[Federal Register Volume 59, Number 108 (Tuesday, June 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13731]
[[Page Unknown]]
[Federal Register: June 7, 1994]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-34139; File No. S7-16-94]
RIN 3235-AG11
Exemptive Relief and Simplification of Filing Requirements for
Debt Securities To Be Listed on a National Securities Exchange;
Solicitation of Comment Concerning Reporting by Issuers of Debt
Securities
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rules.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing a new rule and proposing to amend its rules under the
Securities Exchange Act of 1934 to reduce existing regulatory
distinctions between debt securities listed on a national securities
exchange and those traded in the over-the-counter market. The
Commission also is proposing to simplify registration procedures under
the Securities Exchange Act of 1934 for listed debt securities. The
proposals would: exempt listed debt securities from restrictions on
borrowing and the proxy rules; provide for the automatic effectiveness
of a Form 8-A registration statement for listed debt securities; and
eliminate the filing fee associated with the Form 8-A registration
statement for listed debt. Comment also is being requested as to
whether it is advisable to extend reporting requirements to issuers of
debt securities that are traded in the over-the-counter market under
certain circumstances where the issuer is not otherwise subject to
periodic reporting requirements.
DATES: Comments should be received on or before August 8, 1994.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Washington DC 20549. Comment letters should refer to File No. S7-
16-94. All comments received will be available for public inspection
and copying at the Commission's Public Reference Room, 450 Fifth
Street, NW., Washington, DC 20549.
FOR FURTHER INFORMATION CONTACT: With regard to the proposed exemption
from restrictions on borrowing, Beth A. Stekler, at (202) 942-0190,
Branch of Exchange Regulation, Division of Market Regulation; with
regard to issues relating to the proxy rules, Form 8-A, or reporting,
Joseph P. Babits, at (202) 942-2910, Office of Disclosure Policy,
Division of Corporation Finance; Securities and Exchange Commission
(Mail Stops 5-1 and 3-12, respectively), 450 Fifth Street, NW.,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: Under the Securities Exchange Act of 1934
(``Exchange Act''),\1\ the Commission is publishing for comment
proposed new Rule 3a12-11 and revisions to Rules 12b-7,\2\ 12d1-2,\3\
and Form 8-A.\4\ The proposed rule and amendments are intended to
provide regulatory relief to issuers listing debt securities on a
national securities exchange.
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\1\15 U.S.C. 78a et seq.
\2\17 CFR 240.12b-7.
\3\17 CFR 240.12d1-2.
\4\17 CFR 249.208a.
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I. Discussion of Proposals
A. Introduction and Summary
Section 12 of the Exchange Act\5\ requires all securities listed on
a national securities exchange to be registered under the Exchange
Act.\6\ Registration subjects the securities, whether debt or equity,
to a number of regulatory provisions, including restrictions on
borrowing,\7\ periodic reporting by the issuer,\8\ and proxy
regulation.\9\ In contrast, debt securities traded in the over-the-
counter (``OTC'') market are not required to be registered under the
Exchange Act,\10\ and, therefore, such securities are not subject to
the restrictions on borrowing or proxy regulation. These regulatory
distinctions may have unnecessarily and unintentionally affected the
structure and development of the debt markets.
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\5\15 U.S.C. 78l.
\6\Section 12(a) of the Exchange Act [15 U.S.C. 78l(a)] prevents
any member, broker or dealer from effecting any transaction in any
security listed on a national securities exchange unless the
security is registered pursuant to Section 12(b) of the Exchange Act
[15 U.S.C. 78l(b)].
\7\Section 8(a) of the Exchange Act [15 U.S.C. 78h(a)].
\8\Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)].
\9\Section 14(a), (b), and (c) of the Exchange Act [15 U.S.C.
78n(a), (b), and (c)].
\10\See Section 12(g) of the Exchange Act [15 U.S.C. 78l(g)],
which only requires registration of equity securities.
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The New York Stock Exchange (``NYSE'') has advised the Commission
that the additional regulatory requirements imposed on listed debt
securities create significant disincentives for issuers to list their
debt on the national securities exchanges and urged that exemptive
action be taken to eliminate this disparity. To address this disparate
regulatory treatment between listed and OTC-traded debt, the Commission
is proposing to exempt listed debt securities from the borrowing
restrictions and proxy rules under the Exchange Act. Listed debt
securities, however, would remain subject to the registration and
reporting requirements. The Commission also is proposing to simplify
the registration process by providing for the immediate effectiveness
of Form 8-A registration statements pertaining to the listing of debt
securities on a national securities exchange and eliminating the filing
fee associated with the form.
