[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Proposed Rules]
[Pages 7186-7188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3845]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-7388; File Number S7-6-97]
RIN 3235-AH14


Definition of ``Prepared by or on Behalf of the Issuer'' for 
Purposes of Determining if an Offering Document is Subject to State 
Regulation.

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The National Securities Markets Improvements Act of 1996 
mandates that the Securities and Exchange Commission (``Commission'') 
adopt a definition of the phrase ``prepared by or on behalf of the 
issuer'' found in newly revised Section 18 of the Securities Act of 
1933. Today, the Commission proposes such a definition.

DATES: Comments should be received on or before March 20, 1997.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549. Comments also may be submitted 
electronically at the following E-mail address: [email protected]. 
All comment letters should refer to File No. S7-6-96; this file number 
should be included in the subject line if E-mail is used. Comment 
letters will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Electronically submitted comment letters will be posted on 
the Commission's Internet Web Site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: James R. Budge, Division of 
Corporation Finance, at (202) 942-2950, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission proposes adding Rule 146 
1 under the Securities Act of 1933 (``Securities Act'' or ``the 
Act'').2 The Rule would define the term ``prepared by or on behalf 
of the issuer,'' as that term is used in newly revised Section 18 of 
the Act.3
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    \1\ The proposed rule would be codified at 17 CFR 230.146.
    \2\ 15 U.S.C. 77a et seq.
    \3\ 15 U.S.C. 77r.
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I. Background and Proposed Definition

    On October 11, 1996, President Clinton signed into law the National 
Securities Markets Improvement Act of 1996.4 One significant goal 
of this legislation, embodied in revised Section 18 of the Act, is to 
reduce duplicative and unnecessary regulatory requirements resulting 
from the dual system of federal and state securities regulation. The 
statute reallocates regulatory responsibility relating to securities 
offerings between the federal and state governments based on the nature 
of the security or offering. Among other things, it preempts state laws 
requiring or with respect to registration or qualification of ``covered 
securities'' as defined in the Act.5 It also prohibits states from 
directly or indirectly prohibiting, limiting or imposing any conditions 
on the use of any offering document for a covered security if the 
offering document is ``prepared by or on behalf of the issuer.'' 6
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    \4\ Public Law 104-290, 110 Stat. 3416 (1996).
    \5\ The term ``covered security'' is defined in new section 
18(b) [15 U.S.C. 77r(b)].
    \6\ The term ``offering document'' is defined in new section 
18(d)(1) [15 U.S.C. 77r(d)(1)], as follows:
    (1) Offering Document.--The term ``offering document''--
    (A) has the meaning given the term ``prospectus'' in section 
2(10), but without regard to the provisions of subparagraphs (A) and 
(B) of that section; and
    (B) includes a communication that is not deemed to offer a 
security pursuant to a rule of the Commission.
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    The statute requires the Commission to define by rule the phrase 
``prepared by or on behalf of the issuer,'' as used in connection with 
the prohibition on state regulation of offering documents for covered 
securities.7 The Commission today proposes a definition of this 
term.
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    \7\ New Section 18(d)(2) requires the Commission to adopt this 
definition not later than six months after the section's enactment.

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[[Page 7187]]

    The Commission believes that the phrase is intended to cover 
offering documents prepared with the issuer's knowledge and consent. 
Thus, the proposed definition would cover offering documents authorized 
by the issuer and prepared by specified persons. Conversely, documents 
that are prepared and circulated without issuer authorization would not 
be covered.
    Specifically, as proposed, if the issuer authorizes the offering 
document's production and the document is prepared by a director, 
officer, general partner, employee, affiliate, underwriter, attorney, 
accountant or agent of the issuer, it would be ``prepared by or on 
behalf of the issuer.'' 8 The proposed definition also would 
include authorized documents prepared by representatives or agents of 
these persons.9
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    \8\ In the case of a registered investment company, an agent of 
the issuer would generally include the company's investment adviser 
or any other agent that performs administrative functions on behalf 
of the company.
    \9\ As provided by statute, the proposed definition would be 
applicable only to Section 18 of the Securities Act.
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    Comment is requested as to whether the definition should be 
broadened or narrowed by adding persons to or eliminating persons from 
the list; specific justification for additions or deletions should be 
provided. Should the list include specific examples of persons, such as 
employees or attorneys as proposed, or is it sufficient to state simply 
that the person be an agent or representative of the issuer? The second 
approach would eliminate the need for paragraph (a) of the proposed 
definition. As proposed, the definition does not include offering 
documents prepared by persons who do not have some formal connection to 
the issuer. Should the definition be expanded to include offering 
documents approved by the issuer but prepared by a person who does not 
have a managerial, employment or other agency relationship with the 
issuer? The proposed definition also would encompass only those 
offering documents prepared with the authorization of the issuer. 
Should such authorization be implied if the document is prepared by 
certain individuals, such as underwriters? If implied authorization is 
believed appropriate for some persons, commenters are asked to identify 
the specific parties and explain why it would be appropriate to imply 
consent in those cases.

