[Federal Register Volume 91, Number 98 (Thursday, May 21, 2026)]
[Proposed Rules]
[Pages 30086-30190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-10222]
[[Page 30085]]
Vol. 91
Thursday,
No. 98
May 21, 2026
Part III
Securities and Exchange Commission
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17 CFR Parts 210, 229, 230, et al.
Enhancement of Emerging Growth Company Accommodations and
Simplification of Filer Status for Reporting Companies; Proposed Rule
Federal Register / Vol. 91, No. 98 / Thursday, May 21, 2026 /
Proposed Rules
[[Page 30086]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 229, 230, 232, 239, 240, and 249
[Release Nos. 33-11419; 34-105515; File No. S7-2026-18]
RIN 3235-AN40
Enhancement of Emerging Growth Company Accommodations and
Simplification of Filer Status for Reporting Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'')
proposes amendments to streamline filer statuses for Securities
Exchange Act of 1934 (``Exchange Act'') reporting companies into two
primary categories: large accelerated filers and non-accelerated
filers. The Commission further proposes to raise the threshold and
seasoning requirements for large accelerated filer status and extend
certain existing accommodations and scaled disclosures, including those
for smaller reporting companies and emerging growth companies, to all
non-accelerated filers, while continuing to require compliance with
non-scaled disclosure from large accelerated filers. The Commission
also proposes to extend the deadlines to file periodic reports for the
smallest non-accelerated filers, as measured by total assets. Finally,
the Commission also proposes to update the rules that define which
issuers are considered small entities for purposes of the Regulatory
Flexibility Act (``RFA'').
DATES: Comments should be received on or before July 20, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
[cir] Use the Commission's internet comment form (https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-status-reporting-companies); or
[cir] Send an email to [email protected]. Please include File
Number S7-2026-18 on the subject line.
Paper Comments
[cir] Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-18. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-statusreporting-companies). Do not include
personally identifiable information in submissions; you should submit
only information that you wish to make available publicly. The
Commission may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (https://www.sec.gov/rules-regulations/2026/05/s7-2026-18).
FOR FURTHER INFORMATION CONTACT: Nabeel Cheema, Special Counsel, and
Stephanie Sullivan, Associate Chief Accountant, Division of Corporation
Finance, at (202) 551-3430, and Angela Mokodean, Senior Special
Counsel, Division of Investment Management, at (202) 551-6792, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend or add
the following rules and forms:
BILLING CODE 8011-01-P
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BILLING CODE 8011-01-C
Table of Contents
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\1\ 17 CFR 210.1-01 through 210.15-01.
\2\ 17 CFR 229.10 through 229.1610.
\3\ 17 CFR 232.10 through 232.501.
\4\ 15 U.S.C. 77a et seq.
\5\ 15 U.S.C. 78a et seq.
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I. Introduction
A. Exchange Act Reporting Prior to 2002
B. Accelerated Filer Status; Sarbanes-Oxley Act
C. ICFR Requirements
D. Actions Related to Smaller Reporting and Emerging Growth
Companies
1. Establishment of SRC Status
2. The JOBS Act and EGC Status
3. Recent Amendments and Filer Status Complexity
II. Discussion of Proposed Rules
A. Large Accelerated Filer Status Amendments
1. Public Float Threshold
2. Public Float Determination
3. Seasoning
B. Non-Accelerated Filer Amendments
1. Non-Accelerated Filer Definition
2. ICFR and the Auditor Attestation Requirement
3. Extension of SRC and EGC Accommodations and Disclosure
Requirements
4. Application to Other Filer Types
5. Summary of Requirements for LAFs and NAFs Under the Proposal
C. Small Non-Accelerated Filers
D. Proposed Transition Period
E. Updating Small Entity Definitions
F. Other Amendments
III. Other Matters
IV. Economic Analysis
A. Baseline and Affected Parties
1. Regulatory Baseline
2. Affected Parties
3. Registrant Characteristics
B. Economic Benefits and Costs
1. General Economic Effects of the Proposed Amendments
2. Amendments to LAF Definition
3. Exemption From ICFR Auditor Attestation
4. The Expansion of the Subset of Registrants Eligible for
Extended Periodic Report Filing Deadlines
5. Extending SRC and Certain EGC Accommodations to All NAFs
6. Extending Filing Deadlines for the Smallest NAFs
7. Updating Small Entity Definition
8. Additional Considerations
9. Aggregate Monetized Benefits and Costs
C. Anticipated Effects on Efficiency, Competition, and Capital
Formation
D. Reasonable Alternatives
1. LAF Public Float Threshold
2. Seasoning Requirement
3. Regulatory Accommodations for NAFs
4. SNFs
E. Request for Comment
V. Paperwork Reduction Act
A. Summary of the Collections of Information
B. Estimated Paperwork Burden Effects of the Proposed Amendments
C. Incremental and Aggregate Burden and Cost Estimates
D. Request for Comment
VI. Congressional Review Act
VII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
Statutory Authority
I. Introduction
From their inception, the U.S. securities laws have sought to
require full and fair disclosure by companies seeking to raise capital
from investors and access the public markets.\6\ In enacting broad
investor protections and disclosure requirements under the securities
laws, Congress also recognized the need to take into account the
burdens of registration.\7\ A core function of the Exchange Act is to
extend disclosure-based investor protections that are provided for
public offerings of securities under the Securities Act to post-
distribution trading in the secondary markets. This is accomplished
primarily by sections 12,\8\ 13(a),\9\ and 15(d) \10\ of the Exchange
Act, which impose periodic and current reporting requirements on
companies:
[[Page 30089]]
with exchange-listed securities (section 12(b)); with widely held
classes of equity securities (section 12(g)); or that have completed a
public offering registered under the Securities Act (section
15(d)).\11\ These registrants \12\ must file reports prescribed by the
Commission, which generally include annual reports on Form 10-K and
quarterly reports on Form 10-Q.\13\ With respect to investment
companies, business development companies (``BDCs'') and face-amount
certificate companies are also subject to these reporting
requirements.\14\
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\6\ See, e.g., the preamble of the Securities Act, which sets
forth the purpose of the Act: ``[t]o provide full and fair
disclosure of the character of securities sold in interstate and
foreign commerce and through the mails, and to prevent frauds in the
sale thereof, and for other purposes.'' The antifraud provisions of
the Securities Act necessitate application of a materiality standard
to disclosure. See Basic Inc. v. Levinson, 485 U.S. 224 (1988).
Information is material ``if there is a substantial likelihood its
disclosure would have been considered significant by a reasonable
investor.'' Id. (citing TSC Industries, Inc. v. Northway, Inc., 426
U.S. 438 (1976)).
\7\ See, e.g., Securities Act section 28, 15 U.S.C. 77z-3
(providing general exemptive authority to the extent that such
exemption is necessary or appropriate in the public interest);
Jumpstart Our Business Startups Act, Public Law 112-106, 126 Stat.
306 (2012) (easing the compliance burden for newly registered
companies).
\8\ 15 U.S.C. 78l.
\9\ 15 U.S.C. 78m(a).
\10\ 15 U.S.C. 78o(d).
\11\ In addition, any company that has voluntarily registered a
class of equity securities under section 12(g) of the Exchange Act
and any company that has succeeded to the obligation of another
reporting company (17 CFR 240.12g-3 and 240.15d-5) are subject to
the reporting requirements of the Exchange Act.
\12\ We use the terms ``public companies,'' ``registrants,'' and
``issuers'' interchangeably in this release. Unless explained in the
text, the use of different terms in different places is not meant to
connote a substantive difference.
\13\ The Exchange Act and related rules impose additional
requirements on registrants that are not foreign private issuers
(``FPIs''), including obligations to provide current reports (on
Form 8-K pursuant to section 13 or 15(d)) and certain proxy
information and soliciting materials in connection with a
shareholder meeting (on Schedule 14A or 14C pursuant to section 14).
The Commission has recently proposed to allow all registrants the
option to report semiannually rather than quarterly on Form 10-Q.
See Semiannual Reporting, Release No. 33-11414 (May 5, 2026) [91 FR
24968 (May 7, 2026)] (``Semiannual Proposing Release''). FPIs, by
contrast, already have more limited filing requirements, unless they
elect to file on domestic issuer forms. See Concept Release on
Foreign Private Issuer Eligibility, Release No. 33-11376 (June 4,
2025) [90 FR 24232 (June 9, 2025)]. FPIs are defined in 17 CFR
240.3b-4. While FPIs may file annual reports on Form 20-F or Form
40-F, FPIs are exempt from the proxy rules, and their obligation to
file current reports on Form 6-K is largely limited to circumstances
in which FPIs have already made a public filing or disclosure in
their home country jurisdiction.
\14\ BDCs are a type of closed-end investment company that is
not registered under the Investment Company Act of 1940
(``Investment Company Act''). Face-amount certificate companies are
a type of registered investment company that are engaged or propose
to engage in the business of issuing face-amount certificates of the
installment type, or that have been engaged in such business and
have any such certificate outstanding. In general, other registered
investment companies are subject to separate reporting requirements
under the Investment Company Act and are not affected by the filer
statuses or other provisions discussed in this release.
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Over time, the Commission and Congress have adopted various ``filer
statuses'' to establish tiers of registrants and offer certain
accommodations by tier, including as to the timing and content of this
periodic reporting. Current filer statuses include:
Large accelerated filer (``LAF''), accelerated filer \15\
(``AF''), and non-accelerated filer (``NAF'').
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\15\ ``Accelerated filer'' and ``large accelerated filer'' are
defined in 17 CFR 240.12b-2.
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[cir] Filing deadlines for periodic reports depend on whether a
registrant is classified as an LAF, an AF, or neither of these, which
we refer to as an NAF.\16\
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\16\ While undefined currently in the rules, we generally refer
to registrants that are not AFs or LAFs as NAFs.
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[cir] Only LAFs and AFs are required to have the registered public
accounting firm that prepares or issues their financial statement audit
report attest to, and report on, management's assessment of the
effectiveness of internal control over financial reporting (``ICFR'')
(``ICFR auditor attestation'') under section 404(b) of the Sarbanes-
Oxley Act of 2002 (``Sarbanes-Oxley Act'').\17\
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\17\ 15 U.S.C. 7262(b) and (c).
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Smaller reporting company 18 (``SRC'') is a
regulatory status that applies to smaller registrants permitting those
registrants to comply with a number of scaled disclosure requirements,
discussed in detail below,\19\ which notably include scaled financial
statement disclosure and scaled executive compensation disclosure,
among other accommodations.
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\18\ The term ``smaller reporting company'' is defined in 17 CFR
230.405 and 17 CFR 240.12b-2.
\19\ See section II.B below.
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Emerging growth company (``EGC'') is a statutorily-defined
status that applies to registrants for the first five years after their
initial public offering so long as they do not become an LAF or surpass
revenue and debt issuance limitations.\20\ The EGC accommodations are
described more fully below \21\ and notably include scaled financial
statement disclosure in an EGC's initial public equity offering
registration statement, deferred adoption of certain new or revised
financial accounting standards, scaled executive compensation
disclosure, and an exemption from the ICFR auditor attestation
requirement.\22\
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\20\ Section 101(a) of the JOBS Act amended section 2(a) of the
Securities Act and section 3(a) of the Exchange Act to define an
``emerging growth company.'' The JOBS Act initially defined
``emerging growth company'' as an issuer with less than $1 billion
in total annual gross revenues, indexed to inflation. Pursuant to
the statutory requirements, the current threshold is $1,235,000,000.
See Inflation Adjustments Under Titles I and III of the JOBS Act,
Release No. 33-11098 (Sept. 9, 2022) [87 FR 57394 (Sept. 20, 2022)]
(adopting amendments to adjust the threshold to account for
inflation).
\21\ See discussion of EGCs in section I.D.2 below.
\22\ See 15 U.S.C. 7262(b).
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The table below lists the periodic reporting deadlines that
currently apply to LAFs, AFs, and NAFs.\23\
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\23\ See General Instruction A.2 of Form 10-K and General
Instruction A.1 of Form 10-Q for the filing deadlines.
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The filer status framework that has developed is layered and
complex.\24\ Under the current system, registrants must annually
reevaluate their filer status at the end of their fiscal year. To do
so, they consider both their public float \25\ as of the end of their
second fiscal quarter and their annual revenue, and compare those
figures to thresholds that vary based on whether a registrant is
entering or exiting a particular filer status. Additionally,
registrants qualifying as EGCs must evaluate whether they met any of
the disqualifying provisions of an EGC throughout the year. The table
below illustrates the combinations of filer statuses that are possible
today, highlights the overlap that can occur among filer statuses, and
provides the entry thresholds for each status and the proportion of
registrants in each permutation:\26\
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\24\ See, e.g., Fun in the Summer--Navigating the Filer Status
Maze, The Corporate Counsel (May-June 2021), at 1-10 (suggesting
that ``the SEC and Congress have created what is often a bewildering
maze of filer status tests that are used to determine when a company
files its reports with the SEC and the content of those reports'').
See also Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Apr. 10, 2025), at 139-49, https://www.sec.gov/files/2025-SBF-508-Transcript.pdf (counsel panelist noting that
``when I have to sit there and explain to somebody how to navigate .
. . whether you're an emerging growth company or a smaller reporting
company or an [accelerated] filer, their eyes glaze over and they're
just like, `what are you talking about?' And I think that sort of
complexity just adds to the compliance costs, it adds to the
concern, and then sometimes I think it adds to the inability to
access the market and report and do things in a way that is most
effective for those companies'').
\25\ As used herein, ``public float'' is the aggregate worldwide
market value of the voting and non-voting common equity held by the
issuer's non-affiliates. 17 CFR 240.12b-2(i).
\26\ The data used in preparing this table is based on
registrants' self-reported filer statuses on the cover page of their
calendar year (``CY'') 2024 annual filings and excludes asset-backed
issuers and FPIs not filing on domestic forms. While current NAFs
may qualify as SRCs, registrants with no public float and annual
revenues of $100 million or more do not qualify as SRCs. The SRC
definition also excludes any registrant that is an investment
company, an asset-backed issuer, or a majority-owned subsidiary of a
parent that is not an SRC. See 17 CFR 229.10(f)(1).
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The table reflects the current thresholds for initially entering
into a particular status, but, under existing rules, the thresholds are
often different for determining when a registrant transitions out of
that status. Under current rules, LAFs transition to AF status when
their public float falls below $560 million, and AFs and LAFs
transition out of either such status when their public float falls
below $60 million or they determine that they are eligible to use the
requirements for SRCs under the revenue test in paragraph (2) or
(3)(iii)(B) of the smaller reporting company definitions in 17 CFR
230.405 and 17 CFR 240.12b-2. Similarly, once a registrant exits SRC
status, the registrant will only transition back into SRC status if its
public float falls below $200 million, or its public float falls
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below $560 million and its revenues fall below $80 million.\27\ In
addition, because the definitions for the accelerated filer statuses
rely in part on SRC status, these transition thresholds also affect
accelerated filer status determinations.
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\27\ For an SRC whose prior annual revenues were less than $100
million, the SRC may transition as long as it meets the public float
requirement and its current annual revenues are less than $100
million. See 17 CFR 230.405 and 17 CFR 240.12b-2.
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In addition to the complexity of the current filer status
framework, we note that the number of Exchange Act reporting companies
filing on domestic forms fell from 6,996 in 2004 to 5,976 in 2024.\28\
Unsurprisingly, a similar time period (2009-2017) saw significant
growth in private markets, with private markets regularly outpacing
public markets in capital raised.\29\ Recent studies point to a variety
of conditions influencing companies that might previously have gone
public to remain private, with the regulatory burdens and costs of
being a public company consistently considered to be among the factors
that have led to this trend.\30\ The Commission's two most recent Small
Business Forums explored the obstacles facing smaller companies trying
to go public. In 2025, the issues discussed included having to produce
three years of audited financial statements, having to produce reports
on a quarterly basis, the volume of disclosure requirements, and the
complexity of the filer status framework.\31\ In 2026, many of the same
themes were explored, with notable discussion on the cost of compliance
with section 404(b) of the Sarbanes-Oxley Act, the impact on a
registrant's ability to plan for those costs in light of an AF public
float threshold that is based on a single measurement date, and the
limited personnel and resources small companies can devote to such
costs.\32\ Similar recommendations came out of prior years' forums and
other roundtables.\33\
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\28\ This number of registrants is estimated as the number of
unique registrants, identified by Central Index Key (``CIK''), that
filed a Form 10-K, or an amendment thereto, during each year. This
estimate excludes registrants that have not filed a Form 10-K and
FPIs filing on Forms 20-F and 40-F. The estimate also excludes
asset-backed issuers, because the disclosure and other
accommodations addressed in the proposed amendments do not apply to
these issuers.
\29\ See Scott Bauguess, Rachita Gullapalli & Vladimir Ivanov,
Capital Raising in the U.S.: An Analysis of the Market for
Unregistered Securities Offerings, 2009-2017, Division of Economic
and Risk Analysis, U.S. Securities and Exchange Commission (Aug.
2018), https://www.sec.gov/files/dera-white-paper_regulation-d_082018.pdf.
\30\ See Rongbing Huang & Donghang Zhang, Initial Public
Offerings: Motives, Mechanisms, and Pricing The Oxford Rsch.
Encyclopedia of Econ. & Fin. (Feb. 5, 2022) (surveying prior
research on companies' decisions on whether and how to go public
citing conditions including: cash flow considerations and economies
of scope that favor mergers with larger companies, particularly in
globalized industries; the centrality of intellectual property to
many new companies, which attracts venture capital; alternative exit
strategies and private capital availability more generally; and
regulatory burden). See also Marshall Lux & Jack Pead, Hunting High
and Low; The Decline of the Small IPO and What to Do About It, (M-
RCBG Associate Working Paper Series No. 86), Mossavar-Rahmani Ctr.
for Bus. and Gov't (Apr. 2018) (exploring the factors causing the
decline in small company IPOs and finding motivating causes may
include: reduced sell-side coverage; the growth of institutional
investors on the buy-side; the shift from active to passive
investing; growth in private capital; and increased regulatory
pressures).
\31\ Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Apr. 10, 2025), at 129-49, https://www.sec.gov/files/2025-SBF-508-Transcript.pdf. See U.S. Securities and Exchange
Commission, Report on the 44th Annual Small Business Forum (Apr.
2025), at 22, https://www.sec.gov/files/2025-oasb-annual-forum-report.pdf (recommendation that the Commission streamline the
registration process for smaller businesses).
\32\ Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Mar. 9, 2026), https://www.sec.gov/files/transcript-45th-sb-forum.pdf
\33\ See, e.g., U.S. Securities and Exchange Commission, Report
on the 43rd Annual Small Business Forum (Apr. 2024), at 27, https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf (recommendation
to increase AF public float threshold ``so that only larger filers
are required to provide an auditor attestation''); U.S. Securities
and Exchange Commission, Report on the 40th Annual Small Business
Forum (May 2021), at 25, https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf (recommendation to
increase SRC and AF public float thresholds); U.S. Securities and
Exchange Commission, Report on the 39th Annual Small Business Forum
(Jun 2020), at 30, https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf (recommendation to align the SRC and NAF definitions);
U.S. Securities and Exchange Commission, Office of the Advocate for
Small Business Capital Formation, Small Cap Policy Roundtable:
Reassessing the Framework for Small Public Companies (July 2025), at
9-15, https://www.sec.gov/files/small-cap-policy-roundtable-transcript.pdf (discussion of the complexities of filer status
designations with one participant suggesting, among other things, to
increase the LAF threshold up to ``a $2 billion market cap'' and to
``eliminate the accelerated filer status completely''); U.S.
Securities and Exchange Commission, Office of the Advocate for Small
Business Capital Formation, IPO Policy Roundtable: Reexamining the
IPO On-Ramp (July 2025), at 42, https://www.sec.gov/files/ipo-roundtable-transcript.pdf (discussion about trying to ``keep the
costs of accessing public markets proportionate for smaller
companies''); U.S. Securities and Exchange Commission, Investor
Advisory Committee Meeting (Mar. 12, 2026), at 56:18-59:12, https://www.youtube.com/watch?v=y0ZrTZ-uUg0 (discussion related to reforming
the categories of companies that are afforded the ability to provide
scaled disclosure). The Commission's Office of the Advocate for
Small Business Capital Formation has made similar observations and
recommended that the Commission ``consider ways to harmonize the
frameworks governing Smaller Reporting Company (SRC) and Accelerated
Filer definitions.'' See U.S. Securities and Exchange Commission,
Office of the Advocate for Small Business Capital Formation, Annual
Report Fiscal Year 2023 at 84, https://www.sec.gov/files/2023-oasb-annual-report.pdf. Additionally, the Commission's Small Business
Capital Formation Advisory Committee has written that the Commission
should ``[e]nsure public company rules are mindful of the unique
circumstances of small public companies, so that these small
companies can attract capital, spur innovation, and create jobs.''
Letter from U.S. Securities and Exchange Commission, Small Business
Capital Formation Advisory Committee (Feb. 28, 2023), at 2, https://www.sec.gov/files/committee-perspectives-letter-022823.pdf.
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We are also aware of continued concerns regarding the cost of
compliance with the ICFR auditor attestation requirement under section
404(b) of the Sarbanes-Oxley Act.\34\ Some comments on the 2019
Accelerated Filer Release stated that the ICFR auditor attestation
requirement is the most costly aspect of being an AF and indicated
that, in relative terms, it is particularly costly for low-revenue
registrants.\35\ In addition, a recent Government Accountability Office
(``GAO'') study found that Section 404(a) and (b) compliance costs are
more burdensome in relative terms for smaller companies.\36\ At the
same time, the ICFR auditor attestation requirement has benefits for
investors, including that it enhances the reliability of management's
disclosure related to ICFR and may help a registrant identify a
significant deficiency or identify and disclose a material weakness in
ICFR that had not been identified or properly characterized by
management.\37\
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\34\ See section I.C.
\35\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17183 (Mar. 26, 2020)]. See also comments on the SRC Proposing
Release described in the 2019 proposing release suggesting that
these costs can divert capital from core business needs. Amendments
to the Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-85814 (May 9, 2019) [84 FR 24876, 24880 (May 29,
2019)] (``2019 Accelerated Filer Release'').
\36\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), https://www.gao.gov/assets/gao-25-107500.pdf.
\37\ See infra notes 67, 170, and 175.
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While registration and entry into the public capital markets is not
always necessary or appropriate for smaller or emerging companies,\38\
a robust pipeline of companies joining the public markets benefits
investors by providing them with a more diverse set of investment
opportunities and greater transparency.
[[Page 30092]]
It also benefits companies in various ways, including by providing them
new sources of capital at a potentially lower cost. The Commission has
long considered the regulatory burdens of public company registration
and ongoing compliance with the regulations that apply to public
companies. Indeed, the Commission has previously taken steps with the
aim of increasing the viability of entry into the public markets to
more companies, by adopting simplified registration rules and processes
for issuers while carefully balancing investors' need for timely and
appropriate disclosure. For example, in a series of actions spanning
decades, the Commission has routinely simplified and tailored smaller
issuers' disclosure obligations.\39\ In 2005, the Commission reformed
the securities offering process by, among other actions, liberalizing
permitted offering communications, updating prospectus delivery
requirements, and modernizing the shelf registration provisions.\40\
Nonetheless, changes in the securities laws have resulted in an
increasingly complicated regulatory framework that warrants
reconsideration, including a reassessment of whether the disclosure
burdens faced by registrants are properly balanced with the
corresponding benefits to investors and markets.
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\38\ See, e.g., Facilitating Capital Formation and Expanding
Investment Opportunities by Improving Access to Capital in Private
Markets, Release No. 33-10763 (Mar. 4, 2020) [85 FR 17956, 17957
(Mar. 31, 2020)] (``In various circumstances, registration is not
necessary, nor is it the most effective means, to achieve the
objectives of the Securities Act or the Commission's mission more
broadly. In recognition of the fact that registration is not always
necessary or appropriate, the Securities Act contains a number of
exemptions from its registration requirement and the Commission is
authorized to adopt additional exemptions.'').
\39\ See, e.g., Simplified Registration and Reporting
Requirements for Small Issuers, Release No. 33-6049 (Apr. 3, 1979)
[44 FR 21562 (Apr. 10, 1979)]; Small Business Initiatives, Release
No. 33-6949 (July 30, 1992) [57 FR 36442 (Aug. 13, 1992)] (adopting
Regulation S-B); and Smaller Reporting Company Regulatory Relief and
Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan.
4, 2008)] (adopting the ``smaller reporting company'' definition)
(``SRC Adopting Release'').
\40\ Securities Offering Reform, Release No. 33-8591 (July 19,
2005) [70 FR 44722 (Aug. 3, 2005)] (``Offering Reform Adopting
Release''). See also Registered Offering Reform, Release No. 33-
11418 (May 19, 2026) (``Registered Offering Reform Proposal'').
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We are therefore proposing amendments to our regulations to
rationalize the existing Exchange Act filer status framework, which
will simplify reporting and disclosure requirements and reduce burdens
on most reporting companies, while continuing to seek full and fair
disclosure for investors. To provide context to our proposed
amendments, we briefly trace the evolution of the current filer status
framework below.
A. Exchange Act Reporting Prior to 2002
The Commission adopted the ``integrated disclosure system'' in 1982
following several years of analysis of the disclosure rules under the
Securities Act and the Exchange Act.\41\ Prior to the adoption of the
integrated disclosure system, separate disclosure regimes applied to
Securities Act registration statements and Exchange Act registration
and periodic reporting, which often resulted in overlapping and
duplicative requirements. At the time the integrated disclosure system
was adopted, the Commission stated that the ``goal of the Commission's
integrated disclosure program has been to revise or eliminate
overlapping or unnecessary disclosure and dissemination requirements
wherever possible, thereby reducing burdens on registrants while at the
same time ensuring that security holders, investors and the marketplace
have been provided with meaningful nonduplicative information upon
which to base investment decisions.'' \42\
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\41\ See Adoption of Integrated Disclosure System, Release No.
33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 1982)].
\42\ Id. at 11382.
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Under the integrated disclosure system, most registration and
reporting forms under the Securities Act and the Exchange Act refer to
common disclosure requirements codified in Regulation S-K and
Regulation S-X. In recognition of the difficulties that smaller issuers
were facing in accessing the capital markets, the Commission adopted
Regulation S-B in 1992, an integrated disclosure system tailored
specifically to a set of ``small business issuers,'' as defined by
revenues and public float, and provided specialized forms under the
Securities Act and Exchange Act that referenced simplified disclosure
requirements for these issuers.\43\
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\43\ See Small Business Initiatives, Release No. 33-6949 (July
30, 1992) [57 FR 36442 (Aug. 13, 1992)]. Note that in 2007 the
Commission adopted amendments that moved the scaled disclosure
requirements for smaller issuers from Regulation S-B into Regulation
S-K, as discussed below. See SRC Adopting Release.
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As a result of these accommodations, prior to 2002, there were
effectively two Exchange Act filer statuses: a ``default'' category of
issuers that filed periodic reports on Forms 10-K and 10-Q under
Regulation S-K, and a small business issuer category that filed
periodic reports on Forms 10-KSB and 10-QSB under Regulation S-B.
Commission rules applied uniform filing deadlines to all Exchange Act
reporting companies' periodic reports: 90 days after fiscal year end
for annual reports, and 45 days after quarter end for quarterly
reports.
B. Accelerated Filer Status; Sarbanes-Oxley Act
Following a series of corporate and accounting scandals in the
early 2000s that led to financial restatements and bankruptcies and
resulted in significant adverse effects on shareholders, the Commission
established ``accelerated filer'' status by adopting accelerated filing
deadlines for certain registrants. Congress subsequently enacted the
Sarbanes-Oxley Act,\44\ which included ICFR requirements intended to
improve the accuracy and reliability of corporate disclosures.
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\44\ Public Law 107-204, 116 Stat. 745 (2002).
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The Commission's adoption of AF status was motivated in part by
advances in communication technology and companies' growing practice of
releasing quarterly earnings well before the Form 10-Q deadline.\45\
The new ``accelerated filer'' status therefore accelerated the periodic
report filing deadlines for registrants with a public float of $75
million or more, who had been subject to Exchange Act reporting
requirements for at least 12 months, and had previously filed at least
one annual report.\46\ In acting to further categorize the filer
statuses in this way, the Commission sought to ``balance the market's
need for information with the time companies need to prepare that
information without undue burden.'' \47\
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\45\ See Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8089
(Apr. 12, 2002) [67 FR 19896, 19897 (Apr. 23, 2002)] (``[A]dvances
in communications and information technology have made it easier for
companies to process and disseminate information swiftly. Many large
seasoned reporting companies capture and evaluate information and
announce their quarterly and annual financial results well before
they file their formal reports with the Commission. These earnings
announcements are generally less complete in their disclosure than
quarterly or annual reports and can emphasize information that is
less prominent in quarterly or annual reports. Investors also
process, evaluate and react to information on a much shorter
timeframe. The delayed filing of reports, however, means investors
often make decisions without access to the more extensive disclosure
in the company's Exchange Act reports.'').
\46\ Acceleration of Periodic Report Filing Dates and Disclosure
Concerning website Access to Reports, Release No. 33-8128 (Sept. 5,
2002) [67 FR 58480 (Sept. 16, 2002)].
\47\ Id. The Commission did not propose to accelerate the filing
deadlines for newly public companies and smaller issuers,
recognizing that such companies need to develop experience with the
preparation and filing of periodic reports or may not have the
resources or infrastructure to prepare their reports on a shorter
timeframe without undue burden or expense.
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The Commission again amended the filer status rules in 2005 by
introducing the LAF status.\48\ The Commission sought to avoid applying
the shortest filing deadlines to registrants with less than $700
million in public float by further dividing filers into LAFs
[[Page 30093]]
(registrants with $700 million or more in public float) and AFs
(registrants with at least $75 million in public float but less than
$700 million). All remaining registrants with less than $75 million in
public float have become known as NAFs. While the Commission
acknowledged the incremental benefit of more timely accessibility to
periodic reports, it was concerned with the added burdens associated
with the increased acceleration of the deadlines.\49\ The Commission
determined to limit the shortest deadlines to the largest registrants,
reasoning that LAFs, ``are more likely than smaller companies to have a
well-developed infrastructure and financial reporting resources to
support further acceleration of the annual report deadline.'' \50\
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\48\ Revisions to Accelerated Filer Definition and Accelerated
Deadlines for Filing Periodic Reports, Release No. 33-8644 (Dec. 21,
2005) [70 FR 76626 (Dec. 27, 2005)] (``Accelerated Filer Revisions
Adopting Release'').
\49\ See Revisions to Accelerated Filer Definition and
Accelerated Deadlines for Filing Periodic Reports, Release No. 33-
8617 (Sept. 22, 2005) [70 FR 56862, 56865 (Sept. 29, 2005)].
\50\ Id. The Commission confirmed this view in the Accelerated
Filer Revisions Adopting Release. See supra note 48, at 76629.
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As a result of this and later developments,\51\ under the current
definition in Rule 12b-2, an LAF is a registrant that: (1) has a public
float of $700 million or more, as of the last business day of its most
recently completed second fiscal quarter, calculated using either the
closing price or the average of the bid and ask prices that day; (2)
has been subject to the requirements of Exchange Act section 13(a) or
15(d) for at least 12 calendar months; (3) has filed at least one
annual report pursuant to the Exchange Act; and (4) is not eligible to
be an SRC under the SRC revenue test. LAFs' periodic reporting
deadlines are 60 days for Form 10-K, and 40 days for Form 10-Q, while
AFs' deadlines are 75 and 40 days, respectively; and the deadlines for
NAFs remain at 90 and 45 days, respectively.\52\
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\51\ The LAF definition was amended in 2020 to exclude certain
low revenue registrants. Accelerated Filer and Large Accelerated
Filer Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178
(Mar. 26, 2020)]. See discussion infra notes 108,109, and 110 and
accompanying text.
\52\ See Accelerated Filer Revisions Adopting Release. Also in
2005, the Commission adopted a requirement that AFs (and well-known
seasoned issuers, as that term is defined in Securities Act Rule
405) disclose on Form 10-K or Form 20-F material outstanding staff
comments that were issued more than 180 days before the end of the
fiscal year covered by the report. See Offering Reform Adopting
Release. The Commission subsequently extended that disclosure
requirement to LAFs as well. See Accelerated Filer Revisions
Adopting Release.
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C. ICFR Requirements
In 2002, less than two months before the Commission adopted the
rules for AFs, Congress enacted the Sarbanes-Oxley Act.\53\ One aspect
of the Sarbanes-Oxley Act's reforms was the adoption of section 404.
Section 404(a) mandates Commission rules requiring Exchange Act
reporting companies to include in their annual reports an internal
control report that states the responsibility of management for
establishing and maintaining ICFR and that contains an assessment of
the effectiveness of the registrant's ICFR as of the end of each fiscal
year.\54\ Section 404(b) requires that each registered public
accounting firm that prepares or issues the registrant's financial
statement audit report attest to, and report on, management's
assessment of the effectiveness of the ICFR.\55\ As discussed below,
Congress took further action in the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (``Dodd-Frank Act'') \56\ and the
Jumpstart Our Business Startups (``JOBS'') Act,\57\ to exempt from
section 404(b): (1) any registrant that is not an LAF or an AF and (2)
any registrant that is an EGC, respectively.
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\53\ Public Law 107-204, 116 Stat. 745 (2002).
\54\ 15 U.S.C. 7262(a).
\55\ 15 U.S.C. 7262(b).
\56\ Public Law 111-203, 124 Stat. 1376 (2010), sec. 989G(a).
Section 404(c), codified at 15 U.S.C. 7262(c), provides that section
404(b) does not apply with respect to an audit report prepared for
an issuer that is neither an LAF nor an AF as defined by the
Commission.
\57\ Public Law 112-106, 126 Stat. 306 (2012), sec. 103
(codified at 15 U.S.C. 7262(b)).
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As mandated by section 404, the Commission adopted rules in 2003
requiring registrants that are subject to Exchange Act reporting
requirements to include in their annual reports a report of management
on the registrant's ICFR and an attestation report by the registrant's
auditors on management's assessment of the internal controls.\58\
Although section 404 generally requires and directs the Commission to
adopt rules regarding ICFR that apply to every issuer that is required
to file reports pursuant to Exchange Act section 13(a) or 15(d),
registered investment companies (``RICs'') under section 8 of the
Investment Company Act \59\ are specifically exempted from section 404
by section 405.\60\ In addition, the Commission's rules implementing
section 404 exempted other types of issuers, such as asset-backed
issuers, from the ICFR obligations.\61\ The Commission also determined
that FPIs and Canadian multijurisdictional disclosure system (``MJDS'')
issuers must have their management assess and report annually on the
effectiveness of their ICFR as of the end of their fiscal year and
include an auditor attestation report on ICFR in their annual report
form if the FPI or MJDS issuer is an AF or LAF, other than an EGC.\62\
BDCs, however, are subject to the rules adopted by the Commission to
implement section 404.\63\
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\58\ 17 CFR 229.308. See also Management's Report on Internal
Control over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reporting, Release No. 33-8238 (June 5, 2003)
[68 FR 36636 (June 18, 2003)] (``ICFR Adopting Release'').
\59\ 15 U.S.C 80a-8.
\60\ 15 U.S.C. 7263. RICs are subject to Sarbanes-Oxley Act
section 302, which requires management certifications, including
with respect to management's responsibility for establishing and
maintaining ICFR. See 17 CFR 270.30a-2 and 270.30a-3; see also ICFR
Adopting Release. RICs that are management companies, other than
small business investment companies, are also required to file a
copy of their independent public accountant's report on internal
controls. See Form N-CEN (17 CFR 274.101); see also Investment
Company Reporting Modernization, Release No. IC-32314 (Oct. 13,
2016) [81 FR 81870, n.879-81 and accompanying text (Nov. 18, 2016)].
\61\ See Asset-Backed Securities, Release No. 33-8518 (Dec. 22,
2004) [70 FR 1506, 1510 n. 41. (Jan. 7, 2005)] (``Regulation AB
Adopting Release''). See also 17 CFR 240.13a-15(a) and 17 CFR
240.15d-15(a) and General Instruction J to Form 10-K.
\62\ See Items 15(b) and (c) of Form 20-F and General
Instruction B(6)(c) and (d) of Form 40-F.
\63\ BDCs are not registered under the Investment Company Act
and, therefore, not within the exemption provided by Sarbanes-Oxley
Act section 405. See 17 CFR 230.405.
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Through a series of actions from 2003 through 2009, the Commission
delayed compliance with section 404 for NAFs, acknowledging that ``non-
accelerated filers, including smaller companies and foreign private
issuers, may have greater difficulty in preparing the management report
on internal control over financial reporting.'' \64\ Ultimately,
Congress
[[Page 30094]]
enacted section 989G of the Dodd-Frank Act, which added section 404(c)
to the Sarbanes-Oxley Act to exempt issuers that are neither LAFs nor
AFs, as defined by the Commission, from the ICFR auditor attestation
requirement of section 404(b).\65\ Section 404(c) also directed the
Commission to conduct a study to determine how the Commission could
reduce the burden of complying with the section 404(b) ICFR auditor
attestation requirement for companies with public float between $75
million and $250 million. Congress further extended relief from section
404(b) in the JOBS Act when it exempted EGCs from the requirement.\66\
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\64\ See ICFR Adopting Release. As initially adopted, AFs were
to comply with the requirements for their first fiscal year ending
on or after June 15, 2004, and issuers that were not AFs on or after
Apr. 15, 2005. Through a series of releases the Commission extended
compliance for accelerated and non-accelerated filers. See, e.g.,
Management's Report on Internal Control over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports,
Release No. 33- 8392 (Feb. 24, 2004) [69 FR 9722 (Mar. 1, 2004)]
(extending compliance dates for accelerated and non-accelerated
filers); Management's Report on Internal Control over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic
Reports of Non-Accelerated Filers and Foreign Private Issuers;
Extension of Compliance Dates, Release No. 33-8545 (Mar. 2, 2005)
[70 FR 11528 (Mar. 8, 2005)]; Management's Report on Internal
Control Over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reports of Companies that Are Not Accelerated
Filers, Release No. 33-8618 (Sept. 22, 2005) [70 FR 56825 (Sept. 29,
2005)] (further postponing compliance dates for NAFs); Internal
Control over Financial Reporting in Exchange Act Periodic Reports of
Foreign Private Issuers that Are Accelerated Filers, Release No. 33-
8730A (Aug. 9, 2006) [71 FR 47056 (Aug. 15, 2006)] (postponing
compliance dates for FPIs and NAFs). See also Internal Control over
Financial Reporting in Exchange Act Reports of Non-Accelerated
Filers and Newly Public Companies, Release No. 33-8760 (Dec. 15,
2006) [71 FR 76580 (Dec. 21. 2006]; Internal Control over Financial
Reporting in Exchange Act Periodic Reports of Non-Accelerated
Filers, Release No. 33-8934 (June 26, 2008) [73 FR 38094 (July 2,
2008)]; and Internal Control over Financial Reporting in Exchange
Act Reports of Non-Accelerated Filers, Release No. 33-9072 (Oct. 13,
2009) [74 FR 53628 (Oct. 19, 2009)] (further postponing compliance
dates for NAFs).
\65\ 15 U.S.C. 7262(c).
\66\ See supra note 57.
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In April 2011, the Commission staff published the required study
and recommendations relating to section 404(b).\67\ The study found
that, while initial implementation of section 404 resulted in a steep
increase in audit fees, there was a statistically significant decrease
in compliance costs (including audit fees) for registrants subsequent
to the issuance of PCAOB Auditing Standard No. 5 \68\ and related
Commission guidance \69\ on management's report on ICFR. Based on the
study's findings, the staff did not recommend changing the scope of the
ICFR auditor attestation requirement at that time, but encouraged
activities to further improve the effectiveness and efficiency of
implementation of the ICFR requirements.\70\
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\67\ See Staff of the Office of the Chief Accountant, U.S.
Securities and Exchange Commission, Study and Recommendations on
Section 404(b) of the Sarbanes-Oxley Act of 2002 for Issuers with
Public Float Between $75 and $250 Million (Apr. 2011), https://www.sec.gov/news/studies/2011/404bfloat-study.pdf (``Staff Study'').
\68\ See PCAOB Auditing Standard No. 5, An Audit of Internal
Control over Financial Reporting that Is Integrated with an Audit of
Financial Statements, https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-standards-interpretations/details/Auditing_Standard_5.
\69\ See Commission Guidance Regarding Management`s Report on
Internal Control over Financial Reporting Under Section 13(a) and
15(d) of the Securities Exchange Act of 1934, Release No. 33-8810
(June 20, 2007) [72 FR 35324 (June 27, 2007)].
\70\ The staff noted that section 404(c) exempted approximately
60% of reporting issuers at that time and found strong evidence that
the auditor's role in auditing the effectiveness of ICFR improves
the reliability of internal control disclosures and financial
reporting overall and is useful to investors. See Staff Study.
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As discussed in more detail below, the Commission modified the
definition of AF in 2020 to exclude a registrant that is eligible to be
an SRC and has annual revenues of less than $100 million.\71\ In
excluding low-revenue SRCs from AF status, the Commission also exempted
those registrants from the ICFR auditor attestation requirement. In the
adopting release, the Commission found that the ICFR auditor
attestation requirement is disproportionately costly to small issuers,
noting that the fixed costs of compliance are not scalable for smaller
issuers and that low-revenue issuers have limited access to internally
generated capital such that the costs may more directly constrain their
ability to invest and hire.\72\ Commentators and registrants continue
to express concerns regarding the costs of implementation of section
404 and the disproportionate effect on smaller issuers.\73\
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\71\ Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)].
In expanding this exclusion, the Commission suggested, as a general
matter, there may be greater costs and relatively lower benefits in
including these issuers as accelerated filers, in part because these
issuers may, on average, be less susceptible to certain types of
restatements, such as those related to revenue recognition.