In addition to these proposals to ease the regulatory obligations
resulting from listing debt securities, the Commission also is
considering whether additional informational requirements should be
imposed on issuers of OTC-traded debt securities. Accordingly, as
discussed below, the Commission is requesting comment on the benefits
of periodic reporting requirements with respect to issuers of debt
securities and on whether it is advisable to extend those requirements
to issuers of debt securities that are traded in the OTC market,
comparable to the requirements applicable to issuers that list their
debt securities on a national securities exchange.
B. Exemption From the Borrowing Restrictions of the Exchange Act
In the aftermath of the 1929 market crash, Congress enacted the
Exchange Act to regulate, among other matters, the extension of credit
in the securities markets.\11\ Along with margin provisions,\12\
Congress placed a restriction on the ability of broker-dealers to
borrow, in the ordinary course of business, using exchange-traded
securities as collateral. Under Section 8(a) of the Exchange Act,\13\ a
broker-dealer can pledge a listed security, other than an exempted
security, only to certain lenders: a member bank of the Federal Reserve
System; a non-member bank that has filed with the Federal Reserve Board
an agreement to comply with those provisions of the federal securities
and banking laws that apply to member banks; or another broker-dealer
if such a loan is permissible under the rules and regulations of the
Federal Reserve Board.\14\ As noted above, Section 8(a) specifically
excludes exempted securities from these restrictions on borrowing.
Under Section 3(a)(12) of the Exchange Act,\15\ the term ``exempted
securities'' includes such securities as the Commission may exempt from
the operation of any one or more provisions of the Exchange Act.
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\11\See, e.g., 78 Cong. Rec. 8386-96 (Senate debate rejecting an
amendment to prohibit, rather than regulate, margin transactions).
\12\In particular, Section 7(a) of the Exchange Act [15 U.S.C.
78g] authorized the Board of Governors of the Federal Reserve System
(``Federal Reserve Board'') to prescribe rules and regulations with
respect to the amount of credit that may be initially extended and
subsequently maintained on any security traded on a national
securities exchange.
\13\15 U.S.C. 78h(a).
\14\For example, Regulation T [17 CFR 220.1 et seq.] authorizes
a broker-dealer to clear or finance transactions for a specialist's
market functions account. See 12 CFR 220.12(b).
\15\15 U.S.C. 78c(a)(12).
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In 1968, when Congress extended many of the margin provisions
(i.e., Section 7(a)) to securities traded exclusively in the OTC
market,\16\ Congress placed no comparable restriction on the ability of
broker-dealers to borrow against OTC securities.\17\ As a result, a
broker-dealer can use bonds that are not listed on an exchange to
secure financing from any lender, whether or not that lender falls
within the statutorily enumerated categories.
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\16\1968 Amendments to the Securities Exchange Act of 1934, Pub.
L. No. 90-437, 82 Stat. 452 (1968).
\17\Congress did not amend Section 8(a), as it amended Section
7(a), to extend that provision to securities traded exclusively in
the OTC market. Congress, however, did not repeal Section 8(a) for
listed securities.
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Since that time, various market participants have voiced concerns
that Section 8(a) is overly restrictive and competitively unfair.\18\
According to these participants, broker-dealers' discretion in
financing their positions is unduly constrained once a debt security is
traded on an exchange. In addition, at least one national securities
exchange has been informed by its members that the members may advise
an issuer against listing bonds due to the restrictions in Section
8(a).\19\
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\18\See, e.g., letter from Donald J. Solodar, Executive Vice
President, Fixed Income, Options & Administration, New York Stock
Exchange (``NYSE''), to Brandon Becker, Director, Division of Market
Regulation, SEC, and Linda C. Quinn, Director, Division of
Corporation Finance, SEC, dated July 19, 1993 (``NYSE letter'');
letter from Marc E. Lackritz, President, Securities Industry
Association (``SIA''), to William W. Wiles, Secretary, Federal
Reserve Board, dated December 23, 1992 (``SIA letter'').
\19\See NYSE letter, supra note 18.
