In infants, DEHP also contributed the most to the cumulative risk. DEHP contributed between 50 and 90 percent of the median HI (Table 1). However, the relative contributions of other phthalates were somewhat greater in infants than in pregnant women. DINP contributed between 1 percent (case 1) and 15 percent (case 2) of the median HI. DBP and BBP contributed between 2 percent and 18 percent of the HI. (Table 1).

According to the CHAP, these results indicate that DEHP contributed between 50 and 90 percent of the cumulative risk from exposure to antiandrogenic phthalates. The HQs of DBP, BBP, and DINP were similar. (CHAP 2014, p. 65). DINP contributed between 1 percent and 15 percent of the cumulative risk. (Table 1).

Furthermore, the CHAP noted that consumers are exposed to other types of chemicals, such as parabens  9 and certain pesticides that also add to the total risk of antiandrogenic effects. (CHAP 2014, p. D-26). These additional chemicals may increase the risk slightly or, as a worst case, double the percentage of pregnant women with an HI greater than one. ( Id. ). The CHAP did not have data to estimate the effects of the additional chemicals in infants. ( Id. ).

As required by section 108(b)(2)(B)(ii) of the CPSIA, the CHAP also considered the risks of phthalates and phthalate alternatives in isolation. Risks in isolation are of particular importance for the phthalate alternatives and the non-antiandrogenic phthalates. The CHAP did not include these compounds in the cumulative risk assessment because they are not antiandrogenic, and therefore, do not contribute to the cumulative risk for male reproductive developmental effects. The CHAP used a margin of exposure (MoE) approach to assess the risks in isolation. (CHAP 2014, p. 4). The MoE is the “no observed adverse effect level” (NOAEL) of the most sensitive endpoint in animal studies divided by the estimated exposure in humans. Higher MoEs indicate lower risks. Generally, MoEs greater than 100 to 1,000 are adequate to protect public health. (CHAP 2014, p. 20).

DIDP and DNOP are subject to the interim prohibition on phthalates under section 108 of the CPSIA. The CHAP concluded that they are not antiandrogenic; their most sensitive health effect is liver toxicity. (CHAP 2014, pp. 94, 104). MoEs for DIDP range from 300 (modeling using conservative assumptions) to 10,000 (biomonitoring). (CHAP 2014, pp. 24, 104). DNOP was largely not detectable in biomonitoring studies; MoEs based on modeling (with conservative assumptions) are 1,800 or more. (CHAP 2014, pp. 24, 95). Because the MoEs in humans are likely to be very high, and thus adequate to protect public health, the CHAP did not find compelling data to justify maintaining the current interim bans on the use of DNOP and DIDP in children's toys and child care articles. The CHAP recommended that the interim prohibitions on DNOP and DIDP be lifted. (CHAP 2014, pp. 95, 104).

In addition to noting DINP's antiandrogenic characteristics, the CHAP also stated that DINP is associated with liver toxicity. (CHAP 2014, pp. 95-99). Furthermore, liver toxicity is the most sensitive health effect for DINP. Thus, to assess the adverse effects of DINP in isolation, the CHAP considered liver toxicity to calculate MoEs. The CHAP stated: “Using the NOAEL of 15 mg/kg-d for systemic toxicity [liver toxicity], the MoE for infants ranged from 830 to 4,200. The MoE for women ranged from 1,600 to 15,000. MoEs exceeding 100-1000 are considered adequate for public health.” (CHAP 2014, p. 99). Despite high MoEs associated with DINP, the CHAP nevertheless recommended a permanent ban on DINP in children's toys and child care articles, concluding that: “DINP does induce antiandrogenic effects in animals, although at levels below that for other active phthalates, and therefore can contribute to the cumulative risk from other antiandrogenic phthalates.”

Exposure data on many of the nonregulated phthalates are limited. Considered in isolation, MoEs for DIBP were 40,000 or more. (CHAP 2014, p. 111). However, DIBP contributes to the cumulative risk, due to its antiandrogencity.

The CHAP noted that exposure data on phthalate alternatives are also limited. Estimates of mouthing exposure to children up to 3 years old are available for TPIB, DEHT, ATBC, and DINX. MoEs for mouthing exposure for TPIB, DEHT, ATBC, and DINX are greater than 5,000. (CHAP 2014, pp. 121-142). However, DEHT, ATBC, TOTM, and DEHA are high production volume chemicals. ( Id. ). TPIB, DEHA, DEHT, ATBC, and TOTM are used in many types of products found in the home. Thus, as the CHAP noted, human exposure may occur from other sources, in addition to mouthing by children. ( Id. ).

The CHAP found that, among the permanently banned phthalates, DBP and BBP had MoEs of 5,000 or more. (CHAP 2014, pp. 82-88). For DEHP, MoEs ranged from 30 to 3,000. (CHAP 2014, p. 91). The 95th percentile exposure to pregnant women had a MoE of 30, which is less than the minimum value of 100, based on biomonitoring. The 95th percentile exposure in infants had a MoE of 100, based on modeling and 170 for biomonitoring. ( Id. ). Thus, the CHAP found that some highly exposed pregnant women, more than 5 percent of the population, had DEHP exposures that may present a concern for adverse health effects. ( Id., p. 65). Furthermore, the CHAP noted that DEHP contributes more than half of the cumulative risk from phthalates. (Table 1; CHAP 2014, p. 65).

The CHAP did not recommend any Commission action on DBP, BBP, or DEHP because these phthalates are already permanently prohibited by the CPSIA. (CHAP 2014, pp. 83-91). However, the CHAP recommended that U.S. agencies responsible for DBP, BBP, and DEHP exposures from all sources conduct the necessary risk assessments with a view to supporting risk management steps. (CHAP 2014, pp. 83-91).

The CHAP recommended that DINP at levels greater than 0.1 percent should be permanently prohibited from use in children's toys and child care articles. (CHAP 2014, pp. 95-99). Although DINP is less potent than DEHP, or other active phthalates, the CHAP reasoned that DINP is antiandrogenic and contributes to the cumulative risk from phthalates. ( Id. ).

The CHAP concluded: “DNOP does not appear to possess antiandrogenic potential; nonetheless, the CHAP is aware that DNOP is a potential developmental toxicant, causing supernumerary ribs, and a potential systemic toxicant, causing adverse effects on the liver, thyroid, immune system, and kidney. However, because the MoE in humans is likely to be very high, the CHAP does not find compelling data to justify maintaining the current interim ban on the use of DNOP in children's toys and child care articles. Therefore, the CHAP recommends that the current ban on DNOP be lifted.” (CHAP 2014, p. 95).

The CHAP concluded: “DIDP does not appear to possess antiandrogenic potential; nonetheless, the CHAP is aware that DIDP is a potential developmental toxicant, causing supernumerary ribs, and a potential systemic toxicant, causing adverse effects on the liver and kidney. However, because DIDP is not considered in a cumulative risk with other antiandrogens, its MoE in humans is considered likely to be relatively high. The CHAP did not find compelling data to justify maintaining the current interim ban on the use of DIDP in children's toys and child care articles. Therefore, the CHAP recommends that the current ban on DIDP be lifted . . .” (CHAP 2014, pp. 100-105).

The CHAP recommended that the Commission permanently prohibit the use of the following phthalates at levels greater than 0.1 percent in children's toys and child care articles: diisobutyl phthalate (DIBP) (CHAP 2014, pp. 110-112), di- n -pentyl phthalate (DPENP) ( id., pp. 112-113), di- n -hexyl phthalate (DHEXP) ( id., pp. 114-116), and dicyclohexyl phthalate (DCHP) ( id., pp. 116-118). These are antiandrogenic phthalates that adversely affect male reproduction development. The CHAP noted that current exposures to DIBP, DPENP, DHEXP, and DCHP are low and, therefore, “. . . do not indicate a high level of concern.” (CHAP 2014, p. 8). However, because they are active phthalates, they contribute to the cumulative risk from other antiandrogenic phthalates. Allowing their use in toys and child care articles would increase the cumulative risk to children. The CHAP also noted that DPENP is the most potent antiandrogenic phthalate. (CHAP 2014, pp. 112-113).

In addition, the CHAP recommended that the Commission prohibit the use of diisooctyl phthalate (DIOP) on an interim basis at levels greater than 0.1 percent until sufficient data are available. (CHAP 2014, pp. 118-119). DIOP has been detected, although rarely, in child care products. (Chen 1998). Although toxicity data on DIOP are limited, the CHAP concluded, “. . . the isomeric structure of DIOP suggests that DIOP is within the range of the structure-activity characteristics associated with antiandrogenic activity.” (CHAP 2014, pp. 118-119).

The CHAP did not recommend to CPSC any action on the use of di(2-propyl) heptyl phthalate (DPHP) in toys and child care articles, at this time. (CHAP 2014, pp. 120-121). However, the CHAP recommended that appropriate federal agencies obtain toxicity and exposure data for DPHP. The CHAP noted that most of the toxicity data are unpublished and were not available to the CHAP. DPHP does not appear to be antiandrogenic, based on limited information. However, the CHAP noted: “Currently, there is an undetermined frequency and duration of exposures; however, analytical methods cannot differentiate DPHP metabolites from DIDP metabolites because they are closely related.” The CHAP noted further that production levels of DPHP have increased in recent years, suggesting that human exposure may also be increasing. ( Id., p. 120).