\72\ Id. at 17188. However, the release also acknowledged
concerns that eliminating the requirement for these registrants may
adversely affect the effectiveness of ICFR and the reliability of
the financial statements of the affected issuers with data showing
that, among low-revenue issuers, accelerated filers other than EGCs
(filers that are required to obtain an auditor's attestation of
ICFR) have fewer Item 4.02 restatements than non-accelerated filers
that are not required to comply with section 404(b).
\73\ See, e.g., Stephen M. Bainbridge, Sarbanes-Oxley Sec. 404
at Twenty, Law-Econ Research Paper No. 22-05, UCLA School of Law
(2022). See also Peter Iliev, The Effect of SOX Section 404: Costs,
Earnings Quality, and Stock Prices, 65 J. Fin. 1163 (2010) (seeking
to measure the costs, benefits, and overall value impact of
Sarbanes-Oxley Act requirements on small firms and finding the ICFR
auditor attestation requirement imposes significant costs for small
firms and suggesting that the costs associated with section 404
compliance outweigh the benefits for small firms). See also
Transcript, U.S. Securities and Exchange Commission, Small Business
Forum (Mar. 9, 2026), https://www.sec.gov/files/transcript-45th-sb-forum.pdf, at 141-143, 154 (participants identified section 404(b)
costs as an obstacle to companies going and staying public, and
observed that, in practice, the public float trigger for becoming
subject to the ICFR auditor attestation requirement can be
unpredictable).
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D. Actions Related to Smaller Reporting and Emerging Growth Companies
1. Establishment of SRC Status
Through the course of implementing the enhanced disclosure and
other requirements of the Sarbanes-Oxley Act, the Commission recognized
the increased regulatory burden faced by registrants.\74\ This
eventually led in 2007 to the Commission reworking its regulatory
framework for smaller registrants by establishing the ``smaller
reporting company'' filer status.\75\ As part of the revisions, the
Commission rescinded Regulation S-B and the ``small business issuer''
definition.\76\ Under the 2007 rules, all filers that were not AFs or
LAFs--i.e., those with less than $75 million in public float \77\--were
designated as SRCs, and granted most of the scaled disclosure
accommodations that had previously been provided to ``small business
issuers.'' \78\ The SRC definition excludes asset-backed issuers, RICs,
BDCs, and majority-owned subsidiaries of issuers that do not qualify as
an SRC. Additionally, FPIs are not eligible to use the requirements for
SRCs unless they use the forms and rules designated for domestic
issuers and provide financial statements prepared in accordance with
U.S. Generally Accepted Accounting Principles (``U.S. GAAP'').\79\
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\74\ See, e.g., Revisions to Accelerated Filer Definition and
Accelerated Deadlines for Filing Periodic Reports, Release No. 33-
8617 (Sept. 22, 2005) [70 FR 56862, 56863-64 (Sept. 29, 2005)]
(acknowledging the burdens registrants faced in complying with the
section 404 requirements and recounting the compliance postponements
the Commission instituted in response).
\75\ See SRC Adopting Release.
\76\ Id.
\77\ Registrants without a calculable public float were accorded
SRC status if their annual revenues were below $50 million.
\78\ See SRC Adopting Release.
\79\ The Commission has solicited comments on the definition of
FPIs and is considering whether the current FPI definition should be
revised so that it better represents the issuers that the Commission
intended to benefit from current FPI accommodations while continuing
to protect investors and promote capital formation. See Concept
Release on Foreign Private Issuer Eligibility, Release No. 33-11376
(June 4, 2025) [90 FR 24232 (June 9, 2025)] (``FPI Concept
Release''). Further, concurrently with the proposed amendments
outlined in this release, the Commission separately is proposing
amendments to revise, among other things, the eligibility
requirements for Forms S-3 and S-1. See Registration Offering Reform
Proposal. Pursuant to the ongoing evaluation of the issues raised in
the FPI Concept Release, the Commission is proposing to prohibit
FPIs from using Forms S-3 and S-1. See id.
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The revised streamlined regulatory framework moved all disclosure
requirements back into Regulation S-K and Regulation S-X, consolidated
smaller issuers and NAFs into the same filer status, and expanded the
number of registrants eligible to use scaled disclosure
requirements.\80\ The
[[Page 30095]]
amendments effectively established a three-tier filer status framework:
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\80\ Id. at 935. At the time of adoption, the Commission
estimated that approximately 42% of registrants would be eligible to
use the scaled disclosure requirements (4,976 out of 11,898
reporting companies). Id. The amendments also moved certain scaled
financial statement requirements from Regulation S-B into Regulation
S-X. Id.
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LAFs having a public float of $700 million or more,
subject to the most accelerated filing deadlines and the most
comprehensive disclosure requirements;
AFs having a public float of $75 million or more, but less
than $700 million, subject to less accelerated filing deadlines and the
most comprehensive disclosure requirements; and
SRCs having a public float of less than $75 million (or,
if without a calculable public float, annual revenues below $50
million), subject to non-accelerated filing deadlines and scaled
disclosure requirements.
At the time of initial adoption of SRC status, LAFs and AFs were
generally subject to the same disclosure requirements as each other.
SRCs, however, were (and currently remain) permitted to avail
themselves of certain scaled disclosure accommodations, which currently
include:
To provide two (instead of three) years of audited
financial statements, and prepare their financial statements in
accordance with Article 8 of Regulation S-X; \81\
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\81\ In conjunction with the two years of audited financial
statements registrants are also permitted to provide a two-year
(instead of three-year) comparison in their Management's Discussion
and Analysis of Financial Condition and Results of Operations
(``MD&A''). See 17 CFR 240.14a-3(b)(1), 17 CFR 210.8-01 et seq., and
17 CFR 229.303.
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To provide two (instead of three) years of summary
compensation table information and tabular and other compensation
disclosure for three (instead of five) named executive officers;
To omit the compensation discussion and analysis,
compensation policies and practices related to risk management, pay
ratio disclosure, grants of plan-based awards table, pension benefits
table, option exercises and stock vested table, and nonqualified
deferred compensation table; \82\
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\82\ See 17 CFR 229.402. In addition, SRCs are only required to
provide three (instead of five) years of pay versus performance
disclosure. See 17 CFR 229.402(v).
---------------------------------------------------------------------------
To provide scaled golden parachute and pay versus
performance disclosure; \83\
---------------------------------------------------------------------------
\83\ SRCs are only required to provide golden parachute
disclosure generally for three executive officers (instead of five).
See 17 CFR 229.402(t). See also infra note 221 regarding golden
parachute votes. SRCs are only required to provide three (instead of
five) years of pay versus performance disclosure and are permitted
to omit peer group total shareholder return and company selected
measure disclosure. See 17 CFR 229.402(v).
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To omit disclosure relating to risk factors in periodic
reports; \84\ a stock performance graph; \85\ quantitative and
qualitative disclosure about market risk; \86\ supplementary financial
information relating to the disclosure of material quarterly changes
and information about oil and gas activities; \87\ policies and
procedures for the review, approval, or ratification of related party
transactions; \88\ and certain payments made by resource extraction
issuers; \89\ and
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\84\ See Form 10-K, Item 1A; Form 10-Q, Item 1A.
\85\ See 17 CFR 229.201(e).
\86\ See 17 CFR 229.305.
\87\ See 17 CFR 229.302.
\88\ See 17 CFR 229.404(b)(1); 17 CFR 229.404(d).
\89\ See 17 CFR 240.13q-1.
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To provide a simplified description of business.\90\
---------------------------------------------------------------------------
\90\ See 17 CFR 229.101(h).
---------------------------------------------------------------------------
By contrast, Item 404 of Regulation S-K, which addresses related-
party transaction disclosure, includes in Item 404(d) certain
requirements for SRCs that are more rigorous than those for other
filers,\91\ namely:
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\91\ See SRC Adopting Release at 941 (noting that one percent of
an SRC's total assets may not exceed $120,000 to justify the lower
threshold for SRCs).
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Rather than a flat $120,000 threshold for the disclosure
of related-party transactions, the threshold is the lesser of $120,000
or one percent of total assets;
Disclosures are required about underwriting discounts and
commissions where a related person is a principal underwriter or a
controlling person or member of a firm that was or is going to be a
principal underwriter;
Disclosures are required about the issuer's parent(s) and
their basis of control; and
An additional year of disclosures is required regarding
transactions with related persons.\92\
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\92\ 17 CFR 229.404(d).
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2. The JOBS Act and EGC Status
In 2012, Congress enacted the JOBS Act, which established a new
``emerging growth company,'' or EGC, filer status and provided
disclosure and other accommodations to EGCs.\93\ Currently, a company
qualifies as an EGC if it has total gross revenues of less than $1.235
billion during its most recently completed fiscal year and continues to
qualify as an EGC until the earliest of: (1) the last day of the fiscal
year of the issuer during which it has total annual gross revenues of
$1.235 billion or more; (2) the last day of its fiscal year following
the fifth anniversary of the first sale of its common equity securities
pursuant to an effective registration statement; (3) the date on which
the issuer has, during the previous three-year period, issued more than
$1 billion in nonconvertible debt; or (4) the date on which the issuer
is deemed to be an LAF (as defined in Exchange Act Rule 12b-2).\94\
Congress supplemented the JOBS Act by enacting the Fixing America's
Surface Transportation (``FAST'') Act,\95\ which provided for targeted
additional accommodations for EGCs and required the Commission ``to
further scale or eliminate requirements of Regulation S-K, in order to
reduce the burden on emerging growth companies, accelerated filers,
smaller reporting companies, and other smaller issuers, while still
providing all material information to investors.'' \96\
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\93\ Public Law 112-106, 126 Stat. 306 (2012). The EGC
provisions of the JOBS Act were informed by a report containing
recommendations made by the IPO Task Force to the U.S. Department of
the Treasury. See IPO Task Force, Rebuilding the IPO On-Ramp:
Putting Emerging Companies and the Job Market Back on the Road to
Growth (Oct. 20, 2011). The task force was formed after a 2011
Department of the Treasury conference on Access to Capital. The task
force members spanned the emerging growth company ecosystem,
including venture capitalists, executives, investors, securities
lawyers, accountants, academics, and investment bankers. Its purpose
was to examine the challenges facing emerging companies and develop
recommendations to improve their access to capital, with a goal of
generating jobs and growth.
\94\ See 15 U.S.C. 77b(a)(19) and 15 U.S.C. 78c(a)(80). Section
101(a) of the JOBS Act amended section 2(a) of the Securities Act
and section 3(a) of the Exchange Act to define an ``emerging growth
company.'' Section 101(a) initially defined ``emerging growth
company'' as an issuer with less than $1 billion in total annual
gross revenues. Pursuant to the statutory definition, the Commission
is required every five years to index to inflation the annual gross
revenue amount used to determine EGC status to reflect the change in
the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics. In 2017, the Commission increased the
annual gross revenue amount from $1,000,000,000 to $1,070,000,000.
Inflation Adjustments and Other Technical Amendments Under Titles I
and III of the Jobs Act, Release No. 33-10332 (Mar. 31, 2017) [82 FR
17545 (Apr. 12, 2017)]. In 2022, the Commission increased it to
$1,235,000,000. Inflation Adjustments Under Titles I and III of the
JOBS Act, Release No. 33-11098 (Sept. 9, 2022) [87 FR 57394 (Sept.
20, 2022)].
\95\ Public Law 114-94, 129 Stat. 1312 (2015).
\96\ Id., secs. 72002 and 72003. The Commission adopted
amendments to modernize and simplify disclosure requirements in
Regulation S-K in 2019. FAST Act Modernization and Simplification of
Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674
(Apr. 2, 2019)].
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EGC status provides a registrant with accommodations that lower the
costs and burdens of registration and reporting and is generally seen
as an ``on-ramp'' for newly public companies to ease the burdens of
transitioning from a private to a public company.\97\ While there are
overlaps between the EGC and SRC populations and their respective
accommodations, EGCs are entitled to a similar but distinct set of
accommodations. EGCs are:
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\97\ See supra note 93.
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[[Page 30096]]
Exempt from the ICFR auditor attestation requirement,\98\
the requirement to hold shareholder advisory votes on executive
compensation,\99\ pay ratio disclosure,\100\ and pay versus performance
disclosure; \101\
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\98\ See 15 U.S.C. 7262(b).
\99\ EGCs are exempt from the requirement to hold shareholder
advisory votes to approve executive compensation (``say-on-pay''),
frequency of say-on-pay voting, and ``golden parachute''
compensation arrangements. See 15 U.S.C. 78n-1(e); Jumpstart Our
Business Startups Act, Public Law 112-106, 126 Stat. 306 (2012),
sec. 102(a)(1). See infra notes 219-221 for a discussion of these
shareholder advisory votes.
\100\ Investor Protection and Securities Reform Act of 2010,
Public Law 111-203, 124 Stat. 1904, sec. 953(b)(1); Public Law 112-
106, 126 Stat. 306 (2012), sec. 102(a)(3).
\101\ See 15 U.S.C. 78n(i); Public Law 112-106, 126 Stat. 306
(2012), sec. 102(a)(2).
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Permitted to provide two (instead of three) years of
audited financial statements in the registration statement for an
initial public offering of common equity securities, and to defer
compliance with new or revised financial accounting standards until a
company that is not an issuer is required to comply with such
standards, if such standard applies to private companies; \102\
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\102\ See 15 U.S.C. 77g(a)(2); 15 U.S.C. 78m(a)(2).
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Permitted to provide executive compensation disclosure to
match the information required from issuers with less than $75 million
in public float (the SRC threshold at the time of adoption of the JOBS
Act); \103\ and
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\103\ See section 102(c) of the JOBS Act and 17 CFR 229.402(m)
through (r).
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Permitted to submit certain draft registration statements
to the Commission on a confidential basis.\104\
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\104\ See infra notes 222 through 227 and accompanying text.
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3. Recent Amendments and Filer Status Complexity
While a registrant cannot be both an EGC and an LAF,\105\ as shown
in the table in section I above, a registrant can be both an EGC and an
SRC, or both an EGC and an AF. When the Commission updated the SRC, AF,
and LAF thresholds in 2018, the SRC public float threshold was raised
to $250 million, and the SRC revenue threshold was raised to $100
million.\106\ Along with the increase of these thresholds, the
Commission removed the automatic exclusion of SRCs from the definition
of AF and LAF. As a result of these changes, SRCs went from being
exclusively NAFs to a separate, additional status (like EGC status)
that could attach to either NAFs or AFs. Further, SRCs can also be
EGCs, and these statuses involve largely overlapping but distinct
obligations and accommodations.
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\105\ See 15 U.S.C. 77b(a)(19) and 15 U.S.C. 78c(a)(80).
\106\ Smaller Reporting Company Definition, Release No. 33-10513
(June 28, 2018) [83 FR 31992 (July 10, 2018)] (``2018 SRC Adopting
Release''). Additionally, qualification via the revenue test was
extended to registrants with a public float of less than $700
million, rather than only applying in the case of no public float.
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When adopting the 2018 amendments to the SRC definition, the
Commission acknowledged the ``regulatory complexity'' created by this
potential overlap between the SRC and AF definitions.\107\
Subsequently, in 2020, the Commission adopted amendments to the
definitions of AF and LAF seeking to tailor the types of issuers
included in those filer statuses.\108\ The rules, as amended, now
exclude low-revenue SRCs (those with under $100 million in annual
revenues and either no public float or a public float of less than $700
million) from the definitions of AF and LAF, increasing the number of
registrants that qualify as NAFs.\109\ As NAFs, these registrants,
among other things, are not required to obtain an ICFR auditor
attestation. The amendments were intended to thereby reduce compliance
costs for these registrants while maintaining investor protections by
more appropriately tailoring the types of registrants that are included
in the categories of AF and LAF.\110\
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\107\ Id. The adopting release noted that the Chairman had
directed the staff to consider, among other things, the historical
and current relationship between the SRC and AF definitions as part
of its consideration of possible changes to the AF definition.
\108\ Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)].
\109\ Id. The Commission also set the transition thresholds for
exiting LAF and AF status at $560 million and $60 million,
respectively (80% of the initial public float thresholds matching
the 80% exit threshold for SRC status), and added the SRC revenue
test to the LAF and AF transition thresholds.
\110\ Id. at 17193. In making its determination the Commission
noted that imposition of the ICFR auditor attestation requirement
has been associated with benefits to issuers and investors, such as
reduced rates of ineffective ICFR and more reliable financial
statements, but also acknowledged that the affected registrants may
find the costs of these requirements to be particularly burdensome
given certain fixed costs and limited access to internally-generated
capital. Although exempting low-revenue registrants may result in an
increased prevalence of ineffective ICFR and restatements, in
mitigation of these concerns the Commission noted the relatively low
rates of restatements for low-revenue registrants and provided
evidence that the market value of low-revenue registrants was not as
associated with contemporary financial statements as for higher-
revenue registrants (potentially implying that low-revenue
registrants' valuations are driven to a greater degree by future
prospects). Id. at 17193-94.
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While the amendments increased the number of SRCs that qualify as
NAFs, the Commission determined not to fully align the statuses.\111\
The Commission acknowledged that such alignment would promote greater
regulatory simplicity and reduce friction or confusion associated with
registrants' determination of their filer status or reporting
regime.\112\ It expressed concerns, however, that such alignment could
result in adverse effects on the reliability of the financial
statements and the ability of investors to make informed investment
decisions about those issuers.\113\ Thus, the amendments reduced the
overlap between AF status and SRC status by including low-revenue SRCs
as NAFs (i.e., those with a public float of $75 million or more but
less than $250 million, regardless of annual revenues, and those with
public float of less than $700 million and annual revenues of less than
$100 million), but added an additional determination for SRC status.
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\111\ Id.
\112\ Id.
\113\ Id. at 17189.
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We are proposing to revise the current rules to streamline and
further scale disclosure and reporting requirements. Among our
objectives is to reduce compliance costs and create a more attractive
on-ramp for newly public companies, thereby reducing regulatory
impediments that may be deterring companies from participating in the
public market and encouraging more companies to go and stay public,
while ensuring that investors have the information necessary to inform
their investment and voting decisions.
II. Discussion of Proposed Rules
As detailed above, the Commission's rules currently set forth five
filer statuses that correspond to varying levels of disclosure and
other requirements, which are sometimes overlapping and often complex
for issuers to determine.\114\ LAFs are subject to the most stringent
requirements, and NAFs that are also both SRCs and EGCs are afforded
the most accommodations. LAFs in 2024 accounted for 35.4 percent of
registrants and 98.8 percent of total market public float.\115\ In
contrast, in 2024, while NAFs, including NAFs that are also SRCs or
EGCs (or both), accounted for 51.9 percent of registrants, they
accounted for only 1.2 percent of total market public float.\116\
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\114\ Supra Table 2.
\115\ See infra note 339 on calculating total market public
float.
\116\ See section IV.A.2.
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We are proposing amendments with the goal of streamlining the
overlapping Exchange Act filer statuses and further
[[Page 30097]]
scaling disclosures and other accommodations while ensuring that
investors continue to receive timely and material information. To do
so, the proposed amendments seek to align disclosure and other
reporting requirements and reporting deadlines with registrants' public
float. As a result of the proposed amendments, companies that
collectively make up the majority of the U.S. equity market
capitalization would be subject to the most comprehensive requirements
and earliest filing deadlines, while all other issuers would be
afforded the proposed scaled disclosure and other accommodations. The
proposed amendments would provide for simplified compliance and reduced
costs for a majority of registrants. Additionally, we are proposing to
extend the filing deadlines for the smallest companies in order to
reduce the burden on these companies and further accommodate their
ability to efficiently comply with Exchange Act reporting. As described
in more detail below, the proposed amendments would:
Revise the LAF filer status to:
[cir] Raise the threshold for becoming an LAF from the current $700
million to $2 billion in public float, which would represent 93.5
percent of the current total market public float; \117\
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\117\ See discussion in section II.A.1 below.
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[cir] Establish a new, more stable, public float calculation window
that provides for the determination of public float based on the
average price of the registrant's voting and non-voting common equity
held by non-affiliates over the last 10 trading days of the second
quarter of a registrant's fiscal year; \118\
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\118\ As noted above, the Commission has recently proposed to
allow registrants to report semiannually rather than quarterly on
Form 10-Q. See Semiannual Proposing Release. If that rule is
adopted, semiannual filers would determine public float over the
last 10 trading days of the first semiannual period. See also infra
note 296 and accompanying text.
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[cir] Establish that a registrant will only transition into or out
of a status after the registrant has been above or below the public
float threshold for two consecutive years; \119\ and
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\119\ See section II.A.1.
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[cir] Increase the seasoning threshold for becoming an LAF to 60
consecutive calendar months.\120\
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\120\ See section II.A.2.
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Establish the NAF filer status and consolidate and extend
to NAFs currently available scaled disclosure and other accommodations
by:
[cir] Establishing an NAF definition that encompasses all
registrants that are not LAFs; \121\ and
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\121\ See section II.B.1.
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[cir] Applying to NAFs the current disclosure requirements
applicable to SRCs and EGCs, including not requiring an ICFR auditor
attestation.\122\
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\122\ See sections II.B.2, 3 and 4. As discussed below, these
requirements would generally extend to all NAFs, with some
exceptions.
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Extend to NAFs the requirement currently applicable to
LAFs and AFs to disclose on Form 10-K or Form 20-F the substance of
material unresolved staff comments regarding the registrant's periodic
or current reports received at least 180 days before a registrant's
fiscal year end.\123\
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\123\ See section II.B.3.a.i.
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Eliminate AF and SRC filer statuses as unnecessary in
light of the amendments described above.\124\
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\124\ EGC filer status was created by the JOBS Act. As this is a
statutory status, the Commission is not proposing to eliminate the
EGC filer status. We are proposing to permit NAFs to apply the
disclosure requirements that currently apply to EGCs, which we
believe would practically make reliance on EGC status unnecessary in
most circumstances. We note, and discuss below, that we are not
proposing to extend to NAFs the accommodation available to EGCs to
exclude a nonpublic draft registration statements from being
produced in response to a Freedom of Information Act (``FOIA'')
request. See section II.B.3.b.
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Create a sub-category consisting of the smallest NAFs
(``SNFs''), comprising NAFs reporting total assets of $35 million or
less as of the end of an issuer's two most recent second fiscal
quarters, that would be eligible for extended deadlines for filing
their Form 10-K and Form 10-Q periodic reports.\125\
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\125\ See section II.C.
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Consistent with the Commission's history of considering how its
regulatory regime can serve investors while avoiding unnecessary
regulatory burdens to registrants, we believe the time is ripe to again
rebalance the disclosure and other requirements applicable to issuers
of given sizes. Evidence shows that regulatory changes over the last
two decades, which increased the costs of public company reporting,
have contributed to a decline in the number of public companies in the
United States.\126\ We believe the proposed amendments are a meaningful
step in making the public markets more attractive, which would
encourage more companies to go and stay public while ensuring that
investors remain equipped to make informed investment and voting
decisions, which would in turn improve investment opportunities and the
information available to investors in such companies.
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\126\ See section IV.B.1.
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In this regard, the proposed scaling and accommodations would in
many cases apply to disclosures, such as in the area of executive
compensation and corporate governance matters, where the associated
potential benefits may not be commensurate with their costs to
registrants. Further, we believe any loss of information and assurance
or increased costs to investors in registrants that would newly receive
certain accommodations would be justified by the expected reduction in
costs to those registrants, as well as by effects that may encourage
more companies to go and stay public, which ultimately would benefit
investors in those companies.\127\ Finally, to the extent that these
accommodations contribute to a company choosing to go or stay public,
we also believe that is ultimately a benefit to investors, including
through the resulting greater diversification and more efficient
capital allocation within investor portfolios.\128\
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\127\ See sections IV.B.2.a.1 and B.3.
\128\ See section IV.C.
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A. Large Accelerated Filer Status Amendments
We are proposing to revise the definition of LAF to mean an issuer
that as of the end of each of the issuer's two most recent second
fiscal quarters, had an aggregate worldwide market value of the voting
and non-voting common equity held by non-affiliates of $2 billion or
more. In addition, we are proposing to extend the seasoning requirement
for LAF status such that an issuer would be an NAF until it has been
subject to the requirements of section 13(a) or 15(d) of the Exchange
Act for a period of at least the preceding 60 consecutive calendar
months.\129\ Consistent with our current rules, an issuer would be
required to assess its filer status annually, as of the last day of its
fiscal year.\130\
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\129\ As part of these revisions, we are proposing to eliminate
the SRC filer status (see section II.B.1) and as a result are also
proposing to eliminate the provision in 17 CFR 240.12b-2 that
provides an exclusion from LAF status for a registrant that is
eligible to be an SRC under the SRC revenue test.
\130\ As proposed, a registrant's filer status would only change
on the date of assessment (i.e., the last day of its fiscal year),
regardless of when the registrant chooses to calculate its public
float. As discussed below, under the proposed rules, once a
registrant enters a status, it would remain in that status for at
least two years as meeting or not meeting the conditions of LAF. See
section II.A.2.
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These proposed amendments would apply the LAF requirements to only
the largest registrants, which comprise the vast majority of the equity
market capitalization in the U.S. public
[[Page 30098]]
markets, with those companies currently representing approximately 93.5
percent of total market public float.\131\ We believe that registrants
with the largest U.S. equity market capitalization have a heightened
investor demand for more comprehensive information sooner, and these
registrants are likewise the most capable of bearing the costs and
burdens of compliance with shorter disclosure deadlines and non-scaled
disclosure and other requirements. We estimate these proposed
conditions would result in 19.2 percent of existing Exchange Act
reporting companies being LAFs, as compared to 35.4 percent today.\132\
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\131\ See section IV.B.2.
\132\ See section IV.B.2. As proposed, registrants who no longer
meet the conditions for LAF status would be permitted to continue to
voluntarily comply with the reporting rules as they apply to LAFs.
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1. Public Float Threshold
We are proposing to raise the public float threshold for purposes
of determination of LAF status from $700 million to $2 billion. The
Commission has historically looked to public float as a proxy for
demonstrated market following \133\ and used public float in
determining filer status and appropriate disclosure requirements and
accommodations. When the Commission created the LAF filer status in
2005, it emphasized that ``companies with a public float of $700
million or more represent nearly 95 percent of the U.S. equity market
capitalization and are more closely followed by the markets and by
securities analysts than other issuers,'' and that ``larger issuers
generally have sufficient financial reporting resources and
sufficiently robust infrastructures to comply with the [accelerated
filing deadlines].'' \134\ We continue to believe that public float is
a reasonable indicator of which companies the markets follow most
closely.\135\ We further believe that it is most appropriate to subject
registrants with the higher public float to non-scaled disclosure
requirements. In addition, we believe that companies with a public
float of $2 billion or more should be sufficiently resourced to be able
to comply with the highest level of burden associated with registration
and the obligations of being a public company.
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\133\ See, e.g., Offering Reform Adopting Release at 44727
(``[T]he `public float[ ]' of a reporting issuer can be used as a
proxy for whether the issuer has a demonstrated market following'').
See also Small Business Initiatives, Release No. 33-6949 (July 30,
1992) [57 FR 36442 (Aug. 13, 1992)]; and SRC Adopting Release.
\134\ See Accelerated Filer Revisions Adopting Release at 76629-
30. See also Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480, 58482 (Sept. 16, 2002)] (``[A] public
float test serves as a reasonable measure of size and market
interest.'').
\135\ As noted in the Registered Offering Reform Proposal, our
proposed elimination in that release of the minimum public float
requirement in Form S-3 and with respect to eligibility for the
Enhanced Registration and Communication Benefits (as defined in that
release) is consistent with our proposed retention of public float
in this proposal. See supra note 40. Our proposed elimination of a
minimum public float requirement in the Registered Offering Reform
Proposal is based on our belief that that eligibility to use Form S-
3 and the Enhanced Registration and Communication Benefits should
not depend on the extent of an issuer's market following, including
analyst coverage (e.g., by reference to its public float or initial
Exchange Act seasoning). That proposal is not intended to suggest
that public float is an inappropriate indicator of an issuer's
market following. See id. at n. 230 (``We continue to believe that
public float is relevant for determining an issuer's filer status
and deadlines for filing Exchange Act reports. As we have previously
stated, public float can serve as a reasonable measure of a
company's size and market interest and, in turn, where investor
interest in accelerated filing is likely to be highest'' (citation
omitted)).
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At the time the Commission adopted LAF filer status in 2005, it was
estimated that ``companies with a public float of over $700 million
represent approximately 18 percent of the total number of companies on
these markets and nearly 95 percent of the total public float on these
markets.'' \136\ We note that since the adoption of the LAF filer
status, the $700 million threshold has not been updated. Today, we
estimate that the current threshold captures 98.8 percent of total
market public float and 35.4 percent of registrants.\137\ We are
proposing to raise the threshold to continue to cover the largest
registrants and reestablish the relationship to the number of companies
covered and total market public float that existed when the filer
status was adopted.\138\ We therefore propose to reestablish a public
float requirement that would capture nearly 95 percent of total market
public float and estimate that setting the threshold at $2 billion
would capture approximately 93.5 percent of total market public float,
and cover approximately 20 percent of the total number of existing
registrants.
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\136\ See Accelerated Filer Revisions Adopting Release at 76636
(using data for companies listed on NYSE, Amex, NASDAQ, the Over-
the-Counter Bulletin Board, and Pink Sheets LLC).
\137\ See section IV.C.2. Over the period from the open of
trading on Jan. 3, 2006 to the close of trading on Jan. 2, 2026, the
S&P 500 Index increased from 1,248 to 6,858, an approximately 450%
increase. A proportionate increase to the $700 million threshold
would result in a $3.85 billion threshold. Alternatively, adjusting
for inflation would result in a $1.15 billion threshold. See CPI
Inflation Calculator, https://www.bls.gov/data/inflation_calculator.htm (measuring from Jan. 2006 to Jan. 2026,
retrieved Apr. 15, 2026).
\138\ When adopting the LAF filer status, the Commission
indicated that ``companies with a public float of $700 million or
more . . . are more closely followed by the markets and by
securities analysts than other issuers'' and that, ``[b]ased on our
experience with the accelerated filing deadlines, we continue to
believe that larger issuers generally have sufficient financial
reporting resources and sufficiently robust infrastructures to
comply with the 60-day deadlines . . . .'' See Accelerated Filer
Revisions Adopting Release at 76629-30.
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Other than the proposed single public float threshold, we are not
proposing additional or alternative LAF status determination
thresholds, as we believe doing so could complicate the regulatory
framework without commensurate benefits.
2. Public Float Determination
We are proposing amendments to the way a registrant determines its
public float for purposes of the LAF definition. Under the current
rules, a registrant assesses whether it meets LAF status as of the end
of each fiscal year based on its public float as of the last business
day of an issuer's most recently completed second fiscal quarter, using
either the closing price or the average of the bid and ask prices on
that day. As a result, a registrant may become an LAF at the end of its
fiscal year based on a single day of volatility, even if the
registrant's overall public float may quickly stabilize below the
threshold. While we recognize that the circumstances in which such
swings can cause a shift in filer status may be limited or relatively
rare, to the extent they do occur, the consequences can be significant
in terms of regulatory burden on affected registrants. To minimize the
impact of swings in share price in a limited period or on a single day,
the proposed amendments would require that, before a registrant would
transition either into or out of LAF status as of the end of its fiscal
year, the registrant's public float, calculated based on the average of
the registrant's stock price over the last 10 trading days of each of
the second quarter of such fiscal year and the immediately prior fiscal
year, multiplied respectively by the aggregate worldwide number of
shares of the issuer's voting and non-voting common equity held by non-
affiliates as of the last day of the issuer's second fiscal quarter of
such fiscal year, remain either at or above, or below, the public float
threshold.
By requiring that the public float threshold be met (or not met)
for two consecutive years, a registrant would change filer status as of
the end of its fiscal year only if its public float has been relatively
stable consistently either above or below the threshold. This would
mean that a registrant, and investors, would always have at least one
year of visibility regarding the
[[Page 30099]]
possibility of a status transition before any transition could occur.
The proposed rules also clarify that meeting or not meeting the
conditions of LAF status for a single year would not suffice to change
filer status from NAF to LAF or vice versa. Thus, once a registrant
enters a status, it would remain in that status for at least two years.
The proposed rules also base the calculation each year on the
average of the closing prices over the last 10 trading days of the
second quarter of the registrant's fiscal year (or, if there is no
closing price on a day, the average of the bid and ask prices that
day), using the number of shares on the last day of the second quarter
of the registrant's fiscal year, in order to address the risk that a
single day's market volatility could result in unexpected changes to
filer status. An average over 10 trading days would provide at least
two calendar weeks of data, which we believe would mitigate the impact
of short-term volatility, including spikes and drops in stock price
that may be temporary, such as those based on short-term news and
events. We are proposing that the number of shares be based on a single
date in an effort to simplify the calculation.
Additionally, we believe the proposed transition criteria, by
accounting for the potential for volatility, would eliminate the need
for distinct criteria for transitioning out of a particular filer
status as provided for in the current rules. As the Commission stated
when adopting separate transition thresholds for exiting AF or LAF
status, the purpose of the transition thresholds ``is to avoid
situations in which an issuer frequently enters and exits accelerated
and large accelerated filer status due to small fluctuations in public
float'' which could cause confusion for issuers and investors as to the
issuer's status.\139\ While we agree that addressing volatility in
setting a market price-based threshold should remain an important
consideration, the Commission's existing separate thresholds for
exiting a filer status have contributed to the complexity of the
current rules. Accordingly, we are also proposing to eliminate the
separate, lower threshold for exiting LAF status in favor of a
definition with a single public float criterion and a two-year lookback
determination (i.e., public float of $2 billion or more for two
consecutive fiscal years). While the lower exit threshold was intended
to maintain stability in status so that registrants with public floats
near the entry threshold do not frequently move in and out of a filer
status, we believe requiring the threshold be met in two consecutive
years based in each year on a longer calculation window would more
meaningfully address these concerns while being easier for registrants
to implement and providing earlier notice of a possible change in filer
status.
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\139\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17191 (Mar. 26, 2020)]. The Commission set the threshold for AFs and
LAFs becoming NAFs at $60 million, and the threshold for exiting LAF
status at $560 million. Id.
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A potential drawback of the two-year lookback is that some
registrants that would become LAFs would have to provide non-scaled
disclosure even if their public float falls below the LAF threshold for
a year. Conversely, a potential drawback for investors is that they
would not receive the benefits of non-scaled disclosure following an
NAF's single-year increase in public float, as they would with a one-
year lookback. However, a registrant remaining ``in status'' for at
least two years before potentially changing to a new filer status could
provide more consistency to the disclosure regime and more comparable
period-to-period information, to the benefit of both registrants and
investors.
To demonstrate how these proposed changes would work in practice,
consider a hypothetical NAF that is assessing its annual filer status
as of the last day of its fiscal year, or December 31, 2026, for a
calendar-year end registrant. Assuming the proposed rules were in
effect, if an NAF's public float, as determined by the average stock
price over the last 10 trading days of the second quarter of each
fiscal year being measured (i.e., the 10 trading days ending on or
before June 30), for fiscal year 2025 was $1.9 billion and for fiscal
year 2026 is $2.3 billion, the registrant would remain an NAF for
purposes of its December 31, 2026 Form 10-K (filed in 2027) because it
crossed the LAF threshold in only one year of the two-year lookback
period. That is, when performing the test as of the last day of its
fiscal year, the registrant looks back to the last 10 trading days of
the second quarter of the fiscal year for each of fiscal year 2026 and
2025, and in the example, it only exceeded the threshold in fiscal
2026. If the registrant then determines that its public float as of the
measurement period of the second quarter for fiscal year 2027 is $1.9
billion (dropping back below the LAF threshold), the registrant would
remain an NAF as of the end of fiscal 2027. The earliest it could
become an LAF would be at the end of its fiscal year 2029 (assuming its
public float crosses the LAF threshold for the relevant measurement
period of the second quarter for both fiscal years 2028 and 2029), and
if so it would be required to comply with the requirements of LAF
status beginning with its Form 10-K for fiscal year 2029 filed in 2030.
On the other hand, if that registrant determines its public float
for fiscal year 2027 is $2.5 billion (while the fiscal year 2026 public
float remains at $2.3 billion as in the example above), it would become
an LAF as of the last day of its fiscal year 2027, and would be
required to comply with the requirements of LAF status beginning with
its Form 10-K for fiscal year 2027 (filed in 2028). If the registrant's
public float falls to $1.9 billion as of the relevant measurement
period in the second quarter of fiscal year 2028, the registrant would
remain an LAF for purposes of its Form 10-K for fiscal year 2028
because its public float will have been below the LAF threshold for
only one fiscal year. The earliest it could become an NAF would be as
of the end of its fiscal year 2029 (assuming its public float is below
the LAF threshold in the relevant measurement period in the second
quarters of both fiscal years 2028 and 2029), and if so would be able
to transition to NAF status beginning with its Form 10-K for fiscal
year 2029, filed in 2030.
As proposed, once a registrant qualifies for a change in filer
status, the requirements and any applicable accommodations of the new
filer status would apply beginning with the filing of its annual report
on Form 10-K for the fiscal year in which the filer status was
determined. As a result, the possibility of both entering LAF status
and transitioning to NAF status are foreseeable further in advance than
is the case currently, allowing companies to more predictably plan
their disclosure controls and procedures and associated costs.
Similarly, the first time an LAF's public float falls below the LAF
threshold (or an NAF's public float rises above the threshold) as of
one of its second fiscal quarter ends, investors would know that, even
if that trend were to continue, the registrant would be required to
file at least one more Form 10-K subject to the LAF disclosure
requirements and deadlines (or subject to the NAF disclosure
requirements and deadlines, as the case may be).
3. Seasoning
We are proposing to expand the seasoning period for LAFs--i.e., the
requisite period after which registrants could potentially qualify as
LAFs--to 60 consecutive calendar months from when the registrant became
subject to the Exchange Act reporting requirements,
[[Page 30100]]
with the assessment made as of the last day of its fiscal year.\140\
Under current rules, a registrant must be an Exchange Act reporting
company for at least 12 calendar months before it can be classified as
an LAF.\141\ In adopting the current 12-calendar month seasoning
period, the Commission noted that, along with the public float
requirement, the seasoning period was ``designed to include the
companies that are least likely to find [accelerated deadlines] overly
burdensome and where investor interest in accelerated filing is likely
to be highest.'' \142\ When the Commission adopted the 12-calendar
month seasoning period, it was focused on existing registrants that
would become subject to accelerated filing deadlines and recognized
that there would be an increased burden for these issuers. Since the
adoption of the acceleration of periodic reporting in 2002, Congress
and the Commission have expanded the disclosure requirements for
registrants, especially for LAFs. Given the additional requirements
that apply to LAFs, we believe that a longer seasoning period would be
appropriate before a registrant should be required to comply with non-
scaled ongoing disclosure and timing requirements.
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\140\ The proposed 60-calendar month seasoning period means 60
full, consecutive calendar months and any portion of a month
immediately preceding the relevant measurement date. For example, a
registrant that became subject to the Exchange Act's reporting
requirements on July 19, 2025 would satisfy the seasoning
requirement for purposes of assessing whether it is an LAF on Aug.
1, 2030.
\141\ 17 CFR 240.12b-2. In connection with these proposed
changes, we are also proposing to eliminate paragraph (iii) of the
``large accelerated filer'' definition, which requires that the
issuer have filed at least one annual report pursuant to section
13(a) or 15(d) of the Exchange Act, as unnecessary because a
registrant would have filed several annual reports before becoming
an LAF under the proposed 60 consecutive month seasoning
requirement.
\142\ Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480, 58487 (Sept. 16, 2002)].
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This change would effectively create a minimum five-year on-ramp
for every new registrant, regardless of public float. While we
recognize that this five-year on-ramp would, for a small subset of
registrants,\143\ delay compliance with respect to non-scaled
disclosure requirements, accelerated reporting deadlines, and ICFR
auditor attestation as compared to the current rules, we believe
allowing all newer registrants ample time to adjust to the disclosure
and filing requirements of a public company may encourage more
companies to go public and stay public, which may ultimately improve
overall market transparency and provide investors with more investment
opportunities with the greater transparency afforded by Exchange Act
reporting. In addition, even if a particular requirement does not apply
to a registrant, that registrant may elect to voluntarily comply, such
as by obtaining an ICFR auditor attestation, if the registrant believes
it would benefit the registrant to do so, such as if doing so were
viewed favorably by investors.
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\143\ As noted in section IV below, absent the proposed five-
year on-ramp, the percentage of current registrants continuing on as
LAFs under the proposal would increase from 19.2% to 20.7%.
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When Congress enacted the JOBS Act, in order to encourage more
companies to go and stay public, it created an on-ramp of up to five
years in EGC status, reducing registrants' compliance burdens in their
early years as public companies. In our experience, this on-ramp has
been a meaningful accommodation to newer public companies and generally
has not resulted in investor protection concerns.\144\ A similar on-
ramp before a registrant would potentially enter LAF status would be
consistent with and effectively expand the benefits of EGC status, and
would provide all newer registrants ample time to, among other things,
prepare for the increased costs and reporting burdens on company staff
and enlist third party advisors or service providers needed to satisfy
the non-scaled disclosure requirements and accelerated reporting
timelines. Finally, providing a sixty calendar month on-ramp
complements Congress' intent with its establishment of EGC status and
would help to simplify filer status determinations by ensuring that all
registrants that meet the statutory definition of EGCs will necessarily
qualify as NAFs when making their filer status determinations.\145\
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\144\ For evidence of the favorable effects of EGC
accommodations on IPOs, see, e.g., Michael Dambra, Laura Casares
Field & Matthew T. Gustafson, The JOBS Act and IPO Volume: Evidence
that Disclosure Costs Affect the IPO Decision, 116 J. Fin. Econ. 121
(2015) (``Dambra et al. (2015)'').
\145\ Under the proposed rules, an EGC that has lost its EGC
status in less than five years would continue to be considered an
NAF until the proposed LAF 60 consecutive calendar month on-ramp
ends for that registrant.
