[Federal Register Volume 84, Number 21 (Thursday, January 31, 2019)]
[Rules and Regulations]
[Pages 520-529]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27980]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230 and 239
[Release No. 33-10591; File No. S7-29-18]
RIN 3235-AM42
Conditional Small Issues Exemption Under the Securities Act of
1933 (Regulation A)
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission is adopting amendments
to Regulation A under the Securities Act of 1933 (the ``Securities
Act''). Regulation A provides an exemption from registration under the
Securities Act for offerings of securities up to $50 million. As
mandated by the Economic Growth, Regulatory Relief, and Consumer
Protection Act (the ``Economic Growth Act''), the amendments revise
Regulation A to permit entities subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
``Exchange Act'') to use the exemption and provide that entities
meeting the reporting requirements of the Exchange Act will be deemed
to have met the reporting requirements of Regulation A. The amendments
also make conforming changes to Form 1-A.
DATES:
Effective date: January 31, 2019.
Comment date: Comments regarding the collection of information
requirements within the meaning of the Paperwork Reduction Act of 1995
should be received on or before March 4, 2019.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/final.shtml); or
Send an email to [email protected]. Please include
File Number S7-29-18 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-29-18. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (https://www.sec.gov/rules/final.shtml). Comments are
also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Charlie Guidry, Staff Attorney, or
[[Page 521]]
Jennifer Zepralka, Office of Small Business Policy, Division of
Corporation Finance, at (202) 551-3460.
SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 230.251
(``Rule 251'') and 17 CFR 230.257 (``Rule 257'') under the Securities
Act.\1\ We are also amending Form 1-A.\2\
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\1\ 15 U.S.C. 77a et seq.
\2\ 17 CFR 239.90.
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I. Background
Regulation A \3\ provides an exemption from the registration
requirements of the Securities Act for offers and sales of securities
up to $20 million, for Tier 1 offerings, or up to $50 million, for Tier
2 offerings. Under the current rules, Regulation A is not available to
companies subject to the ongoing reporting requirements of Section 13
or 15(d) of the Exchange Act. The Economic Growth Act \4\ requires that
the Commission amend Rule 251 of Regulation A to allow these reporting
companies to use the exemption provided by Regulation A. In addition,
under Rule 257(b), an issuer that has filed an offering statement for a
Tier 2 offering that has been qualified pursuant to Regulation A must
file specified periodic and current reports with the Commission. The
Economic Growth Act requires that the Commission amend Rule 257, with
respect to a Tier 2 offering, to deem a reporting company issuer as
having met the periodic and current reporting requirements of Rule 257
if such issuer meets the reporting requirements of Section 13 of the
Exchange Act.
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\3\ 17 CFR 230.251-230.263.
\4\ Public Law 115-174, 132 Stat. 1296 (2018).
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II. Rule Amendments
A. Amendments to Regulation A and Form 1-A
As mandated by Section 508 of the Economic Growth Act, we are
amending Rule 251 of Regulation A by deleting Rule 251(b)(2), which
prohibits companies subject to the ongoing reporting requirements of
Section 13 or 15(d) of the Exchange Act from using Regulation A.\5\ We
also are making conforming changes to Item 2 of Part I of Form 1-A,
which lists the issuer eligibility criteria to use such form.\6\
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\5\ 17 CFR 230.251(b)(2).
\6\ This change to Item 2 of Part I of Form 1-A will be
implemented on the eXtensible Markup Language (XML) based fillable
form available on EDGAR after the effective date of the amendments.
Until such time as the change is implemented, we will not object if
an issuer subject to section 13 or 15(d) of the Exchange Act that
meets the other listed eligibility criteria checks the box in Item
2.
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To implement the Economic Growth Act's requirement with respect to
Rule 257 reporting obligations, we are adding a new paragraph to Rule
257(b) specifying that the duty to file reports under Rule 257 shall be
deemed to have been met if the issuer is subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act and, as of each
Form 1-K and Form 1-SA due date, has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the 12 months
(or such shorter period that the registrant was required to file such
reports) preceding such due date. The Economic Growth Act provides that
an issuer's Regulation A reporting obligations will be deemed satisfied
if the issuer ``meets'' its Exchange Act reporting requirements. To
implement this aspect of the statutory mandate, the amendments use a
12-month lookback period consistent with the standard applied in
Commission rules in other contexts. Such a lookback period is used, for
example, in determining eligibility to use Form S-8 \7\ and
satisfaction of the ``current public information'' requirement of 17
CFR 230.144 (``Rule 144'').\8\
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\7\ 17 CFR 239.16b(a).
\8\ 17 CFR 230.144(c)(1).
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We also are deleting Rule 257(d)(1), which currently provides for
an automatic suspension of the duty to file reports under Rule 257 if
and so long as the issuer is subject to the duty to file reports
required by Section 13 or 15(d) of the Exchange Act. The automatic
suspension provision will no longer be necessary in light of the
mandated amendment to deem the Rule 257(b) obligation met by Exchange
Act reporting.
As a result of these amendments, an Exchange Act reporting company
will be eligible to rely upon the Regulation A exemption from
registration \9\ and, upon qualification of an offering statement for a
Tier 2 offering, will become subject to Rule 257(b)'s reporting
requirements. So long as the issuer is current in its Exchange Act
reporting as of the due dates for periodic reports on Form 1-K and Form
1-SA required under Rule 257(b) (including, as applicable, the due
dates for any special financial reports on such forms), its Rule 257
reporting obligation will be deemed to be met. However, if at the
relevant Form 1-K or Form 1-SA due date the issuer is not current in
its Exchange Act reporting, the issuer's Rule 257 reporting obligation
will not be deemed to be met, and at that time the issuer will be
required to file Regulation A reports.\10\
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\9\ Rule 251(c) provides issuers with a safe harbor that
offerings conducted pursuant to Regulation A will not be integrated
with prior offers and sales of securities or with certain subsequent
offers and sales of securities. See 17 CFR 230.251(c). A reporting
company issuer contemplating concurrent registered and Regulation A
offerings will need to analyze its specific facts and circumstances
with regard to integration concerns and the solicitation
restrictions arising from each offering type. In addition, a
reporting company issuer conducting an offering under Regulation A
continues to be subject to the requirements of the Exchange Act. For
example, a reporting company that elects to solicit indications of
interest in conjunction with a prospective Regulation A offering in
reliance on 17 CFR 230.255 (``Rule 255'') remains subject to
Regulation FD (17 CFR 244.100-244.102).
\10\ Prior to the amendments being adopted in this release, an
issuer that was not subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act that conducted a Tier 2 Regulation A
offering and concurrently registered the class of securities under
the Exchange Act would have had its Regulation A reporting
obligations suspended, regardless of whether it had remained current
in Exchange Act reporting. Under the amendments, such an issuer
technically will be subject to both reporting regimes; however, as
long as the issuer remains current in its Exchange Act periodic
reporting, its Exchange Act reports will be deemed to satisfy its
ongoing reporting obligations under amended Rule 257(b).