The CHAP did not recommend Commission action on dimethyl phthalate (DMP) (CHAP 2014, pp. 105-107) or diethyl phthalate (DEP). ( Id., pp. 107-109). However, the CHAP recommended that the U.S. federal agencies responsible for DEP exposures from food, pharmaceuticals, and personal care products perform the necessary risk assessments with a view to supporting risk management steps. ( Id., p. 109).

The CHAP found that data on the six phthalate alternatives reviewed by the CHAP are generally limited. (CHAP 2014, pp. 121-142). The CHAP noted that CPSC staff has found four of the alternatives—acetyl tributyl citrate (ATBC); di(2-ethylhexyl) terephthalate (DEHT); 1,2-cyclohexanedicarboxylic acid, diisononyl ester (DINX); and 2,2,4-trimethyl-1,3 pentanediol diisobutyrate (TPIB)—in many children's toys and child-care articles. (Dreyfus 2010). Two of the alternatives—di(2-ethylhexyl) adipate (DEHA) and tris(2-ethylhexyl) trimellitate (TOTM)—have not been identified by CPSC staff in toys or child care articles, thus far. (Dreyfus, 2010). For all of the phthalate alternatives, the CHAP recommended obtaining additional data on exposure from all sources because many of the alternatives have multiple uses. The CHAP also recommended obtaining additional toxicity data on TPIB, ATBC, DINX, and TOTM.

CPSC staff assessed the CHAP report, examining whether the CHAP met the requirements of the CHAP's charge and whether the CHAP report was otherwise scientifically sound in its methodology, findings and recommendations.

Section 108(b)(2)(B) of the CPSIA required the CHAP to “. . . complete an examination of the full range of phthalates that are used in products for children. . . .” To meet its charge, the CHAP reviewed all of the available toxicity data on 14 phthalates. The 14 phthalates included the six phthalates set forth in the CPSIA and eight additional phthalates selected on the basis of toxicity ( i.e., male developmental reproductive effects) and exposure potential ( e.g., availability of human biomonitoring data). The CPSIA also required the CHAP to consider the following:

• “Examine all of the potential health effects (including endocrine disrupting effects) of the full range of phthalates.” The CHAP examined all of the health effects associated with phthalates, including carcinogenicity, liver toxicity, and reproductive/developmental toxicity. (CHAP 2014, pp. 13-29; Appendices A-C). As discussed in detail below, the CHAP conducted its cumulative risk assessment based on male developmental reproductive effects. The phthalate syndrome is due largely to the inhibition of testosterone production in the male fetus, which is a type of endocrine disruption. The CHAP's cumulative risk assessment focused on male developmental reproductive effects. (CHAP 2014, pp. 69-70).

• “Consider the potential health effects of each of these phthalates both in isolation and in combination with other phthalates.” To assess the potential health effects of phthalates in isolation, the CHAP used the MoE based on the most sensitive endpoint for each phthalate. (CHAP 2014, pp. 69-70). To assess the potential health effects of phthalates in combination, the CHAP conducted a cumulative risk assessment, based on male developmental reproductive effects. ( Id. ).

• “Examine the likely levels of children's, pregnant women's, and others' exposure to phthalates, based on a reasonable estimation of normal and foreseeable use and abuse of such products.” The CHAP assessed exposure by two complementary methods. Biomonitoring studies provide good estimates of total exposure to phthalates but do not provide information on the sources of exposure. (CHAP 2014, pp. 34-48). The scenario-based approach estimates exposure to specific products and sources of exposure, including toys, child care articles, and personal care products. (CHAP 2014, pp. 49-60; Appendices E1-E3).

• “Consider the cumulative effect of total exposure to phthalates, both from children's products and from other sources, such as personal care products.” The CHAP conducted a cumulative risk assessment, based on total phthalate exposure, as estimated from biomonitoring studies. (CHAP 2014; pp. 61-68; Appendix D).

• “Review all relevant data, including the most recent, best-available, peer-reviewed, scientific studies of these phthalates and phthalate alternatives that employ objective data collection practices or employ other objective methods.” The CHAP reviewed all of the available data on phthalates, including publications in peer-reviewed scientific journals; reports submitted by manufacturers to the U.S. EPA;  10 and authoritative reviews from agencies such as the Agency for Toxic Substances and Disease Registry (ATSDR), the European Chemical Agency (ECHA), the International Agency for Research on Cancer (IARC), Center for the Evaluation of Research on Human Reproduction (CERHR), National Toxicology Program (NTP); and the National Research Council (NRC). (CHAP, 2014, p. 12). In addition, the CHAP invited scientific experts to present their latest research in areas such as biomonitoring, epidemiology, phthalate syndrome, toxicology of phthalates mixtures, phthalates mode of action, and species differences. The CHAP also invited a co-author of an NRC report (NRC, 2009) to present the NRC panel's perspective on risk assessment methodology, especially as applied to phthalates risk assessment. Furthermore, the CHAP heard testimony from federal agency scientists, as well as scientists representing manufacturers of phthalates alternatives.

• “Consider the health effects of phthalates not only from ingestion but also as a result of dermal, hand-to-mouth, or other exposures.” The CHAP estimated phthalate exposure by two methods. Biomonitoring studies estimated total exposure, regardless of source or route of exposure. (CHAP 2014, pp. 34-48). The scenario-based approach estimated exposure to specific products and sources of exposure by all routes of exposure, including oral, dermal, inhalation, and hand-to-mouth. (CHAP 2014, pp. 49-60; Appendices E1-E3).

• “Consider the level at which there is a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals and their offspring, considering the best available science, and using sufficient safety factors to account for uncertainties regarding exposure and susceptibility of children, pregnant women, and other potentially susceptible individuals.” For antiandrogenic phthalates, the CHAP derived reference doses (PEAAs) that were specific for male developmental reproductive effects. (CHAP 2014, Table 2.15). For non-antiandrogenic phthalates and phthalate alternatives, the CHAP selected appropriate NOAELs that were based on the most sensitive endpoint. ( Id., pp. 79-142, Appendices A-B). The CHAP also recommended the use of additional uncertainty factors (safety factors) for selected compounds where the database was limited (ATBC and DEHA).

• “Consider possible similar health effects of phthalate alternatives used in children's toys and child care articles.” The CHAP considered all health effects associated with six phthalate alternatives and, where sufficient data were available, estimated the potential health risks based on the most sensitive health endpoint. (CHAP, 2014, pp. 121-142, Appendices A-B).

Furthermore, section 108(b)(2)(B) required the CHAP to perform its examination de novo. “The findings and conclusions of any previous Chronic Hazard Advisory Panel on this issue and other studies conducted by the Commission shall be reviewed by the panel but shall not be considered determinative.” Although the CHAP considered previous CHAP reports and CPSC staff reports, the CHAP also conducted its own review of the scientific literature (including studies conducted by phthalate manufacturers) and invited experts to present their most recent research. (CHAP, 2014, p. 12).

Finally, section 108(b)(2)(C) required the CHAP to “make recommendations to the Commission regarding any phthalates (or combinations of phthalates) in addition to those identified in subsection (a) or phthalate alternatives that the panel determines should be declared banned hazardous substances.” The CHAP completed its charge by making recommendations to prohibit additional phthalates ( id., pp. 110-117), make the interim prohibition of DINP permanent ( id., pp. 95-99), lift the interim prohibitions of DNOP ( id., pp. 91-94) and DIDP ( id., pp. 100-104), and prohibit DIOP on an interim basis ( id., pp. 118-119).

The staff concluded that the CHAP fully met the charge in section 108 of the CPSIA.

The CHAP selected phthalates for inclusion in its examination based on the following non-exclusive criteria: inclusion in the CPSIA, availability of human biomonitoring data, potential for exposure, and evidence of male developmental reproductive toxicity. (CHAP, 2014, pp. 22-23):

• Six phthalates subject to the CPSIA—DBP, BBP, DEHP, DNOP, DINP, and DIDP;

• Availability of biomonitoring data—DMP, DEP, DIBP, in addition to the six phthalates subject to the CPSIA;

• Increasing production, which suggests increasing exposure—DPHP; and

• Ability to induce male developmental reproductive effects—DIBP, DPENP, DHEXP, and DCHP. ( Id., p. 16).

The CPSC staff concurs with the CHAP's selection of phthalates because the 14 phthalates that the CHAP reviewed include phthalates with high exposure potential and phthalates that contribute to the cumulative risk for male developmental reproductive effects.

The CHAP selected six phthalate alternatives for study, either because they were known to be used in children's toys and child care articles (ATBC, DEHT, DINX, TPIB) (Dreyfus 2010) or because they were considered likely to be used (DEHA, TOTM) (CHAP, 2014; p. 23; Versar/SRC, 2010a). CPSC staff recognizes that there is a broad range of potential phthalate alternatives (Versar/SRC, 2010a), including phthalates that are not prohibited by the CPSIA. Nonetheless, CPSC staff agrees with the CHAP's choice of phthalate alternatives because it includes all of the non-phthalate plasticizers known to be used in toys and child care articles (Dreyfus 2010; TAB B), as well as other commonly used plasticizers. After the CHAP completed its report, CPSC staff identified DPHP in children's toys; DPHP is an emerging phthalate that was included in the CHAP report.