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Request for Comment
(1) Does public float continue to be a reasonable indicator of
which companies the markets follow most closely? Does public float
continue to be a good indicator of the most significant need for more
extensive public disclosure? Why or why not? As an alternative, in view
of the increasing prevalence of dual class share structures, should
non-publicly traded common equity securities held by non-affiliates
through dual class share or other multi-class share structures be
included in determining whether the threshold is met? If so, how should
registrants determine the value of those securities for purposes of the
determination?
(2) Does public float provide a reasonable indicator of a
registrant's ability to sustain the burdens associated with LAF status
under the proposed rules, including non-scaled disclosure requirements,
accelerated reporting timelines, and compliance with the ICFR auditor
attestation requirement in section 404(b)? If not, are alternative
thresholds or other measures more appropriate to evaluate a
registrant's ability to sustain the burdens of being an LAF?
(3) Is the proposed LAF threshold of $2 billion in public float,
which would capture approximately 93.5 percent of the total market
public float and would result in approximately 20 percent of existing
public companies being classified as LAFs, appropriate? If not, what
other threshold should the Commission consider and why? For example,
should the Commission update the threshold to $3.85 billion to mirror
the increase in the S&P 500 Index? Do the proposed changes to the LAF
status public float threshold and calculation methodology appropriately
balance the goals of capital formation and investor protection? Should
the Commission instead adopt a different threshold, and if so, what?
Would the proposed approach result in any impacts to investors and the
public market, including benefits or burdens that might result from the
proposed scaling of disclosure associated with the revisions to the
filer status categories? Would the proposed approach impact investors'
ability to make informed investment and voting decisions?
(4) We have proposed to adjust the public float threshold not based
on inflation, but rather to cover the registrants that comprise the
vast majority of the total market public float and that are most able
to comply with the highest level of burden associated with
registration. Should the Commission instead update the current
threshold for inflation? Alternatively, should the Commission establish
a mechanism to update the proposed $2 billion public float threshold
for inflation? For example, the JOBS Act requires that the revenue
threshold in definition of EGC be indexed to inflation at five-year
intervals. Should the proposed public float threshold be similarly
indexed to inflation? Are there alternative methodologies for updating
the threshold that would be preferable?
[[Page 30101]]
(5) Would the proposed average public float calculation period
(consisting of the registrant's stock price over the last 10 trading
days of the second quarter of each relevant fiscal year) and the
proposed use of the number of shares held by non-affiliates as of the
last day of the second fiscal quarter achieve the intended goal of
avoiding a result where a company's public float determination is
anomalous due to short-term volatility? Why or why not? Should it be
more or fewer than 10 trading days? Should the number of shares be
based on the average number of shares during the same 10 trading day
period instead of at the last day of the second fiscal quarter or
should the number of shares be based on the number of shares as of a
date selected by the registrant within a given period (such as any date
within the last 10 trading days of the second fiscal quarter)? Why or
why not? Are there costs or benefits associated with extending the
public float calculation methodology to 10 trading days?
(6) We considered multiple calculation windows for the public float
calculation, including: retaining the existing calculation date of the
last trading day of the second fiscal quarter; allowing a registrant to
choose a date within a given period (such as any date within the last
10 trading days of the second fiscal quarter); or reducing the number
of days comprising the average to, for example, the last five trading
days of the second fiscal quarter. Are any of these or other
alternatives preferable to the proposed 10-day average methodology, and
if so, why?
(7) Is the proposed LAF threshold effective for all types of
issuers, or should the threshold differ for certain types of issuers?
For example, should LAF status for investment companies (i.e., BDCs and
face-amount certificate companies) use a different public float
threshold, a different seasoning period, or a different approach
altogether (e.g., a threshold based on assets or annual investment
income)? If so, what threshold would be appropriate for investment
companies?
(8) Is a 60-calendar month on-ramp (seasoning period) before LAF
status can attach to a registrant appropriate? Would this create a
beneficial on-ramp for newer public companies before they could be
subject to LAF status? Would a shorter period, such as 24 calendar
months, or no seasoning period at all, be more appropriate considering
that public companies that meet the proposed public float threshold to
be an LAF likely have the resources to comply with the more extensive
requirements? Do the very largest new registrants need a 60-calendar
month seasoning period, or should certain registrants be required to
comply with LAF requirements sooner? If a seasoning period is adopted,
should the largest new registrants nevertheless be required to comply
sooner with certain of the LAF requirements, such as auditor
attestation on ICFR? If so, what would be an appropriate time period
for such registrants? Are the proposed mechanics around assessment of
the seasoning period sufficiently clear, or would any modification to
the proposed amendments or any clarifying guidance be needed?
(9) In order to minimize variation in disclosure obligations and
ensure a level of predictability, the proposal contemplates a two-year
period after transitioning into or out of LAF status during which a
registrant's filer status cannot change. Should we adopt this two-year
minimum period, as proposed? Would this have the intended effect of
providing registrants and investors with some consistency and
predictability as to the disclosure and other requirements a registrant
is subject to? Is comparability with respect to a registrant's
disclosure over a two-year (or longer) period an important
consideration for investors? Would another period be more appropriate?
Alternatively, should we consider other ways of addressing these
concerns? For example, under the current rules a registrant must fall
below a separate, lower threshold to exit AF status than to enter that
status; should we retain this approach? If so, why and what lower
threshold would be appropriate for exiting LAF status?
(10) Are there any other issues relating to filer status
transitioning that the Commission should clarify or address in any
final rules? For example, if a registrant deregisters its securities
and later re-enters the reporting system, should that registrant be
considered a new registrant for purposes of the 60-calendar month
seasoning period?
(11) When an issuer qualifies for a new filer status, which under
the proposal would only happen at the end of a fiscal year, should the
requirements and/or accommodations of that new status apply to the
issuer beginning with the annual report for the fiscal year in which
the change in filer status occurred, as proposed? Should issuers have
the option to apply a change in filer status earlier than as proposed?
B. Non-Accelerated Filer Amendments
We are proposing to define ``non-accelerated filer'' to mean an
issuer \146\ that is not an LAF. As proposed, every registrant would be
an NAF beginning at the time of its initial public offering or
registration and for at least five years following, as a result of the
proposed 60 consecutive calendar months on-ramp requirement before a
registrant could become an LAF. An issuer would then remain an NAF
unless and until it had an aggregate worldwide market value of the
voting and non-voting common equity held by its non-affiliates, or
public float, of at least $2 billion for two consecutive years. After
an NAF qualifies as an LAF and thereby loses its NAF status, it could
regain its NAF status if its public float is less than $2 billion for
two consecutive years.
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\146\ As proposed, asset-backed issuers would be excluded from
the filer status definitions. See section II.B.4 for further
discussion of the applicability of the proposal to asset-backed
issuers.
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We also propose to extend to NAFs the disclosure requirements and
other accommodations currently applicable to SRCs and EGCs.\147\ While
we estimate that the proposed NAF filer status would account for
approximately 81 percent of reporting companies currently, they would
account for only 6.5 percent of total market public float. We therefore
believe it is appropriate and in the public interest to leverage the
accommodations and requirements that have been effective for
registrants that are currently SRCs and/or EGCs, which compose over 52
percent of current registrants, in resetting our disclosure framework
to be better tailored to market following. We anticipate that this
change will help rebalance the costs and benefits associated with
public company status with the intention of facilitating more companies
going and staying public, which will ultimately increase transparency
in the market to the benefit of investors, while still maintaining
investor protections. We further anticipate that reducing the burdens
of periodic disclosure may enable management teams to better focus on
business operations.\148\
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\147\ But see section II.B.3.b. In addition, we note that the
current rules applicable to SRCs and EGCs are not applicable to
asset-backed issuers. Further, as discussed below, we are proposing
to extend a limited set of these accommodations to NAFs that are
BDCs or face-amount certificate companies, to recognize differences
in the activities and characteristics of these investment companies
relative to other NAF issuers.
\148\ See section IV.B.5.
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We recognize that this approach will result in the loss of some
information, loss of auditor attestation of ICFR, and longer reporting
deadlines for certain registrants that currently qualify as
[[Page 30102]]
LAFs or AFs but would qualify as NAFs under the proposed rules.
However, we believe that the material information necessary for
investors to make sound investment and voting decisions will continue
to be required from and provided by NAFs under the proposed rules. NAFs
would also continue to be subject to annual, other periodic and current
reporting requirements, including required disclosure of audited
financial statements as well as MD&A of the registrant's financial
condition and results of operations, and management's assessment of and
report on the effectiveness of the registrant's ICFR, which would
continue to provide transparency to investors and assist them in making
informed investment and voting decisions.
1. Non-Accelerated Filer Definition
Under the current rules, the term ``non-accelerated filer'' is not
defined. The term is used informally and widely to refer to a
registrant that is neither an LAF nor an AF, which typically means a
registrant with under $75 million in public float.\149\ Currently, an
NAF can also be an SRC, an EGC, or both. We are proposing to define a
new regulatory category termed ``non-accelerated filer,'' which we
propose to define in Securities Act Rule 405 and Exchange Act Rule 12b-
2 as ``an issuer that is not a large accelerated filer.'' As a result,
the default status for any Exchange Act reporting company (other than
asset-backed issuers, pursuant to an exception we are proposing in Rule
405 and Rule 12b-2) would be an NAF; until a company meets the proposed
new conditions for becoming an LAF, it would remain an NAF.\150\ In
addition, under the proposed rules, NAFs would be subject to
essentially the same requirements and accommodations that are
applicable to SRCs and EGCs under the current rules.\151\ By expanding
NAF filer status under the proposed amendments, more registrants would
qualify as NAFs and therefore would not be required to comply with the
ICFR auditor attestation requirement.\152\
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\149\ Under the current rules, an NAF can have more than $75
million in public float if it qualifies as an SRC with annual
revenues less than $100 million and public float less than $700
million. See 17 CFR 240.12b-2.
\150\ The proposed amendments would not include any changes to
the filing deadlines for NAFs, which under the current rules require
such registrants to file their quarterly reports 45 days after
fiscal quarter end, and their annual reports 90 days after fiscal
year end. But see section II.C regarding small NAFs.
\151\ But see section II.B.3.b. and supra note 147. To ensure
that the NAF accommodations apply to Securities Act registration
statements, we are proposing to define ``large accelerated filer,''
``non-accelerated filer,'' and ``small non-accelerated filer'' in
Securities Act Rule 405.
\152\ 15 U.S.C. 7262(c).
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With these amendments, we further propose to eliminate the
``accelerated filer'' \153\ and ``smaller reporting company'' \154\
categories, and the corresponding definitions in Item 10 of Regulation
S-K,\155\ Rule 405,\156\ and Rule 12b-2,\157\ since they will no longer
be necessary given the expansion of NAF status.\158\ Because the
proposed amendments would extend to NAFs the disclosure accommodations
currently available to EGCs, the proposed amendments would generally
make separate reliance on those JOBS Act provisions \159\ for EGCs
unnecessary.\160\
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\153\ In proposing to eliminate the use of the term
``accelerated filer'', we are proposing to revise the definitions in
Exchange Act Rule 12b-2 to remove ``accelerated filer'' and to
revise Forms S-1, S-3, S-4, S-8, S-11, 10, 10-K, 10-Q, and 20-F to
refer to NAF instead. We are also proposing to similarly revise 17
CFR 210.2-02, 17 CFR 210.3-01, 17 CFR 210.3-09, 17 CFR 210.3-12, 17
CFR 229.101, 17 CFR 229.308, 17 CFR 232.405, and 17 CFR 240.13a-10
to refer to NAF instead of ``accelerated filer''.
\154\ In proposing to eliminate the use of the term ``smaller
reporting company,'' we are proposing to revise the definitions in
Exchange Act Rule 12b-2 and Securities Act Rule 405 to remove
``smaller reporting company.'' We are similarly proposing to revise
Forms S-1, S-3, S-4, S-8, S-11, 10, 10-K, 10-Q, 8-K, 20-F, and Form
1-A to refer to NAF instead of SRC. We are also proposing to
similarly revise Articles 8 and 15 of Regulation S-X, Regulation S-
K, Exchange Act Rules 10C-1 13a-13, 13q-1, 14a-3, 14a-21, and 15d-13
to refer to NAF instead of ``smaller reporting company.'' We are
also proposing a technical amendment to remove 17 CFR 240.15d-13(e)
because paragraph (e) of Rule 15d-13 essentially repeats the
language in current Rule 15d-13(d) for purposes of alternative
financial reports for public utilities in a historical provision of
Rule 15d-13. See Adoption of Amendments of Certain Forms and Related
Rules, Release No. 34-13156 (Jan. 13, 1977) [42 FR 4424, 4429 (Jan.
25, 1977)].
\155\ 17 CFR 229.10(f) currently provides a definition of
``smaller reporting company'' and describes the requirements of
Regulation S-K that apply to SRCs. Because we are proposing to
eliminate the SRC category, we are proposing to remove Item 10(f) in
its entirety. In addition, we are proposing to make a technical
correction to Item 10(b). When the Commission adopted rule revisions
to Item 10(b)(2) in 2024, Item 10(b)(3) was inadvertently deleted.
See Special Purpose Acquisition Companies, Shell Companies, and
Projections, Release No. 33-11265 (Jan. 24, 2024) [89 FR 14158 (Feb.
26, 2024)]. We are proposing to add back the inadvertently deleted
Item 10(b)(3).
\156\ 17 CFR 230.405 currently provides a definition of
``smaller reporting company.'' Because we are proposing to eliminate
the ``smaller reporting company'' category, we are proposing to
remove the definition in Rule 405.
\157\ 17 CFR 240.12b-2 currently provides definitions of
``accelerated filer'' and ``smaller reporting company.'' Because we
are proposing to eliminate these, we are proposing to remove the
definitions in Rule 12b-2.
\158\ In order to apply the NAF accommodations under the
Securities Act rules we are proposing to add the definitions of
``large accelerated filer,'' ``non-accelerated filer,'' and ``small
non-accelerated filer'' to Rule 405. In conjunction with these
changes, we are proposing amendments to Forms S-1, S-3, S-4, S-8, S-
11, on the cover page, and elsewhere as appropriate, to refer to the
proposed categories of issuers. We are also proposing to update
check box disclosures on the cover page of certain registration
statements and periodic reports under which, currently, a registrant
is required to identify itself as an LAF, AF, NAF, SRC, and/or EGC
by replacing this with language under which a registrant would be
required to identify itself as an LAF, NAF, SNF, and/or EGC. As is
currently the case, a registrant would check each box that applies.
For example, a registrant that is an EGC, NAF, and SNF would check
all three boxes.
\159\ See supra Section I.D.2. for a discussion of the JOBS Act
accommodations for EGCs.
\160\ We are proposing to remove references to EGCs and refer
instead to NAFs in Rules 2-02 and 3-02 of Regulation S-X; Items 303,
308, 402, 407, and 1011 of Regulation S-K. In their place, we
propose to replace Item 10(f) Smaller reporting companies with a
revised Item 10(f) Emerging growth companies that enumerates the
statutory exemptions and accommodations provided to EGCs.
Additionally we propose to retain the definition of ``emerging
growth company'' in Exchange Act Rule 12b-2 and Securities Act Rule
405 and to continue to require the check boxes for EGC status in
certain periodic reports and registration statements because that
information may continue to be useful to investors as registrants
would statutorily remain EGCs.
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The proposed changes would establish a clearly demarcated on-ramp
for registrants to grow and gain experience as reporting companies
before becoming subject to the more detailed and expansive disclosure
obligations applicable to LAFs. As noted above, the Commission has long
considered how best to apply a disclosure regulation framework to
companies that vary widely in size and resources to comply with complex
securities laws and rules. During its history, the Commission has
established various categories, such as ``small business issuers,''
``smaller reporting companies,'' and ``accelerated filers,'' in
tailoring disclosure and reporting requirements based on the needs of
investors with an awareness of the potential burdens associated with
registrants' ability to comply with those requirements. In the JOBS
Act, Congress similarly sought to address some of these concerns for
newly public companies by establishing the EGC filer status and
reaffirmed the need for the Commission to consider ways to further
streamline the requirements for the benefit of new and smaller
companies in the FAST Act.\161\ Accordingly, we believe that the
consolidation of SRC and EGC accommodations into a single regulatory
filer status and the elimination of the AF status as a standalone
status is in the public interest and consistent with the protection of
investors.
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\161\ See section I.D.2.
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The proposed amendments would transform what is currently a layered
and complex set of filer statuses into a more streamlined structure,
with the
[[Page 30103]]
intent of simplifying the regulatory scheme. Registrants would no
longer need to assess each year multiple filer status entry and exit
thresholds, many of which are overlapping and often have inconsistent
lines distinguishing one set of requirements from the next.
In addition, the expanded category of NAFs would be subject to
fewer of the costly requirements that currently apply to LAFs and AFs.
As discussed in more detail in the sections that follow, for example,
NAFs would be permitted to rely on Article 8 of Regulation S-X for
scaled financial disclosure and provide only two (instead of three)
years of audited financial statements in their annual reports and
registration statements, would be permitted to comply with scaled
executive compensation disclosure requirements, and would not be
subject to the ICFR auditor attestation requirement.\162\ As a result,
we expect that NAFs would have reduced costs of compliance compared to
LAFs and would have ample notice to prepare for accelerated filing,
additional disclosure, and required auditor attestation of ICFR should
they transition to LAF status.
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\162\ As discussed below, BDCs and face-amount certificate
companies that are NAFs would not be permitted to rely on Article 8
of Regulation S-X, but we propose to provide certain of the
accommodations in Article 8 to these entities by separate rule.
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We recognize that the proposed expansion of NAF status and
application of EGC and SRC disclosure requirements would result in
reduced disclosure for many registrants and their investors. While that
reduction in disclosure may result in costs to investors, both
investors and registrants may also benefit from more companies choosing
to register their securities or to continue as public companies. This
would provide more public market investment opportunities that would be
subject to robust disclosure requirements, which provide greater
transparency as compared to private markets. In addition, and as
discussed in more detail in sections IV and V below, we believe
investors and registrants would benefit from a more easily
understandable filer status framework that imposes fewer compliance
costs, the ultimate burdens of which are borne by a registrant's
shareholders. Moreover, as discussed in more detail in section IV
below, we estimate that the proposed changes would apply to registrants
representing approximately 6.5 percent of total market public float,
while registrants representing approximately 93.5 percent of total
market public float would remain subject to LAF reporting requirements.
We believe this focus on ensuring that the registrants that represent
the vast majority of the market continue to comply with the most
extensive requirements mitigates investor protection concerns with the
proposed amendments.
2. ICFR and the Auditor Attestation Requirement
One significant effect of the proposed amendments would be a
decrease in the number of registrants required to obtain an auditor
attestation of management's assessment of the effectiveness of the
company's ICFR. Sarbanes-Oxley Act section 404(b) requires the auditor
that prepares or issues the issuer's audit report (other than for EGCs)
to attest and report on management's assessment of the effectiveness of
ICFR; however section 404(c) exempts registrants that are not LAFs or
AFs from the ICFR auditor attestation requirement. By increasing the
upper bound of NAF status from less than $75 million (or less than $700
million if revenues are less than $100 million) to less than $2
billion, the proposed amendments would expand by 26.7 percent the
number of current registrants that would qualify as NAFs and would
therefore not be subject to an ICFR auditor attestation
requirement.\163\ Additionally, with respect to newly public companies,
the proposed minimum five-year on-ramp (60 calendar months) before
entering LAF status would allow these companies additional time to
adjust to being a public company before potentially being exposed to
ICFR auditor attestation costs. This in turn may incentivize some
companies to go public sooner, which could open to investors additional
opportunities for investments that might otherwise have stayed in the
private market or which some investors may not have otherwise been able
to access.
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\163\ See section IV.B.1.
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As noted, under the proposal, NAFs would remain subject to the
Commission's rules under section 404(a), which require management to
establish, state its responsibility to establish and maintain, and
provide its assessment of, the registrant's ICFR.\164\ NAFs would also
continue to be required to obtain a financial statement audit by a
registered public accounting firm \165\ in which the auditor is
required to obtain an understanding of ICFR as part of its risk
assessment procedures.\166\ Obtaining an understanding of ICFR includes
evaluating the design of controls that are relevant to the financial
statement audit and determining whether the controls have been
implemented.\167\ Additionally, the auditor may test the operating
effectiveness of certain internal controls in connection with the
financial statement audit.\168\ These procedures to obtain an
understanding of ICFR and test the operating effectiveness of controls
in connection with the financial statement audit may identify
deficiencies in the registrant's ICFR. Moreover, the auditor may
identify such deficiencies when performing substantive procedures in a
financial statement audit. The auditor is required to communicate in
writing to management and the audit committee all significant
deficiencies and material weaknesses identified during the financial
statement audit,\169\ which may in turn require consideration by
management in connection with management's assessment of ICFR under
section 404(a).
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\164\ See 17 CFR 229.308. A registrant is not required to
provide a report of management on the registrant's ICFR until it has
either been required to file an annual report pursuant to section
13(a) or 15(d) of the Exchange Act for the prior fiscal year or has
filed an annual report with the Commission for the prior fiscal
year.
\165\ See Rule 2-02.
\166\ See PCAOB AS 2110, Identifying and Assessing Risks of
Material Misstatement, paragraph 18, https://pcaobus.org/oversight/standards/auditing-standards/details/AS2110. Pursuant to AS 2110,
the auditor is required to obtain a sufficient understanding of each
component of internal control over financial reporting to (a)
identify the types of potential misstatements, (b) assess the
factors that affect the risk of material misstatement, and (c)
design further audit procedures.
\167\ See id., paragraph 20. This evaluation is not for the
purpose of expressing an opinion on the effectiveness of the
company's ICFR.
\168\ See PCAOB AS 2301, The Auditor's Responses to the Risks of
Material Misstatement, paragraph 16, https://pcaobus.org/oversight/standards/auditing-standards/details/AS2301. Also, tests of controls
must be performed in the audit of financial statements for each
relevant assertion for which substantive procedures alone cannot
provide sufficient appropriate audit evidence and when necessary to
support the auditor's reliance on the accuracy and completeness of
financial information used in performing other audit procedures. See
id., paragraph 17.
\169\ See PCAOB AS 1305, Communications About Control
Deficiencies in an Audit of Financial Statements, paragraph 4,
https://pcaobus.org/oversight/standards/auditing-standards/details/AS1305.
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The Commission has recognized the benefits of ICFR auditor
attestation in enhancing the reliability of management's assessment of
ICFR and the registrant's financial statements.\170\
[[Page 30104]]
The auditor's attestation can help registrants identify and disclose,
on a timely basis, material weaknesses in ICFR, maintain their focus on
effective internal controls, and, ultimately, mitigate the need for
subsequent restatements of financial statements due to misstatements
that were not prevented or detected, on a timely basis, by the
registrant's internal controls.\171\ Any resulting increase in the
effectiveness of ICFR enhances the quality of the registrant's
financial statements which investors rely upon to make informed
investment and voting decisions. The Commission has also remained
cognizant of the significant costs and burdens that are associated with
section 404(b) compliance.\172\ Some commenters on the 2019 Accelerated
Filer Release stated to the Commission that the ICFR auditor
attestation is the most costly aspect of being an AF.\173\ Supporting
these assertions, in a June 2025 report to Congress the GAO found that
section 404 compliance costs are more burdensome in relative terms for
smaller companies.\174\
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\170\ See, e.g., Study of the Sarbanes-Oxley Act of 2002 Section
404 Internal Control over Financial Reporting Requirements, Office
of Economic Analysis, U.S. Securities and Exchange Commission (Sept.
2009), at 56-67 (detailing a survey of financial executives of
publicly traded companies finding benefits to section 404
compliance, but also finding that net benefits were negative); Staff
Study at 112 (``There is strong evidence that the auditor's role in
auditing the effectiveness of ICFR improves the reliability of
internal control disclosures and financial reporting overall and is
useful to investors.'').
\171\ See Staff Study at 85-87 (identifying benefits to the
auditor's attestation including the disclosure of internal control
deficiencies that were not previously disclosed by management and
citing studies indicating that issuers that are required to comply
with section 404(a) and (b) are less likely to issue materially
misstated financial statements than issuers not subject to these
requirements).
\172\ See supra notes 64, 67, and 69.
\173\ See supra note 35.
\174\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs Are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), https://www.gao.gov/assets/gao-25-107500.pdf.
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In proposing to increase the LAF public float threshold, we
recognize that many issuers would no longer be subject to the ICFR
auditor attestation requirement of section 404(b) and that this would
likely result in a loss of the benefits of auditor attestation in
enhancing the reliability of management's assessment of ICFR and
improving the reliability of financial statements. For example, a
number of commenters to the 2019 Accelerated Filer Release indicated
that ICFR auditor attestation requirement promotes effective ICFR and
more accurate disclosures related to ICFR.\175\ Additionally, investors
may factor in whether a company voluntarily obtains ICFR auditor
attestation in weighing their investment and voting decisions with
respect to individual companies.
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\175\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178, n.
88 (Mar. 26, 2020)]. Commenters also indicated that effective ICFR,
generally, and the ICFR auditor attestation requirement, more
specifically, enhances transparency; increases the quality and
reliability of issuers' financial statements, corporate governance,
audits, and analyst forecasts; and reduces the number of issuers'
restatements, misstatements, the instances of fraud, and occurrences
of insider trading. Id. at notes 90 through 97 and accompanying
text.
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On balance, we believe increasing the LAF threshold and the
resulting change in the number of companies subject to the ICFR auditor
attestation requirement are appropriate given the significant relative
cost burden of this requirement, particularly to smaller registrants.
The expected reduction in costs to those registrants, as well as
related effects of the proposal that may encourage more companies to go
and stay public, ultimately would benefit investors in those companies.
However, the proposed amendments would also allow registrants
flexibility to decide to obtain and disclose the results of such
auditor attestation, even if not required, for example if the
registrant believes the benefits it would derive from such auditor
attestation would justify its costs. We believe that the ICFR auditor
attestation requirement change, along with the other changes we are
proposing, would incentivize companies to access the public markets,
register their securities offerings, and continue as public companies,
which in turn would expand investment opportunities benefiting
investors and the public markets.\176\ Accordingly, we believe these
factors weigh in favor of the proposed amendments, which we find to be
in the public interest and consistent with the protection of investors.
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\176\ See section IV.B.
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3. Extension of SRC and EGC Accommodations and Disclosure Requirements
a. Application of SRC Accommodations
The Commission has long been cognizant of the burdens of
registration and reporting under the securities laws, particularly as
those burdens apply to smaller registrants. In the 1990s, the
Commission developed an integrated disclosure system tailored
specifically to smaller issuers,\177\ and in the 2000s, the Commission
replaced that system with a series of accommodations for SRCs.\178\ As
part of our effort to simplify and further rationalize disclosure
responsibilities for registrants, we are proposing to permit
registrants that meet the proposed NAF status to comply with the
disclosure requirements and accommodations currently applicable to
SRCs.\179\ The current SRC-level disclosures would become the default
disclosure requirements for most registrants.
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\177\ See the discussion relating to ``small business issuers''
in section I.A.
\178\ See the discussion relating to ``SRC'' in section I.D. The
SRC filer status was initially linked to NAF status, but
subsequently the public float threshold was increased to $250
million.
\179\ For NAFs that are BDCs or face-amount certificate
companies, we are proposing to extend most of the disclosure
requirements and accommodations currently applicable to SRCs, with
the exception of some financial statement provisions and performance
graph disclosure.
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While we are proposing to increase the number of registrants
permitted to provide SRC scaled disclosure from approximately 44
percent of registrants to approximately 81 percent,\180\ the proportion
of total market public float represented by this population of
registrants would remain relatively small (approximately 6.5 percent).
The proposal would reduce the compliance burdens of regulation for all
of these small- to mid-capitalization registrants. This would benefit
those registrants and their investors by lowering expenses and thereby
freeing up capital that could be used to invest in the registrant's
business. Further, the lower expenses associated with registration may
further encourage such registrants to seek access to the public markets
and remain public, which also benefits investors by providing more
investment opportunities with the greater transparency afforded by
Exchange Act reporting.
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\180\ As proposed NAF status would include registrants currently
designated as SRCs and EGCs and all registrants that meet the new,
higher threshold for NAF status, which would include many
registrants that are currently are AFs or LAFs.
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i. Scaled Disclosures Under Regulation S-K and Other Accommodations
Under the proposal, registrants that qualify as NAFs would be
permitted to follow the current SRC disclosure requirements, which is
scaled disclosure compared to that required of LAFs, to include: \181\
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\181\ This list does not include accommodations discussed in
section II.B.3.b.
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More limited description of business; \182\
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\182\ As proposed, Item 101 would be revised and renumbered.
Proposed Item 101(a) would include all of the requirements generally
applicable to registrants, reflecting all of the requirements of
current 17 CFR 229.101(h) (``Item 101(h) of Regulation S-K'') that
currently apply to SRCs, and proposed Item 101(b) would provide the
further requirements specific to LAFs. The proposed changes would
remove any references to ``smaller reporting companies'' and move
other disclosure requirements and renumber paragraphs in Item 101 as
appropriate.
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[[Page 30105]]
Two (instead of three) years of MD&A pursuant to 17 CFR
229.303 (``Item 303 of Regulation S-K''); \183\
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\183\ Specifically, we are proposing to revise Instruction 1 of
the Instructions to paragraph (b) of Item 303 of Regulation S-K to
remove references to SRCs and EGCs and simply instruct registrants
to include a discussion that covers the period covered by the
financial statements included in the filing. We are additionally
proposing to add a reference to Article 8 of Regulation S-X in
paragraph (c) of Item 303 of Regulation S-K.
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Two (instead of three) years of summary compensation table
information pursuant to 17 CFR 229.402 (``Item 402 of Regulation S-
K''); and
Executive compensation disclosure regarding three (instead
of five) named executive officers pursuant to Item 402 of Regulation S-
K.\184\
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\184\ SRCs and EGCs are permitted to provide disclosure related
to the grant of certain equity awards close in time to the release
of material nonpublic information for three, instead of five, NEOs
pursuant to 17 CFR 229.402(x). With respect to pay versus
performance disclosure required by 17 CFR 229.402(v), among other
accommodations, an SRC is permitted to provide three (instead of
five) years of pay versus performance disclosure. As described
below, an EGC is exempt from pay versus performance disclosure and
we are proposing to exempt NAFs from pay versus performance
disclosure.
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Registrants that qualify as NAFs would also be permitted to forgo
the following disclosures that are not currently applicable to SRCs:
Risk factor disclosure in Forms 10-K and 10-Q pursuant to
Item 1A of Form 10-K and Item 1A of Form 10-Q;
Performance graph disclosure pursuant to 17 CFR 229.201(e)
(``Item 201(e) of Regulation S-K''), except in the case of NAFs that
are investment companies; \185\
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\185\ Specifically, we are proposing to revise Item 201(e) of
Regulation S-K by explicitly applying the rule only to LAFs and
investment companies and removing Instruction 6 of Instructions to
Item 201(e) that exempts SRCs. We are not proposing to permit
investment companies that are NAFs to forgo the performance graph
disclosure pursuant to Item 201(e) of Regulation S-K to maintain
parity with other RICs, which are subject to similar performance
graph requirements. See Instruction 4.g to Item 24 of Form N-2; Item
27A(d)(2) of Form N-1A. Because BDCs and RICs share similar
characteristics, we believe it is beneficial to investors to
maintain the existing parity in performance graph disclosure
requirements. In addition, we are proposing to add a reference in
Item 201(a)(1)(iii) of Regulation S-K to Article 8 of Regulation S-X
because as proposed Article 3 would not necessarily apply to NAFs.
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Supplementary financial information pursuant to 17 CFR
229.302(a) (``Item 302(a) of Regulation S-K''); \186\
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\186\ Specifically, we are proposing to simplify Item 302 of
Regulation S-K by revising Item 302(a) to refer only to LAFs, while
retaining the requirements relating to FPIs. We are also proposing
to remove Item 302(b). See section II.E below.
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Quantitative and qualitative disclosures about market risk
pursuant to 17 CFR 229.305 (``Item 305 of Regulation S-K''); \187\
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\187\ We are proposing to amend Item 305 of Regulation S-K to
only apply to LAFs by adding a reference to LAFs in proposed revised
Item 305(a) and 305(b) introductory text.
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Compensation discussion and analysis, compensation
policies and practices related to risk management,\188\ pay ratio
disclosure,\189\ and specified executive compensation disclosure
tables, including grants of plan-based awards table, pension benefits
table, option exercises and stock vested table, and nonqualified
deferred compensation table pursuant to Item 402 of Regulation S-K;
\190\
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\188\ 17 CFR 229.402(s).
\189\ 17 CFR 229.402(u), 17 CFR 229.402(l), and Instruction 8 to
17 CFR 229.402(u).
\190\ We are proposing to amend Item 402 of Regulation S-K to
replace the references to SRC with references to NAF, to remove
references to EGCs, and to add a new Item 402(a)(7) in place of Item
402(l) to provide guidance relating to NAFs.
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Policies and procedures for the review, approval, or
ratification of related party transactions pursuant to 17 CFR
229.404(b) (``Item 404(b) of Regulation S-K''); \191\
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\191\ 17 CFR 229.404(d) currently provides that SRCs are not
required to provide Item 404(b) disclosure. We are proposing to
limit Item 404(b) disclosure to LAFs. We are additionally proposing
to make non-substantive changes to Item 404 to renumber and
incorporate the Instructions to Item 404(a) into Item 404(a) and to
revise Item 404 to remove use of the term ``shall''.
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Compensation Committee Interlocks and Insider
Participation disclosure, and Compensation Committee Report disclosure
pursuant to 17 CFR 229.407(e)(4) and (e)(5); \192\
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\192\ SRCs and EGCs are currently permitted to forgo these
disclosures pursuant to 17 CFR 229.407(g)(1)(ii) and (g)(2).
Consistent with this, we are proposing to revise these rules to
limit their application solely to LAFs.
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Audit committee financial expert disclosure in a
registrant's first annual report; \193\ and
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\193\ 17 CFR 229.407(d)(5) and 17 CFR 229.407(g)(1)(i).
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Certain payments made by resource extraction issuers
pursuant to 17 CFR 240.13q-1.
By contrast, while current Item 404 includes an accommodation
permitting SRCs to exclude disclosure relating to the review, approval,
or ratification of related party transactions in accordance with Item
404(b) as noted above, it also includes several requirements that are
more rigorous for SRCs. Among other things, Item 404(d) provides a
different, more rigorous threshold for disclosure by SRCs of the lesser
of $120,000 or one percent of the average total assets at year-end for
the last two fiscal years when determining reportable transactions with
related persons under Item 404(a). Non-SRC registrants are only
required to look to whether the amount of the transaction exceeds
$120,000. In addition, SRCs are required to disclose a list of all
parent companies showing the basis of control and as to each parent,
the percentage of voting securities owned or other basis of control by
its immediate parent pursuant to Item 404(d)(3). Rather than apply such
requirements to NAFs, we are proposing to remove Item 404(d) and would
not apply the additional requirements that currently apply to SRCs to
all NAFs.
We are proposing to require disclosure of material unresolved staff
comments by all issuers. Currently, if a registrant that is an AF, LAF,
or well-known seasoned issuer has received written comments from the
Commission staff regarding its periodic or current reports and these
comments remain unresolved, the registrant is required to disclose the
substance of any material unresolved comments on Form 10-K or Form 20-
F.\194\ Staff review and comment could serve an important investor
protection function. As a result, we believe it is appropriate to
require NAFs to also provide this disclosure to investors.
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\194\ See Item 1B of Form 10-K and Item 4A of Form 20-F.
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Additionally, as noted above, in conjunction with this release, the
Commission is proposing reforms to the securities offering process to
make Form S-3 and the ability to conduct shelf offerings, including
automatic shelf offerings, available to significantly more
issuers.\195\ Because these offerings, which often incorporate by
reference information from a registrant's current and periodic reports,
would be available to more issuers, including NAFs, we believe that
investors in those issuers should be made aware of the substance of any
material unresolved comments. Accordingly, we are proposing to amend
Item 1B. of Form 10-K and Item 4A of Form 20-F \196\ to require all
registrants to disclose material unresolved comments received at least
180 days before a registrant's fiscal year end.\197\ Under the
proposal, in any Form 10-K or 20-F filing, if a registrant has
[[Page 30106]]
received written comments from the Commission staff regarding its
periodic or current reports under the Exchange Act (e.g., Form 10-K,
10-Q, or 8-K for domestic filers, or Form 20-F or 6-K for FPIs) not
less than 180 days before the end of its fiscal year to which the Form
10-K or 20-F relates, and the comments remain unresolved, the
registrant would be required to disclose the substance of any
unresolved comments that the registrant believes are material and may
provide other information including the position of the registrant with
respect to any unresolved comment.
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\195\ See Registered Offering Reform Proposal.
\196\ We are proposing that all registrants be required to
disclose material unresolved comments. We are not proposing to
provide an accommodation to FPIs that would differ from what is
available to registrants that file on domestic forms. While we
recognize that FPIs are not eligible for the accommodations relating
to shelf offerings, we believe that disclosure of material
unresolved matters is important information for investors.
\197\ We are not proposing comparable changes to Item 4A of Form
20-F at this time in light of the Commission's ongoing evaluation of
the definition of FPI. See further discussion of this issue in
section II.B.4.
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ii. Scaled Financial Statement Requirements Under Regulation S-X
Under the current rules, Article 8 provides the form and content
requirements of financial statements of SRCs. We propose to provide
that NAFs may prepare their financial statements in accordance with
Article 8 of Regulation S-X,\198\ except for NAFs that are BDCs or
face-amount certificate companies, which would receive certain of the
same accommodations under proposed Rule 3-19 of Regulation S-X. NAFs
that are not investment companies would be permitted to:
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\198\ Specifically, we propose to revise 17 CFR 240.14a-3(b)(1)
to permit NAFs to prepare their financial statements in accordance
with Article 8 and to amend Article 8 to specify that the Article
may be applied to financial statements of NAFs.
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Apply the form and content requirements of Article 8, with
a few limited exceptions as specified in Rule 8-01,\199\ permitting
registrants to not comply with certain form and presentation
requirements related to the financial statements,\200\ and to not
disclose certain financial statement schedules and certain general
notes to the financial statements, and to not provide separate
financial statements of majority-owned subsidiaries not consolidated
and 50 percent or less owned persons accounted for by the equity method
of accounting otherwise required by Regulation S-X; \201\
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\199\ Rule 8-01(b) allows SRCs to comply with the form and
content required by Article 8 and not the other form and content
requirements in Regulation S-X, with the exception of the following:
(1) the report and qualifications of the independent accountant
requirements in 17 CFR 210.2-01 through 210.2-07; (2) the
description of accounting policies in 17 CFR 210.4-08(n); and (3)
the financial accounting and reporting standards specified in 17 CFR
210.4-10 with respect to oil and gas producing activities.
Additionally, there are other rules in Article 8 that direct SRCs to
other requirements in Regulation S-X that must be complied with,
including: Rule 8-01(c) (the requirements of 17 CFR 210.3-10, for
periods required by Rule 8-02, are applicable to financial
statements for a subsidiary of an SRC that issues securities
guaranteed by the SRC or guarantees securities issued by the SRC,
and disclosures about guarantors and issuers of guaranteed
securities registered or being registered must be presented as
required by 17 CFR 210.13-01); Rule 8-01(d) (the requirements of 17
CFR.210.3-16, for periods required by Rule 8-02, or 17 CFR 210.13-02
are applicable if an SRC's securities registered or being registered
are collateralized by the securities of the SRC's affiliates,
relying on 17 CFR 210.13-02 unless 17 CFR 210.3-16 applies.); Rule
8-01(f) (specifying that 17 CFR 210.3-06 applies to the preparation
of financial statements of SRCs); Rule 8-03(b)(5) (requires the
information required by 17 CFR 210.3-04 related to changes in
stockholders' equity and noncontrolling interests to be presented
for the current and comparative year-to-date periods, with subtotals
for each interim period); Rule 8-04 (requires SRCs to apply 17 CFR
210.3-05 related to financial statements of businesses acquired or
to be acquired, substituting Rule 8-02 and Rule 8-03 for Rule 3-01
and Rule 3-02); Rule 8-05 (requires SRCs to provide pro forma
financial information complying with 17 CFR 210.11-01 through 17 CFR
210.11-03 when any conditions in 17 CFR 210.11-01 exist, except it
may be condensed pursuant to Rule 8-03(a)); Rule 8-06 (requires SRCs
to apply 17 CFR 210.3-14 related to real estate operations acquired
or to be acquired, substituting Rule 8-02 and Rule 8-03, for Rule 3-
01 and Rule 3-02).
\200\ NAFs would not be required to comply with: (1) 17 CFR
210.5-01 through 210.5-07 (Article 6) applicable to financial
statements of commercial and industrial companies; (2) 17 CFR 210.7-
01 through 210.7-05 (Article 7) applicable to financial statements
of insurance companies; and (3) 17 CFR 9-01 through 210.9-07
(Article 9) applicable to financial statements of bank holding
companies, savings and loan holding companies, and banks and savings
and loan associations.
\201\ There is no equivalent to Rule 3-09 in Article 8 requiring
separate financial statements of significant majority-owned
subsidiaries not consolidated and 50% or less owned persons
accounted for by the equity method of accounting. Such separate
financial statements, however, should be provided if they are
material to investors.
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Provide two rather than three years of audited statements
of comprehensive income, cash flows, and changes in stockholders'
equity pursuant to Rule 8-02;
Provide a slightly more condensed format for interim
financial statements, financial statements for businesses and real
estate operations acquired or to be acquired, and pro forma financial
statements pursuant to Rules 8-02 through 8-06; and
Apply less stringent age of financial statements
requirements pursuant to Rule 8-08.