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In light of the deletion of the automatic suspension provision, we
are also amending Rule 257(e) to clarify the operation of the rule if a
reporting company issuer that is relying on new Rule 257(b)(6) to deem
its Rule 257 reporting obligation met then terminates or suspends its
duty to file reports under the Exchange Act in accordance with the
Exchange Act and relevant rules thereunder.\11\ This revision will not
change the operation of Rule 257(e). If an issuer terminates or
suspends its reporting obligations under the Exchange Act and if the
issuer is eligible to suspend its Regulation A reporting obligation
under Rule 257(d)(2) by filing a Form 1-Z at that time, then the
ongoing reporting obligations under Rule 257 will terminate
automatically.\12\ No Form 1-Z filing will be required to terminate the
issuer's Regulation A reporting obligation. If, on the other hand, the
issuer is not eligible to file a Form 1-Z at that time, it will be
required to
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commence its Regulation A reporting with the report covering the most
recent financial period after that included in any effective
registration statement or a filed Exchange Act report.
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\11\ See Exchange Act Section 12(g)(4) and Section 15(d)(1), and
17 CFR 240.12g-4 and 240.12h-3 (``Rules 12g-4 and 12h-3'').
\12\ A Tier 2 issuer that has filed all reports required by
Regulation A for the shorter of: (1) The period since the issuer
became subject to such reporting obligation, or (2) its most recent
three fiscal years and the portion of the current year preceding the
date of filing Form 1-Z is permitted to immediately suspend its
ongoing reporting obligation under Regulation A at any time after
completing reporting for the fiscal year in which the offering
statement was qualified, if the securities of each class to which
the offering statement relates are held of record by fewer than 300
persons (1,200 persons for a bank or bank holding company) and
offers or sales made in reliance on a Tier 2 offering statement are
not ongoing. See Rule 257(d)(2)-(4).
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Finally, we are making a technical amendment to Rule 251(b)(6) to
define the term ``Exchange Act.'' This term had been defined in Rule
251(b)(2), which is being deleted.
B. Implementation Guidance
Because we are limiting the rule amendments adopted in this release
to those necessary to implement the Economic Growth Act's mandate, we
are providing the following guidance to clarify the operation of our
rules in the context of a Regulation A offering by an Exchange Act
reporting company.
1. Financial Statements to be Provided in Form 1-A
In both Tier 1 and Tier 2 offerings, issuers are required to file
financial statements for the two previous fiscal years (or such shorter
time that they have been in existence).\13\ Tier 1 and Tier 2 issuers
have different form and content requirements for their financial
statements. Part F/S of Form 1-A permits Tier 1 issuers to follow the
requirements set out in Part F/S, rather than the requirements in
Regulation S-X.\14\ In contrast, Tier 2 issuers are required to follow
17 CFR 210.8-01 through 210.8-08 (``Article 8 of Regulation S-X''), as
if the issuer were a smaller reporting company conducting a registered
offering on Form S-1, except the age of financial statements may follow
the Part F/S requirements.
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\13\ Part F/S of Form 1-A requires consolidated balance sheets,
statements of comprehensive income, cash flows and changes in
stockholders' equity. In addition, the financial statements must be
prepared in accordance with U.S. GAAP (or International Financial
Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB) for Canadian issuers), which requires
footnotes.
\14\ 17 CFR part 210.
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Another difference between the two tiers is in the audit
requirements for such financial statements. In a Tier 1 offering, the
financial statements are not required to be audited, although paragraph
(b)(2) of Part F/S states that: (i) If an issuer has already obtained
an audit of its financial statements for other purposes, (ii) if that
audit was performed in accordance with U.S. Generally Accepted Auditing
Standards (``U.S. GAAS'') or the standards of the Public Company
Accounting Oversight Board (``PCAOB''), and (iii) if the auditor was
independent pursuant to the standards of either 17 CFR 210.2-01 (``Rule
2-01 of Regulation S-X'') or of the American Institute of Certified
Public Accountants, then those audited financial statements must be
filed. The financial statements in a Tier 2 offering are required to be
audited in accordance with either U.S. GAAS or the standards issued by
the PCAOB, and the report and qualifications of the independent
accountant must comply with the requirements of 17 CFR 210.2-01 through
210.2-07 (``Article 2 of Regulation S-X''). The accounting firm
conducting the audit for any audited financial statements included in
an offering circular may, but need not, be registered with the PCAOB.
We are not at this time amending the requirements of Part F/S.
Exchange Act reporting companies using Regulation A are therefore
required, at a minimum, to include in the Form 1-A financial statements
for the two previous fiscal years (or such shorter time that they have
been in existence), prepared in accordance with the form and content
requirements of Part F/S.\15\ Similarly, with respect to the age of
financial statements required in a Form 1-A, we are not amending the
age requirement applicable to Regulation A offerings at this time.\16\
However, under 17 CFR 230.252 (``Rule 252 of Regulation A''), issuers
must include in an offering statement ``any other material information
necessary to make the required statements, in light of the
circumstances under which they are made, not misleading.'' \17\
Therefore, if at the time a reporting company issuer files a Form 1-A
(or when the offering statement is qualified), it has made publicly
available more recent audited or reviewed financial statements prepared
in accordance with the standard required for the issuer's Exchange Act
reports, including such financial statements in the offering statement
may be necessary to make the required statements therein, in light of
the circumstances under which they are being made, not misleading.
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\15\ As noted above, under paragraph (b)(2) of Part F/S, a
reporting company issuer conducting a Tier 1 offering that has
available audited financial statements prepared for other purposes
is required to include such audited financial statements in its Form
1-A. As is the case for non-reporting companies, reporting company
issuers in either Tier 1 or Tier 2 offerings will not be permitted
to incorporate their financial statements by reference into the Form
1-A or any amendment thereto.
\16\ Part F/S requires issuers in both Tier 1 and Tier 2
offerings to include financial statements in Form 1-A that are dated
not more than nine months before the date of non-public submission,
filing, or qualification, with the most recent annual or interim
balance sheet not older than nine months. For filings made more than
three months but no more than nine months after the end of the
issuer's most recently completed fiscal year end, issuers are
required to include a balance sheet as of the two most recently
completed fiscal year ends. For filings made more than nine months
after the end of the issuer's most recently completed fiscal year
end, the balance sheet is required to be dated as of the two most
recently completed fiscal year ends and an interim balance sheet
must be included as of a date no earlier than six months after the
end of the most recently completed fiscal year. If interim financial
statements are required, they must cover a period of at least six
months.
\17\ See 17 CFR 230.252(a).