After reviewing all of the available toxicity data on 14 phthalates, the CHAP selected male developmental reproductive toxicity as the critical endpoint for its cumulative risk assessment. (CHAP 2014, pp. 13). CPSC staff supports the selection of male developmental reproductive toxicity for several reasons. Male developmental reproductive effects in animals are associated with many of the most common phthalates. For most of the active phthalates, these effects are the most sensitive health effect; that is, these effects are observed at lower doses than other adverse health effects ( see CPSC staff and contractor reports at http://www.cpsc.gov/chap ). Male developmental reproductive effects (phthalate syndrome) are of particular concern because they may adversely affect human reproduction. Furthermore, the phthalate syndrome in animals bears a striking resemblance to the testicular dysgenesis syndrome in humans. (Skakkebaek et al., 2001).

The availability of empirical evidence also supports the choice to base the cumulative risk assessment on male developmental reproductive effects because such evidence eliminates the need to make critical assumptions that might not be borne out. Specifically, empirical evidence demonstrates that mixtures of active phthalates interact in a dose-additive fashion with respect to developmental male reproductive effects. (Howdeshell et al., 2007, 2008; Hannas et al., 2011b, 2012). Thus, it was not necessary for the CHAP to make any assumptions regarding the effects of phthalate mixtures. Most other health effects of phthalates have not been studied with mixtures; performing a cumulative risk assessment on any other endpoint would require assumptions regarding the mode of action and possible mixture effects.

Furthermore, the male developmental reproductive effects of phthalates are well-studied. (Reviewed in Foster, 2006). These effects, which were first reported in 1980 (Foster et al., 1980), persist into adulthood, even in the absence of further exposure (Barlow and Foster, 2003; Barlow et al., 2004; McIntyre et al., 2001). Similar effects have been reported in multiple mammalian species, including guinea pigs (Gray et al., 1982), mice, (Gray et al., 1982; Moody et al., 2013; Ward et al., 1998), rabbits (Higuchi et al., 2003), and ferrets (Lake et al., 1976). Hamsters were resistant due to slow metabolism of the phthalate ester to the monoester, which is believed to be the active metabolite. Hamsters responded to the monoester, however. (Gray et al., 1982). The observation of similar effects in multiple species demonstrates that these effects are not unique to rats. Based on the CPSC chronic hazard guidelines, the CPSC staff regards active phthalates as “probably toxic to humans,” based on “sufficient evidence” in animal studies. (CPSC, 1992).

Other authors also have selected male developmental reproductive effects as the basis of cumulative risk assessments of phthalates. The U.S. Environmental Protection Agency (EPA) convened a National Research Council (NRC) committee to consider approaches to assessing the cumulative risk of phthalates; the committee recommended using male developmental reproductive effects as the basis for a cumulative risk assessment. (NRC, 2008). Additionally, two subsequent publications conducted cumulative risk assessments based on male developmental reproductive effects. (Benson, 2009; Christensen et al., 2014).

CPSC staff recognizes that a number of other health effects are associated with phthalates. (Reviewed in Babich, 2010). Although some phthalates are associated with cancer, cancer is only associated with a relatively small number of phthalates, and many of the cancers induced by phthalates are of uncertain relevance to humans. (CHAP, 2001; CPSC, 2002; Klaunig et al., 2003). Other effects, such as liver toxicity, are common to most phthalates; but there are little or no data available on mode of action or the effects of mixtures. Thus, there is less scientific basis for performing a cumulative risk assessment with liver toxicity as the critical endpoint.

Finally, a growing number of epidemiological studies have reported associations of phthalate exposure with adverse health effects in humans. (As cited in CHAP 2014, pp. 27-33, Appendix C). Many of these adverse health effects are consistent with the effects in animal studies. The staff concludes that the epidemiological studies, though not conclusive on their own, provide supporting evidence that the animal studies are relevant to humans.

Therefore, CPSC staff supports using male developmental reproductive effects as the basis for the CHAP's cumulative risk assessment due to the importance of the endpoint; the abundance of data, the known additive nature of phthalate mixtures regarding male developmental reproductive effects, and NRC's recommendation.

The CHAP chose the hazard index (HI) approach for its cumulative risk assessment because that index is widely accepted for this purpose. (Teuschler and Hertzberg, 1995). The National Research Council (NRC, 2008) recommended this approach for phthalates cumulative risk assessment. Two other publications on phthalates' cumulative risk also used the HI approach. (Benson, 2009; Christensen et al., 2014). ExxonMobil scientists  11 also recommended the HI approach to CPSC in 2010, before the CHAP met for the first time.

The CHAP found that up to 10 percent of pregnant women and up to 5 percent of infants, those with the highest exposure, have a HI greater than one. The portion of the population with a HI greater than one may be at risk for the adverse effects of phthalates. (EPA, 1993). This does not necessarily mean that anyone will suffer adverse effects; however, one cannot rule out the possibility of adverse effects. The greater the HI, the greater the risk.

Although the HI approach is widely accepted, the CHAP introduced a novel process to calculate the HI. The CHAP calculated hazard quotients (HQ) and a HI for each individual in the population of interest ( i.e., pregnant women or infants), and then derived distributions of the HI. This was necessary because each individual is exposed to phthalates in differing proportions. For example, some individuals may be exposed almost exclusively to a single phthalate, while others may be exposed to several phthalates in roughly equal proportion. After calculating the HQs and HIs for all individuals, the CHAP then generated frequency distributions for the HI. This process allowed the CHAP to estimate the average and 95th percentile of the HI, as well as the portion of the population with a HI greater than one.

The alternative to the CHAP's approach would be to calculate hazard quotients using summary data on metabolite levels, that is, median and 95th percentile levels ( e.g., Benson, 2009). This would have allowed the CHAP to estimate median and 95th percentile hazard quotients for each phthalate. Under this approach, the median hazard quotients are summed to calculate the average HI, which would be roughly similar to the median hazard quotient calculated as above. However, summing the 95th percentile values would overestimate the 95th percentile HI. Therefore, the CHAP introduced this novel process to calculate the hazard quotients and HI more accurately, especially at the upper-bound ( e.g., 95th percentile) exposures. Had the CHAP not applied this novel approach, the result would have been an overestimate of the 95th percentile exposures and the percentage of pregnant women and infants with HI greater than one.

The CHAP chose the margin of exposure (MoE) approach to assess potential health risks for phthalates and phthalate alternatives in isolation. The CHAP chose this approach, in part, due to the recommendation of a NRC report on risk assessment methodology (NRC, 2009). Like the HI approach, the MoE is also widely accepted. ( Id. ).

The MoE is the ratio of the no observed adverse effect level (NOAEL) to the estimated exposure. Generally, a MoE of 100 to 1,000 is needed to protect public health (EPA, 1993). The minimum value of the MoE depends on the compound. If a NOAEL has been established in animal (rather than human) studies, a MoE of 100 or greater is sufficient to protect public health (CPSC, 1992). If a NOAEL has not been established, and a LOAEL (lowest observed adverse effect level) is used instead, or if the available toxicity data for the chemical of interest is inadequate, then a MoE of 1,000 may be required. Based on the knowledge that adequate animal data are available and NOAELS have been established for most of the phthalates, staff believes, consistent with the CHAP report, that a MoE of 100 is sufficient for most of the compounds in the CHAP report. The CHAP recommended an additional uncertainty factor for the phthalate alternatives ATBC and DEHA. Staff concurs that an additional uncertainty factor for ATBC and DEHA is appropriate because of limitations in the available toxicity data.

The MoE approach is conceptually similar to the CPSC staff's default approach for assessing non-cancer risks (CPSC, 1992) and would lead to similar conclusions about risk. CPSC staff approves of the CHAP's selection of the MoE approach to assess the risks of phthalates and phthalate alternatives in isolation because the MoE approach leads to the same conclusion as the staff's default methodology.

The CHAP assessed exposure by two complementary methods. Biomonitoring studies provide good estimates of total exposure to phthalates but do not provide information on the sources of exposure. (CHAP 2014, pp. 34-48). The scenario-based approach estimates exposure to specific products and sources of exposure, including toys, child care articles, and personal care products. (CHAP 2014, pp. 49-60; Appendices E1-E3). Staff concurs with the CHAP's use of these approaches to assess exposure for the reasons explained below.

The CHAP used exposure estimates from biomonitoring data as the basis for its cumulative risk assessment. CPSC staff considers biomonitoring to provide the best available estimates of total exposure because biomonitoring is based on empirical measurements in individuals. Furthermore, the NHANES study is a large statistically representative sample. In contrast, the alternative approach, scenario-based estimates, are subject to a number of assumptions and uncertainties. (CHAP, 2014, Appendix E). The method for estimating exposure from biomonitoring data has been in use since 2000 and was developed by an industry scientist. (David, 2000). The CHAP devoted considerable effort to discussing potential errors and bias in this methodology, having invited two experts (Stahlhut and Lorber) to address this issue at the December 2010 meeting. As discussed in the CHAP report, any errors in this methodology are relatively small and are unbiased (CHAP 2014, pp. 73-75). “Unbiased” means that any errors are equally likely to lead to overestimation or underestimation of risk.