We are proposing the following additional changes to Article 8 in
connection with these amendments in order to clarify or streamline
certain of the requirements.\202\ First, we are proposing to revise
Rule 8-01(b) to require NAFs to comply with 17 CFR 210.4-01(a), which,
among other things, requires that a registrant provide ``such further
material information as is necessary to make the required statements,
in light of the circumstances under which they are made, not
misleading.'' We believe this proposal is necessary as we recognize
that every NAF's circumstance is unique and therefore there may be
certain aspects of an NAF's business that are material, but are not
addressed by a disclosure requirement explicitly contemplated by
Article 8, and this proposal would require that disclosure.
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\202\ In addition to these substantive changes, we are proposing
some additional non-substantive revisions to Article 8, including
moving unnumbered text in 17 CFR 210.8-01 into Rule 8-01 and
renumbering Rule 8-01(a). Further, where our rules reference SRCs in
relation to Article 8, we are proposing to replace such references
with a reference to NAFs. See, e.g., Instruction 6 of Instructions
to Item 504 (where we additionally make non-substantive revisions to
remove the use of ``shall'').
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We are also proposing to revise Article 8 to clarify the
applicability of requirements for NAFs to disclose summarized financial
information of subsidiaries not consolidated and 50 percent or less
owned persons accounted for by the equity method of accounting, which
we refer to as ``equity investees.'' \203\ Currently, Rule 8-03(b)(3)
requires disclosure of summarized statement of comprehensive income
information in an SRC's interim financial statements for equity
investees that constitute 20 percent or more of a registrant's
consolidated assets, equity, or income from continuing operations
attributable to the registrant. Article 8 does not explicitly include a
requirement for SRCs to disclose summarized information on an annual
basis, while 17 CFR 210.4-08(g) (``Rule 4-08(g)'') does require annual
period summarized financial information to be disclosed for equity
investees of registrants other than SRCs. Commission staff have
historically analogized to Rule 8-03(b)(3) and requested disclosure of
annual summarized information from SRCs if it is not otherwise
included. We are proposing to clarify the applicability of the annual
period disclosure requirement by revising Rule 8-01 to require that
NAFs provide summarized financial information required by Rule 4-08(g).
As proposed, an NAF would be required to disclose, in the notes to
audited annual financial statements, summarized balance sheet and
statement of comprehensive income information of equity investees.\204\
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\203\ Each of Rule 3-09 and 4-08(g) refers to ``50% or less-
owned persons'', which Commission staff have interpreted as
referring to an investment accounted for using the equity method,
even if voting ownership exceeds 50%.
\204\ See 17 CFR 210.1-02(bb) (``Rule 1-02(bb)''). Currently,
under the Commission staff's view analogizing Rule 8-03(b)(3) to
annual periods, an SRC would quantify the equity investees'
revenues, gross profit, income from continuing operations, and net
income, whereas non-SRCs complying with Rule 4-08(g) would disclose
the summarized balance sheet and income statement items specified in
Rule 1-02(bb). U.S. Securities and Exchange Commission, Division of
Corporation Finance, Financial Reporting Manual (``FRM''), at
Sec. Sec. 2400.3, 2420.9. The statements in the FRM and any other
staff statements or guidance referenced in this release represent
the views of Commission staff. Any such staff statements are not a
rule, regulation, or statement of the Commission. Further, the
Commission has neither approved nor disapproved their content. These
statements, like all staff statements, have no legal force or
effect; they do not alter or amend applicable law, and they create
no new or additional obligations for any person. As proposed, an NAF
that is currently an SRC would be required to disclose certain items
specified in Rule 1-02(bb) that are not currently required for
annual periods. We do not believe the proposed change would add a
significant burden because SRC registrants may already have been
disclosing some of this information, such as select balance sheet
information, pursuant to existing disclosure requirements of U.S.
GAAP (e.g., FASB ASC 323-10-50-3(c)).
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[[Page 30107]]
We are also proposing to align the tests and thresholds used to
determine when disclosure would be required by NAFs to reflect current
practice and staff guidance for SRCs. Currently, disclosure is required
when the conditions (i.e., significance tests) specified in the
investment, income, and asset tests in the definition of ``significant
subsidiary'' in 17 CFR 210.1-02(w) (``Rule 1-02(w)'') are met for any
individual equity investee or combination of equity investees,\205\
using the higher 20 percent threshold currently required under Article
8.\206\ We believe revising Rule 8-01 to provide that NAFs are required
to provide summarized financial information in annual periods in
accordance with Rule 4-08(g), but applying the existing 20 percent
threshold in Article 8, would provide for appropriate disclosure from
NAFs, codify certain existing SRC practice and staff guidance for
registrants that rely on Article 8, and help to clarify the disclosure
requirements.\207\ Further, we do not believe these proposed revisions
would represent a significant change in practice from that currently
applied by SRCs.
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\205\ Rule 8-03(b)(3) states that significance should be
determined based on a registrant's consolidated assets, equity or
income from continuing operations. Comparing an SRC's investment to
its equity, rather than its total assets as required in Rule 4-08(g)
and 17 CFR 210.10-01(b)(1) for non-SRCs, would likely have the
unintended consequence of requiring an SRC to disclose summarized
information more often than a registrant that is not an SRC. As
such, Commission staff have historically taken the view that it
would be appropriate for SRCs to determine whether disclosure of
summarized information under Rule 8-03(b)(3) is required by
performing the significance tests consistent with Rule 1-02(w),
substituting 20% for 10%. We are proposing to codify the practice of
performing the significance tests consistent with Rule 1-02(w) for
NAFs.
\206\ Currently, under the Commission staff's view analogizing
Rule 8-03(b)(3) to annual periods, disclosure by SRCs of summarized
information for annual periods would be made at a 20% threshold,
whereas disclosure by non-SRCs of summarized financial information
required by Rule 4-08(g) would be made at a 10% threshold. FRM, at
Sec. 2420.9. Statements in the FRM represent the views of
Commission staff only; see supra note 204.We are proposing to apply
a 20% disclosure threshold to NAFs, consistent with Commission
staff's interpretation of Rule 8-03(b)(3). As proposed, an NAF that
was not previously an SRC would only be required to provide
disclosure of summarized financial information under Rule 8-01 at
the 20% level as opposed to the 10% level, potentially decreasing
the instances when disclosure of summarized financial information is
required as compared to current requirements. Disclosure obligations
related to summarized financial information will remain unchanged
for current SRCs.
\207\ Rule 8-03(b)(3) refers to significant equity investees, in
contrast to other similar Commission rules, such as Rules 3-09 and
4-08(g), which require separate statements or summarized financial
information for subsidiaries not consolidated and 50% or less owned
persons accounted for by the equity method. We are proposing for
consistency to revise each of Rule 8-01 and Rule 8-03(b)(3) to refer
to subsidiaries not consolidated and 50% or less owned persons
accounted for by the equity method, which are the types of entities
to which the Commission expects the disclosure requirements to
apply.
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We are further proposing to revise Rule 8-03(b)(3) to align the
significance tests used to determine when disclosure of summarized
statement of comprehensive income information by NAFs is required in
interim periods with those used by LAFs under 17 CFR 210.10-01(b)(1)
(``Rule 10-01(b)(1)''). Currently, three significance tests are used to
determine whether disclosure of summarized information regarding a 50
percent or less owned person accounted for by the equity method of
accounting is required in an interim period by an SRC under Rule 8-
03(b)(3) as compared to only two tests applicable to a non-SRC under
Rule 10-01(b)(1).\208\ As a result disclosure is more likely to be
required under Rule 8-03(b)(3) for SRCs than under Rule 10-01(b)(1) for
non-SRCs. We do not believe NAFs should be required to disclose such
summarized information in more instances than LAFs and are proposing to
treat NAFs and LAFs consistently.\209\
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\208\ Rule 10-01(b)(1) requires disclosure of interim summarized
information separately as to each subsidiary not consolidated or 50%
or less owned persons or as to each group of such subsidiaries or
50% or less owned persons for which separate individual or group
statements would otherwise be required for annual periods. In this
regard, disclosure is required for subsidiaries not consolidated if
any of the tests in Rule 1-02(w) are met, and for a 50% or less
owned person accounted for by the equity method if either the
investment test in Rule 1-02(w)(1)(i) or income test in Rule 1-
02(w)(1)(iii) is met. We are proposing to revise Rule 8-03(b)(3) to
require disclosure of interim summarized information in a manner
consistent with 17 CFR 210.10-01(b)(1).
\209\ The Commission is also proposing other changes to Rule 8-
03(b)(3) to clarify certain requirements applicable to NAFs and to
align other requirements with those applicable to LAFs. As proposed,
the summarized statement of comprehensive income information that
would be required includes, at a minimum, the items specified in
Rule 1-02(bb)(1)(ii), rather than separately stating the minimum
items of financial information as currently specified in Rule 8-
03(b)(3), aligning with requirements applicable to LAFs.
Additionally, as proposed, the requirements would clarify that the
interim summarized information could be presented on an individual
or group basis for each subsidiary not consolidated or 50% or less
owned persons, consistent with current Rule 10-01(b)(1). Finally,
under current rules, disclosure of interim summarized information
under Rule 10-01(b)(1) need not be provided if the investee would
not be required to file quarterly financial information with the
Commission if it were a registrant. We are proposing to make a
conforming change to Rule 8-03(b)(3).
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Finally, we are proposing to remove and reserve 17 CFR 210.8-07
(``Rule 8-07'') relating to Limited Partnerships. This disclosure is
not required by LAFs and does not appear to be necessary for NAFs. We
do not believe that the disclosure requirements for NAFs should be more
rigorous than those for registrants that are not NAFs, unless there is
specific need for the material disclosure to be provided to investors.
The disclosure required by Rule 8-07 has been required for over 30
years by different rules, but we do not believe that a dedicated
disclosure requirement for NAFs continues to be necessary because the
currently applicable disclosure requirements for all registrants result
in sufficient disclosure about limited partnerships to investors.\210\
Furthermore, to the extent considered necessary or appropriate for the
protection of investors, the Commission could require the filing of
other financial statements, including the audited balance sheet of the
general partner.\211\
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\210\ We note that these disclosures were required in Form S-18
and brought forward when adopting the SRC rules in 2007. However,
disclosure pursuant to the requirement is rarely elicited.
\211\ See Rule 8-01(e).
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In proposing to apply the SRC disclosure requirements to NAFs, we
considered the current use and efficacy of the SRC disclosure
requirements and the overall impact of expanding the use of such
disclosure requirements to more registrants. Currently, SRCs compose a
significant portion of the number of all Exchange Act filers, 48.6
percent in calendar year 2024.\212\ Since adoption of the SRC rules in
2007, and expansion of the SRC public float threshold to $250 million
in 2018 and revising the revenue test to include issuers with annual
revenues of less than $100 million and public float of less than $700
million, we are not aware of any significant concerns regarding the
scaled disclosure requirements or that the disclosure made by SRCs
falls short of the informational needs of investors. We also note that
while SRCs are only required to provide two years of financial
statements in their periodic reports and registration statements, for
[[Page 30108]]
any registrant that has been providing disclosure for more than one
year, historical financial information concerning prior years is
readily available on the Commission's Electronic Data Gathering,
Analysis, and Retrieval system (``EDGAR'').
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\212\ See section IV.A.2.
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We are not proposing to permit investment companies that are NAFs
to rely on Article 8. Investment companies historically have been
excluded from the SRC definition and, therefore, Article 8 has not been
available to them. For financial reporting purposes, investment
companies are subject to the rules set forth in Articles 6 and 12 that
are specifically designed for RICs and BDCs and that recognize
differences between investment company registrants and non-investment
company registrants. For example, investment companies invest in
securities principally for returns from capital appreciation and/or
investment income. Investment companies also are required to value
their portfolio investments, with changes in value recognized in the
statement of operations for each reporting period. The Commission has
previously taken steps to tailor financial reporting for investment
companies, including BDCs.\213\
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\213\ See, e.g., Amendments to Financial Disclosures About
Acquired and Disposed Businesses, Release No. 33-10786 (May 20,
2020) [85 FR 54002 (Aug. 31, 2020)].
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Permitting BDCs and face-amount certificate companies that are NAFs
to prepare their financial statements in accordance with the same
Article 8 provisions that apply to other NAFs would reduce the
availability of information that is important for understanding these
investment companies' activities and investments, such as the schedules
of investments that they currently prepare under Article 12 of
Regulation S-X. This approach would also create disparities between
financial reporting by BDCs and face-amount certificate companies and
financial reporting by other similarly-situated RICs. For these
reasons, we are not proposing to permit BDCs and face-amount
certificate companies that are NAFs to rely on Article 8, which
includes provisions allowing more condensed financial statements
without financial statement schedules (e.g., the schedule of
investments) or certain general notes to the financial statements.
We are, however, proposing to allow BDCs and face-amount
certificate companies that are NAFs to have certain of the same
accommodations included in Article 8 under proposed Rule 3-19. This
proposed rule would allow BDCs and face-amount certificate companies
that are NAFs to elect to provide, for their annual financial
statements, two rather than three years of statements of operations and
cash flows similar to provisions available to other NAFs under proposed
Rule 8-02. Extending this provision to BDCs and face-amount certificate
companies that are NAFs would not create disparities with reporting by
other RICs, as other RICs similarly are not required to provide
financial statements covering a three-year period. In addition, as
discussed below, the proposed rule would allow BDCs and face-amount
certificate companies that are NAFs to defer adoption of certain new or
revised financial accounting standards to the same extent as other
NAFs. This option to defer compliance is currently available to BDCs
that are EGCs, so this proposed change would extend the accommodation
to defer compliance to additional BDCs and to face-amount certificate
companies.\214\ Finally, proposed Rule 3-19 would extend certain time
periods in Article 3 for BDCs and face-amount certificate companies
that are SNFs to account for the additional time that SNFs would have
to file periodic reports, consistent with similar provisions under
Article 8 for SNFs. Overall, proposed Rule 3-19 for BDCs and face-
amount certificate companies that are NAFs is designed to mitigate
regulatory burden for BDCs and face-amount certificate companies that
qualify as NAFs under the proposal, while recognizing differences in
the operations and structures of these investment companies in
comparison to other NAF issuers.
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\214\ We recognize that, unlike our proposal to extend the
ability to provide financial statements for a two-year period to
BDCs and face-amount certificate companies that are NAFs, the
proposal to extend the ability to defer compliance with certain new
or revised financial accounting standards to all BDCs and face-
amount certificate companies that are NAFs would increase disparity
with other RICs, which are not permitted to elect this deferral.
However, because BDCs that are EGCs currently can elect to defer
compliance, in our view, the more appropriate point of comparison
for assessing regulatory parity in this case is between BDCs that
are EGCs and BDCs that are NAFs.
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b. Application of Certain EGC Accommodations
While the Commission has reevaluated its regulatory regime and
adopted rules in the past to address the burdens of registration and
reporting on smaller registrants, Congress has also acted to direct the
Commission to further consider and address regulatory burdens, as
discussed in more detail in section I above. In 2012, the JOBS Act
established ``emerging growth companies'' as a filer category entitled
to substantial regulatory relief. In establishing EGC conditions
permitting eligibility for that status for up to the first five years
after the registrant completes an initial public offering of common
equity securities, until the registrant reaches $1 billion in total
annual gross revenues (indexed for inflation), issues $1 billion in
non-convertible debt over a three-year period, or becomes an LAF,\215\
Congress significantly raised the company size at which disclosure and
other accommodations are provided to smaller and emerging registrants.
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\215\ See supra note 94 and accompanying text.
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While there are overlaps between the EGC and SRC accommodations,
EGCs are entitled to a similar but distinct set of accommodations as
compared to SRCs. Under existing rules, EGCs are exempt from the ICFR
auditor attestation requirement, and are permitted to provide executive
compensation disclosure using the rules applicable to SRCs and to
provide two (instead of three) years of financial statement disclosure
in an initial public equity offering. An EGC that also qualifies for
SRC status \216\ would therefore receive certain incremental additional
benefits from its EGC status.
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\216\ See supra Table 2.
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As part of our effort to simplify and further rationalize
disclosure responsibilities for registrants, we are proposing to permit
NAFs to apply the disclosure requirements and accommodations currently
applicable to EGCs (except as described below with regard to section
6(e)(2) of the Securities Act), in addition to those currently
applicable to SRCs. Under the proposed rules registrants that qualify
as NAFs would receive the incremental accommodation of being permitted
to forgo the following disclosures and other requirements currently
available to EGCs:
Provision of a registered public accounting firm's
attestation report on the registrant's ICFR (``Item 308(b) of
Regulation S-K''); \217\
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\217\ 17 CFR 229.308(b).We are proposing to amend Item 308(b) of
Regulation S-K to clarify that only LAFs would be required to
provide an attestation report of a registered public accounting
firm. We are additionally proposing to remove references to
``accelerated filer'' from the rule and to revise Instruction 1 to
the Instructions to Item 308 to remove the reference to paragraph
(b), because all registrants would be NAFs in their first annual
report under the proposal, making reference to paragraph (b)
unnecessary.
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Pay versus performance disclosure pursuant to 17 CFR
229.402(v); and
[[Page 30109]]
Shareholder advisory votes \218\ on executive compensation
(``say-on-pay''),\219\ the frequency of say-on-pay votes,\220\ and
golden parachute compensation in connection with mergers and
acquisitions and related disclosure.\221\
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\218\ In proposing to limit the shareholder advisory votes
required by 15 U.S.C. 78n-1 to LAFs, we considered the specific
exemption for EGCs provided in 15 U.S.C. 78n-1(e)(2), the exemptive
authority provided in 15 U.S.C. 78n-1(e), and the further admonition
in 15 U.S.C. 78n-1(e)(1) that the Commission consider whether the
requirements disproportionately burden small issuers. We are
proposing to exempt NAFs from these requirements to reduce the
burden of compliance on these issuers pursuant to our exemptive
authority.
\219\ Say-on-pay is a non-binding shareholder vote on executive
compensation in proxy and information statements at least once every
three years. See 17 CFR 240.14a-21(a) and 15 U.S.C. 78n-1(a) and
(c). In addition to proposing to exempt NAFs in proposed Rule 14a-
21(d) and remove references to SRC, we are proposing revisions to
Rule 14a-21(a) to simplify the requirement and remove the transition
provisions.
\220\ Say-on-pay frequency is a non-binding shareholder vote on
the frequency of the say-on-pay vote at least once every six years.
See 17 CFR 240.14a-21(b) and 15 U.S.C. 78n-1(a) and (c). In addition
to proposing to exempt NAFs in proposed Rule 14a-21(d) and remove
references to SRC, we are proposing revisions to Rule 14a-21(b) to
simplify the requirement and remove the transition provisions.
\221\ The golden parachute vote refers to the requirement for
issuers to include a separate resolution, subject to non-binding
shareholder vote, to approve certain golden parachute arrangements
in connection with certain merger or related change-in-control
transactions. See 17 CFR 240.14a-21(c). In addition to proposing to
exempt NAFs in proposed Rule 14a-21(d) and remove references to SRC,
we are proposing revisions to Rule 14a-21(c) to simplify the
requirement and remove the transition provisions. In addition, we
are proposing to revise Instructions 3 and 4 to Instructions to
Sec. 240.14a-21 because those instructions relate specifically to
SRC and EGC accommodations. We are proposing to replace those
instructions with a new Instruction 3 providing that a registrant
must include the say-on-pay and say-on-pay frequency resolutions in
connection with the first solicitation after becoming an LAF. A
registrant is required to provide certain disclosure on the golden
parachute arrangements in accordance with 17 CFR 229.402(t). In
addition, Item 1011 of Regulation S-K expressly permits EGCs to
exclude Item 402(t) disclosure from Regulation M-A disclosure. We
are proposing to revise Item 1011 to provide that exclusion to NAFs.
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In addition to these disclosure and other accommodations, the JOBS
Act amended the Securities Act by adding section 6(e) \222\ to provide
EGCs with: (1) the ability to submit to the Commission a draft
registration statement (``DRS'') for confidential review prior to an
EGC's initial public offering; \223\ and (2) confidentiality regarding
an EGC's nonpublic DRSs submitted prior to its initial public offering
date from being produced by the Commission in response to a FOIA
request.\224\
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\222\ See Public Law 112-106, 126 Stat. 306 (2012), sec. 106(a).
\223\ 15 U.S.C. 77f(e)(1).
\224\ 15 U.S.C. 77f(e)(2).
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The staff of the Division of Corporation Finance have accepted
draft registration statements for non-public review for all issuers
since 2017 \225\ and subsequently further expanded the availability of
the non-public review process.\226\ We are not proposing to codify this
process but we request comment on whether doing so would provide
additional clarity and certainty. With respect to the provision of
confidentiality under section 6(e)(2) of the Securities Act, the
Commission lacks the authority to extend this confidentiality to non-
EGC companies and therefore only statutory EGCs will remain eligible
for this accommodation. Non-EGC registrants would continue to be able
to use the Commission's confidential treatment procedures regarding
FOIA requests pursuant to 17 CFR 200.83 (``Rule 83''), when submitting
draft registration statements for nonpublic review. The Commission's
Rule 83 confidential treatment procedures allow Commission staff to
determine whether, in response to a FOIA request, nonpublic draft
registration statements and related correspondence are subject to a
FOIA exemption and consequently would not be disclosed in response to a
FOIA request.\227\
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\225\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Voluntary Submission of Draft Registration
Statements--FAQs (June 29, 2017) available at https://www.sec.gov/about/divisions-offices/division-corporation-finance/voluntary-submission-draft-registration-statements-faqs.
\226\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Enhanced Accommodations for Issuers Submitting
Draft Registration Statements (Mar. 3, 2025) available at https://www.sec.gov/about/divisions-offices/division-corporation-finance/draft-registration-statement-processing-procedures-expanded.
\227\ See, e.g., 5 U.S.C. 552(b)(4) (Exemption 4 of the Freedom
of Information Act provides an exemption for ``trade secrets and
commercial or financial information obtained from a person and
privileged or confidential.'')
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EGCs are additionally permitted to elect to defer compliance with
new or revised financial accounting standards issued by the Financial
Accounting Standards Board (``FASB'') until such time as a company that
is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley
Act) is required to comply with such standards, if such standard
applies to companies that are not issuers.\228\ We believe that all
newly public companies should benefit from this accommodation as part
of an on-ramp for public companies.\229\ We are therefore proposing to
accord all NAFs the option to elect this deferred compliance, but only
for their first five years after initial registration with the
Commission.\230\ This means that for an NAF that elects this
accommodation, for its first five years after initial registration with
the Commission, the NAF would defer compliance until such time as a
company that is not an issuer (as defined under section 2(a) of the
Sarbanes-Oxley Act) is required to comply with such standards. We are
not proposing to provide NAFs with the ability to make this election
more than five years after their initial registration with the
Commission because doing so would limit the effectiveness of the FASB's
bifurcation of public company and private company compliance
dates.\231\
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\228\ 15 U.S.C. 77g(a)(2)(B); 15 U.S.C. 78m(a). Currently, an
EGC must indicate by check mark on the cover page of registration
statements and periodic reports whether it has elected to use this
extended compliance period. An EGC's decision to opt out of deferred
compliance is irrevocable. Public Law 112-106, 126 Stat. 306 (2012),
sec. 107(b).
\229\ We note that the majority of companies registering an
initial public offering are currently EGCs. We estimate that
approximately 88% of IPOs during calendar year 2024 (excluding funds
and direct listings) were by EGCs, based on data from Audit
Analytics data (retrieved Jan. 3, 2025).
\230\ See proposed amendments to Rule 8-01(g) and Rule 3-19
(making this deferred compliance available to all NAF issuers,
including those that are BDCs or face-amount certificate companies).
The proposed amendment would not be affected by the scenario where a
new financial accounting standard issued by the FASB applies only to
issuers (i.e., it is not required to be adopted by private
companies). In that case, newly public NAFs would be required to
follow the adoption timeline in the FASB accounting standard, just
as EGCs are required to do currently. We are also proposing to
replace the current language on the cover page of certain
registration statements and periodic reports under which an EGC is
required to indicate by check mark if it has elected not to use the
extended transition period for complying with new or revised
financial accounting standards (see supra note 190) with language
under which an NAF that is no more than five years after its initial
registration would be required to indicate by check mark if it has
elected to use the extended transition period.
\231\ Certain PCAOB standards, by statute or by rule, do not
apply to EGCs. For example, the PCAOB auditing standard requiring
the communication of ``critical audit matters'' does not apply to
the audits of EGCs. See PCAOB AS 3101.05b, The Auditor's Report on
an Audit of Financial Statements When the Auditor Expresses an
Unqualified Opinion, available at https://pcaobus.org/oversight/standards/auditing-standards/details/AS3101. 15 U.S.C. 7213(a)(3)(C)
prohibits any rules of the PCAOB requiring ``mandatory audit firm
rotation or a supplement to the auditor's report in which the
auditor would be required to provide additional information about
the audit and the financial statements of the issuer (auditor
discussion and analysis)'' from applying to the audit of an EGC. 15
U.S.C. 7213 (a)(3)(C) also provides that any new rules adopted by
the PCAOB do not apply to the audit of an EGC ``unless the
Commission determines that the application of such additional
requirements is necessary or appropriate in the public interest,
after considering the protection of investors and whether the action
will promote efficiency, competition, and capital formation.'' We
are not proposing to extend these EGC accommodations beyond
statutory EGCs at this time.
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[[Page 30110]]
As proposed, the election would be irrevocable; NAFs electing not
to use this accommodation would be required to forgo this accommodation
for all financial accounting standards and would not be permitted to
rely on this accommodation in any future filings. As proposed, this
accommodation would cease on the last day of the fiscal year of the NAF
in which the fifth anniversary of the NAF's initial registration
effective date occurs. The annual report for that fiscal year would be
required to reflect the adoption of all new or revised financial
accounting standards that are effective for issuers as of that date.
For example, an issuer with a calendar year-end whose initial public
offering registration statement became effective on April 10, 2026
would cease to be able to rely on this accommodation on December 31,
2031, and the Form 10-K for that fiscal year, filed in 2032, would be
required to include audited financial statements reflecting the
adoption of all financial accounting standards that are effective for
issuers as of that date. In proposing to permit NAFs to use the
disclosure requirements and accommodations currently available to EGCs,
we considered the potential costs to investors from the loss of
information and of certain shareholder advisory votes with respect to
these registrants. Similar to our analysis relating to the extension of
SRC accommodations,\232\ we believe that extending certain EGC
accommodations to NAFs would provide a significant benefit to
registrants and investors by simplifying the current complex filer
status framework and reducing the costs of being or becoming a public
company. We believe reducing such costs would free up capital that
could be invested in the registrant's business, potentially enhancing
shareholder value, and could encourage companies to seek access to the
public markets and remain public, which overall would provide investors
more investment opportunities with the greater transparency afforded by
Exchange Act reporting.
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\232\ See section II.B.3.a.
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We acknowledge that investors in non-EGC NAFs, for at least the
initial five years after the registrant's IPO, would not have
disclosure about pay ratio and pay versus performance and would not be
accorded the right to participate in certain advisory votes on
executive compensation. However, we believe that extending these
accommodations to non-EGC NAFs is an appropriate means of providing a
meaningful on-ramp before the full burden of compliance with such
requirements is borne by the registrant, which may further encourage
those companies to go public sooner, which would be to the benefit of
investors. As discussed above, we have not heard concerns from
investors or other market participants over the SRC- and EGC-levels of
disclosure, and accordingly we believe the disclosure provided to
investors under the proposed amendments would allow investors in NAFs
to make informed investment and voting decisions.
We acknowledge, as we have in the past,\233\ that the smallest
issuers tend to be disproportionately represented among issuers with
restatements and allegations of fraud. Such issuers generally already
receive SRC accommodations and are exempt from the ICFR auditor
attestation requirement, so the only change made by this proposal for
such issuers is to make permanent for them most of the EGC
accommodations. On balance, investors in smaller companies are better
protected if those companies are subject to the requirements of the
Exchange Act with scaled disclosure rather than in the private markets
where there is often less disclosure. Because reporting companies
provide audited financial information and other disclosure that is
publicly available to investors and other market participants to
review, fraud should also be easier to detect in reporting companies
than in private companies. Therefore, we believe that investors would
be better protected overall under the proposal because streamlining the
complex filer status framework and providing disclosure and other
accommodations may encourage more companies to go and stay public. In
addition, the proposed changes could further benefit investors by
providing them with a broader array of investment options in the public
markets.
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\233\ See, e.g., Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17216 (Mar. 26, 2020)] (``Small, loss-incurring issuers are also
disproportionately represented among issuers that have allegedly
engaged in financial disclosure frauds, indicating that any benefits
in terms of investor protection and investor confidence may be
particularly important for this population of issuers'').
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4. Application to Other Filer Types
We are proposing to exclude asset-backed issuers (as defined in
Item 1101(b) of Regulation AB \234\) and certain FPIs from the
determination and application of LAF and NAF filer status.
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\234\ 17 CFR 229.1101(b).
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Asset-backed issuers have a separate disclosure regime under
Regulation AB and do not use Regulation S-K for their disclosure
requirements, except in limited circumstances as directed by Regulation
AB. As a result, the scaling and disclosure accommodations available to
SRCs and EGCs are largely inapplicable to asset-backed issuers. We are
therefore proposing to exclude asset-backed issuers from the proposed
changes relating to LAF and NAF filer status. The Commission used a
similar rationale to exclude asset-backed issuers from the prior
``small business issuer'' disclosure system \235\ and the current
definition of ``smaller reporting company'' under Exchange Act Rule
12b-2.\236\ Likewise, since asset-backed issuers are subject to an
entirely separate disclosure and reporting regime under Regulation AB
that is designed to address their particular structure and operations,
asset-backed issuers do not qualify as EGCs (and the disclosure
requirements and accommodations benefitting EGCs are not applicable to
asset-backed issuers). We propose, however, to revise Form 10-K (17 CFR
249.310) to add a check box requiring a registrant to indicate whether
it is an asset-backed issuer and to continue to require the 90-day
reporting timeline for annual reports on Form 10-K for asset-backed
issuers.
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\235\ See, e.g., Regulation AB Adopting Release at notes 565-67
(indicating that, with respect to asset-backed securities, that
disclosure system, like most of the basic Regulation S-K disclosure
system, is not applicable to asset-backed securities).
\236\ See, e.g., Smaller Reporting Company Regulatory Relief and
Simplification Proposing Release, Release No. 33-8819 (July 5, 2007)
[72 FR 39670, 39674 (July 19, 2007)].
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Additionally, we are proposing to exclude certain FPIs from the
determination and application of LAF and NAF filer status. FPIs are
permitted to use specialized forms and rules designated for FPIs.\237\
Because of the accommodations already provided on these forms, FPIs
filing on Form 20-F and Form 40-F are currently not generally eligible
for the scaled disclosure requirements available to SRCs.\238\ We are
proposing to continue this treatment for FPIs by providing that the LAF
and NAF definitions would not apply to FPIs that elect to comply with
[[Page 30111]]
the rules and use the forms designated for foreign private
issuers.\239\ We are additionally proposing to revise Form 20-F to
continue to require a registered public accounting firm's attestation
report on ICFR for filers that had an aggregate worldwide market value
of the voting and non-voting common equity held by its non-affiliates
of $75 million or more as of the last business day of the issuer's most
recently completed second fiscal quarter unless they qualify as an
emerging growth company (as defined in 17 CFR 240.12b-2).\240\
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\237\ See Form 20-F. See also International Disclosure
Standards, Release No. 33-7745 (Sept. 28, 1999) [64 FR 53900 (Oct.
5, 1999)] (amending Form 20-F disclosure requirements to conform to
international disclosure standards) and Multijurisdictional
Disclosure and Modifications to the Current Registration and
Reporting System for Canadian Issuers, Release No. 33-6902 (June 21,
1991) [56 FR 30036 (July 1, 1991)] (establishing a
multijurisdictional disclosure system with Canada establishing Form
40-F for the reporting of certain home jurisdiction periodic
disclosure documents).
\238\ See General Instruction B.(f) of Form 20-F. Note, however,
that SRCs that are FPIs are not required to provide quantitative and
qualitative disclosures about market risk. See Item 11 for Form 20-
F.
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We are not proposing to revise the way an FPI filing on Form 20-F
performs the public float determination for purposes of this assessment
to align with how we are proposing amendments to the way a registrant
determines its public float for purposes of the LAF definition (i.e.,
based on average of the stock price over the last 10 trading days of
the second quarter). As a result, there will be differences between the
two public float determinations. However, we believe retaining the
current approach is preferable as it is consistent with the way FPIs
filing on Form 20-F perform the public float assessment under existing
rules, and as proposed, these FPIs that elect to comply with the rules
and use the forms designated for foreign private issuers would not be
otherwise eligible to use the requirements for NAFs.
We are also proposing retaining this treatment for FPIs in light of
the Commission's 2025 concept release soliciting public comment on the
definition of FPI, which seeks input on whether the definition
appropriately balances the protection of investors with the promotion
of capital formation.\241\ Given our ongoing evaluation in this area,
we believe it is prudent to limit the effects of the proposed
amendments on FPIs at this time, prior to completion of our more
comprehensive review of the FPI framework.
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\239\ We are proposing to continue this treatment for FPIs that
file on Form 20-F and Form 40-F. We are not proposing changes to
Form 40-F at this time as the form does not reference the terms
``accelerated filer'' or ``smaller reporting company,'' however we
are proposing that Form 40-F filers would continue to evaluate
whether they are required to provide a registered public accounting
firm's attestation report on management's assessment of ICFR as they
do today, similar to what we are proposing for Form 20-F filers.
\240\ We are additionally proposing revisions to Form 20-F to no
longer refer to ``accelerated filer'' and provide for the limited
accommodation on the form to not require registrants that would
otherwise qualify for NAF status to provide the information
regarding quantitative and qualitative disclosure about market risk
that is currently provided to SRCs.
\241\ See Concept Release on Foreign Private Issuer Eligibility,
Release No. 33-11376 (June 4, 2025) [90 FR 24232 (June 9, 2025)].
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5. Summary of Requirements for LAFs and NAFs Under the Proposal
Table 3 below summarizes the availability of scaling and
accommodations to NAFs under Regulations S-K, as it is proposed to be
amended:
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BILLING CODE 8011-01-C
Tables 4 and 5 below summarize the availability of accommodations
to NAFs within Regulation S-X, as it it proposed to be amended:
BILLING CODE 8011-01-P
[[Page 30115]]
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[[Page 30116]]
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Table 6 below summarizes the availability of scaling and
accommodations to NAFs under other rules, as proposed to be amended:
[GRAPHIC] [TIFF OMITTED] TP21MY26.017
BILLING CODE 8011-01-C
Request for Comment
(12) Should we adopt as proposed the definition of ``non-
accelerated filer'' that creates a single demarcation between LAF and
NAF status based on public float?
(13) Should we extend, as proposed, the SRC and/or EGC
accommodations to NAFs? Would the proposed reporting requirements for
NAFs, including
[[Page 30118]]
proposed accommodations and disclosure scaling, promote investor
protection and permit investors in these filers to make informed
investment and voting decisions? As proposed, should BDCs and face-
amount certificate companies that are NAFs continue to be required to
provide performance graph disclosures to maintain parity with other
RICs, and is this parity beneficial for investors? In other cases, are
there certain accommodations or disclosure scaling that we should not
apply to all NAFs and if so, which ones and why? For example, should we
require banks and other financial institutions that will qualify as
NAFs to comply with the requirements of Item 305 of Regulation S-K
(Quantitative and qualitative disclosures about market risk) given the
nature of their operations? Alternatively, are there other or new
disclosure scaling or other regulatory accommodations that should be
made available to NAFs?
(14) Because the proposed amendments would extend to NAFs the
disclosure accommodations currently available to EGCs, the proposed
amendments would generally make separate reliance on those JOBS Act
provisions for EGCs unnecessary. In proposing this expansive treatment
of NAFs that will generally provide EGC accommodations to NAFs, we are
generally proposing to revise our rules to refer to NAFs and to remove
references to EGCs and to add a new provision in Regulation S-K that
details EGC statutory accommodations. Since EGC status was statutorily
created and provides reference to certain rules through statute, should
we remove all references in our rules and add a new provision in Item
10 of Regulation S-K as proposed, or retain references to EGCs in
addition to references to NAFs in the rules?
(15) Should we codify in our rules the current process for non-
public staff review of draft registration statements submitted by non-
EGC issuers? If the current process is codified, what should be the
approach included in the new rule? Would codifying the current review
process unnecessarily ``lock in'' the current practice or would doing
so provide regulatory certainty and clarity on the availability of non-
public staff review?
(16) We have proposed excluding asset-backed issuers from the LAF
and NAF filer status definitions. Should these issuers be included in
the filer status definitions? Should any other issuers be excluded from
the filer status definitions? Why or why not?
(17) Should we require disclosure in annual reports on Form 10-K or
Form 20-F of material unresolved staff comments, as proposed? Why or
why not?
(18) Given our ongoing evaluation relating to FPIs, we are
proposing to limit the effects of the proposed amendments on FPIs prior
to completion of our more comprehensive review of the FPI framework.
Specifically, we are proposing to limit the application of the proposed
changes as to FPIs by providing that the LAF and NAF definitions do not
apply to a foreign private issuer that elects to comply with the rules
and use the forms designated for foreign private issuers and revising
Form 20-F to continue to use the $75 million public float threshold for
the ICFR auditor attestation requirement. As a result, FPIs would
continue to be required to include a registered public accounting
firm's attestation on ICFR in annual reports on Form 20-F and Form 40-F
as they do today, beginning at the current AF public float threshold of
$75 million (unless they otherwise qualify as an EGC). Given the
ongoing evaluation of the FPI rules by the Commission, is the proposed
treatment appropriate? If not, how should we apply the proposed filer
status amendments to FPIs? Should we consider revisions to Form 20-F
and Form 40-F to apply the higher proposed LAF threshold to the ICFR
auditor attestation requirement for these issuers? What other changes
should we consider? How would this impact FPIs and their investors in
the United States, including any costs and benefits?
(19) We have not proposed any accommodations specific to special
purpose acquisition companies (``SPACs'') or other business
combinations. As proposed, a SPAC would determine its filer status as
an operating company would. As a result, the 60-month seasoning period
would begin when the SPAC makes its initial public offering. Should we
consider an accommodation for SPACs that would permit a new seasoning
period to begin when a business combination between a SPAC and a
private operating company occurs? Why or why not? Should a SPAC's 60-
month seasoning period begin at some other time? Should the period
start at different times for companies that incur Exchange Act
reporting obligations in other ways, such as spin-offs? Are there other
accommodations we should consider for SPACs or other business
combinations?
(20) Would the proposal not to subject NAFs to the ICFR auditor
attestation requirement result in cost savings for NAFs, even though
management would continue to be required to provide their own
assessment of the effectiveness of ICFR and the registered public
accounting firm would continue to be required to consider and, in some
instances, test internal controls in its audit of the NAF's financial
statements? Would there be other impacts to the nature, timing, or
extent of the auditor's testing and procedures that might offset any
potential cost savings from not requiring ICFR auditor attestation?
Please quantify, even if such estimates are provided as ranges or with
caveats.
(21) Are there market or other reasons why registrants, in
particular those that are currently AF or LAF but would become NAF
under the proposed rules, would continue to or begin to obtain and
disclose the results of an ICFR auditor attestation, even if not
required? Should we require disclosure of the results of such
voluntarily obtained attestation? What would the costs and benefits be
of requiring such disclosure of a voluntarily-obtained attestation?
(22) Would the proposal not to subject NAFs to the ICFR auditor
attestation requirement affect the reliability of financial statements?
Would it affect the ability of investors to make informed investment
and voting decisions based on the financial reporting of those issuers?
Would investors factor the lack of attestation in their investment and
voting decisions, pricing of securities, and/or in their consideration
of a registrant's financial reporting? Would it result in any adverse
consequences to NAFs in the capital markets or otherwise (such as the
increased risk of restatement) due to not obtaining an auditor
attestation of ICFR?
(23) Under the proposed rules, an NAF (other than an NAF that is an
investment company) would be able to elect between compliance with
Article 8 of Regulation S-X or all the other form and other content
requirements in Regulation S-X. Should we retain this flexibility, or
should all NAFs (other than those that are investment companies) be
required to comply with either Article 8 or all the other form and
content requirements in Regulation S-X?
(24) Under the proposed rules, an NAF that is a BDC or face-amount
certificate company could not rely on Article 8 but would receive some
of the same accommodations under proposed Rule 3-19. As proposed,
should NAFs that are BDCs or face-amount certificate companies be
unable to rely on Article 8? Are there other Article 8 accommodations
that should be available to BDCs or face-amount certificate companies
that are NAFs? If so, which ones, and why? Are there any changes to
Article 8 accommodations that we should make for BDCs and face-
[[Page 30119]]
amount certificate companies to better recognize their activities and
characteristics? For any different recommended approaches, please also
explain if such approaches would create any disparities with similarly-
situated RICs.
(25) We are proposing to revise Article 8 of Regulation S-X as it
pertains to disclosure of summarized information of subsidiaries not
consolidated and 50 percent or less owned persons to require annual
summarized financial information and to require significance tests be
performed consistent with Rule 1-02(w), substituting 20 percent for 10
percent. How would these proposed revisions to Article 8 affect
financial statement disclosures? Do these proposed changes help to
improve how Article 8 applies to disclosures of subsidiaries not
consolidated and 50 percent or less owned persons? If not, why not?
(26) We are proposing to remove specific limited partnership
disclosure requirements in Regulation S-X Rule 8-07. Should we retain
Rule 8-07 relating to limited partnership disclosure for NAFs? If so,
what information is the most useful to investors from that requirement?
If that information is useful to investors in NAFs, should we consider
applying the requirements more broadly to all issuers? Is there a
reason that we should apply these requirements to NAFs, but not to
LAFs?
