[Federal Register Volume 62, Number 210 (Thursday, October 30, 1997)]
[Rules and Regulations]
[Pages 58647-58650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28704]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 232
[Release No. 33-7472; 34-39269]
Rule to Provide That the Commission Will Not Accept Paper Filings
That are Required To Be Filed Electronically
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission is adding a rule to the
series of rules governing the submission of filings and other documents
through the Electronic Data Gathering, Analysis, and Retrieval system.
The new rule provides that the Commission will not accept any paper
filing that is required to be filed electronically, unless it satisfies
the requirements for a temporary or continuing hardship exemption.
EFFECTIVE DATE: The rule is effective on January 1, 1998.
FOR FURTHER INFORMATION CONTACT: Margaret R. Black, Division of
Corporation Finance, (202) 942-2933, or Ruth Armfield Sanders, Division
of Investment Management, (202) 942-0633, U.S. Securities and Exchange
Commission, Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The U.S. Securities and Exchange Commission
(the ``Commission'') is adding new Rule 14 to Regulation S-T
1 under the Securities Act of 1933 (``Securities
Act'').2
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\1\ 17 CFR Part 232.
\2\ 15 U.S.C. 77a et seq.
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[[Page 58648]]
I. Discussion
The Commission's filing rules mandate electronic filing by
registrants and certain others via the Commission's Electronic Data
Gathering and Retrieval (``EDGAR'') system.3 Most companies
were phased into the electronic system in groups between 1993 and 1996;
by May, 1997, when small business filers were completely phased into
the electronic filing system, all domestic issuers were required to
file most documents electronically.4 EDGAR filings are
available on the Commission's Internet web site within 24 to 48 hours
of filing, and commercial databases provide the information even
sooner. The electronic filing system has made filings more easily and
more quickly available to the investing public.
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\3\ Rules 101 and 102 of Regulation S-T [17 CFR 232.101 and 17
CFR 232.102].
\4\ Rule 101(a) of Regulation S-T [17 CFR 232.101(a)]
specifically excepts ``foreign private issuers and foreign
governments'' from the persons and entities subject to mandated
electronic filing. In the future, the Commission will consider
whether such filings should be required to be made electronically.
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Most filers either regularly and promptly submit filings via the
EDGAR system or apply for an exemption before the required filing date.
The high level of compliance with the rules requiring electronic filing
draws attention to the fact that some filers have continued to make
their filings in paper without requesting a hardship exemption. In May
1997, for example, when approximately 23,750 filings were submitted
electronically, the Commission received approximately 8,850 paper
filings, of which approximately 500 should have been filed
electronically.5 These paper filings create a gap in the
EDGAR database because all paper filings, whether or not filed pursuant
to an exemption, are currently accepted and treated as valid
filings.6 The gap in the electronic database is detrimental
to an investing public that relies on the prompt availability and
dissemination of filed information. Those who rely primarily on the
EDGAR database may not even be aware that the information is on file
with the Commission.
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\5\ The other paper filings were filings from foreign private
issuers or foreign governments, filings submitted in paper pursuant
to a hardship exemption, and filings on forms not yet required to be
filed electronically.
\6\ The Commission staff screens all paper filings to determine
if they should have been filed on EDGAR. If the submission should
have been filed electronically, the staff calls or writes to the
filer, and asks the filer to file an electronic copy of the
document, or to apply for a hardship exemption if appropriate.
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The Commission's rules take into account the possibility that under
certain circumstances electronic filing may be difficult or impossible
by allowing filers relief from electronic filing through hardship
exemptions. Filers may claim or request, as appropriate, hardship
exemptions based on certain criteria, including, for example, technical
difficulties in filing, and undue burden and expense of conversion to
electronic format.7 A temporary hardship exemption,
generally for unanticipated technical difficulties, is available
automatically but must be followed, within six business days, by a
confirming electronic copy so that the electronic database is
complete.8 A continuing hardship exemption is also
available, but must be granted by the staff. It may be granted for a
specific period (after which a confirming electronic copy must be
filed) or for an indefinite period.9
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\7\ Rule 201 of Regulation S-T (temporary hardship exemption)
[17 CFR 232.201] and Rule 202 of Regulation S-T (continuing hardship
exemption) [17 CFR 232.202].
\8\ Rule 201 requires paper filings relying on the temporary
hardship exemption to be accompanied by a Form TH, Notification of
Reliance on Temporary Hardship Exemption, and in the case of
exhibits, Form SE, Form for Submission of Paper Format Exhibits by
Electronic Filers.
\9\ Rule 202(a) states that requests for a continuing hardship
exemption must be submitted at least ten days in advance of filing.