The staff notes that the CHAP used the latest data available at the time the CHAP performed its analysis. Phthalate exposures in the U.S. population, as measured by biomonitoring, have remained essentially constant for about a 10-year period. (CDC, 2012; EPA, 2013). However, the most recent report from CDC shows that phthalate exposures are beginning to change as one might expect, as products are reformulated in light of concerns about phthalate toxicity. (CDC, 2013). The CDC report shows that exposure to DBP, BBP, and DEHP is declining, while exposures to DINP and DIBP are increasing. The decline in DEHP exposure may be due, in part, to concerns about its toxicity and replacement with other plasticizers. Exposure to DEP and DBP has declined somewhat, possibly due to reformulation of cosmetics and other products. (Zota et al., 2014). Staff has not assessed the effect of changing phthalate exposures on the HI.

One source of uncertainty in any risk assessment is the use of animal data as the basis for estimating the risk to humans. Male developmental reproductive effects have been well-studied in rats. In addition, similar effects have been reported in multiple mammalian species, including guinea pigs (Gray et al., 1982), mice, (Gray et al., 1982; Moody et al., 2013; Ward et al., 1998), rabbits (Higuchi et al., 2003), and ferrets (Lake et al., 1976) (Lake et al. 1976). Hamsters were resistant to male developmental reproductive effects due to slow metabolism of the phthalate ester to the monoester, which is believed to be the active metabolite. Hamsters responded to the monoester, however. (Gray et al. 1982). The observation of similar effects in multiple species demonstrates that these effects are not unique to rats. This is not surprising because male reproductive development is essentially similar in all mammalian species (NRC, 2008).

In contrast to these findings, a single study in marmosets that exposed pregnant females to DBP did not lead to any adverse effects in male offspring (McKinnell et al., 2009). However, as with most primate studies, this study was limited by small numbers.

Similarly, in two recent studies in which fetal rat and mouse testes, or fetal human testicular tissue, were transplanted into laboratory animals and exposed to phthalates (Heger et al., 2012; Mitchell et al., 2012), only the rat testes responded to the phthalates. However, the human fetal tissue was generally past 14 weeks of gestation, which is outside the window of maximum sensitivity. Nevertheless, given the potential significance of these studies, the CHAP invited the principal investigators of both studies (Boekelheide and Sharpe) to present their findings at the November 2011 CHAP meeting. Both of these scientists stated that their studies were very preliminary and that it would be premature to use their results to support public health decisions.

Finally, a growing number of epidemiological studies have reported associations of phthalate exposure with adverse health effects in humans. (CHAP 2014, pp. 27-33). Many of these effects are consistent with male developmental effects observed in animal studies. The human studies, although not conclusive on their own, provide supporting evidence that the animal studies are relevant to humans. (CPSC, 1992). The consistency of the results of the epidemiological studies with the animal studies provides additional support for the relevance of the animal studies to humans.

To summarize, active phthalates cause testicular effects in multiple animal species. The animal studies are further supported by the results of epidemiological studies. CPSC staff concludes that the weight of the evidence overwhelmingly supports the conclusion that male developmental reproductive effects in animals are appropriate for estimating risks to humans.

As discussed in the staff's briefing package, staff assessed the recommendations of the CHAP. The Commission agrees with the staff's assessment and provides the following explanation.

Section 108(b)(3)(A) of the CPSIA requires the Commission to determine, based on the CHAP report, whether to continue in effect the interim prohibitions on children's toys that can be placed in a child's mouth and child care articles containing DINP, DIDP, and DNOP “to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety.” For each phthalate, the Commission must decide whether to make the interim prohibitions permanent.

Consistent with the CHAP and the statutory framework, the Commission considered both cumulative risk and risk in isolation. For active phthalates, that is, phthalates causing male developmental reproductive effects, the Commission considered the cumulative risk, which was based on the HI. Consistent with the CHAP report and the CPSC chronic hazard guidelines (CPSC, 1992), the Commission considers that the acceptable risk is exceeded when the HI is greater than one (CPSC, 1992). Thus, the Commission considers that an HI <1 is necessary “to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety.”

For non-antiandrogenic phthalates and phthalate alternatives, the Commission considered the MoE, as estimated by the CHAP. MoEs greater than 100-1,000 are generally considered adequate to protect human health (EPA, 1993). As discussed above, the staff considers a MoE of 100 or more to be adequate if a NOAEL has been identified in animal studies (CPSC, 1992), which is the case for most of the compounds discussed by the CHAP. Thus, for the phthalates discussed in this section, the Commission considers a MoE of 100 or greater to be necessary “to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety.”

The CHAP recommended that the interim prohibition on DNOP not be continued (CHAP 2014, pp. 91-95). The CHAP concluded: “DNOP does not appear to possess antiandrogenic potential” (CHAP, 2014, pp. 24, 95), and therefore, DNOP does not contribute to the cumulative risk from other phthalates. Thus, the CHAP considered DNOP risks in isolation because DNOP is not antiandrogenic. As with virtually all chemicals, DNOP is associated with toxicological effects, including liver toxicity and developmental effects. The CHAP did not use biomonitoring data to estimate DNOP exposure because DNOP metabolites were undetectable in most individuals. Using the scenario-based approach, the CHAP estimated exposures to infants and toddlers ranging from 4.5 to16 µg/kg-d. The margins of exposure (MoEs)  12 ranged from 2,300 to 8,300. The CHAP considered an MoE of at least 100 to be adequate to protect human health from the potential effects of DNOP. The CHAP concluded that the MoE for DNOP was sufficiently high and that continuing the interim prohibition was unnecessary. Therefore, the CHAP recommended removing the interim prohibition on children's toys and child care articles containing DNOP.

The Commission considers that a MoE of 100 or greater is sufficient to protect human health with respect to DNOP. The Commission agrees with the CHAP's assessment of the potential health risks from DNOP because the MoEs are greater than 100. DNOP levels are so low that they are not detectable in about 90 percent of humans. (CHAP 2014, Table 2.6). Furthermore, DNOP is not antiandrogenic, and therefore, DNOP does not contribute to the cumulative risk from antiandrogenic phthalates. The Commission concludes that continuing the prohibition of DNOP is not necessary to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety. Accordingly, under the proposed rule, children's toys that can be placed in a child's mouth and child care articles containing DNOP would no longer be prohibited.

DINP is currently subject to an interim prohibition. The CHAP recommended that “the interim prohibition on the use of DINP in children's toys and child care articles at levels greater than 0.1 percent be made permanent.” (CHAP, 2014, pp. 95-99). DINP is associated with adverse effects on male development (antiandrogenicity). In addition, DINP acts in concert with other antiandrogenic phthalates, including the permanently banned phthalates, thereby contributing to the cumulative risk.

Multiple published studies confirm the antiandrogenicity of DINP (Adamsson et al., 2009; Boberg et al., 2011; Borch et al., 2004; Clewell et al., 2013; Gray et al., 2000; Hannas et al., 2011b; Hass et al., 2003; Masutomi et al., 2003; reviewed in NRC, 2008). Even though DINP is less potent, by perhaps twofold to tenfold, than DEHP (Gray et al., 2000; Hannas et al., 2011b), DINP contributes to the cumulative risk from all antiandrogenic phthalates. The CHAP estimated that DINP contributes 1 percent to 8 percent of the cumulative risk to pregnant women and 1 percent to 15 percent in infants (Table 1). The CHAP found that 10 percent of pregnant women and up to 5 percent of infants have a HI greater than one. The CHAP also estimated that allowing the use of DINP in children's toys and child care articles would increase DINP exposure to infants by about 13 percent. (CHAP 2014, Table E1-21).

The Commission notes that the CHAP assessed the risks of DINP both in isolation and in combination with other phthalates. Considered in isolation, staff concluded that DINP would not present a hazard to consumers because the MoE (830 to 15,000) is well in excess of 100. (CHAP, 2014, p. 99). This is consistent with previous work. (CHAP, 2001; CPSC, 2002). However, the Commission agrees with the CHAP that DINP is antiandrogenic and contributes to the cumulative risk. Specifically, the CHAP found that 10 percent of pregnant women and up to 5 percent of infants have a HI greater than one. Therefore, as discussed previously, the Commission concludes that the cumulative risk of male developmental reproductive effects should be considered “to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety.”

The Commission agrees with the CHAP's recommendation to make permanent the prohibition on DINP because the Commission concludes that allowing the use of DINP in children's toys and child care articles would further increase the cumulative risk to male developmental reproductive development. Multiple studies indicate that DINP is antiandrogenic and contributes to the cumulative risk from phthalates. As discussed previously, the Commission considers that a HI <1 is necessary “to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety.” Therefore, to ensure a reasonable certainty of no harm with an adequate margin of safety to children, pregnant women, or other susceptible individuals ( i.e., male fetuses), the proposed rule would permanently prohibit children's toys and child care articles containing more than 0.1 percent of DINP.

The statute's interim prohibition on DINP applies only to children's toys that can be placed in a child's mouth, 13 which is narrower in scope than the permanent prohibitions on DEHP, DBP, and BBP in all children's toys. 14 The CHAP recommended that DINP be permanently prohibited in all children's toys but did not explain why the CHAP recommended expanding the prohibition on DINP to include all children's toys. However, the CHAP's recommendation is consistent with the scope of the permanently prohibited phthalates.

