Changes to Exchange Act Registration Requirements To Implement Title V and Title VI of the Jobs Act, 78343-78362 [2014-30136]

Download as PDF tkelley on DSK3SPTVN1PROD with PROPOSALS Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules common target tissues via diverse mechanisms of toxicity. Int. J. Androl. 33:443–462. Sathyanarayana S, Calafat AM, Liu F, Swan SH. 2008a. Maternal and infant urinary phthalate metabolite concentrations: Are they related? Environ. Res. 108:413–418. Sathyanarayana S, Karr CJ, Lozano P, Brown E, Calafat AM, Liu F, et al. 2008b. Baby care products: Possible sources of infant phthalate exposure. Pediatrics 121:e260– 268. Schutze A, Palmke C, Angerer J, Weiss T, Bruning T, Koch HM. 2012. Quantification of biomarkers of environmental exposure to di(isononyl)cyclohexane-1,2dicarboxylate (DINCH®) in urine via hplc-ms/ms. J. Chromatogr. B. Analyt. Technol. Biomed. Life Sci. 895–896:123– 130. Sexton K, Hattis D. 2007. Assessing cumulative health risks from exposure to environmental mixtures—three fundamental questions. Environmental Health Perspectives 115:825–832. Silva MJ, Furr J, Samandar E, Preau JL, Jr., Gray LE, Needham LL, et al. 2010. Urinary and serum metabolites of di-npentyl phthalate in rats. Chemosphere 82:431–436. Skakkebaek NE., Rajpert-De Meyts E, Main KM. 2001. Testicular dysgenesis syndrome: An increasingly common developmental disorder with environmental aspects. Hum. Reprod. 16:972–978. Teuschler LK, Hertzberg RC. 1995. Current and future risk assessment guidelines, policy, and methods development for chemical mixtures. Toxicology 105:137– 144. T<nning K, Jacobsen E, Pedersen E, Strange M, Poulsen PB, Moller L, et al. 2009. Survey and health assessment of the exposure of 2 year-olds to chemical substances in consumer products. Survey no. 102. Danish Ministry of the Environment. Versar/SRC. 2010a. Review of exposure and toxicity data for phthalate substitutes Versar, Inc., Springfield, VA 22151. Syracuse Research Corporation, North Syracuse, NY 13212. Prepared for the U.S. Consumer Product Safety Commission, Bethesda, MD 20814. January 2010. Versar/SRC. 2010b. Toxicity review of diisobutyl phthalate (DIBP). Versar, Inc., Springfield, VA 22151. Syracuse Research Corporation, North Syracuse, NY 13212. Prepared for the U.S. Consumer Product Safety Commission, Bethesda, MD 20814. October 2010. http://www.cpsc.gov/PageFiles/125773/ dibp.pdf Versar/SRC. 2010c. Toxicity review of diisooctyl phthalate (DIOP). Versar, Inc., Springfield, VA and SRC, Inc., North Syracuse, NY. May 2, 2010. Prepared for CPSC, contract number CPSC–D–06– 0006. http://www.cpsc.gov/PageFiles/ 125782/diop.pdf. Versar/SRC. 2010d. Toxicity review of dicyclohexyl phthalate (DCHP). Versar, Inc., Springfield, VA 22151. Syracuse VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 Research Corporation, North Syracuse, NY 13212. Prepared for the U.S. Consumer Product Safety Commission, Bethesda, MD 20814. October 2010. http://www.cpsc.gov/PageFiles/125779/ dchp.pdf Ward JM, Peters JM, Perella CM, Gonzalez FJ. 1998. Receptor and nonreceptormediated organ-specific toxicity of di(2ethylhexyl)phthalate (DEHP) in peroxisome proliferator-activated receptor alpha-null mice. Toxicol. Pathol. 26:240–246. Wilson VS, Lambright C, Furr J, Ostby J, Wood C, Held G, et al. 2004. Phthalate ester-induced gubernacular lesions are associated with reduced insl3 gene expression in the fetal rat testis. Toxicol. Lett. 146:207–215. Wormuth M, Scheringer M, Vollenweider M, Hungerbuhler K. 2006. What are the sources of exposure to eight frequently used phthalic acid esters in Europeans? Risk Anal. 26:803–824. Zota AR, Calafat AM, Woodruff TJ. 2014. Temporal trends in phthalate exposures: Findings from the national health and nutrition examination survey, 2001– 2010. Environmental Health Perspectives 122:235–241. List of Subjects in 16 CFR Part 1307 Consumer protection, Imports, Infants and children, Law enforcement, and Toys. For the reasons discussed in the preamble, the Commission proposes to amend Title 16 of the Code of Federal Regulations by adding part 1307 to read as follows: ■ 1. Add Part 1307 to read as follows 78343 to this part. Specifically, as defined in the CPSIA: (a) Children’s toy means a consumer product designed or intended by the manufacturer for a child 12 years of age or younger for use by the child when the child plays. (b) Child care article means a consumer product designed or intended by the manufacturer to facilitate sleep or the feeding of children age 3 and younger, or to help such children with sucking or teething. § 1307.3 Prohibition of children’s toys and child care articles containing specified phthalates. (a) As provided in section 108(a) of the CPSIA, the manufacture for sale, offer for sale, distribution in commerce, or importation into the United States of any children’s toy or child care article that contains concentrations of more than 0.1 percent of di-(2-ethyhexyl) phthalate (DEHP), dibutyl phthalate (DBP), or benzyl butyl phthalate (BBP) is prohibited. (b) In accordance with section 108(b)(3) of the CPSIA, the manufacture for sale, offer for sale, distribution in commerce, or importation into the United States of any children’s toy or child care article that contains concentrations of more than 0.1 percent of diisononyl phthalate (DINP), diisobutyl phthalate (DIBP), di-n-pentyl phthalate (DPENP), di-n-hexyl phthalate (DHEXP), or dicyclohexyl phthalate (DCHP) is prohibited. PART 1307—PROHIBITION OF CHILDREN’S TOYS AND CHILD CARE ARTICLES CONTAINING SPECIFIED PHTHALATES Dated: December 17, 2014. Alberta E. Mills, Acting Secretary, U.S. Consumer Product Safety Commission. Sec. 1307.1 Scope and application. 1307.2 Definitions. 1307.3 Prohibition on children’s toys and child care articles containing specified phthalates. [FR Doc. 2014–29967 Filed 12–29–14; 8:45 am] Authority: The Consumer Product Safety Improvement Act of 2008, Pub. L. 110–314, Sec. 108, 122 Stat. 3016 (August 14, 2008); Pub. L. 112–28, 125 Stat. 273 (August 12, 2011). § 1307.1 Definitions. The definitions of the Consumer Product Safety Act (CPSA) (15 U.S.C. 2052)(a)) and the Consumer Product Safety Improvement Act of 2008 (CPSIA) (Pub. L. 110–314, 108)(g)) apply PO 00000 Frm 00030 Fmt 4702 Sfmt 4702 SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230 and 240 [Release No. 33–9693; 34–73876; File No. S7–12–14] RIN 3235–AL40 Scope and application. This part prohibits the manufacture for sale, offer for sale, distribution in commerce or importation into the United States of any children’s toy or child care article containing any of the phthalates specified in § 1307.3. § 1307.2 BILLING CODE 6355–01–P Changes to Exchange Act Registration Requirements To Implement Title V and Title VI of the Jobs Act Securities and Exchange Commission. ACTION: Proposed rule. AGENCY: We are proposing amendments to our rules to implement Title V and Title VI of the Jumpstart Our Business Startups Act (the ‘‘JOBS Act’’). The proposed amendments would SUMMARY: E:\FR\FM\30DEP1.SGM 30DEP1 78344 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules revise rules adopted under Section 12(g) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’) to reflect the new, higher thresholds for registration, termination of registration and suspension of reporting that were set forth in the JOBS Act. The proposed rules also would apply the thresholds specified for banks and bank holding companies to savings and loan holding companies. In addition, the proposed amendments would revise the definition of ‘‘held of record’’ in Exchange Act Rule 12g5–1, in accordance with the JOBS Act, to exclude certain securities held by persons who received them pursuant to employee compensation plans and establish a non-exclusive safe harbor for determining whether securities are ‘‘held of record’’ for purposes of registration under Exchange Act Section 12(g). DATES: Comments should be received on or before March 2, 2015. ADDRESSES: Comments may be submitted by any of the following methods: Krauskopf, Senior Special Counsel, at (202) 551–3500, Division of Corporation Finance, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. We are proposing amendments to Rules 3b–4,1 12g–1,2 12g–2,3 12g–3,4 12g–4,5 12g5– 1,6 and 12h–3 7 under the Exchange Act 8 and an amendment to Rule 405 9 under the Securities Act of 1933 (the ‘‘Securities Act’’).10 SUPPLEMENTARY INFORMATION: Table of Contents tkelley on DSK3SPTVN1PROD with PROPOSALS Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/proposed.shtml); • Send an email to rule-comments@ sec.gov. Please include File Number S7– 12–14 on the subject line; or • Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–12–14. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/rules/ proposed.shtml). Comments are also available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549–1090 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Senior Special Counsel, at (202) 551–3430, or Anne I. Introduction II. Proposed Amendments Relating to Exchange Act Reporting Thresholds A. Application of the Increased Thresholds for Registration and Reporting Obligations B. Increased Thresholds for Savings and Loan Holding Companies’ Registration and Reporting Obligations C. Application of the Increased Threshold for Accredited Investors III. Proposed Amendments to Exchange Act Rule 12g5–1 A. Statutory Requirement and Definition of ‘‘Employee Compensation Plan’’ B. Definition of ‘‘Held of Record’’ and NonExclusive Safe Harbor for Determining Holders of Record 1. Definition of ‘‘Held of Record’’ 2. Non-Exclusive Safe Harbor for Determining Holders of Record IV. General Request for Comment V. Economic Analysis A. Baseline B. Analysis of the Proposed Rules VI. Paperwork Reduction Act VII. Small Business Regulatory Enforcement Fairness Act VIII. Initial Regulatory Flexibility Act Analysis A. Reasons for, and Objectives of, the Proposed Action B. Small Entities Subject to the Proposed Rules C. Projected Reporting, Recordkeeping and Other Compliance Requirements D. Duplicative, Overlapping or Conflicting Federal Rules E. Significant Alternatives F. Solicitation of Comment IX. Statutory Authority and Text of Proposed Rule Amendments I. Introduction VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 Prior to the enactment of the JOBS Act,11 Section 12(g) of the Exchange 1 17 CFR 240.3b–4. CFR 240.12g–1. 3 17 CFR 240.12g–2. 4 17 CFR 240.12g–3. 5 17 CFR 240.12g–4. 6 17 CFR 240.12g5–1. 7 17 CFR 240.12h–3. 8 15 U.S.C. 78a et seq. 9 17 CFR 230.405. 10 15 U.S.C. 77a et seq. 11 Public Law 112–106, 126 Stat. 325 (Apr. 5, 2012). 2 17 PO 00000 Frm 00031 Fmt 4702 Sfmt 4702 Act 12 required an issuer to register a class of its equity securities if, at the end of the issuer’s fiscal year, the securities were ‘‘held of record’’ by 500 or more persons and the issuer had total assets exceeding $1 million.13 Under Section 12(g) and the Commission’s rules prior to the JOBS Act amendments, an issuer that had a class of equity securities registered under Section 12(g) was able to terminate that registration if the number of record holders of that class fell below 300, or the number of record holders of that class fell below 500 and the issuer’s assets were no more than $10 million at the end of each of its last three fiscal years.14 Exchange Act Section 15(d) 15 requires an issuer with an effective registration statement under the Securities Act to file the same reports as an issuer with a registered class of securities under Exchange Act Section 12. Prior to the enactment of the JOBS Act, an issuer’s reporting obligation was automatically suspended under Section 15(d)(1) if, on the first day of any fiscal year other than the year in which the registration statement became effective, there were fewer than 300 holders of record of the class of securities offered under the registration statement. The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act to adjust the thresholds for registration, termination of registration and suspension of reporting.16 Specifically, 12 15 U.S.C. 78l(g). Congress enacted Section 12(g) in 1964 following the release of a study of the securities markets conducted by the staff of the Commission in the early 1960s, which was commissioned by Congress to serve as a basis for legislation. Report of Special Study of Securities Markets of the Securities and Exchange Commission, H.R. Doc. No. 88–95 (1963). Section 12(g) was enacted to ‘‘improve investor protection by extending to the larger companies in the overthe-counter market the registration, reporting, proxy solicitation, and insider trading requirements . . . applicable to companies listed on an exchange.’’ Report of the Committee on Banking and Currency to Accompany, S.1642, S. Rep. No. 88–379 (1963) at 1. 13 See 15 U.S.C. 78l(g)(1). The Commission has the authority, under Section 12(h), to raise the asset threshold for Section 12(g) registration. 15 U.S.C. 78l(h). The Commission raised the asset threshold for Section 12(g) registration from $1 million to $3 million in 1982, $5 million in 1986 and $10 million in 1996. See System of Classification for Purposes of Exempting Smaller Issuers From Certain Reporting and Other Requirements, Release No. 34– 18647 (Apr. 15, 1982) [47 FR 17046 (Apr. 21, 1982)], Reporting by Small Issuers, Release No. 34– 23406 (Jul. 8, 1986) [51 FR 25360 (Jul. 14, 1986)], and Relief From Reporting by Small Issuers, Release No. 34–37157 (May 1, 1996) [61 FR 21353 (May 9, 1996)]. For the thresholds applicable to foreign private issuers, see infra note 84 and the discussion in the following text. 14 See 15 U.S.C. 78l(g)(4) and 17 CFR 240.12g– 4(a). 15 15 U.S.C. 78o(d). 16 The changes to Exchange Act Sections 12(g)(1), 12(g)(4) and 15(d)(1) were effective upon enactment E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS Section 501 of the JOBS Act 17 amended Section 12(g)(1) of the Exchange Act to require an issuer to register a class of equity securities (other than exempted securities) within 120 days after its fiscal year end if, on the last day of its fiscal year, the issuer has total assets of more than $10 million and the class of equity securities is ‘‘held of record’’ by either (i) 2,000 persons, or (ii) 500 persons who are not accredited investors. Section 601 of the JOBS Act 18 further amended Exchange Act Section 12(g)(1) to require an issuer that is a bank or a bank holding company, as defined in Section 2 of the Bank Holding Company Act of 1956,19 to register a class of equity securities (other than exempted securities) within 120 days after the last day of its first fiscal year ended after the effective date of the JOBS Act if, on the last day of its fiscal year, the issuer has total assets of more than $10 million and the class of equity securities is ‘‘held of record’’ by 2,000 or more persons. Section 601 of the JOBS Act also amended Exchange Act Section 12(g)(4) and Exchange Act Section 15(d)(1) 20 to enable an issuer that is a bank or a bank holding company to terminate the registration of a class of securities under Section 12(g) or suspend reporting under Section 15(d)(1) if that class is held of record by less than 1,200 persons. For other issuers, the threshold in Section 12(g)(4) for termination of registration and in Section 15(d)(1) for suspension of reporting remains at 300. Section 502 of the JOBS Act 21 amended Exchange Act Section 12(g)(5) 22 to exclude from the definition of ‘‘held of record,’’ for the purposes of determining whether an issuer is required to register a class of equity securities, securities that are held by persons who received them pursuant to an ‘‘employee compensation plan’’ in transactions exempted from the registration requirements of Section 5 of the Securities Act.23 Section 503 of the JOBS Act 24 instructed the Commission of the JOBS Act and do not require any Commission action. We are proposing amendments to our rules to reflect the new, higher thresholds provided by the JOBS Act in our rules and to implement the required safe harbor for securities received pursuant to employee compensation plans. 17 Public Law 112–106, Sec. 501, 126 Stat. 326 (Apr. 5, 2012). 18 Public Law 112–106, Sec. 601, 126 Stat. 326 (Apr. 5, 2012). 19 12 U.S.C. 1841. 20 15 U.S.C. 78o(d)(1). 21 Public Law 112–106, Sec. 502, 126 Stat. 326 (Apr. 5, 2012). 22 15 U.S.C. 78l(g)(5). 23 15 U.S.C. 77e. 24 Public Law 112–106, Sec. 503, 126 Stat. 326 (Apr. 5, 2012). VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 to revise the definition of ‘‘held of record’’ pursuant to Exchange Act Section 12(g)(5) to implement the amendment made by Section 502 of the JOBS Act, and to create a safe harbor for issuers when determining whether holders received their securities pursuant to an ‘‘employee compensation plan’’ in a transaction exempted from the registration requirements of Section 5 of the Securities Act. We believe that the increased registration threshold established by the JOBS Act is intended to permit issuers to defer Exchange Act registration until issuers have a larger shareholder base. In connection with the amendments made by Title V and Title VI of the JOBS Act, we are proposing to amend our rules to reflect the new, higher registration, termination of registration and suspension of reporting thresholds under revised Exchange Act Sections 12(g)(1), 12(g)(4) and 15(d)(1). We also are proposing to permit savings and loan holding companies to register, terminate registration and suspend reporting using the same thresholds that apply to banks and bank holding companies. Finally, we are proposing to amend Exchange Act Rule 12g5–1 to reflect the amendment to Exchange Act Section 12(g)(5) and establish a nonexclusive safe harbor that issuers may follow when determining if securities held by persons who received them pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act may be excluded when calculating the number of the issuer’s holders of record when determining whether they are required to register under Exchange Act Section 12(g)(1). After enactment of the JOBS Act, we sought comment from the public prior to the issuance of a proposing release. We have considered the pre-proposal comment letters received to date on Title V and Title VI of the JOBS Act, and we are requesting comment on various issues relating specifically to the proposed amendments.25 In this release, we are proposing rule amendments to implement and address issues specifically related to Title V and Title 25 To facilitate public input on JOBS Act rulemaking before the issuance of rule proposals, the Commission invited members of the public to make their views known on various JOBS Act initiatives in advance of any rulemaking by submitting comment letters to the Commission’s Web site at http://www.sec.gov/spotlight/ jobsactcomments.shtml. Comment letters received to date on Title V of the JOBS Act are available at http://www.sec.gov/comments/jobs-title-v/jobs-titlev.shtml and on Title VI of the JOBS Act at http://www.sec.gov/comments/jobs-title-vi/jobstitle-vi.shtml. PO 00000 Frm 00032 Fmt 4702 Sfmt 4702 78345 VI of the JOBS Act. We recognize that commenters have urged us to consider and propose additional amendments. For example, several commenters have recommended that the Commission make rule revisions related to the use of the term ‘‘accredited investor’’ or permitting other issuers to register, terminate registration and suspend reporting using the same thresholds that apply to banks and bank holding companies.26 We have considered the suggestions made by these commenters, but at this time we are not proposing amendments that extend substantially beyond reflecting the new statutory requirements. II. Proposed Amendments Relating to Exchange Act Reporting Thresholds A. Application of the Increased Thresholds for Registration and Reporting Obligations As a result of the JOBS Act changes to Exchange Act Sections 12(g)(1), 12(g)(4) and 15(d), we are proposing changes to Exchange Act Rules 12g–1, 12g–2, 12g–3, 12g–4 and 12h–3, which are the rules that govern the mechanics relating to registration, termination of registration under Section 12(g) and suspension of reporting obligations under Section 15(d). These rules currently reflect the prior holder of record statutory thresholds in Sections 12(g) and 15(d). We are proposing to amend these rules to reflect the new thresholds set forth in the JOBS Act. Exchange Act Rule 12g–1 currently provides that an issuer shall be exempt from the registration requirements if, on the last day of its most recent fiscal year, it had total assets not exceeding $10 million. JOBS Act Section 501 amended Section 12(g)(1) to expressly include the $10 million asset threshold. We are proposing to revise Rule 12g–1 to reflect the asset and holder of record thresholds established by Titles V and VI of the JOBS Act relating to the requirement to register a class of equity securities under the Exchange Act. The revision would additionally remove an outdated reference currently contained in the rule.27 26 See Section II.C. relating to the term ‘‘accredited investor.’’ See also letters from Wilmer Hale (June 25, 2012), and Ledgewood, P.C. (Sept. 12, 2012) on behalf of their respective clients, a real estate investment trust and a real estate limited partnership, requesting that the Commission use its exemptive authority to revise the holder of record threshold to treat non-bank issuers similarly to banks and bank holding companies. 27 Under Exchange Act Rule 12g–1, foreign private issuers may not rely on the exemption from registration provided in that rule if their securities are quoted on an automated inter-dealer quotation system. The NASDAQ Stock Market was the only E:\FR\FM\30DEP1.SGM Continued 30DEP1 78346 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS As noted above, Section 601 of the JOBS Act amended Exchange Act Section 12(g)(4) to raise the threshold at which an issuer that is a bank or a bank holding company may terminate registration of a class of equity securities from 300 to 1,200 holders of record. Section 601 similarly amended Exchange Act Section 15(d)(1) by providing for an automatic suspension of the duty to file reports for a bank or bank holding company with respect to a class of equity security that is held of record by less than 1,200 persons at the beginning of its fiscal year, provided that the bank or bank holding company did not have a Securities Act registration statement that became effective during that year. As currently in effect, Exchange Act Rules 12g–2 and 12g–3 reflect the holders of record thresholds in the Exchange Act for terminating registration and suspending reporting that existed prior to the JOBS Act amendments and not the new thresholds for banks and bank holding companies. Specifically, • Rule 12g–2 addresses securities deemed to be registered pursuant to Section 12(g)(1) upon termination of the exemption pursuant to Section 12(g)(2)(A) or (B) 28 and establishes a 300-person threshold for such a class of securities to be registered under Section 12(g). • Rule 12g–3 addresses the 300person threshold for the registration of securities of successor issuers under Section 12(b) or Section 12(g). In addition, although the statutory provisions of Exchange Act Section 12(g) and 15(d) do not suspend reporting obligations immediately when an issuer reaches the designated threshold, Exchange Act Rules 12g–4 and 12h–3 permit issuers to immediately suspend their duty to file periodic and current reports. These rules, however, reflect the thresholds in Sections 12(g) and 15(d) prior to the automated inter-dealer quotation system in existence when this provision was adopted and has subsequently registered as a securities exchange with the Commission. See In the Matter of the Application of the Nasdaq Stock Market LLC for Registration as a National Securities Exchange; Findings, Opinion and Order of the Commission, Release No. 34–53128 (Jan. 13, 2006) [71 FR 3550 (Jan. 23, 2006)]. As a result, the reference to an automated inter-dealer quotation system is no longer necessary and we are proposing to remove it. 28 Section 12(g)(2)(A) [15 U.S.C. 78l(g)(2)(A)] provides an exemption from Section 12(g) registration while the class of securities is listed and registered on a national securities exchange under Exchange Act Section 12(b) [15 U.S.C. 78l(b)]. Section 12(g)(2)(B) [15 U.S.C. 78l(g)(2)(B)] provides an exemption for securities issued by registered investment companies. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 JOBS Act amendments and not the new threshold for banks and bank holding companies. Specifically, • Rule 12g–4(a) provides that termination of registration under Section 12(g) shall take effect in 90 days, or such shorter period as the Commission determines, after the issuer certifies on Form 15 29 that the class of securities is held by less than 300 persons, or 500 persons where the total assets of the issuer have not exceeded $10 million on the last day of each of the preceding three years. • Rule 12g–4(b) provides that the duty to file current and periodic reports under Exchange Act Section 13(a) 30 for that class of securities is suspended immediately upon the filing of a certification on Form 15 provided that the issuer has less than 300 holders of record, or 500 holders of record where the issuer’s total assets have not exceeded $10 million on the last day of each of the preceding three years. • Rule 12h–3 provides that the duty to file current and periodic reports under Section 13(a) pursuant to Section 15(d) for that class of securities is suspended immediately upon the filing of a certification on Form 15, provided that: Æ The issuer has less than 300 holders of record or 500 holders of record where the issuer’s total assets have not exceeded $10 million on the last day of each of the preceding three years; Æ the issuer has filed its Section 13(a) reports for the most recent three completed fiscal years, and for the portion of the year immediately preceding the date of filing the Form 15 or the period since the issuer became subject to the reporting obligation; and Æ a registration statement has not become effective or was required to be updated pursuant to Exchange Act Section 10(a)(3) 31 during the fiscal year.32 Because the new statutory threshold for banks and bank holding companies is not reflected in Rule 12g–4, banks and bank holding companies seeking to rely on the new 1,200-holder threshold may not rely on the existing procedural accommodations in the rule. As a result, the statute requires them to wait 90 days after filing a certification with the Commission that the number of holders 29 17 CFR 249.323. U.S.C. 78m(a). 31 15 U.S.C. 78j(a)(3). 32 The automatic statutory suspension of an issuer’s Section 15(d) reporting obligation also is not available as to any fiscal year in which the issuer’s Securities Act registration statement becomes effective or is required to be updated pursuant to Section 10(a)(3) of the Securities Act. 30 15 PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 of record is less than 1,200 persons to terminate their Section 12(g) registration and cease filing reports required by Section 13(a) rather than being able to suspend their Section 13(a) reporting obligations immediately upon the filing of a Form 15 in reliance on the rule. Similarly, banks and bank holding companies are not permitted to rely on Rule 12h–3 to immediately suspend their Section 15(d) reporting obligations using the new higher statutory threshold during a fiscal year. Rather, Section 15(d)(1) provides that they may use the higher thresholds only when seeking to suspend a Section 15(d) obligation on the first day of a fiscal year. Similarly the new statutory threshold also is not reflected in current Rules 12g–2 and 12g–3, leaving all issuers to refer to the lower 300-holder threshold under these rules. We are proposing to amend these rules to include the JOBS Act thresholds for banks and bank holding companies.33 The proposed changes would allow banks and bank holding companies to rely on the Commission’s rules to suspend reporting immediately, to avoid being deemed registered upon the termination of certain exemptions or as a successor issuer, and to terminate their registration during the fiscal year, at the higher 1,200-holder threshold. B. Increased Thresholds for Savings and Loan Holding Companies’ Registration and Reporting Obligations We are proposing to apply the same thresholds to savings and loan holding companies that apply to banks and bank holding companies. As noted above, banks and bank holding companies under Title VI of the JOBS Act are subject to a higher shareholder registration threshold for a class of equity security under Section 12(g)(1) of the Exchange Act, and a higher threshold for termination of registration under Section 12(g)(4) and for suspension of the duty to file reports under Section 15(d)(1). Section 3(a)(6) of the Exchange Act defines the term ‘‘bank’’; 34 however, neither the Exchange Act nor the Commission’s rules define ‘‘bank holding company.’’ 33 One commenter expressed support for a change permitting banks and bank holding companies to immediately suspend Section 13(a) reporting at the 1,200-holder threshold upon filing Form 15, as is permitted for all issuers under current rules at the 300-holder threshold. See letter from John Marshall Bank (Apr. 13, 2012). 34 15 U.S.C. 78c(a)(6). Exchange Act Section 3(a)(6) defines a ‘‘bank’’ to include Federal savings associations and any other banking institution or savings association, as defined in the Home Owners’ Loan Act. We read this definition to include savings and loan associations and other similar entities. E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS Section 2 of the Bank Holding Company Act of 1956 specifically excludes ‘‘savings and loan holding companies’’ from the definition of bank holding company.35 Thus, while banks, savings associations and bank holding companies are covered by Title VI of the JOBS Act, savings and loan holding companies are not. A commenter representing community banks asserted that savings and loan holding companies should be covered by Title VI of the JOBS Act.36 Other commenters from the banking industry and Congress have also requested that savings and loan holding companies be treated similarly to bank holding companies for purposes of the registration, termination of registration and suspension of reporting provisions of the Exchange Act.37 One commenter acknowledged that the JOBS Act did not ‘‘expressly extend its new threshold for termination of registration to savings and loan holding companies,’’ but suggested that correction of that omission would be ‘‘entirely consistent with the intent and purpose of the JOBS Act.’’ 38 Based on a review of reporting issuers, we estimate that approximately 125 savings and loan holding companies were reporting issuers as of June 30, 2014, most of which are registered pursuant to Section 12(b).39 Approximately 90 of these companies reported fewer than 1,200 holders of record and would be eligible to terminate registration under the proposed threshold.40 These savings 35 A savings and loan holding company is a company that controls savings associations or other savings and loan holding companies, similar to the way a bank holding company is a company that controls banks or other bank holding companies. Savings associations and banks are all depository institutions, and each one is regulated by the appropriate Federal banking agency. 12 U.S.C. 1813(q). The definition of ‘‘appropriate Federal banking agency’’ provides which federal banking agency is the primary regulator for the various types of national, state and foreign banks and savings associations. 36 See letter from Independent Community Bankers of America (Apr. 16, 2012). 37 See, e.g., letters from American Bankers Association (Aug. 10, 2012); Community Bankers Association of Illinois (May 7, 2012); U.S. Representatives Himes and Womack (Nov. 29, 2012); Wayne Savings Community Bank (Apr. 12, 2012); U.S. Representative Stivers (May 4, 2012); and U.S. Representative Gibbs (Dec. 19, 2012). 38 See letter from American Bankers Association. 39 Savings and loan holding companies were identified by examining filings in the relevant Standard Industrial Classification codes. 40 The Board of Governors of the Federal Reserve System (the ‘‘Board of Governors’’) previously determined to exempt commercial savings and loan holding companies from its initial requirement that savings and loan holding companies generally submit the same reports as other banking entities regulated by the Board of Governors. See Agency Information Collection Activities Regarding Savings VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 and loan holding companies, however, are subject to regulation by the Board of Governors and are generally required to submit the same reports to banking regulators as other banking entities regulated by the Board of Governors, including banks and bank holding companies covered by Title VI of the JOBS Act.41 As noted above, the increased thresholds provided by the JOBS Act for registration, termination of registration and suspension of reporting for banks and bank holding companies do not apply to savings and loan holding companies. This creates inconsistent treatment among depository institutions, resulting in different registration requirements for savings and loan holding companies that otherwise provide services similar to those provided by banks and bank holding companies and are generally subject to similar bank regulatory and supervision requirements. We have received comments in support of treating savings and loan holding companies the same as banks and bank holding companies with regard to the increased thresholds. We are proposing to revise our rules so that savings and loan holding companies are treated in a similar manner to banks and bank holding companies for the purposes of registration, termination of registration or suspension of their Exchange Act and Loan Holding Companies: Announcement of Board Approval Under Delegated Authority and Submission to OMB, (Dec. 23, 2011) [76 FR 81933 (Dec. 29, 2011)]. There are six commercial savings and loan holding companies that are all exchangelisted issuers obligated to file, and would continue to be obligated to file, Exchange Act reports pursuant to Exchange Act Section 12(b) (15 U.S.C. 78l(b)). For ease of application and due to the limited effect on, and small number of, such issuers, we are not proposing to differentiate between commercial saving and loan holding companies and other savings and loan holding companies for purposes of this rulemaking. 41 See id. Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111– 203, 124 Stat. 1376) (the ‘‘Dodd-Frank Act’’) abolished the Office of Thrift Supervision, the regulator that formerly supervised savings and loan holding companies, and transferred its authorities (including rulemaking) related to savings and loan holding companies to the Board of Governors. The Board of Governors assumed supervisory responsibility for savings and loan holding companies and their non-depository subsidiaries beginning on July 21, 2011. The Board of Governors is responsible for the consolidated supervision of bank holding companies and savings and loan holding companies and requires those entities to provide data relating to capitalization, liquidity, and risk management as well as periodic financial reports in order for the Board of Governors to analyze the overall financial condition of those entities to ensure safe and sound operations. These reports include, among others, quarterly Consolidated Financial Statements for Bank Holding Companies (FR Y–9C) and an Annual Report of Bank Holding Companies (FR Y–6). PO 00000 Frm 00034 Fmt 4702 Sfmt 4702 78347 reporting obligations. Unlike for bank holding companies, which are able to rely on the JOBS Act statutory changes, the revised rules would be the sole basis on which savings and loan holding companies could rely when making those determinations. We are proposing to apply the new higher thresholds applicable to banks and bank holding companies to savings and loan holding companies 42 because we believe the regulatory oversight applicable to savings and loan holding companies is substantially similar to the regulatory oversight for bank holding companies. We believe these companies should be treated consistently with other depository institutions under our rules. We are therefore proposing to amend Exchange Act Rule 12g–1 to establish an exemption for savings and loan holding companies from the registration requirement that mirrors the exemption for banks and bank holding companies established by the JOBS Act. In addition, we are proposing to revise Exchange Act Rules 12g–2, 12g–3, 12g– 4 and 12h–3 to permit savings and loan holding companies to immediately suspend current and periodic reporting upon filing Form 15 at the 1,200-holder threshold in the same manner as banks and bank holding companies. C. Application of the Increased Threshold for Accredited Investors Section 501 of the JOBS Act amended Exchange Act Section 12(g)(1) to increase the threshold that triggers registration by an issuer other than a bank or bank holding company to total assets exceeding $10 million and a class of equity security (other than an exempted security) held of record by either 2,000 persons or 500 persons who are not accredited investors (as such term is defined by the Commission).43 A number of commenters pointed to potential compliance concerns with respect to identifying accredited investors and recommended ways to facilitate issuers’ use of the increased threshold for holders of record that are accredited investors. Some commenters recommended that the Commission confirm that the term ‘‘accredited 42 Under our proposal ‘‘savings and loan holding company’’ would be defined pursuant to Section 10 of the Home Owners’ Loan Act. 12 U.S.C. 1461. 