Requests must be submitted by either filers or their counsel, and
the request may be submitted by fax to the Office of EDGAR Policy in
the Division of Corporation Finance at (202) 942-9542. Questions
about hardship exemptions should be directed to that Office at (202)
942-2940. Investment company filers should direct their requests and
inquiries to the Investment Management EDGAR Branch at (202) 942-
0591.
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While the rules acknowledge the possible impediments to electronic
filing, they also impose sanctions on issuers that do not comply with
the electronic filing rules (and that fail to request an exemption, or
fully comply with the requirements of the exemption). The sanctions
include the inability to use certain short form registration
statements,10 the inability to incorporate the paper filing
by reference into other filings,11 and the tolling of
certain tender offer periods.12
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\10\ See, e.g., Instruction I.H to Form S-2 [17 CFR 239.12].
Forms S-3 [17 CFR 239.13], S-8 [17 CFR 239.16b], F-2 [17 CFR 239.32]
and F-3 [17 CFR 239.33] contain similar provisions. See also the
note to Rule 101(a) of Regulation S-T [17 CFR 232.101(a)], Note 1 to
Rule 201(b) of Regulation S-T [17 CFR 232.101(b)] and Note 3 to Rule
202(d) of Regulation S-T [17 CFR 232.101(d)].
\11\ Rule 303 of Regulation S-T [17 CFR 232.303].
\12\ Rule 13e-4(f)(12) [17 CFR 240.13e-4(f)(12)] and Rule 14e-
1(e) [17 CFR 240.14e-1(e)].
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Neither the availability of the hardship exemptions nor the
sanctions provided by the rules have completely eliminated paper
filings that are filed inappropriately without a hardship exemption.
The Commission believes that there is a strong public interest in
decreasing the number of non-compliant filings. First, electronic
filing makes information available more quickly than paper filing. The
electronic filing system is the most efficient and effective way of
disseminating filed information to the public. Each filing in paper
format that is not the subject of an exemption creates an information
gap for a marketplace that has come to rely on EDGAR for immediate and
complete access. Second, it appears unfair to those filers who comply
with the filing rules to accept the filings of those who do not.
Finally, paper filings are more costly to the Commission because they
require more staff time to process, maintain, track and retrieve. Paper
filings prevent the Commission's staff from taking full advantage of
the efficiencies of electronic filing for processing, tracking and
staff review of filings. Paper filings also disrupt the continuity of
preserving records permanently in an electronic format.
The Commission has determined, therefore, that the EDGAR filing
rules should be revised to provide that documents that are required to
be filed electronically will not be accepted for filing in paper format
in the absence of an available exemption. In reaching this decision,
the Commission also considered that the phase-in period for electronic
filing has been complete for over a year, giving filers ample time to
become familiar with and to comply with the electronic filing
requirements. The Commission believes that a specific rule providing
for the rejection of non-compliant filings will help to decrease the
number of paper filings. The Office of Filings and Information Services
will be instructed not to accept paper submissions that should have
been filed electronically.13 Those brought by courier will
be given back to the courier, and those sent by mail or other delivery
service will be returned by mail. If a filing is required to be filed
within a certain period (e.g., ninety days from the end of the fiscal
year for annual reports on Form 10-K), the rejection of an improper
paper filing would result in a filer failing to meet its disclosure
obligations unless the document is
[[Page 58649]]
submitted electronically by the due date.14
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\13\ Filers submitting paper filings in reliance on a hardship
exemption must include on the first page of the filing the legend
stating that the filer is relying on a hardship exemption. See Rule
201(a)(2) of Regulation S-T [17 CFR 232.201(a)(2)] and Rule 202(c)
of Regulation S-T [17 CFR 232.202(c)].
\14\ The only date the Commission will consider in determining
compliance with the disclosure requirements will be the filing date
of the electronically transmitted document.
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The Commission is aware that the immediate result of returning a
paper submission will be that access to the information will be delayed
until the sender re-submits it in electronic format, because the filing
will not be available even in paper format through the Commission's
public reference facilities. In order to minimize this delay, the staff
will use its best efforts to notify senders of the problem promptly so
they can take immediate steps to re-submit the documents. As filers
become accustomed to this policy, improved compliance with the EDGAR
rules can be expected. The result will be an improvement in the
timeliness of information available to the public.
The Commission also considered whether to revise the rules
providing for sanctions. It has been argued that the current rules
create an inference that the Commission will accept paper filings
because the penalty is imposed in the event a filing is improperly
submitted in paper format. The Commission believes that the creation of
a general rule providing for the rejection of paper filings where the
filing does not satisfy the requirements of a hardship exemption will
clear up any possible misinterpretation of the rules. As with its other
rules, the Commission will use any appropriate means, including its
authority to bring legal actions, to enforce the electronic filing
rules. In addition, keeping the current sanctions will provide a backup
system of penalties that would apply to a paper filing that is accepted
in error. The Commission therefore believes that a change to the rules
imposing sanctions is not necessary or appropriate at this time.