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Given the developments in the OTC market since Congress took action
in the 1960s, the current structure of the bond market and the nature
of debt financing, the differential treatment of exchange-listed and
OTC-traded debt securities does not appear to be warranted. In today's
highly competitive market environment, the current regulatory scheme
may detract unfairly from broker dealers' ability to finance their
positions, and from the national securities exchanges' ability to
obtain debt listings.\20\
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\20\The Commission notes that, at this time, most secondary
trading in debt securities (including listed debt securities) takes
place in the OTC market; exchange trading of corporate bonds
currently accounts for a relatively small percentage of the daily
trading volume in such securities and is often in ``odd-lot'' size.
United States Securities and Exchange Commission, Division of Market
Regulation, The Corporate Bond Markets: Structure, Pricing and
Trading 1, 13 (January 1992). Although these circumstances may
change if the relief proposed herein is granted, the Commission
recognizes that it places a competitive burden on exchange markets
to subject them to more restrictive regulation than the OTC market,
which is, in this case, the primary market for the trading of debt
securities.
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The Commission is proposing to exempt\21\ exchange-traded debt
securities from the borrowing restrictions of Section 8(a).\22\ The
proposed exemption to the restrictions on borrowing would eliminate one
competitive barrier to the exchange trading of debt securities.
Specifically, to the extent that the restrictions of Section 8(a) may
encourage underwriters and investment bankers to recommend against debt
securities being listed, the proposed exemption would eliminate that
impediment to the listing of debt securities on a national securities
exchange.
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\21\Section 3(a)(12) of the Exchange Act.
\22\Proposed Rule 3a12-11(a) would exempt debt securities that
are traded on a national securities exchange from the restrictions
on borrowing of Section 8(a) of the Exchange Act. A broker-dealer
who extends credit on that collateral would continue to be required
to comply with the applicable rules and regulations of the Federal
Reserve Board, including Regulation T [17 CFR 220.1 et seq].
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Moreover, the exemption from the restrictions on borrowing could
provide certain benefits to the financial system. Under this proposal,
a broker-dealer borrowing against a listed debt security could choose
among prospective lenders based solely upon the terms of the financing
that they offer. For instance, the exemption would make it possible for
a broker-dealer to enter into a repurchase agreement with a non-bank
institutional investor. This flexibility should help broker-dealers
obtain financing at the lowest available cost.
For purposes of the proposed rule, the term ``debt security'' would
include any security that is not an ``equity security'' as defined by
the Exchange Act and the rules thereunder.\23\ Comment is solicited as
to whether, in lieu of the proposed definition, the term ``debt
security'' should be more specifically defined. For example, should the
term ``debt security'' be defined as: ``(1) A note, bond, debenture or
evidence of indebtedness; (2) a certificate of interest or
participation in any such note, bond, debenture or evidence of
indebtedness; or (3) a temporary certificate for, or guarantee of, any
such note, bond, debenture, evidence of indebtedness or certificate;
but shall not include an `equity security' as defined in Section
3(a)(11) of the Act and Rule 3a11-1 thereunder''?\24\ Comment also is
solicited as to whether hybrid debt securities should be treated as
debt securities for purposes of Rule 3a12-11.
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\23\Proposed Rule 3a12-11(c). The term ``equity security'' is
defined in Section 3(a)(11) [15 U.S.C. 78c(a)(11)] and Rule 3a11-1
[17 CFR 240.3a11-1] thereunder. Equity securities would include,
among other items, stock or similar security, certificates of
interest or participation in any profit sharing agreement, voting
trust certificate or certificate of deposit for any equity security,
limited partnership interest, any security that is convertible, with
or without consideration, into an equity security or any warrant or
right to subscribe or purchase an equity security.
\24\This definition is modeled after Section 304(a)(1) of the
Trust Indenture Act of 1939, (``Trust Indenture Act'') [15 U.S.C.
77ddd(a)(1)].
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The Commission requests commenters to address the scope of the
proposed exemption as well as its merits. Are there any categories of
listed debt securities that should remain subject to the borrowing
restrictions? Interested persons may also wish to comment on how
exempting exchange-traded debt securities from Section 8(a)
restrictions would affect investor protection in the debt market,
including whether the purposes behind the Exchange Act's credit
provisions would be frustrated as a result. Interested persons may also
wish to comment on the proposed rule's impact on the transparency and
liquidity of the market for debt securities.
