What is a confidential treatment order (CTO)?

Have you seen a CTO among a company’s filings with the Securities and Exchange Commission (SEC)? So, what is a confidential treatment order (CTO)? 

A CTO is an order that allows for the confidential treatment of specific information and documents that a company would otherwise have to disclose in SEC filings.

How a confidential treatment order works is that a company submits a confidential treatment request (CTR), which is then granted by the SEC. CTOs are handled by the SEC’s Division of Corporate Finance.

Receiving a confidential treatment order means that a company can omit or withhold information from its SEC filings for a certain period of time. The company sets the expiry date for the CTO in its request. Obtaining a CTO for information contained in the documents that are required to be filed under the Securities Act and the Exchange Act exempts the information from disclosure under the Freedom of Information Act.

The SEC will only grant a CTO for certain types of information that could have a negative impact on the company’s competitive or financial position if it was disclosed. 

According to the SEC, “Typical examples of the information that raises this concern include pricing terms, technical specifications and milestone payments. To address the potential disclosure hardship, the Commission has adopted a system that allows companies to request confidential treatment of information filed under the Securities Act and the Exchange Act.”

If a company wants to extend a CTO, they must file a request before the order expires.

Where have you heard about a confidential treatment order?

If a company has been granted a CTO, it will be listed among its SEC filings, so you may have seen them when researching a company’s filings for its financial performance, merger and acquisition activity, and other announcements. 

A confidential treatment order example that you may become aware of is if a company is negotiating an acquisition. The company can request a CTO to avoid disclosing a pricing arrangement with the target business. The SEC would grant the request on the basis that the company’s competitors could use the information to make a competing bid for the acquisition target. The company only needs to withhold the information temporarily, as once the acquisition is agreed it can disclose the pricing arrangement after the CTO expires without the competitive disadvantage.