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2. New or Revised Accounting Standards
Part F/S of Regulation A permits issuers, where applicable, to
delay the implementation of new accounting standards to the extent such
standards provide for delayed implementation by non-public business
entities, similar to accommodations for emerging growth companies under
Section 102(b) of the Jumpstart Our Business Startups Act (``JOBS
Act'').\18\ This accommodation will continue to be available to issuers
that are not reporting companies (i.e., are not ``issuers'' for
purposes of the Sarbanes-Oxley Act) \19\ at the time of their
Regulation A offering. However, it does not apply to a reporting
company issuer (including an emerging growth company that did not elect
delayed implementation in connection with its initial registration of
securities) that is, at the time of the Regulation A offering, subject
to the rules that apply to public business entities.
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\18\ Public Law 112-106, 126 Stat. 306.
\19\ See Section 2(a) of the Sarbanes Oxley Act, 15 U.S.C.
7201(a).
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3. Canadian Issuers
Regulation A is available only to companies organized in and with
their principal place of business in the United States or Canada.
Outside the Regulation A framework, a Canadian company may file reports
with the Commission under the Exchange Act multijurisdictional
disclosure system (``MJDS''). The MJDS allows eligible Canadian issuers
to register securities under the Securities Act and to register
securities and report under the Exchange Act by use of documents
prepared largely in accordance with Canadian requirements. A Canadian
reporting company issuer, whether or not filing under the MJDS, will be
deemed to have met its Rule 257 reporting obligations so long as it is
current in its applicable Exchange Act reporting obligations. The
disclosure requirements for Canadian issuers reporting under the MJDS
will continue to be established under home country standards. The other
implementation guidance provided in this Section B also applies to
Canadian reporting company issuers.
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4. Securities ``Held of Record'' for Section 12(g) Purposes
Under 17 CFR 240.12g5-1(a)(7) (``Rule 12g5-1(a)(7)''), Tier 2
securities issued by certain small reporting companies may, subject to
certain conditions, be excluded from the count of securities ``held of
record'' for purposes of Exchange Act Section 12(g).\20\ We are not
amending this provision at this time. As a result, securities issued in
a Tier 2 offering by an Exchange Act reporting company that meets the
requirements of the rule will be excluded from the ``held of record''
count.
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\20\ See Rule 12g5-1(a)(7). To take advantage of Rule 12g5-
1(a)(7), an issuer must have had, as of the last business day of its
most recently completed semiannual period, a public float of less
than $75 million or a public float of zero and annual revenues of
less than $50 million as of its most recently completed fiscal year.
Rule 12g5-1(a)(7) also requires that the issuer is required to file
reports pursuant to Rule 257(b) of Regulation A, is current in
filing annual, semiannual and special financial reports as of its
most recently completed fiscal year end, and has engaged a transfer
agent registered pursuant to Section 17A(c) of the Securities Act to
perform the function of a transfer agent with respect to the
securities.
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C. Future Review
Section 401 of the JOBS Act added Section 3(b)(5) \21\ to the
Securities Act, which requires the Commission to review the $50 million
Tier 2 offering limit not later than two years after enactment of the
JOBS Act and every two years thereafter. The Chairman directed the
staff to begin the next review in 2019. In connection with such review
or in other future rulemaking, the Commission may explore whether
additional changes to Regulation A should be made to address the
application of the rule to Exchange Act reporting companies, including
the topics addressed in Section B of this release.
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\21\ 15 U.S.C. 77c(b)(5).
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III. Procedural Matters
The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a proposed rulemaking in the Federal
Register and provide an opportunity for public comment.\22\ This
requirement does not apply, however, if the agency ``for good cause
finds . . . that notice and public procedure are impracticable,
unnecessary, or contrary to the public interest.'' \23\
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\22\ See 5 U.S.C. 553(b).
\23\ Id.
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As discussed above, Section 508 of the Economic Growth Act directs
the Commission to amend Rules 251 and 257 of Regulation A to permit
entities subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act to use Regulation A and to provide that entities
meeting the reporting requirements of the Exchange Act will be deemed
to have met the reporting requirements of Regulation A. Because the
amendments are necessary to conform Regulation A to the requirements of
the Economic Growth Act and involve limited exercise of agency
discretion, we find that notice and public comment are unnecessary.\24\
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\24\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the amendments to become effective notwithstanding
the requirement of 5 U.S.C. 801 (if a federal agency finds that
notice and public comment are impractical, unnecessary, or contrary
to the public interest, a rule shall take effect at such time as the
federal agency promulgating the rule determines). The amendments
also do not require analysis under the Regulatory Flexibility Act.
See 5 U.S.C. 604(a) (requiring a final regulatory flexibility
analysis only for rules required by the APA or other law to undergo
notice and comment).
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The APA also generally requires that an agency publish an adopted
rule in the Federal Register 30 days before it becomes effective.\25\
This requirement, however, does not apply if the agency finds good
cause for making the rule effective sooner.\26\ For the same reasons as
we are forgoing notice and comment, we find good cause to make the
rules effective immediately upon publication in the Federal Register.
In addition, we find that the amendments relieve a restriction in our
rules.\27\
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\25\ See 5 U.S.C. 553(d).
\26\ Id.
\27\ Id.
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IV. Economic Analysis
We are mindful of the costs imposed by and the benefits obtained
from our rules and amendments.\28\ The discussion below addresses the
potential economic effects of the amendments, including the likely
benefits and costs. The Commission is adopting amendments to implement
the specific statutory mandates of Section 508 of the Economic Growth
Act. Accordingly, the costs and benefits of the amendments stem almost
entirely from the statutory mandates of Section 508.
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\28\ Section 2(b) of the Securities Act [15 U.S.C. 77b(b)]
requires the Commission, when engaging in rulemaking where it is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation.
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At the outset, we note that, where possible, we have attempted to
quantify the economic effects of the amendments. However, in some cases
we are unable to quantify the economic effects. For example, it is
difficult to quantify the number of reporting companies that will use
Regulation A instead of a registered offering; the extent to which the
amendments will attract new issuers; the types of reporting companies
that will rely on Regulation A; and the effects of Regulation A's use
by reporting companies on the amount and cost of capital raised in the
Regulation A market. As we discuss below, the effects of the amendments
are likely to be driven by issuers switching from small registered
offerings to Regulation A offerings, which may limit the aggregate net
economic effects of the amendments. We discuss the potential effects of
the amendments relative to the baseline, which includes existing
Regulation A requirements and market practices, as well as information
about reporting companies and other parties likely to be affected by
the amendments.
A. Baseline and Affected Parties
1. Regulation A
As discussed in Section I above, Regulation A is an exemption from
registration under the Securities Act that includes two overlapping
offering tiers (Tier 1--$20 million limit; Tier 2--$50 million limit)
with different requirements. Companies subject to Exchange Act
reporting requirements were ineligible to use Regulation A prior to the
amendments being adopted in this release.
