SEC Unveils Plans for Derivative Disclosure : Securities: Long-awaited guidelines were prompted by financial disasters such as Orange County’s bankruptcy.

WASHINGTON — The Securities and Exchange Commission on Thursday unveiled long-awaited proposals on how companies should disclose their holdings in derivatives to shareholders.

Financial disasters caused by derivatives--such as the huge losses incurred by Orange County, failed British investment bank Barings and the German conglomerate MetallGessellschaft--have spurred regulators to set formal guidelines.

Orange County filed for bankruptcy on Dec. 6, 1994, after sustaining investment losses estimated at $1.64 billion.

“The commission is hopeful that the proposed disclosures are responsive to concerns of investors and will lead to more useful disclosures about derivatives and other related instruments,” SEC chief accountant Michael Sutton said.

Derivatives are complex financial instruments whose values depend on underlying assets such as commodities or currencies.

Chiefly, the new rules would require companies using derivatives to disclose information about market risk in their financial reports in:

* a table of expected future cash flow amounts categorized by expected maturity dates;

* an analysis of the possible loss in earnings, fair values or cash flows from changes in market rates and prices;

* a statistical calculation of potential losses from market movements over a selected period with a selected likelihood called “value at risk.”

The SEC said companies would also be obliged to describe what sorts of risk exposures--not just from derivatives--they have and what they do to manage those exposures.

Finally, companies would be required to describe their accounting policies in footnotes.

The agency said it expects the new disclosure requirements to go into effect in 1996.

The SEC will publish them in the Federal Register, after which there will be a 120-day period for public comment.

The commission signaled this fall in its settlement with Gibson Greetings Inc. that it expects full disclosure of derivatives risk from companies.

The SEC found the Cincinnati-based greeting card company was still required to comply with federal laws on reporting even though BT Securities, a unit of Bankers Trust, had misled Gibson about its derivatives positions.