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SEC releases derivatives rule proposal.

The Securities and Exchange Commission has formally issued for comment proposed amendments to regulations governing the disclosure of derivatives and other financial instruments. The long-awaited proposals would be the SEC's first comprehensive guidance on this subject. They require disclosures beyond the financial statements of qualitative and quantitative information about inherent market risk related to derivatives and other financial instruments (see "Wallman Announces SEC Derivatives and Market Risk Proposal," JofA, Dec.95, page 15).

"The objective of the disclosure proposals is to help investors better assess the market risks and better understand how those risks are managed" said SEC chief accountant Michael H. Sutton. Sutton told the Journal the substantial increase in derivatives activity and the number of highly publicized cases in which market risks were not known before large losses were incurred prompted the SEC to take action.

To make more flexible the requirement to disclose quantitative information about market risk, the proposal allows registrants to provide this information using any one of three alternatives:

* Tabular presentation of expected future cash flow amounts and related contract terms categorized by expected maturity dates.

* Sensitivity analysis, including possible loss in earnings, fair values or cash flows of risk-sensitive instruments, from selected hypothetical changes in market rates and prices.

* Value at risk, including potential loss in earnings, fair values or cash flows of risk-sensitive instruments from market movements over a selected period with a selected likelihood of occurrence.

The comment period on the proposed amendments is 120 days and will expire in April 1996. For more information contact Stephen M. Swad, SEC deputy chief accountant, at (202) 942-4400. Text of the proposed amendments is available on the SEC World Wide Web site: http://
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Mar 1, 1996
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