43 The statutory amendment was effective upon enactment of the JOBS Act and does not require any Commission action. While this change primarily affects issuers that have never had a reporting obligation under the Exchange Act, issuers that have filed a Securities Act registration statement that became effective but have not triggered an Exchange Act Section 12(g) registration requirement and issuers that have terminated registration or suspended their reporting obligation will need to monitor the accredited investor status of their investors as of the last day of each fiscal year. E:\FR\FM\30DEP1.SGM 30DEP1 78348 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules investor’’ as used in this provision of the JOBS Act has the same meaning as set forth in Securities Act Rule 501(a) 44 of Regulation D.45 One commenter further recommended that the Commission permit an issuer to rely on an annual affirmation from investors that their accredited investor status has not changed.46 Other commenters recommended that the Commission provide guidance or a safe harbor to allow issuers to rely on an ongoing basis on information previously obtained about a shareholder’s accredited investor status.47 Commenters also recommended that the Commission provide additional flexibility by, for example, permitting issuers to rely on the determinations made by certain third parties, such as financial intermediaries, or permitting determinations during a reasonable period before or after the fiscal year end.48 To rely on the new, higher threshold established by the JOBS Act, an issuer will need to be able to determine which of its record holders are accredited investors. We are not proposing to establish a new definition of ‘‘accredited 44 17 CFR 230.501(a). letters from New York City Bar Association (June 6, 2012) (‘‘NYCBA’’) and the Business Law Section of the American Bar Association (June 26, 2013) (‘‘ABA’’). The ABA letter further requested that the Commission provide guidance on the type of information upon which issuers may rely and specifically recommended that the Commission not require issuers to take reasonable steps to verify accredited investor status. 46 See letter from ABA. 47 See letters from Foley & Lardner (May 24, 2012) and NYCBA. Foley & Lardner recommended allowing reliance on information obtained at the time the issuer’s securities were initially issued, or, in the alternative, when the securities were most recently issued, when making the determination of whether the holders are accredited for purposes of counting holders under Section 12(g). NYCBA recommended that the Commission expressly permit an issuer ‘‘to rely on any determination of ‘accredited investor’ status made in connection with the issuer’s most recent sale of securities to the relevant investor, or the most recent transfer to the investor in connection with which the issuer actually determined that the investor was ‘accredited.’ ’’ Other commenters also supported permitting issuers to rely on information previously provided if an investor fails to provide the issuer with updated information. See letters from ABA and Keith Paul Bishop (June 13, 2012). 48 See letter from ABA. ABA suggested that the rule should provide some flexibility on the timing of the determination. This would permit issuers to rely on information available to them at the time they made a judgment regarding accredited investor status, rather than requiring issuers to update the information as of the end of the fiscal year. See also letter from NYCBA recommending that the Commission adopt rules open to the possibility that limited access trading venues may be able to treat all participants as accredited investors. One commenter recommended that the Commission require issuers to determine accredited investor status as of the last day of each fiscal year. See letter from Keith Paul Bishop. investor’’ for the purposes of Section 12(g)(1). Securities Act Rule 501(a) contains a definition of ‘‘accredited investor’’ that includes any person who comes within, or who the issuer reasonably believes comes within, any of eight enumerated categories.49 Section 413(b) of the Dodd-Frank Act specifically requires the Commission to undertake a review of the ‘‘accredited investor’’ definition in its entirety, as it relates to natural persons, every four years and no earlier than July 10, 2014.50 We are proposing that the definition of ‘‘accredited investor’’ in Securities Act Rule 501(a) apply in making determinations under Exchange Act Section 12(g)(1).51 The ‘‘accredited investor’’ determination would be made as of the last day of the fiscal year rather than at the time of the sale of the securities.52 Issuers conducting offerings in reliance on an exemption from Securities Act registration in which purchasers must be accredited investors typically take appropriate steps to establish a reasonable belief that a prospective investor is an accredited investor. This reasonable belief is based on an issuer’s due diligence and depends on the particular facts and tkelley on DSK3SPTVN1PROD with PROPOSALS 45 See VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 49 Under Securities Act Rule 501(a) the categories of accredited investor include: A bank, insurance company, registered investment company, business development company, or small business investment company; an employee benefit plan (within the meaning of the Employee Retirement Income Security Act) if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; a tax exempt charitable organization, corporation or partnership with assets in excess of $5 million; a director, executive officer, or general partner of the company selling the securities; an enterprise in which all the equity owners are accredited investors; an individual with a net worth of at least $1 million, not including the value of his or her primary residence; an individual with income exceeding $200,000 in each of the two most recent calendar years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; and a trust with assets of at least $5 million, not formed only to acquire the securities offered, and whose purchases are directed by a person who meets the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment. 50 We have already requested comment on this definition. See Amendments to Regulation D, Form D and Rule 156, Release No. 33–9416 (Jul. 10, 2013) [78 FR 44806 (Jul. 24, 2013)]. 51 Although the term ‘‘accredited investor’’ is also defined in Securities Act Rule 215 [17 CFR 230.215] for the purpose of the statutory exemption from registration under Section 4(a)(5) [15 U.S.C. 78d(a)(5)], the definition of ‘‘accredited investor’’ contained in Securities Act Rule 501(a) of Regulation D is the more commonly understood meaning of the term, given the prevalence of the use of Regulation D for exempt offerings. 52 Securities Act Rule 501(a) otherwise defines ‘‘accredited investor’’ as being determined at the time of the sale of the securities. PO 00000 Frm 00035 Fmt 4702 Sfmt 4702 circumstances surrounding the determination. We believe applying the familiar concepts of the accredited investor definition in Rule 501(a) to the registration threshold in Section 12(g)(1) would facilitate compliance for issuers. After an issuer completes its offering and has sold securities to purchasers who have been determined to be accredited investors, it is not required to periodically assess an investor’s continued status as an accredited investor. We recognize that issuers may have difficulty determining whether existing security holders are accredited investors for purposes of the threshold in Section 12(g)(1) and that providing a safe harbor or other guidance could help to mitigate costs for issuers seeking to determine accredited investor status. Some commenters have suggested that we permit issuers to rely on information previously provided by these security holders in connection with the purchase or transfer of securities for an indefinite period into the future.53 We believe such reliance could, however, result in the use of outdated information that may no longer be reliable. Instead, an issuer will need to determine, based on facts and circumstances, whether it can rely upon prior information to form a reasonable basis for believing that the security holder continues to be an accredited investor as of the last day of the fiscal year. Without new guidance from the Commission, when making the determination at fiscal year-end of whether a security holder is an accredited investor for purposes of Exchange Act Section 12(g)(1), issuers would likely use procedures similar to those used when relying on Rule 506.54 We recognize that the accredited investor determination under the Securities Act is made in the context of an investor making an investment decision, while in the Exchange Act context it is made when an issuer is considering whether it must register a class of securities with the Commission. In light of this, we are considering whether a different approach would be appropriate for determining accredited 53 See supra note 47. procedures used in a Rule 506 offering may vary depending on a number of factors, including the nature of the purchaser and whether the offering is pursuant to Rule 506(b) or Rule 506(c). Rule 506(c) requires an issuer to take reasonable steps to verify that purchasers of securities sold in such offering are accredited investors. As we previously recognized when we adopted Rule 506(c), ‘‘issuers may have to apply a stricter and more costly process to determine accredited investor status than what they currently use.’’ See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33–9415 (Jul. 10, 2013) [78 FR 44771 (Jul. 24, 2013)]. 54 The E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules investor status under Section 12(g) and solicit comment on the appropriate structure and criteria for such an approach below. tkelley on DSK3SPTVN1PROD with PROPOSALS Request for Comment 1. We are proposing to revise Rule 12g–1 to reflect changes made by Titles V and VI of the JOBS Act. Should we include the requirements of Section 12(g)(1) in our rules as proposed? Should we delete the provision in the current Rule 12g–1 that precludes foreign private issuers from relying on the exemption from registration if their securities are quoted on an automated inter-dealer quotation system, as proposed? 2. The higher registration and reporting thresholds could result in issuers having a significant number of shareholders with freely tradable shares who lack current disclosure information about the issuer. How would investors get the information they need in connection with purchases and sales? What investor protection issues are raised when these security holders engage in secondary market transactions and how might they be addressed? 3. Should we extend the new registration, termination of registration and suspension of reporting thresholds for banks and bank holding companies to savings and loan holding companies, as proposed? We are proposing to use the definition of ‘‘savings and loan holding company’’ as defined in Section 10 of the Home Owners’ Loan Act. Does the proposed definition cover the appropriate entities? If not, what definition should be used? 4. We are proposing to permit savings and loan holding companies to use the higher thresholds equivalent to those available to banks and bank holding companies. Are there facts and circumstances, other than those discussed above, that we should consider in evaluating whether to provide those higher thresholds? How would using different thresholds for savings and loan holding companies impact market participants and investors? What effect would different thresholds have on competition between savings and loan holding companies and other depository institutions, such as banks and bank holding companies? 5. The population of savings and loan holding companies includes commercial savings and loan holding companies that the Board of Governors exempted from its initial requirement that savings and loan holding companies generally submit the same reports as other banking entities regulated by the Board VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 of Governors.55 These commercial savings and loan holding companies are all exchange-listed issuers that are currently registered and required to file reports under Section 12(b) of the Exchange Act. Should these companies be permitted to rely on the higher thresholds applicable to banks and bank holding companies? Should we instead carve out such savings and loan holding companies or provide other limitations for these companies? 6. Some commenters have recommended that we provide a safe harbor or other guidance to provide issuers with more certainty on how to establish a reasonable belief that a security holder is an accredited investor and therefore qualifies under the definition. Are there circumstances in the determination required to be made under Section 12(g) that suggest the need for a safe harbor or guidance, and if so, is one preferable over the other? What should be the parameters of any safe harbor or guidance? Should a safe harbor or other guidance specify the methods of inquiry an issuer could make or the documents it should obtain that would establish a reasonable belief? What methods or standards should we adopt and what steps should we require in making the determination? What negative effects on investors, if any, could result from providing a safe harbor or other guidance? Absent a safe harbor or other guidance, what burdens would the issuer face in establishing reasonable belief that a security holder is an accredited investor and in making the determination as to whether it has exceeded the Section 12(g) thresholds for Exchange Act reporting? Please quantify, if possible, the expected costs of establishing a reasonable belief every year for each accredited investor and compare the expected costs to the estimated costs of registration. 7. If the rules were to include a safe harbor or other guidance, should we permit an issuer to form its reasonable belief that a person is an accredited investor based on determinations made by specified third parties? For example, in Securities Act Rule 506(c)(2)(ii)(C) we allow issuers to rely on a written confirmation by a registered brokerdealer, a registered investment adviser, a licensed attorney, or a certified public accountant to satisfy the requirement that the issuer take reasonable steps to verify the accredited investor status of a purchaser. Should a similar written confirmation be sufficient here? Should we permit written confirmations from other third parties not subject to regulatory oversight? Why or why not? 55 See PO 00000 supra note 40. Frm 00036 Fmt 4702 Sfmt 4702 78349 If we permit written confirmations from third parties that are not subject to regulatory oversight such as those found in Rule 506(c)(2)(ii)(C), should we require issuers to perform some level of due diligence on the accredited investor determinations made by those third parties or on the third parties making those determinations? Would the answer depend on the nature of the third party? Alternatively, should we permit an issuer to rely on a written certification by the investor, on other specified information obtained by the issuer, or on a combination of a certification and other information? What information, other than a written investor certification, would it be appropriate to require? Would the answer depend on whether an issuer had determined at the time of the initial investment that the investor was an accredited investor? For what period of time should that determination be considered reliable? Should the safe harbor or other guidance specify that determinations made a specified period before or after the fiscal year end would be deemed to be reasonable? If so, what would be a reasonable time period for making such determination? What documentation, if any, should be retained by the issuer? 8. For purposes of any safe harbor or other guidance, should we permit an issuer to rely on previously obtained information relating to the person’s accredited investor status, such as information obtained at the time the issuer’s securities were initially, or most recently, sold to that person? Should such a provision be limited to situations in which the issuer does not have information that would lead it to believe that the previously obtained information was incorrect, unreliable or had changed? Should we place a time limit on the permitted use of previously obtained information, such as only permitting the use of information received within the preceding six months or year? Should an issuer be able to rely on information previously obtained if the security holder failed to respond to an issuer’s request for an annual affirmation of accredited investor status? III. Proposed Amendments to Exchange Act Rule 12g5–1 A. Statutory Requirement and Definition of ‘‘Employee Compensation Plan’’ Exchange Act Section 12(g)(5), as amended by Section 502 of the JOBS Act, provides that the definition of ‘‘held of record’’ shall not include securities held by persons who received them pursuant to an ‘‘employee E:\FR\FM\30DEP1.SGM 30DEP1 78350 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS compensation plan’’ in transactions exempted from the registration requirements of Section 5 of the Securities Act. By its express terms, this new statutory exclusion applies solely for purposes of determining whether an issuer is required to register a class of equity securities under the Exchange Act and does not apply to a determination of whether such registration may be terminated or suspended.56 The provision, which is substantially broader than the Commission’s current rules exempting compensatory employee stock options from Section 12(g) registration,57 does not define the term ‘‘employee compensation plan.’’ Section 503 of the JOBS Act instructs the Commission to amend the definition of ‘‘held of record’’ to implement the amendment in Section 502 and to adopt a safe harbor that issuers can use when determining whether holders of their securities received them pursuant to an employee compensation plan in exempt transactions. We are proposing to amend Exchange Act Rule 12g5–1 to implement the statutory exclusion created by Section 502 of the JOBS Act and to establish a non-exclusive safe harbor for issuers as directed by Section 503.58 Subsequent to the adoption of the JOBS Act, a number of commenters provided recommendations to the Commission as to how ‘‘employee compensation plan’’ should be defined. Some commenters recommended that the Commission interpret the term broadly to promote the use of employee equity issuances.59 One commenter indicated that ‘‘linking the scope of Rule 701 and amended Section 12(g)(5) makes sense, in light of the apparent 56 The statutory exclusion in Section 12(g)(5) specifically refers to Exchange Act Section 12(g)(1), which relates to when an issuer must register its securities with the Commission. 57 Exchange Act Rule 12h–1(f) [17 CFR 240.12h– 1(f)] provides non-reporting issuers with an exemption from Section 12(g) registration for stock options issued under written compensatory stock option plans under certain conditions. Exchange Act Rule 12h–1(g) [17 CFR 240.12h–1(g)] provides a similar exemption for stock options for reporting issuers that are required to file such periodic reports. The exemptions provide specific eligibility requirements and are limited to options issued pursuant to a written compensatory stock option plan. See Exemption of Compensatory Stock Options from Registration Under Section 12(g) of the Securities Exchange Act of 1934, Release No. 34–56887 (Dec. 3, 2007) [72 FR 69554 (Dec. 7, 2007)] (the ‘‘Compensatory Stock Options Release’’). 58 See Proposed Rule 12g5–1(a)(7). 59 See letter from Foley & Lardner recommending a broad definition of ‘‘employee compensation plan’’ that would include arrangements that are not written. See also letter from Keith Paul Bishop recommending a broad definition of ‘‘employee compensation plan.’’ VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 purpose of the latter provisions, and will avoid needless complexity.’’ 60 Another commenter recommended that the Commission establish a nonexclusive safe harbor without recommending a specific definition for ‘‘employee compensation plan.’’ 61 This commenter suggested that ‘‘application in a Section 12(g) context of the familiar concepts applied in connection with the exempt issuance of compensatory equity securities under Rule 701 will facilitate compliance by streamlining a smaller issuer’s learning curve and simplifying recordkeeping.’’ 62 In addition, this commenter specifically recommended that the safe harbor ‘‘explicitly import the interpretation of Rule 701(c)’’ in order to incorporate ‘‘the full range of compensatory arrangements and security holders described in Rule 701(c) under the Securities Act’’ and that it ‘‘should cover equity securities in the hands of the full range of participants and permitted transferees enumerated in Rule 701(c).’’ 63 This commenter also indicated that ‘‘the requirement of a written arrangement is reasonable in the Section 12(g)(5) context, as well as for Rule 701.’’ 64 Commenters also made specific recommendations regarding additional securities that should be considered ‘‘securities received pursuant to an employee compensation plan.’’ 65 Instead of creating a new definition for the term ‘‘employee compensation plan,’’ we are proposing to revise the definition of ‘‘held of record’’ and establish a non-exclusive safe harbor that relies on the current definition of ‘‘compensatory benefit plan’’ in Rule 60 See letter from NYCBA. For a more detailed explanation of Securities Act Rule 701, see infra notes 66 and 72. 61 See letter from ABA. ABA indicated that ‘‘it is important that the concept of ‘employee compensation plan’ encompass both traditional plans and individual compensatory agreements and include compensatory arrangements established by the various entities related to the issuer enumerated in Rule 701(c).’’ 62 See id. 63 See id. 64 See id., indicating that state corporate law generally requires some documentation of authorized issuances of equity securities. This recommendation contrasts with recommendations of other commenters suggesting that the term ‘‘employee compensation plan’’ should not be read to require a written arrangement. See supra note 59. 65 See, e.g., letter from David C. Fisher (June 13, 2012), recommending that ‘‘securities acquired in an issuer-sponsored internal market, limited to transactions in securities received pursuant to the issuer’s employee compensation plans, will be considered securities received pursuant to an employee compensation plan.’’ See also letter from NYCBA suggesting that ‘‘ ‘closed system’ platforms and trading venues’’ may be able to afford issuers a reasonable basis to determine that participants are excludable employees. PO 00000 Frm 00037 Fmt 4702 Sfmt 4702 701 and the conditions in Rule 701(c).66 Although some commenters recommended that we create a new, broad definition, we believe that by not defining the term ‘‘employee compensation plan,’’ and by providing for a non-exclusive safe harbor, we are providing issuers with flexibility in their determination under Section 12(g)(5). We concur with some commenters who recommended applying the Rule 701 concepts that issuers already employ for exempt issuances, and propose to use those concepts as part of the non-exclusive safe harbor. We further believe that developing a new definition for ‘‘employee compensation plan’’ at this time potentially could result in needless complexity and create conflicts with the current definitions of ‘‘compensatory benefit plan’’ and ‘‘employee benefit plan,’’ which the Commission has sought to harmonize.67 By conditioning the new exclusion from ‘‘held of record’’ upon the securities being received pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act, Section 502 of the JOBS Act uses Securities Act concepts to identify persons that an issuer may exclude from its determination of the number of holders of record under Section 12(g)(1) of the Exchange Act. Given this express interaction between Securities Act and Exchange Act concepts in this provision of the JOBS Act, we believe that it would facilitate compliance if the terminology we use in proposed Exchange Act Rule 12g5– 1(a)(7) is consistent with the terminology used in our Securities Act rules. In regulating securities offerings to employees, we use the term ‘‘employee benefit plan,’’ as defined in Securities Act Rule 405,68 for Securities Act Form 66 In 1988, the Commission adopted Securities Act Rule 701 [17 CFR 230.701] to provide an exemption from Securities Act registration for offers and sales of securities made pursuant to compensatory benefit plans by issuers that are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. See Compensatory Benefit Plans and Contracts, Release No. 33–6768 (Apr. 14, 1988) [53 FR 12918 (Apr. 20, 1988)] (the ‘‘Rule 701 Adopting Release’’). 67 See Rule 701—Exempt Offerings Pursuant to Compensatory Arrangements, Release No. 33–7645 (Feb. 25, 1999) [64 FR 11095 (Mar. 8, 1999)] (the ‘‘1999 Rule 701 Release’’), and Registration of Securities on Form S–8, Release No. 33–7646 (Feb. 25, 1999) [64 FR 11103 (Mar. 8, 1999)] (the ‘‘1999 Form S–8 Release’’). 68 Securities Act Rule 405 defines an ‘‘employee benefit plan’’ as any written purchase, savings, option, bonus, appreciation, profit sharing, thrift, incentive, pension or similar plan or written compensation contract solely for employees, directors, general partners, trustees (where the E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS S–8 registration,69 but use the term ‘‘compensatory benefit plan’’ in the Securities Act Rule 701 exemption. A ‘‘compensatory benefit plan’’ under Rule 701(c)(2) is broadly defined as ‘‘any purchase, savings, option, bonus, stock appreciation, profit sharing, thrift, incentive, deferred compensation, pension or similar plan.’’ 70 When adopting Rule 701, the Commission expressly stated that it patterned the definition of ‘‘compensatory benefit plan’’ on the definition used in Securities Act Rule 405.71 Rule 701 includes a number of conditions consistent with the Rule 405 definition of ‘‘employee benefit plan.’’ In particular, Rule 701(c) limits the exemption to offers and sales of securities under a written compensatory benefit plan established by the issuer for the participation of its employees and other specified persons.72 Many of the conditions applicable to exempt offers and sales made under Rule 701 are also registrant is a business trust), officers, or consultants or advisors. However, consultants or advisors may participate in an employee benefit plan only if: (1) They are natural persons; (2) They provide bona fide services to the registrant; and (3) The services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the registrant’s securities. 69 The Commission permits issuers that are subject to Exchange Act reporting requirements to register the offer and sale of securities to employees pursuant to employee benefit plans on Form S–8. This form provides for abbreviated disclosure and automatic effectiveness upon filing. See Adoption of Form S–8, Release No. 33–3480 (June 16, 1953) [18 FR 3688 (June 27, 1953)]. See also Registration and Reporting Requirements for Employee Benefit Plans, Release No. 33–6867 (June 6, 1990) [55 FR 23909 (June 13, 1990)] (the ‘‘1990 Form S–8 Release’’). 70 17 CFR 230.701(c)(2). 71 See the Rule 701 Adopting Release. 72 Securities Act Rule 701(c) exempts offers and sales of securities (including plan interests and guarantees pursuant to paragraph (d)(2)(ii)) under a written compensatory benefit plan (or written compensation contract) established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent, for the participation of their employees, directors, general partners, trustees (where the issuer is a business trust), officers, or consultants and advisors, and their family members who acquire such securities from such persons through gifts or domestic relations orders. This section exempts offers and sales to former employees, directors, general partners, trustees, officers, consultants and advisors only if such persons were employed by or providing services to the issuer at the time the securities were offered. In addition, the term ‘‘employee’’ includes insurance agents who are exclusive agents of the issuer, its subsidiaries or parents, or who derive more than 50% of their annual income from those entities. As explained in the 1999 Rule 701 Release at Section II.D, Rule 701 is also available to persons with a de facto employment relationship with the issuer. Such a relationship would exist where a person not employed by the issuer provides the issuer services that traditionally are performed by an employee and the compensation paid for those services is the primary source of the person’s earned income. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 similar to conditions placed on Form S–8 registration of securities to be offered under an ‘‘employee benefit plan’’ as defined in Rule 405. For example, Rule 701(c)(3) defines eligible family members consistent with Form S–8.73 In addition, the Rule 701 exemption includes a number of conditions to its use, including but not limited to conditions that the plan be written and delivered to employees; that the plan be established by the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent, for the participation of their employees, directors, general partners, trustees, officers, or consultants and advisors; 74 and that the amount of securities sold be limited. B. Definition of ‘‘Held of Record’’ and Non-Exclusive Safe Harbor for Determining Holders of Record As directed by Section 503 of the JOBS Act, the Commission is proposing to amend the definition of ‘‘held of record’’ and to establish a safe harbor in Rule 12g5–1 that issuers can rely on when determining if securities held by persons who received them pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act may be excluded when calculating the number of holders of record of a class of equity securities for purposes of determining the issuer’s registration obligation under Section 73 Form S–8 and Rule 701 are available for the exercise of employee benefit plan options by an employee’s family member who has acquired the options from the employee through a gift or a domestic relations order. See the 1999 Form S–8 Release at Section III and the 1999 Rule 701 Release at Section II.E. As defined in Exchange Act Rule 701(c)(3) [17 CFR 230.701(c)(3)], for this purpose, ‘‘family member’’ includes any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-inlaw, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the employee’s household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the employee) control the management of assets, and any other entity in which these persons (or the employee) own more than 50% of the voting interests. 74 The Commission adopted amendments to Form S–8 and the Rule 405 definition of ‘‘employee benefit plan’’ that made Form S–8 available for the issuance of securities to consultants or advisors only if: they are natural persons; they provide bona fide services to the registrant; and the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the registrant’s securities. See 1999 Form S–8 Release and 1999 Rule 701 Release. Rule 701(c)(1) applies the same limitations regarding consultants and advisors as those provided in Form S–8 and the Rule 405 definition of ‘‘employee benefit plan.’’ PO 00000 Frm 00038 Fmt 4702 Sfmt 4702 78351 12(g)(1)(A).75 We received comments addressing issues about the scope of the safe harbor. One commenter recommended that the Commission expressly provide that the safe harbor is a non-exclusive safe harbor akin to the Securities Act Rule 506 safe harbor under Securities Act Section 4(a)(2).76 This commenter also recommended that a safe harbor should provide that in a ‘‘subsequent transaction (including a business combination) that is exempt from, or otherwise is not subject to, the registration requirements of Section 5, the securities issued in that transaction to eligible employees, former employees, and other covered persons in exchange for securities covered by the Section 12(g)(5) compensatory plan securities carve out’’ would also be covered.77 The same commenter further recommended that securities issued in unregistered transactions based on the ‘‘no sale’’ theory should be included within the definition of ‘‘transactions exempt from section 5.’’ 78 1. Definition of ‘‘Held of Record’’ We are proposing to amend the definition of ‘‘held of record’’ to provide that when determining whether an issuer is required to register a class of equity securities with the Commission pursuant to Exchange Act Section 12(g)(1) an issuer may exclude securities that are either: • Held by persons who received the securities pursuant to an employee compensation plan in transactions exempt from the registration 75 As proposed, this amendment would not affect the definition of ‘‘held of record’’ when determining the number of holders for the purposes of termination of registration or suspension of reporting or with regard to the number of holders reported pursuant to Item 201(b) of Regulation S–K (17 CFR 229.201(b)). 76 See letter from ABA recommending that the Commission provide ‘‘that the safe harbor(s) is not the exclusive means by which an issuer may comply with the ‘compensatory plan carve-out’ provisions of Section 12(g)(5).’’ This commenter suggested that ‘‘failure to satisfy all conditions to reliance on the safe harbor(s) should not preclude reliance on the statutory carve-out itself.’’ 77 See id. 78 See id. The ‘‘no sale’’ theory relates to the issuance of compensatory grants made by employers to broad groups of employees pursuant to broad-based stock bonus plans under the theory that the awards are not an offer or sale of securities under Section 2(a)(3) of the Securities Act [15 U.S.C. 77b(a)(3)]. See Employee Benefit Plans; Interpretations of Statute, Release No. 33–6188 (Feb. 1, 1980) [45 FR 8960 (Feb. 11, 1980)] at Section II.A.5.d; Employee Benefit Plans, Release No. 33–6281 (Jan. 15, 1981) [46 FR 8446 (Jan. 27, 1981)] at Section III. Many issuers rely on the ‘‘no sale’’ theory when making such awards to employees where no consideration—and hence no ‘‘value’’—is received by the issuer in return. The staff has not objected to these issuances in a series of no-action letters. See, e.g., no-action letter to Verint Systems Inc. (May 24, 2007). E:\FR\FM\30DEP1.SGM 30DEP1 78352 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS requirements of Section 5 of the Securities Act or that did not involve a sale within the meaning of Section 2(a)(3) of the Securities Act; or • held by persons eligible to receive securities from the issuer pursuant to Exchange Act Rule 701(c) who received the securities in a transaction exempt from the registration requirements of Section 5 of the Securities Act in exchange for securities excludable under proposed Rule 12g5–1(a)(7). Section 502 of the JOBS Act refers specifically to ‘‘transactions exempted’’ from the Securities Act Section 5 registration requirements. A number of issuers, however, issue securities to employees without Securities Act registration on the basis that the issuance is not a sale under Section 2(a)(3) of the Securities Act and therefore do not trigger the registration requirement of Securities Act Section 5, which applies only to the offer and sale of securities. While securities issued to employees in transactions that do not involve a sale under Section 2(a)(3) are not technically ‘‘transactions exempted from the registration requirements of section 5,’’ they are similar to other compensatory issuances to employees in exempt transactions in that the issuer provides the awards to employees for a compensatory purpose. We are therefore proposing to exclude such ‘‘no sale’’ issuances from the definition of ‘‘held of record’’ in Rule 12g5–1 for purposes of determining an issuer’s obligation to register a class of securities under the Exchange Act. As proposed, the rule would also permit an issuer to exclude holders who are persons eligible to receive securities from the issuer pursuant to Rule 701(c) and who acquired the securities in exchange for securities excludable under the proposed definition.79 The proposed exclusion is intended to facilitate the ability of an issuer to conduct restructurings, business combinations and similar transactions that are exempt from Securities Act registration so that if the securities being surrendered in such a transaction would not have been counted under the proposed definition of ‘‘held of record,’’ the securities issued in the exchange also would not be counted under this definition.80 The securities issued in the exchange would be deemed to have a 79 See supra note 72 and 73 and infra note 82 (describing the types of persons eligible to receive securities under Rule 701(c)). 80 Consistent with Rule 701(c), securities held of record by former employees would be excluded when determining the securities held of record only if the employees were employed by or providing services to the surviving issuer at the time the exchange securities were offered. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 compensatory purpose because they would replace other securities previously issued pursuant to an employee compensation plan. We believe such an approach would be consistent with the intent of Section 502 of the JOBS Act and would provide issuers with appropriate flexibility to conduct certain business combinations and similar transactions. 