C. Exemption From Compliance With the Proxy Rules
A second provision of the proposed rule would exempt debt
securities listed on a national securities exchange from proxy
regulation.\25\ By proposing to exempt debt listed on a national
securities exchange from the proxy rules, the Commission seeks to
address the disparate application of the proxy rules between listed
debt securities and debt securities traded in the OTC market. The proxy
rules principally apply to equity securities, since most debt
securities are not listed on a national securities exchange and thus
not subject to the proxy rules.\26\
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\25\Proposed Rule 3a12-11(b) would exempt listed debt securities
from the proxy, shareholder communications, and information
statement rules under Sections 14(a), 14(b), and 14(c) of the
Exchange Act. The term ``debt securities'' would be defined in the
same manner as in the exemption from the restrictions on borrowing.
See proposed Rule 3a12-11(c).
\26\The OTC market is the principal trading market for debt (see
n.20). Of the more than 13,000 publicly traded domestic corporate
bond issues in 1989, fewer than 20% (2,135 on the NYSE and 280 on
the American Stock Exchange (``AMEX'') were listed on the NYSE and
AMEX. See Colloton, ``Bondholder Communications--The Missing Link in
High Yield Debt,'' Hill and Knowlton, Inc. at 17 (August 1990).
Similarly, less than 20% of the total face amount of corporate debt
securities outstanding is listed on the NYSE. See New York Stock
Exchange, Inc., Fact Book 54 (1993); Board of Governors of the
Federal Reserve System, Flow of Funds Account L.213 (March 9, 1994).
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In 1963, the Commission submitted a report to Congress that set
forth its recommendations as to the scope of regulation needed for the
OTC market.\27\ These recommendations led to the adoption of Section
12(g) in 1964. The Commission concluded that proxy regulation should
not be required with respect to debt securities since Section 14 was
designed to protect shareholders and the solicitation of proxies was
``rarely [a] problem[ ] related to debt securities and, then, most
probably in insolvency cases when other protections were
available.''\28\ Today, solicitations of debtholders subject to the
proxy rules continue to be infrequent, with only 18 such solicitations
having occurred between 1990 and 1993 with respect to NYSE-listed
issuers.\29\
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\27\Report of Special Study of Securities Markets, (``1963
Special Study'') U.S. Securities and Exchange Commission, H.R. Doc.
No. 95, 88th Cong., 1st Sess. pt. 3, 34 (1963).
\28\Id. at 34.
\29\See letter from Fred Siesel of NYSE to David Sirignano of
the Division of Corporation Finance dated May 12, 1994.
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In the context of listed debt, the proxy rules, for the most part,
cover solicitations to modify the terms of a trust indenture. Given the
strictures already imposed by the indenture contract, as well as the
Trust Indenture Act, comment is solicited as to whether the benefits to
debtholders from the application of the proxy rules to debt securities
listed on a national securities exchange outweigh the costs to the
issuers in complying with the proxy rules in connection with proxy or
consent solicitations.30 If the proxy rules provide important
protections with respect to publicly-traded debt securities that should
be preserved, does the need for these protections derive from the
listing of the security on a national securities exchange or rather
because it is traded in the public debt markets? If the latter is the
case, should the Commission seek to extend the proxy rules to all
publicly-traded debt securities, similar to the treatment of equity
securities under Section 12(g) of the Exchange Act? Comment also is
solicited as to whether an issuer's solicitation of holders of debt
securities listed on a national securities exchange should remain
subject to the antifraud proscriptions of Rule 14a-931 and/or the
rules adopted under Section 14 of the Exchange Act to facilitate the
transmission of proxy and consent materials to beneficial
owners,32 even if exempted from other proxy regulation. Finally,
is the application of the proxy rules currently part of the
expectations of the parties negotiating an indenture agreement, or of
investors purchasing a listed debt security? If so, should the proposed
exemption be prospective in nature and thus inapplicable to classes of
debt listed before the effective date of the exemption?
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\3\0When Congress first began to consider the need for 12(g), an
earlier version of Senate Bill 1168 would have subjected issuers
with more than $1 million of debt securities outstanding to
registration and the proxy rules. The Senate Committee on Banking
and Currency, however, ``recognized that debt security holders are
normally better protected, from a financial standpoint, by the fixed
dollar obligation in the debt contract than are holders of equity
securities, and hence eliminated the debt security test from the
provisions of the bill.'' S. Rep. No. 700, 85th Cong., 1 Sess. 6
(1957).
\3\117 CFR 240.14a-9.
\3\2Rules 14a-13 [17 CFR 240.14a-13], 14b-1 [17 CFR 240.14b-1],
and 14b-2 [17 CFR 240.14b-2].