The proposed rule would permanently prohibit DINP in all children's toys and child care articles, rather than only children's toys that can be mouthed. The Commission believes that the expansion in scope is appropriate because exposure occurs from handling children's toys, as well as from mouthing. (CHAP, 2014, Appendix E1). The additional exposure from handling toys would add to the cumulative risk. Therefore, the Commission concludes that expanding the scope of the DINP prohibition to include all children's toys is necessary to ensure a reasonable certainty of no harm to children with an adequate margin of safety.

The European Commission (EC) directive on phthalates in toys and child care articles also distinguished between all children's toys and toys that can be mouthed, prohibiting DBP, BBP, and DEHP in all children's toys, and prohibiting DINP, DNOP, and DIDP in toys that can be mouthed. (EC, 2005). The directive cited greater uncertainty about hazards presented by DINP, DNOP, and DIDP as the reason for this distinction. (EC, 2005, paragraph 11). As discussed in the CHAP report, there are multiple studies related to the male developmental reproductive effects of DINP, many of which were published after 2005, the date of the ECdirective. Thus, the Commission concludes that because the CHAP report addresses uncertainties regarding the potential hazard associated with DINP, an expansion of the prohibition on DINP to all children's toys is appropriate.

Additionally, we expect that expanding the scope to all children's toys would have a minimal effect on manufacturers because few products would need to be reformulated to comply with the broader scope. ( See Tab A of the staff's briefing package.) In practice, children's toys and toys that can be placed in a child's mouth all require testing for phthalates. The testing costs are the same in either case. The only change caused by expanding the scope to all children's toys is that toys too large to be mouthed could not be made with DINP.

The CHAP recommended that the interim prohibition on DIDP not be continued. (CHAP, 2014, pp. 100-105). DIDP is not associated with antiandrogenicity. Thus, DIDP does not contribute to the cumulative risk from the antiandrogenic phthalates. As with virtually all chemicals, DIDP is associated with toxicological effects, including liver toxicity and developmental effects. The CHAP assessed the potential risks from DIDP in isolation. The CHAP concluded that the MoE for DIDP is relatively high (>100) and that there is no compelling reason to continue the interim prohibition.

The CHAP concluded: “DIDP does not appear to possess antiandrogenic potential” (CHAP, 2014, pp. 24, 104); therefore, DIDP does not contribute to the cumulative risk (CHAP 2014, p. 104). However, the CHAP stated that it is aware that DIDP is associated with other health effects in animal studies, including chronic liver and kidney toxicity and developmental effects ( e.g., supernumerary ribs). (CHAP 2014, pp. 100-105). The CHAP considered DIDP risks in isolation because DIDP is not antiandrogenic. The lowest NOAEL for DIDP was 15 mg/kg-d, based on liver effects. Using biomonitoring data, the CHAP estimated that human exposures range from 1.5 to 26 µg/kg-d. The MoEs range from 2,500 to 10,000 for median DIDP exposures and 586 to 3,300 for upper-bound exposures. Therefore, the CHAP recommended that the interim prohibition on children's toys and child care articles containing DIDP be lifted.

As discussed previously, the Commission considers that a MoE of 100 or greater is sufficient to protect human health with respect to DIDP. The Commission agrees with the CHAP's assessment of the potential health risks from DIDP because the MoEs are much greater than 100. DIDP exposure would need to increase by more than 250 times to exceed the acceptable level. Furthermore, DIDP is not antiandrogenic; and therefore, DIDP does not contribute to the cumulative risk from antiandrogenic phthalates. The Commission concludes that continuing the prohibition of DIDP is not necessary to ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety. Accordingly, under the proposed rule, children's toys and child care articles containing DIDP would no longer be prohibited.

The CPSIA requires the Commission to “evaluate the findings and recommendations of the Chronic Hazard Advisory Panel and declare any children's product containing any phthalates to be a banned hazardous product under section 8 of the Consumer Product Safety Act (15 U.S.C. 2057), as the Commission determines necessary to protect the health of children.” CPSIA section 108(b)(3)(B). The CHAP reviewed the potential health risks associated with eight phthalates that were not prohibited by the CPSIA. The CHAP recommended permanent prohibitions on four additional phthalates: DIBP, DPENP, DHEXP, and DCHP. The CHAP recommended an interim prohibition of DIOP. The CHAP did not recommend prohibitions on DMP, DEP, or DPHP; although the CHAP recommended additional study on DEP and DPHP.

Consistent with the CHAP report, the Commission considered both cumulative risk and risk in isolation. For active phthalates, that is, phthalates causing male developmental reproductive effects, the Commission considered the cumulative risk, which was based on the HI. Consistent with the CHAP report and the CPSC chronic hazard guidelines (CPSC 1992), the Commission considers that the acceptable risk is exceeded when the HI is greater than one (CPSC 1992). Thus, the Commission considers that a HI <1 is necessary “to protect the health of children.”

For non-antiandrogenic phthalates and phthalate alternatives, the Commission considered the MoE, as estimated by the CHAP. MoEs greater than 100 to 1,000 are generally considered adequate to protect human health (EPA 1993). As discussed previously, staff considers a MoE of 100 or more to be adequate if a NOAEL has been identified in animal studies (CPSC 1992), which is the case for most of the compounds discussed by the CHAP. Thus, for the phthalates discussed in this section, the Commission considers a MoE of 100 or greater to be necessary “to protect the health of children.”

The CHAP recommended that diisobutyl phthalate (DIBP) should be permanently banned from use in children's toys and child care articles at levels greater than 0.1 percent. (CHAP 2014, pp. 110-112). DIBP is associated with adverse effects on male reproductive development and contributes to the cumulative risk from antiandrogenic phthalates. Furthermore, DIBP has been found in some toys and child care articles during compliance testing by CPSC. ( See TAB B of staff's briefing package).

DIBP is similar in toxicity to DBP (CHAP 2014, pp. 24, 110-111), which is one of the phthalates subject to the CPSIA's permanent prohibition. DIBP was shown to be antiandrogenic in numerous studies and it acts in concert with other antiandrogenic phthalates (Howdeshell et al., 2008). The CHAP found that current exposures to DIBP are low. When considered in isolation, DIBP has a MoE of 3,600 or more (CHAP 2014, p. 111). DIBP contributes roughly 1 percent to 2 percent of the cumulative risk from phthalate exposure to pregnant women and 1 percent to 5 percent in infants (Table 7). However, the CHAP based its recommendation on cumulative risk.

The Commission agrees with the CHAP's recommendation for DIBP. Based on previous CPSC staff and contractor toxicity reviews (Versar/SRC, 2010c) and the CHAP's review, the Commission finds that there is sufficient evidence to conclude that DIBP is antiandrogenic and is able to contribute to the cumulative risk. The Commission also concludes that, applying the CPSC chronic hazard guidelines (CPSC, 1992), this phthalate is considered “probably toxic” to humans based on sufficient evidence in animal studies. Five percent to 10 percent of the population exceeds the negligible risk level (HI >1). Allowing the use of DIBP in children's toys and child care articles would further increase the cumulative risk. As discussed previously, the Commission considers that a HI <1 is necessary “to protect the health of children.” In addition, CPSC staff has identified DIBP in a small portion of toys and child care articles during routine compliance testing. Therefore, the proposed rule would permanently prohibit children's toys and child care articles containing more than 0.1 percent of DIBP. The Commission concludes that this action is necessary to protect the health of children because it would prevent current and future use of this antiandrogenic phthalate in toys and child care articles.

The CHAP recommended that di- n -pentyl phthalate (DPENP) should be permanently banned from use in children's toys and child care articles at levels greater than 0.1 percent (CHAP pp. 112-113). DPENP is associated with adverse effects on male reproductive development and contributes to the cumulative risk from antiandrogenic phthalates. Furthermore, DPENP is the most potent of the antiandrogenic phthalates. The Commission agrees with the CHAP's recommendation for DPENP. Based on previous CPSC staff and contractor toxicity reviews (Patton, 2010) and the CHAP's review, the Commission concludes that there is sufficient evidence to conclude that DPENP is antiandrogenic and is able to contribute to the cumulative risk. The Commission also concludes that, applying the CPSC chronic hazard guidelines (CPSC, 1992), this phthalate is considered “probably toxic” to humans, based on sufficient evidence in animal studies. Furthermore, DPENP is roughly twofold to threefold more potent than DEHP. (Hannas et al., 2011a). Although CPSC staff has not detected DPENP in children's toys or child care articles, metabolites of DPENP have been detected in humans (Silva et al., 2010), indicating that some exposure to DPENP does occur. Moreover, prohibiting the use of DPENP would prevent its use as a substitute for other banned phthalates. Up to five percent of infants and up to 10 percent of pregnant women exceed the negligible risk level (HI >1). Allowing the use of DPENP in children's toys and child care articles would further increase the cumulative risk. As discussed previously, the Commission considers that a HI <1 is necessary “to protect the health of children.” Therefore, the proposed rule would permanently prohibit children's toys and child care articles containing more than 0.1 percent of DPENP. The Commission concludes that this action is necessary to protect the health of children because it would prevent current and future use of this antiandrogenic phthalate in toys and child care articles.

