaded, or printed;

B(1) Confidentiality and Security ...should take reasonable
precautions to ensure the integrity, confidentiality, and security of that information, regardless of whether it is delivered through electronic means or in paper form.

The Securities and Exchange Commission also addressed the permissibility of using various electronic media that was originally covered by the 1934 Securities Exchange Act and the 1940 Investment Advisers Act. These clarifications were discussed in section D(II)(A) and stated, "Such communications are permissible, subject to the same requirements and restrictions that apply to such communications in paper."

SEC Interpretation:
Application of the Electronic Signatures in Global and National Commerce Act to Record Retention Requirements (06/14/2001) , located here, gives agency interpretation on the obligations of issuers to maintain certain records under the Securities Act of 1933 ("Securities Act"), Securities Exchange Act of 1934 ("Exchange Act") and Regulation S-T in light of the Electronic Signatures in Global and National Commerce Act ("E-SIGN").

II. E-SIGN's Record Retention Provision - ...requirement is met by retaining an electronic record of the information in the contract or other record if the electronic record:

• accurately reflects the information set forth in the contract or other record; and
• remains accessible to all persons who are entitled to access

For more information regarding rule 302 and its affect on electronic submission to the SEC's EDGAR system please see these SEC pages: SEC Interpretation and SEC Final Rule

Final Rule: Mandated Electronic Filing and Website Posting for Forms 3, 4 and 5" (05/13/2003), available here

The SEC adopted ...rule and form amendments to mandate the electronic filing, and website posting by issuers with corporate websites, of beneficial ownership reports filed by officers, directors and principal security holders...

The admendments affected the following:

• Rules 12, 13, 101, 104 and 201 under Regulation S-T
• Rule 16a-3(h) and Forms 3, 4 and 5 under the Securities Exchange Act of 1934
• Form 144 contained in the Code of Federal Regulations
• Rule 21under the Public Utility Holding Company Act of 1935
• Rule 0-5 under the Trust Indenture Act of 1939

In the SEC's "Guide to Broker-Dealer Registration", guidelines for the use of electronic media and signatures are discussed.

VII part D - Use of Electronic Media by Broker-Dealers

The Commission has issued two interpretive releases discussing the issues that broker-dealers should consider in using electronic media for delivering information to customers. These issues include the following:

• Will the customer have notice of and access to the communication?
• Will there be evidence of delivery?
• Did the broker-dealer take reasonable precautions to ensure the integrity, confidentiality, and security of any personal financial information

VII part E - Electronic Signatures (E-SIGN)

Broker-dealers should also consider the impact, if any, that the Electronic Signatures in Global and National Commerce Act (commonly known as E-SIGN), Pub. L. No. 106-229, 114 Stat. 464 (2000) [15 U.S.C. §7001], has on their ability to deliver information to customers electronically.