(27) Under the proposed rules, NAFs would not be required to comply
with Articles 5, 7, or 9 of Regulation S-X containing financial
statement presentation requirements and related disclosures for
commercial and industrial companies, insurance companies and bank
holding companies, respectively. Would NAFs look to the form and
presentation requirements in the applicable Article of S-X appropriate
for their business anyway for purposes of preparing their consolidated
balance sheets and statements of comprehensive income? If not, would
investors and other market participants be able to evaluate the
financial statements of NAFs given that NAFs may choose to use
different formats for their consolidated balance sheets and statements
of comprehensive income? Additionally, if the NAF didn't originally
look to and comply with the presentation and related disclosure
requirements in the applicable Article of S-X before it was required to
upon becoming a LAF, would it create confusion for investors when the
requirement to apply the applicable guidance results in a change in
presentation and disclosures (for example to income statement line
items) and/or would investors potentially lose information they were
previously relying on? Should we require that NAFs comply with Articles
5, 7, or 9? Why? If so, what information is the most useful to
investors from those requirements?
(28) Are there other changes that we should consider to Article 8
of Regulation S-X?
(29) As discussed above, we propose that newly public NAFs be able,
in their first five years as public companies, to elect to defer
compliance with new or revised financial accounting standards issued by
the FASB that apply to all entities until such time as a company that
is not an issuer is required to comply with such standards. This
proposal would not affect the scenario where a new financial accounting
standard issued by the FASB applies only to issuers (i.e., it is not
required to be adopted by private companies). In that case, newly
public NAFs would be required to follow the adoption timeline in the
FASB accounting standard, just as EGCs are required to do currently.
Should we extend this deferral beyond five years for all newly public
NAFs? Is the transition mechanism in the proposed rule amendments clear
on how and when an NAF would be required to comply with all financial
accounting standards applicable to issuers after the end of the five-
year period? Should we additionally allow newly public NAFs, in their
first five years as public companies, a one-year deferral option for
adoption of new financial accounting standards issued by the FASB that
apply only to issuers? Alternatively, should we permit all NAFs to
defer compliance until such time as a company that is not an issuer is
required to comply with such standards?
(30) The rules for listing standards relating to compensation
committees (17 CFR 240.10C-1) provide a general exemption from those
rules for SRCs and an admonition to consider the impacts of the rules
on SRCs. As proposed, this general exemption would apply to NAFs.
Should we consider any modification to this exemption in connection
with the proposed amendments?
C. Small Non-Accelerated Filers
We are proposing to create a subcategory of the smallest NAFs,
termed small non-accelerated filers or SNFs, and extend the deadlines
for them to file their periodic reports.\242\ To qualify as an SNF
under the proposed rules, a registrant would have to:
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\242\ The Commission has proposed permitting registrants to file
semiannual reports in lieu of quarterly reports on Form 10-Q. See
Semiannual Proposing Release and related discussion at notes 13,
118, and 296. If the Commission were to adopt the proposed
semiannual filing provisions, SNFs would be provided the same amount
of additional time (five days) to file their semiannual reports as
we are proposing for their quarterly reports in this proposal.
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Be an NAF; and
Report total assets of $35 million or less in its
financial statements as of the end of each of its two most recent
second fiscal quarters.
SNFs would be granted an additional 30 days to file their Form 10-
K, extending their filing deadline from the 90 days applicable to NAFs
to 120 days after fiscal year end. For the Form 10-Q, SNFs would be
granted an additional five days, extending their filing deadline from
the 45 days applicable to NAFs to 50 days after fiscal quarter
end.\243\
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\243\ In connection with proposing to provide these extended
deadlines, we are proposing to revise Exchange Act Rules 13a-10,
13a-13, 15d-2, 15d-10 and 15d-13 to reflect the additional 30 days
to file their 10-K (to 120 days) and the additional 5 days (to 50
days) to file their 10-Q and to revise Forms 10-K and 10-Q to
reflect these deadlines. We are also proposing to similarly revise
17 CFR 210.3-09 and 17 CFR 210.8-08, and add 17 CFR 210.3-19 to
reflect the additional time for SNFs to file. If the Commission were
to adopt the proposed semiannual filing provisions, SNFs would be
provided the same amount of additional time (five days) to file
their semiannual reports as we are proposing for their quarterly
reports in this proposal.
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A registrant would determine its filer status annually, as of the
last day of its fiscal year. If a registrant reports total assets of
$35 million or less as of the end of each of its two most recent second
fiscal quarters (e.g., June 30 for a calendar year end registrant), the
extended SNF deadlines would apply beginning with the annual report on
Form 10-K for the year for which filer status was determined. As
proposed, a new registrant reporting total assets at or below the
threshold would be an SNF upon registration if, in its initial
registration statement, it reported total assets of $35 million or less
in its financial statements in each of its two most recent fiscal year
balance sheets. The total assets testing date would be different in its
initial registration statement because that registration statement
would not be required to have two balance sheets as of the end of its
two most recent second fiscal quarters, and may potentially not have
any interim balance sheet depending on the filing date of the
registration statement.
Once a registrant becomes an SNF, it would remain in SNF status
until it becomes an LAF or reports more than $35 million in total
assets as of the end of each of its two most recent second
[[Page 30120]]
fiscal quarters.\244\ Consistent with the approach to thresholds that
we are proposing for LAF and NAF status, requiring the threshold be met
in two consecutive years would address concerns about registrants
frequently moving in and out of a given status, would be relatively
easy for registrants to implement, and would provide registrants and
investors with early notice of a possible change in filer status.
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\244\ As proposed, asset-backed issuers would be excluded from
the definition of NAF. Because SNF is a subset of NAF, such issuers
would similarly be excluded from the definition of SNFs.
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We are proposing to permit SNFs additional time to file their
periodic reports in order to reduce compliance burdens for the smallest
registrants, to thereby encourage them to continue as public companies
providing audited financial information and other disclosures to their
investors, and potentially to incentivize other companies to enter the
public markets. In formulating this proposal, we are responding to
concerns regarding the burdens that periodic reporting puts on the
smallest public companies. At the Commission's 2025 Small Business
Forum, one panelist noted that reporting requirements are ``almost like
an endless loop for small companies,'' and that this burden is
shouldered by ``limited accounting financial personnel.'' \245\
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\245\ Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Apr. 10, 2025), at 137, https://www.sec.gov/files/2025-SBF-508-Transcript.pdf (comment of Dr. Yunhao Chen). The
panelist further noted the panoply of associated costs, including
auditor fees and legal counsel fees.
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We have sought to target the proposed accommodation to the
registrants for which additional time would be most beneficial. In
order to do so, we considered the number of companies that filed a Form
12b-25 Notice of Late Filing.\246\ We believe that these registrants
are generally working to comply with the requirements, based on their
compliance with the requirements of 17 CFR 240.12b-25 notification of
an inability to timely file, and generally do ultimately file their
annual reports. Based on a review of Form 12b-25 filings in 2024,
Commission staff found that 39.7 percent of registrants at or below the
$35 million total asset threshold failed to file their Form 10-K annual
report by the initial reporting deadline. In contrast, only 11 percent
of larger NAFs (those with total assets above $35 million) failed to
file their Form 10-K by the initial reporting deadline. Similarly,
these smaller filers disproportionately filed their Forms 10-K over 15
days late, with 18 percent filing over 15 days late, compared with only
4.3 percent of larger NAFs. These data indicate that many smaller NAFs
have difficulty filing their reports in time to meet the current
deadlines.\247\ This may be because the smallest registrants are able
to afford fewer staff dedicated to preparing public disclosure.\248\ In
addition, Commission staff understand from ongoing engagement with
market participants that it is harder for these registrants to engage
PCAOB registered accounting firms and to receive focused attention from
such firms during the busy filing season when larger registrants have
retained the firms' audit services.
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\246\ 17 CFR 12b-25.
\247\ The late filing percentages provided here include filings
made after the applicable deadline but within the extension period
granted upon the timely filing of a Form 12b-25 as late. 17 CFR
240.12b-25 provides, upon the filing of Form 12b-25, a 15-day
extension for Form 10-K and five-day extension for Form 10-Q. As
shown in the table below, the staff have found some evidence that
registrants that would qualify as SNFs under the proposal are more
likely to be unable to meet the current timeliness requirements,
even with the use of the Rule 12b-25 accommodations.
\248\ See infra note 425.
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We believe a $35 million total asset threshold would target this
accommodation on the population of registrants that would find the
accommodation most useful. We estimate that setting the SNF asset
threshold at $35 million or less would result in 1,072 registrants
qualifying for the SNF subcategory, representing 22.2 percent of NAFs
and 17.9 percent of all registrants (i.e., all NAFs and LAFs combined,
under the proposed definitions).\249\ As discussed above, the core
rationale of our proposal to provide disclosure scaling and
accommodations to NAFs is to reduce the burdens of registration for
smaller registrants and thereby encourage those registrants to go and
stay public. Similarly, the proposed extra time to file periodic
reports for SNFs would provide an additional targeted accommodation
easing the burdens of registered status for the companies for which
those burdens may be heaviest.
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\249\ See section IV.B.6.
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We alternatively considered proposing a public float threshold or
revenue threshold for determining SNF status. The table below shows,
alongside the total asset figures discussed above, the public float and
revenue thresholds that would capture similar proportions of NAFs, and,
for each threshold, the percentage of filers in the new subcategory
that filed a late Form 10-K in 2024.
BILLING CODE 8011-01-P
[[Page 30121]]
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BILLING CODE 8011-01-C
As shown above, there is a statistically significant difference in
the proportions of NAFs that would qualify as SNFs under the proposed
total assets threshold and the alternative public float threshold. The
proposed total assets threshold also results in more NAFs qualifying as
SNFs than would be the case under the alternative revenue threshold.
Further, the proposed total assets threshold better encompasses the
registrants that have recently faced difficulty in meeting the current
reporting deadlines.
In addition, the consistency across registrants and industries in
how assets are determined and presented in the financial statements may
provide advantages over revenue, which may be less consistent for
registrants in certain industries, such as BDCs, face-amount
certificate companies, banks, and certain other financial institutions
which do not typically have a traditional ``total revenue'' amount on
their consolidated statement of operations,\250\ and public float,
which can be inconsistent among registrants with smaller public float.
Accordingly, we are proposing the SNF threshold be based on total
assets.
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\250\ 17 CFR 210.6-07, 17 CFR 210.6-08, and 17 CFR 210.9-04.
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We considered public float as an alternative to total assets for
the SNF threshold test, and solicit comment on that alternative below.
Using a public float threshold would make the entire filer status
framework simpler and easier to understand as there would be one public
float threshold for the largest filer tier (LAFs), and another public
float threshold for the smallest filer tier (SNFs). Registrants and
investors would also not have to track two separate metrics. Also, as
noted in section II.A.1. above, the Commission has historically looked
to public float in determining filer status and appropriate disclosure
requirements and accommodations. However, we also recognize that public
float may not be as meaningful a measure for the smallest of issuers
because the share price for these issuers tends to fluctuate more
significantly
[[Page 30122]]
than for other exchange-traded securities, which may affect the
suitability of such number as a threshold for whether a registrant
should be eligible for SNF accommodations.
We also considered revenue as an alternative for the SNF threshold
test. We acknowledge that the Commission selected a revenue test for
SRC status and, as the Commission did in 2018, that there may be filers
who have relatively substantial public floats but lack the revenue
flows needed to easily shoulder the expenses of periodic
reporting.\251\ On the other hand, revenue alone may not be a reliable
indicator of a company's ability to absorb the costs of periodic
reporting. For example, some low margin companies may have high
revenues, but those revenues may be offset by high expenses, leaving
such companies less able to absorb reporting costs as compared to
certain low revenue companies with relatively low expenses. Also, as
stated above, there can be industry-specific considerations that impact
the calculation of revenue.
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\251\ See 2018 SRC Adopting Release. The Commission went on to
say that a revenue test may ``enable some additional capital-
intensive, low-revenue registrants to benefit from the cost-savings
of scaled reporting.'' Id. at 31997.
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We anticipate that, by providing the smallest registrants extra
time that is not provided to other filers, there may be a reduction in
the auditor and legal counsel fees the smallest filers incur in
producing their periodic reports. Assuming similar fiscal year and
quarter ends across registrants, service providers would presumably
have less overlapping work for multiple registrants if the deadline to
complete their work for larger filers is different than for the
smallest filers. As one study on audit services found, given the
difference in demand for busy season and off-season audits, audit
service providers charge different prices to different clients for
similar services, based on timing.\252\ The study further found that
the capacity constraint during audit busy season ``results in a
relatively inelastic supply, raising the marginal cost of production
and thus justifying higher audit fees.'' \253\ We believe that
extending the deadlines for SNFs may ease some of the capacity
constraints permitting SNFs to more readily engage audit and legal
service providers at potentially lower costs.
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\252\ Hooi Ying Ng, Per Christen Tronnes & Leon Wong, Audit
Seasonality and Pricing of Audit Services: Theory and Evidence from
a Meta-Analysis, 40 J. Acct. Lit. 16 (June 2018).
\253\ Id.
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We acknowledge that later reporting by SNFs could lead to some
reduction in the utility that investors obtain from the reported
information, as the information would be older upon disclosure, and
would be delayed relative to larger registrants' periodic reports, thus
delaying investors' ability to compare companies in making investment
and voting decisions. The resulting negative effect on investors and
the informational landscape may be made more acute by the fact that
smaller registrants are less likely to receive analyst coverage.\254\
However, given the burden that periodic reporting imposes on the
already-limited resources of smaller filers, we believe any reduction
in reporting expenses resulting from the longer deadlines would have
beneficial financial effects on the registrants, and that such
financial effects may ultimately accrue to the benefit of investors.
The additional time may also permit the registrant and its outside
professional advisors to improve the disclosures, to the benefit of
investors. In addition, registrants would still be permitted to
voluntarily file their periodic reports earlier than the deadlines, and
some may choose to do so, such as if they believe doing so would place
them in a more favorable position in the informational landscape
investors use to make investment and voting decisions or for other
reasons.
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\254\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs Are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), https://www.gao.gov/assets/gao-25-107500.pdf, at 19 (``Investors also assess various dimensions of
company quality, including profitability, growth, and stability of
earnings. To make these assessments, investors need firm-specific
information. But the basis for such information may depend on
financial analysts' coverage, which could be at a reduced level for
smaller companies'').
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To demonstrate how SNF status would work in practice assuming the
proposed rules were in effect, consider a hypothetical registrant that
is determining its annual filer status as of December 31, 2026 for a
calendar year end registrant. The registrant has determined it does not
qualify as an LAF, and so is an NAF. If the registrant's total assets,
as of the end of the second quarter of the fiscal year (i.e., June 30),
in fiscal year 2025 were $30 million and in fiscal year 2026 were $33
million, the registrant would be an SNF for purposes of its fiscal year
2026 Form 10-K (filed in 2027).\255\ The earliest the registrant could
cease qualifying for SNF status is on December 31, 2028, which would be
reflected in its fiscal year 2028 Form 10-K (filed in 2029).
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\255\ A registrant that determines that it newly qualifies for
NAF status may also qualify for SNF status concurrently.
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If the registrant remains an NAF and its total assets as of June
30, 2027 were $36 million, and its total assets as of June 30, 2028
were $37 million, it would cease to qualify for SNF status as of
December 31, 2028, which would be reflected in its fiscal year 2028
Form 10-K (filed in 2029). In contrast, if its total assets as of June
30, 2027 were $36 million, but its total assets as of June 30, 2028
were $34 million, it would remain an SNF, and the earliest it could
cease to qualify for SNF status due to its total assets is December 31,
2030.
Importantly, regardless of the registrant's total assets as of the
end of the second quarters of fiscal years 2027 and 2028, if the
registrant at any time becomes an LAF, it would lose NAF status, and
thereby also no longer qualify as an SNF.
Request for Comment
(31) Would creating a subcategory within NAFs of the smallest
registrants and reducing their compliance burdens by extending the
deadline for them to file their periodic reports appropriately balance
the goals of investor protection and capital formation? Would the
creation of this subcategory help incentivize companies to go and stay
public?
(32) We are proposing to provide extended periodic reporting
deadlines to NAFs that meet a threshold of $35 million or less in total
assets as of the end of their two most recent second fiscal quarters
for existing registrants. Are NAF status and total assets as of the end
of a registrant's two most recent second fiscal quarters the best
measures for identifying the population that would most benefit from
these accommodations? We are proposing that companies filing an initial
registration statement perform the total assets test as of the end of
the two annual periods presented in the initial registration statement.
Is this the appropriate measure for identifying the population of SNFs,
until such time as the company has the reporting history to perform the
test based on total assets as of the end of its two most recent second
fiscal quarters? If not, what measures should the Commission use to
identify eligible registrants? Are there any risks of basing the test
on total assets as of the end of a fiscal quarter for existing
registrants given the total asset amounts will not be audited?
(33) We are proposing a $35 million asset threshold for determining
SNF status. Should the asset threshold be set at a different number? If
so, what number would be more appropriate and why? We are considering
in the alternative using a public float or a revenue threshold for
determining SNF status, as discussed above. Would either
[[Page 30123]]
of these other thresholds better identify a population that would
benefit from the additional time proposed to be afforded to SNFs? If
so, which measures would better identify these populations and at what
threshold should such accommodations be provided? While we are not
proposing any additional accommodations for SNFs at this time,
recognizing that the Commission may add additional accommodations for
SNFs in future rulemakings, would that weigh in favor of an asset or a
public float test?
(34) As an alternative to an asset threshold test to determine SNF
qualification, should we consider--other criteria? For example, should
we consider providing the reporting deadline accommodations and
potentially other accommodations to all registrants that are not listed
on an exchange? Do investors in registrants that have chosen not to
list their securities on an exchange, and the markets for those
securities, have the same expectations or need for information on the
same cadence as exchange-listed registrants? Should the Commission
consider providing the reporting deadline accommodations or other
accommodations to registrants that are not registered under section
12(b)? Registrants that are not registered under section 12(b)
currently account for 1,256 of the 4,825 registrants that would be NAFs
under the proposed rule. Alternatively, should the Commission consider
providing these accommodations to registrants that do not have a class
of common equity securities listed for trading on a national securities
exchange? Such registrants currently account for 1,490 of the 4,825
registrants that would be NAFs under the proposed rule.
(35) Would the proposed extended periodic reporting deadlines have
the intended effect of increasing the availability and reducing the
costs to SNFs of accounting and legal service providers? If so, how?
(36) While this proposal would expand the number of registrants
eligible to be NAFs and provide disclosure and other accommodation to
all of these registrants, we are proposing a more limited additional
accommodation relating to filing timelines to the proposed category of
SNFs that have total assets of $35 million or less at this time. Should
the Commission establish any disclosure or other accommodations
specifically for SNFs, or are the accommodations provided to all NAFs
(in addition to the filing accommodations for SNFs) at this time
sufficient and appropriate? If there are other or alternative
accommodations we should make available to SNFs, what accommodations
should we consider and how would those accommodations appropriately
balance capital formation and investor protection? For example, should
we exempt SNFs from XBRL filing requirements in some, or all of their
Exchange Act reports?
D. Proposed Transition Period
We propose that existing registrants as of the effective date of
the rules would be required to assess their LAF or NAF status as of the
end of their fiscal year prior to the effectiveness of the final rules.
As discussed in section II.A.2, a registrant's status would be based on
its public float and, if applicable, total assets, for such fiscal year
and the immediately prior fiscal year. We propose that registrants be
allowed to assess their status at any time after effectiveness of the
final rules, but no later than the day prior to the last day of their
fiscal year in which the final rules go into effect. If an existing
registrant does not make this initial assessment by the deadline, then
it would be deemed to be either (1) an LAF until the next assessment
date, if it was an LAF prior the final rules' effectiveness or (2) an
NAF until the next assessment date, in each other case. An existing
registrant that does not make its initial assessment by the deadline
and is therefore deemed to be an NAF would not be deemed to be an SNF
even if its total assets would otherwise qualify it to be an SNF.
For example, if we adopt final rules that become effective on
January 15, 2027, then existing calendar year end registrants would be
required to assess their filer status as of December 31, 2026 no later
than December 30, 2027, but would be permitted to complete such
assessment as of any date between January 15 and December 30, 2027.
A registrant that qualifies as an NAF after its initial filer
status assessment can avail itself of the scaling and other
accommodations available to NAFs in its next Securities Act or Exchange
Act filing made after the assessment is completed. A registrant that
meets the proposed SNF requirements could avail itself of the filing
deadlines available to SNFs in its next Form 10-Q or Form 10-K filing
made after the initial filer status assessment is completed.
For purposes of their initial assessment after effectiveness of the
final rules, existing registrants should not consider their filer
status prior to effectiveness. For example, a registrant that is an LAF
prior the amendments would treat itself as ``not currently a large
accelerated filer'' in applying the definitions in Securities Act Rule
405 or Exchange Act Rule 12b-2. Accordingly, a registrant that is an
LAF prior to the amendments would be an NAF after the effectiveness of
the final rules if, as of the end of its fiscal year of the year prior
to effectiveness, it (1) has not been subject to the reporting
requirements of section 13(a) or 15(d) of the Exchange Act for the
preceding sixty consecutive calendar months, or (2) did not have a
public float of $2 billion or more for such fiscal year and the
immediately prior fiscal year.
For example, assuming an August 1, 2027 effective date, if a
calendar year end registrant had public float of $2 billion or more for
2026 and 2025 (determined at the end of each of its second fiscal
quarters for 2026 and 2025, respectively), and if it had been a
reporting company for at least 60 consecutive calendar months as of
December 31, 2026, then it would continue as an LAF, and would continue
to be required to comply with the reporting requirements for LAFs in
its next Securities Act or Exchange Act filing after the initial filer
status assessment was performed.\256\
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\256\ A registrant that was an LAF prior to the proposed
amendments and would continue as an LAF after the initial assessment
after effectiveness of the final rules would be permitted to
continue to conduct? say-on-pay and say-on-pay frequency votes on
its existing schedule, notwithstanding proposed Instruction 3 to
Rule 14a-21 that would require such votes in the first solicitation
subject to Rule 14a-21 that a registrant conducts after becoming an
LAF.
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On the other hand, if the calendar year end registrant were an LAF
prior to effectiveness of final rules on August 1, 2027 but would not
meet either the proposed public float or the seasoning requirement for
LAF status as of December 31, 2026 (i.e., because its public float at
the end of either of its two most recent second fiscal quarters was
less than $2 billion and/or it had not met the 60-calendar month
seasoning requirement), the reporting company could conduct its
assessment as early as August 1, 2027, at which point it would become
an NAF and could begin scaling its disclosure and availing itself of
the other accommodations available to NAFs beginning with its next
Securities Act or Exchange Act filing made after the initial filer
status assessment was completed.\257\ If this registrant had total
[[Page 30124]]
assets of $35 million or less as of the end of each of its two most
recent second fiscal quarters prior to December 31, 2026 (i.e., June
30, 2026 and June 30, 2025), then it would be an SNF, and could begin
availing itself of the longer reporting deadlines for SNFs with its
next periodic filing (i.e., the Form 10-Q for the fiscal quarter ended
September 30, 2027).
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\257\ As proposed, there are no circumstances we are aware of
where a reporting company that is currently an NAF would transition
to an LAF upon application of this transition period. The earliest
an NAF could be required to transition to LAF status under the
proposed amendments would be if that reporting company had a public
float of $2 billion or more at the end of each of its last two
second fiscal quarters at the end of the fiscal year after any
adoption of the proposed amendments.
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Request for Comment
(37) Is the proposed transition mechanism of assessing filer status
no later than the end of the issuer's fiscal year in the year prior to
adoption of any final rules appropriate? If not, as of what date should
filer status be assessed under the new rules? For example, would it
limit complexity if all registrants were required to assess filer
status as of the last day of the fiscal year in which the amendments
are effective, instead of giving the option to assess sooner? As of
what date should registrants be able to avail themselves of the scaling
and other accommodations available to NAFs and SNFs?
E. Updating Small Entity Definitions
We are also proposing to update our rules that define which issuers
are considered small entities for purposes of the RFA.\258\ The RFA
requires an agency engaged in rulemaking to publish for public comment
its analyses of the impact of proposed and final rules on small
entities.\259\ While the RFA includes its own definitions of small
entities, it also provides that an agency may, through rulemaking, and
after consultation with the Office of Advocacy of the Small Business
Administration (``SBA''), adopt a small entity definition that is
``appropriate to the activities of the agency.'' \260\
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\258\ 5 U.S.C. 601 et seq.
\259\ 5 U.S.C. 603(a).
\260\ 5 U.S.C. 601(4).
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The Commission has adopted multiple such definitions, including at
17 CFR 230.157 (``Rule 157'') for purposes of the Securities Act, and
17 CFR 240.0-10 (``Rule 0-10'') for purposes of the Exchange Act.\261\
Rule 157(a) defines an issuer (other than an investment company) as a
small entity if it has $5 million or less in total assets at fiscal
year-end and engages in an offering of $5 million or less.\262\ Rule 0-
10(a) provides that an issuer (other than an investment company) is a
small entity if it has $5 million or less in total assets at fiscal
year-end.
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\261\ Each of Rule 157 and Rule 0-10 currently defines the terms
``small business'' and ``small organization.''
\262\ 17 CFR 230.157(a). The offering size portion of the
definition is effected by reference to Securities Act section
3(b)(1), 15 U.S.C. 77c(b)(1).
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We have heard from small business advocates, including at the 2024
Small Business Forum, that the Commission should consider updating
these thresholds.\263\ The Commission last updated the $5 million
thresholds in Rules 157(a) and 0-10(a) in 1986.\264\ When the asset
threshold was set to $5 million, it was based on the regulatory
threshold for triggering section 12(g) registration.\265\ Today, the
section 12(g) registration threshold is $10 million.\266\ Further, if
the small entity thresholds in Rules 157(a) and 0-10(a) were adjusted
to account for the inflation that has accrued since 1986, they would
now be approximately $15.1 million.\267\
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\263\ For example, in 2024, the SEC's Office of the Advocate for
Small Business Capital Formation published a policy recommendation
from 2024 Small Business Forum to ``revise the `small entity'
definition under the Regulatory Flexibility Act to better assess the
regulatory costs of compliance for small and growing businesses.''
U.S. Securities and Exchange Commission, Report on the 43rd Annual
Small Business Forum (Apr. 16-18, 2024), https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf, at 28.
\264\ Reporting by Small Issuers, Release No. 34-23406 (July 8,
1986) [51 FR 25360 (July 14, 1986)].
\265\ Id.
\266\ 15 U.S.C. 78l(g)(1)(A).
\267\ CPI Inflation Calculator, https://www.bls.gov/data/inflation_calculator.htm (measuring from July 1986 to Mar. 2026
(latest available information as of Apr. 15, 2026).
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We are proposing to revise Rule 157(a) and Rule 0-10(a) to raise
the total asset threshold in the definition of a small entity issuer
(other than an investment company) from $5 million to $35 million. The
proposed amendments will also harmonize the Commission's small entity
definitions for purposes of the Securities Act and the Exchange Act by
eliminating the additional offering size condition that is a part of
the existing small entity definition for purposes of the Securities Act
(but is not for purposes of the Exchange Act). The proposed change
would streamline and modernize the definition relative to the current
definition, facilitate more meaningful analysis by the Commission and
other regulators of the impacts of securities market regulations for
purposes of the RFA, and align the thresholds with the proposed SNF
threshold discussed above.
The Commission is required to determine if a rulemaking is likely
to have a ``significant economic impact on a substantial number of
small entities'' under the RFA.\268\ We believe that the proposed
thresholds would better tailor the Commission's analyses of the
specific regulatory challenges faced by small entities by expanding the
scope of the analyses that the Commission conducts under the RFA and
better inform the Commission of the regulatory impacts faced by smaller
registrants. We believe that raising the threshold to $35 million, to
match the proposed $35 million SNF threshold, would appropriately link
the proposed category that provides accommodations to the smallest
registrants with the new thresholds at which the Commission would be
required to provide the RFA analysis of regulatory impacts. Based on
calendar year 2024 data, under the proposed issuer small entity
thresholds in Rules 157(a) and 0-10(a) 1,419 registrants (excluding
issuers of asset-backed securities, investment companies, and BDCs)
would be small entities.
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\268\ See U.S.C. 602. The RFA does not define ``significant
economic impact'' or ``substantial number of small entities.''
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Request for Comment
(38) Should we amend Rules 157(a) and 0-10(a) to update the
thresholds, as proposed?
(39) If we update the thresholds, should we align them with the $35
million SNF threshold, as proposed? If not, what other threshold or
thresholds should we use? For example, should we update the threshold
to $10 million to link it to section 12(g) or alternatively to $15
million to adjust for inflation? Should we otherwise implement an
ongoing inflation adjustment? If so, how?
F. Other Amendments
As part of our ongoing efforts to update and simplify reporting and
disclosure requirements, we are proposing revisions to remove outdated
requirements or phase-in periods that are no longer applicable,
eliminate certain requirements that overlap with U.S. GAAP, and make
additional technical amendments.\269\ In addition, when adopting
reporting requirements, the Commission has at times provided for phase-
ins or other transitions in its rules and adopted some rules to
implement statutory mandates that are no longer applicable to current
registrants. We are proposing to remove the following provisions that
we believe are no longer necessary or generally applicable:
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\269\ Throughout this release, where we are amending rules and
forms we have additionally taken the opportunity to simplify and
clarify language, such as by proposing non-substantive revisions to
use more active voice and direct language, including by replacing
the use of the word ``shall'' with the word ``must'' where
appropriate.
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17 CFR 240.10A-3(a)(5)--The implementation provision for
the rules
[[Page 30125]]
regarding listing standards relating to audit committees required
compliance by July 31, 2005 at the latest and appears to be no longer
necessary.\270\
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\270\ See Standards Relating to Listed Company Audit Committees,
Release No. 33-8220 (Apr. 9, 2003) [68 FR 18788 (Apr. 16, 2003)].
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17 CFR 240.14a-20--This rule was adopted to implement
section 111(e) of the Emergency Economic Stabilization Act of 2008
(``EESA'') (12 U.S.C. 5221(e)).\271\ The EESA established that
companies that received financial assistance under the Troubled Asset
Relief Program must provide a shareholder advisory vote to approve the
compensation of executive officers during the period that any
obligation arising from that assistance remains outstanding. We believe
that registrants no longer have these obligations outstanding making
the rule unnecessary.
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\271\ See Shareholder Approval of Executive Compensation of TARP
Recipients, Release No. 34-61335 (Jan. 12, 2010) [75 FR 2789 (Jan.
19, 2010)].
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17 CFR 232.405(f)--This rule provision provided phase-in
periods for Inline XBRL submissions through September 17, 2021.\272\
Since the phase-in periods were completed in 2021, the rule provision
is no longer necessary.
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\272\ Inline XBRL Filing of Tagged Data, Release No. 33-10514
(June 28, 2018) [83 FR 40846 (Aug. 16, 2018)].
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17 CFR 210.4-08(h)--This rule provision requires
disclosure of the components of income (loss) before income tax expense
(benefit) and income taxes as either domestic or foreign as well as
disclosure of a reconciliation of reported income taxes to an amount
computed by multiplying income before tax by the applicable federal tax
rate. Because required income tax-related disclosures are addressed in
ASU 2023-09, Improvements to Income Tax Disclosures, we propose removal
of this requirement.
In addition, we propose to eliminate certain requirements the
Commission identified in the 2016 Disclosure Update and Simplification
proposing release as overlapping with, but requiring information
incremental to, U.S. GAAP.\273\ In the subsequent adopting release, the
Commission determined to defer eliminating the overlapping
requirements, and instead referred them to FASB for incorporation into
U.S. GAAP through its standard setting process.\274\ These requirements
were adopted by the FASB in 2023.\275\ We believe the requirements can
therefore now be eliminated from our rules. Specifically, we propose to
eliminate the following:
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\273\ Disclosure Update and Simplification, Release No. 33-10110
(July 13, 2016) [81 FR 51608 (Aug. 4, 2016)].
\274\ Disclosure Update and Simplification, Release No. 33-10532
(Aug. 17, 2018) [83 FR 50148 (Oct. 4, 2018)].
\275\ ASU 2023-06, Codification Amendments in Response to the
SEC's Disclosure Update and Simplification Initiative (Oct. 2023).
We note the ASU specifies: ``the effective date [for SEC filers] for
each amendment will be the date on which the SEC's removal of that
related disclosure from Regulation S-X or Regulation S-K becomes
effective'' and ``if by June 30, 2027, the SEC has not removed the
applicable requirement from Regulation S-X or Regulation S-K, the
pending content of the related amendment will be removed from the
Codification and will not become effective for any entity.''
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17 CFR 210.3-15(c)--This rule provision requires a real
estate investment trust to disclose the tax status of distributions per
unit.17 CFR 210.4-08(b)--This rule provision requires disclosure of
amounts of assets mortgaged, pledged, or otherwise subject to lien, and
identification of obligations collateralized.
17 CFR 210.4-08(d)--This rule provision requires entities
that issue preferred stock to disclose preferences on involuntary
liquidation, if other than par or stated value. We propose also to
eliminate the reference to this provision in 17 CFR 210.5-02.27(c).
17 CFR 210.4-08(m)--This rule provision requires
disclosure of certain amounts associated with repurchase agreements and
reverse repurchase agreements in specified circumstances.
17 CFR 210.4-08(n)--This rule provision requires
disclosure of an entity's accounting policy for the cash flow
presentation of certain derivative instruments.
17 CFR 210.5-02--This rule provision, at paragraphs 19 and
22, requires disclosure of the amounts and terms of unused lines of
credit for short-term and long-term financing, including the weighted-
average interest rate on short-term borrowings.
17 CFR 210.10-01(b)(2)--This rule provision requires, in
interim financial statements, that the basis of the diluted earnings
per share computation be stated together with the number of shares used
in the computation.
17 CFR 210.10-01(b)(7)--This rule provision requires, in
interim financial statements, disclosure of any material retroactive
prior period adjustment related to changes in reporting entities and
the effect of the adjustment on net income and retained earnings. We
propose also to remove the last sentence of current 17 CFR 210.8-
03(b)(5), as that sentence relates to the same requirement.
17 CFR 229.302(b)--This rule provision requires disclosure
of supplemental oil and gas information.
Further, we propose two other technical amendments:
17 CFR 210.5-02.20--This rule provision requires
disclosure of the current portion of deferred taxes. Because ASU 2015-
17, Balance Sheet Classification of Deferred Taxes (November 2015),
changed the classification of deferred taxes to noncurrent only, we
propose to remove the reference to the current portion of deferred
taxes.
17 CFR 229.914(c)(2)--This rule provision requires
disclosure of the ratio of earnings to fixed charges. Similar required
disclosure was eliminated by the Commission elsewhere in our rules in
2018,\276\ and should be removed here as well.
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\276\ Disclosure Update and Simplification, Release No. 33-10532
(Aug. 17, 2018) [83 FR 50148 (Oct. 4, 2018)].
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Request for Comment
(40) Should we eliminate the rule provisions, and make the other
technical amendments, identified above? Why or why not? Should we
consider eliminating any other rule provisions or making any other
technical amendments?
III. Other Matters
This proposing release is an economically significant regulatory
action under section 3(f)(1) of Executive Order 12866 and has been
reviewed by the Office of Management and Budget. This action, if
finalized as proposed, is expected to be an Executive Order 14192
deregulatory action.
IV. Economic Analysis
We are mindful of the economic effects that may result from the
proposed rules, including the benefits, costs, and the effects on
efficiency, competition and capital formation.\277\ This section
analyzes the expected economic effects of the proposed amendments
relative to the current baseline, which consists of the regulatory
framework of disclosure requirements in existence today, the current
disclosure practices of registrants, and the use of such
[[Page 30126]]
disclosures by investors and other market participants.
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\277\ Section 2(b) of the Securities Act, 15 U.S.C. 77b(b), and
section 3(f) of the Exchange Act, 17 U.S.C. 78c(f), require 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. Further, section 23(a)(2) of the
Exchange Act, 17 U.S.C. 78w(a)(2), requires the Commission, when
making rules under the Exchange Act, to consider the impact those
rules would have on competition, and prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the Exchange Act.
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The Commission has long sought to optimize the application of
public disclosure requirements so that those requirements are
appropriately calibrated to reduce the costs of disclosure for
different categories of issuers. Over time, the Commission and Congress
have adopted various ``filer statuses'' to establish tiers of
registrants and offer to certain tiers various accommodations, which
bear on the timing and content of registrants' periodic reporting. The
filer status framework that has developed is layered and complex, with
multiple thresholds for the determination of a registrant's tier and
levels of disclosure and other differentiated requirements.
Additionally, since the adoption of the LAF filer status in 2005, the
$700 million public float threshold for this status has not been
amended. Since 2005, the share of registrants meeting this threshold
has grown from 18 percent to 35 percent, and registrants classified as
LAFs now represent 99 percent of total market public float, up from 95
percent in 2005, which subjects a broader set of registrants to the
requirements originally intended for the largest market
participants.\278\ Another 13 percent of all registrants are currently
classified as AFs.\279\ Registrants classified as LAFs or AFs incur
higher public reporting and disclosure costs due to tier-specific
requirements, such as the ICFR auditor attestation requirement, which
is disproportionately costly for smaller companies. Data show that the
number of Exchange Act reporting companies filing on domestic forms
fell from 6,996 in 2004 to 5,976 in 2024.\280\
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\278\ See section II.A.1.
\279\ Id.
\280\ See supra note 28.
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The proposed amendments would streamline the filer status
categories and align disclosure and other reporting requirements and
deadlines with registrants' market capitalization. The proposed
amendments would raise the public float threshold for LAF status to $2
billion, which would capture the largest approximately 20 percent of
registrants, which represent approximately 93.5 percent of total market
public float.\281\ Under the proposed amendments, all issuers that do
not qualify as LAFs would be classified as NAFs. These latter
registrants, who collectively represent about 6.5 percent of total
market public float, would be afforded the proposed scaled disclosure
requirements and other accommodations, which are comparable to current
SRC and EGC disclosure standards. The proposed amendments are expected
to reduce required disclosure and reporting costs for the affected
registrants, principally for those currently classified as LAFs or AFs
that would qualify as NAFs under the proposal. Further, the proposed
amendments would create a subcategory of the smallest NAFs, termed
SNFs, and extend the deadlines for them to file their periodic reports.
The objective of the proposed amendments includes streamlining the
filer categories and reducing compliance burdens for registrants, which
could encourage them to continue as public companies providing audited
financial information and other disclosures to their investors and
potentially incentivize other companies to enter the public markets.
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\281\ See section II.A.1.
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We consider below the potential benefits and costs of the proposed
rules and their likely effects on efficiency, competition, and capital
formation. Many of the benefits and costs are difficult to quantify or
estimate with any degree of certainty. These difficulties are
exacerbated by the limited public data that would inform predictions
about how market participants may respond to the proposed rules.\282\
Where we are unable to quantify the economic effects of the proposal,
we provide a qualitative assessment of the potential effects and
encourage commenters to provide data and information that would help
quantify the benefits and costs of the proposed rules, and the
potential impacts of the proposed rules on efficiency, competition, and
capital formation.
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\282\ See section IV.A. for a discussion of available data.
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A. Baseline and Affected Parties
The baseline against which the costs, benefits, and the effects on
efficiency, competition, and capital formation of the proposed rule
amendments are measured consists of the current state of the markets,
the current regulatory framework with respect to registrant reporting
obligations, and registrant characteristics.\283\
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\283\ See, e.g., Nasdaq Stock Mkt., LLC v. SEC, 34 F.4th 1105,
1111-14 (D.C. Cir. 2022). This approach also follows SEC staff
guidance on economic analysis for rulemaking. See SEC Staff, Current
Guidance on Economic Analysis in SEC Rulemaking (Mar. 16, 2012),
https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``The economic
consequences of proposed rules (potential costs and benefits
including effects on efficiency, competition, and capital formation)
should be measured against a baseline, which is the best assessment
of how the world would look in the absence of the proposed
action.''); id. at 7 (``The baseline includes both the economic
attributes of the relevant market and the existing regulatory
structure.'').
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1. Regulatory Baseline
Our baseline includes existing statutes and Commission rules that
govern the responsibilities of registrants with respect to financial
reporting, as well as PCAOB auditing standards.
a. Filer Statuses
Every registrant that has an Exchange Act reporting obligation must
file reports, including annual and quarterly reports, with the
Commission.\284\ As discussed in section I above, registrants with
these reporting obligations are currently classified into one or more
filer statuses, including AFs, LAFs, SRCs, and EGCs.\285\ Registrants'
disclosure requirements, including requirements as to the timing and
content of periodic reports, vary according to their filer status, as
discussed in more detail below.
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\284\ See supra note 13; see also section I for an overview of
Exchange Act registration and reporting provisions.
\285\ See section I for a more detailed discussion of the
various filer statuses and the current requirements to qualify for
each filer status.
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b. Reporting Requirements; Scaled Disclosures and Other Accommodations
LAFs, AFs, and NAFs must file periodic (quarterly and annual)
reports.\286\ AFs and LAFs are subject to accelerated filing deadlines
for their periodic reports, relative to NAFs. These current deadlines
are summarized in EA Table 1 below. All registrants are permitted to
file Form 112b-25 (Notification of Late Filing) (``Form NT'') to avail
themselves of an additional 15 calendar days to file an annual report,
or an additional five calendar days to file a quarterly report, and
still have their report deemed to have been timely filed.\287\
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\286\ See 17 CFR 240.13a-1; 17 CFR 240.13a-13; 17 CFR 240.15d-1;
17 CFR 240.15d-13.
\287\ 17 CFR 240.112b-25.
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[[Page 30127]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.019
SRCs and EGCs currently may avail themselves of certain scaled
disclosure and other accommodations.\288\ SRCs are permitted to, among
other things: (i) prepare financial statements in accordance either
with Regulation S-X provisions for larger filers or Article 8 of
Regulation S-X (scaled financial disclosure); (ii) provide two (instead
of three) years of audited financial statements in their registration
statements and annual reports; (iii) not provide the supplementary
financial information required by Item 302 of Regulation S-K; and (iv)
provide scaled executive compensation and other Regulation S-K
disclosures.\289\ EGCs are, among other things: (i) permitted to
provide two years of audited financial statements in their initial
equity public offering registration statement; (ii) permitted to
provide scaled executive compensation disclosures and other Regulation
S-K disclosures on the same basis as SRCs; and (iii) exempt from the
ICFR auditor attestation requirement.\290\ To the extent a registrant
qualifies for both statuses, it may avail itself of both the EGC and
SRC scaled disclosure accommodations.