Regulation A's use has increased in relative terms since the 2015
amendments.\29\ However, Regulation A's use remains modest in absolute
terms. Between June 19, 2015 (the effective date of the 2015
amendments) and September 30, 2018, there were approximately 260
qualified offerings seeking up to approximately $5.8 billion in the
aggregate.\30\ In the same period, approximately $1.3 billion in
aggregate proceeds was reported to have been raised by 123 issuers.\31\
Tier 2 accounted
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for most of the Regulation A capital raising activity (approximately
180 qualified offerings seeking up to approximately $5.1 billion with
approximately $1.1 billion in aggregate proceeds reported raised by 98
issuers). In other words, Tier 2 accounted for approximately 88% of the
amount sought to be raised and approximately 85% of the amount reported
to have been raised during this period.
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\29\ See Report to Congress, Access to Capital and Market
Liquidity (Aug. 2017), https://www.sec.gov/files/access-to-capital-and-market-liquidity-study-2017.pdf, at 49-51.
\30\ Offerings are identified based on CIK and file number;
offerings that were withdrawn or abandoned are excluded; offerings
identified as duplicates are consolidated. Amendments are
consolidated with the original offering for purposes of the number
of offerings. Rounding affects totals. Dollar amounts sought are
based on the maximum offering amounts reported by companies in Parts
I and II of Form 1-A.
\31\ Capital raised is based on information reported by
companies in Forms 1-Z, 1-K, 1-SA, 1-U, and offering circular
supplements pertaining to completed and ongoing Regulation A
offerings and post-qualification amendments, and for issuers whose
shares have become exchange-listed, information from other public
sources. Estimates represent a lower bound on the amounts raised
given the time frames for reporting proceeds following completed or
terminated offerings and given that offerings qualified during the
report period may be ongoing. In particular, proceeds in ongoing
offerings disclosed in periodic reports of Tier 2 issuers may be
amended at a future date. Issuers that report proceeds of zero are
excluded from the count. Changes over time in cumulative amounts
reported raised may reflect the timing of reporting by the company
rather than the time at which the capital was raised, and therefore
should not be used to gauge trends in capital raising activity. If
an issuer reported proceeds both from a Tier 1 and a Tier 2
offering, that issuer is counted twice (once under Tier 1 and once
under Tier 2).
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2. Affected Parties
The amendments will affect reporting companies that will be newly
eligible to seek financing under Regulation A. We anticipate that the
amendments will affect U.S. and Canadian reporting companies seeking to
conduct a public offering within the Regulation A offering limit. Among
such issuers, the amendments will likely have the most impact on
issuers in offerings of securities that fall within Regulation A
offering limits and that are not listed on a national securities
exchange (because blue sky preemption is available for Tier 2 of
Regulation A, but is generally not available for non-exchange-listed
securities sold in registered offerings).\32\ This may afford issuers
additional flexibility in raising capital and lower their costs. Among
such issuers, reporting company issuers ineligible for a streamlined
registration process on Form S-3 or F-3 may be incrementally more
likely to rely on Regulation A (due to incrementally lower preparation
costs of Form 1-A). During calendar year 2017, there were approximately
584 reporting companies with registered securities offerings of up to
$50 million that may be eligible for Regulation A under the amendments,
including approximately 267 of those that were not exchange-listed.\33\
Excluding issuers that have used Form S-3 or F-3,\34\ there were
approximately 326 reporting companies with registered securities
offerings of up to $50 million that may be eligible for Regulation A
under the amendments, including approximately 215 that were not
exchange-listed. In addition, we expect that the amendments may affect
past Regulation A issuers that became reporting companies to the extent
that such issuers may seek follow-on Regulation A financing. Among
issuers in Regulation A offerings that were qualified during calendar
year 2017, nine became reporting companies during that period.\35\
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\32\ Under Section 18(b)(1) of the Securities Act, securities
that are listed or authorized for listing on a national securities
exchange are exempt from state securities law registration and
qualification requirements. See Section 18(b)(1), 15 U.S.C.
77r(b)(1).
\33\ The estimate is based on the number of unique issuers with
registration statements on Forms S-1, S-3, S-4, S-11, F-1, F-3, F-4,
and F-10, excluding amendments, declared effective during calendar
year 2017 with registration size up to $50 million. Issuers
incorporated outside the U.S. and Canada and issuers with SIC code
6770 (denoting blank checks) are excluded. Data is obtained from
Intelligize.
\34\ Id. Issuers that had at least one registration statement on
Form S-3 or F-3 declared effective, irrespective of registration
size, during calendar year 2017 are excluded.
\35\ The number of Regulation A issuers is based on the number
of unique filers of Form 1-A or pre-qualification amendments to it
that were qualified during calendar year 2017, excluding offerings
withdrawn after qualification. Regulation A issuers that became
reporting companies are identified based on subsequent exchange
listing, effectiveness of registration on Form 8-A, or subsequent
filing of Exchange Act reports after the qualification of a
Regulation A offering. Given the short period of observation and
small number of issuers, it is not possible to conclude whether that
period was an outlier.
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The amendments also may affect Regulation A issuers that are not
reporting companies to the extent that they compete for capital with
reporting companies that are newly eligible for Regulation A. During
calendar year 2017, there were approximately 90 issuers in qualified
Regulation A offerings, including issuers that later became reporting
companies.\36\ However, the extent of competition for capital in the
Regulation A market may remain unchanged if the amendments draw
additional investors to the Regulation A market, as discussed in
Section IV.B.3 below.
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\36\ Id.
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The flexibility afforded by the amendments may lead some new
issuers that are not reporting companies and that have not previously
conducted a public offering to seek Regulation A financing or to become
a reporting company.
The amendments also will affect Regulation A investors and
intermediaries. Data on the number of Regulation A investors is not
available to us because this information is not required to be
disclosed. Currently very few intermediaries participate in the
Regulation A market. Based on Part I of Form 1-A, approximately 30
intermediaries received underwriting or sales compensation or served as
promoters or finders in Regulation A offerings qualified during
calendar year 2017. The flexibility afforded by the amendments may lead
intermediaries that have not previously participated in Regulation A
offerings to begin participating in such offerings. Overall, there were
approximately 971 registered broker-dealers that reported being
underwriters or selling group participants for corporate securities in
2017.\37\ Such intermediaries may increase their participation in
Regulation A offerings after the amendments.
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\37\ This estimate is based on Form BD filings as of December
2017. It is not limited to underwriters of small offerings due to
data availability reasons.
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B. Economic Effects of the Amendments
1. Amendments to Rule 251
Below we discuss the potential economic effects of the amendments
to Rule 251(b) that permit companies subject to Exchange Act reporting
obligations to rely on Regulation A.
a. Effects on Issuers
Reporting companies that are newly eligible under Regulation A may
realize several benefits from the amendments.
First, reporting companies may benefit from the additional
flexibility in raising capital permitted under Regulation A. Reporting
companies offering securities not listed on a national exchange that
use Tier 2 are eligible for blue sky preemption, which can expedite the
offering process, allow offerings involving a wider range of reporting
companies and offering terms,\38\ and enable offers of securities in
multiple states to a broader range of investors.\39\ However,
Regulation A does not permit at-the-market offerings, which may limit
the attractiveness of this offering method for some reporting
companies.\40\
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\38\ This would be particularly applicable to issuers offering
securities in states with merit review.