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D. Automatic Effectiveness of Form 8-A and Elimination of Filing Fee
The Commission proposes to reduce or eliminate some of the
procedural costs of listing debt on a national securities exchange,
both through rulemaking and through practical modifications to filing
procedures.33 Currently, Form 8-A registration statements must be
declared effective by the staff, pursuant to delegated authority, which
necessitates coordination among the issuer, its counsel, the Commission
staff, and the national securities exchange. A rule change is proposed
to provide for the automatic effectiveness of registration statements
on Form 8-A, including amendments, that pertain only to the listing of
debt securities on a national securities exchange.34 In the case
where debt securities of the class being registered were concurrently
being registered under the Securities Act, the Form 8-A would become
effective simultaneously with the effectiveness of the related
Securities Act registration statement if certification by the national
securities exchange had been received by the Commission on or before
the effectiveness of the related Securities Act registration statement.
If, however, that class of debt securities was not concurrently being
registered under the Securities Act, then the Form 8-A would become
effective upon filing if certification by the exchange had been
received by the Commission on or before the filing of the form.35
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\3\3The Commission will accept the filing of a combined Form 8-A
and NYSE Listing Application on behalf of any issuer listing debt
securities on the NYSE. The combined Form 8-A/Listing Application
will include all the current disclosure requirements of Form 8-A and
the listing application requirements of NYSE. The NYSE intends to
assist its listed companies by filing the combined Form 8-A/Listing
Application with the Commission on behalf of the issuer and as its
agent. The issuer, however, may choose to file the Form 8-A itself.
Regardless of whether the issuer or the national securities exchange
files the Form 8-A/Listing Application, the issuer is solely
responsible for the filing and its contents.
National securities exchange representatives wishing to use a
similar procedure should contact Joseph P. Babits at (202) 942-2910.
National securities exchanges that intend to use a combined Form 8-
A/Listing Application that will become effective upon filing must
confirm that the combined Form has been in fact filed with the
Commission prior to the commencement of trading in the class of
securities.
A national securities exchange using such a procedure may wish
to make Form 8-A filings with the Commission in paper, whether or
not the registrant is subject to mandated electronic filing via the
Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).
Accordingly, the Division of Corporation Finance will consider
requests for a continuing hardship exemption pursuant to Rule 202 of
Regulation S-T [17 CFR 232.202] from any national securities
exchange filing Forms 8-A on behalf of electronic filers.
\3\4Proposed amendments to Rule 12d1-2 and Instruction A of Form
8-A. Forms 8-A that register both debt and equity securities would
not be encompassed by the proposed amendments.
\3\5If an issuer elects to file the Form 8-A (or Form 8-A/
Listing Application) itself, it must ensure that the Commission has
received certification from the exchange on or before the date of
filing the Form if automatic effectiveness is requested, or, if
concurrent effectiveness is requested, on or before the Securities
Act registration statement has been declared effective. An issuer
may contact the Office of Quality Control at (202) 942-8970 (ext.
4475) to verify that certification has been received by the
Commission.
To the extent that multiple debt issues are being registered on
a single Form 8-A, then certification for each issue must be
received by the Commission prior to effectiveness. Where a Form 8-A
relates to debt securities to be listed on multiple national
securities exchanges (e.g., the NYSE and the Boston Stock Exchange),
then certifications must be received by the Commission from each
exchange prior to effectiveness.
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In addition, the Commission proposes to eliminate the $250 filing
fee for registering a class of debt securities on Form 8-A.36 Form
8-A would be revised to add two new boxes, one of which the issuer
would check to signify it is a debt registration requiring no fee and
that the Form 8-A: (1) Is to be effective automatically upon filing, as
no debt securities of the class being registered on the form are being
registered concurrently under the Securities Act; or (2) is to be
effective simultaneously with the effectiveness of a related Securities
Act registration statement. Comment is solicited as to whether these
proposed amendments address the procedural and timing concerns of
issuers listing debt securities on a national securities exchange.
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\3\6Proposed amendment to Rule 12b-7.
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E. Reporting
Today's proposals do not exempt listed debt securities from
registration and reporting under the Exchange Act. Companies that list
their debt securities for trading in the public market will still have
to provide annual, quarterly, and current reports. This raises the
question as to the need for similar requirements for issuers with
substantial amounts of debt securities traded in the OTC market.
When Congress amended the Exchange Act in 1964 to add Section
12(g), it extended registration to the OTC market for the first time.