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\288\ See section I.D. for a more detailed discussion of the
scaled disclosure requirements and other accommodations for SRCs and
EGCs.
\289\ Id.
\290\ 17 CFR 230.405.
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Section 404(a) of the Sarbanes-Oxley Act mandates Commission rules
requiring all registrants subject to Exchange Act reporting
requirements to include in their annual reports an internal control
report that states the responsibility of management for establishing
and maintaining ICFR and that contains an assessment of the
effectiveness of the registrant's ICFR as of the end of each fiscal
year.\291\ Section 404(b) of the Sarbanes-Oxley Act requires that each
registered public accounting firm that prepares or issues a
registrant's financial statement audit report (other than that of a
registrant that is an EGC) attest to, and report on, management's
assessment of the effectiveness of ICFR.\292\ Registrants that are not
LAFs or AFs are exempted from the ICFR auditor attestation requirement
under section 404(c) of the Sarbanes-Oxley Act.\293\
---------------------------------------------------------------------------
\291\ 15 U.S.C. 7262(a); see also section I.C. for a more
detailed discussion of ICFR requirements.
\292\ See 15 U.S.C. 7262(b).
\293\ Certain banks, even if they are NAFs, are required under
the Federal Deposit Insurance Corporation (``FDIC'') rules to have
their auditor attest to, and report on, management's assessment of
the effectiveness of the bank's ICFR. See FDIC regulations, at 12
CFR pt. 363.
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Audits of ICFR, and the associated ICFR auditor attestation
reports, are made in accordance with AS 2201.\294\ While the ICFR
auditor attestation requirement is intended to enhance the reliability
of management's assessment and conclusion regarding the effectiveness
of ICFR, the ICFR auditor attestation requirement is associated with
certain costs that may be significant, particularly to smaller
registrants.\295\
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\294\ See PCAOB AS 2201, An Audit of Internal Control Over
Financial Reporting That is Integrated with an Audit of Financial
Statements, https://pcaobus.org/oversight/standards/auditing-standards/details/AS2201.
\295\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs Are Higher for Larger Companies but More Burdensome
for Smaller Ones, at 2 (June 2025), https://www.gao.gov/assets/gao-25-107500.pdf.
---------------------------------------------------------------------------
c. Proposed Rules
Recently, the Commission proposed to amend the rules related to
periodic reporting under the Exchange Act to allow certain reporting
companies to meet their interim reporting obligations either by filing
quarterly reports or semiannual reports at the election of the
company.\296\ If adopted as proposed, a reporting company that elects
semiannual reporting would file one semiannual report and one annual
report for each fiscal year, filing its interim report on a new
semiannual form within 40 or 45 days (depending on filer status) after
the fiscal year's first semiannual period end.\297\ Registrants that
elect to report quarterly would continue to file quarterly and annual
reports, as under the current regime for reporting companies.\298\
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\296\ See Semiannual Proposing Release. In addition, the
Commission is concurrently proposing amendments that would increase
the population of issuers eligible to conduct offerings on Form S-3,
extend certain benefits currently reserved for ``well-known seasoned
issuers'' to a broader set of issuers, and modernize Form S-1 with
respect to the ability to incorporate information by reference into
that form, among other things. See the Registered Offering Reform
Proposal. We do not expect the amendments proposed in the Registered
Offering Reform Proposal to have a meaningful impact on the proposal
except to potentially provide companies with an additional incentive
to go or remain public (by making follow-on financing in public
markets less costly and more flexible for public companies).
\297\ Id.
\298\ Id.
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2. Affected Parties
The parties that are likely to be affected by the proposed
amendments include registrants subject to reporting obligations under
section 13(a) or 15(d) of the Exchange Act,\299\ which include both
domestic registrants and FPIs that file on domestic forms, as well as
investors and other market participants that use information in these
registrants' filings (e.g., financial analysts, investment advisers,
lenders, and asset managers). We also note that, because registrants'
equity securities are owned by investors, any effects on registrants as
a result of the proposed amendments will ultimately accrue to
investors. The proposed amendments could also have secondary effects on
other parties, such
[[Page 30128]]
as FPIs that file on FPI forms \300\ and audit firms.\301\
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\299\ See section I for a discussion of the existing Exchange
Act reporting obligations.
\300\ See infra note 456 and accompanying text.
\301\ See section IV.B.8.c.
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We estimate that 5,976 registrants filed on domestic forms during
calendar year 2024.\302\ Each of these registrants falls into one of
the filing status categories listed in EA Table 2 below under current
rules.\303\ The registrants in the listed categories in EA Table 2
would be affected differently by the proposed amendments, and we
discuss these effects in detail below in section IV.B. Around half of
the registrants that currently have LAF filer status would not be
affected by the proposal and would remain LAFs under the proposed
amendments. The proposed amendments would affect, to varying degrees,
the disclosure requirements and other accommodations and in some cases
reporting timelines for all other registrants.
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\302\ This number of registrants is estimated as the number of
unique registrants, identified by CIK, that filed a Form 10-K, or an
amendment thereto during calendar year 2024. This estimate excludes
registrants that have not filed a Form 10-K and FPIs filing on Forms
20-F and 40-F. The estimate also excludes asset-backed issuers
because the disclosure and other accommodations addressed in the
proposed amendments do not apply to these issuers. Of the
registrants used in our analysis, we identify 133 as BDCs and 1 as a
face-amount certificate company.
\303\ The counts in EA Table 2 are based on registrants' self-
reported AF, SRC, and EGC status on the cover pages of their CY 2024
annual filings. This data excludes asset-backed issuers and FPIs not
filing on domestic forms. See supra note 302. This table excludes
five registrants for which AF, SRC, or EGC status is missing from CY
2024 annual filings. The total resulting population of registrants
in this table is 5,971. Of these 5,971 unique registrants, we
identify 244 registrants as co-filers on 100 unique Forms 10-K. In
the case of co-filers, we classify each unique CIK by their
individual self-reported status, but recognize that in practice, co-
registrants' reporting behavior may primarily be a function of the
lead filer's reporting status. In our data, there are 24 registrants
that self-report as being both LAF and SRC, which can occur when
registrants just met the thresholds for LAF status in the second
quarter of their current fiscal year but are eligible to continue to
report as SRCs until their next fiscal year. These are counted as
LAFs in the table.
[GRAPHIC] [TIFF OMITTED] TP21MY26.020
3. Registrant Characteristics
a. Public Float
Per EA Table 2, there were approximately 2,115 LAFs in total in
2024. Figure 1 presents the distribution of public float across these
LAFs, as well as for the subset of these LAFs that would be
``seasoned'' LAFs under the proposed rules, those that have been
subject to financial reporting under section 13(a) or 15(d) of the
Exchange Act for a period of 60 consecutive months or longer.\304\
Because LAFs' reported public float values span an extensive range,
with some reporting public float values in the trillions of dollars, we
limit the range of public float values for purposes of displaying them
in this figure at $25 billion. We gather public float data from the
front page of registrants' Form 10-K filings, which is reported as of
the last day of their second fiscal quarter under the current
rules.\305\ The overall distribution of LAFs' reported public float
values is skewed, with a median of approximately $3.4 billion and a
mean of $21.2 billion. ``Seasoned'' LAFs tend to report larger public
float values, with a median of approximately $4.0 billion and a mean of
$23.7 billion.
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\304\ We are missing public float data for 16 registrants, of
which one is an LAF, because these registrants did not report public
float information in their CY 2024 Form 10-K filing. We additionally
exclude from this figure 15 LAF registrants that reported having a
public float that is lower than $560 million, which is the
regulatory lower-bound cutoff for LAF status. The majority of these
cases represent instances of co-filers adopting the lead filers'
reporting designation on the same filing despite not having
independent public float that would meet the LAF threshold. The
remaining cases could represent public float reporting errors. We
estimate that approximately 280 current LAF registrants (13.2% of
all LAF registrants) have not been subject to financial reporting
under section 13(a) or 15(d) of the Exchange Act for a period of 60
months or longer.
\305\ Not shown in Figure 1 are 307 LAF registrants (14.6% of
all LAFs with public float data) that reported public float values
equal to or above $25 billion. Similarly, we estimate that 295
``seasoned'' LAF registrants (16.2% of all ``seasoned'' LAFs with
public float data) reported public float values equal to or above
$25 billion.
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[[Page 30129]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.021
We also find that registrants' reported public float values are
fairly persistent over time. Figure 2 plots each individual LAF's
reported public float from its Form 10-K filings in calendar year 2024
(y-axis) against its reported public float from its Form 10-K filings
in the immediately preceding fiscal year (x-axis).\306\ As demonstrated
by the proximity of the observations to the 45-degree line in the
figure, registrants' reported public float values in calendar year 2024
are significantly positively correlated with reported public float
values from the prior year.\307\ To the extent that reported public
float values for an individual LAF vary across years, we observe that
more observations lie above the 45-degree line, signifying that LAFs'
reported public float values were more likely to grow over the sample
period than shrink (broadly consistent with the aggregate market trends
during that period). For example, we estimate that public float grew
from the prior year for 1,264 observations (70 percent of all
observations in Figure 2) and grew 20 percent or more for 801
observations (44 percent of all observations in this figure).
---------------------------------------------------------------------------
\306\ Figure 2 plots public float value observations for 1,806
LAFs. Of the 2,115 self-reported LAFs in CY 2024, seven did not have
a Form 10-K filing for the preceding fiscal year and five did not
report public float values in their preceding fiscal years' filing.
We additionally exclude from this figure the same observations
excluded from Figure 1. See supra note 304. Lastly, we exclude 281
observations, in which reported public float value in the prior year
exceeded $25 billion but note that reported public float values for
these registrants demonstrate similar patterns as the ones described
above.
\307\ We estimate that the correlation of LAFs' reported public
float values to those in the prior year plotted in Figure 2 is 0.89.
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[[Page 30130]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.022
b. Assets
EA Table 3 presents summary statistics on the distribution of
assets across registrants with Form 10-K filings in calendar year
2024.\308\ Registrants' assets are significantly varied and skewed by
registrants with very high reported total assets, with median reported
total assets of approximately $597 million but mean total assets of
approximately $12.7 billion. Some registrants (less than one percent)
reported zero total assets in their last fiscal year, while more than
22 percent of registrants reported total assets of greater than $5
billion. We interpret the estimates in the lower panel of EA Table 3 as
lower bounds for the percentages of registrants that have total assets
below each threshold as we do not have total data for all
registrants.\309\
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\308\ For each registrant with Form 10-K filings in CY 2024, we
collect data on total assets for the preceding fiscal year. Assets
data primarily comes from Calcbench. In cases where assets data is
missing in Calcbench, we supplement assets data with data from
Compustat, LSEG/Refinitiv, Audit Analytics and Capital IQ in
instances where the assets values agree across at least two of these
datasets. In the resulting data in EA Table 3, assets data is
missing for 119 registrants (2% of all registrants).
\309\ Id.
[GRAPHIC] [TIFF OMITTED] TP21MY26.023
[[Page 30131]]
We also find that registrants' reported total assets tend to
persist over time, but this persistence varies noticeably by registrant
size (as measured by their reported total assets). Smaller registrants'
assets from the fiscal year preceding the year referenced in calendar
year 2024 filings are only slightly correlated to their assets from the
year that is two fiscal years prior, while the correlation is much
higher for those registrants reporting higher values of total
assets.\310\
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\310\ In the resulting data used for this analysis, assets data
is missing for either last fiscal year or two fiscal years prior for
249 registrants (4.2% of all registrants), so we estimate the
correlations based on assets data from the remaining 5,727
registrants. We estimate that the correlation between last year's
total assets and the total assets from the year prior for
registrants reporting total assets of $5 million or less is only
0.19. The correlation between last year's total assets and the total
assets from the year prior for registrants reporting between $5
million and $100 million in total assets is 0.46, and the
correlation for registrants reporting more than $100 million in
total assets is 0.93.
---------------------------------------------------------------------------
c. Timing of Filings
As discussed above, currently NAFs, AFs, and LAFs are subject to
different filing deadlines for their periodic reports. In EA Table 4,
we present the timing in calendar year 2024 of filings of annual
reports on Form 10-K and quarterly reports on Form 10-Q by current
NAFs, AFs, and LAFs relative to their corresponding deadlines.\311\ EA
Table 4 shows that AFs and LAFs file their annual reports, on average,
six or seven days before the applicable deadline. Seven percent and two
percent, respectively, of AFs and LAFs submit their annual reports
after the initial deadline, with approximately one quarter of these
late-filing registrants equaling or surpassing the 15-day grace period
for an annual report on Form 10-K that is obtained by filing Form NT.
NAFs are significantly less likely to meet their initial deadline or
extended deadline, with 26 percent of NAFs filing after their initial
deadline and 11 percent of NAFs filing after the 15-day grace period
for an annual report on Form 10-K obtained by filing Form NT (over 40
percent of late-filing NAFs). The timing of quarterly report filings
displays patterns across filer status that are similar to those
described for annual report filings above.
---------------------------------------------------------------------------
\311\ We exclude registrants that are co-registrants from this
analysis because co-registrants' accelerated filing status could
differ. See supra note 303 for identification of co-registrants and
filer status. We collect filing timing data for quarterly reports
for the fiscal year immediately following the fiscal year of each
registrant's Form 10-K filing to ensure that the filing status that
each registrant reports in its Form 10-K continues to apply to the
quarterly filings used in this analysis. Given the effect of
weekends and holidays, we consider filings to be on time if within
two calendar days after the original deadline. We similarly adjust
the ``5 days early'', ``over 15 days late'' (for annual filings) and
``over 5 days late'' (for quarterly filings) categories to account
for the possible effect of weekends and holidays.
[GRAPHIC] [TIFF OMITTED] TP21MY26.024
[[Page 30132]]
d. Internal Controls and Restatements
We next consider the current rates of ineffective ICFR and
restatements across registrants of varying filing statuses, as
classified under current rules. As discussed in section IV.A.1.b, NAFs
and EGCs are statutorily exempted from the ICFR auditor attestation
requirement. EA Table 5 presents the percentage of registrants
reporting ineffective ICFR in recent years by filer type.\312\ Based on
management's assessment of ICFR under section 404(a) of the Sarbanes-
Oxley Act from recent years, LAFs were least likely to report at least
one material weakness in ICFR in a given fiscal year (approximately
five percent, on average), followed by AFs (approximately 16 percent,
on average) and NAFs (approximately 42 percent, on average). It is
important to note that a material weakness that is identified and
remediated within the same period may not be reported in management's
year-end assessment of ICFR under section 404(a) of the Sarbanes-Oxley
Act.\313\ The ineffective ICFR percentages for LAFs and AFs in Table 5,
compiled from filings, therefore may underestimate the likelihoods of
having had at least one material weakness prior to or absent ICFR
auditor attestation. For registrants subject to the ICFR auditor
attestation requirement, the rates of ineffective ICFR reported by
management and by auditors are nearly identical.\314\ This may not be
surprising, as management and the audit committee will be made aware of
any material weaknesses discovered by the auditor and vice versa.\315\
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\312\ The estimates in this table are based on staff analysis of
Audit Analytics data. ICFR effectiveness is based on the last
amended management or auditor attestation report for the fiscal
year. Percentages are computed out of all registrants of a given
filer type with the specified type of report available in the Audit
Analytics database.
\313\ The requirement that an auditor assess management's
assessment of ICFR may also incentivize management to strengthen
ICFR even without the auditor identifying any weaknesses.
\314\ We noted only two instances of disagreement between
management's and the auditor's assessments of ICFR across all
registrants and years where both assessments of ICFR were available
in the database.
\315\ PCAOB Auditing Standard 2201.91 requires an auditor to
make certain disclosures in the auditor's report and notify the
audit committee in writing if the auditor has identified a material
weakness that has not been included in management's ICFR assessment.
PCAOB AS 2201, An Audit of Internal Control Over Financial Reporting
that is Integrated with an Audit of Financial Statements, para. 91,
https://pcaobus.org/oversight/standards/auditing-standards/details/AS2201.
[GRAPHIC] [TIFF OMITTED] TP21MY26.025
We next consider the persistence of material weaknesses in ICFR
across these registrant categories as classified under current rules.
EA Table 6 presents the percentage of registrants that reported two,
three, or four consecutive years of ineffective ICFR culminating in
2024, by filer type.\316\ Compared to NAFs, we find that a smaller
percentage of AFs and LAFs report material weaknesses that persist for
multiple years, with about four percent of AFs and about 0.4 percent of
LAFs reporting ineffective ICFR for four consecutive years,
representing about 30 percent of the AFs and about 11 percent of the
LAFs that reported ineffective ICFR in 2024. A larger percentage of
NAFs persistently report material weaknesses, with about 25 percent of
these registrants, or more than two-thirds of those reporting
ineffective ICFR in 2024, having reported material weaknesses for four
consecutive years.
---------------------------------------------------------------------------
\316\ The estimates in this table are based on staff analysis of
Audit Analytics data. ICFR effectiveness is based on the last
amended management report for the fiscal year. Percentages in the
first panel are computed out of all issuers of a given filer type in
2024 with Sarbanes-Oxley Act section 404(a) management reports
available in Audit Analytics for the number of years corresponding
to each row, while percentages in the second panel are computed out
of issuers of a given filer type reporting ineffective ICFR in their
Sarbanes-Oxley Act section 404(a) management report for 2024 who did
not have missing ICFR effectiveness data for any of the years
corresponding to each row.
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[[Page 30133]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.026
EA Table 7 presents the percentage of registrants that made at
least one ``Big R'' \317\ restatement (among NAFs, AFs, and LAFs,
excluding EGCs, and for EGCs separately) in each case as classified
under the current rules.\318\ For each year, we consider the percentage
of registrants that eventually restated the financial statements for a
Big R restatement for that fiscal year. The reporting lag before
restatements are filed results in a lower observed rate in the later
years of our sample, particularly for 2023 (and even more so for 2024,
which we do not report for this reason), as registrants may not yet
have restated their results from recent years. We find that EGCs, which
are not subject to the ICFR auditor attestation requirement and
generally are also younger registrants than those in the other filer
categories, restate their financial statements for a Big R restatement
at higher rates than other registrants.\319\ For NAFs, which also are
not subject to the ICFR auditor attestation requirement, we find that
the percentage of registrants reporting Big R restatements is only
slightly higher than that for AFs, which are subject to the ICFR
auditor attestation requirement. We note that there is a greater
proportion of low- or zero-revenue issuers in the NAF category, and
these types of issuers have been found to have lower rates of Big R
restatements than other issuers.\320\
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\317\ Big R restatements are restatements that correct errors
that are material to previously issued financial statements.
\318\ The estimates in this table are based on staff analysis of
Audit Analytics data. Percentages are computed out of all issuers of
a given filer type with a Sarbanes-Oxley Act section 404(a)
management report available in the Audit Analytics database.
Accelerated and non-accelerated categories exclude EGCs that are in
these filer categories.
\319\ The higher incidence of EGC restatements in 2021 coincided
with a statement issued by Commission staff addressing a technical
accounting issue for Special Purpose Acquisition Companies. See
Audit Analytics, 2021 Financial Restatements, a Twenty -One-Year
Review (May 2022), https://www.auditanalytics.com/doc/2021_Financial_Restatements_A_Twenty-One-Year_Review.pdf; U.S.
Securities and Exchange Commission, John Coates, Acting Director,
Division of Corporation Finance, Paul Munter, Acting Chief
Accountant, Staff Statement on Accounting and Reporting
Considerations for Warrants Issued by Special Purpose Acquisition
Companies (``SPACs'') (Apr. 12, 2021), https://www.sec.gov/newsroom/speeches-statements/accounting-reporting-warrants-issued-spacs.
\320\ See supra note 35, 2019 Accelerated Filer Release, Table
14. See also Craig Lewis & Joshua White, Deregulating Innovation
Capital: The Effects of the JOBS Act on Biotech Startups, 12 Rev.
Corp. Fin. Stud. 240 (2023) (``Lewis & White (2023)''), who find
biotech EGCs have lower instances of restatements than pre-JOBS Act
issuers that had to have an attestation. They attribute this to
biotech EGCs' ``absence of product revenue'' and ``relatively simple
nature of their accounting systems.''
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[[Page 30134]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.027
e. Regulatory Burden
Multiple commenters and studies speak to the burden of compliance
costs.\321\ Some studies cite the regulatory burden of SEC reporting
and the requirements imposed by the Sarbanes-Oxley Act as a deterrent
to going public.\322\ Some academic research has found significant and
meaningful increases in auditing costs and lower stock returns for
small registrants required to obtain an ICFR auditor attestation,
relative to similarly sized registrants exempt from this
requirement.\323\ Some studies have argued that, to the extent that
public company disclosure requirements can result in competitors
obtaining key information about the company (a ``proprietary cost'' of
disclosure), information-driven companies may increasingly decide not
to seek funding through public markets.\324\
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\321\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar.
26, 2020)]; see also IPO Task Force, Rebuilding the IPO On-Ramp:
Putting Emerging Companies and the Job Market Back on the Road to
Growth (Oct. 20, 2011), https://www.sec.gov/info/smallbus/acsec/rebuilding_the_ipo_on-ramp.pdf; Committee on Capital Markets
Regulation, U.S. Public Markets are Stagnating (Apr. 2017), https://capmktsreg.org/wp-content/uploads/2022/11/U.S.-Public-Equity-Markets-are-Stagnating-1.pdf; Adena Friedman, Nasdaq Inc., The
Promise of Market Reform: Reigniting America's Economic Engine (May
18, 2017), https://corpgov.law.harvard.edu/2017/05/18/the-promise-of-market-reform-reigniting-americas-economic-engine/. However,
companies considering going public may face other costs as well,
such as significant financing costs, in addition to compliance
costs. See, e.g., Kathleen W. Hanley, The Economics of Primary
Markets, SSRN Electronic Journal (2017); Alexander Ljungqvist, IPO
Underpricing, 1 Handbook of Empirical Corp. Fin. 375 (2007).
\322\ See, e.g., Francesco Bova, Miguel Minutti-Meza, Gordon
Richardson & Dushyantkumar Vyas, The Sarbanes-Oxley Act and Exit
Strategies of Private Firms, 31 Cont. Acct. Rsch. 818 (2014)
(finding that ``SOX appears to have shifted the preferences of
private firms from going public to exiting the private market via
acquisition by a public acquirer''); Ellen Engel, Rachel M. Hayes &
Xue Wang, The Sarbanes-Oxley Act and firms' going-private decisions,
44 J. Acct. Econ. 116 (2007) (finding that ``the quarterly frequency
of going-private transactions has increased after the passage of
SOX''); Andr[aacute]s Marosi & Nadia Massoud, Why Do Firms Go Dark?,
42 J. Fin. Quant. Analysis 421 (2007) (finding that various factors
predict firms `going dark' and adding that ``the cost of regulatory
compliance is a driving force behind the going dark phenomenon'');
Christian Leuz & Alexander Triantis, Why Do Firms Go Dark? Causes
and Economic Consequences of Voluntary SEC Deregistrations, 45 J.
Acct. Econ. 181 (2008) (``document[ing] a spike in going dark that
is largely attributable to the Sarbanes-Oxley Act. Firms experience
large negative abnormal returns when going dark. We find that many
firms go dark due to poor future prospects, distress and increased
compliance costs after SOX''); Gabrielle Lattanzio, William L.
Megginson & Ali Sanati, Dissecting the Listings Gap: Mergers,
Private Equity, or Regulation?, 65 J. Fin. Markets 100836 (2023)
(finding ``that the high level of M&A activity characterizing the
U.S. economy and the regulatory changes during the early 2000s have
played major roles in causing the decline in the number of public
firms'').
\323\ See Peter Iliev, The Effect of SOX Section 404: Costs,
Earnings Quality, and Stock Prices, 65 J. Fin. 1163 (2010).
\324\ See, e.g., Kathleen Kahle & Rene Stulz, Is the US Public
Corporation in Trouble?, 31 J. Econ. Perspectives 67 (2017), for a
discussion of the shift in corporate investment towards R&D and its
impact on the going-public decision; Dambra et al. (2015), supra
note 144. The authors found that the ``de-risking'' provisions of
the 2012 JOBS Act, which allowed confidential initial public
offering filing and the ability to test-the-waters with qualified
investors before a road show, reduced proprietary costs and led to
an increase in initial public offerings. As a caveat, the
accommodations afforded under Title I of the JOBS Act are already
available to the majority of new initial public offerings under the
baseline. See supra note 229. See also Cyrus Aghamolla & Richard T.
Thakor, Do Mandatory Disclosure Requirements for Private Firms
Increase the Propensity of Going Public?, 60 J. Acct. Rsch. 755
(2021). These authors found that following a legal reform requiring
firms to publicly disclose clinical trial information regardless of
public or private listing status, the affected private firms
increased their propensity to go public. Their conclusion was that
pre-reform, more robust required disclosure of proprietary
information accompanying public status was holding these firms back
from going public.
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Conversely, other studies conclude that regulatory burden is not a
significant driver of the going public decision \325\ and attribute the
declining number of public companies to other causes. One explanation
offered for this decline is that U.S. public companies have engaged in
more acquisitions since the passage of the Sarbanes-Oxley Act,
including of private companies.\326\ Consistent with this proposed
explanation, the increase in the average size of a listed company
paralleled the decline in the count of U.S. public companies.\327\ Some
other studies have cited growth in the availability of private capital
as displacing the role of an initial public offering.\328\ Other
[[Page 30135]]
studies point to changes in institutional investor preferences to favor
late-stage private companies over initial public offerings.\329\
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\325\ See, e.g., Michael Ewens, Kairon Xiao & Ting Xu
Regulatory, Costs of Being Public: Evidence from Bunching
Estimation, 153 J. Fin. Econ. 103775 (2024) (``Ewens et al.
(2024)'') (finding that ``[r]egulatory costs have a greater impact
on private firms' IPO decisions than on public firms' going private
decisions, but such costs only explain a small part of the decline
in the number of public firms.) However, there is some evidence of
the favorable effects of EGC accommodations provided under the JOBS
Act, on initial public offerings, see, e.g., Dambra et al. (2015),
supra note 144.
\326\ See, e.g., Xiaohui Gao, Jay R. Ritter & Zhongyan Zhu,
Where Have All the IPOs gone?, 48 J. Fin. Quant. Analysis 1663
(2013) (documenting an initial public offering decline and
attributing it primarily to a structural decline in small-firm
profitability, which increased the importance of economies of scale
and scope); Jay R. Ritter, Equilibrium in the Initial Public
Offerings Market, 3 Annual Rev. Fin. Econ. 347 (2011); Jay R.
Ritter, Re-energizing the IPO Market, 1 J. Applied Fin. 1(2014); B.
Espen Eckbo and Markus Lithell, Merger-Driven Listing Dynamics, 60
J. Fin. Quant. Analysis 209 (2025) (finding no evidence of a listing
gap when listed companies are viewed as a ``portfolio of itself and
the public and private target firms it has acquired over time.'')
But see Francesco Bova, Miguel Minutti-Meza, Gordon Richardson,
Dushyantkumar Vyas, The Sarbanes-Oxley Act and Exit Strategies of
Private Firms, 31 Cont. Acct. Rsch. 818 (2014) (finding that ``SOX
appears to have shifted the preferences of private firms from going
public to exiting the private market via acquisition by a public
acquirer,'' which suggests that regulation may have a role in
leading small companies to seek an acquisition instead of an initial
public offering).
\327\ See Craig Doidge, G. Andrew Karolyi & Rene M. Stulz, The
U.S. Listing Gap, 123 J. Fin. Econ 464 (2017) (noting that ``the
evolution in the number of listed firms is not accompanied by a
similar evolution in the capital in the U.S. stock market;'' and
noting that ``[l]isted firms become steadily larger after the
listing peak in 1996 across all size percentiles. In other words,
the entire size distribution for listed firms shifts to the
right'').
\328\ See, e.g., Michael Ewens & Joan Farre-Mensa, The
Deregulation of the Private Equity Markets and the Decline in IPOs,
33 Rev. Fin. Stud. 5463 (2020). In addition, the JOBS Act of 2012
has also expanded options for securities offerings exempt from
registration, and venture capital and private equity funds that
invest in pre-initial public offering companies also saw significant
growth in the last two decades. For a discussion of these trends,
see Michael Ewens & Joan Farre-Mensa, Private or Public Equity? The
Evolving Entrepreneurial Finance Landscape, 14 Annual Rev. Fin.
Econ. 271 (2022).
\329\ See Robert P. Bartlett III, Paul Rose & Steven D. Solomon,
The Small IPO and the Investing Preferences of Mutual Funds, 47 J.
Corp. Fin. 151 (2017) (finding that ``both heightened concerns about
small IPO illiquidity and about their return contribution have
deterred small IPO investing by the largest mutual funds since the
late 1990s''). See supra note 328 for a discussion of increased
funding to late-stage private firms.
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B. Economic Benefits and Costs
In this section, we discuss the potential economic effects of the
proposed amendments. As detailed in section II, the proposed amendments
would simplify the current filer status definitions by: (i) eliminating
the AF and SRC statuses and focusing the filer status framework on two
filer categories--LAF and NAF (any filer that does not qualify as an
LAF); (ii) raising the threshold for qualifying as an LAF (i.e.,
requiring the registrant to have public float of at least $2 billion
instead of the current $700 million and to have been a reporting
company for 60, instead of the current 12, consecutive months); and
(iii) providing an additional extension of periodic report filing
deadlines for a new subcategory of NAFs called SNFs. As a consequence
of the proposed amendments, an expanded subset of filers would be
afforded various disclosure and other regulatory relief accommodations
that currently are applicable to the more narrowly defined subset of
filers qualifying as SRCs, EGC, and/or filers that are NAFs. While EGC
status will remain as it is established by statute, functionally, the
proposed amendments will extend virtually all \330\ of the
accommodations currently exclusive to EGCs to all NAFs.
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\330\ But see supra note 104.
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The discussion below addresses the economic benefits and costs of
the proposed amendments. Much of the discussion in this section is
qualitative in nature because we lack data needed to estimate many of
the benefits and costs of the proposed amendments.\331\ We encourage
market participants to submit data that would help quantitatively
assess the benefits and costs of the proposed amendments.
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\331\ Some of the evidence cited is based on unpublished working
papers, due to the recent nature of the implementation of certain
disclosure requirements and in some instances a dearth of recent
published evidence. As a caveat, such evidence has not undergone
peer review and is subject to revision.
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1. General Economic Effects of the Proposed Amendments
The proposed amendments, when considered in their entirety, would
simplify the existing framework of filer status categories and scale
the scope of affected registrants' disclosure obligations under the
Exchange Act. The proposed amendments would raise the public float
threshold for LAFs from $700 million to $2 billion.\332\ The proposed
threshold would capture close to 20 percent of registrants based on
public float, which represent approximately 93.5 percent of total
market public float. The remaining approximately 80 percent of all
registrants which would not qualify for a filer status of LAF would be
classified as NAFs under the proposed amendments (about 28.8 percent of
all registrants that are not NAFs today but would be newly classified
as NAFs under the proposed amendments and about 51.9 percent of all
registrants that are NAFs today and that would remain NAFs). All NAFs
would be afforded the proposed scaled disclosure requirements and other
accommodations. The smallest registrants with NAF filer status (based
on total assets), SNFs, would also be granted extended deadlines to
file their periodic reports. In accordance with the proposed $35
million asset threshold for SNFs, 22.2 percent of registrants that
would be classified as NAFs (under the proposal) and 17.9 percent of
all registrants (i.e., all NAFs and LAFs under the proposed amendments)
would qualify for the filer status of SNF.
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\332\ When adopting the LAF filer status, the Commission
indicated that ``companies with a public float of $700 million or
more . . . are more closely followed by the markets and by
securities analysts than other issuers.'' And that, ``[b]ased on our
experience with the accelerated filing deadlines, we continue to
believe that larger issuers generally have sufficient financial
reporting resources and sufficiently robust infrastructures to
comply with the 60-day deadlines . . .'' See Accelerated Filer
Revisions Adopting Release at 76629-30.
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The proposed amendments would be expected to reduce public
disclosure and reporting compliance costs for affected registrants,
principally for those that are currently classified as LAFs or AFs but
would be NAFs under the proposal. Generally, lower compliance costs
reduce a registrant's operating expenses and improve its net income and
free cash flow. Increased internal cash flows may allow registrants to
redeploy freed up resources toward productive investment and growth
opportunities,\333\ thus improving capital allocation and enhancing
expected future cash flows. Higher sustained profitability increases
shareholder value, provided that the potential impact from regulatory
accommodations on transparency or investor protections does not offset
the lowered operating expenses. We estimate that the proposed
amendments would reduce compliance costs in net terms for all affected
registrants by approximately $1.9 billion on an annualized basis per
year over 10 years.\334\
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\333\ See, e.g., Lewis & White (2023), supra note 320. See also
Huasheng Gao & Jin Zhang, SOX Section 404 and Corporate Innovation,
54 J. Fin. Quant. Analysis 759 (2019) (finding that ``a significant
decrease in the number of patents and patent citations for firms
that are subject to section 404 compliance relative to firms that
are not.''); Michael Dambra & Matthew Gustafson, Do the Burdens to
Being Public Affect the Investment and Innovation of Newly Public
Firms?, 67 Mgmt. Sci. 594 (2021) (``Dambra & Gustafson (2021)'')
(finding that newly public firms afforded JOBS Act relief ``invest
more and more efficiently after going public,'' with the findings
``concentrated in innovative investments'' and concluding that ``the
burdens to being public exacerbate agency frictions, which lead
managers to take on fewer risky projects'').
\334\ See section IV.B.9 & EA Table 12. The annualized benefit
net of annualized cost is $1,874,460,225 ($1,874,534,145-$73,920).
This figure does not take into account any cost savings associated
with the impact of the proposed amendments on registrants that would
have to comply with rules adopted by the Commission in Mar. 2024
requiring registrants to provide certain climate-related information
in their registration statements and annual reports (the ``Climate
Rules''). Those rules were stayed by the Commission pending legal
challenge in the Eighth Circuit. See Sec. & Exch. Comm'n, Order
Issuing Stay, In the Matter of the Enhancement and Standardization
of Climate-Related Disclosures for Investors, Release No. 33-11280
(Apr. 4, 2024) (order staying the Climate Rules). Notably, only LAFs
and AFs would be required to provide disclosure of material
greenhouse gas emissions under the Climate Rules. See The
Enhancement and Standardization of Climate-Related Disclosures for
Investors, Release Nos. 33-11275; 34-99678 (Mar. 6, 2024) [89 FR
21668 (Mar. 28, 2024)]. If the Climate Rules were to go into effect,
existing LAFs and AFs that would be newly eligible for NAF status
under the proposed amendments would receive an additional benefit
because they would not be subject to the compliance costs they would
otherwise incur under the Climate Rules.
---------------------------------------------------------------------------
Under the proposed amendments, the information that registrants
newly classified as NAFs (about 28.8 percent of all registrants) would
be required to provide in their public disclosures would be reduced (as
discussed in section IV.B.3). Also, both newly eligible NAFs and
existing NAFs that currently do not qualify as SRCs and/or EGCs would
be afforded additional disclosure relief presently reserved for SRCs
and/or EGCs (as discussed in section IV.B.5) and registrants newly
classified as SNFs would have extended deadlines to file their periodic
reports
[[Page 30136]]
(as discussed in section IV.B.6). Generally, investors' costs to access
reliable information increase when that information is not included in
public disclosures because investors incur search costs to gather and
evaluate the information from other sources. Generally, a loss of
information from public disclosure can increase investors' costs to
access reliable information, or when information becomes inaccessible,
information asymmetries between registrants (and their managers) and
investors, as well as amongst investors, increase. This potentially
makes it more difficult and costly for investors to make informed
investment and voting decisions, resulting in potentially less
informative share prices. However, the registrants that would be
eligible for scaled disclosure and other accommodations represent only
around six percent of total market public float.
2. Amendments to LAF Definition
We estimate that the proposed amendments would result in 1,721
additional registrants (28.8 percent of all registrants) being newly
eligible to qualify as NAFs, for an estimated total of 4,825 NAFs (80.7
percent of all registrants) under the proposal.\335\ Of these 1,721
additional registrants, 964 registrants are currently reporting as LAFs
and 757 registrants are currently reporting as AFs.\336\ In addition,
of these 1,721 additional registrants, 16 are BDCs.\337\ We estimate
that the proposed amendments would result in 1,146 registrants (19.2
percent of all registrants) continuing to be LAFs,\338\ and that these
registrants would account for approximately 93.5 percent of the total
market public float reported by all registrants.\339\ In comparison,
the 2,115 registrants under the baseline in 2024 that meet the current
definition for LAF status accounted for approximately 98.8 percent of
the total market public float.
---------------------------------------------------------------------------
\335\ EA Table 2 counted 3,099 NAFs under the baseline (that all
would be NAFs under the proposed amendments). There is one
additional NAF currently that was excluded from the 3,099 because
its EGC status was not listed in the filing. The 1,721 newly
eligible NAFs and 3,099 current NAFs both exclude four registrants
who would be NAFs under the proposed amendments but whose filer
status is unknown today, and thus it cannot be determined whether
these four are most appropriately considered newly eligible NAFs or
current NAFs. The 3,099 current plus 1,721 newly eligible plus four
unknown today plus one with missing EGC status sum to the total of
4,825 NAFs. This total of 4,825 NAFs includes 91 that would be NAFs
co-filing with an LAF under the proposed amendments and excludes
five registrants that are LAFs under the baseline with indeterminate
filer status under the proposed amendments.
\336\ We note that there are 21 NAFs that are currently co-
filing with LAFs or AFs that will switch to NAF status under the
proposed amendments.
\337\ Based on calendar year 2024 filings, 127 of the 4,825
registrants that would be classified as NAFs under the amended
definition are BDCs and 1 of 4,825 registrants that would be
classified as NAFs under the amended definition is a face-amount
certificate company. BDC and face-amount certificate company status
is identified based on information as reported by registrants.
\338\ We determine LAF status under the proposed amendments
based on two years of data on registrants' public float reported on
their annual filings, as well as data on how long each registrant
has been an Exchange Act reporting company. See supra note 207. We
exclude from this estimate four registrants that currently file as
NAFs but also report public float values that would exceed the
threshold under the proposed amendments because these registrants'
equity securities are not publicly traded. These estimates do not
include five registrants with indeterminate status under the
baseline, but these five do not report public float sufficient to
meet the threshold to qualify as LAF under the proposed amendments.
The actual number of registrants that would be categorized as LAFs
under the proposed amendments may differ from the estimate above.
For example, our estimate relies on public float values from
registrants' last day of the second fiscal quarter which may differ
from values computed by taking the average of the last 10 trading
days in the same quarter. In addition, the actual number of
registrants that could be effectively subject to LAF reporting
requirements and deadlines may exceed our estimate due to the
following three reasons. First, we are unable to determine LAF
status of five registrants under the proposed amendments because
data on public float is missing from their annual filings. Second,
our estimate represents an initial number of LAFs at the onset of
the proposed amendments and only includes those registrants for
which both of the past two years of public float exceed the $2
billion threshold. However, in all future years, an LAF registrant
will continue to be an LAF even with one, but not two, years of
public float below the threshold, since a registrant would change
status only if public float crosses the threshold in two consecutive
years, leading to a greater number of LAFs that fall into that group
initially. Third, we estimate that 91 registrants (1.5% of all
registrants) that will be NAFs are currently co-filing with
registrants that will continue to be LAFs under the proposed
amendments and may therefore be implicitly subject to the
requirements and deadlines that accompany LAF status.
\339\ Note that total market public float is calculated by first
collecting this registrant-reported data item from various sources
and then manually cleaning where data was missing, disagreed among
sources, or was otherwise anomalous. The timing of registrants'
reported public float also varies as their fiscal year ends vary,
and thus the summation of these float values does not reflect total
public float at a precise point in time.
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As part of these estimates, we account for the proposed extension
of the seasoning period for LAFs from 12 months to 60 months.\340\ This
would result in fewer registrants being LAFs--and thus, in more
registrants qualifying for NAF status--under the proposed amendments
than if the seasoning period were to remain at 12 months. The proposed
amendments also would amend the timing and methodology of the
calculation of public float for purposes of determining a filer's
status.\341\ This may provide a more stable, public float calculation
window for registrants nearing the LAF threshold, particularly, in
periods of significant short-term stock volatility.
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\340\ Specifically, in estimating the number of LAFs and NAFs
that would meet the amended definitions under the proposal, we
classify as LAFs only those registrants that meet both the amended
$2 billion public float threshold and the amended (60-month)
seasoning requirement. Registrants that do not meet both of those
proposed requirements are classified as NAFs or indeterminate for
the five registrants for which public float data are incomplete.
\341\ The proposed amendments would condition the transition to
an LAF on having reached the public float threshold of $2 billion
calculated based on the average of the registrant's stock price over
10 trading days ending on the last day of the registrant's second
fiscal quarter, multiplied by the aggregate worldwide number of
shares of the issuer's voting and non-voting common equity held by
non-affiliates as of the last day of the issuer's second fiscal
quarter for each of the last two consecutive fiscal years, rather
than only considering public float on the last trading day of the
registrant's most recent second fiscal quarter.
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The estimates of the number of registrants that would be affected
by the proposed amendments to the definition of LAF filer status may
overstate the actual number of affected filers because of potential
``bunching,'' a term which refers to an unusually high number of
companies just below a threshold that triggers additional disclosure
requirements. Some studies have found the existence of such bunching in
other contexts.\342\ For purposes of our analysis, any existing
bunching is incorporated in the baseline estimates. However, if new
bunching were similarly to emerge around the proposed $2 billion
threshold, the estimates based on the existing data may underestimate
the number of registrants that would newly qualify as NAFs, and thus,
the aggregate economic effects of the proposed amendments.