2. Non-Exclusive Safe Harbor for Determining Holders of Record We are proposing a non-exclusive safe harbor under proposed Rule 12g5– 1(a)(7) that would provide that a person will be deemed to have received the securities pursuant to an employee compensation plan if such person received them pursuant to a compensatory benefit plan in transactions that met the conditions of Securities Act Rule 701(c).81 As proposed, an issuer would be able to rely on the safe harbor for determining the holders of securities issued in reliance on Securities Act Rule 701, as well as holders of securities issued in transactions otherwise exempted from, or not subject to, the registration requirements of the Securities Act that satisfy the conditions of Rule 701(c), even if all the other conditions of Rule 701, such as issuer eligibility in Rule 701(b)(1), the volume limitations in Rule 701(d) or the disclosure delivery provisions in Rule 701(e), were not met. Thus, the safe harbor would be available for holders of securities received in other employee compensation plan transactions exempted from, or not subject to, the registration requirements of Section 5 of the Securities Act, such as securities issued in reliance on Securities Act Section 4(a)(2), Regulation D of the Securities Act, or Regulation S of the Securities Act, that meet the conditions of Rule 701(c). We believe that using the conditions of Rule 701(c) to structure the safe harbor for determining whether holders received their securities pursuant to an employee compensation plan in exempt transactions would allow issuers to apply well understood principles of an existing Securities Act exemption to the new Exchange Act registration determination under the JOBS Act. The safe harbor would be available for the plan participants enumerated in Rule 701(c), including employees, directors, general partners, trustees, officers and 81 As proposed, failure to satisfy all of the conditions of the non-exclusive safe harbor would not preclude reliance on Section 12(g)(5) or other provisions of proposed Rule 12g5–1(a)(7). PO 00000 Frm 00039 Fmt 4702 Sfmt 4702 certain consultants and advisors.82 The safe harbor also would be available for permitted family member transferees with respect to securities acquired by gift or domestic relations order, or securities acquired by them in connection with options transferred to them by the plan participant through gifts or domestic relations orders.83 Because the safe harbor would be limited to holders who are persons specified in Rule 701(c) who received the securities under specified circumstances, once these persons subsequently transfer the securities, whether or not for value, the securities would need to be counted as held of record by the transferee for purposes of determining whether the issuer is subject to the registration and reporting requirements of Exchange Act Section 12(g)(1). In addition, under the proposed rules, foreign private issuers 84 would be able to rely on the safe harbor when making their determination of the number of U.S. resident holders under Exchange Act Rule 12g3–2(a).85 Under Rule 12g3– 2(a), foreign private issuers that meet 82 A de facto employee would be considered an employee for purposes of proposed Rule 12g5– 1(a)(7). For purposes of Rule 701, the scope of eligible consultants and advisors is the same as under Form S–8. See 1999 Rule 701 Release at Section II.D and 1999 Form S–8 Release at Section II.A.1. This also would be the case for purposes of proposed Rule 12g5–1(a)(7). We note that unlike traditional employees, consultants and advisors typically provide their services to multiple clients rather than to the same issuer on a dedicated basis. This distinction may cause them to be less likely to hold the securities they receive as compensation and more likely to sell them. However, the fact that securities would no longer be eligible for the exclusion under the safe harbor following their transfer should limit the potential for abuse. We believe that in light of the Rule 701 restrictions applicable to consultants and advisors, the compensatory nature of the transactions justifies treating consultants and advisors who are eligible to receive securities in compensatory transactions that satisfy the conditions of Rule 701(c) as persons who receive securities pursuant to an employee compensation plan for purposes of the proposed safe harbor. 83 See Rule 701—Exempt Offerings Pursuant to Compensatory Arrangements, Release No. 33–7511 (Feb. 27, 1998) [63 FR 10785 (Mar. 5, 1998)] at Section III.E.4. Including family member transferees in the safe harbor would be consistent with the approach in Rule 701(c), which provides an exemption to family member transferees in connection with stock options because of their common economic interest and the non-capital raising nature of the transactions. 84 The definition of ‘‘foreign private issuer’’ is contained in Exchange Act Rule 3b–4(c) [17 CFR 240.3b–4(c)]. A foreign private issuer is any foreign issuer other than a foreign government, except for an issuer that (1) has more than 50% of its outstanding voting securities held of record by U.S. residents and (2) any of the following: (i) A majority of its officers and directors are citizens or residents of the United States; (ii) more than 50% of its assets are located in the United States; or (iii) its business is principally administered in the United States. 85 17 CFR 240.12g3–2(a). E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules the asset and shareholder threshold of Section 12(g) are exempt from registering any class of securities under that section if the class of securities is held by fewer than 300 holders resident in the United States. For purposes of determining whether this threshold is met, Rule 12g3–2(a)(1) specifies that the method shall be as provided in Exchange Act Rule 12g5–1, subject to specific provisions relating to brokers, dealers, banks and nominees.86 Because the rule directs issuers to the definition of ‘‘held of record’’ in Rule 12g5–1, the statutory changes to Section 12(g)(5) as well as the proposed changes to Rule 12g5–1 would also apply to the determination of a foreign private issuer’s U.S. resident holders for the purposes of the Rule 12g3–2(a) analysis.87 tkelley on DSK3SPTVN1PROD with PROPOSALS Request for Comment 9. Instead of leaving the term ‘‘employee compensation plan’’ undefined and providing a safe harbor for purposes of determining the number of holders of record under Section 12(g)(1), should we create a new definition for purposes of the determination? If a new definition would be preferable, please describe how ‘‘employee compensation plan’’ should be defined and explain why a definition would be preferable. 10. In some circumstances issuers may rely on a ‘‘no sale’’ theory under 86 The proposed amendment to Rule 12g5–1 would be limited to determinations under Section 12(g). The definition of ‘‘foreign private issuer’’ in Exchange Act Rule 3b–4 contains a cross-reference to Rule 12g3–2(a) for purposes of calculating record ownership in determining whether more than 50% of an issuer’s outstanding voting securities are directly or indirectly held by residents of the United States. In contrast to the proposed approach to Rule 12g3–2(a), we are proposing to amend Rule 3b–4 to clarify that securities held by employees must continue to be counted for the purpose of determining the percentage of the issuer’s outstanding securities held by U.S. residents, and thus for determining whether an issuer qualifies as a foreign private issuer. See the proposed amended instruction to paragraph (c)(1) of Rule 3b–4. 87 The definition of ‘‘foreign private issuer’’ under the Securities Act, which is found in Securities Act Rule 405 [17 CFR 230.405], is the same as the definition under Exchange Act Rule 3b–4. The definition of ‘‘foreign private issuer’’ under the Securities Act was last amended in Foreign Issuer Reporting Enhancements, Release No. 33–8959 (Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)]. At that time, an instruction to paragraph (1) of the definition, which was the same as the Instruction to Paragraph (c)(1) of Rule 3b–4, was inadvertently omitted. We are proposing to amend the foreign private issuer definition under Rule 405 to reinsert the omitted instruction but with a proposed revision, identical to that proposed under Rule 3b– 4, clarifying that securities held by employees must continue to be counted for the purposes of determining the percentage of the issuer’s outstanding securities held by U.S. residents and foreign private issuer status under the Securities Act. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 Section 2(a)(3) of the Securities Act to issue securities to employees. As proposed, securities held by persons who received those securities pursuant to an award to employees that did not involve a sale within the meaning of Securities Act Section 2(a)(3) would be excluded from the definition of ‘‘held of record’’ for purposes of determining an issuer’s Exchange Act Section 12(g) registration obligations. Should these securities be excluded from the definition? 11. The exclusion from ‘‘held of record’’ in proposed Exchange Act Rule 12g5–1(a)(7)(i) for securities received pursuant to employee compensation plans would include within its scope holders of securities received pursuant to an employee compensation plan in transactions that do not involve a sale within the meaning of Section 2(a)(3) or that are exempt from the registration requirements of Section 5. Further, the safe harbor proposed in Rule 12g5– 1(a)(7)(ii) would be available to securities issued in those transactions as long as the person received the securities pursuant to a compensatory benefit plan in transactions that met the conditions of Securities Act Rule 701(c). Should the scope of the safe harbor be more limited, such as by restricting it to securities received pursuant to exempt transactions that meet all of the requirements of Securities Act Rule 701, the requirements of Regulation D or another specified subset of exemptions? If so, please explain why. 12. We are proposing a non-exclusive safe harbor that relies, in part, on existing Rule 701(c) to establish guidelines for an issuer to use when determining whether holders of their securities received them pursuant to an employee compensation plan. Does using existing Rule 701(c) provide sufficient guidance to issuers? Should we provide additional guidance for implementing the safe harbor? If so, please explain what additional guidance is needed. 13. For purposes of the safe harbor, should we limit the categories of persons who may receive securities pursuant to employee compensation plans? For example, our proposed safe harbor includes consultants and advisors because they qualify under Rule 701. Should they only be included if they are natural persons and meet the other Rule 701(c) conditions, as proposed? Alternatively, should consultants and advisors be excluded? 14. Should we, as proposed, permit securities held by family member transferees acquired by gift or domestic relations order, or securities acquired by them in connection with options PO 00000 Frm 00040 Fmt 4702 Sfmt 4702 78353 transferred to them by the plan participant through gifts or domestic relations orders to be excluded? If we modify the scope of the transferees or the type of securities, what modifications would be appropriate? 15. Exchange Act Rules 12h–1(f) and12h–1(g) exempt compensatory employee stock options from registration under Exchange Act Section 12(g) by exempting issuers from counting holders of stock options received pursuant to written compensatory stock option plans under specified conditions.88 How does the exclusion provided by Section 502 of the JOBS Act and our proposals, including our proposal to exclude securities that do not involve a sale under Section 2(a)(3) of the Securities Act, affect the continuing need for these rules? 89 Should either Rule 12h–1(f) or Rule 12h–1(g) be rescinded in light of the amendments made by Section 502 of the JOBS Act and our proposals? Alternatively, are there any modifications needed to reflect the changes related to Section 502 and make the rules more useful? 16. Should we permit an issuer to exclude from the ‘‘held of record’’ determination securities issued to security holders in an exchange exempt from registration under the Securities Act where the securities surrendered by those holders in the exchange were received by them pursuant to a compensatory benefit plan that met the conditions of the proposed rule? As proposed, the exclusion would be limited to securities issued in an exchange exempt from Securities Act registration to persons eligible to receive securities pursuant to Rule 701(c) from the issuer, such as former employees who were employed by or providing services to the surviving issuer at the time the exchange securities were offered. Should the Commission consider expanding the exclusion to securities received by other former employees in such an exempt exchange where the securities to be surrendered in the exchange were received pursuant to a compensatory benefit plan in transactions that met the conditions of the proposed rule? Would the possibility that an exempt exchange could cause a number of former 88 See Compensatory Stock Options Release, supra note 57. 89 See letter from ABA, which suggested that while Rule 12h–1(f) may no longer be necessary, Rule 12h–1(g) may have continuing applications. Specifically, there may be instances in which an issuer subject to an Exchange Act reporting requirement may issue to employees compensatory options that are part of a class of equity securities not registered under the Exchange Act. E:\FR\FM\30DEP1.SGM 30DEP1 78354 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules employees previously counted as exempt from the ‘‘held of record’’ determination to be counted as holders of record immediately on consummation of the exchange inhibit companies from entering into these transactions? 17. Foreign private issuers are subject to different standards relating to when they are required to register a class of equity securities under the Exchange Act. Should the Commission permit foreign private issuers to exclude securities received pursuant to an ‘‘employee compensation plan’’ in transactions exempt from, or not subject to, the Securities Act registration requirements from the 300 U.S. holders threshold in Exchange Act Rule 12g3– 2(a), as proposed? Should we instead require foreign private issuers to continue counting these securities when determining their number of U.S. holders? Should we further permit issuers to exclude such securities for purposes of assessing whether an issuer qualifies as a foreign private issuer or should such securities be included in this determination, as would be required under our proposed amendments to Securities Act Rule 405 and Exchange Act Rule 3b–4? tkelley on DSK3SPTVN1PROD with PROPOSALS IV. General Request for Comment We request and encourage any interested person to submit comments regarding the proposed rule amendments, specific issues discussed in this release, and other matters that may have an effect on the proposed rules. We request comment from the point of view of issuers, investors and other market participants. We note that comments are of particular assistance to us if accompanied by supporting data and analysis of the issues addressed in those comments, particularly quantitative information as to the costs and benefits. If alternatives to the proposals are suggested, supporting data and analysis and quantitative information as to the costs and benefits of those alternatives are of particular assistance. Commenters are urged to be as specific as possible. Request for Comment 18. Are there other rules or forms that should be revised or updated as a result of the statutory changes made by Title V and Title VI of the JOBS Act? If so, please explain what revisions are needed? 19. The definition of ‘‘held of record’’ in Exchange Act Rule 12g5–1 requires an issuer, for the purposes of determining whether it is subject to the provisions of Section 12(g) or Section 15(d), to count as holders of record only VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 persons identified as owners on records of security holders maintained by or on behalf of the issuer in accordance with accepted practice and subject to certain conditions. This rule simplifies an issuer’s determination process by allowing it to look to security holders that appear in its records. Are there alternative definitions of ‘‘held of record’’ that would more appropriately address the purposes of Section 12(g)? 90 V. Economic Analysis Title V and Title VI of the JOBS Act increased the registration thresholds for issuers, amended the definition of ‘‘held of record’’ to exclude securities issued pursuant to employee compensation plans and increased the thresholds for termination of registration and suspension of reporting under the Exchange Act for banks and bank holding companies. The Commission is proposing rules to implement Title V and Title VI of the JOBS Act. In proposing rules or amendments, we are mindful of the costs imposed by and the benefits obtained from our rules. The discussion below attempts to address the economic effects of the proposed amendments, including the likely costs and benefits of the amendments as well as the effect of the amendments on efficiency, competition and capital formation.91 Some of the costs and benefits stem from the statutory mandates of Title V and Title VI, while others are affected by the discretion we exercise in revising our rules to reflect this mandate. These two types of costs and benefits may not be entirely separable to the extent our discretion is exercised to realize the benefits that we believe were intended by Title V and Title VI. We request comment on all aspects of the economic effects, such as the costs and benefits, of the amendments that we are proposing. We particularly appreciate comments that distinguish between the economic effects that are attributed to the statutory 90 In its consideration of the JOBS Act, Congress considered other definitions of ‘‘held of record’’ but ultimately did not define the term for purposes of the provisions of Section 12(g). 91 Section 23(a)(2) of the Exchange Act requires the Commission, when making rules under the Exchange Act, to consider the impact on competition that the rules would have, and prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the Exchange Act. 15 U.S.C. 78w(a). Further, Section 2(b) of the Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] require the Commission, when engaging in rulemaking where it is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition and capital formation. PO 00000 Frm 00041 Fmt 4702 Sfmt 4702 mandate itself and the economic effects that are the result of policy choices made by the Commission in implementing the statutory mandate. A. Baseline The baseline for our economic analysis of the proposed rules, including the baseline for our consideration of the effects on efficiency, competition and capital formation, is the state of the market as well as market practices prior to the JOBS Act. Prior to the JOBS Act, issuers were required to register their equity securities with the Commission upon reaching 500 holders of record and total assets of $10 million, and were allowed to terminate registration or suspend the duty to file with the Commission when the number of holders of record had fallen below 300. However, Exchange Act Rules 12h–1(f) and 12h–1(g) permitted issuers to exclude stock options issued under written compensatory benefit plans under certain conditions from the registration requirements of Section 12(g). The JOBS Act raised the thresholds at which an issuer is required to register a class of equity securities with the Commission pursuant to Section 12(g), provided that persons holding certain employee compensation plan securities need not be counted when determining whether an issuer is required to register, and raised the thresholds at which banks and bank holding companies are permitted to terminate registration or suspend reporting obligations with the Commission. These statutory changes made by the JOBS Act went into effect as soon as the JOBS Act was signed into law. As a result of the JOBS Act, some banks and bank holding companies were newly eligible to terminate registration or suspend reporting, and as of June 30, 2014, we estimate that more than 90 have elected to do so.92 We estimate that there are approximately 500 banks and bank holding companies that currently report to the Commission,93 of which some may be eligible to terminate registration under the JOBS Act but have elected to continue reporting. We are proposing to amend specified Exchange Act rules to reflect the new, higher threshold for banks and bank holding companies under Section 12(g)(4) and Section 92 The Commission staff derived this estimate of the number of banks and bank holding companies that have elected to terminate registration or suspend reporting by analyzing Form 15 filings on EDGAR. Commission staff is continuing to monitor such filings. 93 The Commission staff derived this estimate by analyzing annual filings submitted to the Commission during calendar year 2013. E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS 15(d)(1). For those banks and bank holding companies that would be eligible to terminate registration under Section 12(g), the proposed rules set forth procedural accommodations that are available to other issuers under current rules to accelerate the process. The proposed rules would also permit savings and loan holding companies to use the same, higher thresholds for registration, termination of registration and suspension of the reporting obligation that apply to banks and bank holding companies. There are approximately 125 savings and loan holding companies that currently report to the Commission.94 As we explain in more detail below, we estimate that approximately 90 would be eligible to terminate registration or suspend reporting under the proposed rules. In addition, the proposed rules would apply the definition of ‘‘accredited investor’’ in Securities Act Rule 501(a) in making determinations under Exchange Act Section 12(g)(1). Finally, the proposed rules would revise the definition of ‘‘held of record’’ and establish the scope of a non-exclusive safe harbor for issuers to rely on when determining whether securities were received pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act or did not involve a sale within the meaning of Section 2(a)(3) of the Securities Act. The proposed safe harbor would rely on the definition of ‘‘compensatory benefit plan’’ in Securities Act Rule 701 and the conditions in Securities Act Rule 701(c). We considered alternative definitions of ‘‘employee compensation plan.’’ We also considered whether to provide additional guidance with respect to the determination of accredited investor status when establishing the number of holders of record. These decisions may affect how a non-reporting issuer counts its holders of record for the purpose of the registration thresholds under the Exchange Act; hence it could affect whether an issuer can remain a nonreporting issuer. However, due to limited availability of shareholder information on these non-reporting issuers, we are unable to quantify the number of non-reporting issuers that might be affected by these decisions. B. Analysis of the Proposed Rules The proposal would affect registrants generally, and banks, bank holding companies and savings and loan holding companies specifically, as well as non-reporting issuers, employees and 94 Id. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 other investors. We analyze the costs and benefits associated with the proposed rules below. Increased Thresholds for Banks and Bank Holding Companies The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act to raise the thresholds at which banks and bank holding companies may terminate registration or suspend their obligations to file reports with the Commission to 1,200 holders of record. These changes were effective immediately upon the enactment of the JOBS Act, and banks and bank holding companies may rely on the amended provisions to terminate registration or suspend their reporting obligations. However, under the statute, banks and bank holding companies that want to use the higher threshold must wait 90 days after filing a certification with the Commission that the number of holders of record is less than 1,200 persons to terminate their Section 12(g) registration and cease filing reports required by Section 13(a) and must wait until the first day of the fiscal year to suspend any Section 15(d) reporting obligations. Our existing rules afford issuers with procedural accommodations that let them suspend their reporting obligations immediately upon the filing of a certification on Form 15. To make these procedural accommodations applicable to banks and bank holding companies at the higher threshold, we are proposing to revise Exchange Act Rules 12g–2, 12g– 3, 12g–4 and 12h–3 to reflect the 1,200 holders threshold for banks and bank holding companies, which would permit banks and bank holding companies to rely on the rules to cease reporting during a fiscal year, rather than wait the prescribed 90 days or until the end of the reporting year. This would reduce issuer compliance and reporting costs during the fiscal year the issuer ceased reporting, but would also accelerate the loss of investor access to current information about the issuer. The proposed changes also would harmonize the statutory and regulatory thresholds and lessen potential confusion that could arise from the differences in the thresholds contained in the statute and the existing rules. We estimate that there are approximately 500 banks and bank holding companies that currently report with the Commission. Many of these reporting issuers have more than 1,200 holders of record and would not be eligible to cease reporting under the new thresholds. Out of that 500, 143 reporting banks and bank holding companies have between 300 and 1,200 holders of record and may be eligible to PO 00000 Frm 00042 Fmt 4702 Sfmt 4702 78355 cease reporting, although 89 of them would have to give up a national exchange listing to do so. Because banks and bank holding companies remain subject to other regulatory reporting requirements,95 it is possible that they would continue reporting even if they are eligible to cease reporting under the Exchange Act. We anticipate that banks and bank holding companies would weigh the benefits of being a public company against the burden of additional disclosure costs, in deciding whether to terminate registration or suspend their reporting obligation. Commonly cited benefits of being a public company include the ability to obtain a lower cost of capital for investment and growth, increased liquidity through a broader shareholder base, and greater ability to finance acquisitions and offer equity-based incentive contracts.96 Commonly cited costs of being a public company include the need to comply with increased regulations and regulatory supervision, including requirements for independent audits, disclosure of information to competitors, loss of control and ownership dilution.97 Permitting Savings and Loan Holding Companies To Use the Higher Thresholds We are proposing to apply the 2,000holders of record threshold for registration to savings and loan holding companies in revised Exchange Act Rule 12g–1. We are also proposing to 95 See supra note 41. J. Brau, Why Do Firms Go Public?, Oxford Handbook of Entrepreneurial Finance (2010) (providing a general discussion of the different rationales for firms to go public); U. Celikyurt, M. Sevilir, and A. Shivdasani, Going Public to Acquire? The Acquisition Motive in IPOs, J. FIN. ECON. (2010) (arguing that firms go public so as to facilitate acquisitions); M. Pagano, F. Panetta, and L. Zingales, Why Do Companies Go Public? An Empirical Analysis, J. FIN. (1998) (showing that IPOs are generally followed by lower cost of credit and increased turnover in control); T. Chemmanur and P. Fulghieri, A Theory of the Going Public Decision, REV. FIN. STUD. (1999) (arguing that going public broadens the ownership base of the firm); R. Rosen, S. Smart and C. Zutter, Why Do Firms Go Public? Evidence From the Banking Industry, Working Paper (2005) (finding that banks that go public are more likely to grow faster, earn higher profits, employ more leverage and become acquirers when compared to their non-reporting counterparts). 97 See J. Brau and S. Fawcett, Initial Public Offerings: An Analysis of Theory and Practice, J. FIN. (2006) (reporting based on a survey of CFOs that ‘‘desire to maintain decision-making control,’’ ‘‘disclosing information to competitors,’’ ‘‘SEC reporting requirements’’ and ‘‘to avoid ownership dilution’’ are among the top five reasons why firms choose to stay private); J. Farre-Mensa, Why Are Most Firms Privately Held?, Working paper, Harvard University (2011) (documenting that firms in industries with high disclosure costs (i.e., where it is easier for competitors to appropriate a firm’s intellectual property) tend to remain private). 96 See E:\FR\FM\30DEP1.SGM 30DEP1 tkelley on DSK3SPTVN1PROD with PROPOSALS 78356 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules extend the increased thresholds established by Section 601 of the JOBS Act to savings and loan holding companies by specifically including them in revisions to Exchange Act Rules 12g–2, 12g–3, 12g–4 and 12h–3 that accommodate banks and bank holding companies at the higher 1,200 holders of record threshold for termination of registration or suspension of the duty to file reports. As a result, savings and loan holding companies would be able to delay registration with the Commission until they reach the 2,000-holder threshold, and savings and loan holding companies with between 300 and 1,199 holders of record would be newly eligible to terminate or suspend their Exchange Act reporting obligations. We estimate that approximately 125 savings and loan holding companies had a class of securities registered pursuant to the Exchange Act as of June 30, 2014; 98 of these approximately 100 are registered pursuant to Section 12(b). By analyzing the number of holders of record for these companies, the staff determined that approximately 90 of the 125 savings and loan holding companies would be eligible to terminate registration or suspend reporting. Most of the newly eligible companies would have to give up a national securities exchange listing to do so. Because delisting from a national securities exchange could severely impact the liquidity of traded securities, many of these savings and loan holding companies may be unwilling to suspend their reporting requirements even if such an action was available to them. We therefore do not expect many of these savings and loan holding companies to avail themselves of the extended provisions. If we do not extend the provisions of Section 601 to savings and loan holding companies, there would be inconsistent treatment relative to banks and bank holding companies, resulting in different registration requirements and levels of disclosure for savings and loan holding companies that provide similar services and are generally subject to the same regulatory requirements. This could have an adverse impact on their ability to compete. Alternatively, savings and loan holding companies could seek to become chartered as banks or bank holding companies and thereby incur associated costs; this could distort the competitive balance of products and services offered by these institutions. Applying consistent treatment between savings and loan holding 98 The Commission staff derived this estimate by analyzing annual filings submitted to the Commission. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 companies and banks and bank holding companies would lessen the likelihood of changes to the current competitive balance between these institutions. Moreover, the potential loss of information that would otherwise be made public through Exchange Act reporting if the provisions of Section 601 are extended to savings and loan holding companies would be mitigated because the savings and loan holding companies would continue to file reports with banking regulators.99 As a result, extending the relief to savings and loan holding companies to provide consistent treatment relative to banks and bank holding companies may have a positive impact on the overall efficiency of markets served by the potentially affected institutions. Definition and Safe Harbor for Securities ‘‘Held of Record’’ Section 12(g)(5), as amended by Section 502 of the JOBS Act, excludes from the definition of ‘‘held of record’’ securities held by persons who received them pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act for purposes of determining whether an issuer is required to register a class of security pursuant to Section 12(g)(1). Section 503 of the JOBS Act directs the Commission to adopt a safe harbor that issuers can use when making the holder of record determination. By making it easier for non-reporting companies that issue securities to their employees to remain below the registration and reporting thresholds in the Exchange Act, the statutory changes could benefit issuers by allowing them to better control how and when they become subject to the reporting requirements, while continuing to use securities to compensate employees. These changes could be particularly beneficial for smaller or cash-constrained issuers that could more easily issue securities to their employees as a form of compensation without being subject to Exchange Act reporting requirements 99 While the proposed rules should have effects on competition by ensuring that savings and loan holding companies are not put at a disadvantage relative to banks and bank holding companies, the termination of registration or suspension of reporting by savings and loan holding companies may lessen the information available to investors and adversely affect efficiency and capital formation by possibly increasing information asymmetries, monitoring costs, and cost of capital. However, the impact on efficiency and capital formation may be mitigated to the extent that the reports that savings and loan holding companies file with banking regulators contain information comparable to that mandated by the reporting requirements under the Exchange Act. PO 00000 Frm 00043 Fmt 4702 Sfmt 4702 and the associated compliance costs. However, for these issuers, the potential registration of a class of securities and the associated reporting may be delayed, adversely impacting investors, including employees, who otherwise might benefit from the information provided through Exchange Act reporting requirements. As a result, the proposed rules regarding the definition of ‘‘held of record’’ and the scope of the safe harbor could have an impact on the potential costs and benefits to the affected issuers and their investors by affecting areas such as the ease of relying upon the statutory exemption, the number of non-reporting companies able to forestall registration, and the amount of information available to investors in those issuers. Instead of establishing a new definition for the term ‘‘employee compensation plan,’’ we are proposing to amend the definition of ‘‘held of record’’ to permit an issuer to exclude securities held by persons who received them pursuant to an employee compensation plan in transactions exempted from the registration requirements of Section 5 of the Securities Act, or not involving a sale within the meaning of Section 2(a)(3) of the Securities Act. Proposing to exclude securities issued to employees in transactions that do not involve a sale under Section 2(a)(3) from the definition of ‘‘held of record’’ for purposes of determining an issuer’s obligation to register a class of securities under the Exchange Act would be beneficial to issuers who rely on the ‘‘no sale’’ theory when making compensatory grants to certain employees. Excluding such ‘‘no sale’’ securities could reduce the number of holders of record of an issuer and potentially delay required Exchange Act reporting. We are also proposing to establish a non-exclusive safe harbor that relies on Securities Act Rule 701(c) and the definition of ‘‘compensatory benefit plan’’ in that rule to assist issuers in making the determination of whether holders of securities received pursuant to an employee compensation plan may be excluded. We believe that relying on an existing definition that is already understood by market participants would make it easier for issuers to avail themselves of this safe harbor than if we proposed a new alternative definition. The proposed non-exclusive safe harbor relies upon the conditions in existing Rule 701(c). While generally broad in application, the conditions in Rule 701(c) provide limitations, such as requiring that securities be sold under a compensatory benefit plan, that the plan be written, that the plan be established E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS by the issuer or certain specified related entities and that participation be limited to employees and certain other specified persons. Although we are unable to quantify the impact of proposing this safe harbor because we cannot measure the number of issuers that would rely on the safe harbor, we can qualitatively assess the proposed safe harbor’s impact. A safe harbor that applies the familiar concepts of existing Rule 701(c) should create efficiencies in applying the safe harbor and avoid conflicts with existing rules, which should reduce costs more significantly for smaller issuers seeking to rely upon the proposed safe harbor. Foreign private issuers would be able to rely on the proposed safe harbor when making their determination of the number of U.S. resident holders under Exchange Act Rule 12g3–2(a). While we are unable to quantify the number of foreign private issuers that would be impacted, we acknowledge that it may allow some foreign private issuers to delay registering with and reporting to the Commission. The considerations about cost and benefit tradeoffs for foreign private issuers would be analogous to the ones discussed above for domestic issuers. Use of the Term ‘‘Accredited Investor’’ in Exchange Act Section 12(g) Section 501 of the JOBS Act raises the threshold number of holders of record at which an issuer is required to register a class of equity securities under the Exchange Act to 2,000 persons or 500 persons who are not accredited investors. The provision was effective upon enactment of the JOBS Act. In order for an issuer to rely on the new, higher threshold established by the JOBS Act, the issuer will need to be able to make accredited investor determinations if it has more than 500 holders of record. We propose that the definition of ‘‘accredited investor’’ as specified in Securities Act Rule 501(a) determined as of the last day of the fiscal year rather than at the time of sale of the securities apply when making determinations under Exchange Act Section 12(g)(1). Issuers are familiar with this definition, which should facilitate compliance. Developing an alternative definition for purposes of Section 12(g)(1) could impose costs on issuers by requiring them to familiarize themselves with, and apply, a new and different standard. We are unable to estimate how many issuers would be impacted by using the Rule 501(a) definition of ‘‘accredited investor’’ as compared to an alternative definition. We acknowledge that not providing specific guidance or rules on VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 how to confirm a security holder’s status as an accredited investor for purposes of determining holders of record could result in some uncertainty for issuers. Some commenters have recommended that the Commission address potential compliance issues related to the accredited investor threshold by providing a safe harbor for determining accredited investor status.100 We could, among other things, permit an issuer to rely on an annual affirmation of accredited investor status by the investor or rely on an ongoing basis on information regarding accredited investor status received by the issuer at the time the securities were initially issued to the investor or at the time the securities were most recently issued to the investor, or permit issuers to otherwise rely on information previously provided by an investor. Addressing potential compliance issues relating to the use of ‘‘accredited investor’’ in Section 12(g) could increase efficiency by providing issuers with a prescribed process to determine and update the accredited investor status of their investors. For example, a safe harbor that permits an issuer to rely on an annual affirmation of accredited investor status by the investor, other information obtained by the issuer or on a combination of a certification and other information would likely be less costly than requiring an issuer to establish a reasonable basis for its determination through other means. These methods, however, may be less accurate in establishing whether the investor is accredited. Alternatively, a safe harbor that permits an issuer to rely on an ongoing basis on information previously obtained relating to accredited investors status, such as allowing reliance on information obtained by the issuer at the time the securities were initially issued to the investor or at the time the securities were most recently issued to the investor would likely be even less costly than requiring the issuer to seek an annual affirmation of accredited investor status by the investor or to establish a reasonable belief that the investor is an accredited investor, but could also lead to more outdated information. Permitting issuers to rely on inaccurate information to determine accredited investor status could result in issuers with more than 500 nonaccredited investors failing to register and leaving investors in those issuers with less information and protection under the federal securities laws. These 100 See, e.g., letters from ABA, Foley & Lardner and NYCBA. PO 00000 Frm 00044 Fmt 4702 Sfmt 4702 78357 costs may be mitigated if the safe harbor specified time limits on the permitted use of the information or if the safe harbor were conditioned upon the issuer not having information that the previously obtained information was incorrect, unreliable or had changed. Another alternative would be a safe harbor that permits an issuer to rely on a third party certification for determining the accredited investor status of investors. We do not have adequate information about third party certification providers and the characteristics of this industry to assess this alternative in terms of reliability and cost of the provided certification services. To the extent that reputational concerns would incentivize the third party certification providers to perform reliable and updated due diligence, third party certification could potentially provide accurate information at a cost that economies of scale may lessen. Request for Comment 18. In this release we have discussed the anticipated costs and benefits of the proposed rules. We request data to quantify the costs and the value of the benefits described throughout this release. We seek estimates of these costs and benefits, as well as any costs and benefits not described, that may result from the adoption of these proposed amendments. We also request comments on the qualitative benefits and costs we have identified and any benefits and costs we may have overlooked. VI. Paperwork Reduction Act Certain provisions of our disclosure rules and forms applicable to issuers contain ‘‘collection of information’’ requirements within the meaning of the Paperwork Reduction Act of 1995 (‘‘PRA’’).101 The hours and costs associated with preparing and filing forms and retaining records constitute reporting and cost burdens imposed by the collection of information requirements. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information requirement unless it displays a currently valid Office of Management and Budget (‘‘OMB’’) control number. Compliance with the information collections is mandatory. Responses to the information collections are not kept confidential and there is no mandatory retention period for the collections of information. The amendments proposed today do not alter the disclosure requirements set forth in the rules and forms; however, 101 44 E:\FR\FM\30DEP1.SGM U.S.C. 3501 et seq. 30DEP1 78358 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS the JOBS Act amendments to Exchange Act Sections 12(g) and 15(d) and the proposed amendments to our rules to reflect those statutory amendments are expected to immaterially decrease the number of filings made pursuant to these rules and forms. Exchange Act Rules 12g–1, 12g–2, 12g–3, 12g–4 and 12h–3 set forth when an issuer’s securities are required to be registered and the procedures for a registrant to terminate its registration or suspend its duty to file reports. The proposed amendments would provide thresholds that issuers may rely on when determining their registration and reporting obligations and would allow savings and loan holding companies to use the same registration and termination of registration or suspension of reporting thresholds that apply to banks and bank holding companies.102 Exchange Act Section 12(g)(5) and the proposed amendment to Exchange Act Rule 12g5–1 also exclude securities received pursuant to certain employee compensation plans from the determination of when an issuer is required to initially register with the Commission. These changes would reduce the number of registrants required to continue filing with the Commission and also reduce the number of issuers required to initially register a class of securities.103 For purposes of the PRA, we estimate that the amendments would not materially reduce the number of filings received, nor would the changes affect the incremental burden or cost per filing. The titles for the affected collections of information are: (1) ‘‘Form 10’’ (OMB Control No. 3235–0064); 104 (2) ‘‘Form 20–F’’ (OMB Control No. 3235–0288); 105 (3) ‘‘Form 40–F’’ (OMB Control No. 3235–0381); 106 (4) ‘‘Form 10–K’’ (OMB Control No. 3235–0063); 107 (5) ‘‘Form 10–Q’’ (OMB Control No. 3235–0070); 108 102 We are proposing to amend Rule 12g–1 to reflect the new higher thresholds in Section 12(g)(1) and to establish an increased registration threshold for savings and loan holding companies. 103 The changes to Rule 12g5–1 are expected to affect the number of issuers required to register with the Commission; however, we do not have access to data to support an estimate of the number of issuers that will not be required to file reports based on the JOBS Act amendments and our proposed implementation of such amendments. Due to the lack of data, for PRA purposes we are not intending to provide a reduced estimate of the number of issuers. 104 17 CFR 249.10. 105 17 CFR 249.220f. 106 17 CFR 249.240f. 107 17 CFR 249.310. 108 17 CFR 249.308a. VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 (6) ‘‘Form 8–K’’ (OMB Control No. 3235–0060); 109 (7) ‘‘Schedule 14A’’ (OMB Control No. 3235–0059); 110 (8) ‘‘Schedule 14C’’ (OMB Control No. 3235–0057); 111 (9) ‘‘Form 15’’ (OMB Control No. 3235–0167). The forms were adopted under the Exchange Act and set forth the disclosure requirements for periodic, current and other reports required to be filed by issuers registered with the Commission. We estimate that there are approximately 625 Exchange Act registrants that are bank holding companies or savings and loan holding companies. We estimate that approximately 90 bank holding companies have filed Forms 15 to terminate or suspend their reporting obligations under the Exchange Act based on the statutory changes in the JOBS Act.112 We further estimate that approximately 90 savings and loan holding companies or similar entities with fewer than 1,200 holders of record would be eligible to file a Form 15 after our proposed changes. To put these numbers in context, the current PRA estimate for the number of annual reports on Form 10–K filed annually is 8,137. Because the proposed rule amendments do not affect our estimates of the burden or cost per filing and we do not anticipate a material decrease in the number of filings as a result of the proposed rule amendments, we are not submitting revised burden estimates for these collections of information to OMB for review in accordance with the PRA and its implementing regulations at this time.113 We request comment on our approach and the accuracy of the current estimates. Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits comments to: (1) Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) evaluate the accuracy of the Commission’s estimate of burden of the collection of information; (3) determine whether there are ways to enhance the quality, 109 17 CFR 249.308. CFR 240.14a–101. 111 17 CFR 240.14c–101. 112 After the JOBS Act became effective, we saw an increase in the number of termination and suspension of registrations by bank holding companies. We do not anticipate a similar rate of deregistration for bank holding companies after revising our rules to reflect the new, higher deregistration threshold. 113 44 U.S.C. 3507(d); 5 CFR 1320.11. 110 17 PO 00000 Frm 00045 Fmt 4702 Sfmt 4702 utility and clarity of the information to be collected; and (4) evaluate whether there are ways to minimize the burden of the collection of information on those who are required to respond, including through the use of automated collection techniques or other forms of information technology. Persons submitting comments on the collection of information requirements should direct the comments to the Office of Management and Budget, Attention: Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Washington, DC 20503, and send a copy to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090, with reference to File No. S7–12–14. Requests for materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. S7–12– 14, and be submitted to the Securities and Exchange Commission, Office of FOIA Services, 100 F Street NE., Washington, DC 20549–2736. OMB is required to make a decision concerning the collection of information between 30 and 60 days after publication of this release. Consequently, a comment to OMB is assured of having its full effect if OMB receives it within 30 days of publication. VII. Small Business Regulatory Enforcement Fairness Act For purposes of the Small Business Regulatory Enforcement Fairness Act of 1996 (‘‘SBREFA’’),114 the Commission must advise OMB as to whether a proposed regulation constitutes a ‘‘major’’ rule. Under SBREFA, a rule is considered ‘‘major’’ where, if adopted, it results or is likely to result in: • An annual effect on the economy of $100 million or more (either in the form of an increase or a decrease); • a major increase in costs or prices for consumers or individual industries; or • significant adverse effects on competition, investment or innovation. If a rule is ‘‘major,’’ its effectiveness will generally be delayed for 60 days pending Congressional review. We request comment on whether our proposed amendments would be a ‘‘major rule’’ for purposes of SBREFA. We solicit comment and empirical data on: • The potential effect on the U.S. economy on an annual basis; 114 Public Law 104–121, Tit. II, 110 Stat. 857 (1996). E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules • any potential increase in costs or prices for consumers or individual industries; and • any potential effect on competition, investment or innovation. We request those submitting comments to provide empirical data and other factual support for their views to the extent possible. tkelley on DSK3SPTVN1PROD with PROPOSALS VIII. Initial Regulatory Flexibility Act Analysis The Commission has prepared this Initial Regulatory Flexibility Act Analysis in accordance with 5 U.S.C. 603. This Initial Regulatory Flexibility Act Analysis relates to the proposed amendments to Securities Act Rule 405 and Exchange Act Rules 3b–4, 12g–1, 12g–2, 12g–3, 12g–4, 12g5–1, and 12h– 3. A. Reasons for, and Objectives of, the Proposed Action The primary reason for, and objective of, the proposed amendments is to implement Title V and Title VI of the JOBS Act. The JOBS Act directs the Commission to issue rules to implement the changes and specifically charges the Commission with amending the definition of ‘‘held of record’’ and establishing a safe harbor for the determination relating to ‘‘employee compensation plan’’ securities. We are proposing rules that would revise existing rules to reflect the new, higher Exchange Act registration, termination of registration and suspension of reporting thresholds for banks and bank holding companies, apply the definition of ‘‘accredited investor’’ in Securities Act Rule 501(a) in making determinations under Exchange Act Section 12(g)(1), revise the definition of ‘‘held of record’’ to exclude certain securities held by persons who received them pursuant to employee compensation plans, and establish a non-exclusive safe harbor for issuers to follow when determining whether those securities are ‘‘held of record.’’ We are also proposing to provide relief from the Exchange Act registration requirements for savings and loan holding companies by applying the same thresholds to savings and loan holding companies that apply to banks and bank holding companies. Permitting savings and loan holding companies to register, terminate registration and suspend reporting using the same thresholds as banks and bank holding companies would provide consistent treatment across depository institutions. Revising the definition and providing a non-exclusive safe harbor to issuers relating to the determination of securities ‘‘held of record’’ would further assist issuers in determining VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 which holders of record they are required to count under the registration requirements of Exchange Act Section 12(g). B. Small Entities Subject to the Proposed Rules For purposes of the Regulatory Flexibility Act, an investment company is a small entity if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year.115 Exchange Act Rule 0–10(a) 116 defines an entity, other than an investment company, to be a ‘‘small business’’ or ‘‘small organization’’ if it had total assets of $5 million or less on the last day of its most recent fiscal year. We estimate that there are approximately 900 issuers that are required to file with the Commission, other than investment companies, that may be considered small entities. The proposed rules establishing the use of the Securities Act Rule 501(a) definition of ‘‘accredited investor’’ under Exchange Act Section 12(g)(1) and amending the definition of ‘‘held of record’’ to exclude certain securities held by persons who received them pursuant to employee compensation plans and establishing a non-exclusive safe harbor for issuers to follow when determining whether those securities are ‘‘held of record’’ may affect small issuers relying on the revised rules and safe harbor to determine the number of holders of record. While an issuer is not required to register a class of equity securities pursuant to Section 12(g) of the Exchange Act until the issuer’s total assets exceed $10 million, a small business or small organization may rely on the rules when determining to whom to issue securities and whether to compensate employees with securities. By providing guidance on the meaning of the term ‘‘accredited investor’’ in the Exchange Act context, the proposed rules may facilitate private offerings and the ability of an issuer to determine their registration and reporting obligations. By excluding certain employee compensation securities from the definition of ‘‘held of record,’’ the proposed rules would facilitate the use of equity compensation by small issuers, thereby helping them to preserve cash and giving them greater ability to determine when the Exchange Act Section 12(g) registration obligation would be triggered. We cannot estimate the number of small entities affected by these proposed 115 17 116 17 PO 00000 CFR 270.0–10(a). CFR 240.0–10(a). Frm 00046 Fmt 4702 Sfmt 4702 78359 rules. By definition, they are not yet subject to Section 12(g) registration and reporting requirements, which are triggered by the issuer having total assets exceeding $10 million as of the last day of its fiscal year. We do not otherwise have information about the number of shareholders at small entities, including those who have received securities as a result of employee compensation plans. We request comment on the number of small entities that would be impacted by our proposals, including any available empirical data. C. Projected Reporting, Recordkeeping and Other Compliance Requirements When determining whether an issuer must register under Section 12(g)(1), the issuer would be permitted to rely on the proposed rules. The proposed use of the Securities Act Rule 501(a) definition of ‘‘accredited investor’’ and safe harbor under the proposed amendment to the definition of ‘‘held of record’’ would assist an issuer in determining the number of holders of record. In order for an issuer to rely on the safe harbor, the securities would need to be issued in a transaction exempt from, or not subject to, the registration requirements and satisfy the requirements of Rule 701(c), which includes the requirement that the securities be offered or sold under a written compensatory benefit plan or written compensation contract. In addition, issuers seeking to rely upon the safe harbor may need to maintain records to help establish their compliance with the safe harbor conditions. We are not aware of any other recordkeeping or compliance requirements associated with the proposed definition and safe harbor. The proposed rules and amendments affecting banks, bank holding companies and savings and loan holding companies would not add any new reporting, recordkeeping or other compliance requirements on those entities and we are not aware of any bank, bank holding company, or savings and loan holding company registrants with less than $5 million in assets. The proposed rules would raise the thresholds relating to registration for those entities and reduce their compliance burdens. D. Duplicative, Overlapping or Conflicting Federal Rules The Commission believes that there are no rules that duplicate, overlap or conflict with the proposed rules or amendments. E:\FR\FM\30DEP1.SGM 30DEP1 78360 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules tkelley on DSK3SPTVN1PROD with PROPOSALS E. Significant Alternatives Pursuant to Section 3(a) of the Regulatory Flexibility Act,117 the Commission must consider certain types of alternatives, including: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation or simplification of compliance and reporting requirements under the rule for small entities; (3) the use of performance rather than design standards; and (4) an exemption from coverage of the rule, or any part of the rule, for small entities. We are proposing that the current definition of ‘‘accredited investor’’ in Securities Act Rule 501(a) apply in making determinations under Exchange Act Rule 12g–1(b)(1). We could develop a new definition of ‘‘accredited investor’’ for purposes of Section 12(g)(1); however, given the prevalence of the use of Regulation D for exempt offerings, many issuers are familiar with and rely upon the definition in Rule 501(a). The increased registration threshold established by the JOBS Act is intended to permit issuers, including small entities, to defer Exchange Act registration until issuers have a larger shareholder base. Because proposed Rule 12g–1(b)(1) is intended to facilitate an issuer’s ability to make the determination of when it is required to register, we believe use of the familiar Rule 501(a) definition of ‘‘accredited investor’’ will further this regulatory objective for all issuers, including small entities. The proposed amendment to the definition of ‘‘held of record’’ and related safe harbor, if adopted, would apply to all issuers, including small entities, that choose to exclude securities held by persons who received them pursuant to employee compensation plans in certain exempt transactions or transactions not involving a sale within the meaning of Securities Act Section 2(a)(3). The proposed amendment and safe harbor help define the contours of an exemption from registration for issuers that might otherwise cross the Section 12(g) registration thresholds. The proposed rules are intended to permit issuers, including small entities, to exclude certain securities from the determination and to assist issuers in making that determination by clarifying and simplifying requirements for all entities. Establishing different compliance or reporting requirements 117 5 U.S.C. 603(c). VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 relating to employee compensation plan securities or accredited investor determinations for small entities could complicate the rules and make them more difficult to apply as those issuers grow, cease to be small entities, and are required to determine whether they must register with the Commission.118 With respect to the use of performance standards rather than design standards, we note that the holder of record threshold is a statutorily created design standard, requiring issuers to register if their holders of record coupled with their total assets cross the threshold. As we are modifying the definition of ‘‘held of record’’ and clarifying the determination of ‘‘accredited investor’’ under this statutory design standard, we did not evaluate whether a performance standard would be more useful. 80a–8, 80a–24, 80a–28, 80a–29, 80a–30, and 80a–37, and Pub. L. 112–106, sec. 201(a), 126 Stat. 313 (2012), unless otherwise noted. * * * * * 2. Amend § 230.405 by adding an Instruction to paragraph (1) to the definition of ‘‘Foreign private issuer’’ to read as follows: ■ § 230.405 Definitions of terms. Text of the Amendments For the reasons set out above, the Commission proposes to amend Title 17, chapter II of the Code of Federal Regulations, as follows: * * * * Foreign private issuer. (1) * * * INSTRUCTION TO PARAGRAPH (1): To determine the percentage of outstanding voting securities held by U.S. residents: A. Use the method of calculating record ownership in § 240.12g3–2(a) of this chapter, except that: (1) The inquiry as to the amount of shares represented by accounts of customers resident in the United States may be limited to brokers, dealers, banks and other nominees located in: (i) The United States, (ii) The issuer’s jurisdiction of incorporation, and (iii) The jurisdiction that is the primary trading market for the issuer’s voting securities, if different than the issuer’s jurisdiction of incorporation; and (2) Notwithstanding § 240.12g5– 1(a)(7)(i)(A) of this chapter, the issuer shall not exclude securities held by persons who received the securities pursuant to an employee compensation plan. B. If, after reasonable inquiry, the issuer is unable to obtain information about the amount of shares represented by accounts of customers resident in the United States, the issuer may assume, for purposes of this definition, that the customers are residents of the jurisdiction in which the nominee has its principal place of business. C. Count shares of voting securities beneficially owned by residents of the United States as reported on reports of beneficial ownership provided to the issuer or filed publicly and based on information otherwise provided to the issuer. * * * * * PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 ■ 1. The authority citation for part 230 continues to read as follows: ■ Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 78t, 78w, 78ll(d), 78mm, Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. F. Solicitation of Comment We are soliciting comments regarding this analysis. We request comment on the number of small entities that would be subject to the rules and whether the proposed rules would have any effects that have not been discussed. We request that commenters describe the nature of any effects on small entities subject to the rules and provide empirical data to support the nature and extent of the effects. IX. Statutory Authority and Text of Proposed Rule Amendments The amendments contained in this release are being proposed under the authority set forth in Section 19 of the Securities Act, as amended, Sections 3(b), 12(g), 12(h), 15(d) and 23(a) of the Exchange Act, as amended, and Section 503 and Section 602 of the JOBS Act. List of Subjects in 17 CFR Parts 230 and 240 Reporting and recordkeeping requirements, Securities. 118 Under Section 12(g) an issuer is not required to register unless the issuer has total assets exceeding $10 million at the end of its fiscal year. PO 00000 Frm 00047 Fmt 4702 Sfmt 4702 * 3. The general authority citation for part 240 is revised to read as follows: E:\FR\FM\30DEP1.SGM 30DEP1 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 2(c)(2)(E); 12 U.S.C. 5221(e)(3), and 18 U.S.C. 1350, Pub. L. 111–203, 939A, 124 Stat. 1376, 2010, and Pub. L. 112–106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted. * * * * * ■ 4. Amend § 240.3b–4 by revising the Instruction to Paragraph (c)(1) to read as follows: § 240.3b–4 Definition of ‘‘foreign government,’’ ‘‘foreign issuer’’ and ‘‘foreign private issuer’’. * * * * * (c) * * * INSTRUCTION TO PARAGRAPH (c)(1): To determine the percentage of outstanding voting securities held by U.S. residents: A. Use the method of calculating record ownership in § 240.12g3–2(a), except that: (1) Your inquiry as to the amount of shares represented by accounts of customers resident in the United States may be limited to brokers, dealers, banks and other nominees located in: (i) The United States, (ii) Your jurisdiction of incorporation, and (iii) The jurisdiction that is the primary trading market for your voting securities, if different than your jurisdiction of incorporation; and (2) Notwithstanding § 240.12g5– 1(a)(7)(i)(A) of this chapter, you shall not exclude securities held by persons who received the securities pursuant to an employee compensation plan. B. If, after reasonable inquiry, you are unable to obtain information about the amount of shares represented by accounts of customers resident in the United States, you may assume, for purposes of this definition, that the customers are residents of the jurisdiction in which the nominee has its principal place of business. C. Count shares of voting securities beneficially owned by residents of the United States as reported on reports of beneficial ownership provided to you or filed publicly and based on information otherwise provided to you. * * * * * ■ 5. Revise § 240.12g–1 and the section heading to read as follows: tkelley on DSK3SPTVN1PROD with PROPOSALS § 240.12g–1 Registration of securities; Exemption from section 12(g). An issuer is not required to register a class of equity security pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)) if on the last day of its most recent fiscal year: (a) The issuer had total assets not exceeding $10 million; or (b) (1) The class of equity security was held of record by fewer than 2,000 persons or 500 persons who are not VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 accredited investors (as such term is defined in § 230.501(a) of this chapter, determined on such day rather than at the time of the sale of the securities); or (2) In the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); the class of equity security was held of record by fewer than 2,000 persons. ■ 6. Revise § 240.12g–2 to read as follows: § 240.12g–2 Securities deemed to be registered pursuant to section 12(g)(1) upon termination of exemption pursuant to section 12(g)(2)(A) or (B). Any class of securities which would have been required to be registered pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)) except for the fact that it was exempt from such registration by section 12(g)(2)(A) of the Act (15 U.S.C. 78l(g)(2)(A)) because it was listed and registered on a national securities exchange, or by section 12(g)(2)(B) of the Act (15 U.S.C. 78l(g)(2)(B)) because it was issued by an investment company registered pursuant to section 8 of the Investment Company Act of 1940 (15 U.S.C. 80a–8), shall upon the termination of the listing and registration of such class or the termination of the registration of such company and without the filing of an additional registration statement be deemed to be registered pursuant to section 12(g)(1) if at the time of such termination: (a) The issuer of such class of securities has elected to be regulated as a business development company pursuant to sections 55 through 65 of the Investment Company Act of 1940 (15 U.S.C. 80a–54 through 64) and such election has not been withdrawn; or (b) Securities of the class are not exempt from such registration pursuant to section 12 of the Act (15 U.S.C. 78l) or rules thereunder and all securities of such class are held of record by 300 or more persons, or in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 1,200 or more persons. ■ 7. Amend § 240.12g–3 by revising paragraphs (a)(2), (b)(2) and (c)(2) to read as follows: PO 00000 Frm 00048 Fmt 4702 Sfmt 4702 78361 § 240.12g–3 Registration of securities of successor issuers under section 12(b) or 12(g). (a) * * * (2) All securities of such class are held of record by fewer than 300 persons, or in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 1,200 persons. * * * * * (b) * * * (2) All securities of such class are held of record by fewer than 300 persons, or in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 1,200 persons. * * * * * (c) * * * (2) All securities of such class are held of record by fewer than 300 persons, or in the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 1,200 persons. * * * * * ■ 8. Amend § 240.12g–4 by revising paragraph (a) to read as follows: § 240.12g–4 Certifications of termination of registration under section 12(g). (a) Termination of registration of a class of securities under section 12(g) of the Act (15 U.S.C. 78l(g)) shall take effect 90 days, or such shorter period as the Commission may determine, after the issuer certifies to the Commission on Form 15 (§ 249.323 of this chapter) that the class of securities is held of record by: (1) Fewer than 300 persons; (2) Fewer than 500 persons, where the total assets of the issuer have not exceeded $10 million on the last day of each of the issuer’s most recent three fiscal years; or (3) In the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); fewer than 1,200 persons. * * * * * E:\FR\FM\30DEP1.SGM 30DEP1 78362 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 9. Amend § 240.12g5–1 by adding paragraph (a)(7) to read as follows: ■ § 240.12g5–1 of record’’. Definition of securities ‘‘held * * * * * (a) * * * (7)(i) For purposes of determining whether an issuer is required to register a class of equity securities with the Commission pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)), an issuer may exclude securities: (A) Held by persons who received the securities pursuant to an employee compensation plan in transactions; (1) Exempt from the registration requirements of section 5 of the Securities Act of 1933 (15 U.S.C. 77e); or (2) That did not involve a sale within the meaning of section 2(a)(3) of the Securities Act of 1933 (15 U.S.C. 77b(a)(3)); and (B) Held by persons eligible to receive securities from the issuer pursuant to § 230.701(c) of this chapter who received the securities in a transaction exempt from the registration requirements of section 5 of the Securities Act (15 U.S.C. 77e) in exchange for securities excludable under this paragraph (a)(7). (ii) As a non-exclusive safe harbor under this paragraph (a)(7), a person will be deemed to have received the securities pursuant to an employee compensation plan if such person received the securities pursuant to a compensatory benefit plan in transactions that meet the conditions of § 230.701(c) of this chapter. * * * * * ■ 10. Amend § 240.12h–3 by revising paragraph (b)(1) to read as follows: § 240.12h–3 Suspension of duty to file reports under section 15(d). tkelley on DSK3SPTVN1PROD with PROPOSALS * * * * * (b) * * * (1) Any class of securities, other than any class of asset-backed securities, held of record by: (i) Fewer than 300 persons; (ii) Fewer than 500 persons, where the total assets of the issuer have not exceeded $10 million on the last day of each of the issuer’s three most recent fiscal years; or (iii) In the case of a bank; a savings and loan holding company, as such term is defined in section 10 of the Home Owners’ Loan Act (12 U.S.C. 1461); or a bank holding company, as such term is defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); fewer than 1,200 persons; and * * * * * VerDate Sep<11>2014 17:03 Dec 29, 2014 Jkt 235001 By the Commission. Dated: December 17, 2014. Brent J. Fields, Secretary. DEPARTMENT OF DEFENSE viewing on the Internet at http:// www.regulations.gov as they are received without change, including any personal identifiers or contact information. FOR FURTHER INFORMATION CONTACT: Col Gary C. Martin, Defense Health Agency, telephone (703) 681–0039. SUPPLEMENTARY INFORMATION: Office of the Secretary I. Executive Summary [FR Doc. 2014–30136 Filed 12–29–14; 8:45 am] BILLING CODE 8011–01–P 1. Purpose of Regulatory Actions 32 CFR Part 199 a. Need for Regulatory Actions [DOD–2014–HA–0133] (1) Revision of Nonparticipating Providers’ Reimbursement Rate Prior to 2006, TRICARE Dental Program (TDP) participating and nonparticipating providers were reimbursed at the equivalent of not less than the 50th percentile of prevailing charges made for similar services in the same locality (region) or state, or the provider’s actual charge, whichever is lower, less any cost-share amount due for authorized services. This provision was included in the regulation to constitute a significant financial incentive for participation of providers in the contractor’s network and to ensure a network of quality providers through use of a higher reimbursement rate. Over time, the Department discovered that this provision placed an unnecessary burden on contractors with already established, high quality provider networks with reimbursement rates below the 50th percentile that were of sufficient size to meet the access requirements of the TDP. Consequently, the Department of Defense published a final rule in the Federal Register on January 11, 2006 (71 FR 1695), revising the participating provider’s reimbursement rate for the TDP that has resulted in significant cost savings to the TDP enrollees and the Government. Since over 80 percent of all TDP care was provided by network dentists, the need to also change the reimbursement rate for nonparticipating dentists was overlooked and not included in the 2006 rule change. However, over the past eight years this has created an incentive for some network providers to leave the TDP network and for other providers not to become network providers. As the rule is currently written, depending on the geographic location, some non-network providers are actually reimbursed at a higher amount than they would have been had they been a participating provider and receiving the negotiated network rate. Specifically, the revision will require TDP nonparticipating providers to be reimbursed (minus the appropriate costshare) at the lesser of (1) billed charges: RIN 0720–AB62 TRICARE; Revision of Nonparticipating Providers Reimbursement Rate; Removal of Cost Share for Dental Sealants; TRICARE Dental Program Office of the Secretary, DoD. Proposed rule. AGENCY: ACTION: The Department of Defense (DoD) proposes several amendments to the TRICARE Dental Program (TDP) regulation. Specifically, this proposed rule revises the benefit payment provision for nonparticipating providers to more closely mirror industry practices by requiring TDP nonparticipating providers to be reimbursed (minus the appropriate costshare) at the lesser of billed charges: or the network maximum allowable charge for similar services in that same locality (region) or state. This rule also updates the regulatory provisions regarding dental sealants to clearly categorize them as a preventive service and, consequently, eliminate the current 20 percent cost-share applicable to sealants to conform the language in the regulation to the statute. DATES: Written comments received at the address indicated below by March 2, 2015 will be accepted. ADDRESSES: You may submit comments, identified by docket number and or Regulatory Information Number (RIN) number and title, by any of the following methods: • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • Mail: Federal Docket Management System Office, 4800 Mark Center Drive, Suite 02G09, Alexandria, VA 22350– 3100. Instructions: All submissions received must include the agency name and docket number or RIN for this Federal Register document. The general policy for comments and other submissions from members of the public is to make these submissions available for public SUMMARY: PO 00000 Frm 00049 Fmt 4702 Sfmt 4702 E:\FR\FM\30DEP1.SGM 30DEP1