II. Submission of Comments

    Interested persons should submit comment letters in triplicate to 
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 
450 Fifth Street, NW., Washington, DC, 20549. Comments also may be 
submitted electronically at the following E-mail address: rule-
[email protected]. All comment letters should refer to File Number S7-6-
96. This file number should be included on the subject line if E-mail 
is used. Comments received will be available for inspection and copying 
in the Commission's public reference room, 450 Fifth Street, NW., 
Washington, DC 20549. Electronically submitted comment letters will be 
posted on the Commission's Internet web site (http://www.sec.gov).

III. Cost-Benefit Analysis

    Commenters should address the costs and benefits of the proposed 
definition of ``prepared by or on behalf of the issuer,'' and to 
provide any available support for such views, in order to aid the 
Commission in its own evaluation of its costs and benefits. The 
Commission believes that issuers will not experience changes to their 
compliance costs as a result of this rulemaking. For purposes of 5 
U.S.C. 804(2), the Commission also requests information regarding the 
potential impact of the proposed rule on the economy on an annual 
basis. Commenters should provide data supporting their views.

IV. Summary of Initial Regulatory Flexibility Analysis

    An initial regulatory flexibility analysis has been prepared in 
accordance with 5 U.S.C. 603 concerning the proposed definition. The 
analysis notes that the proposal relates to a Congressional mandate to 
define the term ``prepared by or on behalf of the issuer'' for purposes 
of Section 18 of the Act and describes the reasons for and purposes of 
the proposed definition.
    As discussed more fully in the analysis, the proposals may affect 
persons that are small entities, as defined by the Commission's rules. 
It is not expected that significant changes to reporting, recordkeeping 
and compliance burdens would result from the proposal, inasmuch as the 
substantive effects of the changes to Section 18 are controlled 
primarily by the terms of the legislation, and not by the terms of this 
proposed definition. The purpose of the definition is to give guidance 
with regard to the meaning of a statutory term.
    There are no current federal rules that duplicate, overlap or 
conflict with the proposed definition.
    Several possible significant alternatives to the proposal were 
considered, including, among others, establishing different 
requirements for small entities or exempting them from all or part of 
the proposed definition. As discussed more fully in the analysis, this 
rulemaking does not lend itself to separate treatment for small 
businesses. The definition is purposefully crafted in broad terms to 
encompass small entities together with other issuers. No public 
interest would be served by a definition that would exclude small 
entities from enjoying the benefits of state preemption.
    Written comments are encouraged with respect to any aspect of the 
analysis. Such comments will be considered in the preparation of the 
Final Regulatory Flexibility Analysis if the proposed amendments are 
adopted. A copy of the analysis may be obtained by contacting James R. 
Budge, Division of Corporation Finance, Mail Stop 7-8, 450 Fifth 
Street, NW., Washington, DC 20549.

V. Statutory Basis

    Rule 146 is being proposed pursuant to Sections 18 and 19 of the 
Securities Act.

List of Subjects in M CFR Part 230

    Reporting and recordkeeping requirements, Securities.

Text of the Proposal

    In accordance with the foregoing, Title 17, chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

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

    1. The authority citation for part 230 is revised to read in part 
as follows:

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss, 
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-
30, and 80a-37, unless otherwise noted.
* * * * *
    2. By adding Sec. 230.146, to read as follows:


Sec. 230.146  Definition of ``prepared by or on behalf of the issuer'' 
for purposes of Section 18 of the Act.

    Prepared by or on behalf of the issuer. An offering document (as 
defined in Section 18(d)(1) of the Act [15 U.S.C. 77r(d)(1)]) shall be 
deemed ``prepared by or on behalf of the issuer'' for purposes of 
Section 18 of the Act, if the issuer authorizes its production and if 
it has been prepared by:
    (a) A director, officer, general partner, employee, affiliate, 
underwriter,

[[Page 7188]]

attorney, accountant or agent of the issuer; or
    (b) An agent or representative of any person specified in paragraph 
(a) of this section.

    Dated: February 11, 1997.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3845 Filed 2-14-97; 8:45 am]
BILLING CODE 8010-01-P