However, the 1964 amendments focused exclusively on issuers of equity
securities. No comparable provision was provided for debt securities
that are traded in the OTC market. This difference in regulatory
treatment was not based on a policy decision that current financial
information is not important to the market. Rather, the decision
appears to have been based, at least in part, on the nature of the debt
securities market in 1963. At that time, it was considered unnecessary
to extend registration to debt securities trading in the OTC market, as
it appeared that a company that had a significant amount of debt
securities outstanding would probably meet the Section 12(g) threshold
with respect to its equity securities.37
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\3\71963 Special Study, supra note 27, at n.55.
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Specifically, in its 1963 Special Study, the Commission cited the
results of a questionnaire it used in, among other matters, determining
whether debtholders independently needed the protections of Section 13,
14, and 16 of the Exchange Act.38 The questionnaire sought
information about outstanding debt securities, face dollar amount, and
number of holders. While acknowledging the small number of respondents
to the questionnaire, the Commission found that of 218 issuers that
responded, only 58 would not have incurred a reporting
obligation.39 Of these issuers, 45% had less than $250,000 face
amount of debt securities outstanding, 60% less than $500,000
outstanding, and 76% less than $1,000,000.40 The Commission
concluded that the proposed Section 12(g) equity threshold would make
financial reports publicly available to a large majority of
debtholders. Furthermore, the aggregate sums lent by issuers that would
not be subject to any reporting obligation tended to be modest. Thus,
the 1963 Special Study recommended to Congress that Section 12(g) not
apply to debt securities.41
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\3\8Id.
\3\9Publicly available financial information would have been
available for 160 issuers that would have met the proposed Section
12(g) threshold requiring registration of their equity securities.
Id.
\4\0Id.
\4\1Id. The Commission also noted that Section 314(a)(1) [15
U.S.C. 77nnn(a)(1)] of ``[t]he Trust Indenture Act of 1939 gave the
Commission power to require companies which qualify indentures under
it, but are not otherwise under a statutory duty to report under the
provisions of Sections 13 and 15(d) of the Exchange Act, to comply
with such of the reporting requirements of section 13 as the
Commission might prescribe.'' 1963 Special Study, supra note 27, at
6.
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In the 1980s, the issuance of debt securities in both private
placements and public offerings began to increase dramatically.42
In addition, the increasing use of leveraged buyouts that concentrated
equity ownership below Section 12(g) thresholds resulted in a number of
companies with significant outstanding debt securities that are not
reporting companies. Concerns have been expressed about the lack of
information being available to the market regarding the issuers of some
of these securities.43 In the case of privately placed debt
securities traded in the OTC market, no registration or periodic
reporting under the Exchange Act is required. Section 15(d) of the
Exchange Act44 requires reporting by issuers that make a
registered offering of equity or debt securities, but permits companies
to suspend their reporting obligations after one year when a class of
securities are held by fewer than 300 record holders.
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\4\2Federal Reserve Bulletin, Vol. 68.12-79.3 (December 1982-
March 1993).
\4\3See generally, Jereski, ``None of Your Business,'' Forbes
(April 29, 1991) at 68; Norris, ``Market Place--When Companies
Conceal the Facts,'' The New York Times (September 14, 1990);
Jereski, ``Now You See the Junk, Now You Don't,'' Business Week
(April 2, 1990) at 40; Colloton, supra note 26.
See also, Harris Trust and Savings Bank et al. v. E-II Holdings,
Inc., (N.D. Ill. No. 89 C 203) Fed. Sec. L. Rep. [CCH] par. 94,917
at 95,057 (September 5, 1989). The court held that absent specific
provisions in the indenture, Section 314(a) of the Trust Indenture
Act would not compel production of financial and other information
by the non-reporting company to its trustees.
\4\415 U.S.C. 78o(d).
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As applied, most issuances of debt securities are viewed as
separate classes of debt. Therefore, it is not uncommon for a company
that sells registered debt securities not to have a 15(d) reporting
obligation after its first year. While there may be more than 300
holders of record for all the registered debt of a company, it is not
uncommon that there are fewer than 300 holders of record for any one
issue.
The staff of the Division of Corporation Finance recently examined
information on companies that had more than 5 million dollars of debt
securities outstanding to determine whether the companies were
reporting with the Commission. The staff concluded that there are at
least 200 non-reporting issuers, with over $47 billion of debt
securities outstanding.45 It appears appropriate to determine
whether the nature and size of the debt market has sufficiently changed
since the 1960s such that continuous reporting by issuers with
significant amount of debt securities may now be warranted.