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\342\ For a more detailed discussion of bunching, see
Accelerated Filer and Large Accelerated Filer Definitions, Release
No. 34-88365 (Mar. 12, 2020) [85 FR 17178, 17207 (Mar. 26, 2020)].
See, e.g., Peter Iliev, The Effect of SOX Section 404: Costs,
Earnings Quality, and Stock Prices, 45 J. Fin. 1163 (2010); Feng
Gao, Joanna Shuang Wu & Jerold Zimmerman, Unintended Consequences of
Granting Small Firms Exemptions from Securities Regulation: Evidence
from the Sarbanes-Oxley Act, 47 J. Acct. Rsch. 459 (2009). But see
Dhammika Dharmapala, Estimating Firms' Responses to Securities
Regulation Using a Bunching Approach, 24 Am. L. Econ. Rev. 449
(2022) (finding that bunching of registrants just below the $75
million threshold appears to have been more prevalent immediately
following the passage of the Sarbanes-Oxley Act (2003-2009) but
virtually absent afterwards (2010-2015)). A recent study analyzing
the 1992-2018 sample period found bunching around three separate
public float thresholds, achieved primarily through substitution of
debt for equity. See Ewens et al. (2024), supra note 325. The
actions taken by registrants to stay below such thresholds may
suggest that they viewed the costs of complying with the more
stringent disclosure requirements to outweigh the benefits.
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The proposed amendment would also expand the subset of registrants
eligible for NAF status, and thus eligible for scaled compliance
requirements, which would reduce costs for those registrants
[[Page 30137]]
and would generally decrease the information available to investors, to
the extent the investors do not obtain information through other means.
The costs and benefits of these scaled compliance requirements are
discussed in greater detail in the sections below.
3. Exemption From ICFR Auditor Attestation
We estimate the proposed amendments would result in 1,596
registrants (26.7 percent of all registrants) being newly exempt from
the ICFR auditor attestation requirement under section 404(b) of the
Sarbanes-Oxley Act, representing approximately 60 percent of all
registrants that are currently subject to the ICFR auditor attestation
requirement.\343\ Of these 1,596 registrants, 964 are currently
reporting as LAFs and 632 are currently reporting as AFs.
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\343\ This number (1,596) is smaller than the number of LAF and
AF registrants newly eligible as NAFs (1,721) because, per EA Table
2, there are 125 registrants that currently report as AFs but are
already not subject to the ICFR auditor attestation requirement
because they are also EGCs. This estimate includes three registrants
(two current LAFs and one current AF) that are co-filing with
registrants that will continue to be subject to auditor attestation
requirement under the proposed amendments because they will retain
their LAF status. In addition, there are 21 NAFs that may lose an
implicit auditor attestation requirement because they are currently
co-filing with LAFs or AFs subject to this requirement but that will
switch to NAF status under the proposed amendments. Lastly, this
total includes banks which, even if they are NAFs, are required
under the FDIC rules to have their auditor attest to, and report on,
management's assessment of the effectiveness of the bank's ICFR. See
supra note 293.
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The intention of the ICFR auditor attestation requirement is to
attest to the accuracy of management's ICFR assessment which should
lead to more complete identification and disclosure of material
weaknesses in ICFR. As management is likely to want to avoid negative
ICFR conclusions, attestation should lead to more effective ICFR and
hence more reliable financial reporting. This requirement, however, has
also been associated with significant compliance costs.
To evaluate the benefits and costs of ICFR auditor attestation, and
hence the benefits and costs of providing an attestation exemption, we
rely primarily on academic research studies. Much of this research was
conducted shortly after the implementation and delayed compliance of
section 404 of the Sarbanes-Oxley Act in the 2000s.\344\ These studies
examined the impact of requiring section 404(b) compliance for
registrants, which provides the most natural setting for understanding
its potential exemption. There have been significant changes over time,
however, in the implementation of the ICFR auditor attestation
requirement, the standards applying to a financial statement audit even
in the absence of an audit of ICFR, and the use of technology in the
execution of audits of financial statements and of ICFR.\345\ In
addition, auditors have had many years of experience with integrated
audits, as well as risk assessment standards that require the
consideration of ICFR even in the absence of ICFR auditor
attestation.\346\ These factors may have the effect of reducing both
the incremental costs and incremental benefits of an ICFR auditor
attestation today relative to the periods studied in much of the
existing research. We therefore acknowledge that these factors may
limit our ability to rely on the findings of past research to predict
how the proposed amendments would affect the issuers implicated by this
rulemaking.
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\344\ See section I.C.
\345\ See supra note 35, 2019 Accelerated Filer Release, at
section II.B.1.
\346\ Id.
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a. Potential Benefits of Eliminating the ICFR Auditor Attestation
Requirement for Affected Registrants
The proposed amendments would relieve affected registrants'
aggregate compliance costs related to ICFR auditor attestation by
decreasing the number of registrants who are subject to the ICFR
auditor attestation requirement. Estimating the magnitude of the
reduction in annual audit fees is difficult because while registrants
disclose total audit fees, they do not break out fees for section
404(b) compliance separately.\347\ In 2019, the Commission estimated
total costs associated with ICFR auditor attestation to be $210,000 per
issuer per year.\348\ In 2025, the GAO analyzed the change in audit
fees for a sample of 98 registrants that transitioned from being exempt
from section 404(b) to non-exempt.\349\ The GAO study found that
companies that transitioned from exempt to non-exempt status
experienced an increase in audit fees in the year of the transition and
concluded that the increase in audit fees was likely partially
attributable to section 404(b) compliance costs, with a median increase
of around $219,000.\350\ A 2017 study estimated section 404(b)
compliance led to an increase in audit fees of 8.8 percent which
translated to about $100,000 per year.\351\ The study caveated that
section 404(b) compliance requires more than direct auditor fees, and
the use of outside vendors and internal labor could increase their
estimate significantly.\352\ These two studies focused on registrants
impacted by thresholds governing existing NAF, SRC, and EGC statuses.
The affected parties under the proposed rule, however, namely newly
eligible NAFs, are larger on average than those registrants, including
some that are LAFs today. Evidence suggests that audit fees increase
with registrant size, and thus we expect that section 404(b) compliance
costs could be higher than those estimated above for the existing LAFs
and AFs that would be newly eligible for NAF status under the proposed
rule and thus no longer required to incur those costs.\353\ The
relative burden of these costs, however,
[[Page 30138]]
could be smaller.\354\ Registrants exempt from section 404(b)
compliance may choose to voluntarily obtain an ICFR auditor
attestation. The rate of voluntary compliance with ICFR auditor
attestation has generally been low. Up to about seven percent of exempt
issuers voluntarily provided an ICFR auditor attestation from 2005
through 2011.\355\ In 2024, we estimate less than six percent of exempt
registrants voluntarily complied.\356\ Low voluntary compliance
indicates that most, but not all, exempt issuers deemed their net cost
of compliance to outweigh the benefits. We caution, however, that
registrants may not take into account all the benefits of attestation,
in particular market-level benefits that accrue to parties outside the
company, such as increases to investors' confidence.\357\ This caution
aside, allowing companies to tailor their use of ICFR auditor
attestation may allow them to make the optimal value-enhancing choice,
as managers should be in the best position to assess their company's
unique costs and benefits of compliance. The alleviation of these ICFR
auditor attestation costs could positively influence additional
companies to enter the public markets, creating additional transparency
for investors, as well as investment opportunities for investors that
would include additional investor protections than would otherwise be
available if these companies chose to remain private.\358\ Under
current rules, newly public companies have an exemption from the ICFR
auditor attestation requirement for up to five years if they remain an
EGC.\359\ After leaving EGC status, currently, registrants continue to
receive this exemption as long as they remain an NAF. To the extent
private companies that would qualify for EGC status under the current
rules, and that are considering going public, consider potential
compliance costs six years after their initial public offering and
beyond when making a decision as to whether or not to go public, the
proposed amendments could increase the attractiveness of the decision
to go public.\360\ To the extent these private companies focus more on
the compliance costs that would be incurred in their first few years
after becoming publicly traded, the impact of the proposed rules on
that company's decision to go public may be limited. For relatively
large companies considering going public (i.e., companies that would
not currently qualify for EGC or NAF status after an initial public
offering but would, under the proposed amendments, be NAFs after an
initial public offering), the potential savings relative to the
baseline from eliminating the ICFR auditor attestation requirement
would accrue immediately upon going public. Registrants that are
currently required to comply with the ICFR auditor attestation
requirement but would be NAFs under the proposed amendments would
likely consider the attestation accommodation positively in their
decision whether to stay public.
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\347\ See supra note 174 (``Section 404(b)-related external
audit fees largely cannot be disentangled from total external audit
fees'').
\348\ See 2019 Accelerated Filer Release, supra note 35.
\349\ This transition occurs when a registrant is no longer an
NAF or EGC. See sections I.C and II.B.2. See also U.S. Gov't
Accountability Off., Sarbanes-Oxley Act: Compliance Costs Are Higher
for Larger Companies but More Burdensome for Smaller Ones (June
2025), https://www.gao.gov/assets/gao-25-107500.pdf.
\350\ We note that the companies in their sample of 98 that
transitioned to non-exempt status are smaller than the companies
that would no longer be subject to section 404(b) compliance under
the proposed rules. The costs the GAO found may thus be smaller than
the costs for registrants affected by the proposed rules, as the GAO
study found that ``audit fees increased with revenue.'' We also note
that a registrant moving in the reverse direction from non-exempt to
exempt may not experience a corresponding decrease in fees to the
extent the initial costs incurred were one-time fixed or if they
choose to continue voluntarily with section 404(b) compliance.
\351\ See Susan Chaplinsky, Kathleen Weiss Hanley, & S. Katie
Moon, The JOBS Act and the Costs of Going Public, 55 J. Acct. Rsch.
795 (2017) (``Chaplinsky et al. (2017)''). See also Weili Ge,
Allison Koester & Sarah McVay, Benefits and Costs of Sarbanes-Oxley
Section 404(b) Exemption: Evidence From Small Firms' Internal
Control Disclosures, 63 J. Acct. Econ. 358 (2017). They estimated
the increase in audit fees for firms non-exempt from section 404(b)
compliance with market capitalization less than $300 million
relative to audit fees for firms newly exempt starting in 2004,
finding an average annual increase in audit fees for the non-exempt
of $73,165 which they attribute to direct audit costs of section
404(b) compliance.
\352\ See Chaplinsky et al. (2017), supra id. The authors cite
the SEC staff Study of the Sarbanes-Oxley Act of 2002 Section 404
Internal Control over Financial Reporting which finds total costs of
section 404(b) compliance (including audit, outside vendors, and
internal labor) amount to $759,000 in the first year based on self-
reported data from public firms generally. As some of this is
startup costs, it represents an upper bound for annual costs of
compliance. They combine this result with the analysis in their
study to conclude that the annual cost savings from the 404(b)
exemption to be between $100,000 and $759,000. See also Lewis &
White (2023), supra note 320, which finds a similar cost of 404(b)
compliance including audit fees, external consultants, and internal
labor of approximately $800,000 using survey data from a sample of
between four and seven (depending on cost component) biotech firms
that lost EGC status and thus began 404(b) compliance.
\353\ See supra note 350.
\354\ See supra note 35, at 24902 (noting that, ``because of the
fixed costs component of compliance costs, smaller issuers generally
bear proportionately higher compliance costs than larger issuers)''.
See also Ivy Xiying Zhang, Economic consequences of the Sarbanes-
Oxley Act of 2002, 44 J. Acct. Econ. 74 (2007). This study looked at
Commission announcements of deferring compliance with section
404(b), comparing otherwise similar firms that obtained different
extension periods due to having different fiscal year ends. Stock
market reaction of affected U.S. registrants relative to unaffected
foreign firms was used to infer the impact of section 404(b)
compliance. They found that NAFs, the full sample of which had
median market capitalization of $22 million, who received longer
extension periods for compliance increased in market value by 1.3%
versus NAFs who received shorter extension periods, suggesting
significant cost savings and/or value creation from delaying
compliance. However, for AFs, the full sample of which had median
market capitalization of $509 million, there was not a significant
difference in market value between those that received shorter
versus longer extension periods, although longer extension periods
were also directionally associated with increased market value.
These results are consistent with section 404(b) attestation
becoming a smaller relative burden as registrants get larger.
\355\ See U.S. Gov't Accountability Off., GAO-13-582, Internal
Controls: SEC Should Consider Requiring Companies to Disclose
Whether They Obtained an Auditor Attestation (July 2013), https://www.gao.gov/products/gao-13-582.
\356\ We compiled data on whether NAFs and EGCs indicated by
check mark whether they filed a report on and attestation of
management's assessment of the effectiveness of ICFR under section
404(b) of the Sarbanes-Oxley Act by the registered public accounting
firm that prepared or issued its audit report.
\357\ Market-level benefits of ICFR auditor attestation are
discussed further in the next section.
\358\ We note that a PCAOB audit (required for issuers) for a
particular company will almost always be more expensive than a non-
PCAOB audit (e.g., an AICPA audit) regardless of whether an ICFR
auditor attestation is required. Therefore, there is still an
incremental regulatory cost that would exist for private companies
that could deter them from going public even if they did not have to
obtain an ICFR auditor attestation.
\359\ EGCs are exempt from the ICFR auditor attestation
requirement, and a registrant may remain an EGC for up to five
years. See section IV.A.1.b.
\360\ These firms would likely have an exemption from ICFR
auditor attestation for at least five years under the baseline, and
thus the proposed rules would not offer an incremental auditor
attestation exemption benefit for these years.
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b. Potential Costs of Eliminating the ICFR Auditor Attestation
Requirement for Affected Registrants
Exempting affected registrants from the ICFR auditor attestation
requirement may result in less effective ICFR over time. Some studies
suggest that this could decrease the reliability of financial
statements and the information available about their reliability, thus
possibly resulting in a higher cost of capital and other operational
effects. The 2011 Staff Study summarizes evidence on the benefits of
auditor attestation of ICFR, concluding that ``auditor testing of
accelerated filers' controls has generally resulted in the disclosure
of internal control deficiencies (``ICDs'') that were not previously
disclosed by management, and the external auditor attestation appears
to have a positive impact on the informativeness of internal control
disclosures and financial reporting quality.'' \361\ Further, issuers
that were not required to obtain an ICFR auditor attestation disclosed
ineffective ICFR at a greater rate than those that were subject to such
requirement, and newer studies demonstrate that this difference has
remained consistent in recent years.\362\ Studies have found lack of
effective ICFR to lead to more restatements, lower earnings quality, a
higher rate of future fraud, more insider trading, and less accurate
analyst forecasts.\363\ These factors, resulting in higher information
asymmetry between investors and registrants, have been associated with
higher cost of capital.\364\
[[Page 30139]]
More effective ICFR and more reliable financial reporting can also
improve operations, such as investment efficiency and inventory
tracking.\365\ To the extent registrants newly exempt from section
404(b) requirements forgo auditor attestation of ICFR, leading to less
effective ICFR, negative impacts on financial controls, reporting
quality, risk of fraud,\366\ and operations could occur. One study
surveyed corporate insiders on section 404 compliance in 2008-2009.
Respondents found section 404(b) compliance benefits to outweigh the
costs, especially as they gained experience with section 404(b).\367\
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\361\ See Staff Study.
\362\ See section IV.A.3.d. See also, e.g., Audit Analytics, SOX
404 Disclosures: A 19-Year Review (Aug. 2023) (``2023 Audit
Analytics Study''), www.auditanalytics.com/doc/SOX_404_Disclosures_A_Nineteen-Year_Review.pdf.
\363\ See John Coates & Suraj Srinivasan, SOX after Ten Years: A
Multidisciplinary Review, 28 Acct. Horizons 627 at 643-645 (2014).
See also 2019 Accelerated Filer Release. Both provide a discussion
of the relevant literature on these effects. Notably, some of these
effects may deter managers from voluntary compliance with ICFR
auditor attestation despite other benefits of attestation to the
firm and its shareholders; there is substantial literature
describing the fact that in certain circumstances the incentives of
managers are not well-aligned with those of shareholders, also known
as ``agency costs.'' See, e.g., Michael Jensen & William Meckling,
Theory of the Firm: Managerial Behavior, Agency Costs and Ownership
Structure, 3 J. Fin. Econ. 305 (1976).
\364\ Id. See also Hollis Ashbaugh[hyphen]Skaife, Daniel W.
Collins, William R. Kinney Jr & Ryan LaFond, The Effect of SOX
Internal Control Deficiencies on Firm Risk and Cost of Equity, 47 J.
Acct. Rsch. 1 (2009). They find firms reporting internal control
deficiencies that subsequently receive an unqualified opinion from
their auditor with respect to the section 404(b) attestation exhibit
an average decrease in market-adjusted cost of equity of 151 basis
points around the disclosure of that opinion, suggesting a direct
link between having an auditor attestation of ICFR and a lower cost
of capital. See also Chaplinsky et al. (2017), supra note 351. They
found that initial public offerings newly eligible for scaled
disclosure (those below the $1 billion revenue EGC cutoff)
experienced greater underpricing, and thus higher cost of capital,
than firms that went public before the JOBS Act and were subject to
fuller disclosure. The authors, note, however, that ``despite the
potential for underpricing, most issuers eligible for EGC status
adopt it, and therefore, they must believe that the expected
benefits of the [JOBS] Act exceed its costs.''
\365\ See 2019 Accelerated Filer Release.
\366\ See supra note 174 (citing evidence associating weak
internal control with fraud. See also Association of CFEs and the
Anti-Fraud Collaboration, The Impact of Fraud at U.S. Public
Companies (2025). Their survey results suggest quality of external
audits and overall internal control environment are important
factors that contribute to the level of corporate fraud).
\367\ See Cindy Alexander, Scott Bauguess, Genarro Bernile,
Yoon-Ho Alex Lee & Jennifer Marietta-Westberg, Economic Effects of
SOX Section 404 Compliance: A Corporate Insider Perspective, 56 J.
Acct. Econ. 267 (2013). The study finds that ``there is a steady
decline in compliance costs as firms gain experience with section
404(b), and this is ultimately accompanied by an increase in the
perceived net benefit of compliance.'' We note that the rate of
responses to the question about net benefits was lower than for
other questions.
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A recent study that examined the Commission amendment of Exchange
Act Rule 12b-2 in 2020 presents a contrasting view.\368\ It found that
exempting registrants from section 404(b) compliance did not result in
a decline in ICFR quality or financial reporting quality. The amendment
exempted issuers eligible to be an SRC that had less than $100 million
in annual revenue. ICFR auditor attestation rates dropped significantly
for issuers that were no longer required to comply with section 404(b),
yet the study did not find significant differences in material weakness
disclosures in section 404(a) management reports, nor in financial
reporting quality, between issuers still required to comply with
section 404(b) and those newly exempt.
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\368\ See Jennifer McCallen, Roy Schmardebeck, Jonathan Shipman
& Robert Whited, Financial Reporting Consequences of Exempting Low-
Revenue Issuers from the Internal Control Audit Requirement (Working
Paper 2024). See also Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar.
26, 2020)].
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To the extent forgoing ICFR auditor attestation leads to less
reliable financial statements for some issuers, the proposed amendments
could result in less efficient capital allocation across investment
opportunities by investors or a less effective market for corporate
control.\369\ Relatedly, section 404(b) compliance may play a role in
improving overall investor confidence, encouraging investment in public
markets, and thus exemptions could diminish investor confidence.\370\
Section IV.C provides additional discussion of these market-level
factors. Any such market-level effects may be limited by the small
percentage of the total value of traded securities that is represented
by the affected issuers.
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\369\ See Amir Amel-Zadeh & Yuan Zhang, The Economic
Consequences of Financial Restatements: Evidence from the Market for
Corporate Control, 90 Acct. Rev. 1 (2015). They find that ``firms
that recently filed financial restatements are significantly less
likely to become takeover targets than a propensity score-matched
sample of non-restating firms.'' See also Vidhi Chhaochharia,
Clemens Otto & Vikrant Vig, The Unintended Effects of the Sarbanes-
Oxley Act, 167 J. Institutional & Theoretical Econ. 149 (2011). They
find that ``exempting nonaccelerated filers . . . from compliance
with Section 404 has lowered the takeover activity involving such
firms.'' We note that this could potentially leave these firms as
standalone public firms.
\370\ See U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs Are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), https://www.gao.gov/assets/gao-25-107500.pdf, which summarizes various studies on the impact of ICFR
auditor attestation on investor confidence.
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Importantly, the effects of an exemption from section 404(b)
compliance likely vary across issuers of different types. For example,
smaller, younger, loss-incurring issuers are more likely to have
internal control deficiencies.\371\ The registrants, all current AFs or
LAFs, that would be exempt from the ICFR auditor attestation
requirement under the proposed rules would generally be larger and more
established than the registrants currently receiving an exemption, and
thus auditor testing of internal financial controls for these
registrants may have fewer benefits with respect to detecting weak
internal controls.\372\ Many of the registrants that would be newly
eligible to receive the proposed accommodation are likely to have
greater analyst and media coverage and institutional ownership, and
thus less information asymmetry, than the segment of registrants that
are currently subject to the exemptions, which could act as a source of
discipline to maintain the reliability of financial statements and
explain their lower incidence (as indicated in some studies) of
internal control deficiencies.\373\ The potential costs described above
from the absence of section 404(b) compliance could thus be mitigated
(at least in part) by the scrutiny provided by these additional
monitors.
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\371\ See 2019 Accelerated Filer Release, supra note 35. We note
that to the extent these issuers have minimal revenue, internal
control deficiencies may not manifest as often as financial
statement restatements. See section IV.A.3.d., EA Table 7, and
related discussion.
\372\ To the extent the stronger internal control environment of
larger, more established companies may be partially because they
have been subject to ICFR auditor attestation, we may underestimate
the impact of an exemption on their internal controls. We also
caveat that the 2019 Accelerated Filer Release argued that the
usefulness and relevance of reliable financial statements could be
higher for larger companies. See also Millie Hutton & Quinn
Swanquist, An Evaluation of Size-Based Exemption Thresholds from
Accounting Regulation (Working Paper 2025), who make a similar
point.
\373\ Id. (for various academic citations relating greater
analyst coverage and institutional ownership to company size).
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In addition, newly exempt registrants will generally have had
recent ICFR auditor attestations prior to the proposed
reclassification, which could have two effects. First, any effects of
the proposed amendments on company controls would be expected to be
gradual (over the course of the fiscal periods following the
registrant's transition to an NAF), as internal financial controls
would have been subject to a recent auditor attestation. Second, some
affected registrants may continue to voluntarily obtain ICFR auditor
attestations to the extent they determine that its benefits are worth
it to them. Some costs associated with section 404(b) compliance are
one-time startup costs, and research has suggested ongoing compliance
costs decline with experience.\374\ Thus the costs to continue
compliance may be lower than the costs to begin compliance, resulting
in more companies continuing to comply than it may appear from the
discussion of benefits and costs in this economic analysis.\375\ This
could, in turn, mitigate information loss for investors.
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\374\ See supra note 367.
\375\ The cost estimates for section 404(b) compliance reported
by studies discussed in section IV.B.3.b. generally examined
companies transitioning from exempt to non-exempt status; AFs and
LAFs receiving accommodations in the proposed rule would transition
in the opposite direction.
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[[Page 30140]]
4. The Expansion of the Subset of Registrants Eligible for Extended
Periodic Report Filing Deadlines
The proposed amendments would expand the subset of registrants
eligible for non-accelerated filing deadlines for periodic reports (90
days for Form 10-K and 45 days for Form 10-Q). For newly eligible NAFs
that qualify as AFs (or LAFs) today, this would represent a 15-day (or
30-day) extension of the Form 10-K filing deadline. For newly eligible
NAFs that qualify as either AFs or LAFs today, this would also
represent a five-day extension of the Form 10-Q filing deadline.
We estimate the proposed amendments would result in 1,721
additional registrants (28.8 percent of all registrants) newly
qualifying for NAF status and becoming subject to longer filing
deadlines than they are currently.\376\
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\376\ See supra note 336 and accompanying text. In addition to
the estimate above, there are 21 NAFs that may face longer effective
filing deadlines because they are currently co-filing with LAFs or
AFs subject to shorter deadlines than they will be under the
proposed amendments once they switch to NAF status.
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Extending the filing deadlines for the affected registrants would
provide these filers with additional timing flexibility in filing their
periodic reports. The additional time to prepare and file periodic
reports that would be afforded to the eligible registrants under the
proposed amendments could be useful to some registrants in helping
balance and prioritize other obligations on the management and finance
teams, and may enable such registrants to prepare higher quality
disclosures.\377\ The smallest among the newly eligible NAFs, in
particular, are most likely to benefit from this additional
flexibility. While smaller registrants tend to be more likely to
exhibit difficulty in meeting the filing deadlines today,\378\ non-
timely filing is generally perceived negatively by the market,\379\ so
registrants attempt to prepare and file the periodic reports by the
deadline, even if it entails significant cost. It is possible that some
of the newly eligible NAFs already have disclosure management systems
and processes in place structured around the existing filing deadlines
and some of the newly eligible NAFs may decide to continue filing in
accordance with those deadlines for different reasons, such as in
anticipation of investor expectations of earlier reporting. Similar to
the baseline, newly eligible NAFs would remain able to file periodic
reports earlier than the filing deadline under the proposed
amendments.\380\
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\377\ Some evidence can be inferred from the studies analyzing
the 2003 acceleration of filing deadlines. One study found that the
2003 acceleration of filing deadlines was associated with a decrease
in the market reaction to the disclosure of annual reports for
accelerated filers. See Jeffrey Doyle & Matthew Magilke, Decision
Usefulness and Accelerated Filing Deadlines, 51 J. Acct. Rsch. 549
(2013). We note that this study found the reverse to be true for
LAFs. Based on this result and supplementary tests regarding the
change in disclosure quality and change in timeliness after the
acceleration of deadlines, the authors concluded that the negative
effect of the shorter deadline on the quality of disclosure appeared
to dominate the beneficial effect on the timeliness of the
disclosure for these issuers. As a caveat, this finding might not be
directly applicable today, as another study suggests that that some
of these effects were temporary. See, e.g., Colleen Boland, Scott
Bronson & Chris Hogan, Accelerated Filing Deadlines, Internal
Controls, and Financial Statement Quality: The Case of Originating
Misstatements, 29 Acct. Horizons 551 (2015) (finding a temporary
increase in the likelihood of an originating misstatement following
the acceleration of filing deadlines for accelerated filers, but not
for LAFs). See also Lisa Bryant-Kutcher, Emma Yan Peng & David
Weber, Regulating the Timing of Disclosure: Insights from the
Acceleration of 10-K Filing Deadlines, 32 J. Acct. & Public Policy
475 (2013) (finding that the likelihood of issuing financial
statements that are later restated increases for firms that are
required to file more quickly, relative to firms whose filing
practices are not affected by the regulatory change). As an
additional caveat, it is unclear if the converse (the extension of
filing deadlines) would have similar-magnitude, but opposite-sign,
effects, given the likely existence of established disclosure
management practices and processes and expectations from industry
service providers around meeting existing filing deadlines, as well
as whether the studies can be extrapolated to the much broader range
of larger public float levels up to the proposed $2 billion
threshold. However, the existing evidence would be consistent with
the net effect of the extended filing deadlines being beneficial but
likely small overall.
\378\ See section IV.A.3.c & EA Table 4.
\379\ Various studies have examined non-timely (late filers).
See, e.g., an older study of late Form 10-K filings by Andrew
Alford, Jennifer Jones & Mark Zmijewski, Extensions and Violations
of the Statutory SEC Form 10-K Filing Requirements, 17 J. Acct.
Econ. 229 (1994); Jian Cao, Feng Chen, & Julia Higgs, Late for a
Very Important Date: Financial Reporting and Audit Implications of
Late 10-K Filings, 21 Rev. Acct. Stud. 633 (2016) (``Cao et al.
(2016)''); Eli Bartov & Yaniv Konchitchki, SEC Filings, Regulatory
Deadlines, and Capital Market Consequences, 31 Acct. Horizons 109
(2017) (``Bartov & Konchitchki (2017)'') (finding negative abnormal
returns after late filing announcements).
\380\ One older study finds that most companies tend to file 10-
Ks around the statutory filing deadlines. See, e.g., Peter Easton &
Mark Zmijewski, SEC Form 10K/10Q Reports and Annual Reports to
Shareholders: Reporting Lags and Squared Market Model Prediction
Errors, 31 J. Acct. Rsch. 113 (1993). Conversely, some studies point
to nonrandom selection of early filers. See, e.g., in the Form 10-K
context, study by Li Brooks, Yun Cheng, Linxiao Liu & Michael D. Yu,
The Timeliness of 10-K Filings, Financial Performance, and Stock
Returns, 35 J. Corp. Acct. Fin. 277 (2024) (finding that firms with
better earnings news are more likely to file their 10-Ks early and
that such firms are more likely to have better earnings and higher
stock returns in future years); Li Brooks, Yun Cheng, Linxiao Liu &
Michael D. Yu, The Timeliness of 10-K Filings, Early Filers, and
Effects of Filing Deadline Changes, 32 J. Corp. Acct. & Fin. 169
(2021) (finding during 1997-2018 that firms tend to file around the
statutory filing deadlines, but that 10-K filings have become
timelier over time, especially after the statutory filing deadline
changes, and early filers have become a more nonrandom sample in
recent years); Preeti Choudhary, Kenneth J. Merkley & Jason D.
Schloetzer, Early Annual Reports (Working Paper 2015), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1436538.
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In turn, the extension of the filing deadlines for newly eligible
NAFs could delay the availability of periodic disclosures to investors
and other market participants. If a registrant were to continue to
release earnings around the same time relative to year end or quarter
end but file the periodic report at the newly applicable filing
deadline, or cease releasing earnings altogether, more time would
elapse until investors could obtain complete information about the
registrant's financial condition. To the extent that investors derive
value-relevant information from periodic reports (whether on their own
or as information that complements the earnings release), the delayed
availability of those reports could lead to less informed investment
and voting decisions, and potentially less informative share prices,
over the extension period. Importantly, while the proposed amendments
would make longer filing deadlines for Forms 10-K and 10-Q available to
newly eligible NAFs, they would not change the existing filing
deadlines for Form 8-K, which would help ensure that investors would
retain timely access to information about significant developments and
changes affecting a registrant, potentially mitigating some of the
effects of the proposed amendments on investors' ability to make
informed investment and voting decisions.
As a gauge of the value of disclosures in periodic reports to
investors, some research has examined share prices around the filing of
periodic reports and found that share prices react to Form 10-K and
Form 10-Q filings.\381\ At the
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\381\ In a large analysis spanning 1996-2001, Griffin (2003)
finds that ``the absolute value of excess return is reliably greater
on the day of and on the one or two days immediately following the
filing date. The response is stronger around a 10-K date than a 10-Q
date, more elevated for late filers, and increases significantly
over the study period for both filing types.'' See Paul Griffin, Got
Information? Investor Response to Form 10-K and Form 10-Q EDGAR
Filings, 8 Rev. Acct. Stud. 433 (2003). See also Haifeng You, &
Xiao-jun Zhang, Financial Reporting Complexity and Investor
Underreaction to 10-K Information, 14 Rev. Acct. Stud. 559 (2009)
(finding a price and volume reaction to Form 10-K filings and also
noting underreaction, particularly for firms with more complex 10-K
reports).
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[[Page 30141]]
same time, it is reasonable to assume that the disclosures in periodic
reports become incrementally less important to the extent that key
information filters into the marketplace through other channels over
time \382\ (e.g., earnings releases,\383\ current reports on Form 8-K,
and information production by institutional investors, analysts, and
other intermediaries). Nonetheless, some research has indicated that
information intermediaries actively rely on Commission-required
disclosures in their information production efforts.\384\ Further,
smaller NAFs may lack extensive institutional ownership or research
coverage, resulting in less information production about such
registrants by third-party intermediaries. While the extended filing
deadlines will result in some loss of information about newly eligible
NAFs and the increase in information asymmetry about such registrants,
the magnitude of the effect is difficult to predict.
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\382\ Some studies have found a reduction in the market reaction
to disclosure when the reporting lag between the end of the period
in question and the disclosure date is lengthy, as more of the
information becomes available through other public channels. See,
e.g., Dan Givoly & Dan Palmon, Timeliness of Annual Earnings
Announcements: Some Empirical Evidence, 57 Acct. Rev. 486 (1982).
Some older studies have also questioned whether such lags increase
information asymmetries, because some investors are more able to
access or process information that could provide indirect insight
into an issuer's financial status or performance through alternative
channels. See, e.g., Nils Hakansson, Interim Disclosure and Public
Forecasts: An Economic Analysis and a Framework for Choice, 52 Acct.
Rev. 396 (1977) and Baruch Lev, Toward a Theory of Equitable and
Efficient Accounting Policy, 63 Acct. Rev. 1 (1988). However, these
studies pre-date the adoption of Regulation FD, which generally
prohibits public companies from disclosing nonpublic, material
information to selected parties unless the information is
distributed to the public first or simultaneously.
\383\ Some studies have analyzed quarterly filings specifically
in conjunction with the market's response to earnings releases
(typically announced a couple of days earlier). See, e.g., Edward X.
Li & K. Ramesh, Market Reaction Surrounding the Filing of Periodic
SEC Reports, 84 Acct. Rev. 1171 (2009) (finding ``a significant
market reaction surrounding quarterly periodic reports only when
their filing coincides with the first public disclosure of earnings,
although that for 10-K reports is not subsumed by earnings releases.
However, after eliminating incidence of concurrent earnings
releases, the 10[hyphen]K market reaction is restricted to a quarter
of the reports that are filed around calendar quarter[hyphen]ends.''
However, an unpublished working paper shows that ``market reactions
around SEC filings are positively and significantly associated with
the preliminary earnings surprise, i.e. that information in SEC
filings confirms, on average, the preliminary earnings surprise.''
See Joshua Livnat, Daqing Qi & Woody Wu, The Post Earnings
Announcement Drift, Market Reactions to SEC Filings and the
Information Environment, (Working Paper 2005) (``Livnat et al.
(2005)''), https://www.researchgate.net/profile/Joshua-Livnat/publication/228431046_The_Post_Earnings_Announcement_Drift_Market_Reactions_to_SEC_Filings_and_the_Information_Environment/links/00b49518d225bd236d000000/The-Post-Earnings-Announcement-Drift-Market-Reactions-to-SEC-Filings-and-the-Information-Environment.pdf
(retrieved Feb. 18, 2026).
\384\ While information intermediaries may be able to produce
additional information even when mandatory disclosure is limited,
some work has shown that analysts and other information
intermediaries that provide information to investors often rely on
Commission-required disclosures of the company and peer firms in
their research coverage. See, e.g., Mark H. Lang & Russell J.
Lundholm, Corporate Disclosure Policy and Analyst Behavior, 71 Acct.
Rev. 467 (1996). See also Livnat et al. (2005), supra note 383
(showing that ``analysts revise their earnings forecasts for the
subsequent quarter based on information in SEC filings that confirm
the preliminary earnings surprises, and that their forecast accuracy
improves after the SEC filings.'').
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5. Extending SRC and Certain EGC Accommodations to All NAFs
The proposed amendments would extend certain disclosure
accommodations to NAFs. As discussed in sections I and II.B.3 above,
SRCs and EGCs today are afforded a number of disclosure and other
accommodations that simplify reporting and disclosure requirements, and
thus reduce burdens for smaller or emerging company filers. Under the
proposed amendments, some filers that do not qualify as SRCs or EGCs
under the existing requirements would be newly eligible for NAF status
and could avail themselves of the scaled disclosure and other
accommodations discussed below. We estimate that the proposed
amendments would result in 204 registrants that are EGCs but not SRCs
today (3.4 percent of all registrants), 1,787 registrants that are SRCs
but not EGCs today (29.9 percent of all registrants), and 1,688
registrants that are neither EGCs nor SRCs today (28.2 percent of all
registrants) being afforded the relief due to being classified as NAFs
under the proposed amendments.\385\
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\385\ This estimate would include new and existing NAFs that are
not currently eligible for SRC/EGC status and therefore are not
afforded the discussed disclosure accommodations today. See supra
notes 303 and 335 for the description of methodology. See supra note
338 for a discussion on how the estimates of new NAFs might differ
from the final resulting number of NAFs. These estimates include one
SRC but non-EGC registrant and 90 registrants that are neither EGCs
nor SRCs today being classified as NAFs under the proposed
definition but co-filing with registrants that would continue to be
classified as LAFs under the proposed amendments. To sum to the
estimated total of 4,825 NAFs under the proposed rule, we
additionally estimate that there are 1,145 registrants that are
already both SRCs and EGCs, and one registrant with unknown EGC
status.
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The proposed amendments are expected to benefit the newly eligible
NAFs through a decrease in compliance costs.\386\ As discussed in
detail in section II above, the proposed amendments would extend
various disclosure accommodations pertaining to financial statements,
executive compensation disclosures, and other disclosures outside the
financial statements that are presently only available to SRCs and/or
EGCs to all NAFs eligible under the expanded definition.\387\
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\386\ See section IV.B.9 for a discussion of the monetized
compliance cost savings.
\387\ See sections II and IV.A.1 for a more detailed discussion
of the proposed amendments and disclosure accommodations.
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The scaled disclosure accommodations may also provide indirect
benefits to the affected registrants. One potential indirect benefit
could be a reduction in the proprietary costs of disclosure, to the
extent that the disclosure required under the baseline could
potentially reveal information about their business to competitors
(insofar as that information is not already required to be disclosed in
other filings, such as current reports on Form 8-K or registration
statements). Another potential indirect benefit to the affected
registrants may include increased ability of eligible filers'
management teams to focus on business operations with incrementally
less focus on investor relations issues related to more extensive
periodic disclosures.
The proposed amendments to expand the number of registrants that
would be eligible to qualify for scaled disclosure accommodations also
are expected to decrease the amount of information available through
public disclosures to investors and other market participants about
eligible filers, which could result in costs of information loss to
investors and the potential increase in the risk of less informed
investment and voting decisions.\388\
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\388\ See section IV.B.1. for a more detailed discussion; see
also 2018 SRC Adopting Release at 32008-09. The proposed amendments
may also indirectly result in decreased engagement with
shareholders.
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Some registrants that would be eligible as NAFs under the proposal
might elect to continue to provide existing disclosures, based, for
example, on their assessment of the costs and benefits for their
company, which would result in more modest aggregate impacts (costs and
benefits) of all of the proposed amendments. For instance, some may do
so for continuity with existing reporting and disclosure management
processes, out of concern over the capital market implications of
scaled disclosure or in response to market pressures and investor
expectations as a signal of their
[[Page 30142]]
commitment to transparency,\389\ or to manage legal risk concerns.\390\
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\389\ See, e.g., Lin Cheng, Scott Liao & Haiwen Zhang,
Commitment Effect versus Information Effect of Disclosure: Evidence
from Smaller Reporting Companies, 88 Acct. Rev. 1239 (2013)
(documenting newly eligible SRCs that are able to scale their
disclosure but that voluntarily maintain the existing disclosure
level); Dambra et al. (2015), supra note 144, at Table 8; Chaplinsky
et al. (2017), supra note 351, at Table 6; Tiffany J. Westfall &
Thomas C. Omer, The Emerging Growth Company Status on IPO: Auditor
Effort, Valuation, and Underpricing, 37 J. Acct. Public Policy 315
(2018) at Table 2; Aleksandra B. Zimmerman, The JOBS Act Disclosure
Exemptions: Some Early Evidence, 27 Rsch. Acct. Regulation 73 (2015)
(documenting, among other findings, differences in the rate of
adoption of EGC accommodations). See also, e.g., Scott Bronson,
Joseph Carcello & K. Raghunandan, Firm Characteristics and Voluntary
Management Reports on Internal Control, 25 Auditing: A J. of
Practice & Theory 25 (2006) (documenting firms that provide
voluntary management reports on internal control before the
Sarbanes[hyphen]Oxley Act mandate). Some issuers that actively
participate in the markets may seek to mitigate information
asymmetry in order to improve the liquidity of their shares and
potentially lower the cost of capital by providing more voluntary
disclosure. See also, e.g., Nemit Shroff, Amy X. Sun, Hal D. White &
Weining Zhang, Voluntary Disclosure and Information Asymmetry:
Evidence from the 2005 Securities Offering Reform, 51 J. Acct. Rsch.
1299 (2013) (finding that ``firms provide significantly more
preoffering disclosures after the [2005 Securities Offering]
Reform'' and that ``these preoffering disclosures are associated
with a decrease in information asymmetry and a reduction in the cost
of raising equity capital'').
\390\ See, e.g., James P. Naughton, Tjomme O. Rusticus, Clare
Wang, & Ira Yeung, Private Litigation Costs and Voluntary
Disclosure: Evidence from the Morrison Ruling, 94 Acct. Rev. 303
(2019) (finding in a difference-in-difference setting a decrease in
voluntary disclosure following a decrease in expected private
litigation costs); Joel F. Houston, Chen Lin, Sibo Liu, & Lai Wei,
Litigation Risk and Voluntary Disclosure: Evidence from Legal
Changes, 94 Acct. Rev. 247, 272 (2019) (finding that firms make
fewer (more) management earnings forecasts when they expect
litigation risk to be lower (higher) following a legal event,
concentrated in the sample of earnings forecasts conveying negative
news); Zhiyan Cao & Ganapathi Narayanamoorthy, The Effect of
Litigation Risk on Management Earnings Forecasts, 28 Cont. Acct.
Rsch. 125 (2011) (finding that managers with bad news, facing higher
litigation risk, are more likely to issue a bad news earnings
forecast). But see Marilyn F. Johnson, Ron Kasznik & Karen K.