Recently, the EPA proposed a significant new use rule (SNUR) for DPENP (EPA, 2012). If finalized, the rule would require any company planning to manufacture or import DPENP to notify EPA before beginning this activity. EPA would review the potential health risks of DPENP and could impose restrictions. If EPA issues a final rule, the likelihood that manufacturers would produce DPENP may be reduced. However, a SNUR would not prevent the importation of products containing DPENP into the United States. Therefore, the Commission believes that the proposed prohibition of children's toys and child care articles containing concentrations of more than 0.1 percent of DPENP is still necessary to protect the health of children.

The CHAP recommended that di- n -hexyl phthalate (DHEXP) should be permanently banned from use in children's toys and child care articles at levels greater than 0.1 percent (CHAP pp. 114-116). DHEXP is associated with adverse effects on male reproductive development and may contribute to the cumulative risk from antiandrogenic phthalates.

The Commission agrees with the CHAP's recommendation for DHEXP. Based on previous CPSC staff and contractor toxicity reviews (Patton, 2010) and the CHAP's review, the Commission concludes that there is sufficient evidence to conclude that DHEXP is antiandrogenic and is able to contribute to the cumulative risk ( e.g., Foster et al., 1980). The Commission also concludes that, by applying the CPSC chronic hazard guidelines (CPSC, 1992), this phthalate may be considered “probably toxic” to humans based on sufficient evidence in animal studies. Up to five percent of infants and up to 10 percent of pregnant women exceed the negligible risk level (HI >1). Allowing the use of DHEXP in children's toys and child care articles would further increase the cumulative risk. As discussed previously, the Commission considers that a HI <1 is necessary “to protect the health of children.” Although CPSC staff has not detected DHEXP in toys and child care articles during routine compliance testing thus far, prohibiting children's toys and child care articles containing DHEXP would prevent its use in these products as a substitute for other banned phthalates. Therefore, the proposed rule would permanently prohibit children's toys and child care articles containing more than 0.1 percent of DHEXP. The Commission concludes that this action is necessary to protect the health of children because it would prevent future use of this antiandrogenic phthalate in toys and child care articles.

The CHAP recommended that dicyclohexyl phthalate (DCHP) should be permanently banned from use in children's toys and child care articles at levels greater than 0.1 percent. (CHAP pp. 116-118). DCHP is associated with adverse effects on male reproductive development and contributes to the cumulative risk from antiandrogenic phthalates.

The Commission agrees with the CHAP's recommendation for DCHP. Based on previous CPSC staff and contractor reviews (Versar/SRC, 2010b) and the CHAP's review, the Commission concludes that there is sufficient evidence to conclude that DCHP is antiandrogenic and is able to contribute to the cumulative risk ( e.g., Foster et al., 1980). The Commission also concludes that, by applying the CPSC chronic hazard guidelines (CPSC, 1992), this phthalate is considered “probably toxic” to humans, based on sufficient evidence in animal studies. Up to five percent of infants and up to 10 percent of pregnant women exceed the negligible risk level (HI >1). Allowing the use of DCHP in children's toys and child care articles would further increase the cumulative risk. As discussed previously, the Commission considers that a HI <1 is necessary “to protect the health of children.” Although the CPSC staff has not detected DCHP in toys and child care articles during routine compliance testing thus far, prohibiting the use of DCHP would prevent its use as a substitute for other banned phthalates. The Commission concludes that this action is necessary to protect the health of children because it would prevent future use of this antiandrogenic phthalate in toys and child care articles.

The CHAP recommended an interim prohibition for diisooctyl phthalate (DIOP). (CHAP 2014, pp. 118-119). DIOP has a chemical structure consistent with other antiandrogenic phthalates.

DIOP is a high production volume chemical (EPA 2006), that is, over a million pounds are produced or imported each year (Versar/SRC, 2010d). DIOP is approved for use in food contact applications. (CHAP 2014, pp. 118-119). DIOP was identified in a small number of child care articles in the past (Chen, 2002); although it has not been detected by CPSC in children's toys and child care articles since the CPSIA was enacted in 2008.

The possible antiandrogenicity of DIOP is a potential concern (CHAP 2014, pp. 118-119). However, the CHAP concluded that there is not sufficient evidence to support a permanent prohibition. The only developmental study on DIOP is an older study in which DIOP was administered by intraperitoneal injection, which is not relevant to consumer exposures. The study's authors reported the presence of soft tissue abnormalities, a type of birth defect; but there were insufficient details to assess whether the abnormalities could be related to the phthalate syndrome. (Versar/SRC, 2010d). The primary reason for suspecting antiandrogenic activity is DIOP's structural similarity to other active phthalates (CHAP 2014, p. 119).

The CHAP did not recommend a permanent prohibition because the CHAP concluded that existing data are insufficient to support a permanent ban. Although the CHAP recommended an interim prohibition, the CPSIA did not provide for an interim prohibition as an option for the Commission's rule under section 108. CPSIA section 108(b)(3). As discussed above, insufficient data exists to determine that a permanent prohibition of DIOP is necessary to protect the health of children. Thus, the Commission is not proposing any prohibition of products containing DIOP.

Currently, under section 108(a) of the CPSIA, the permanent phthalate prohibitions apply to “any children's toy or child care article that contains concentrations of more than 0.1 percent” of the permanently prohibited phthalates. In addition, under section 108(b)(1) of the CPSIA, the interim phthalate prohibitions apply to “any children's toy that can be placed in a child's mouth or child care article that contains concentrations of more than 0.1 percent.” Section 108(g)(1)(B) of the CPSIA defines a “children's toy” as “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.” Section 108(g)(1)(C) of the CPSIA defines a “child care article” as “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.” Finally, section 108(g)(2)(B) states that a “toy can be placed in a child's mouth if any part of the toy can actually be brought to the mouth and kept in the mouth by a child so that it can be sucked and chewed. If the children's product can only be licked, it is not regarded as able to be placed in the mouth. If a toy or part of a toy in one dimension is smaller than 5 centimeters, it can be placed in the mouth.”

Section 108(b)(3)(B) of the CPSIA requires the Commission to “evaluate the findings and recommendations” of the CHAP and consider whether to prohibit “any children's product containing any phthalates” if the Commission determines that this is “necessary to protect the health of children.” Action by the Commission under this subsection could result in extending the phthalates prohibition beyond children's toys and child care articles and could be taken for any or all of the phthalates the proposed rule would prohibit, including those that are permanently prohibited, were subject to the interim prohibition, or that would be prohibited by the proposed rule. A “children's product” is defined as a “a consumer product designed or intended primarily for children 12 years of age or younger.” 15 U.S.C. 2052(a)(2). Children's products that are not children's toys or child care articles that might contain phthalates, for example, include rainwear, footwear, backpacks, some school supplies, apparel containing elastic waistbands, and printed T-shirts and sweatshirts.

The CHAP report did not specifically discuss the possibility of expanding the scope of the phthalates prohibitions to children's products. That inquiry was not part of the CHAP's charge. CPSIA section 108(b)(2). However, all of the CHAP's recommendations to prohibit certain phthalates apply to “children's toys and child care articles.”

In the CHAP's scenario-based exposure assessment, the CHAP initially considered assessing exposures to phthalates for some children's products that were not toys or child care articles. 15 The CHAP ultimately decided, however, to limit its analysis to exposure activity scenarios that were thought to contribute significantly to human exposure. Specifically, these exposure activity scenarios included mouthing of teethers and toys, and dermal exposure to play pens and changing pads (CHAP 2014, Table 2.1). The CHAP found that most phthalate exposure comes from food and beverages (CHAP, 2014, pp. 50-52). Mouthing teethers and toys may also contribute to total exposure ( See also, CHAP 2014, Table E1-24).

The Commission is not proposing to expand the scope of the phthalates prohibitions to include all children's products. The Commission does not have sufficient information to assess the impact on the health of children from expanding the phthalates prohibition from children's toys and child care articles to include other children's products. In addition, the limited information available suggests that increased exposure to phthalates from most children's products outside children's toys and child care articles would be negligible. The Commission believes this for two reasons. First, the broader category of all children's products is likely to contain proportionately fewer products that contain phthalates. (Laursen et al., 2003). Second, the exposure activity patterns, in combination with the primary exposure route (dermal), would generally lead to lower exposures than with children's toys (CHAP, 2001, 2014; CPSC, 2002).

Based on the limited available data, the Commission notes that most children's products are not made of PVC and are not expected to contain phthalates. For example, most textiles contain less than 0.01 percent phthalates (Laursen et al., 2003). Thus, with a few possible exceptions, such as PVC sandals (CHAP, 2001; Tønning et al., 2009), the Commission does not expect other children's products to contribute significantly to phthalate exposure.

Determining the relative importance of various exposure activity pathways ( e.g., playing with plastic toys, sitting on a vinyl couch) can be challenging. For example, much more data are available on exposure from mouthing teethers and toys than dermal exposure (CHAP 2014, Appendix E1; (CHAP, 2001). Thus, regarding DINP, the CHAP concluded: “Although dermal uptake of DINP may occur through prolonged contact of DINP-containing products with skin or mouth, data on the prevalence of DINP in consumer products are not available and there is a fundamental uncertainty concerning the magnitude of dermal DINP uptake. Therefore, estimation of potential dermal exposure to humans remains speculative.” (CHAP, 2001, p. 3).