II. Effective Date
The new rule is effective on January 1, 1998, and applies to
filings made after that date, including amendments to filings made
earlier.
III. Certain Findings
Since the new rule relates solely to agency organization,
procedure, or practice, publication for notice and comment is not
required under the Administrative Procedure Act.15 It
follows that the requirements of the Regulatory Flexibility Act
16 do not apply.
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\15\ 5 U.S.C. 553(b).
\16\ 5 U.S.C. 601-612.
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The new rule does not come within the scope of the Paperwork
Reduction Act of 1995 17 because the new rule is not a
substantive or material change to a collection of
information.18
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\17\ 44 U.S.C. 3501 et seq.
\18\ 5 CFR 1320.5(g).
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Under 5 U.S.C. 804, this rule is exempt from the definition of the
term ``rule'' for purposes of Chapter 8, entitled ``Congressional
Review of Agency Rulemaking,'' since the rule is a rule of agency
organization, procedure, or practice that does not substantially affect
the rights or obligations of non-agency parties.
Section 23(a)(2) 19 of the Securities Exchange Act of
1934 (the ``Exchange Act'') 20 requires the Commission to
consider the anti-competitive effects of any rules it adopts
thereunder, if any, and the reasons for its determination that any
burden on competition imposed by such rules is necessary or appropriate
to further the purposes of the Exchange Act. Because the new rule does
not effect any substantive change, it will not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
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\19\ 15 U.S.C. 78w(a)(2).
\20\ 15 U.S.C. 78a et seq.
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IV. Cost-Benefit Analysis
The benefits of this new procedural rule clearly exceed the costs.
The amendment should benefit the investing public by increasing the
number of documents filed electronically and therefore the public's
knowledge of and timely access to the information in the documents.
Based on filings made in May of 1997, the rule could result in an
additional 500 filings per month being made electronically rather than
on paper. This assumes that all paper filings made without a hardship
exemption would have been filed electronically if the new rules had
been in effect. Of course, it is possible that one result of the rule
will be that more filers will request and receive hardship exemptions.
However, any burden resulting from an increase in applications for
hardship exemptions is likely to be minimal and only constitutes the
costs of complying with an existing standard.
Furthermore, Section 2 of the Securities Act 21 and
Section 3 of the Exchange Act,22 as amended by the recently
enacted National Securities Markets Improvement Act of
1996,23 provide that whenever the Commission is engaged in
rulemaking and is required to consider or determine whether an action
is necessary or appropriate in the public interest, the Commission also
shall consider, in addition to the protection of investors, whether the
act will promote efficiency, competition, and capital formation.
Because the amendments will increase the amount of information
available on a timely basis to the investing public, the new rule is in
the public interest and will promote the efficient dissemination of
such information. The new rule will not affect efficiency, competition
or capital formation because it does not result in a material change in
capital raising or regulatory compliance costs.
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\21\ 15 U.S.C. 77b.
\22\ 15 U.S.C. 78c.
\23\ Pub. L. No. 104-290, Sec. 106, 110 Stat. 3416 (1996).
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V. Statutory Basis
The rule is proposed pursuant to Sections 6, 7, 8, 10 and 19(a) of
the Securities Act, Sections 3, 12, 13, 14, 15(a), 23(a) and 35A of the
Exchange Act, Sections 3, 5, 6, 7, 10, 12, 13, 14, 17 and 20 of the
Public Utility Holding Company Act of 1935,24 Section 319 of
the Trust Indenture Act of 1939,25 and Sections 8, 30, 31
and 38 of the Investment Company Act of 1940.26
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\24\ 15 U.S.C. 79a et seq.
\25\ 15 U.S.C. 77aaa et seq.
\26\ 15 U.S.C. 80a-1 et seq.
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List of Subjects in 17 CFR Parts 232
Administrative practice and procedure, Reporting and recordkeeping
requirements, Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
The authority citation for Part 232 continues to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.
2. By adding Sec. 232.14 to read as follows:
Sec. 232.14 Paper filings not accepted without exemption.
The Commission will not accept in paper format any filing required
to be submitted electronically under Rules 100 and 101 of Regulation S-
T (Secs. 232.100 and 232.101 respectively), unless the filing satisfies
the requirements for a temporary or continuing hardship exemption under
[[Page 58650]]
Rule 201 or 202 of Regulation S-T (Secs. 232.201 or 232.202
respectively).
By the Commission.
Dated: October 24, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-28704 Filed 10-29-97; 8:45 am]
BILLING CODE 8010-01-P