\39\ Non-accredited investors in Tier 2 offerings of non-
exchange-listed securities may invest no more than 10% of the
greater of their income or net worth in a given offering. See 17 CFR
230.251(d)(2)(i)(C).
\40\ See Regulation A Adopting Release, 80 FR 21806, 21840
(April 20, 2015) (``Regulation A Adopting Release'').
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Second, Regulation A, particularly Tier 2,\41\ may also provide
additional flexibility with respect to solicitation of investor
interest (i.e., ``test-the-waters'' communications), as compared to
registered offerings, particularly for reporting companies that either
do not qualify as emerging growth companies
[[Page 525]]
(EGCs) or that seek to solicit indications of interest from individual
or small institutional investors.\42\ Subject to certain conditions,
Regulation A issuers may solicit indications of interest from any
investor before qualification of an offering statement, which may allow
issuers to gauge investor interest prior to deciding whether to incur
the full cost of the offering. Test-the-waters materials used in
conjunction with a Regulation A offering must contain required legends
and, should an issuer proceed with an offering, must be publicly filed,
and a Preliminary Offering Circular must be available in conjunction
with test-the-waters materials used after the public filing of the
offering statement.\43\ Further, reporting companies that elect to
solicit indications of interest in conjunction with a prospective
Regulation A offering in reliance on Rule 255 remain subject to
Regulation FD. In addition, Regulation A contains a safe harbor from
integration of Regulation A offerings with any prior offers or sales of
securities, as well as with any subsequent offers or sales of
securities registered under the Securities Act.\44\ The flexibility to
alternate between Regulation A and registered offerings may be
particularly valuable for non-exchange-listed issuers, past Regulation
A issuers that have become reporting companies but wish to seek follow-
on Regulation A financing, and more generally, for other issuers that
are uncertain about whether their future financing strategy will rely
on Regulation A or registered offerings.
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\41\ While Regulation A solicitation provisions are the same for
both tiers, blue sky restrictions may limit solicitation before
state qualification of a Tier 1 offering. See Regulation A Adopting
Release, fn. 998.
\42\ Section 5(d) of the Securities Act allows EGCs to test the
waters with qualified institutional buyers and institutional
accredited investors without a requirement to file test-the-waters
materials. However, EGCs may not solicit other investors under
Section 5(d). Non-EGC issuers may not rely on Section 5(d).
\43\ See 17 CFR 230.255.
\44\ See 17 CFR 230.251(c). As noted above, a reporting company
issuer contemplating concurrent registered and Regulation A
offerings will need to analyze its specific facts and circumstances
with regard to integration concerns and the solicitation
restrictions arising from each offering type, as well as the
application of Regulation FD.
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Third, reporting companies may realize legal and compliance cost
savings from using Regulation A to raise capital instead of a
registered offering. The cost of preparing Form 1-A may be lower than
the cost of preparing a registration statement,\45\ particularly for
issuers ineligible for a streamlined securities registration on Form S-
3 or F-3,\46\ or under the multijurisdictional disclosure system
(MJDS).\47\ In addition, because Tier 2 securities of smaller issuers
may be conditionally exempt from the number of shareholders of record
for purposes of Section 12(g), using Regulation A for new financing may
enable issuers to maintain a lower number of shareholders of record,
which may make it easier for issuers to deregister under Section 12(g)
in the future and suspend Exchange Act reporting.\48\ However, for
issuers that remain subject to Exchange Act reporting, the incremental
effect of using Form 1-A on the overall compliance costs may be
relatively small. Unlike a registered offering, a Regulation A offering
is not subject to liability under Section 11,\49\ which may lower the
legal risk and cost associated with the offering. Further, blue sky
preemption for Tier 2 of Regulation A may result in legal and
compliance cost savings for issuers offering securities not listed on
an exchange.\50\
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\45\ The average preparation burden of Form 1-A for purposes of
the PRA is 750 hours. The average preparation burden of a
registration statement varies depending on registration statement
type. For example, the average preparation burden for purposes of
the PRA is: 4,104 hours for Form S-4; 783 hours for Form S-11; 1,713
hours for Form F-1; and 1,461 hours for Form F-4. In turn, the
average preparation burden for purposes of the PRA is 671 hours for
Form S-1. The preparation burden may also vary from issuer to
issuer. Average preparation burdens are included on the cover page
of each referenced form at https://www.sec.gov/forms.
\46\ See 17 CFR 239.13, 17 CFR 239.33, and supra note 34 and
accompanying text. For issuers using registration statements on Form
S-3 or F-3, the average preparation burden is estimated to be lower
than the average preparation burden of Form 1-A. The average
preparation burden for purposes of the PRA is 475 hours for Form S-3
and 170 hours for Form F-3. The preparation burden may also vary
from issuer to issuer. Average preparation burdens are included on
the cover page of each referenced form at https://www.sec.gov/forms.
\47\ The MJDS allows eligible Canadian issuers to register
securities under the Securities Act and to register securities and
report under the Exchange Act by use of documents prepared largely
in accordance with Canadian requirements. See https://www.sec.gov/corpfin/cf-manual/topic-16. The preparation burden of such forms
estimated for purposes of the PRA is relatively low: 4 hours for
Form F-7; 1 hour for Form F-8; 29 hours for Form F-10; and 2 hours
for F-80. The preparation burden may also vary from issuer to
issuer. Average preparation burdens are included on the cover page
of each referenced form at https://www.sec.gov/forms. Based on EDGAR
data, approximately 56 Canadian issuers had a registration statement
on one of these forms declared effective during calendar year 2017.
\48\ See 17 CFR 240.12g5-1.
\49\ However, under Section 3(b)(2)(D) of the Securities Act,
the civil liability provisions of Section 12(a)(2) apply to any
person offering or selling securities under Regulation A. Further,
antifraud liability provisions in Section 17 of the Securities Act
apply to any person who commits fraud in the offer or sale of
securities. See Regulation A 2015 Adopting Release, fn. 538.
\50\ State regulators retain the authority to require the filing
with them of any documents filed with the Commission. See Regulation
A 2015 Adopting Release, fn. 277. Thus, Tier 2 issuers may incur the
cost of complying with state notice filing requirements. Further,
issuers remain subject to state registration requirements with
respect to Tier 1 securities and registered securities not listed on
a national securities exchange.
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These factors may give reporting companies that seek financing from
public markets within the Regulation A offering limit (particularly
those that are not exchange-listed) greater flexibility in the process
of raising capital, potentially allowing such issuers to incrementally
increase the amount of capital raised, or reduce the cost or time
associated with raising capital.
Reporting companies that use Regulation A will also incur certain
costs. In particular, issuers that rely on the amendments will incur
costs to prepare Form 1-A and undertake a Regulation A offering. It is
likely that many of the reporting companies using Regulation A under
the amendments would have otherwise conducted a registered offering or
a private placement. Given the optional nature of the provision,
reporting companies are likely to use Regulation A only if they expect
the benefits to outweigh the costs.