The Commission agrees that oral exposure to phthalates is generally considered more important than dermal exposure. (CHAP, 2001; Wormuth et al., 2006). Studies of children's mouthing activity demonstrate that children age 3 or younger primarily mouth their fingers, pacifiers, teethers, and toys. (EPA, 2011; Greene, 2002; Juberg et al., 2001). Mouthing of other articles is infrequent. ( Id. ). Mouthing times for pacifiers, teethers, and plastic toys are 12-15-fold and 20-64-fold higher than all other objects, including other children's products. (EPA, 2011). Mouthing activity declines rapidly after age 3 years. (Greene, 2002).

Because the Commission believes that increased exposure to phthalates from most children's products would be negligible, the Commission concludes that expanding the phthalate prohibition beyond children's toys and child care articles is not warranted.

Section 108(a) and (b)(1) of the CPSIA sets a concentration limit of 0.1 percent for the permanently and interim-prohibited phthalates in children's toys and child care articles. This is a statutory limit. However, if the Commission chooses to prohibit additional phthalates, the agency could choose to set a different limit for the additional phthalates, as well as for any interim-prohibited phthalates that are being permanently prohibited under this rulemaking. As discussed in the CHAP report:

(CHAP, 2014, p. 79). The CHAP found no compelling reason to support lowering or raising the concentration limit. The Commission agrees with the CHAP that the 0.1 percent limit is not risk-based; rather, the limit is based on practical considerations, that is, the desire to prohibit intentional phthalate use while allowing trace levels.

Therefore, the Commission concludes that there is no risk-based justification to change the limit from the 0.1 percent level specified in the CPSIA. In the absence of any information to support a different limit, the proposed rule would maintain the limit at 0.1 percent for the proposed prohibitions on DINP, DIBP, DPENP, DHEXP, and DCHP.

Deriving a risk-based limit would require additional analysis beyond the CHAP's scenario-based exposure assessment. This would be difficult because exposure by a given scenario is not necessarily proportional to the phthalate concentration in the product. The sources of uncertainty and data gaps in the CHAP's scenario-based assessment (CHAP 2014, Appendix E1) would still apply. Thus, it would be difficult to derive a risk-based level.

The Commission considers that the 0.1 percent limit is practical. A lower limit would make it more difficult to perform the testing required of third party laboratories, which may lead to increased testing costs. Compliance testing would also be more difficult.

Proposed § 1307.1 describes the actions that the proposed rule would prohibit. This provision tracks the language in section 108(a) of the CPSIA regarding the permanent prohibition and prohibits the same activities: manufacture for sale, offer for sale, distribution in commerce, or importation into the United States of a children's toy or child care article that contains any of the prohibited phthalates.

Proposed § 1307.2 provides the same definitions of “children's toy” and “child care article” found in section 108(g) of the CPSIA. “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. “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. Although these definitions are stated in the CPSIA, the proposed rule text would restate them for convenience.

Proposed § 1307.3(a) states which products would be prohibited. For convenience, the proposed section would provide both the items that are subject to the CPSIA's existing permanent prohibition and the items that would be subject to prohibition under the proposed rule. Stating all prohibitions in this section will allow a reader of the CFR to be aware of all the CPSC's restrictions concerning phthalates.

Proposed paragraph (a) sets out the CPSIA's existing permanent prohibition that makes it unlawful to manufacture for sale, offer for sale, distribute in commerce, or import into the United States any children's toy or child care article that contains concentrations of more than 0.1 percent of DEHP, DBP, or BBP. The restriction on these products is currently in place as a result of section 108(a) of the CPSIA. This statutory prohibition is not affected by the proposed rule but is merely restated in the proposed regulatory text.

Proposed paragraph (b) would prohibit 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 DINP, DIBP, DPENP, DHEXP, or DCHP. As explained above, in accordance with section 108(b)(2) of the CPSIA, the Commission appointed a CHAP that considered the effects on children's health of phthalates and phthalate alternatives as used in children's toys and child care articles. After completing its work, the CHAP presented the Commission with a report of its findings and recommendations. After reviewing the CHAP's report and making the appropriate determinations and evaluations, the Commission is proposing a rule in accordance with section 108(b)(3) of the CPSIA.

For the reasons explained in Section IV of this preamble, the Commission concludes that prohibiting children's toys and child care articles that contain more than 0.1 percent of DINP would ensure a reasonable certainty of no harm to children, pregnant women, or other susceptible individuals with an adequate margin of safety. DINP is currently subject to the CPSIA's interim prohibition. CPSIA section 108(b)(1). Proposed § 1307.3(b) would change the scope of regulation of DINP from the current interim scope of “children's toys that can placed into a child's mouth”  16 (and child care articles) to also include all children's toys. Based on the recommendations in the CHAP report, the Commission is not proposing to continue the interim prohibitions on DIDP and DnOP.

Additionally, proposed § 1307.3(b) would prohibit children's toys and child care articles containing four phthalates that are not currently subject to restrictions under the CPSIA: DIBP, DPENP, DHEXP, and DCHP. For the reasons stated in section IV of this preamble, the Commission concludes that prohibiting children's toys and child care articles containing more than 0.1 percent of DIBP, DPENP, DHEXP, or DCHP is necessary to protect the health of children.

The APA generally requires that the effective date of a rule be at least 30 days after publication of the final rule. 5 U.S.C. 553(d). The Commission is proposing an effective date of 180 days after publication of the final rule in the Federal Register .

As discussed in Tab A of the staff's briefing package, the proposed rule is expected to have a minimal impact on manufacturers. The proposed rule would prohibit four additional phthalates—DIBP, DPENP, DHEXP, and DCHP—which currently are not widely used in children's toys and child care articles. Only DIBP has been detected in a small portion of toys tested by the staff. The proposed rule would also make the interim prohibition on DINP permanent and expand the scope from children's toys that can be place in a child's mouth to all children's toys (along with child care articles). Based on staff's testing results, to meet the proposed rule, a relatively small percentage of non-mouthable toys would need to be reformulated to remove DINP. To meet the statutory testing and certification requirements if the proposed rule were in place, testing laboratories would need to expand their procedures to include the four additional prohibited phthalates, which the staff believes would require minimal effort by testing laboratories. Therefore, none of the prohibitions in the proposed rule is likely to require more than 180 days for manufacturers and testing laboratories to become compliant. For these reasons, the Commission proposes an effective date of 180 days after publication of the final rule in the Federal Register .

The CPSA establishes certain requirements for product certification and testing. Children's products subject to a children's product safety rule under the CPSA must be certified as complying with all applicable CPSC-enforced requirements. 15 U.S.C. 2063(a). Certification of children's products subject to a children's product safety rule must be based on testing conducted by a CPSC-accepted third party conformity assessment body. Id. 2063(a)(2). The Commission must publish a notice of requirements (NOR) for the accreditation of third party conformity assessment bodies (or laboratories) to assess conformity with a children's product safety rule to which a children's product is subject. Id 2063(a)(3). Thus, the proposed rule for 16 CFR part 1307, “ Prohibition of Children's Toys and Child Care Articles Containing Specified Phthalates,” when issued as a final rule, would be a children's product safety rule that requires the issuance of an NOR. The Commission previously published in the Federal Register an NOR for the phthalate-containing products prohibited by section 108 on August 10, 2011. (76 FR 49286). The codified listing for the NOR can be found at 16 CFR 1112.15(b)(31). If the Commission finalizes the proposed rule with prohibitions restricting phthalates that are not covered by the current NOR, the Commission would issue a new NOR that would include the additional phthalates. The NOR would notify manufacturers and testing laboratories of the additional requirements and would include a revised test method. Any revisions to the existing NOR will be done in a separate future rulemaking.

The Regulatory Flexibility Act (RFA) requires an agency to prepare a regulatory flexibility analysis for any rule subject to notice and comment rulemaking requirements under the APA or any other statute, unless the agency certifies that the rulemaking will not have a significant economic impact on a substantial number of small entities. U.S.C. 603 and 605. Small entities include small businesses, small organizations, and small governmental jurisdictions. After considering the economic impacts of this proposed rule on small entities, the Commission certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities.

As discussed above, the proposed rule would fulfill a requirement in section 108 of the CPSIA that the Commission issue a rule to determine whether the interim prohibitions established in section 108(b)(1) of the CPSIA should be made permanent and whether any children's product containing any phthalates that were not prohibited by the CPSIA should be declared a banned hazardous product. The proposed rule would lift the interim prohibitions for two of the three phthalates (DIDB and DNOP) and would permanently prohibit children's toys and child care articles containing more than 0.1 percent of the third phthalate (DINP). The proposed rule would also prohibit children's toys and child care articles containing more than 0.1 percent of any of four specified phthalates that were not prohibited by the CPSIA (DIBP, DPENP, DHEXP, and DCHP).

Small entities would be subject to the proposed rule if they manufacture or import children's toys or child care articles that contain phthalates. These companies are already subject to the restrictions imposed by the CPSIA on children's toys and child care articles containing certain phthalates. The draft proposed rule would neither increase, nor decrease, the number of small entities to which the phthalate restrictions apply. More detailed information about the entities that likely manufacture or import children's toys and child care articles and would be considered small businesses under the criteria established by the Small Business Administration (SBA) is provided at Tab A of the staff's briefing package.