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\4\5The staff believes that these statistics are understated
since non-reporting companies often consider their financial and
operating information proprietary.
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Comment is solicited as to whether it is now desirable for the
Commission to adopt rules or exercise definitional authority under the
Exchange Act or Trust Indenture Act to increase the number of issuers
with debt securities traded in the OTC market that would be subject to
periodic reporting. For example, are periodic reports needed for
companies that have issued debt securities but subsequently suspended
their reporting obligations pursuant to Section 15(d) of the Exchange
Act? Comment also is solicited as to whether, even in the absence of a
registered offering, an issuer of debt securities should be subject to
an Exchange Act reporting obligation, similar to the provisions
governing the registration of equity under Section 12(g) of the
Exchange Act.
If such reporting obligations are needed, should the thresholds be
based upon the total dollar amount of debt securities outstanding, the
number of record or beneficial holders, and/or other criteria? If the
number of holders, comment is solicited as to the appropriate threshold
number of holders (i.e., 300, 500, or some greater or lesser number)?
Comment is solicited as to how the number of holders should be
calculated for these purposes.46 Comment also is solicited as to
whether the total amount of registered debt securities outstanding of
an issuer should be viewed as one class in determining whether the
threshold is met.
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\4\6Where securities have been issued in book-entry form and
held by the Depository Trust Company (``DTC''), the staff has taken
the position that DTC participants should be included in the
calculation of the total number of record holders. See, CFAC Remic
Trust 1989-A (available March 30, 1990).
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II. Request for Comment
Any interested persons wishing to submit written comments on the
proposed rules and amendments, as well as any other matters that might
have an impact on the proposals set forth in the release are requested
to do so. Comments are requested on the impact of the proposals on
issuers, debtholders, broker-dealers, and others. The Commission also
requests comment on whether the proposals, if adopted, would have an
adverse effect on competition that is neither necessary nor appropriate
in furthering the purposes of the Exchange Act. Comments will be
considered by the Commission in complying with its responsibilities
under Section 23(a) of the Exchange Act.47
---------------------------------------------------------------------------
\4\715 U.S.C. 78w(a).
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III. Cost-Benefit Analysis
To assist the Commission in its evaluation of the costs and
benefits that may result from the proposals, commenters are requested
to provide views and data relating to any costs and benefits associated
with these proposals. The proposals are expected to decrease the net
costs to issuers associated with listing debt securities on a national
securities exchange, without materially diminishing the benefits to
investors. Among other matters, the proposals would exempt the class of
debt securities from the restrictions on borrowing and the proxy rules.
The costs to investors associated with these proposed rules and
revisions are minimal. Currently, an issuer is not required to register
debt securities under the Exchange Act in order for those securities to
be traded in the OTC market. By reducing the regulatory costs of
listing debt on a national securities exchange, it is expected that
more issuers will list such securities and thus register under the
Exchange Act.
IV. Summary of Initial Regulatory Flexibility Analysis
An Initial Regulatory Flexibility Analysis has been prepared in
accordance with 5 U.S.C. 603 for the proposed rule and amendments to
Rule 12b-7, 12d1-2, and Form 8-A. The analysis notes that the proposals
are expected to reduce regulatory costs for small entities.
As discussed more fully in the analysis, the proposed changes would
affect persons that are small entities, as defined by the Commission's
rules. The exemptions provided by Rule 3a12-11 and revisions to Rules
12b-7, 12d1-2, and Form 8-A are expected to decrease the compliance
burdens of small entities.
Commenters are encouraged to comment on any aspect of the analysis.
Such comments will be considered in the preparation of the Final
Regulatory Flexibility Analysis if the proposed rule and amendments are
adopted. A copy of the analysis may be obtained by contacting Joseph P.
Babits, Office of Disclosure Policy, Division of Corporation Finance,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549.
V. Statutory Basis for Rules
New Rule 3a12-11 and all amendments are being proposed pursuant to
Exchange Act Sections 3(a)(12),48 9,49 10,50 12,51
14,52 and 23,53 as amended.
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\4\815 U.S.C. 78c(a)(12).
\4\915 U.S.C. 78i.
\5\015 U.S.C. 78j.
\5\115 U.S.C. 78l.
\5\215 U.S.C. 78n.
\5\315 U.S.C. 78w.