Agencies

[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Proposed Rules]
[Pages 78343-78362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30136]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release No. 33-9693; 34-73876; File No. S7-12-14]
RIN 3235-AL40


Changes to Exchange Act Registration Requirements To Implement 
Title V and Title VI of the Jobs Act

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to our rules to implement Title V 
and Title VI of the Jumpstart Our Business Startups Act (the ``JOBS 
Act''). The proposed amendments would

[[Page 78344]]

revise rules adopted under Section 12(g) of the Securities Exchange Act 
of 1934 (the ``Exchange Act'') to reflect the new, higher thresholds 
for registration, termination of registration and suspension of 
reporting that were set forth in the JOBS Act. The proposed rules also 
would apply the thresholds specified for banks and bank holding 
companies to savings and loan holding companies. In addition, the 
proposed amendments would revise the definition of ``held of record'' 
in Exchange Act Rule 12g5-1, in accordance with the JOBS Act, to 
exclude certain securities held by persons who received them pursuant 
to employee compensation plans and establish a non-exclusive safe 
harbor for determining whether securities are ``held of record'' for 
purposes of registration under Exchange Act Section 12(g).

DATES: Comments should be received on or before March 2, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-12-14 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary, 
Securities and Exchange Commission, 100 F Street NE., Washington, DC 
20549-1090.

All submissions should refer to File Number S7-12-14. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 
are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549-1090 on official business days between the hours of 10:00 a.m. 
and 3:00 p.m. All comments received will be posted without change; we 
do not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Senior Special 
Counsel, at (202) 551-3430, or Anne Krauskopf, Senior Special Counsel, 
at (202) 551-3500, Division of Corporation Finance, Securities and 
Exchange Commission, 100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Rules 3b-
4,\1\ 12g-1,\2\ 12g-2,\3\ 12g-3,\4\ 12g-4,\5\ 12g5-1,\6\ and 12h-3 \7\ 
under the Exchange Act \8\ and an amendment to Rule 405 \9\ under the 
Securities Act of 1933 (the ``Securities Act'').\10\
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    \1\ 17 CFR 240.3b-4.
    \2\ 17 CFR 240.12g-1.
    \3\ 17 CFR 240.12g-2.
    \4\ 17 CFR 240.12g-3.
    \5\ 17 CFR 240.12g-4.
    \6\ 17 CFR 240.12g5-1.
    \7\ 17 CFR 240.12h-3.
    \8\ 15 U.S.C. 78a et seq.
    \9\ 17 CFR 230.405.
    \10\ 15 U.S.C. 77a et seq.
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Table of Contents

I. Introduction
II. Proposed Amendments Relating to Exchange Act Reporting 
Thresholds
    A. Application of the Increased Thresholds for Registration and 
Reporting Obligations
    B. Increased Thresholds for Savings and Loan Holding Companies' 
Registration and Reporting Obligations
    C. Application of the Increased Threshold for Accredited 
Investors
III. Proposed Amendments to Exchange Act Rule 12g5-1
    A. Statutory Requirement and Definition of ``Employee 
Compensation Plan''
    B. Definition of ``Held of Record'' and Non-Exclusive Safe 
Harbor for Determining Holders of Record
    1. Definition of ``Held of Record''
    2. Non-Exclusive Safe Harbor for Determining Holders of Record
IV. General Request for Comment
V. Economic Analysis
    A. Baseline
    B. Analysis of the Proposed Rules
VI. Paperwork Reduction Act
VII. Small Business Regulatory Enforcement Fairness Act
VIII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Small Entities Subject to the Proposed Rules
    C. Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    D. Duplicative, Overlapping or Conflicting Federal Rules
    E. Significant Alternatives
    F. Solicitation of Comment
IX. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

    Prior to the enactment of the JOBS Act,\11\ Section 12(g) of the 
Exchange Act \12\ required an issuer to register a class of its equity 
securities if, at the end of the issuer's fiscal year, the securities 
were ``held of record'' by 500 or more persons and the issuer had total 
assets exceeding $1 million.\13\ Under Section 12(g) and the 
Commission's rules prior to the JOBS Act amendments, an issuer that had 
a class of equity securities registered under Section 12(g) was able to 
terminate that registration if the number of record holders of that 
class fell below 300, or the number of record holders of that class 
fell below 500 and the issuer's assets were no more than $10 million at 
the end of each of its last three fiscal years.\14\
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    \11\ Public Law 112-106, 126 Stat. 325 (Apr. 5, 2012).
    \12\ 15 U.S.C. 78l(g). Congress enacted Section 12(g) in 1964 
following the release of a study of the securities markets conducted 
by the staff of the Commission in the early 1960s, which was 
commissioned by Congress to serve as a basis for legislation. Report 
of Special Study of Securities Markets of the Securities and 
Exchange Commission, H.R. Doc. No. 88-95 (1963). Section 12(g) was 
enacted to ``improve investor protection by extending to the larger 
companies in the over-the-counter market the registration, 
reporting, proxy solicitation, and insider trading requirements . . 
. applicable to companies listed on an exchange.'' Report of the 
Committee on Banking and Currency to Accompany, S.1642, S. Rep. No. 
88-379 (1963) at 1.
    \13\ See 15 U.S.C. 78l(g)(1). The Commission has the authority, 
under Section 12(h), to raise the asset threshold for Section 12(g) 
registration. 15 U.S.C. 78l(h). The Commission raised the asset 
threshold for Section 12(g) registration from $1 million to $3 
million in 1982, $5 million in 1986 and $10 million in 1996. See 
System of Classification for Purposes of Exempting Smaller Issuers 
From Certain Reporting and Other Requirements, Release No. 34-18647 
(Apr. 15, 1982) [47 FR 17046 (Apr. 21, 1982)], Reporting by Small 
Issuers, Release No. 34-23406 (Jul. 8, 1986) [51 FR 25360 (Jul. 14, 
1986)], and Relief From Reporting by Small Issuers, Release No. 34-
37157 (May 1, 1996) [61 FR 21353 (May 9, 1996)]. For the thresholds 
applicable to foreign private issuers, see infra note 84 and the 
discussion in the following text.
    \14\ See 15 U.S.C. 78l(g)(4) and 17 CFR 240.12g-4(a).
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    Exchange Act Section 15(d) \15\ requires an issuer with an 
effective registration statement under the Securities Act to file the 
same reports as an issuer with a registered class of securities under 
Exchange Act Section 12. Prior to the enactment of the JOBS Act, an 
issuer's reporting obligation was automatically suspended under Section 
15(d)(1) if, on the first day of any fiscal year other than the year in 
which the registration statement became effective, there were fewer 
than 300 holders of record of the class of securities offered under the 
registration statement.
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    \15\ 15 U.S.C. 78o(d).
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    The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act 
to adjust the thresholds for registration, termination of registration 
and suspension of reporting.\16\ Specifically,

[[Page 78345]]

Section 501 of the JOBS Act \17\ amended Section 12(g)(1) of the 
Exchange Act to require an issuer to register a class of equity 
securities (other than exempted securities) within 120 days after its 
fiscal year end if, on the last day of its fiscal year, the issuer has 
total assets of more than $10 million and the class of equity 
securities is ``held of record'' by either (i) 2,000 persons, or (ii) 
500 persons who are not accredited investors. Section 601 of the JOBS 
Act \18\ further amended Exchange Act Section 12(g)(1) to require an 
issuer that is a bank or a bank holding company, as defined in Section 
2 of the Bank Holding Company Act of 1956,\19\ to register a class of 
equity securities (other than exempted securities) within 120 days 
after the last day of its first fiscal year ended after the effective 
date of the JOBS Act if, on the last day of its fiscal year, the issuer 
has total assets of more than $10 million and the class of equity 
securities is ``held of record'' by 2,000 or more persons. Section 601 
of the JOBS Act also amended Exchange Act Section 12(g)(4) and Exchange 
Act Section 15(d)(1) \20\ to enable an issuer that is a bank or a bank 
holding company to terminate the registration of a class of securities 
under Section 12(g) or suspend reporting under Section 15(d)(1) if that 
class is held of record by less than 1,200 persons. For other issuers, 
the threshold in Section 12(g)(4) for termination of registration and 
in Section 15(d)(1) for suspension of reporting remains at 300.
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    \16\ The changes to Exchange Act Sections 12(g)(1), 12(g)(4) and 
15(d)(1) were effective upon enactment of the JOBS Act and do not 
require any Commission action. We are proposing amendments to our 
rules to reflect the new, higher thresholds provided by the JOBS Act 
in our rules and to implement the required safe harbor for 
securities received pursuant to employee compensation plans.
    \17\ Public Law 112-106, Sec. 501, 126 Stat. 326 (Apr. 5, 2012).
    \18\ Public Law 112-106, Sec. 601, 126 Stat. 326 (Apr. 5, 2012).
    \19\ 12 U.S.C. 1841.
    \20\ 15 U.S.C. 78o(d)(1).
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    Section 502 of the JOBS Act \21\ amended Exchange Act Section 
12(g)(5) \22\ to exclude from the definition of ``held of record,'' for 
the purposes of determining whether an issuer is required to register a 
class of equity securities, securities that are held by persons who 
received them pursuant to an ``employee compensation plan'' in 
transactions exempted from the registration requirements of Section 5 
of the Securities Act.\23\ Section 503 of the JOBS Act \24\ instructed 
the Commission to revise the definition of ``held of record'' pursuant 
to Exchange Act Section 12(g)(5) to implement the amendment made by 
Section 502 of the JOBS Act, and to create a safe harbor for issuers 
when determining whether holders received their securities pursuant to 
an ``employee compensation plan'' in a transaction exempted from the 
registration requirements of Section 5 of the Securities Act.
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    \21\ Public Law 112-106, Sec. 502, 126 Stat. 326 (Apr. 5, 2012).
    \22\ 15 U.S.C. 78l(g)(5).
    \23\ 15 U.S.C. 77e.
    \24\ Public Law 112-106, Sec. 503, 126 Stat. 326 (Apr. 5, 2012).
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    We believe that the increased registration threshold established by 
the JOBS Act is intended to permit issuers to defer Exchange Act 
registration until issuers have a larger shareholder base. In 
connection with the amendments made by Title V and Title VI of the JOBS 
Act, we are proposing to amend our rules to reflect the new, higher 
registration, termination of registration and suspension of reporting 
thresholds under revised Exchange Act Sections 12(g)(1), 12(g)(4) and 
15(d)(1). We also are proposing to permit savings and loan holding 
companies to register, terminate registration and suspend reporting 
using the same thresholds that apply to banks and bank holding 
companies. Finally, we are proposing to amend Exchange Act Rule 12g5-1 
to reflect the amendment to Exchange Act Section 12(g)(5) and establish 
a non-exclusive safe harbor that issuers may follow when determining if 
securities held by persons who received them pursuant to an employee 
compensation plan in transactions exempted from the registration 
requirements of Section 5 of the Securities Act may be excluded when 
calculating the number of the issuer's holders of record when 
determining whether they are required to register under Exchange Act 
Section 12(g)(1).
    After enactment of the JOBS Act, we sought comment from the public 
prior to the issuance of a proposing release. We have considered the 
pre-proposal comment letters received to date on Title V and Title VI 
of the JOBS Act, and we are requesting comment on various issues 
relating specifically to the proposed amendments.\25\ In this release, 
we are proposing rule amendments to implement and address issues 
specifically related to Title V and Title VI of the JOBS Act. We 
recognize that commenters have urged us to consider and propose 
additional amendments. For example, several commenters have recommended 
that the Commission make rule revisions related to the use of the term 
``accredited investor'' or permitting other issuers to register, 
terminate registration and suspend reporting using the same thresholds 
that apply to banks and bank holding companies.\26\ We have considered 
the suggestions made by these commenters, but at this time we are not 
proposing amendments that extend substantially beyond reflecting the 
new statutory requirements.
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    \25\ To facilitate public input on JOBS Act rulemaking before 
the issuance of rule proposals, the Commission invited members of 
the public to make their views known on various JOBS Act initiatives 
in advance of any rulemaking by submitting comment letters to the 
Commission's Web site at http://www.sec.gov/spotlight/jobsactcomments.shtml. Comment letters received to date on Title V 
of the JOBS Act are available at http://www.sec.gov/comments/jobs-title-v/jobs-title-v.shtml and on Title VI of the JOBS Act at http://www.sec.gov/comments/jobs-title-vi/jobs-title-vi.shtml.
    \26\ See Section II.C. relating to the term ``accredited 
investor.'' See also letters from Wilmer Hale (June 25, 2012), and 
Ledgewood, P.C. (Sept. 12, 2012) on behalf of their respective 
clients, a real estate investment trust and a real estate limited 
partnership, requesting that the Commission use its exemptive 
authority to revise the holder of record threshold to treat non-bank 
issuers similarly to banks and bank holding companies.
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II. Proposed Amendments Relating to Exchange Act Reporting Thresholds

A. Application of the Increased Thresholds for Registration and 
Reporting Obligations

    As a result of the JOBS Act changes to Exchange Act Sections 
12(g)(1), 12(g)(4) and 15(d), we are proposing changes to Exchange Act 
Rules 12g-1, 12g-2, 12g-3, 12g-4 and 12h-3, which are the rules that 
govern the mechanics relating to registration, termination of 
registration under Section 12(g) and suspension of reporting 
obligations under Section 15(d). These rules currently reflect the 
prior holder of record statutory thresholds in Sections 12(g) and 
15(d). We are proposing to amend these rules to reflect the new 
thresholds set forth in the JOBS Act.
    Exchange Act Rule 12g-1 currently provides that an issuer shall be 
exempt from the registration requirements if, on the last day of its 
most recent fiscal year, it had total assets not exceeding $10 million. 
JOBS Act Section 501 amended Section 12(g)(1) to expressly include the 
$10 million asset threshold. We are proposing to revise Rule 12g-1 to 
reflect the asset and holder of record thresholds established by Titles 
V and VI of the JOBS Act relating to the requirement to register a 
class of equity securities under the Exchange Act. The revision would 
additionally remove an outdated reference currently contained in the 
rule.\27\
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    \27\ Under Exchange Act Rule 12g-1, foreign private issuers may 
not rely on the exemption from registration provided in that rule if 
their securities are quoted on an automated inter-dealer quotation 
system. The NASDAQ Stock Market was the only automated inter-dealer 
quotation system in existence when this provision was adopted and 
has subsequently registered as a securities exchange with the 
Commission. See In the Matter of the Application of the Nasdaq Stock 
Market LLC for Registration as a National Securities Exchange; 
Findings, Opinion and Order of the Commission, Release No. 34-53128 
(Jan. 13, 2006) [71 FR 3550 (Jan. 23, 2006)]. As a result, the 
reference to an automated inter-dealer quotation system is no longer 
necessary and we are proposing to remove it.

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[[Page 78346]]

    As noted above, Section 601 of the JOBS Act amended Exchange Act 
Section 12(g)(4) to raise the threshold at which an issuer that is a 
bank or a bank holding company may terminate registration of a class of 
equity securities from 300 to 1,200 holders of record. Section 601 
similarly amended Exchange Act Section 15(d)(1) by providing for an 
automatic suspension of the duty to file reports for a bank or bank 
holding company with respect to a class of equity security that is held 
of record by less than 1,200 persons at the beginning of its fiscal 
year, provided that the bank or bank holding company did not have a 
Securities Act registration statement that became effective during that 
year.
    As currently in effect, Exchange Act Rules 12g-2 and 12g-3 reflect 
the holders of record thresholds in the Exchange Act for terminating 
registration and suspending reporting that existed prior to the JOBS 
Act amendments and not the new thresholds for banks and bank holding 
companies. Specifically,
     Rule 12g-2 addresses securities deemed to be registered 
pursuant to Section 12(g)(1) upon termination of the exemption pursuant 
to Section 12(g)(2)(A) or (B) \28\ and establishes a 300-person 
threshold for such a class of securities to be registered under Section 
12(g).
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    \28\ Section 12(g)(2)(A) [15 U.S.C. 78l(g)(2)(A)] provides an 
exemption from Section 12(g) registration while the class of 
securities is listed and registered on a national securities 
exchange under Exchange Act Section 12(b) [15 U.S.C. 78l(b)]. 
Section 12(g)(2)(B) [15 U.S.C. 78l(g)(2)(B)] provides an exemption 
for securities issued by registered investment companies.
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     Rule 12g-3 addresses the 300-person threshold for the 
registration of securities of successor issuers under Section 12(b) or 
Section 12(g).
    In addition, although the statutory provisions of Exchange Act 
Section 12(g) and 15(d) do not suspend reporting obligations 
immediately when an issuer reaches the designated threshold, Exchange 
Act Rules 12g-4 and 12h-3 permit issuers to immediately suspend their 
duty to file periodic and current reports. These rules, however, 
reflect the thresholds in Sections 12(g) and 15(d) prior to the JOBS 
Act amendments and not the new threshold for banks and bank holding 
companies. Specifically,
     Rule 12g-4(a) provides that termination of registration 
under Section 12(g) shall take effect in 90 days, or such shorter 
period as the Commission determines, after the issuer certifies on Form 
15 \29\ that the class of securities is held by less than 300 persons, 
or 500 persons where the total assets of the issuer have not exceeded 
$10 million on the last day of each of the preceding three years.
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    \29\ 17 CFR 249.323.
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     Rule 12g-4(b) provides that the duty to file current and 
periodic reports under Exchange Act Section 13(a) \30\ for that class 
of securities is suspended immediately upon the filing of a 
certification on Form 15 provided that the issuer has less than 300 
holders of record, or 500 holders of record where the issuer's total 
assets have not exceeded $10 million on the last day of each of the 
preceding three years.
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    \30\ 15 U.S.C. 78m(a).
---------------------------------------------------------------------------

     Rule 12h-3 provides that the duty to file current and 
periodic reports under Section 13(a) pursuant to Section 15(d) for that 
class of securities is suspended immediately upon the filing of a 
certification on Form 15, provided that:
    [cir] The issuer has less than 300 holders of record or 500 holders 
of record where the issuer's total assets have not exceeded $10 million 
on the last day of each of the preceding three years;
    [cir] the issuer has filed its Section 13(a) reports for the most 
recent three completed fiscal years, and for the portion of the year 
immediately preceding the date of filing the Form 15 or the period 
since the issuer became subject to the reporting obligation; and
    [cir] a registration statement has not become effective or was 
required to be updated pursuant to Exchange Act Section 10(a)(3) \31\ 
during the fiscal year.\32\
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    \31\ 15 U.S.C. 78j(a)(3).
    \32\ The automatic statutory suspension of an issuer's Section 
15(d) reporting obligation also is not available as to any fiscal 
year in which the issuer's Securities Act registration statement 
becomes effective or is required to be updated pursuant to Section 
10(a)(3) of the Securities Act.
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    Because the new statutory threshold for banks and bank holding 
companies is not reflected in Rule 12g-4, banks and bank holding 
companies seeking to rely on the new 1,200-holder threshold may not 
rely on the existing procedural accommodations in the rule. As a 
result, the statute requires them to wait 90 days after filing a 
certification with the Commission that the number of holders of record 
is less than 1,200 persons to terminate their Section 12(g) 
registration and cease filing reports required by Section 13(a) rather 
than being able to suspend their Section 13(a) reporting obligations 
immediately upon the filing of a Form 15 in reliance on the rule. 
Similarly, banks and bank holding companies are not permitted to rely 
on Rule 12h-3 to immediately suspend their Section 15(d) reporting 
obligations using the new higher statutory threshold during a fiscal 
year. Rather, Section 15(d)(1) provides that they may use the higher 
thresholds only when seeking to suspend a Section 15(d) obligation on 
the first day of a fiscal year. Similarly the new statutory threshold 
also is not reflected in current Rules 12g-2 and 12g-3, leaving all 
issuers to refer to the lower 300-holder threshold under these rules.
    We are proposing to amend these rules to include the JOBS Act 
thresholds for banks and bank holding companies.\33\ The proposed 
changes would allow banks and bank holding companies to rely on the 
Commission's rules to suspend reporting immediately, to avoid being 
deemed registered upon the termination of certain exemptions or as a 
successor issuer, and to terminate their registration during the fiscal 
year, at the higher 1,200-holder threshold.
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    \33\ One commenter expressed support for a change permitting 
banks and bank holding companies to immediately suspend Section 
13(a) reporting at the 1,200-holder threshold upon filing Form 15, 
as is permitted for all issuers under current rules at the 300-
holder threshold. See letter from John Marshall Bank (Apr. 13, 
2012).
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B. Increased Thresholds for Savings and Loan Holding Companies' 
Registration and Reporting Obligations

    We are proposing to apply the same thresholds to savings and loan 
holding companies that apply to banks and bank holding companies. As 
noted above, banks and bank holding companies under Title VI of the 
JOBS Act are subject to a higher shareholder registration threshold for 
a class of equity security under Section 12(g)(1) of the Exchange Act, 
and a higher threshold for termination of registration under Section 
12(g)(4) and for suspension of the duty to file reports under Section 
15(d)(1). Section 3(a)(6) of the Exchange Act defines the term 
``bank''; \34\ however, neither the Exchange Act nor the Commission's 
rules define ``bank holding company.''

[[Page 78347]]

Section 2 of the Bank Holding Company Act of 1956 specifically excludes 
``savings and loan holding companies'' from the definition of bank 
holding company.\35\ Thus, while banks, savings associations and bank 
holding companies are covered by Title VI of the JOBS Act, savings and 
loan holding companies are not.
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    \34\ 15 U.S.C. 78c(a)(6). Exchange Act Section 3(a)(6) defines a 
``bank'' to include Federal savings associations and any other 
banking institution or savings association, as defined in the Home 
Owners' Loan Act. We read this definition to include savings and 
loan associations and other similar entities.
    \35\ A savings and loan holding company is a company that 
controls savings associations or other savings and loan holding 
companies, similar to the way a bank holding company is a company 
that controls banks or other bank holding companies. Savings 
associations and banks are all depository institutions, and each one 
is regulated by the appropriate Federal banking agency. 12 U.S.C. 
1813(q). The definition of ``appropriate Federal banking agency'' 
provides which federal banking agency is the primary regulator for 
the various types of national, state and foreign banks and savings 
associations.
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    A commenter representing community banks asserted that savings and 
loan holding companies should be covered by Title VI of the JOBS 
Act.\36\ Other commenters from the banking industry and Congress have 
also requested that savings and loan holding companies be treated 
similarly to bank holding companies for purposes of the registration, 
termination of registration and suspension of reporting provisions of 
the Exchange Act.\37\ One commenter acknowledged that the JOBS Act did 
not ``expressly extend its new threshold for termination of 
registration to savings and loan holding companies,'' but suggested 
that correction of that omission would be ``entirely consistent with 
the intent and purpose of the JOBS Act.'' \38\
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    \36\ See letter from Independent Community Bankers of America 
(Apr. 16, 2012).
    \37\ See, e.g., letters from American Bankers Association (Aug. 
10, 2012); Community Bankers Association of Illinois (May 7, 2012); 
U.S. Representatives Himes and Womack (Nov. 29, 2012); Wayne Savings 
Community Bank (Apr. 12, 2012); U.S. Representative Stivers (May 4, 
2012); and U.S. Representative Gibbs (Dec. 19, 2012).
    \38\ See letter from American Bankers Association.
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    Based on a review of reporting issuers, we estimate that 
approximately 125 savings and loan holding companies were reporting 
issuers as of June 30, 2014, most of which are registered pursuant to 
Section 12(b).\39\ Approximately 90 of these companies reported fewer 
than 1,200 holders of record and would be eligible to terminate 
registration under the proposed threshold.\40\ These savings and loan 
holding companies, however, are subject to regulation by the Board of 
Governors and are generally required to submit the same reports to 
banking regulators as other banking entities regulated by the Board of 
Governors, including banks and bank holding companies covered by Title 
VI of the JOBS Act.\41\
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    \39\ Savings and loan holding companies were identified by 
examining filings in the relevant Standard Industrial Classification 
codes.
    \40\ The Board of Governors of the Federal Reserve System (the 
``Board of Governors'') previously determined to exempt commercial 
savings and loan holding companies from its initial requirement that 
savings and loan holding companies generally submit the same reports 
as other banking entities regulated by the Board of Governors. See 
Agency Information Collection Activities Regarding Savings and Loan 
Holding Companies: Announcement of Board Approval Under Delegated 
Authority and Submission to OMB, (Dec. 23, 2011) [76 FR 81933 (Dec. 
29, 2011)]. There are six commercial savings and loan holding 
companies that are all exchange-listed issuers obligated to file, 
and would continue to be obligated to file, Exchange Act reports 
pursuant to Exchange Act Section 12(b) (15 U.S.C. 78l(b)). For ease 
of application and due to the limited effect on, and small number 
of, such issuers, we are not proposing to differentiate between 
commercial saving and loan holding companies and other savings and 
loan holding companies for purposes of this rulemaking.
    \41\ See id. Title III of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376) (the 
``Dodd-Frank Act'') abolished the Office of Thrift Supervision, the 
regulator that formerly supervised savings and loan holding 
companies, and transferred its authorities (including rulemaking) 
related to savings and loan holding companies to the Board of 
Governors. The Board of Governors assumed supervisory responsibility 
for savings and loan holding companies and their non-depository 
subsidiaries beginning on July 21, 2011. The Board of Governors is 
responsible for the consolidated supervision of bank holding 
companies and savings and loan holding companies and requires those 
entities to provide data relating to capitalization, liquidity, and 
risk management as well as periodic financial reports in order for 
the Board of Governors to analyze the overall financial condition of 
those entities to ensure safe and sound operations. These reports 
include, among others, quarterly Consolidated Financial Statements 
for Bank Holding Companies (FR Y-9C) and an Annual Report of Bank 
Holding Companies (FR Y-6).
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    As noted above, the increased thresholds provided by the JOBS Act 
for registration, termination of registration and suspension of 
reporting for banks and bank holding companies do not apply to savings 
and loan holding companies. This creates inconsistent treatment among 
depository institutions, resulting in different registration 
requirements for savings and loan holding companies that otherwise 
provide services similar to those provided by banks and bank holding 
companies and are generally subject to similar bank regulatory and 
supervision requirements. We have received comments in support of 
treating savings and loan holding companies the same as banks and bank 
holding companies with regard to the increased thresholds.
    We are proposing to revise our rules so that savings and loan 
holding companies are treated in a similar manner to banks and bank 
holding companies for the purposes of registration, termination of 
registration or suspension of their Exchange Act reporting obligations. 
Unlike for bank holding companies, which are able to rely on the JOBS 
Act statutory changes, the revised rules would be the sole basis on 
which savings and loan holding companies could rely when making those 
determinations. We are proposing to apply the new higher thresholds 
applicable to banks and bank holding companies to savings and loan 
holding companies \42\ because we believe the regulatory oversight 
applicable to savings and loan holding companies is substantially 
similar to the regulatory oversight for bank holding companies. We 
believe these companies should be treated consistently with other 
depository institutions under our rules. We are therefore proposing to 
amend Exchange Act Rule 12g-1 to establish an exemption for savings and 
loan holding companies from the registration requirement that mirrors 
the exemption for banks and bank holding companies established by the 
JOBS Act. In addition, we are proposing to revise Exchange Act Rules 
12g-2, 12g-3, 12g-4 and 12h-3 to permit savings and loan holding 
companies to immediately suspend current and periodic reporting upon 
filing Form 15 at the 1,200-holder threshold in the same manner as 
banks and bank holding companies.
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    \42\ Under our proposal ``savings and loan holding company'' 
would be defined pursuant to Section 10 of the Home Owners' Loan 
Act. 12 U.S.C. 1461.
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C. Application of the Increased Threshold for Accredited Investors

    Section 501 of the JOBS Act amended Exchange Act Section 12(g)(1) 
to increase the threshold that triggers registration by an issuer other 
than a bank or bank holding company to total assets exceeding $10 
million and a class of equity security (other than an exempted 
security) held of record by either 2,000 persons or 500 persons who are 
not accredited investors (as such term is defined by the 
Commission).\43\ A number of commenters pointed to potential compliance 
concerns with respect to identifying accredited investors and 
recommended ways to facilitate issuers' use of the increased threshold 
for holders of record that are accredited investors. Some commenters 
recommended that the Commission confirm that the term ``accredited