The proposed rule would impact which plasticizers are available to manufacturers for use in children's toys and child care articles. We discuss the anticipated impact from each aspect of the Commission's proposed action.

Lifting restriction on DNOP and DIDP. The proposed rule would end the CPSIA's interim restrictions on the use of DNOP and DIDP in children's toys and child care articles. Manufacturers would be free to use these two phthalates. Ending restrictions for these phthalates would benefit manufacturers if DNOP and DIDP are less costly than the alternatives or they impart other desirable attributes to the final product.

Altering restriction on DINP. The proposed rule would broaden the restrictions on DINP. The interim ban prohibits children's toys that can be placed in a child's mouth and child care articles that contain more than 0.1 percent of DINP. The proposed rule would extend the prohibition to all children's toys and child care articles regardless of whether the toy can be placed in a child's mouth. Manufacturers who were using DINP in toy components that could not be placed in a child's mouth would have to find an alternative for DINP in these applications. The Commission expects the impact of changing the prohibition on the use DINP to include children's toys that cannot be placed in a child's mouth would be limited to a small number of firms. A review of samples tested by CPSC staff indicated that of 725 samples that were found to contain phthalates through infrared screening techniques, fewer than 5 samples (or less than 1 percent) contained DINP but were probably too large to be placed in a child's mouth. ( See Tab B of staff's briefing package). The percentage of all children's toys that could be impacted by broadening the restrictions on the use of DINP to all children's toys would be substantially less than 1 percent because the only samples reviewed in this analysis were those that were already found to contain phthalates using infrared screening techniques. This would be a small subset of all children's toys.

Restricting four additional phthalates. The proposed rule would also prohibit children's toys and childcare articles containing four additional phthalates: DIBP, DPENP, DHEXP, and DCHP. The prohibition on the use of these additional phthalates is not expected to have a significant impact on a substantial number of manufacturers because the CHAP found that three of these phthalates (DPENP, DHEXP, and DCHP) are not currently used in children's products and that although the fourth (DIBP) has been found in some toys, it “is not widely used in toys and child care articles.” (CHAP 2014, pp. 111,113,116, and 117). This aspect of the proposed rule is intended to prevent these phthalates from being used in children's toys and child care articles in the future.

Summary of impact from meeting substantive requirements of proposal. For the reasons described above, the Commission expects that few, if any, manufacturers would need to alter their formulations to comply with the proposed rule.

The CPSIA requires manufacturers of children's products subject to a children's product safety rule to certify that their children's products comply with all applicable children's product safety rules based on the results of third party tests. 15 U.S.C. 2063(a)(2). Third party testing is only required for those components of children's toys and child care articles that are accessible and that could contain one or more of the prohibited phthalates. These third party testing requirements are set forth in the CPSIA and are unaffected by the proposed rule.

The CPSIA permanently prohibits children's toys and child care articles that contain concentrations of more than 0.1 percent of DEHP, DBP or BBP. This restriction is unaffected by the proposed rule. Thus, manufacturers of children's toys and child care articles currently must comply with the third party testing requirements to certify that their products do not contain more than 0.1 percent of DEHP, DBP, or BBP. Manufacturers of children's toys and child care articles currently must also certify, based on the results of third party tests, that their products do not contain more than 0.1 percent of the phthalates subject to the interim prohibitions (DINP, DIDP, and DNOP), unless the product is a children's toy that cannot be placed in a child's mouth. (The prohibitions on DEHP, DBP, and BBP apply regardless of whether a toy can be placed in a child's mouth).

The proposed rule would not affect the scope of products subject to the third party testing requirement because even in the absence of the proposed rule, manufacturers of children's toys and child care articles that may contain accessible phthalates are required to certify those products based on third party testing.

Lifting restriction on DNOP and DIDP. Because the proposed rule would remove the interim prohibitions for DIDP and DNOP, manufacturers of children's toys and child care articles would no longer be required to certify that their products do not contain these phthalates. However, third party testing of children's toys and child care articles would still be required to ensure that these products do not contain concentrations of more than 0.1 percent for DEHP, DBP, and BBP.

Altering restriction on DINP. Under the proposed rule, manufacturers of children's toys that can be placed in a child's mouth and child care articles would need to continue to test to ensure that their products do not exceed concentrations of more than 0.1 percent for DINP. Additionally, under the proposed rule, manufacturers would have to certify, based on third party tests, that toys that cannot be placed in a child's mouth do not contain DINP. However, as noted above, these manufacturers are already required to test their products for DEHP, DBP, and BBP. The extension of the DINP prohibition would not require testing of additional products; the extension simply adds another phthalate for which certification is required when testing children's toys and child care articles that cannot be placed in the mouth.

Restricting four additional phthalates. Under the proposed rule, manufacturers of children's toys and child care articles would have to certify that their products do not contain DIBP, DPENP, DHEXB, and DCHP in concentrations of greater than 0.1 percent based on third party tests. However, as noted above, these manufacturers are already subject to third party testing for DEHP, DBP, and BBP.

Summary of impact of proposal on scope of testing. Because children's toys and child care articles that may contain phthalates are already subject to the CPSIA's testing requirement to determine the presence of any of the phthalates that are prohibited by section 108(a) of the CPSIA, the proposed rule would not affect the scope of products that are subject to third party testing.

Under the proposed rule, manufacturers would need to test for the presence of four phthalates that they currently do not have to test for under the CPSIA's permanent and interim prohibitions. According to the Directorate for Laboratory Sciences, including the additional phthalates that would be prohibited by the proposed rule, DIBP, DPENP, DHEXP, and DCHP is not expected to increase significantly the cost to manufacturers for having a products third party test their products for phthalates. The same equipment and procedures for sample preparation and extraction could be used. Although the data analysis procedure would need to be modified to include the new phthalates, each of the additional phthalates can be isolated at unique elution times by gas chromatography and should not be difficult for qualified conformity assessment bodies to identify and quantify. ( See Tab B of the staff's briefing package.)

Third party conformity assessment bodies will have to obtain eight phthalate analytic standard materials for calibration purposes for use during phthalate testing. This is a net increase of two over the six that are currently required. These additional analytic standards are expected to cost very little, especially on a per-test basis. The analytic standards cost about $3.50 per gram (based on prices by some suppliers on the Internet), but less than 50 milligrams of a standard is required per test batch. Therefore, the additional two standards that would be required by the proposed rule would increase the cost per test batch by about $0.35. 17 Multiple samples can be tested in one test batch. Therefore, the per-test cost of the additional phthalate standards would be less than $0.35 per test.

The CPSIA established prohibitions on children's toys and child care articles containing phthalates. The CPSIA also put in place requirements for third party testing and certification of children's products. As discussed above, because these requirements area already in place by statute and will continue regardless of the proposed rule, the Commission expects that the proposed rule's impact on small business would not be significant. Therefore, the Commission certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities.

The proposed rule does not include any information-collection requirements. Accordingly, this rule is not subject to the Paperwork Reduction Act, 44 U.S.C. 3501-3520.

Section 26(a) of the CPSA, 15 U.S.C. 2075(a), provides that where a “consumer product safety standard under [the Consumer Product Safety Act (CPSA)]” is in effect and applies to a product, no state or political subdivision of a state may either establish or continue in effect a requirement dealing with the same risk of injury unless the state requirement is identical to the federal standard. (Section 26(c) of the CPSA also provides that states or political subdivisions of states may apply to the Commission for an exemption from this preemption under certain circumstances.) Section 108(f) of the CPSIA is entitled, “Treatment as Consumer Product Safety Standards; Effect on State Laws.” That provision states that the permanent and interim prohibitions and any rule promulgated under section 108(b)(3) “shall be considered consumer product safety standards under the Consumer Product Safety Act.” That section further states: “Nothing in this section of the Consumer Product Safety Act (15 U.S.C. 2051 et seq. ) shall be construed to preempt or otherwise affect any State requirement with respect to any phthalate alternative not specifically regulated in a consumer product safety standard under the Consumer Product Safety Act.” CPSIA section 108(f). This provision indicates that the preemptive effect of section 26(a) of the CPSA would apply to the proposed rule which does not include any requirements regarding phthalate alternatives.

The Commission's regulations provide a categorical exclusion for the Commission's rules from any requirement to prepare an environmental assessment or an environmental impact statement because they “have little or no potential for affecting the human environment.” 16 CFR 1021.5(c)(2). Because this rule falls within the categorical exclusion, no environmental assessment or environmental impact statement is required.

This section provides a list of the documents referenced in this preamble.

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:

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 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.

• 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:

○ 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;

○ 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

○ 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 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.

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.” 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 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 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.

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 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 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 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 investor status under Section 12(g) and solicit comment on the appropriate structure and criteria for such an approach below.

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?

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?

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 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 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

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

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 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 FormS-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.

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

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 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.

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 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 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

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?

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 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?

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.

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

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.

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 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 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.

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.

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

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 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 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.

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 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.

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.

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.

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.

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, 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

(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).

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, 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.

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.

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;

• any potential increase in costs or prices for consumers or individual industries; and

• any potential effect on competition, investment or innovation.

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.

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).

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 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.

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.

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

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 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.

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.

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.

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