Finally, if Regulation A use by reporting companies increases
(decreases) overall investor interest in the Regulation A market, as
discussed in Section IV.B.3 below, the resulting inflow (outflow) of
investor capital may indirectly affect all Regulation A issuers,
including issuers that are not reporting companies.
b. Effects on Investors
Many of the reporting companies using Regulation A under the
amendments may be switching from registered offerings to Regulation A,
and the same investors may be investing in their Regulation A
securities as would have invested in their registered securities today,
which may limit the net aggregate impact of the amendments on investors
in public offerings. Nevertheless, the amendments may have an impact on
investors if they facilitate some offerings that would not have been
conducted either under a registration regime or under the Regulation A
regime today. The amendments may also affect investors if provisions
specific to reporting company Regulation A offerings affect investor
benefits and costs associated with offerings that would have otherwise
been conducted either under a registration regime or under a Regulation
A regime. We discuss these considerations in greater detail below.
The amendments may yield benefits for some investors in certain
circumstances. Investors that currently invest primarily in Regulation
A securities may realize incremental
[[Page 526]]
benefits if they begin investing in Regulation A securities of
reporting companies due to greater availability of information about
Exchange Act reporting companies. Greater availability of information
may enable such investors to make better informed investment
decisions,\51\ as well as lead to more informationally efficient
pricing and potentially greater liquidity of Regulation A securities of
such issuers compared to other Regulation A issuers.\52\
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\51\ For example, reporting companies must file quarterly
reports and current reports in a broader range of circumstances than
required for Tier 2 issuers. In addition, reporting companies are
subject to Regulation FD.
\52\ See Regulation A 2015 Adopting Release, at 21866.
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In addition, existing investors in reporting companies that use
Regulation A under the amendments may also benefit if the amendments
enable such issuers to increase shareholder value as a result of
improved access to capital or a lower cost of capital.
Further, the flexibility afforded to reporting companies under the
amendments may make conducting public offerings more attractive
overall, compared to conducting private placements, either as a public
or as a private company. If the amendments lead to an increase in
public offerings (either registered or Regulation A offerings),
investors in the aggregate may benefit from the greater level of
transparency associated with public offerings, increased secondary
market liquidity, and the increased number of investment options, which
may enable investors to make more informed decisions and allocate
capital more efficiently.
Overall, the aggregate benefits to investors are expected to be
more limited if the use of Regulation A by reporting companies is
driven by some reporting companies switching from registered offerings
to Regulation A or by past Regulation A issuers that become reporting
companies continuing to raise Regulation A financing instead of
undertaking registered offerings.
We recognize that the amendments may impose potential costs on some
investors in Regulation A securities of some reporting companies that
would have otherwise invested in registered securities of reporting
companies. Specifically, certain features of Regulation A may make it
more attractive to some non-exchange-listed reporting companies that
have high information asymmetries or that are offering securities with
risky and complex payoffs, some of which might not have pursued a
registered offering today. In particular, Regulation A offering
disclosures are not subject to Section 11 liability; Tier 2 offerings
are not subject to state blue sky review or state investor and
solicitation restrictions; and Regulation A offerings are generally not
subject to the gun-jumping provisions of Section 5(c) due to the
ability to test the waters under Rule 255. These differences can impose
costs on investors to the extent that information asymmetries may make
it more difficult for investors to fully appreciate the risks the
investments present. Some investors may off-set these costs, however.
For example, some investors anticipating such costs may demand
compensation in the form of more attractive offering terms.
Additionally, some of these provisions of the amendments could in fact
benefit investors by enabling issuers to lower compliance costs.
Potential costs of the amendments to investors may be further
mitigated by the following factors: (1) Exchange Act reporting
requirements; (2) disclosures required in Regulation A offering
statements, which provide information on potential risks of the
offering to enable informed investment decisions; (3) the requirement
that Regulation A offering statements be qualified by the Commission
before any sales can be made; (4) potential liability under Section
12(a)(2) and application of the general antifraud provisions of federal
and state securities laws to Regulation A offerings; and (5) Regulation
A requirements (e.g., issuer eligibility criteria, offering limits,
investment limits for non-accredited investors in Tier 2 offerings of
non-exchange-listed securities; and audited financial statement
requirements for Tier 2 offerings).\53\ In general, the readily
observable nature of reporting company status and offering type enables
investors concerned about potential risks of reporting company
Regulation A offerings to reallocate to other types of offerings.
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\53\ See 17 CFR 230.251-230.252.
---------------------------------------------------------------------------
c. Effects on Intermediaries
The amendments may affect intermediaries in Regulation A offerings.
As discussed in Section IV.A.2 above, very few intermediaries presently
participate in Regulation A offerings. An increase in the number and
types of Regulation A issuers may increase demand for the services of
intermediaries in connection with such offerings and potentially
attract new intermediaries to the Regulation A market. For example,
existing intermediaries participating in small registered offerings may
begin to offer Regulation A services to their clients. If the
amendments increase the number and range of issuers using Regulation A
and thereby increase investor interest in the Regulation A market more
generally, intermediaries may realize higher revenue from Regulation A
deals, and vice versa.
The availability of Exchange Act reports may facilitate
intermediary due diligence. However, if reporting companies that use
Regulation A have higher information asymmetries, due diligence costs
and effort of intermediaries may not decrease. Due to the voluntary
nature of matching between issuers and intermediaries, we expect
intermediaries to participate in offerings only when they on average
expect benefits to exceed costs.
Overall, however, the extent to which the use of Regulation A by
reporting companies is driven by some reporting companies switching
from registered offerings to Regulation A is expected to limit the
aggregate effects of the amendments on intermediaries. Further,
intermediaries may not experience significant effects of the amendments
if reporting companies using Regulation A primarily conduct offerings
without involving intermediaries.
2. Amendments to Rule 257
Below we consider the economic effects of the amendments to Rule
257. Under the amendments, a Tier 2 reporting company issuer will be
deemed to have met its Rule 257(b) reporting obligation if it is
current in its Exchange Act reporting as of the due dates for periodic
reports on Form 1-K and Form 1-SA required under Rule 257(b). The
requirement that a reporting company Regulation A issuer be current in,
rather than merely subject to Exchange Act reporting, in order to meet
its Rule 257(b) obligations, is expected to encourage more regular
periodic disclosures following a reporting company's Regulation A
offering. Therefore, this requirement should benefit investors in all
classes of securities of reporting company Regulation A issuers by
enabling better informed investment decisions, as well as more
informationally efficient prices for securities of reporting company
Regulation A issuers traded in secondary markets.