[[Page 78348]]

investor'' as used in this provision of the JOBS Act has the same 
meaning as set forth in Securities Act Rule 501(a) \44\ of Regulation 
D.\45\ One commenter further recommended that the Commission permit an 
issuer to rely on an annual affirmation from investors that their 
accredited investor status has not changed.\46\ Other commenters 
recommended that the Commission provide guidance or a safe harbor to 
allow issuers to rely on an ongoing basis on information previously 
obtained about a shareholder's accredited investor status.\47\ 
Commenters also recommended that the Commission provide additional 
flexibility by, for example, permitting issuers to rely on the 
determinations made by certain third parties, such as financial 
intermediaries, or permitting determinations during a reasonable period 
before or after the fiscal year end.\48\
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    \43\ The statutory amendment was effective upon enactment of the 
JOBS Act and does not require any Commission action. While this 
change primarily affects issuers that have never had a reporting 
obligation under the Exchange Act, issuers that have filed a 
Securities Act registration statement that became effective but have 
not triggered an Exchange Act Section 12(g) registration requirement 
and issuers that have terminated registration or suspended their 
reporting obligation will need to monitor the accredited investor 
status of their investors as of the last day of each fiscal year.
    \44\ 17 CFR 230.501(a).
    \45\ See letters from New York City Bar Association (June 6, 
2012) (``NYCBA'') and the Business Law Section of the American Bar 
Association (June 26, 2013) (``ABA''). The ABA letter further 
requested that the Commission provide guidance on the type of 
information upon which issuers may rely and specifically recommended 
that the Commission not require issuers to take reasonable steps to 
verify accredited investor status.
    \46\ See letter from ABA.
    \47\ See letters from Foley & Lardner (May 24, 2012) and NYCBA. 
Foley & Lardner recommended allowing reliance on information 
obtained at the time the issuer's securities were initially issued, 
or, in the alternative, when the securities were most recently 
issued, when making the determination of whether the holders are 
accredited for purposes of counting holders under Section 12(g). 
NYCBA recommended that the Commission expressly permit an issuer 
``to rely on any determination of `accredited investor' status made 
in connection with the issuer's most recent sale of securities to 
the relevant investor, or the most recent transfer to the investor 
in connection with which the issuer actually determined that the 
investor was `accredited.' '' Other commenters also supported 
permitting issuers to rely on information previously provided if an 
investor fails to provide the issuer with updated information. See 
letters from ABA and Keith Paul Bishop (June 13, 2012).
    \48\ See letter from ABA. ABA suggested that the rule should 
provide some flexibility on the timing of the determination. This 
would permit issuers to rely on information available to them at the 
time they made a judgment regarding accredited investor status, 
rather than requiring issuers to update the information as of the 
end of the fiscal year. See also letter from NYCBA recommending that 
the Commission adopt rules open to the possibility that limited 
access trading venues may be able to treat all participants as 
accredited investors. One commenter recommended that the Commission 
require issuers to determine accredited investor status as of the 
last day of each fiscal year. See letter from Keith Paul Bishop.
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    To rely on the new, higher threshold established by the JOBS Act, 
an issuer will need to be able to determine which of its record holders 
are accredited investors. We are not proposing to establish a new 
definition of ``accredited investor'' for the purposes of Section 
12(g)(1). Securities Act Rule 501(a) contains a definition of 
``accredited investor'' that includes any person who comes within, or 
who the issuer reasonably believes comes within, any of eight 
enumerated categories.\49\ Section 413(b) of the Dodd-Frank Act 
specifically requires the Commission to undertake a review of the 
``accredited investor'' definition in its entirety, as it relates to 
natural persons, every four years and no earlier than July 10, 
2014.\50\
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    \49\ Under Securities Act Rule 501(a) the categories of 
accredited investor include: A bank, insurance company, registered 
investment company, business development company, or small business 
investment company; an employee benefit plan (within the meaning of 
the Employee Retirement Income Security Act) if a bank, insurance 
company, or registered investment adviser makes the investment 
decisions, or if the plan has total assets in excess of $5 million; 
a tax exempt charitable organization, corporation or partnership 
with assets in excess of $5 million; a director, executive officer, 
or general partner of the company selling the securities; an 
enterprise in which all the equity owners are accredited investors; 
an individual with a net worth of at least $1 million, not including 
the value of his or her primary residence; an individual with income 
exceeding $200,000 in each of the two most recent calendar years or 
joint income with a spouse exceeding $300,000 for those years and a 
reasonable expectation of the same income level in the current year; 
and a trust with assets of at least $5 million, not formed only to 
acquire the securities offered, and whose purchases are directed by 
a person who meets the legal standard of having sufficient knowledge 
and experience in financial and business matters to be capable of 
evaluating the merits and risks of the prospective investment.
    \50\ We have already requested comment on this definition. See 
Amendments to Regulation D, Form D and Rule 156, Release No. 33-9416 
(Jul. 10, 2013) [78 FR 44806 (Jul. 24, 2013)].
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    We are proposing that the definition of ``accredited investor'' in 
Securities Act Rule 501(a) apply in making determinations under 
Exchange Act Section 12(g)(1).\51\ The ``accredited investor'' 
determination would be made as of the last day of the fiscal year 
rather than at the time of the sale of the securities.\52\ Issuers 
conducting offerings in reliance on an exemption from Securities Act 
registration in which purchasers must be accredited investors typically 
take appropriate steps to establish a reasonable belief that a 
prospective investor is an accredited investor. This reasonable belief 
is based on an issuer's due diligence and depends on the particular 
facts and circumstances surrounding the determination. We believe 
applying the familiar concepts of the accredited investor definition in 
Rule 501(a) to the registration threshold in Section 12(g)(1) would 
facilitate compliance for issuers.
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    \51\ Although the term ``accredited investor'' is also defined 
in Securities Act Rule 215 [17 CFR 230.215] for the purpose of the 
statutory exemption from registration under Section 4(a)(5) [15 
U.S.C. 78d(a)(5)], the definition of ``accredited investor'' 
contained in Securities Act Rule 501(a) of Regulation D is the more 
commonly understood meaning of the term, given the prevalence of the 
use of Regulation D for exempt offerings.
    \52\ Securities Act Rule 501(a) otherwise defines ``accredited 
investor'' as being determined at the time of the sale of the 
securities.
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    After an issuer completes its offering and has sold securities to 
purchasers who have been determined to be accredited investors, it is 
not required to periodically assess an investor's continued status as 
an accredited investor. We recognize that issuers may have difficulty 
determining whether existing security holders are accredited investors 
for purposes of the threshold in Section 12(g)(1) and that providing a 
safe harbor or other guidance could help to mitigate costs for issuers 
seeking to determine accredited investor status. Some commenters have 
suggested that we permit issuers to rely on information previously 
provided by these security holders in connection with the purchase or 
transfer of securities for an indefinite period into the future.\53\ We 
believe such reliance could, however, result in the use of outdated 
information that may no longer be reliable. Instead, an issuer will 
need to determine, based on facts and circumstances, whether it can 
rely upon prior information to form a reasonable basis for believing 
that the security holder continues to be an accredited investor as of 
the last day of the fiscal year.
---------------------------------------------------------------------------

    \53\ See supra note 47.
---------------------------------------------------------------------------

    Without new guidance from the Commission, when making the 
determination at fiscal year-end of whether a security holder is an 
accredited investor for purposes of Exchange Act Section 12(g)(1), 
issuers would likely use procedures similar to those used when relying 
on Rule 506.\54\ We recognize that the accredited investor 
determination under the Securities Act is made in the context of an 
investor making an investment decision, while in the Exchange Act 
context it is made when an issuer is considering whether it must 
register a class of securities with the Commission. In light of this, 
we are considering whether a different approach would be appropriate 
for determining accredited

[[Page 78349]]

investor status under Section 12(g) and solicit comment on the 
appropriate structure and criteria for such an approach below.
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    \54\ The procedures used in a Rule 506 offering may vary 
depending on a number of factors, including the nature of the 
purchaser and whether the offering is pursuant to Rule 506(b) or 
Rule 506(c). Rule 506(c) requires an issuer to take reasonable steps 
to verify that purchasers of securities sold in such offering are 
accredited investors. As we previously recognized when we adopted 
Rule 506(c), ``issuers may have to apply a stricter and more costly 
process to determine accredited investor status than what they 
currently use.'' See Eliminating the Prohibition Against General 
Solicitation and General Advertising in Rule 506 and Rule 144A 
Offerings, Release No. 33-9415 (Jul. 10, 2013) [78 FR 44771 (Jul. 
24, 2013)].
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Request for Comment
    1. We are proposing to revise Rule 12g-1 to reflect changes made by 
Titles V and VI of the JOBS Act. Should we include the requirements of 
Section 12(g)(1) in our rules as proposed? Should we delete the 
provision in the current Rule 12g-1 that precludes foreign private 
issuers from relying on the exemption from registration if their 
securities are quoted on an automated inter-dealer quotation system, as 
proposed?
    2. The higher registration and reporting thresholds could result in 
issuers having a significant number of shareholders with freely 
tradable shares who lack current disclosure information about the 
issuer. How would investors get the information they need in connection 
with purchases and sales? What investor protection issues are raised 
when these security holders engage in secondary market transactions and 
how might they be addressed?
    3. Should we extend the new registration, termination of 
registration and suspension of reporting thresholds for banks and bank 
holding companies to savings and loan holding companies, as proposed? 
We are proposing to use the definition of ``savings and loan holding 
company'' as defined in Section 10 of the Home Owners' Loan Act. Does 
the proposed definition cover the appropriate entities? If not, what 
definition should be used?
    4. We are proposing to permit savings and loan holding companies to 
use the higher thresholds equivalent to those available to banks and 
bank holding companies. Are there facts and circumstances, other than 
those discussed above, that we should consider in evaluating whether to 
provide those higher thresholds? How would using different thresholds 
for savings and loan holding companies impact market participants and 
investors? What effect would different thresholds have on competition 
between savings and loan holding companies and other depository 
institutions, such as banks and bank holding companies?
    5. The population of savings and loan holding companies includes 
commercial savings and loan holding companies that the Board of 
Governors exempted from its initial requirement that savings and loan 
holding companies generally submit the same reports as other banking 
entities regulated by the Board of Governors.\55\ These commercial 
savings and loan holding companies are all exchange-listed issuers that 
are currently registered and required to file reports under Section 
12(b) of the Exchange Act. Should these companies be permitted to rely 
on the higher thresholds applicable to banks and bank holding 
companies? Should we instead carve out such savings and loan holding 
companies or provide other limitations for these companies?
---------------------------------------------------------------------------

    \55\ See supra note 40.
---------------------------------------------------------------------------

    6. Some commenters have recommended that we provide a safe harbor 
or other guidance to provide issuers with more certainty on how to 
establish a reasonable belief that a security holder is an accredited 
investor and therefore qualifies under the definition. Are there 
circumstances in the determination required to be made under Section 
12(g) that suggest the need for a safe harbor or guidance, and if so, 
is one preferable over the other? What should be the parameters of any 
safe harbor or guidance? Should a safe harbor or other guidance specify 
the methods of inquiry an issuer could make or the documents it should 
obtain that would establish a reasonable belief? What methods or 
standards should we adopt and what steps should we require in making 
the determination? What negative effects on investors, if any, could 
result from providing a safe harbor or other guidance? Absent a safe 
harbor or other guidance, what burdens would the issuer face in 
establishing reasonable belief that a security holder is an accredited 
investor and in making the determination as to whether it has exceeded 
the Section 12(g) thresholds for Exchange Act reporting? Please 
quantify, if possible, the expected costs of establishing a reasonable 
belief every year for each accredited investor and compare the expected 
costs to the estimated costs of registration.
    7. If the rules were to include a safe harbor or other guidance, 
should we permit an issuer to form its reasonable belief that a person 
is an accredited investor based on determinations made by specified 
third parties? For example, in Securities Act Rule 506(c)(2)(ii)(C) we 
allow issuers to rely on a written confirmation by a registered broker-
dealer, a registered investment adviser, a licensed attorney, or a 
certified public accountant to satisfy the requirement that the issuer 
take reasonable steps to verify the accredited investor status of a 
purchaser. Should a similar written confirmation be sufficient here? 
Should we permit written confirmations from other third parties not 
subject to regulatory oversight? Why or why not? If we permit written 
confirmations from third parties that are not subject to regulatory 
oversight such as those found in Rule 506(c)(2)(ii)(C), should we 
require issuers to perform some level of due diligence on the 
accredited investor determinations made by those third parties or on 
the third parties making those determinations? Would the answer depend 
on the nature of the third party? Alternatively, should we permit an 
issuer to rely on a written certification by the investor, on other 
specified information obtained by the issuer, or on a combination of a 
certification and other information? What information, other than a 
written investor certification, would it be appropriate to require? 
Would the answer depend on whether an issuer had determined at the time 
of the initial investment that the investor was an accredited investor? 
For what period of time should that determination be considered 
reliable? Should the safe harbor or other guidance specify that 
determinations made a specified period before or after the fiscal year 
end would be deemed to be reasonable? If so, what would be a reasonable 
time period for making such determination? What documentation, if any, 
should be retained by the issuer?
    8. For purposes of any safe harbor or other guidance, should we 
permit an issuer to rely on previously obtained information relating to 
the person's accredited investor status, such as information obtained 
at the time the issuer's securities were initially, or most recently, 
sold to that person? Should such a provision be limited to situations 
in which the issuer does not have information that would lead it to 
believe that the previously obtained information was incorrect, 
unreliable or had changed? Should we place a time limit on the 
permitted use of previously obtained information, such as only 
permitting the use of information received within the preceding six 
months or year? Should an issuer be able to rely on information 
previously obtained if the security holder failed to respond to an 
issuer's request for an annual affirmation of accredited investor 
status?

III. Proposed Amendments to Exchange Act Rule 12g5-1

A. Statutory Requirement and Definition of ``Employee Compensation 
Plan''

    Exchange Act Section 12(g)(5), as amended by Section 502 of the 
JOBS Act, provides that the definition of ``held of record'' shall not 
include securities held by persons who received them pursuant to an 
``employee

[[Page 78350]]

compensation plan'' in transactions exempted from the registration 
requirements of Section 5 of the Securities Act. By its express terms, 
this new statutory exclusion applies solely for purposes of determining 
whether an issuer is required to register a class of equity securities 
under the Exchange Act and does not apply to a determination of whether 
such registration may be terminated or suspended.\56\ The provision, 
which is substantially broader than the Commission's current rules 
exempting compensatory employee stock options from Section 12(g) 
registration,\57\ does not define the term ``employee compensation 
plan.''
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    \56\ The statutory exclusion in Section 12(g)(5) specifically 
refers to Exchange Act Section 12(g)(1), which relates to when an 
issuer must register its securities with the Commission.
    \57\ Exchange Act Rule 12h-1(f) [17 CFR 240.12h-1(f)] provides 
non-reporting issuers with an exemption from Section 12(g) 
registration for stock options issued under written compensatory 
stock option plans under certain conditions. Exchange Act Rule 12h-
1(g) [17 CFR 240.12h-1(g)] provides a similar exemption for stock 
options for reporting issuers that are required to file such 
periodic reports. The exemptions provide specific eligibility 
requirements and are limited to options issued pursuant to a written 
compensatory stock option plan. See Exemption of Compensatory Stock 
Options from Registration Under Section 12(g) of the Securities 
Exchange Act of 1934, Release No. 34-56887 (Dec. 3, 2007) [72 FR 
69554 (Dec. 7, 2007)] (the ``Compensatory Stock Options Release'').
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    Section 503 of the JOBS Act instructs the Commission to amend the 
definition of ``held of record'' to implement the amendment in Section 
502 and to adopt a safe harbor that issuers can use when determining 
whether holders of their securities received them pursuant to an 
employee compensation plan in exempt transactions. We are proposing to 
amend Exchange Act Rule 12g5-1 to implement the statutory exclusion 
created by Section 502 of the JOBS Act and to establish a non-exclusive 
safe harbor for issuers as directed by Section 503.\58\
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    \58\ See Proposed Rule 12g5-1(a)(7).
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    Subsequent to the adoption of the JOBS Act, a number of commenters 
provided recommendations to the Commission as to how ``employee 
compensation plan'' should be defined. Some commenters recommended that 
the Commission interpret the term broadly to promote the use of 
employee equity issuances.\59\ One commenter indicated that ``linking 
the scope of Rule 701 and amended Section 12(g)(5) makes sense, in 
light of the apparent purpose of the latter provisions, and will avoid 
needless complexity.'' \60\ Another commenter recommended that the 
Commission establish a non-exclusive safe harbor without recommending a 
specific definition for ``employee compensation plan.'' \61\ This 
commenter suggested that ``application in a Section 12(g) context of 
the familiar concepts applied in connection with the exempt issuance of 
compensatory equity securities under Rule 701 will facilitate 
compliance by streamlining a smaller issuer's learning curve and 
simplifying recordkeeping.'' \62\ In addition, this commenter 
specifically recommended that the safe harbor ``explicitly import the 
interpretation of Rule 701(c)'' in order to incorporate ``the full 
range of compensatory arrangements and security holders described in 
Rule 701(c) under the Securities Act'' and that it ``should cover 
equity securities in the hands of the full range of participants and 
permitted transferees enumerated in Rule 701(c).'' \63\ This commenter 
also indicated that ``the requirement of a written arrangement is 
reasonable in the Section 12(g)(5) context, as well as for Rule 701.'' 
\64\ Commenters also made specific recommendations regarding additional 
securities that should be considered ``securities received pursuant to 
an employee compensation plan.'' \65\
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    \59\ See letter from Foley & Lardner recommending a broad 
definition of ``employee compensation plan'' that would include 
arrangements that are not written. See also letter from Keith Paul 
Bishop recommending a broad definition of ``employee compensation 
plan.''
    \60\ See letter from NYCBA. For a more detailed explanation of 
Securities Act Rule 701, see infra notes 66 and 72.
    \61\ See letter from ABA. ABA indicated that ``it is important 
that the concept of `employee compensation plan' encompass both 
traditional plans and individual compensatory agreements and include 
compensatory arrangements established by the various entities 
related to the issuer enumerated in Rule 701(c).''
    \62\ See id.
    \63\ See id.
    \64\ See id., indicating that state corporate law generally 
requires some documentation of authorized issuances of equity 
securities. This recommendation contrasts with recommendations of 
other commenters suggesting that the term ``employee compensation 
plan'' should not be read to require a written arrangement. See 
supra note 59.
    \65\ See, e.g., letter from David C. Fisher (June 13, 2012), 
recommending that ``securities acquired in an issuer-sponsored 
internal market, limited to transactions in securities received 
pursuant to the issuer's employee compensation plans, will be 
considered securities received pursuant to an employee compensation 
plan.'' See also letter from NYCBA suggesting that `` `closed 
system' platforms and trading venues'' may be able to afford issuers 
a reasonable basis to determine that participants are excludable 
employees.
---------------------------------------------------------------------------

    Instead of creating a new definition for the term ``employee 
compensation plan,'' we are proposing to revise the definition of 
``held of record'' and establish a non-exclusive safe harbor that 
relies on the current definition of ``compensatory benefit plan'' in 
Rule 701 and the conditions in Rule 701(c).\66\ Although some 
commenters recommended that we create a new, broad definition, we 
believe that by not defining the term ``employee compensation plan,'' 
and by providing for a non-exclusive safe harbor, we are providing 
issuers with flexibility in their determination under Section 12(g)(5). 
We concur with some commenters who recommended applying the Rule 701 
concepts that issuers already employ for exempt issuances, and propose 
to use those concepts as part of the non-exclusive safe harbor. We 
further believe that developing a new definition for ``employee 
compensation plan'' at this time potentially could result in needless 
complexity and create conflicts with the current definitions of 
``compensatory benefit plan'' and ``employee benefit plan,'' which the 
Commission has sought to harmonize.\67\
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    \66\ In 1988, the Commission adopted Securities Act Rule 701 [17 
CFR 230.701] to provide an exemption from Securities Act 
registration for offers and sales of securities made pursuant to 
compensatory benefit plans by issuers that are not subject to the 
reporting requirements of Section 13 or 15(d) of the Exchange Act. 
See Compensatory Benefit Plans and Contracts, Release No. 33-6768 
(Apr. 14, 1988) [53 FR 12918 (Apr. 20, 1988)] (the ``Rule 701 
Adopting Release'').
    \67\ See Rule 701--Exempt Offerings Pursuant to Compensatory 
Arrangements, Release No. 33-7645 (Feb. 25, 1999) [64 FR 11095 (Mar. 
8, 1999)] (the ``1999 Rule 701 Release''), and Registration of 
Securities on Form S-8, Release No. 33-7646 (Feb. 25, 1999) [64 FR 
11103 (Mar. 8, 1999)] (the ``1999 Form S-8 Release'').
---------------------------------------------------------------------------

    By conditioning the new exclusion from ``held of record'' upon the 
securities being received pursuant to an employee compensation plan in 
transactions exempted from the registration requirements of Section 5 
of the Securities Act, Section 502 of the JOBS Act uses Securities Act 
concepts to identify persons that an issuer may exclude from its 
determination of the number of holders of record under Section 12(g)(1) 
of the Exchange Act. Given this express interaction between Securities 
Act and Exchange Act concepts in this provision of the JOBS Act, we 
believe that it would facilitate compliance if the terminology we use 
in proposed Exchange Act Rule 12g5-1(a)(7) is consistent with the 
terminology used in our Securities Act rules.
    In regulating securities offerings to employees, we use the term 
``employee benefit plan,'' as defined in Securities Act Rule 405,\68\ 
for Securities Act Form

[[Page 78351]]

S-8 registration,\69\ but use the term ``compensatory benefit plan'' in 
the Securities Act Rule 701 exemption. A ``compensatory benefit plan'' 
under Rule 701(c)(2) is broadly defined as ``any purchase, savings, 
option, bonus, stock appreciation, profit sharing, thrift, incentive, 
deferred compensation, pension or similar plan.'' \70\ When adopting 
Rule 701, the Commission expressly stated that it patterned the 
definition of ``compensatory benefit plan'' on the definition used in 
Securities Act Rule 405.\71\ Rule 701 includes a number of conditions 
consistent with the Rule 405 definition of ``employee benefit plan.'' 
In particular, Rule 701(c) limits the exemption to offers and sales of 
securities under a written compensatory benefit plan established by the 
issuer for the participation of its employees and other specified 
persons.\72\ Many of the conditions applicable to exempt offers and 
sales made under Rule 701 are also similar to conditions placed on Form 
S-8 registration of securities to be offered under an ``employee 
benefit plan'' as defined in Rule 405. For example, Rule 701(c)(3) 
defines eligible family members consistent with Form S-8.\73\ In 
addition, the Rule 701 exemption includes a number of conditions to its 
use, including but not limited to conditions that the plan be written 
and delivered to employees; that the plan be established by the issuer, 
its parents, its majority-owned subsidiaries or majority-owned 
subsidiaries of the issuer's parent, for the participation of their 
employees, directors, general partners, trustees, officers, or 
consultants and advisors; \74\ and that the amount of securities sold 
be limited.
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    \68\ Securities Act Rule 405 defines an ``employee benefit 
plan'' as any written purchase, savings, option, bonus, 
appreciation, profit sharing, thrift, incentive, pension or similar 
plan or written compensation contract solely for employees, 
directors, general partners, trustees (where the registrant is a 
business trust), officers, or consultants or advisors. However, 
consultants or advisors may participate in an employee benefit plan 
only if: (1) They are natural persons; (2) They provide bona fide 
services to the registrant; and (3) The services are not in 
connection with the offer or sale of securities in a capital-raising 
transaction, and do not directly or indirectly promote or maintain a 
market for the registrant's securities.
    \69\ The Commission permits issuers that are subject to Exchange 
Act reporting requirements to register the offer and sale of 
securities to employees pursuant to employee benefit plans on Form 
S-8. This form provides for abbreviated disclosure and automatic 
effectiveness upon filing. See Adoption of Form S-8, Release No. 33-
3480 (June 16, 1953) [18 FR 3688 (June 27, 1953)]. See also 
Registration and Reporting Requirements for Employee Benefit Plans, 
Release No. 33-6867 (June 6, 1990) [55 FR 23909 (June 13, 1990)] 
(the ``1990 Form S-8 Release'').
    \70\ 17 CFR 230.701(c)(2).
    \71\ See the Rule 701 Adopting Release.
    \72\ Securities Act Rule 701(c) exempts offers and sales of 
securities (including plan interests and guarantees pursuant to 
paragraph (d)(2)(ii)) under a written compensatory benefit plan (or 
written compensation contract) established by the issuer, its 
parents, its majority-owned subsidiaries or majority-owned 
subsidiaries of the issuer's parent, for the participation of their 
employees, directors, general partners, trustees (where the issuer 
is a business trust), officers, or consultants and advisors, and 
their family members who acquire such securities from such persons 
through gifts or domestic relations orders. This section exempts 
offers and sales to former employees, directors, general partners, 
trustees, officers, consultants and advisors only if such persons 
were employed by or providing services to the issuer at the time the 
securities were offered. In addition, the term ``employee'' includes 
insurance agents who are exclusive agents of the issuer, its 
subsidiaries or parents, or who derive more than 50% of their annual 
income from those entities. As explained in the 1999 Rule 701 
Release at Section II.D, Rule 701 is also available to persons with 
a de facto employment relationship with the issuer. Such a 
relationship would exist where a person not employed by the issuer 
provides the issuer services that traditionally are performed by an 
employee and the compensation paid for those services is the primary 
source of the person's earned income.
    \73\ Form S-8 and Rule 701 are available for the exercise of 
employee benefit plan options by an employee's family member who has 
acquired the options from the employee through a gift or a domestic 
relations order. See the 1999 Form S-8 Release at Section III and 
the 1999 Rule 701 Release at Section II.E. As defined in Exchange 
Act Rule 701(c)(3) [17 CFR 230.701(c)(3)], for this purpose, 
``family member'' includes any child, stepchild, grandchild, parent, 
stepparent, grandparent, spouse, former spouse, sibling, niece, 
nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, 
brother-in-law, or sister-in-law, including adoptive relationships, 
any person sharing the employee's household (other than a tenant or 
employee), a trust in which these persons have more than 50% of the 
beneficial interest, a foundation in which these persons (or the 
employee) control the management of assets, and any other entity in 
which these persons (or the employee) own more than 50% of the 
voting interests.
    \74\ The Commission adopted amendments to Form S-8 and the Rule 
405 definition of ``employee benefit plan'' that made Form S-8 
available for the issuance of securities to consultants or advisors 
only if: they are natural persons; they provide bona fide services 
to the registrant; and the services are not in connection with the 
offer or sale of securities in a capital-raising transaction, and do 
not directly or indirectly promote or maintain a market for the 
registrant's securities. See 1999 Form S-8 Release and 1999 Rule 701 
Release. Rule 701(c)(1) applies the same limitations regarding 
consultants and advisors as those provided in Form S-8 and the Rule 
405 definition of ``employee benefit plan.''
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B. Definition of ``Held of Record'' and Non-Exclusive Safe Harbor for 
Determining Holders of Record

    As directed by Section 503 of the JOBS Act, the Commission is 
proposing to amend the definition of ``held of record'' and to 
establish a safe harbor in Rule 12g5-1 that issuers can rely on when 
determining if securities held by persons who received them pursuant to 
an employee compensation plan in transactions exempted from the 
registration requirements of Section 5 of the Securities Act may be 
excluded when calculating the number of holders of record of a class of 
equity securities for purposes of determining the issuer's registration 
obligation under Section 12(g)(1)(A).\75\ We received comments 
addressing issues about the scope of the safe harbor. One commenter 
recommended that the Commission expressly provide that the safe harbor 
is a non-exclusive safe harbor akin to the Securities Act Rule 506 safe 
harbor under Securities Act Section 4(a)(2).\76\ This commenter also 
recommended that a safe harbor should provide that in a ``subsequent 
transaction (including a business combination) that is exempt from, or 
otherwise is not subject to, the registration requirements of Section 
5, the securities issued in that transaction to eligible employees, 
former employees, and other covered persons in exchange for securities 
covered by the Section 12(g)(5) compensatory plan securities carve 
out'' would also be covered.\77\ The same commenter further recommended 
that securities issued in unregistered transactions based on the ``no 
sale'' theory should be included within the definition of 
``transactions exempt from section 5.'' \78\
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    \75\ As proposed, this amendment would not affect the definition 
of ``held of record'' when determining the number of holders for the 
purposes of termination of registration or suspension of reporting 
or with regard to the number of holders reported pursuant to Item 
201(b) of Regulation S-K (17 CFR 229.201(b)).
    \76\ See letter from ABA recommending that the Commission 
provide ``that the safe harbor(s) is not the exclusive means by 
which an issuer may comply with the `compensatory plan carve-out' 
provisions of Section 12(g)(5).'' This commenter suggested that 
``failure to satisfy all conditions to reliance on the safe 
harbor(s) should not preclude reliance on the statutory carve-out 
itself.''
    \77\ See id.
    \78\ See id. The ``no sale'' theory relates to the issuance of 
compensatory grants made by employers to broad groups of employees 
pursuant to broad-based stock bonus plans under the theory that the 
awards are not an offer or sale of securities under Section 2(a)(3) 
of the Securities Act [15 U.S.C. 77b(a)(3)]. See Employee Benefit 
Plans; Interpretations of Statute, Release No. 33-6188 (Feb. 1, 
1980) [45 FR 8960 (Feb. 11, 1980)] at Section II.A.5.d; Employee 
Benefit Plans, Release No. 33-6281 (Jan. 15, 1981) [46 FR 8446 (Jan. 
27, 1981)] at Section III. Many issuers rely on the ``no sale'' 
theory when making such awards to employees where no consideration--
and hence no ``value''--is received by the issuer in return. The 
staff has not objected to these issuances in a series of no-action 
letters. See, e.g., no-action letter to Verint Systems Inc. (May 24, 
2007).
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1. Definition of ``Held of Record''
    We are proposing to amend the definition of ``held of record'' to 
provide that when determining whether an issuer is required to register 
a class of equity securities with the Commission pursuant to Exchange 
Act Section 12(g)(1) an issuer may exclude securities that are either:
     Held by persons who received the securities pursuant to an 
employee compensation plan in transactions exempt from the registration

[[Page 78352]]

requirements of Section 5 of the Securities Act or that did not involve 
a sale within the meaning of Section 2(a)(3) of the Securities Act; or
     held by persons eligible to receive securities from the 
issuer pursuant to Exchange Act Rule 701(c) who received the securities 
in a transaction exempt from the registration requirements of Section 5 
of the Securities Act in exchange for securities excludable under 
proposed Rule 12g5-1(a)(7).
    Section 502 of the JOBS Act refers specifically to ``transactions 
exempted'' from the Securities Act Section 5 registration requirements. 
A number of issuers, however, issue securities to employees without 
Securities Act registration on the basis that the issuance is not a 
sale under Section 2(a)(3) of the Securities Act and therefore do not 
trigger the registration requirement of Securities Act Section 5, which 
applies only to the offer and sale of securities. While securities 
issued to employees in transactions that do not involve a sale under 
Section 2(a)(3) are not technically ``transactions exempted from the 
registration requirements of section 5,'' they are similar to other 
compensatory issuances to employees in exempt transactions in that the 
issuer provides the awards to employees for a compensatory purpose. We 
are therefore proposing to exclude such ``no sale'' issuances from the 
definition of ``held of record'' in Rule 12g5-1 for purposes of 
determining an issuer's obligation to register a class of securities 
under the Exchange Act.
    As proposed, the rule would also permit an issuer to exclude 
holders who are persons eligible to receive securities from the issuer 
pursuant to Rule 701(c) and who acquired the securities in exchange for 
securities excludable under the proposed definition.\79\ The proposed 
exclusion is intended to facilitate the ability of an issuer to conduct 
restructurings, business combinations and similar transactions that are 
exempt from Securities Act registration so that if the securities being 
surrendered in such a transaction would not have been counted under the 
proposed definition of ``held of record,'' the securities issued in the 
exchange also would not be counted under this definition.\80\ The 
securities issued in the exchange would be deemed to have a 
compensatory purpose because they would replace other securities 
previously issued pursuant to an employee compensation plan. We believe 
such an approach would be consistent with the intent of Section 502 of 
the JOBS Act and would provide issuers with appropriate flexibility to 
conduct certain business combinations and similar transactions.
---------------------------------------------------------------------------

