Audra Boone is a senior financial economist at the U.S. Securities and Exchange Commission in the Division of Economic and Risk Analysis. This post is based on an article authored by Dr. Boone, Ioannis Floros, Assistant Professor of Finance at Iowa State University, and Shane Johnson, Professor of Finance at Texas A&M University. The views expressed in the post are those of Dr. Boone and do not necessarily reflect those of the Securities and Exchange Commission, the Commissioners, or the Staff.
The U.S. Securities and Exchange Commission (SEC) mandates that publicly-traded firms disclose a large array of information to investors. Because certain disclosures could cause competitive harm, the SEC allows firms to request confidential treatment of competitively sensitive information contained in material agreements that it would otherwise be required to disclose to the public. If the SEC grants the request, the firm receives a Confidential Treatment Order (CTO), enabling them to redact specific content from their material, such as pricing terms, specifications, deadlines, and milestone payments. For the duration of time that the confidential treatment is awarded, which coincides with the length of the agreement, the redacted details are not subject to Freedom of Information Act (FOIA) requests. While a CTO shields proprietary information from competitors, it also prevents investors from obtaining potentially value-relevant information from SEC disclosures, which can be even more critical at the initial public offering (IPO) stage when it is often the first opportunity for the public to learn details about the firm.