Specifying a time period for which Exchange Act reports must have
been filed will provide certainty to issuers regarding how to satisfy
the requirements of Rule 257(b). The amendments use a 12-month lookback
period consistent with the standard applied in Commission rules in
other
[[Page 527]]
contexts, including for the determination of eligibility to use Form S-
8 and for satisfaction of the ``current public information''
requirement of Rule 144. Use of a standard that is familiar from these
other contexts may facilitate compliance by issuers. As an alternative,
we could have adopted a longer (shorter) period for purposes of
``meeting'' the Rule 257(b) requirements. Such a longer (shorter)
period would have increased (decreased) the incentives for reporting
companies to provide more regular period disclosures following a
Regulation A offering while also increasing (decreasing) costs incurred
by those reporting companies that have previously failed to file
Exchange Act reports. As another alternative, we could have required
filers to have filed in a timely manner all reports required to be
filed during the prior 12 months, consistent with Form S-3 and F-3
requirements.\54\ This alternative may benefit investors by
incentivizing reporting companies that use Regulation A to provide
timely periodic disclosures. However, this alternative may increase
costs and decrease the ability of reporting companies that have failed
to timely file Exchange Act reports during the lookback period to raise
follow-on Regulation A Tier 2 financing. Overall, relative to the
amendments, we do not expect the effects of these alternatives to be
significant given the other incentives that reporting companies have to
remain current in their Exchange Act reports (e.g., greater secondary
market liquidity, not being delisted from an exchange or downgraded to
a lower OTC market tier, future eligibility for a streamlined
registration process, reduced legal liability, and a reputation for
transparency).
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\54\ See General Instruction I.A.3 to Form S-3 and General
Instruction I.A.2 to Form F-3.
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Prior to the amendments being adopted in this release, an issuer
that was not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act that conducted a Tier 2 Regulation A offering
and concurrently registered the class of securities under the Exchange
Act would have had its Regulation A reporting obligations suspended so
long as it was subject to Exchange Act reporting obligations,
regardless of whether it had remained current in such Exchange Act
reporting. Under the mandated amendments, such issuers technically will
be subject to both reporting regimes. Thus, some Tier 2 issuers may
incur costs as a result of this amendment, particularly if they are
likely not to remain current in their Exchange Act reporting.
3. Efficiency, Competition, and Capital Formation
The amendments may attract additional issuers and a potentially
wider range of issuers to the Regulation A market segment, resulting in
potentially greater capital formation under Regulation A. As we note
below, many of these issuers may have otherwise pursued a registered
offering today, thus the net effects on capital formation may be small.
Nevertheless, the amendments may enable some issuers to optimize
their financing strategy and reduce external financing costs as a
result of greater flexibility in raising capital. This may lead some
reporting companies to switch from private placements to Regulation A.
The additional flexibility to alternate between Regulation A and
registered offerings may on the margin encourage some private companies
to pursue public offerings (either pursuant to Regulation A or to a
registration statement) or to become reporting companies. Increased
reliance on public offerings may incrementally increase the
availability of information about offered securities, the investment
opportunities available to non-accredited investors, the efficiency of
such investors' capital allocation decisions, and the competition among
issuers in public offerings for investor capital.
The ability of reporting companies to use Regulation A may increase
competition among issuers for investor capital in the Regulation A
market. If investors in the Regulation A market prefer reporting
companies due to the additional disclosures they provide, it may
adversely affect the ability of non-reporting companies to raise
capital under Regulation A. This incremental effect may be limited to
the extent that reporting companies using Regulation A may have
otherwise raised capital from the same investors in a registered
offering. If investors reveal a preference for additional disclosure,
non-reporting companies seeking Regulation A financing may register a
class of securities under Section 12 or provide Exchange Act
disclosures voluntarily in response to market demand for information,
although such steps would entail additional costs. Alternatively,
Regulation A use by reporting companies may have positive spillovers
for non-reporting companies in the Regulation A market if the inflow of
reporting companies attracts additional interest from investors,
intermediaries, and information providers to the Regulation A market as
a whole.
We recognize that many of the issuers likely to rely on the
amendments to pursue a Regulation A offering may be reporting companies
that would have otherwise pursued a registered offering. We further
recognize that the investors likely to invest in the Regulation A
securities of reporting companies relying on the amendments may be the
same investors that would have invested in registered securities of
those issuers prior to the amendments. Therefore, the net aggregate
effects of the amendments on efficiency, competition, capital
formation, and investor protection may be small.
V. Paperwork Reduction Act
A. Background and Summary
Certain provisions of Regulation A that will be affected by these
amendments contain ``collection of information'' requirements within
the meaning of the Paperwork Reduction Act of 1995 (the ``PRA'').\55\
The Commission is submitting the amendment to the Office of Management
and Budget (the ``OMB'') for review in accordance with the PRA.\56\ The
title for the affected collection of information is Regulation A (Form
1-A) (OMB Control No. 3235-0286).
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\55\ 44 U.S.C. 3501 et seq.
\56\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------
Regulation A provides an exemption from registration for offers and
sales of securities for up to $50 million. Regulation A requires
issuers to provide certain disclosures; this disclosure is a collection
of information. 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 OMB control number. Compliance
with the information collection is mandatory. Responses to the
information collection are not kept confidential and there is no
mandatory retention period for the information disclosed.
The hours and costs associated with preparing disclosure, filing
forms, and retaining records constitute reporting and cost burdens
imposed by the collections of information. In deriving estimates of
these hours and costs, we recognize that the burdens likely will vary
among individual issuers based on a number of factors, including the
stage of development of the business, the amount of capital an issuer
seeks to raise, and the number of years since inception of the
business. We believe that some issuers will experience costs in excess
of the average and some
[[Page 528]]
issuers may experience less than the average costs.
B. Estimated Number of Regulation A Offerings
Data regarding current market practices may help identify the
potential number of offerings that will be conducted in reliance on the
final rules. We estimate that there are currently approximately 112
Regulation A offering statements filed by issuers per year. While it is
not possible to predict with certainty the number of offering
statements that will be filed by issuers relating to offerings made in
reliance on amended Regulation A, for purposes of this PRA analysis, we
estimate that the number will be 179 offering statements per year. We
base this estimate on: (i) The current approximate number of annual
Form 1-A filings under the existing rules, plus (ii) 25 percent of the
estimated number of registered offerings of securities by reporting
companies that were not exchange listed that would have been eligible
to be conducted under Regulation A.\57\
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\57\ See Section IV.A.2 (citing approximately 267 non-exchange
listed reporting companies with registered securities offerings in
2017 of up to $50 million that may be eligible for Regulation A
under the amendments).
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For purposes of this PRA analysis, we assume that each offering
statement for a unique Regulation A offering that is filed represents a
unique issuer, such that approximately 179 issuers are estimated to
conduct Regulation A offerings each year under the final rules.
B. PRA Reporting and Cost Burden Estimates
Regulation A requires issuers to file a Form 1-A: Offering
Statement with the Commission. Regulation A has one administrative
burden hour associated with it, and Form 1-A is currently estimated to
take approximately 750 burden hours per response. We do not estimate
that the one administrative burden hour associated with Regulation A
will change as a result of the final rules. We believe the burden hours
associated with Form 1-A will change as a result of the amendments.