    \79\ See supra note 72 and 73 and infra note 82 (describing the 
types of persons eligible to receive securities under Rule 701(c)).
    \80\ Consistent with Rule 701(c), securities held of record by 
former employees would be excluded when determining the securities 
held of record only if the employees were employed by or providing 
services to the surviving issuer at the time the exchange securities 
were offered.
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2. Non-Exclusive Safe Harbor for Determining Holders of Record
    We are proposing a non-exclusive safe harbor under proposed Rule 
12g5-1(a)(7) that would provide that a person will be deemed to have 
received the securities pursuant to an employee compensation plan if 
such person received them pursuant to a compensatory benefit plan in 
transactions that met the conditions of Securities Act Rule 701(c).\81\
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    \81\ As proposed, failure to satisfy all of the conditions of 
the non-exclusive safe harbor would not preclude reliance on Section 
12(g)(5) or other provisions of proposed Rule 12g5-1(a)(7).
---------------------------------------------------------------------------

    As proposed, an issuer would be able to rely on the safe harbor for 
determining the holders of securities issued in reliance on Securities 
Act Rule 701, as well as holders of securities issued in transactions 
otherwise exempted from, or not subject to, the registration 
requirements of the Securities Act that satisfy the conditions of Rule 
701(c), even if all the other conditions of Rule 701, such as issuer 
eligibility in Rule 701(b)(1), the volume limitations in Rule 701(d) or 
the disclosure delivery provisions in Rule 701(e), were not met. Thus, 
the safe harbor would be available for holders of securities received 
in other employee compensation plan transactions exempted from, or not 
subject to, the registration requirements of Section 5 of the 
Securities Act, such as securities issued in reliance on Securities Act 
Section 4(a)(2), Regulation D of the Securities Act, or Regulation S of 
the Securities Act, that meet the conditions of Rule 701(c).
    We believe that using the conditions of Rule 701(c) to structure 
the safe harbor for determining whether holders received their 
securities pursuant to an employee compensation plan in exempt 
transactions would allow issuers to apply well understood principles of 
an existing Securities Act exemption to the new Exchange Act 
registration determination under the JOBS Act. The safe harbor would be 
available for the plan participants enumerated in Rule 701(c), 
including employees, directors, general partners, trustees, officers 
and certain consultants and advisors.\82\ The safe harbor also would be 
available for permitted family member transferees with respect to 
securities acquired by gift or domestic relations order, or securities 
acquired by them in connection with options transferred to them by the 
plan participant through gifts or domestic relations orders.\83\ 
Because the safe harbor would be limited to holders who are persons 
specified in Rule 701(c) who received the securities under specified 
circumstances, once these persons subsequently transfer the securities, 
whether or not for value, the securities would need to be counted as 
held of record by the transferee for purposes of determining whether 
the issuer is subject to the registration and reporting requirements of 
Exchange Act Section 12(g)(1).
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    \82\ A de facto employee would be considered an employee for 
purposes of proposed Rule 12g5-1(a)(7). For purposes of Rule 701, 
the scope of eligible consultants and advisors is the same as under 
Form S-8. See 1999 Rule 701 Release at Section II.D and 1999 Form S-
8 Release at Section II.A.1. This also would be the case for 
purposes of proposed Rule 12g5-1(a)(7). We note that unlike 
traditional employees, consultants and advisors typically provide 
their services to multiple clients rather than to the same issuer on 
a dedicated basis. This distinction may cause them to be less likely 
to hold the securities they receive as compensation and more likely 
to sell them. However, the fact that securities would no longer be 
eligible for the exclusion under the safe harbor following their 
transfer should limit the potential for abuse. We believe that in 
light of the Rule 701 restrictions applicable to consultants and 
advisors, the compensatory nature of the transactions justifies 
treating consultants and advisors who are eligible to receive 
securities in compensatory transactions that satisfy the conditions 
of Rule 701(c) as persons who receive securities pursuant to an 
employee compensation plan for purposes of the proposed safe harbor.
    \83\ See Rule 701--Exempt Offerings Pursuant to Compensatory 
Arrangements, Release No. 33-7511 (Feb. 27, 1998) [63 FR 10785 (Mar. 
5, 1998)] at Section III.E.4. Including family member transferees in 
the safe harbor would be consistent with the approach in Rule 
701(c), which provides an exemption to family member transferees in 
connection with stock options because of their common economic 
interest and the non-capital raising nature of the transactions.
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    In addition, under the proposed rules, foreign private issuers \84\ 
would be able to rely on the safe harbor when making their 
determination of the number of U.S. resident holders under Exchange Act 
Rule 12g3-2(a).\85\ Under Rule 12g3-2(a), foreign private issuers that 
meet

[[Page 78353]]

the asset and shareholder threshold of Section 12(g) are exempt from 
registering any class of securities under that section if the class of 
securities is held by fewer than 300 holders resident in the United 
States. For purposes of determining whether this threshold is met, Rule 
12g3-2(a)(1) specifies that the method shall be as provided in Exchange 
Act Rule 12g5-1, subject to specific provisions relating to brokers, 
dealers, banks and nominees.\86\ Because the rule directs issuers to 
the definition of ``held of record'' in Rule 12g5-1, the statutory 
changes to Section 12(g)(5) as well as the proposed changes to Rule 
12g5-1 would also apply to the determination of a foreign private 
issuer's U.S. resident holders for the purposes of the Rule 12g3-2(a) 
analysis.\87\
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    \84\ The definition of ``foreign private issuer'' is contained 
in Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A foreign private 
issuer is any foreign issuer other than a foreign government, except 
for an issuer that (1) has more than 50% of its outstanding voting 
securities held of record by U.S. residents and (2) any of the 
following: (i) A majority of its officers and directors are citizens 
or residents of the United States; (ii) more than 50% of its assets 
are located in the United States; or (iii) its business is 
principally administered in the United States.
    \85\ 17 CFR 240.12g3-2(a).
    \86\ The proposed amendment to Rule 12g5-1 would be limited to 
determinations under Section 12(g). The definition of ``foreign 
private issuer'' in Exchange Act Rule 3b-4 contains a cross-
reference to Rule 12g3-2(a) for purposes of calculating record 
ownership in determining whether more than 50% of an issuer's 
outstanding voting securities are directly or indirectly held by 
residents of the United States. In contrast to the proposed approach 
to Rule 12g3-2(a), we are proposing to amend Rule 3b-4 to clarify 
that securities held by employees must continue to be counted for 
the purpose of determining the percentage of the issuer's 
outstanding securities held by U.S. residents, and thus for 
determining whether an issuer qualifies as a foreign private issuer. 
See the proposed amended instruction to paragraph (c)(1) of Rule 3b-
4.
    \87\ The definition of ``foreign private issuer'' under the 
Securities Act, which is found in Securities Act Rule 405 [17 CFR 
230.405], is the same as the definition under Exchange Act Rule 3b-
4. The definition of ``foreign private issuer'' under the Securities 
Act was last amended in Foreign Issuer Reporting Enhancements, 
Release No. 33-8959 (Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)]. 
At that time, an instruction to paragraph (1) of the definition, 
which was the same as the Instruction to Paragraph (c)(1) of Rule 
3b-4, was inadvertently omitted. We are proposing to amend the 
foreign private issuer definition under Rule 405 to reinsert the 
omitted instruction but with a proposed revision, identical to that 
proposed under Rule 3b-4, clarifying that securities held by 
employees must continue to be counted for the purposes of 
determining the percentage of the issuer's outstanding securities 
held by U.S. residents and foreign private issuer status under the 
Securities Act.
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Request for Comment
    9. Instead of leaving the term ``employee compensation plan'' 
undefined and providing a safe harbor for purposes of determining the 
number of holders of record under Section 12(g)(1), should we create a 
new definition for purposes of the determination? If a new definition 
would be preferable, please describe how ``employee compensation plan'' 
should be defined and explain why a definition would be preferable.
    10. In some circumstances issuers may rely on a ``no sale'' theory 
under Section 2(a)(3) of the Securities Act to issue securities to 
employees. As proposed, securities held by persons who received those 
securities pursuant to an award to employees that did not involve a 
sale within the meaning of Securities Act Section 2(a)(3) would be 
excluded from the definition of ``held of record'' for purposes of 
determining an issuer's Exchange Act Section 12(g) registration 
obligations. Should these securities be excluded from the definition?
    11. The exclusion from ``held of record'' in proposed Exchange Act 
Rule 12g5-1(a)(7)(i) for securities received pursuant to employee 
compensation plans would include within its scope holders of securities 
received pursuant to an employee compensation plan in transactions that 
do not involve a sale within the meaning of Section 2(a)(3) or that are 
exempt from the registration requirements of Section 5. Further, the 
safe harbor proposed in Rule 12g5-1(a)(7)(ii) would be available to 
securities issued in those transactions as long as the person received 
the securities pursuant to a compensatory benefit plan in transactions 
that met the conditions of Securities Act Rule 701(c). Should the scope 
of the safe harbor be more limited, such as by restricting it to 
securities received pursuant to exempt transactions that meet all of 
the requirements of Securities Act Rule 701, the requirements of 
Regulation D or another specified subset of exemptions? If so, please 
explain why.
    12. We are proposing a non-exclusive safe harbor that relies, in 
part, on existing Rule 701(c) to establish guidelines for an issuer to 
use when determining whether holders of their securities received them 
pursuant to an employee compensation plan. Does using existing Rule 
701(c) provide sufficient guidance to issuers? Should we provide 
additional guidance for implementing the safe harbor? If so, please 
explain what additional guidance is needed.
    13. For purposes of the safe harbor, should we limit the categories 
of persons who may receive securities pursuant to employee compensation 
plans? For example, our proposed safe harbor includes consultants and 
advisors because they qualify under Rule 701. Should they only be 
included if they are natural persons and meet the other Rule 701(c) 
conditions, as proposed? Alternatively, should consultants and advisors 
be excluded?
    14. Should we, as proposed, permit securities held by family member 
transferees acquired by gift or domestic relations order, or securities 
acquired by them in connection with options transferred to them by the 
plan participant through gifts or domestic relations orders to be 
excluded? If we modify the scope of the transferees or the type of 
securities, what modifications would be appropriate?
    15. Exchange Act Rules 12h-1(f) and12h-1(g) exempt compensatory 
employee stock options from registration under Exchange Act Section 
12(g) by exempting issuers from counting holders of stock options 
received pursuant to written compensatory stock option plans under 
specified conditions.\88\ How does the exclusion provided by Section 
502 of the JOBS Act and our proposals, including our proposal to 
exclude securities that do not involve a sale under Section 2(a)(3) of 
the Securities Act, affect the continuing need for these rules? \89\ 
Should either Rule 12h-1(f) or Rule 12h-1(g) be rescinded in light of 
the amendments made by Section 502 of the JOBS Act and our proposals? 
Alternatively, are there any modifications needed to reflect the 
changes related to Section 502 and make the rules more useful?
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    \88\ See Compensatory Stock Options Release, supra note 57.
    \89\ See letter from ABA, which suggested that while Rule 12h-
1(f) may no longer be necessary, Rule 12h-1(g) may have continuing 
applications. Specifically, there may be instances in which an 
issuer subject to an Exchange Act reporting requirement may issue to 
employees compensatory options that are part of a class of equity 
securities not registered under the Exchange Act.
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    16. Should we permit an issuer to exclude from the ``held of 
record'' determination securities issued to security holders in an 
exchange exempt from registration under the Securities Act where the 
securities surrendered by those holders in the exchange were received 
by them pursuant to a compensatory benefit plan that met the conditions 
of the proposed rule? As proposed, the exclusion would be limited to 
securities issued in an exchange exempt from Securities Act 
registration to persons eligible to receive securities pursuant to Rule 
701(c) from the issuer, such as former employees who were employed by 
or providing services to the surviving issuer at the time the exchange 
securities were offered. Should the Commission consider expanding the 
exclusion to securities received by other former employees in such an 
exempt exchange where the securities to be surrendered in the exchange 
were received pursuant to a compensatory benefit plan in transactions 
that met the conditions of the proposed rule? Would the possibility 
that an exempt exchange could cause a number of former

[[Page 78354]]

employees previously counted as exempt from the ``held of record'' 
determination to be counted as holders of record immediately on 
consummation of the exchange inhibit companies from entering into these 
transactions?
    17. Foreign private issuers are subject to different standards 
relating to when they are required to register a class of equity 
securities under the Exchange Act. Should the Commission permit foreign 
private issuers to exclude securities received pursuant to an 
``employee compensation plan'' in transactions exempt from, or not 
subject to, the Securities Act registration requirements from the 300 
U.S. holders threshold in Exchange Act Rule 12g3-2(a), as proposed? 
Should we instead require foreign private issuers to continue counting 
these securities when determining their number of U.S. holders? Should 
we further permit issuers to exclude such securities for purposes of 
assessing whether an issuer qualifies as a foreign private issuer or 
should such securities be included in this determination, as would be 
required under our proposed amendments to Securities Act Rule 405 and 
Exchange Act Rule 3b-4?

IV. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed rule amendments, specific issues discussed in 
this release, and other matters that may have an effect on the proposed 
rules. We request comment from the point of view of issuers, investors 
and other market participants. We note that comments are of particular 
assistance to us if accompanied by supporting data and analysis of the 
issues addressed in those comments, particularly quantitative 
information as to the costs and benefits. If alternatives to the 
proposals are suggested, supporting data and analysis and quantitative 
information as to the costs and benefits of those alternatives are of 
particular assistance. Commenters are urged to be as specific as 
possible.

Request for Comment

    18. Are there other rules or forms that should be revised or 
updated as a result of the statutory changes made by Title V and Title 
VI of the JOBS Act? If so, please explain what revisions are needed?
    19. The definition of ``held of record'' in Exchange Act Rule 12g5-
1 requires an issuer, for the purposes of determining whether it is 
subject to the provisions of Section 12(g) or Section 15(d), to count 
as holders of record only persons identified as owners on records of 
security holders maintained by or on behalf of the issuer in accordance 
with accepted practice and subject to certain conditions. This rule 
simplifies an issuer's determination process by allowing it to look to 
security holders that appear in its records. Are there alternative 
definitions of ``held of record'' that would more appropriately address 
the purposes of Section 12(g)? \90\
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    \90\ In its consideration of the JOBS Act, Congress considered 
other definitions of ``held of record'' but ultimately did not 
define the term for purposes of the provisions of Section 12(g).
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V. Economic Analysis

    Title V and Title VI of the JOBS Act increased the registration 
thresholds for issuers, amended the definition of ``held of record'' to 
exclude securities issued pursuant to employee compensation plans and 
increased the thresholds for termination of registration and suspension 
of reporting under the Exchange Act for banks and bank holding 
companies. The Commission is proposing rules to implement Title V and 
Title VI of the JOBS Act.
    In proposing rules or amendments, we are mindful of the costs 
imposed by and the benefits obtained from our rules. The discussion 
below attempts to address the economic effects of the proposed 
amendments, including the likely costs and benefits of the amendments 
as well as the effect of the amendments on efficiency, competition and 
capital formation.\91\ Some of the costs and benefits stem from the 
statutory mandates of Title V and Title VI, while others are affected 
by the discretion we exercise in revising our rules to reflect this 
mandate. These two types of costs and benefits may not be entirely 
separable to the extent our discretion is exercised to realize the 
benefits that we believe were intended by Title V and Title VI. We 
request comment on all aspects of the economic effects, such as the 
costs and benefits, of the amendments that we are proposing. We 
particularly appreciate comments that distinguish between the economic 
effects that are attributed to the statutory mandate itself and the 
economic effects that are the result of policy choices made by the 
Commission in implementing the statutory mandate.
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    \91\ Section 23(a)(2) of the Exchange Act requires the 
Commission, when making rules under the Exchange Act, to consider 
the impact on competition that the rules would have, and prohibits 
the Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the 
Exchange Act. 15 U.S.C. 78w(a). Further, Section 2(b) of the 
Securities Act [15 U.S.C. 77b(b)] and Section 3(f) of the Exchange 
Act [17 U.S.C. 78c(f)] require the Commission, when engaging in 
rulemaking where it is required to consider or determine whether an 
action is necessary or appropriate in the public interest, to 
consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition and capital formation.
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A. Baseline

    The baseline for our economic analysis of the proposed rules, 
including the baseline for our consideration of the effects on 
efficiency, competition and capital formation, is the state of the 
market as well as market practices prior to the JOBS Act. Prior to the 
JOBS Act, issuers were required to register their equity securities 
with the Commission upon reaching 500 holders of record and total 
assets of $10 million, and were allowed to terminate registration or 
suspend the duty to file with the Commission when the number of holders 
of record had fallen below 300. However, Exchange Act Rules 12h-1(f) 
and 12h-1(g) permitted issuers to exclude stock options issued under 
written compensatory benefit plans under certain conditions from the 
registration requirements of Section 12(g).
    The JOBS Act raised the thresholds at which an issuer is required 
to register a class of equity securities with the Commission pursuant 
to Section 12(g), provided that persons holding certain employee 
compensation plan securities need not be counted when determining 
whether an issuer is required to register, and raised the thresholds at 
which banks and bank holding companies are permitted to terminate 
registration or suspend reporting obligations with the Commission. 
These statutory changes made by the JOBS Act went into effect as soon 
as the JOBS Act was signed into law. As a result of the JOBS Act, some 
banks and bank holding companies were newly eligible to terminate 
registration or suspend reporting, and as of June 30, 2014, we estimate 
that more than 90 have elected to do so.\92\ We estimate that there are 
approximately 500 banks and bank holding companies that currently 
report to the Commission,\93\ of which some may be eligible to 
terminate registration under the JOBS Act but have elected to continue 
reporting. We are proposing to amend specified Exchange Act rules to 
reflect the new, higher threshold for banks and bank holding companies 
under Section 12(g)(4) and Section

[[Page 78355]]

15(d)(1). For those banks and bank holding companies that would be 
eligible to terminate registration under Section 12(g), the proposed 
rules set forth procedural accommodations that are available to other 
issuers under current rules to accelerate the process.
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    \92\ The Commission staff derived this estimate of the number of 
banks and bank holding companies that have elected to terminate 
registration or suspend reporting by analyzing Form 15 filings on 
EDGAR. Commission staff is continuing to monitor such filings.
    \93\ The Commission staff derived this estimate by analyzing 
annual filings submitted to the Commission during calendar year 
2013.
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    The proposed rules would also permit savings and loan holding 
companies to use the same, higher thresholds for registration, 
termination of registration and suspension of the reporting obligation 
that apply to banks and bank holding companies. There are approximately 
125 savings and loan holding companies that currently report to the 
Commission.\94\ As we explain in more detail below, we estimate that 
approximately 90 would be eligible to terminate registration or suspend 
reporting under the proposed rules.
---------------------------------------------------------------------------

    \94\ Id.
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    In addition, the proposed rules would apply the definition of 
``accredited investor'' in Securities Act Rule 501(a) in making 
determinations under Exchange Act Section 12(g)(1). Finally, the 
proposed rules would revise the definition of ``held of record'' and 
establish the scope of a non-exclusive safe harbor for issuers to rely 
on when determining whether securities were received pursuant to an 
employee compensation plan in transactions exempted from the 
registration requirements of Section 5 of the Securities Act or did not 
involve a sale within the meaning of Section 2(a)(3) of the Securities 
Act. The proposed safe harbor would rely on the definition of 
``compensatory benefit plan'' in Securities Act Rule 701 and the 
conditions in Securities Act Rule 701(c).
    We considered alternative definitions of ``employee compensation 
plan.'' We also considered whether to provide additional guidance with 
respect to the determination of accredited investor status when 
establishing the number of holders of record. These decisions may 
affect how a non-reporting issuer counts its holders of record for the 
purpose of the registration thresholds under the Exchange Act; hence it 
could affect whether an issuer can remain a non-reporting issuer. 
However, due to limited availability of shareholder information on 
these non-reporting issuers, we are unable to quantify the number of 
non-reporting issuers that might be affected by these decisions.

B. Analysis of the Proposed Rules

    The proposal would affect registrants generally, and banks, bank 
holding companies and savings and loan holding companies specifically, 
as well as non-reporting issuers, employees and other investors. We 
analyze the costs and benefits associated with the proposed rules 
below.
Increased Thresholds for Banks and Bank Holding Companies
    The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act 
to raise the thresholds at which banks and bank holding companies may 
terminate registration or suspend their obligations to file reports 
with the Commission to 1,200 holders of record. These changes were 
effective immediately upon the enactment of the JOBS Act, and banks and 
bank holding companies may rely on the amended provisions to terminate 
registration or suspend their reporting obligations. However, under the 
statute, banks and bank holding companies that want to use the higher 
threshold must wait 90 days after filing a certification with the 
Commission that the number of holders of record is less than 1,200 
persons to terminate their Section 12(g) registration and cease filing 
reports required by Section 13(a) and must wait until the first day of 
the fiscal year to suspend any Section 15(d) reporting obligations. Our 
existing rules afford issuers with procedural accommodations that let 
them suspend their reporting obligations immediately upon the filing of 
a certification on Form 15. To make these procedural accommodations 
applicable to banks and bank holding companies at the higher threshold, 
we are proposing to revise Exchange Act Rules 12g-2, 12g-3, 12g-4 and 
12h-3 to reflect the 1,200 holders threshold for banks and bank holding 
companies, which would permit banks and bank holding companies to rely 
on the rules to cease reporting during a fiscal year, rather than wait 
the prescribed 90 days or until the end of the reporting year. This 
would reduce issuer compliance and reporting costs during the fiscal 
year the issuer ceased reporting, but would also accelerate the loss of 
investor access to current information about the issuer. The proposed 
changes also would harmonize the statutory and regulatory thresholds 
and lessen potential confusion that could arise from the differences in 
the thresholds contained in the statute and the existing rules.
    We estimate that there are approximately 500 banks and bank holding 
companies that currently report with the Commission. Many of these 
reporting issuers have more than 1,200 holders of record and would not 
be eligible to cease reporting under the new thresholds. Out of that 
500, 143 reporting banks and bank holding companies have between 300 
and 1,200 holders of record and may be eligible to cease reporting, 
although 89 of them would have to give up a national exchange listing 
to do so. Because banks and bank holding companies remain subject to 
other regulatory reporting requirements,\95\ it is possible that they 
would continue reporting even if they are eligible to cease reporting 
under the Exchange Act. We anticipate that banks and bank holding 
companies would weigh the benefits of being a public company against 
the burden of additional disclosure costs, in deciding whether to 
terminate registration or suspend their reporting obligation. Commonly 
cited benefits of being a public company include the ability to obtain 
a lower cost of capital for investment and growth, increased liquidity 
through a broader shareholder base, and greater ability to finance 
acquisitions and offer equity-based incentive contracts.\96\ Commonly 
cited costs of being a public company include the need to comply with 
increased regulations and regulatory supervision, including 
requirements for independent audits, disclosure of information to 
competitors, loss of control and ownership dilution.\97\
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    \95\ See supra note 41.
    \96\ See J. Brau, Why Do Firms Go Public?, Oxford Handbook of 
Entrepreneurial Finance (2010) (providing a general discussion of 
the different rationales for firms to go public); U. Celikyurt, M. 
Sevilir, and A. Shivdasani, Going Public to Acquire? The Acquisition 
Motive in IPOs, J. FIN. ECON. (2010) (arguing that firms go public 
so as to facilitate acquisitions); M. Pagano, F. Panetta, and L. 
Zingales, Why Do Companies Go Public? An Empirical Analysis, J. FIN. 
(1998) (showing that IPOs are generally followed by lower cost of 
credit and increased turnover in control); T. Chemmanur and P. 
Fulghieri, A Theory of the Going Public Decision, REV. FIN. STUD. 
(1999) (arguing that going public broadens the ownership base of the 
firm); R. Rosen, S. Smart and C. Zutter, Why Do Firms Go Public? 
Evidence From the Banking Industry, Working Paper (2005) (finding 
that banks that go public are more likely to grow faster, earn 
higher profits, employ more leverage and become acquirers when 
compared to their non-reporting counterparts).
    \97\ See J. Brau and S. Fawcett, Initial Public Offerings: An 
Analysis of Theory and Practice, J. FIN. (2006) (reporting based on 
a survey of CFOs that ``desire to maintain decision-making 
control,'' ``disclosing information to competitors,'' ``SEC 
reporting requirements'' and ``to avoid ownership dilution'' are 
among the top five reasons why firms choose to stay private); J. 
Farre-Mensa, Why Are Most Firms Privately Held?, Working paper, 
Harvard University (2011) (documenting that firms in industries with 
high disclosure costs (i.e., where it is easier for competitors to 
appropriate a firm's intellectual property) tend to remain private).
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Permitting Savings and Loan Holding Companies To Use the Higher 
Thresholds
    We are proposing to apply the 2,000-holders of record threshold for 
registration to savings and loan holding companies in revised Exchange 
Act Rule 12g-1. We are also proposing to

[[Page 78356]]

extend the increased thresholds established by Section 601 of the JOBS 
Act to savings and loan holding companies by specifically including 
them in revisions to Exchange Act Rules 12g-2, 12g-3, 12g-4 and 12h-3 
that accommodate banks and bank holding companies at the higher 1,200 
holders of record threshold for termination of registration or 
suspension of the duty to file reports. As a result, savings and loan 
holding companies would be able to delay registration with the 
Commission until they reach the 2,000-holder threshold, and savings and 
loan holding companies with between 300 and 1,199 holders of record 
would be newly eligible to terminate or suspend their Exchange Act 
reporting obligations.
    We estimate that approximately 125 savings and loan holding 
companies had a class of securities registered pursuant to the Exchange 
Act as of June 30, 2014; \98\ of these approximately 100 are registered 
pursuant to Section 12(b). By analyzing the number of holders of record 
for these companies, the staff determined that approximately 90 of the 
125 savings and loan holding companies would be eligible to terminate 
registration or suspend reporting. Most of the newly eligible companies 
would have to give up a national securities exchange listing to do so. 
Because delisting from a national securities exchange could severely 
impact the liquidity of traded securities, many of these savings and 
loan holding companies may be unwilling to suspend their reporting 
requirements even if such an action was available to them. We therefore 
do not expect many of these savings and loan holding companies to avail 
themselves of the extended provisions.
---------------------------------------------------------------------------

    \98\ The Commission staff derived this estimate by analyzing 
annual filings submitted to the Commission.
---------------------------------------------------------------------------

    If we do not extend the provisions of Section 601 to savings and 
loan holding companies, there would be inconsistent treatment relative 
to banks and bank holding companies, resulting in different 
registration requirements and levels of disclosure for savings and loan 
holding companies that provide similar services and are generally 
subject to the same regulatory requirements. This could have an adverse 
impact on their ability to compete. Alternatively, savings and loan 
holding companies could seek to become chartered as banks or bank 
holding companies and thereby incur associated costs; this could 
distort the competitive balance of products and services offered by 
these institutions.
    Applying consistent treatment between savings and loan holding 
companies and banks and bank holding companies would lessen the 
likelihood of changes to the current competitive balance between these 
institutions. Moreover, the potential loss of information that would 
otherwise be made public through Exchange Act reporting if the 
provisions of Section 601 are extended to savings and loan holding 
companies would be mitigated because the savings and loan holding 
companies would continue to file reports with banking regulators.\99\ 
As a result, extending the relief to savings and loan holding companies 
to provide consistent treatment relative to banks and bank holding 
companies may have a positive impact on the overall efficiency of 
markets served by the potentially affected institutions.
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    \99\ While the proposed rules should have effects on competition 
by ensuring that savings and loan holding companies are not put at a 
disadvantage relative to banks and bank holding companies, the 
termination of registration or suspension of reporting by savings 
and loan holding companies may lessen the information available to 
investors and adversely affect efficiency and capital formation by 
possibly increasing information asymmetries, monitoring costs, and 
cost of capital. However, the impact on efficiency and capital 
formation may be mitigated to the extent that the reports that 
savings and loan holding companies file with banking regulators 
contain information comparable to that mandated by the reporting 
requirements under the Exchange Act.
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Definition and Safe Harbor for Securities ``Held of Record''
    Section 12(g)(5), as amended by Section 502 of the JOBS Act, 
excludes from the definition of ``held of record'' securities held by 
persons who received them pursuant to an employee compensation plan in 
transactions exempted from the registration requirements of Section 5 
of the Securities Act for purposes of determining whether an issuer is 
required to register a class of security pursuant to Section 12(g)(1). 
Section 503 of the JOBS Act directs the Commission to adopt a safe 
harbor that issuers can use when making the holder of record 
determination. By making it easier for non-reporting companies that 
issue securities to their employees to remain below the registration 
and reporting thresholds in the Exchange Act, the statutory changes 
could benefit issuers by allowing them to better control how and when 
they become subject to the reporting requirements, while continuing to 
use securities to compensate employees. These changes could be 
particularly beneficial for smaller or cash-constrained issuers that 
could more easily issue securities to their employees as a form of 
compensation without being subject to Exchange Act reporting 
requirements and the associated compliance costs. However, for these 
issuers, the potential registration of a class of securities and the 
associated reporting may be delayed, adversely impacting investors, 
including employees, who otherwise might benefit from the information 
provided through Exchange Act reporting requirements. As a result, the 
proposed rules regarding the definition of ``held of record'' and the 
scope of the safe harbor could have an impact on the potential costs 
and benefits to the affected issuers and their investors by affecting 
areas such as the ease of relying upon the statutory exemption, the 
number of non-reporting companies able to forestall registration, and 
the amount of information available to investors in those issuers.
    Instead of establishing a new definition for the term ``employee 
compensation plan,'' we are proposing to amend the definition of ``held 
of record'' to permit an issuer to exclude securities held by persons 
who received them pursuant to an employee compensation plan in 
transactions exempted from the registration requirements of Section 5 
of the Securities Act, or not involving a sale within the meaning of 
Section 2(a)(3) of the Securities Act. Proposing to exclude securities 
issued to employees in transactions that do not involve a sale under 
Section 2(a)(3) from the definition of ``held of record'' for purposes 
of determining an issuer's obligation to register a class of securities 
under the Exchange Act would be beneficial to issuers who rely on the 
``no sale'' theory when making compensatory grants to certain 
employees. Excluding such ``no sale'' securities could reduce the 
number of holders of record of an issuer and potentially delay required 
Exchange Act reporting.
    We are also proposing to establish a non-exclusive safe harbor that 
relies on Securities Act Rule 701(c) and the definition of 
``compensatory benefit plan'' in that rule to assist issuers in making 
the determination of whether holders of securities received pursuant to 
an employee compensation plan may be excluded. We believe that relying 
on an existing definition that is already understood by market 
participants would make it easier for issuers to avail themselves of 
this safe harbor than if we proposed a new alternative definition. The 
proposed non-exclusive safe harbor relies upon the conditions in 
existing Rule 701(c). While generally broad in application, the 
conditions in Rule 701(c) provide limitations, such as requiring that 
securities be sold under a compensatory benefit plan, that the plan be 
written, that the plan be established