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List of Subjects in 17 CFR Parts 240 and 249
Reporting and recordkeeping requirements, Securities.
Text of Proposals
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended in part as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
2. By adding Sec. 240.3a12-11 to read as follows:
Sec. 240.3a12-11 Exemption from Sections 8(a), 14(a), 14(b), and 14(c)
for debt securities listed on a national securities exchange.
(a) Debt securities that are listed for trading on a national
securities exchange shall be exempt from the restrictions on borrowing
of Section 8(a) of the Act (15 U.S.C. 78h(a)).
(b) Debt securities registered pursuant to the provisions of
Section 12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from
Sections 14(a), 14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and
(c)).
(c) For purposes of this section, debt securities is defined to
mean any securities that are not ``equity securities'' as defined in
Section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and Sec. 240.3a11-1
thereunder.
3. By adding a sentence to the end of Sec. 240.12b-7 to read as
follows:
Sec. 240.12b-7 Filing fee.
* * * No fee, however, shall be paid to the Commission for the
registration of debt securities, as defined in Sec. 240.3a12-11(c), on
Form 8-A (17 CFR 249.208a) pursuant to Section 12(b) of the Act (15
U.S.C. 78l(b)).
4. By revising the section heading, designating the existing text
as paragraph (a), and adding paragraph (b) to Sec. 240.12d1-2 to read
as follows:
Sec. 240.12d1-2 Effectiveness of registration.
(a) * * *
(b) A registration statement on Form 8-A (17 CFR 249.208a) that
only pertains to the listing of a class or classes of debt securities,
as defined in Sec. 240.3a12-11(c), on a national securities exchange
for which certification has been received by the Commission shall
become effective upon filing with the Commission, in the case of a
class of debt securities not concurrently being registered under the
Securities Act of 1933 (15 U.S.C. 77a et seq.) (``Securities Act'');
and otherwise, upon the effectiveness of a concurrent Securities Act
registration statement to which the debt securities relate.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
5. The authority citation for part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
6. By amending Sec. 249.208a by adding paragraph (c) to read as
follows:
Sec. 249.208a Form 8-A, for registration of certain classes of
securities pursuant to section 12 (b) or (g) of the Securities Exchange
Act of 1934.
* * * * *
(c) If this form is used only for the registration of a class of
debt securities as defined in Rule 3a12-11(c) and certification from
the national securities exchange has been received by the Commission,
it shall become effective either:
(1) Upon filing with the Commission, in the case of a class of debt
securities not concurrently being registered under the Securities Act
of 1933 (15 U.S.C. 77a et seq.) (``Securities Act''); or
(2) Upon the effectiveness of a concurrent Securities Act
registration statement to which the debt securities relate.
7. By amending Form 8-A (Sec. 249.208a) by adding two check boxes
to the cover page immediately before ``Securities to be registered
pursuant to Section 12(g) of the Act,'' and by adding paragraph (c) to
General Instruction A to read as follows:
Note: The text of Form 8-A does not and the amendments will not
appear in the Code of Federal Regulations.
Form 8-A--For Registration of Certain Classes of Securities Pursuant to
Section 12(b) or (g) of the Securities Exchange Act of 1934.
* * * * *
If this Form relates to the registration of a class of debt
securities and is effective upon filing pursuant to General
Instruction A.(c)(1), please check the following box. [ ]
If this Form relates to the registration of a class of debt
securities and is to become effective simultaneously with the
effectiveness of a concurrent registration statement under the
Securities Act of 1933 pursuant to General Instruction A.(c)(2),
please check the following box. [ ]
* * * * *
GENERAL INSTRUCTIONS
A. Rule as to Use of Form 8-A
* * * * *
(c) If this form is used only for the registration of a class of
debt securities as defined in Rule 3a12-11(c) (17 CFR 240.3a12-
11(c)) and certification from the national securities exchange has
been received by the Commission, it shall become effective:
(1) upon filing with the Commission, in the case of a class of
debt securities not concurrently being registered under the
Securities Act of 1933 (15 U.S.C. 78a et seq.) (``Securities Act'');
or
(2) simultaneously with the effectiveness of a concurrent
Securities Act registration statement to which the debt securities
relate. See Rule 12d1-2(b) (17 CFR 240.12d1-2(b)).
By the Commission.
Dated: June 1, 1994.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-13731 Filed 6-6-94; 8:45 am]
BILLING CODE 8010-01-P