Because an Exchange Act reporting company is likely to have already
prepared much of the information required to respond to Form 1-A for
its Exchange Act reporting purposes, we estimate that the burden to
prepare and file Form 1-A, as amended, for a reporting company will be
approximately 700 hours.\58\ This will decrease the burden on average
across all issuers in comparison to existing rules, to approximately
731.28 hours. We estimate that the issuer will internally carry 75
percent of the burden of preparation and that outside professionals
retained by the issuer at an average cost of $400 per hour \59\ will
carry 25 percent. However, because we estimate that 67 additional
offering statements will be filed per year as a result of the
amendments, we estimate that the overall burden hours to prepare and
file Form 1-A will increase.
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\58\ By comparison, we estimate the burden per response for
preparing Form S-1 to be 671 hours. Such estimate reflects the
effect on disclosure preparation time of the ability of certain
issuers to forward incorporate by reference into the prospectus
contained in a registration statement on Form S-1. See Form S-1, at
1.
\59\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This is the rate we
typically estimate for outside services used in connection with
public company reporting.
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We estimate that compliance with the requirements of Form 1-A will
require 130,900 burden hours (179 offering statements x 731.28 hours/
offering statement) in aggregate each year, which corresponds to 98,175
aggregated hours carried by the issuer internally (179 offering
statements x 731.28 hours/offering statement x 0.75) and aggregated
costs of $13,089,912 (179 offering statements x 731.28 hours/offering
statement x 0.25 x $400) for the services of outside professionals. As
stated above, we estimate that the amendments to Regulation A will not
change the one administrative burden hour associated with the review of
Regulation A and will require 179 burden hours (179 offering statements
x one hour/offering statement) in aggregate each year, which
corresponds to 134.25 aggregated hours carried by the issuer internally
(179 offering statements x 0.75) and aggregated costs of $17,900 (179
offering statements x 0.25 x $400) for the services of outside
professionals. When combined with the estimates for Form 1-A, the
administrative burden hour results in an estimated total compliance
burden of 732.28 hours per offering statement and an estimated annual
compliance burden of 131,078.12 hours (179 offering statements x 732.28
hours/offering statement) and aggregated costs of $13,107,812 (179
offering statements x 732.28 hours/offering statement x 0.25 x $400).
C. Request for Comment
We request comments in order to evaluate: (1) Whether the
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the collection of information; (3) whether there are ways to enhance
the quality, utility, and clarity of the information to be collected;
and (4) whether there are ways to minimize the burden of the collection
of information on those who are to respond, including through the use
of automated collection techniques or other forms of information
technology.
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
the burdens. Persons who desire to submit comments on the collection of
information requirements should direct their 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 of the comments to Brent J.
Fields, Secretary, Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-29-18.
Requests for materials submitted to the OMB by us with regard to these
collections of information should be in writing, refer to File No. S7-
29-18 and be submitted to the Securities and Exchange Commission,
Office of FOIA Services, 100 F Street NE, Washington, DC 20549-0213.
Interested persons are encouraged to send comments to the OMB by March
4, 2019.
VI. Statutory Authority
The amendments contained in this release are adopted under the
authority set forth in sections 3(b), 19(a), and 28 of the Securities
Act and section 508 of the Economic Growth Act.
List of Subjects in 17 CFR Parts 230 and 239
Reporting and recordkeeping requirements, Securities.
Text of Amendment
In accordance with the foregoing, title 17 chapter II of the Code
of Federal Regulations is amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
1. The authority citation for part 230 continues to read in part as
follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L.
[[Page 529]]
112-106, sec. 201(a), sec. 401, 126 Stat. 313 (2012), unless
otherwise noted.
* * * * *
0
2. Section 230.251 is amended by removing and reserving paragraph
(b)(2) and revising paragraph (b)(6) to read as follows:
Sec. 230.251 Scope of exemption.
* * * * *
(b) * * *
(6) Is not, and has not been, subject to any order of the
Commission entered pursuant to Section 12(j) (15 U.S.C. 78l(j)) of the
Securities Exchange Act of 1934 (the ``Exchange Act'') (15 U.S.C. 78a
et seq.) within five years before the filing of the offering statement;
* * * * *
0
3. Section 230.257 is amended by adding paragraph (b)(6), removing and
reserving paragraph (d)(1), and revising paragraph (e) to read as
follows:
Sec. 230.257 Periodic and current reporting; exit report.
* * * * *
(b) * * *
(6) Exchange Act reporting requirements. The duty to file reports
under this rule shall be deemed to have been met if the issuer is
subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act (15 U.S.C. 78m or 15 U.S.C. 78o) and, as of each Form 1-K
and Form 1-SA due date, has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act (15 U.S.C. 78m or 15 U.S.C.
78o) during the 12 months (or such shorter period that the registrant
was required to file such reports) preceding such due date.
* * * * *
(e) Termination of duty to file reports. If the duty to file
reports is deemed to have been met pursuant to paragraph (b)(6) of this
section and such status ends because the issuer terminates or suspends
its duty to file reports under the Exchange Act, the issuer's
obligation to file reports under paragraph (b) of this section shall:
(1) Automatically terminate if the issuer is eligible to suspend
its duty to file reports under paragraphs (d)(2) and (3) of this
section; or
(2) Recommence with the report covering the most recent financial
period after that included in any effective registration statement or
filed Exchange Act report.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
0
4. The authority citation for part 239 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll,
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26,
80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat.
312, unless otherwise noted.
* * * * *
0
5. Amend Form 1-A (referenced in Sec. 239.90) by revising Item 2 of
Part I to read as follows:
Note: The text of Form 1-A does not, and this amendment will
not, appear in the Code of Federal Regulations.
FORM 1-A
REGULATION A OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933
* * * * *
PART I--NOTIFICATION
* * * * *
ITEM 2. Issuer Eligibility
[ballot] Check this box to certify that all of the following statements
are true for the issuer(s):
Organized under the laws of the United States or Canada,
or any State, Province, Territory or possession thereof, or the
District of Columbia.
Principal place of business is in the United States or
Canada.
Not a development stage company that either (a) has no
specific business plan or purpose, or (b) has indicated that its
business plan is to merge with an unidentified company or companies.
Not an investment company registered or required to be
registered under the Investment Company Act of 1940.
Not issuing fractional undivided interests in oil or gas
rights, or a similar interest in other mineral rights.
Not issuing asset-backed securities as defined in Item
1101(c) of Regulation AB.
Not, and has not been, subject to any order of the
Commission entered pursuant to Section 12(j) of the Exchange Act (15
U.S.C. 78l(j)) within five years before the filing of this offering
statement.
Has filed with the Commission all the reports it was
required to file, if any, pursuant to Rule 257 during the two years
immediately before the filing of the offering statement (or for such
shorter period that the issuer was required to file such reports).
* * * * *
By the Commission.
Dated: December 19, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-27980 Filed 1-30-19; 8:45 am]
BILLING CODE 8011-01-P