[[Page 78357]]

by the issuer or certain specified related entities and that 
participation be limited to employees and certain other specified 
persons. Although we are unable to quantify the impact of proposing 
this safe harbor because we cannot measure the number of issuers that 
would rely on the safe harbor, we can qualitatively assess the proposed 
safe harbor's impact. A safe harbor that applies the familiar concepts 
of existing Rule 701(c) should create efficiencies in applying the safe 
harbor and avoid conflicts with existing rules, which should reduce 
costs more significantly for smaller issuers seeking to rely upon the 
proposed safe harbor.
    Foreign private issuers would be able to rely on the proposed safe 
harbor when making their determination of the number of U.S. resident 
holders under Exchange Act Rule 12g3-2(a). While we are unable to 
quantify the number of foreign private issuers that would be impacted, 
we acknowledge that it may allow some foreign private issuers to delay 
registering with and reporting to the Commission. The considerations 
about cost and benefit tradeoffs for foreign private issuers would be 
analogous to the ones discussed above for domestic issuers.
Use of the Term ``Accredited Investor'' in Exchange Act Section 12(g)
    Section 501 of the JOBS Act raises the threshold number of holders 
of record at which an issuer is required to register a class of equity 
securities under the Exchange Act to 2,000 persons or 500 persons who 
are not accredited investors. The provision was effective upon 
enactment of the JOBS Act. In order for an issuer to rely on the new, 
higher threshold established by the JOBS Act, the issuer will need to 
be able to make accredited investor determinations if it has more than 
500 holders of record.
    We propose that the definition of ``accredited investor'' as 
specified in Securities Act Rule 501(a) determined as of the last day 
of the fiscal year rather than at the time of sale of the securities 
apply when making determinations under Exchange Act Section 12(g)(1). 
Issuers are familiar with this definition, which should facilitate 
compliance. Developing an alternative definition for purposes of 
Section 12(g)(1) could impose costs on issuers by requiring them to 
familiarize themselves with, and apply, a new and different standard. 
We are unable to estimate how many issuers would be impacted by using 
the Rule 501(a) definition of ``accredited investor'' as compared to an 
alternative definition. We acknowledge that not providing specific 
guidance or rules on how to confirm a security holder's status as an 
accredited investor for purposes of determining holders of record could 
result in some uncertainty for issuers.
    Some commenters have recommended that the Commission address 
potential compliance issues related to the accredited investor 
threshold by providing a safe harbor for determining accredited 
investor status.\100\ We could, among other things, permit an issuer to 
rely on an annual affirmation of accredited investor status by the 
investor or rely on an ongoing basis on information regarding 
accredited investor status received by the issuer at the time the 
securities were initially issued to the investor or at the time the 
securities were most recently issued to the investor, or permit issuers 
to otherwise rely on information previously provided by an investor.
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    \100\ See, e.g., letters from ABA, Foley & Lardner and NYCBA.
---------------------------------------------------------------------------

    Addressing potential compliance issues relating to the use of 
``accredited investor'' in Section 12(g) could increase efficiency by 
providing issuers with a prescribed process to determine and update the 
accredited investor status of their investors. For example, a safe 
harbor that permits an issuer to rely on an annual affirmation of 
accredited investor status by the investor, other information obtained 
by the issuer or on a combination of a certification and other 
information would likely be less costly than requiring an issuer to 
establish a reasonable basis for its determination through other means. 
These methods, however, may be less accurate in establishing whether 
the investor is accredited.
    Alternatively, a safe harbor that permits an issuer to rely on an 
ongoing basis on information previously obtained relating to accredited 
investors status, such as allowing reliance on information obtained by 
the issuer at the time the securities were initially issued to the 
investor or at the time the securities were most recently issued to the 
investor would likely be even less costly than requiring the issuer to 
seek an annual affirmation of accredited investor status by the 
investor or to establish a reasonable belief that the investor is an 
accredited investor, but could also lead to more outdated information. 
Permitting issuers to rely on inaccurate information to determine 
accredited investor status could result in issuers with more than 500 
non-accredited investors failing to register and leaving investors in 
those issuers with less information and protection under the federal 
securities laws. These costs may be mitigated if the safe harbor 
specified time limits on the permitted use of the information or if the 
safe harbor were conditioned upon the issuer not having information 
that the previously obtained information was incorrect, unreliable or 
had changed.
    Another alternative would be a safe harbor that permits an issuer 
to rely on a third party certification for determining the accredited 
investor status of investors. We do not have adequate information about 
third party certification providers and the characteristics of this 
industry to assess this alternative in terms of reliability and cost of 
the provided certification services. To the extent that reputational 
concerns would incentivize the third party certification providers to 
perform reliable and updated due diligence, third party certification 
could potentially provide accurate information at a cost that economies 
of scale may lessen.
Request for Comment
    18. In this release we have discussed the anticipated costs and 
benefits of the proposed rules. We request data to quantify the costs 
and the value of the benefits described throughout this release. We 
seek estimates of these costs and benefits, as well as any costs and 
benefits not described, that may result from the adoption of these 
proposed amendments. We also request comments on the qualitative 
benefits and costs we have identified and any benefits and costs we may 
have overlooked.

VI. Paperwork Reduction Act

    Certain provisions of our disclosure rules and forms applicable to 
issuers contain ``collection of information'' requirements within the 
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\101\ The 
hours and costs associated with preparing and filing forms and 
retaining records constitute reporting and cost burdens imposed by the 
collection of information requirements. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information requirement unless it displays a currently valid Office of 
Management and Budget (``OMB'') control number. Compliance with the 
information collections is mandatory. Responses to the information 
collections are not kept confidential and there is no mandatory 
retention period for the collections of information.
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    \101\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The amendments proposed today do not alter the disclosure 
requirements set forth in the rules and forms; however,

[[Page 78358]]

the JOBS Act amendments to Exchange Act Sections 12(g) and 15(d) and 
the proposed amendments to our rules to reflect those statutory 
amendments are expected to immaterially decrease the number of filings 
made pursuant to these rules and forms. Exchange Act Rules 12g-1, 12g-
2, 12g-3, 12g-4 and 12h-3 set forth when an issuer's securities are 
required to be registered and the procedures for a registrant to 
terminate its registration or suspend its duty to file reports. The 
proposed amendments would provide thresholds that issuers may rely on 
when determining their registration and reporting obligations and would 
allow savings and loan holding companies to use the same registration 
and termination of registration or suspension of reporting thresholds 
that apply to banks and bank holding companies.\102\ Exchange Act 
Section 12(g)(5) and the proposed amendment to Exchange Act Rule 12g5-1 
also exclude securities received pursuant to certain employee 
compensation plans from the determination of when an issuer is required 
to initially register with the Commission. These changes would reduce 
the number of registrants required to continue filing with the 
Commission and also reduce the number of issuers required to initially 
register a class of securities.\103\ For purposes of the PRA, we 
estimate that the amendments would not materially reduce the number of 
filings received, nor would the changes affect the incremental burden 
or cost per filing.
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    \102\ We are proposing to amend Rule 12g-1 to reflect the new 
higher thresholds in Section 12(g)(1) and to establish an increased 
registration threshold for savings and loan holding companies.
    \103\ The changes to Rule 12g5-1 are expected to affect the 
number of issuers required to register with the Commission; however, 
we do not have access to data to support an estimate of the number 
of issuers that will not be required to file reports based on the 
JOBS Act amendments and our proposed implementation of such 
amendments. Due to the lack of data, for PRA purposes we are not 
intending to provide a reduced estimate of the number of issuers.
---------------------------------------------------------------------------

    The titles for the affected collections of information are:
    (1) ``Form 10'' (OMB Control No. 3235-0064); \104\
---------------------------------------------------------------------------

    \104\ 17 CFR 249.10.
---------------------------------------------------------------------------

    (2) ``Form 20-F'' (OMB Control No. 3235-0288); \105\
---------------------------------------------------------------------------

    \105\ 17 CFR 249.220f.
---------------------------------------------------------------------------

    (3) ``Form 40-F'' (OMB Control No. 3235-0381); \106\
---------------------------------------------------------------------------

    \106\ 17 CFR 249.240f.
---------------------------------------------------------------------------

    (4) ``Form 10-K'' (OMB Control No. 3235-0063); \107\
---------------------------------------------------------------------------

    \107\ 17 CFR 249.310.
---------------------------------------------------------------------------

    (5) ``Form 10-Q'' (OMB Control No. 3235-0070); \108\
---------------------------------------------------------------------------

    \108\ 17 CFR 249.308a.
---------------------------------------------------------------------------

    (6) ``Form 8-K'' (OMB Control No. 3235-0060); \109\
---------------------------------------------------------------------------

    \109\ 17 CFR 249.308.
---------------------------------------------------------------------------

    (7) ``Schedule 14A'' (OMB Control No. 3235-0059); \110\
---------------------------------------------------------------------------

    \110\ 17 CFR 240.14a-101.
---------------------------------------------------------------------------

    (8) ``Schedule 14C'' (OMB Control No. 3235-0057); \111\
---------------------------------------------------------------------------

    \111\ 17 CFR 240.14c-101.
---------------------------------------------------------------------------

    (9) ``Form 15'' (OMB Control No. 3235-0167).

The forms were adopted under the Exchange Act and set forth the 
disclosure requirements for periodic, current and other reports 
required to be filed by issuers registered with the Commission.
    We estimate that there are approximately 625 Exchange Act 
registrants that are bank holding companies or savings and loan holding 
companies. We estimate that approximately 90 bank holding companies 
have filed Forms 15 to terminate or suspend their reporting obligations 
under the Exchange Act based on the statutory changes in the JOBS 
Act.\112\ We further estimate that approximately 90 savings and loan 
holding companies or similar entities with fewer than 1,200 holders of 
record would be eligible to file a Form 15 after our proposed changes. 
To put these numbers in context, the current PRA estimate for the 
number of annual reports on Form 10-K filed annually is 8,137. Because 
the proposed rule amendments do not affect our estimates of the burden 
or cost per filing and we do not anticipate a material decrease in the 
number of filings as a result of the proposed rule amendments, we are 
not submitting revised burden estimates for these collections of 
information to OMB for review in accordance with the PRA and its 
implementing regulations at this time.\113\
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    \112\ After the JOBS Act became effective, we saw an increase in 
the number of termination and suspension of registrations by bank 
holding companies. We do not anticipate a similar rate of 
deregistration for bank holding companies after revising our rules 
to reflect the new, higher deregistration threshold.
    \113\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    We request comment on our approach and the accuracy of the current 
estimates. Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits 
comments to: (1) Evaluate whether the collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility; (2) 
evaluate the accuracy of the Commission's estimate of burden of the 
collection of information; (3) determine whether there are ways to 
enhance the quality, utility and clarity of the information to be 
collected; and (4) evaluate whether there are ways to minimize the 
burden of the collection of information on those who are required to 
respond, including through the use of automated collection techniques 
or other forms of information technology.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and send a copy to Secretary, Securities and Exchange 
Commission, 100 F Street NE., Washington, DC 20549-1090, with reference 
to File No. S7-12-14. Requests for materials submitted to OMB by the 
Commission with regard to these collections of information should be in 
writing, refer to File No. S7-12-14, and be submitted to the Securities 
and Exchange Commission, Office of FOIA Services, 100 F Street NE., 
Washington, DC 20549-2736. OMB is required to make a decision 
concerning the collection of information between 30 and 60 days after 
publication of this release. Consequently, a comment to OMB is assured 
of having its full effect if OMB receives it within 30 days of 
publication.

VII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\114\ the Commission must advise OMB as to 
whether a proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in:
---------------------------------------------------------------------------

    \114\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment or 
innovation.

If a rule is ``major,'' its effectiveness will generally be delayed for 
60 days pending Congressional review.
    We request comment on whether our proposed amendments would be a 
``major rule'' for purposes of SBREFA. We solicit comment and empirical 
data on:
     The potential effect on the U.S. economy on an annual 
basis;

[[Page 78359]]

     any potential increase in costs or prices for consumers or 
individual industries; and
     any potential effect on competition, investment or 
innovation.

We request those submitting comments to provide empirical data and 
other factual support for their views to the extent possible.

VIII. Initial Regulatory Flexibility Act Analysis

    The Commission has prepared this Initial Regulatory Flexibility Act 
Analysis in accordance with 5 U.S.C. 603. This Initial Regulatory 
Flexibility Act Analysis relates to the proposed amendments to 
Securities Act Rule 405 and Exchange Act Rules 3b-4, 12g-1, 12g-2, 12g-
3, 12g-4, 12g5-1, and 12h-3.

A. Reasons for, and Objectives of, the Proposed Action

    The primary reason for, and objective of, the proposed amendments 
is to implement Title V and Title VI of the JOBS Act. The JOBS Act 
directs the Commission to issue rules to implement the changes and 
specifically charges the Commission with amending the definition of 
``held of record'' and establishing a safe harbor for the determination 
relating to ``employee compensation plan'' securities. We are proposing 
rules that would revise existing rules to reflect the new, higher 
Exchange Act registration, termination of registration and suspension 
of reporting thresholds for banks and bank holding companies, apply the 
definition of ``accredited investor'' in Securities Act Rule 501(a) in 
making determinations under Exchange Act Section 12(g)(1), revise the 
definition of ``held of record'' to exclude certain securities held by 
persons who received them pursuant to employee compensation plans, and 
establish a non-exclusive safe harbor for issuers to follow when 
determining whether those securities are ``held of record.'' We are 
also proposing to provide relief from the Exchange Act registration 
requirements for savings and loan holding companies by applying the 
same thresholds to savings and loan holding companies that apply to 
banks and bank holding companies. Permitting savings and loan holding 
companies to register, terminate registration and suspend reporting 
using the same thresholds as banks and bank holding companies would 
provide consistent treatment across depository institutions. Revising 
the definition and providing a non-exclusive safe harbor to issuers 
relating to the determination of securities ``held of record'' would 
further assist issuers in determining which holders of record they are 
required to count under the registration requirements of Exchange Act 
Section 12(g).

B. Small Entities Subject to the Proposed Rules

    For purposes of the Regulatory Flexibility Act, an investment 
company is a small entity if it, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less as of the end of its most recent fiscal 
year.\115\ Exchange Act Rule 0-10(a) \116\ defines an entity, other 
than an investment company, to be a ``small business'' or ``small 
organization'' if it had total assets of $5 million or less on the last 
day of its most recent fiscal year. We estimate that there are 
approximately 900 issuers that are required to file with the 
Commission, other than investment companies, that may be considered 
small entities.
---------------------------------------------------------------------------

    \115\ 17 CFR 270.0-10(a).
    \116\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    The proposed rules establishing the use of the Securities Act Rule 
501(a) definition of ``accredited investor'' under Exchange Act Section 
12(g)(1) and amending the definition of ``held of record'' to exclude 
certain securities held by persons who received them pursuant to 
employee compensation plans and establishing a non-exclusive safe 
harbor for issuers to follow when determining whether those securities 
are ``held of record'' may affect small issuers relying on the revised 
rules and safe harbor to determine the number of holders of record. 
While an issuer is not required to register a class of equity 
securities pursuant to Section 12(g) of the Exchange Act until the 
issuer's total assets exceed $10 million, a small business or small 
organization may rely on the rules when determining to whom to issue 
securities and whether to compensate employees with securities. By 
providing guidance on the meaning of the term ``accredited investor'' 
in the Exchange Act context, the proposed rules may facilitate private 
offerings and the ability of an issuer to determine their registration 
and reporting obligations. By excluding certain employee compensation 
securities from the definition of ``held of record,'' the proposed 
rules would facilitate the use of equity compensation by small issuers, 
thereby helping them to preserve cash and giving them greater ability 
to determine when the Exchange Act Section 12(g) registration 
obligation would be triggered.
    We cannot estimate the number of small entities affected by these 
proposed rules. By definition, they are not yet subject to Section 
12(g) registration and reporting requirements, which are triggered by 
the issuer having total assets exceeding $10 million as of the last day 
of its fiscal year. We do not otherwise have information about the 
number of shareholders at small entities, including those who have 
received securities as a result of employee compensation plans. We 
request comment on the number of small entities that would be impacted 
by our proposals, including any available empirical data.

C. Projected Reporting, Recordkeeping and Other Compliance Requirements

    When determining whether an issuer must register under Section 
12(g)(1), the issuer would be permitted to rely on the proposed rules. 
The proposed use of the Securities Act Rule 501(a) definition of 
``accredited investor'' and safe harbor under the proposed amendment to 
the definition of ``held of record'' would assist an issuer in 
determining the number of holders of record. In order for an issuer to 
rely on the safe harbor, the securities would need to be issued in a 
transaction exempt from, or not subject to, the registration 
requirements and satisfy the requirements of Rule 701(c), which 
includes the requirement that the securities be offered or sold under a 
written compensatory benefit plan or written compensation contract. In 
addition, issuers seeking to rely upon the safe harbor may need to 
maintain records to help establish their compliance with the safe 
harbor conditions. We are not aware of any other recordkeeping or 
compliance requirements associated with the proposed definition and 
safe harbor.
    The proposed rules and amendments affecting banks, bank holding 
companies and savings and loan holding companies would not add any new 
reporting, recordkeeping or other compliance requirements on those 
entities and we are not aware of any bank, bank holding company, or 
savings and loan holding company registrants with less than $5 million 
in assets. The proposed rules would raise the thresholds relating to 
registration for those entities and reduce their compliance burdens.

D. Duplicative, Overlapping or Conflicting Federal Rules

    The Commission believes that there are no rules that duplicate, 
overlap or conflict with the proposed rules or amendments.

[[Page 78360]]

E. Significant Alternatives

    Pursuant to Section 3(a) of the Regulatory Flexibility Act,\117\ 
the Commission must consider certain types of alternatives, including: 
(1) The establishment of differing compliance or reporting requirements 
or timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation or simplification of 
compliance and reporting requirements under the rule for small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part of the rule, 
for small entities.
---------------------------------------------------------------------------

    \117\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    We are proposing that the current definition of ``accredited 
investor'' in Securities Act Rule 501(a) apply in making determinations 
under Exchange Act Rule 12g-1(b)(1). We could develop a new definition 
of ``accredited investor'' for purposes of Section 12(g)(1); however, 
given the prevalence of the use of Regulation D for exempt offerings, 
many issuers are familiar with and rely upon the definition in Rule 
501(a). The increased registration threshold established by the JOBS 
Act is intended to permit issuers, including small entities, to defer 
Exchange Act registration until issuers have a larger shareholder base. 
Because proposed Rule 12g-1(b)(1) is intended to facilitate an issuer's 
ability to make the determination of when it is required to register, 
we believe use of the familiar Rule 501(a) definition of ``accredited 
investor'' will further this regulatory objective for all issuers, 
including small entities.
    The proposed amendment to the definition of ``held of record'' and 
related safe harbor, if adopted, would apply to all issuers, including 
small entities, that choose to exclude securities held by persons who 
received them pursuant to employee compensation plans in certain exempt 
transactions or transactions not involving a sale within the meaning of 
Securities Act Section 2(a)(3). The proposed amendment and safe harbor 
help define the contours of an exemption from registration for issuers 
that might otherwise cross the Section 12(g) registration thresholds.
    The proposed rules are intended to permit issuers, including small 
entities, to exclude certain securities from the determination and to 
assist issuers in making that determination by clarifying and 
simplifying requirements for all entities. Establishing different 
compliance or reporting requirements relating to employee compensation 
plan securities or accredited investor determinations for small 
entities could complicate the rules and make them more difficult to 
apply as those issuers grow, cease to be small entities, and are 
required to determine whether they must register with the 
Commission.\118\ With respect to the use of performance standards 
rather than design standards, we note that the holder of record 
threshold is a statutorily created design standard, requiring issuers 
to register if their holders of record coupled with their total assets 
cross the threshold. As we are modifying the definition of ``held of 
record'' and clarifying the determination of ``accredited investor'' 
under this statutory design standard, we did not evaluate whether a 
performance standard would be more useful.
---------------------------------------------------------------------------

    \118\ Under Section 12(g) an issuer is not required to register 
unless the issuer has total assets exceeding $10 million at the end 
of its fiscal year.
---------------------------------------------------------------------------

F. Solicitation of Comment

    We are soliciting comments regarding this analysis. We request 
comment on the number of small entities that would be subject to the 
rules and whether the proposed rules would have any effects that have 
not been discussed. We request that commenters describe the nature of 
any effects on small entities subject to the rules and provide 
empirical data to support the nature and extent of the effects.

IX. Statutory Authority and Text of Proposed Rule Amendments

    The amendments contained in this release are being proposed under 
the authority set forth in Section 19 of the Securities Act, as 
amended, Sections 3(b), 12(g), 12(h), 15(d) and 23(a) of the Exchange 
Act, as amended, and Section 503 and Section 602 of the JOBS Act.

List of Subjects in 17 CFR Parts 230 and 240

    Reporting and recordkeeping requirements, Securities.

Text of the Amendments

    For the reasons set out above, the Commission proposes to amend 
Title 17, chapter II of the Code of Federal Regulations, as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read as follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f, 
77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 
78o, 78o-7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 
80a-29, 80a-30, and 80a-37, and Pub. L. 112-106, sec. 201(a), 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec.  230.405 by adding an Instruction to paragraph (1) to the 
definition of ``Foreign private issuer'' to read as follows:


Sec.  230.405  Definitions of terms.

* * * * *
    Foreign private issuer. (1) * * *
    INSTRUCTION TO PARAGRAPH (1): To determine the percentage of 
outstanding voting securities held by U.S. residents:
    A. Use the method of calculating record ownership in Sec.  
240.12g3-2(a) of this chapter, except that:
    (1) The inquiry as to the amount of shares represented by accounts 
of customers resident in the United States may be limited to brokers, 
dealers, banks and other nominees located in:
    (i) The United States,
    (ii) The issuer's jurisdiction of incorporation, and
    (iii) The jurisdiction that is the primary trading market for the 
issuer's voting securities, if different than the issuer's jurisdiction 
of incorporation; and
    (2) Notwithstanding Sec.  240.12g5-1(a)(7)(i)(A) of this chapter, 
the issuer shall not exclude securities held by persons who received 
the securities pursuant to an employee compensation plan.
    B. If, after reasonable inquiry, the issuer is unable to obtain 
information about the amount of shares represented by accounts of 
customers resident in the United States, the issuer may assume, for 
purposes of this definition, that the customers are residents of the 
jurisdiction in which the nominee has its principal place of business.
    C. Count shares of voting securities beneficially owned by 
residents of the United States as reported on reports of beneficial 
ownership provided to the issuer or filed publicly and based on 
information otherwise provided to the issuer.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
3. The general authority citation for part 240 is revised to read as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C.

[[Page 78361]]

2(c)(2)(E); 12 U.S.C. 5221(e)(3), and 18 U.S.C. 1350, Pub. L. 111-
203, 939A, 124 Stat. 1376, 2010, and Pub. L. 112-106, sec. 503 and 
602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
4. Amend Sec.  240.3b-4 by revising the Instruction to Paragraph (c)(1) 
to read as follows:


Sec.  240.3b-4  Definition of ``foreign government,'' ``foreign 
issuer'' and ``foreign private issuer''.

* * * * *
    (c) * * *
    INSTRUCTION TO PARAGRAPH (c)(1): To determine the percentage of 
outstanding voting securities held by U.S. residents:
    A. Use the method of calculating record ownership in Sec.  
240.12g3-2(a), except that:
    (1) Your inquiry as to the amount of shares represented by accounts 
of customers resident in the United States may be limited to brokers, 
dealers, banks and other nominees located in:
    (i) The United States,
    (ii) Your jurisdiction of incorporation, and
    (iii) The jurisdiction that is the primary trading market for your 
voting securities, if different than your jurisdiction of 
incorporation; and
    (2) Notwithstanding Sec.  240.12g5-1(a)(7)(i)(A) of this chapter, 
you shall not exclude securities held by persons who received the 
securities pursuant to an employee compensation plan.
    B. If, after reasonable inquiry, you are unable to obtain 
information about the amount of shares represented by accounts of 
customers resident in the United States, you may assume, for purposes 
of this definition, that the customers are residents of the 
jurisdiction in which the nominee has its principal place of business.
    C. Count shares of voting securities beneficially owned by 
residents of the United States as reported on reports of beneficial 
ownership provided to you or filed publicly and based on information 
otherwise provided to you.
* * * * *
0
5. Revise Sec.  240.12g-1 and the section heading to read as follows:


Sec.  240.12g-1  Registration of securities; Exemption from section 
12(g).

    An issuer is not required to register a class of equity security 
pursuant to section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)) if on the 
last day of its most recent fiscal year:
    (a) The issuer had total assets not exceeding $10 million; or
    (b) (1) The class of equity security was held of record by fewer 
than 2,000 persons or 500 persons who are not accredited investors (as 
such term is defined in Sec.  230.501(a) of this chapter, determined on 
such day rather than at the time of the sale of the securities); or
    (2) In the case of a bank; a savings and loan holding company, as 
such term is defined in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1461); or a bank holding company, as such term is defined in 
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); the 
class of equity security was held of record by fewer than 2,000 
persons.
0
6. Revise Sec.  240.12g-2 to read as follows:


Sec.  240.12g-2  Securities deemed to be registered pursuant to section 
12(g)(1) upon termination of exemption pursuant to section 12(g)(2)(A) 
or (B).

    Any class of securities which would have been required to be 
registered pursuant to section 12(g)(1) of the Act (15 U.S.C. 
78l(g)(1)) except for the fact that it was exempt from such 
registration by section 12(g)(2)(A) of the Act (15 U.S.C. 78l(g)(2)(A)) 
because it was listed and registered on a national securities exchange, 
or by section 12(g)(2)(B) of the Act (15 U.S.C. 78l(g)(2)(B)) because 
it was issued by an investment company registered pursuant to section 8 
of the Investment Company Act of 1940 (15 U.S.C. 80a-8), shall upon the 
termination of the listing and registration of such class or the 
termination of the registration of such company and without the filing 
of an additional registration statement be deemed to be registered 
pursuant to section 12(g)(1) if at the time of such termination:
    (a) The issuer of such class of securities has elected to be 
regulated as a business development company pursuant to sections 55 
through 65 of the Investment Company Act of 1940 (15 U.S.C. 80a-54 
through 64) and such election has not been withdrawn; or
    (b) Securities of the class are not exempt from such registration 
pursuant to section 12 of the Act (15 U.S.C. 78l) or rules thereunder 
and all securities of such class are held of record by 300 or more 
persons, or in the case of a bank; a savings and loan holding company, 
as such term is defined in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1461); or a bank holding company, as such term is defined in 
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 
1,200 or more persons.
0
7. Amend Sec.  240.12g-3 by revising paragraphs (a)(2), (b)(2) and 
(c)(2) to read as follows:


Sec.  240.12g-3  Registration of securities of successor issuers under 
section 12(b) or 12(g).

    (a) * * *
    (2) All securities of such class are held of record by fewer than 
300 persons, or in the case of a bank; a savings and loan holding 
company, as such term is defined in section 10 of the Home Owners' Loan 
Act (12 U.S.C. 1461); or a bank holding company, as such term is 
defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841); 1,200 persons.
* * * * *
    (b) * * *
    (2) All securities of such class are held of record by fewer than 
300 persons, or in the case of a bank; a savings and loan holding 
company, as such term is defined in section 10 of the Home Owners' Loan 
Act (12 U.S.C. 1461); or a bank holding company, as such term is 
defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841); 1,200 persons.
* * * * *
    (c) * * *
    (2) All securities of such class are held of record by fewer than 
300 persons, or in the case of a bank; a savings and loan holding 
company, as such term is defined in section 10 of the Home Owners' Loan 
Act (12 U.S.C. 1461); or a bank holding company, as such term is 
defined in section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 
1841); 1,200 persons.
* * * * *
0
8. Amend Sec.  240.12g-4 by revising paragraph (a) to read as follows:


Sec.  240.12g-4  Certifications of termination of registration under 
section 12(g).

    (a) Termination of registration of a class of securities under 
section 12(g) of the Act (15 U.S.C. 78l(g)) shall take effect 90 days, 
or such shorter period as the Commission may determine, after the 
issuer certifies to the Commission on Form 15 (Sec.  249.323 of this 
chapter) that the class of securities is held of record by:
    (1) Fewer than 300 persons;
    (2) Fewer than 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
most recent three fiscal years; or
    (3) In the case of a bank; a savings and loan holding company, as 
such term is defined in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1461); or a bank holding company, as such term is defined in 
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 
fewer than 1,200 persons.
* * * * *

[[Page 78362]]

0
9. Amend Sec.  240.12g5-1 by adding paragraph (a)(7) to read as 
follows:


Sec.  240.12g5-1  Definition of securities ``held of record''.

* * * * *
    (a) * * *
    (7)(i) For purposes of determining whether an issuer is required to 
register a class of equity securities with the Commission pursuant to 
section 12(g)(1) of the Act (15 U.S.C. 78l(g)(1)), an issuer may 
exclude securities:
    (A) Held by persons who received the securities pursuant to an 
employee compensation plan in transactions;
    (1) Exempt from the registration requirements of section 5 of the 
Securities Act of 1933 (15 U.S.C. 77e); or
    (2) That did not involve a sale within the meaning of section 
2(a)(3) of the Securities Act of 1933 (15 U.S.C. 77b(a)(3)); and
    (B) Held by persons eligible to receive securities from the issuer 
pursuant to Sec.  230.701(c) of this chapter who received the 
securities in a transaction exempt from the registration requirements 
of section 5 of the Securities Act (15 U.S.C. 77e) in exchange for 
securities excludable under this paragraph (a)(7).
    (ii) As a non-exclusive safe harbor under this paragraph (a)(7), a 
person will be deemed to have received the securities pursuant to an 
employee compensation plan if such person received the securities 
pursuant to a compensatory benefit plan in transactions that meet the 
conditions of Sec.  230.701(c) of this chapter.
* * * * *
0
10. Amend Sec.  240.12h-3 by revising paragraph (b)(1) to read as 
follows:


Sec.  240.12h-3  Suspension of duty to file reports under section 
15(d).

* * * * *
    (b) * * *
    (1) Any class of securities, other than any class of asset-backed 
securities, held of record by:
    (i) Fewer than 300 persons;
    (ii) Fewer than 500 persons, where the total assets of the issuer 
have not exceeded $10 million on the last day of each of the issuer's 
three most recent fiscal years; or
    (iii) In the case of a bank; a savings and loan holding company, as 
such term is defined in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1461); or a bank holding company, as such term is defined in 
section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841); 
fewer than 1,200 persons; and
* * * * *

    By the Commission.

    Dated: December 17, 2014.
Brent J. Fields,
Secretary.
[FR Doc. 2014-30136 Filed 12-29-14; 8:45 am]
BILLING CODE 8011-01-P