Nelson, The Impact of Securities Litigation Reform on the Disclosure
of Forward-Looking Information by High Technology Firms, 39 J. Acct.
Rsch. 297 (2001) (finding an increase in management earnings
forecasts following a decrease in litigation risk). As a caveat, the
cited studies and analyses are more general in nature and are not
specific to the scaled disclosure accommodations being considered
here.
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The costs and benefits specific to the individual scaled disclosure
accommodations being proposed to be extended to newly eligible NAFs are
discussed below.\391\
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\391\ In addition to scaling certain disclosure requirements, as
discussed in section II.B.3 above, the Commission is proposing to
amend Item 1B of Form 10-K and Item 4A of Form 20-F, which currently
require all LAFs and AFs to disclose material unresolved comments on
Exchange Act filings. The proposed amendment would extend this
requirement to all registrants, including NAFs under the proposal
that are not currently subject to this requirement. We estimate
that, for calendar year 2024, under the existing definition, there
were 3,099 NAFs among filers of Form 10-K and 530 NAFs among filers
of Form 20-F. See section IV.A.2, EA Table 2, and infra note 456.
The proposed requirement would provide additional information to
investors in affected issuers with material unresolved staff
comments. The informational benefit may be limited, as investors
currently have the ability to review staff comment letters and the
annual report filings and gauge whether comments were likely
resolved (although such an assessment would require additional
investor time and would be subject to the lags in public
availability of correspondence on EDGAR). In turn, the proposed
requirement would impose incremental compliance costs on issuers to
incorporate the discussion of material unresolved staff comments, as
discussed in section V below, PRA Table 2 and section IV.B.9 below,
EA Table 10. However, these economic effects, including both costs
and benefits, are likely to be modest given the very low incidence
of unresolved staff comment disclosures in periodic report filings
today. Based on staff's review of Intelligize data on filings from
calendar year 2024, we estimate that there were 11 registrants with
disclosures of material unresolved staff comments in Item 1B of Form
10-K and three registrants with disclosures of material unresolved
staff comments in Item 4A of Form 20-F; combining data from calendar
years 2022-2024 yields an average of 11 Form 10-K and two Form 20-F
filers per year providing such disclosures. The estimates are
subject to the caveats about (i) the reliability of classification
of unstructured text extracts and (ii) completeness of the text
extracts from the respective section of the filing in the database.
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a. Scaled Financial Disclosures
The proposed amendments would permit NAFs to rely on the financial
statement disclosure requirements currently applicable to SRCs (with a
few limited exceptions).\392\ These provisions are expected to reduce
the costs of compliance with the financial statement requirements for
newly eligible NAFs by reducing the scope and amount of financial
statement disclosure required to be prepared by the registrant for
periodic reports. Conversely, providing less granular financial
statement disclosures may reduce the amount of information available to
investors and other market participants (including securities analysts,
lenders, suppliers, customers, etc.) to assess the company's financial
condition and price the registrant's securities, potentially making it
more difficult and costly for investors to make informed investment and
voting decisions.
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\392\ See section II.B.3 for more detail.
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To the extent that the majority of filers pursuing a common equity
initial public offering qualify for EGC status under the baseline,\393\
even if they do not qualify for SRC status, they already would be able
to provide two years of financial statements in the registration
statement under the current rules, which would reduce the economic
effects of the proposed accommodation for NAFs of providing two,
instead of three years of financial statements. For other filers, to
the extent that a filer has been a reporting company for at least a
year, and would have been required to prepare financial statements
covering the additional historical year for a previously filed periodic
report, which can be omitted in the subsequent report under the
proposed amendments, the economic effects of the accommodation are also
expected to be modest.
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\393\ See supra note 229.
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Today, if there are retrospective material changes to the
statements of comprehensive income for any quarters within the two most
recent fiscal years or any subsequent interim period for which
financial statements are included or are required to be included, Item
302(a) requires non-SRC filers to provide an explanation of the reasons
for such material changes and disclose summarized financial information
related to the statements of comprehensive income.\394\ In contrast,
SRC filers are not required to provide the information required by Item
302,\395\ and that accommodation would be extended to all NAFs under
the proposal. To the extent that some of the numerical information that
would be omitted can be inferred from comparing restated financials and
prior filings (and for some restatements, Form 8-K disclosures as
well), the incremental effect (cost) for investors of scaling this
disclosure for the larger subset of newly eligible NAFs may be
attenuated. Also, some disclosure content, including a qualitative
explanation by the registrant about the restatement, would no longer be
required for NAFs under the proposal.
---------------------------------------------------------------------------
\394\ 17 CFR 229.302(a).
\395\ 17 CFR 229.302(c).
---------------------------------------------------------------------------
The proposed amendments also would permit NAFs to apply the form
and content requirements of Article 8 of Regulation S-X (with a few
limited exceptions), permitting registrants to not comply with certain
form and presentation requirements related to the financial statements,
and to not disclose certain financial statement schedules and certain
general notes to the financial statements, and to not provide separate
financial statements of equity investees, as discussed in greater
detail in section II above.\396\ To the extent that the described
disclosures would be omitted from the periodic reports, the proposed
amendments could both lead
[[Page 30143]]
to compliance cost savings for registrants and to a reduction in the
information available to the investors. Also, some registrants may
choose to continue to include such discussion in their periodic
reports, for example, out of concerns over legal risk or investor
scrutiny.
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\396\ We are proposing a separate rule for BDCs and face-amount
certificate companies that are NAFs. Under the proposed amendments,
these investment companies' financial statements generally would be
required to follow the same form and content requirements that
currently apply to BDCs and face-amount certificate companies under
Regulation S-X, with some tailored exceptions. See section II.
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In addition, the proposed amendments also would permit NAFs to
defer compliance with new or revised financial accounting standards
until such time as a company that is not an issuer is required to
comply with the standards, if such standard applies to companies that
are not issuers, for a period of five years from initial registration,
effectively extending the relief currently available to EGCs to all
NAFs. This may decrease (or at least delay) compliance costs for NAFs
that are newly eligible for this accommodation, but also potentially
decrease the level of comparability of financial statements among
reporting companies due to the expansion of the subset of filers that
will have additional time to comply with new or revised financial
accounting standards, which could result in the loss of information
for, or costs to, investors. For purposes of both benefits and costs of
this proposed provision, the subset of affected registrants is
relatively limited, consisting of issuers that are NAFs under the
proposed amendments and that either (i) went public as an EGC but lost
the EGC status before the end of the five-year period (e.g., due to
fast revenue growth or debt issuance) or (ii) went public as a non-
EGC.\397\
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\397\ See supra note 229.
---------------------------------------------------------------------------
b. Scaled Non-Financial and Business Disclosures
The proposed amendments also would allow NAFs, similarly to the
scaled disclosure applicable to SRCs today,\398\ to, among other
things, provide a more limited description of business disclosure;
provide two (instead of three) years of MD&A; omit risk factor
disclosure from periodic reports, omit the performance graph disclosure
(except in the case of NAFs that are investment companies), and omit
Item 305 of Regulation S-K; and forgo disclosure of certain payments
made by resource extraction registrants.\399\ The accommodations
involving scaled non-financial disclosures are expected to decrease the
compliance costs for newly eligible NAFs through less management time
dedicated to preparing periodic reports and lower costs of outside
service professionals. In addition to the compliance cost savings, the
non-financial disclosure accommodations may reduce the risk of
proprietary information loss from competitors inferring potentially
valuable information about the registrant's business (insofar as that
information is not already required to be disclosed in other filings).
---------------------------------------------------------------------------
\398\ See section II.B.3 for a detailed discussion of
accommodations applicable to SRCs today that are being extended to
all NAFs under the proposed amendments.
\399\ For a discussion of the economic costs and benefits
associated with the resource extraction disclosure implementing
section 1504 of the Dodd-Frank Act, for which the first set of
filings was due in 2024, see Disclosure of Payments by Resource
Extraction Issuers, Release No. 34-90679 (Dec. 16, 2020) [86 FR 4662
(Jan. 15, 2021)].
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The proposed scaled disclosure accommodations would decrease the
information available in public disclosures to investors in evaluating
companies newly eligible for scaled disclosures, and their securities,
and making investment and could make such evaluation and decision-
making more costly. The economic effects would be lower to the extent
that the information being omitted is provided in other filings or may
be readily obtained elsewhere, which would mitigate both the costs and
the effects on information availability. For instance, the effects of
omitting the risk factor disclosure in periodic reports may be lower
for NAFs that have recently filed registration statements, in which
such disclosures would remain required. Relatedly, the economic effects
of omitting the third year of MD&A discussion may be small to the
extent that filers have been public for at least a year and have
already provided in a prior filing the MD&A discussion for the year
that can now be omitted, which today can be cross-referenced in the
MD&A discussion. In a similar vein, the economic effects of most NAFs
being able to omit the performance graph may be small given the
relative ease, for registrants and investors, of compiling that
information from outside market data sources, should it affect investor
decision making.
While the individual cost savings associated with the
accommodations may be modest, the overall impact could be to provide a
simpler and more streamlined framework for periodic reporting
disclosure which may in aggregate reduce the costs of disclosure
preparation for NAFs. Conversely, the cumulative effects of scaling the
overall amount of disclosure provided to investors under the proposed
amendments may have some net adverse effects on the availability of
information for investor decisions.
c. Scaled Executive Compensation and Corporate Governance Disclosures
and Related Accommodations
As discussed in detail in section II.B.3 above, the proposed
amendments would extend the option to provide scaled executive
compensation, corporate governance, and related disclosures currently
available to SRCs (and, generally, EGCs) to the broader subset of
filers that would be newly eligible as NAFs.
Providing these proposed accommodations relating to the executive
compensation disclosure requirements of Item 402 of Regulation S-K and
certain corporate governance disclosure requirements to NAFs could
result in direct benefits to the affected registrants in the form of
reduced compliance costs. These disclosure accommodations also may
result in indirect benefits for the affected registrants, by decreasing
the risk of sharing sensitive information about executive retention and
compensation strategies with competitors; by decreasing investor
relations costs and time dedicated to addressing market participants'
questions about these disclosures; \400\ and by decreasing the risk of
potentially inefficient compensation decisions driven by concerns over
perceptions of executive pay (for instance, on the part of employees,
media, shareholder activists, or proxy advisors). These benefits may be
attenuated to the extent that certain numerical and narrative
information about executive pay would remain disclosed in periodic
reports, and to the extent that third-party sources gather a variety of
market and peer information about executive compensation.
---------------------------------------------------------------------------
\400\ It is also possible, however, that in some instances, a
lack of mandatory disclosure would prompt investors to engage more
and ask more questions about compensation, resulting in additional
investor relations time and/or companies electing to provide similar
disclosures voluntarily.
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The proposed disclosure accommodations may impose costs on
investors. To the extent that insider and shareholder incentives are
not fully aligned (e.g., moral hazard and agency problems are present),
scaled executive compensation disclosures could make it more difficult
to observe managerial incentives and potentially increase moral
hazard.\401\ The proposed
[[Page 30144]]
amendments may also affect shareholder ability to make informed
investment and voting decisions. The proposed elimination of the
requirement to conduct say-on-pay votes, say-on-pay frequency votes,
and say-on-golden-parachute votes (henceforth, collectively, the ``SOP
votes'') \402\ for NAFs is expected to decrease the effect of the
proposed scaled disclosures on voting decisions to the extent that
shareholders view current executive compensation disclosures as
informative for SOP votes under the baseline (although shareholders'
ability to make informed voting decisions with respect to other votes,
such as votes on director elections or shareholder or management
proposals, may still be affected). The continued availability of other
executive compensation and governance-related disclosures in registrant
filings (such as annual reports on Form 10-K and proxy and information
statements) under the proposal could mitigate some of these effects.
Further, some of the information that would no longer be required to be
disclosed may be obtained or approximately estimated from other
disclosures by the registrant or third-party sources.\403\ The proposed
amendments may also indirectly result in decreased engagement with
shareholders.
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\401\ See, e.g., Chandra Kanodia & Deokheon Lee, Investment and
Disclosure: The Disciplinary Role of Periodic Performance Reports,
36 J. Acct. Rsch. 33 (1998); Benedikt Downar, J[uuml]rgen
Ernstberger & Benedikt Link, The Monitoring Effect of More Frequent
Disclosure, 35 Cont. Acct. Rsch. 2058 (2018); Itay Goldstein, Shijie
Yang & Luo Zuo, The Real Effects of Modern Information Technologies:
Evidence from the EDGAR Implementation, 61 J. Acct. Rsch. 1699
(2023) (noting the monitoring benefits from a decrease in disclosure
processing costs around EDGAR implementation).
\402\ See supra notes 219-221 and infra notes 418-421 for more
information regarding SOP Votes.
\403\ For example, investors in registrants that no longer
provide the third year of summary compensation table but have been a
reporting company for at least one year can refer to the prior
year's reports to obtain that information. See also, e.g., infra
notes 406 and 417 and accompanying text.
---------------------------------------------------------------------------
Some NAFs may opt to continue providing existing disclosures (for
instance, for continuity with their existing reporting processes or in
anticipation of potential scrutiny from shareholders,\404\ other market
participants, or proxy advisory firms), in which case the economic
effects on investors described above may be lessened.
---------------------------------------------------------------------------
\404\ See, e.g., Heidi A. Packard, Andrea Pawliczek & A. Nicole
Skinner, Voluntary Performance Disclosures in the CD&A, 98 Acct.
Rev. 435 (2023) (finding that ``firms voluntarily increase
discussion of their performance within their CD&A disclosures when
peer-benchmarked compensation relative to performance is high. In
contrast, we do not find a similar increase in performance
discussion in the corresponding MD&A disclosures, which suggests
that the effect is not driven by firms' general disclosure
practices. We also find that the relation between relatively high
compensation and CD&A performance disclosure strengthens following
the implementation of mandatory Say-on-Pay, which increased costs
associated with investor criticism of pay.''). Given the elimination
of the requirement to conduct SOP votes for newly eligible NAFs, it
is unclear if the findings of this study may continue to apply, but
it is possible that registrants may remain sensitive to shareholder
scrutiny even in the absence of the requirement to conduct SOP
votes.
---------------------------------------------------------------------------
The economic effects discussed above are expected to apply to all
of the proposed executive compensation and corporate governance
disclosure accommodations. Below we discuss additional cost-benefit
considerations specific to individual provisions.
Eliminating the requirement to provide the pay versus performance
disclosure under Item 402(v) of Regulation S-K may reduce the amount of
information available to investors about the extent of alignment of
named executive officers' compensation incentives.\405\ Investors in
companies that no longer provide the pay versus performance disclosure
may instead evaluate compensation information in the summary
compensation table in conjunction with performance metrics based on
financial statements and/or return data available from market sources
for the company and its peers, to evaluate the relation between
executive pay and the company's performance, which can limit the
economic effects of the proposed exemption.\406\ Shareholders would
incur the costs of gathering or accessing such information, however.
---------------------------------------------------------------------------
\405\ This rule was adopted in 2022 to implement the mandate in
section 953(a) of the Dodd-Frank Act. Public Law 111-203, 124 Stat.
1376 (2010), sec. 953(a). Section 102(a)(2) of the JOBS Act excluded
EGCs from the pay versus performance disclosure requirement. For a
more detailed discussion of the costs and benefits of the pay versus
performance disclosure requirement, see Pay Versus Performance,
Release No. 34-95607 (Aug. 25, 2022) [87 FR 551334 (Sept. 8, 2022)].
See also Ira T. Kay & John Sinkular, Pay Governance LLC, Pay for
Performance Mandated SEC Proxy Disclosures--Role of PVP and CAP,
Harv. L. Sch. Forum on Corp. Governance (2025), https://corpgov.law.harvard.edu/2025/09/29/pay-for-performance-mandated-sec-proxy-disclosures-role-of-pvp-and-cap (concluding that ``[t]he use
of CAP, which is sensitive to financial and stock price
fluctuations, is a significant improvement in evaluating pay for
performance relative to using SCT total compensation''). But see
Transcript, U.S. Securities and Exchange Commission, SEC Roundtable
on Executive Compensation Disclosure Requirements Panel (July 26,
2025), at 84, https://www.sec.gov/files/sec-roundtable-executive-compensation-disclosure-requirements-2025-06-26-transcript.pdf
(panelist noting that ``[n]o one has ever asked me once about the
CEO pay ratio on the investor side, nor about the pay versus
performance table. . . a lot of effort goes into this, and I'm just
not sure what the utility of a lot of the information is'').
\406\ See, e.g., Yixi Ning, Bill Hu, & Zhi Xu, CEO Pay-
Performance Sensitivity and Pay for Luck and Asymmetry, 50
Managerial Fin. 1954 (2024).
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Under the proposal, NAFs would also be permitted to omit disclosure
of policies and procedures for the review, approval, or ratification of
related party transactions (``RPTs''), currently required of all non-
SRC filers under Item 404 of Regulation S-K.\407\ This is similarly
expected to decrease some costs for registrants, including small direct
cost savings related to compiling the disclosure and the potentially
greater indirect cost reductions (e.g., reputational or investor
relations costs for registrants that have fewer policies and procedures
related to the review of RPTs). In turn, the loss of this disclosure
may make it incrementally harder for shareholders to infer the extent
of governance safeguards with respect to RPTs for affected registrants.
However, the continued application of the Item 404 requirement to
disclose RPTs that meet the disclosure threshold \408\ may enable
market participants to perform their own analysis of RPTs,\409\ which
may alleviate some of these economic effects; however, under the
proposal, investors would incur the costs of analyzing the implications
of these transactions and the registrant's corporate governance.
---------------------------------------------------------------------------
\407\ See 17 CFR 229.404(b); 17 CFR 229.404(d).
\408\ See 17 CFR 229.404(d)(1).
\409\ For examples of such analysis, see, e.g., Mark Kohlbeck &
Brian W. Mayhew, Are Related Party Transactions Red Flags?, 34 Cont.
Acct. Rsch. 900 (2017) (the study ``hand-collect[s] related party
transactions for S&P 1500 firms in 2001, 2004, and 2007 and find[s]
a positive correlation between these transactions and future
restatements, suggesting restatements are more likely when a firm
engages in related party transactions. The association is
concentrated among transactions that appear to reflect `tone at the
top' rather than arguably more necessary business transactions.'').
See also Michael Ryngaert, Shawn Thomas, Not All Related Party
Transactions (RPTs) Are the Same: Ex Ante Versus Ex Post RPTs, 50 J.
Acct. Rsch. 845 (2012) (the study ``find[s] that the overall volume
of disclosed RPTs is generally not significantly associated with
shareholder wealth as measured by operating profitability or Tobin's
Q . . . whereas ex post RPTs, transactions initiated after a
counterparty becomes a related party, are significantly negatively
associated with operating profitability. Ex post RPTs also result in
significant share price declines when first disclosed and are
associated with an increased likelihood that a firm will enter
financial distress or deregister its securities.'' and concludes
that the ``results are consistent with ex post RPTs serving as means
for insiders to expropriate outside shareholders.'').
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In addition, the proposed amendments would apply a single threshold
for RPT disclosure to all filers and eliminate the multiple RPT
disclosure thresholds currently applicable to SRCs under Item 404 \410\
(the lesser of $120,000 or one percent of total assets). The
harmonization of this requirement would simplify reporting and
disclosure requirements and potentially make filing disclosures more
comparable across filers. The proposed amendment also would mean that
RPTs of filers that are SRCs today and have total assets below $12
million (such that
[[Page 30145]]
the one percent of total assets would fall below $120,000, the RPT
reporting threshold applicable today to non-SRCs) would no longer meet
the RPT disclosure threshold. While this change is unlikely to affect
RPT disclosure for most NAFs, it may incrementally decrease compliance
costs for some low-asset SRCs.
---------------------------------------------------------------------------
\410\ See 17 CFR 229.404(d)(1) (referring to 17 CFR 229.404(a)).
---------------------------------------------------------------------------
Under the proposal, NAFs also would be permitted to omit disclosure
of compensation committee interlocks and insider participation, which
is currently required for non-SRCs in Item 407(e)(4).\411\ This
proposed amendment may reduce direct compliance costs as well as some
indirect costs of the disclosure (such as revealing potentially
valuable competitive information about internal governance of the
company and top personnel and making director appointment decisions in
anticipation of the market scrutiny of the disclosure that might differ
from the registrant's optimal board composition). The loss of this
disclosure might in turn make it harder for shareholders to weigh the
extent of incentive alignment of compensation committee members with
the interests of the registrant's shareholders in their setting of
executive compensation, as well as potential agency conflicts due to
these committee members being insiders or affiliated directors of other
companies or having apparent quid-pro-quo relationships through seats
on other companies' boards.\412\ Some of these costs and benefits may
not be applicable to registrants listed on major U.S. exchanges, for
which the 2012 Commission rule implementing the Dodd-Frank Act
requirements, and accordingly, corporate governance listing standards
of individual exchanges, require compensation committee
independence.\413\ These effects may also be smaller to the extent that
investors can refer to third-party sources that compile profile
information about board members (including information about their
current and historical employment and affiliations); Item 401
disclosures regarding the background of directors and executive
officers; company websites; or online postings by individual directors,
which may enable a fairly comprehensive picture of the compensation
committee composition. Under the proposal, shareholders would incur a
potential additional cost of gathering or accessing such information,
which may be less standardized across filers than the existing
disclosure.
---------------------------------------------------------------------------
\411\ See 17 CFR 229.407(e)(4).
\412\ See, e.g., David F. Larcker, Scott A. Richardson, Andrew
J. Seary, & Irem Tuna, Back Door Links Between Directors and
Executive Compensation, (Working Paper 2005), https://
users.nber.org/~confer/2005/cgs05/tuna.pdf (taking a broader look at
links between CEO and director connections through seats on other
firms' boards beyond the narrow definition in Item 407 and showing
that ``CEOs at firms where there is a relatively short back door
distance between inside and outside directors or between the CEO and
the members of the compensation committee earn substantially higher
levels of total compensation (after controlling for standard
economic determinants and other personal characteristics of the CEO
and the structure for board of directors) . . . '' consistent with
the possibility that ``the monitoring ability of the board is
hampered by `cozy' and possibly difficult to observe relationships
between directors.'' (As an important caveat, the paper defined
relationships significantly more broadly than the Item 407
disclosure of interlocks to capture instances of potential indirect
influence and constructed those measures from publicly available
information on the list of executive and non-executive directors on
boards and board committees, rather than focusing on the information
required in Item 407.) Nevertheless, the broader point may apply to
the types of interlocks addressed by Item 407 disclosures, which may
generate the most salient conflicts of interest related to setting
efficient executive compensation.) See also (not specific to the
Item 407 compensation committee interlocks context): Erik Devos,
Andrew Prevost & John Puthenpurackal, Are Interlocked Directors
Effective Monitors?, 38 Fin. Mgmt. 861 (2009) (finding that ``firms
with lower industry-adjusted firm performance are more likely to
have interlocked directors. We document that shareholders react
negatively to the formation of director interlocks and find that the
presence of interlocked directors is associated with lower than
optimal pay-performance sensitivity of CEO incentive compensation
and reduced sensitivity of CEO turnover to firm performance'').
\413\ See 17 CFR 240.10C-1. See also, e.g., section 303A.02
(Independence Tests) of the NYSE Listed Company Manual, https://nyseguide.srorules.com/listed-company-manual/09013e2c85c00746
(retrieved 12/17/2025); section 5600 (Corporate Governance
Requirements) of the Nasdaq Stock Market Rules, available at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules/nasdaq-5600-series
(retrieved 12/17/2025).
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The proposed amendments also would exempt NAFs from the pay ratio
disclosure requirement in Item 402(u) of Regulation S-K.\414\ When
adopting this disclosure rule, the Commission stated that it believed
that Congress intended section 953(b) of the Dodd-Frank Act to enhance
the executive compensation information available to shareholders that
they might find relevant and useful when exercising their say-on-pay
voting rights under section 951 of the Dodd-Frank Act.\415\ However, as
the proposed amendments also would exempt NAFs from the SOP vote
requirement, to the extent shareholders review pay ratio information
when making their SOP vote decisions, the resulting cost to
shareholders from the information loss may be limited.\416\ Investors
in companies that no longer provide the pay ratio disclosure or the
disclosure of median worker pay may analyze the company's executive
compensation (available in other disclosures) in conjunction with data
on average worker pay in the registrant's industry (potentially
available in industry sources), which can limit the economic effects of
the proposed exemption, although investors would incur costs to gather
and analyze this information.\417\ The costs to investors of
eliminating the pay ratio disclosure requirement for NAFs under the
proposed amendments would be smaller if pay ratio information is not
used to value shares of a company, in which case the information loss
would be incremental.
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\414\ See Pay Ratio Disclosure, Release No, 34-75610 (Aug. 5,
2015) [80 FR 50103 (Aug. 18, 2015)] (``Pay Ratio Adopting
Release''). The rule was adopted in 2015 to implement the mandate in
section 953(b) of the Dodd-Frank Act. Public Law 111-203, 124 Stat.
1376 (2010), sec. 953(b).
\415\ See Pay Ratio Adopting Release.
\416\ For a more detailed discussion of the costs and benefits
of the pay ratio disclosure, including potential ancillary benefits
of the pay ratio disclosure (which would be eliminated under the
proposal), see id. For more recent research on the pay ratio
disclosure, see, e.g., Yihui Pan, Elena S. Pikulina, Stephan Siegel,
& Tracy Yue Wang, Do Equity Markets Care about Income Inequality?
Evidence from Pay Ratio Disclosure, 77 J. Fin. 1371 (2022) (finding
that ``firms disclosing higher pay ratios experience significantly
lower abnormal announcement returns,'' particularly ``[f]irms whose
shareholders are more inequality-averse''); Zhaofeng Xu, Unintended
Consequences of CEO-Employee Pay Ratio Disclosure Mandate: Evidence
from Shareholder Proposals, (Working Paper 2024), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4807244 (finding that
``shareholders selectively submit fewer governance proposals but
pass more,'' particularly at firms with a higher expected pay ratio
and greater media coverage); Tristan B. Johnson, The Effects of the
Mandated Disclosure of CEO-to-Employee Pay Ratios on CEO Pay, 19
Intl. J. Disclosure & Governance 67 (2022) (finding that
``[a]lthough there is no evidence of a curb on residual CEO pay in
response to the SEC's proposal (or adoption) at the average firm,
there is evidence of a curb in response to the proposal (but not
adoption) at firms that are more susceptible to public scrutiny of
or adverse stakeholder reactions to pay ratios.''); Mei Cheng &Yuan
Zhang, Corporate Stakeholders and CEO-Worker Pay Gap: Evidence from
CEO Pay Ratio Disclosure, 29 Rev. Acct. Stud. 3713 (2024) (finding
that ``firms significantly decrease (increase) their CEO-worker pay
ratios when their prior pay ratios are high (low) relative to
peers'' and that ``the decrease in pay ratio among high pay ratio
firms is significantly more pronounced with stronger stakeholder
influences, proxied by employees with greater bargaining power,
communities with higher social capital, and states with more
stringent minimum wage legislation'').
\417\ See, e.g., Olubunmi Faleye, Ebru Reis & Anand
Venkateswaran, The Determinants and Effects of CEO-Employee Pay
Ratios, 37 J. Banking & Fin. 3258 (2013).
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The proposed amendments also would exempt NAFs from the requirement
to conduct SOP votes and to provide related disclosure.\418\ The
[[Page 30146]]
proposed amendments are expected to benefit the affected registrants
through cost savings. Direct costs of the SOP votes to registrants
include the costs of preparation of proxy statement disclosure and
opportunity costs of managerial time to interpret and discuss voting
results and potentially manage additional investor relations concerns
arising from such votes. The proposed amendments may also have indirect
economic effects. Although SOP votes are non-binding, boards face
market scrutiny following SOP votes.\419\ To the extent that
shareholders participating in SOP votes are less informed than
compensation committees, and the scrutiny associated with SOP votes
leads to inefficient executive compensation decisions, the proposed
accommodation could benefit shareholder value. On the other hand, to
the extent that SOP votes are well-informed and strengthen the
alignment between executive compensation incentives and shareholder
value and serve as a check on moral hazard and agency problems at some
companies,\420\ the proposed accommodation could decrease shareholder
value. The proposed amendments may also result in decreased engagement
with shareholders. Academic studies have found somewhat mixed results
as to the impact of the Dodd-Frank requirement to conduct SOP votes on
company value.\421\ Overall, the economic effects of the proposed
accommodation with respect to SOP votes may be limited. Shareholder
views (e.g., in the form of investment decisions \422\ or votes on
director elections or on shareholder proposals related to executive
pay) may prompt some registrants to continue to hold SOP votes even
when no longer required, or to maintain existing shareholder engagement
and executive pay practices even absent the requirement to conduct SOP
votes.
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\418\ The requirement to conduct SOP votes is in accordance with
section 14A of the Exchange Act, as added by section 951 of the
Dodd-Frank Act 17 U.S.C. 78n-1; Public Law 111-203, 124 Stat. 1376
(2010), sec. 951. The Commission adopted rules implementing the
mandate in 2011. See 17 CFR 240.14a-21. Title I of the JOBS Act
exempted EGCs from the requirement to conduct SOP votes. Public Law
112-106, 126 Stat. 306 (2012), sec. 102(a)(1). Upon adoption of the
Commission rules, SRCs were subject to the requirement but received
a two-year initial compliance delay. For a more detailed discussion
of the costs and benefits of the SOP requirement, see Shareholder
Approval of Executive Compensation and Golden Parachute
Compensation, Release No. 33-9178 (Jan. 25, 2011) [76 FR 6009 (Feb.
2, 2011)].
\419\ See, e.g., Mary Elizabeth Badgett, Kelly R. Brunarski, T.
Colin Campbell & Yvette S. Harman, Director Reputational Penalties
when Shareholders Disapprove of Executive Compensation, 45 J. Fin.
Rsch. 759 (2022) (examining ``directors of firms that receive a low-
support Say-on-Pay (SOP) vote'' and finding that ``[t]hese affected
directors face a significantly greater likelihood of losing board
seats, both at the voting firm and in the external labor market.'')
\420\ However, most SOP votes pass, which may point to the
modest role of SOP votes as a check on moral hazard problems at most
firms. See, e.g., Perla Cuevas, Jose Lawani, Montserrat Longoria, &
Linda Pappas, Recap of the 2025 Say on Pay Season, Pay Governance
LLC, https://www.paygovernance.com/resource/recap-of-the-2025-say-on-pay-season/; Proxy Season Global Briefing Part 4: Trends on
Executive Pay, Glass Lewis, https://www.glasslewis.com/article/proxy-season-global-briefing-part-4-trends-executive-pay; 2025 Proxy
Results: David Bell & Wendy Grasso, Say-on-Pay Stabilized, SV 150
Support Rose, and Failures Fell to One, Fenwick & West LLP, https://www.jdsupra.com/legalnews/2025-proxy-results-say-on-pay-1401914/.
\421\ See, e.g., Yonca Ertimur, Fabrizio Ferri, & David Oesch,
Shareholder Votes and Proxy Advisors: Evidence from Say on Pay, 51
J. Acct. Rsch. 951 (2013) (examining the role of proxy advisors in
mandatory SOP votes and also finding that ``[m]ore than half of the
firms respond to the adverse shareholder vote triggered by a
negative recommendation by engaging with investors and making
changes to their compensation plan''); Peter Iliev & Svetla
Vitanova, The Effect of the Say-on-Pay Vote in the United States, 65
Mgt. Sci. 4451 (2019) (finding that ``the market reacted negatively
to the exemption from the Say-on-Pay rule'' and also that ``the
regulation increased the level of CEO pay and the fraction of
performance-linked pay in the companies that had to comply with the
new rule''); Jie Cai & Ralph A. Walkling, Shareholders' Say on Pay:
Does It Create Value?, 46 J. Fin. Quant. Analysis 299 (2011)
(finding ``when the House passed the Say-on-Pay Bill, the market
reaction was significantly positive for firms with high abnormal
chief executive officer (CEO) compensation, with low pay-for-
performance sensitivity, and responsive to shareholder pressure''
and also noting that ``say-on-pay creates value for companies with
inefficient compensation but can destroy value for others''); Kelly
R. Brunarski, T. Colin Campbell & Yvette S. Harman, Evidence on the
outcome of Say-On-Pay votes: How managers, directors, and
shareholders respond, 30 J. Corp. Fin. 132 (2015) (finding that
``overcompensated'' managers with low SOP support increase
dividends, decrease leverage and increase investment, but that it
does not affect subsequent vote outcomes or firm value, and also
finding that ``excess compensation increases for managers that were
substantially overpaid prior to the SOP vote, regardless of the
outcome of the vote''). There is limited research on Dodd-Frank Say-
on-Golden-Parachutes (``SOGP'') votes. See, e.g., Albert H. Choi,
Andrew C.W. Lund, & Robert Schonlau, Golden Parachutes and the
Limits of Shareholder Voting, 73 Vand. L. Rev. 223, 266 (2020)
(finding that ``the size of golden parachutes appears to be
increasing in the years since the adoption of the Dodd-Frank Act in
2010, and the golden parachutes that are amended immediately prior
to SOGP votes tend to grow rather than shrink''); Stuart L. Gillan &
Nga Q. Nguyen, Shareholder Voting on Golden Parachutes: Effective
Governance or Too Little Too Late? 51 J. Bus. Fin. Acct. 2279
(2024).
\422\ See, e.g., Anat Admati & Paul Pfleiderer, The ``Wall
Street Walk'' and Shareholder Activism: Exit as a Form of Voice, 22
Rev. Fin. Stud. 2645 (2009); Marco Becht & Julian R. Franks, Hannes
F. Wagner, Corporate Governance Through Voice and Exit (Working
Paper 2019), https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=3456626.
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6. Extending Filing Deadlines for the Smallest NAFs
The proposed amendments would also establish a new filer
subcategory, SNFs, which is composed of NAFs with total assets not
exceeding $35 million as of the end of each of their two most recent
second fiscal quarters. These filers would be afforded additional time
to file periodic reports on Forms 10-K and 10-Q (30 days and five days,
respectively). We estimate that 1,072 registrants (17.9 percent of all
registrants and 22.2 percent of NAFs under the proposed amendments)
would qualify as SNFs under the proposed amendments.\423\ The
additional time to file periodic reports is expected to enhance an
SNF's ability to meet reporting and disclosure requirements and provide
additional time for preparing their disclosures. While such filers
still would incur the costs of preparing the same periodic reports as
required under the baseline, additional time to file may incrementally
ease the challenges, and thus reduce the costs incurred, due to the
time pressures of filing deadlines, particularly to the extent that
their executive and finance teams may be smaller than those of larger
registrants. Additional time to file may also allow these smaller
registrants to more easily engage auditors without being crowded out by
larger issuers during busy periods around the current reporting
deadlines.\424\
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\423\ The number of registrants that would qualify as SNFs in
practice might differ from the estimate above for several reasons.
First, our estimate does not include 184 registrants because we are
missing data on assets for either of the two years required to make
the status determination. Second, our estimate represents an initial
number of SNFs at the onset of the proposed amendments and only
includes those registrants for which both of the past two years of
assets were equal to or lower than the $35 million threshold.
However, in all future years, an SNF registrant would continue to be
an SNF even with one, but not two, years where assets exceed the
threshold, since a registrant would change status only if assets
cross the threshold in two consecutive years, leading to a greater
number of SNFs than those that fall into that group initially.
\424\ See, e.g., Bei Dong, Stefanie Tate & Le Xu, Unexpected
Consequences: The Effects on Non-Accelerated Filers of an
Accelerated Filing Deadline and SOX Section 404, 34 Acct. Horizons
87 (2020). They find when 2003/2004 SEC rules shortened financial
statement filing deadlines and increased preparation time for AFs,
NAFs with auditors with a high proportion of AF clients had longer
audit delays, suggesting binding constraints on auditor resources.
---------------------------------------------------------------------------
In turn, extending the filing deadlines as proposed would allow
these registrants to take more time to file the required periodic
disclosures, which may accordingly increase the extent of information
asymmetry and costs to investors. This difference may be smaller to the
extent that filers that would qualify as SNFs today are
disproportionately more likely to file non-timely periodic reports,
potentially indicating difficulties for some categories of registrants
in complying
[[Page 30147]]
with the existing filing deadlines.\425\ To the extent that some SNFs
are concerned about the potential capital market implications of
extended time to file reports or seek to respond to market pressures
and investor expectations, or to manage legal risk concerns,\426\ they
may elect to voluntarily file periodic reports earlier than the
extended deadline available to SNFs. Importantly, while the proposed
amendments would make longer filing deadlines for Forms 10-K and 10-Q
available to SNFs, they would not change the existing filing deadlines
for Form 8-K, which would help ensure that investors retain timely
access to information about specified significant developments and
changes affecting an issuer, potentially mitigating some of the effects
of the proposed amendments on investors' ability to make informed
investment and voting decisions.
---------------------------------------------------------------------------
\425\ There is some evidence on the causes of non-timely filings
for individual registrants. One study evaluates a small historical
sample of late filings (192 notices of late filings of Form 10-K
from the first or second quarter of 2002) and reports that 26.0%
were classified as having no attribution; 20.3% cited a
reorganization, acquisition or another event; 17.2%--financial
distress or bankruptcy; 13.5%--audit-related delays; 8.9%--data not
being available from outside source; 7%--difficulty applying
accounting principles; 6.8%--labor/employee related/staff reductions
causes. See Carol Callaway Dee, William Hillison & Carl Pacini, No
News is Bad News: Market Reaction to Reasons Given for Late Filing
of Form 10-K, 22 Rsch. Acct. Regulation 121 (2010) (examining 2000-
2010 data on late Form 10-K filings, noting that ``[d]elays in
Securities and Exchange Commission (SEC) filings often reflect
issues related to period-end financial reporting and audit
processes,'' and finding that ``late filing firms are associated
with lower financial reporting quality compared to timely filers'').
See also Cao et al. (2016), supra note 379. As a caveat, the causes
cited are based on reporting by companies, and there may be
additional factors contributing to the late filing. For instance, a
different study (which evaluates late filings of quarterly and
annual reports from the 2000-2008 sample period), notes that
``investors do not take managements' announcements at face value and
instead appear to use other information to infer the accuracy of
managements' announcements.'' See Bartov & Konchitchki (2017), supra
note 379. For some filers, the acceleration of filing deadlines
after the Sarbanes-Oxley Act appears to have contributed to the
decreased timeliness of filings for some categories of registrants.
See, e.g., Joost Impink, Martien Lubberink, Bart van Praag & David
Veenman, Did Accelerated Filing Requirements and SOX Section 404
Affect the Timeliness of 10-K Filings?, 17 Rev. Acct. Stud. 227
(2012) (finding a decrease in timely Form 10-K filings only for
registrants with weaknesses in internal controls following the
acceleration of filing deadlines after the Sarbanes-Oxley Act).
\426\ See also supra notes 389-390 and preceding and
accompanying text.
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7. Updating Small Entity Definition
As discussed in section II.E, the Commission is also proposing to
update its small entity definitions under 17 CFR 230.157(a) and 17 CFR
240.0-10(a) for purposes of the RFA. The proposed amendments would
raise the total asset threshold in each of the definitions of a small
entity (other than an investment company) from $5 million to $35
million, as well as harmonize the small entity definitions for purposes
of the Securities Act and the Exchange Act by conditioning the amended
definitions only on the level of assets in both instances and
eliminating the additional offering size condition that is a part of
the existing small entity definition for purposes of the Securities Act
(but not for purposes of the Exchange Act).\427\ The proposed changes
would streamline and modernize the definitions relative to the current
definition and facilitate more meaningful analysis by the Commission
and other regulators of the impacts of securities market regulations
for purposes of the RFA.
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\427\ See Section II.E.
---------------------------------------------------------------------------
The Commission is required to determine if a rulemaking is likely
to have a ``significant economic impact on a substantial number of
small entities'' under the RFA.\428\ Accordingly, in applicable
rulemakings, the Commission's definitions of small entities determine
the scope of the Initial Regulatory Flexibility Analysis (``IRFA'') and
Final Regulatory Flexibility Analysis (``FRFA''). The proposed
definitions are expected to enhance the Commission's analyses of the
specific regulatory challenges faced by small entities by expanding the
scope of the analyses that the Commission conducts under the RFA. These
analyses would, in turn, better inform the Commission of the regulatory
impacts faced by small entities so that it may consider adapting its
rulemaking accordingly. To the extent such adaptations would occur in
future rulemakings, the use of the amended definitions of small
entities in RFA analyses could result in different benefits and costs
of such rulemakings. For example, if the Commission, informed by the
enhanced RFA analyses, determined to scope fewer small entities into
future rulemakings or tailor obligations imposed by such rulemakings
differently for small entities, there could be fewer compliance costs
imposed on such entities. However, the proposed amendments would not
have any direct economic benefits or costs to affected parties since
the small entity definition for purposes of the RFA would not entail
any differences in reporting requirements, or exemptions from such
requirements, under either the Securities Act or the Exchange Act.
Relatedly, we do not anticipate that the proposed amendments would have
any direct effects on efficiency, competition, or capital formation
because, as discussed above, they would have minimal direct economic
impact.
---------------------------------------------------------------------------
\428\ See supra note 268.
---------------------------------------------------------------------------
Based on calendar year 2024 data, if we were to set the small
entity threshold at $35 million in total assets, we estimate that 1,419
registrants (excluding issuers of asset-backed securities, investment
companies, and BDCs) would be small entities. The number of small
entities as determined by the proposed threshold would be smaller
(larger) if the asset threshold were decreased (increased) to a level
below (above) the proposed $35 million.\429\ The number of small
entities as determined by the proposed threshold of $35 million is
expected to gradually fall over time due to the effects of inflation.
---------------------------------------------------------------------------
\429\ See section II.E (discussing alternative thresholds).
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8. Additional Considerations
a. Differential Impacts Across Industries
EA Table 8 provides a breakdown of the potential impact of the
proposed rules by industry. Listed are the industries in the Fama-
French 49 classification.\430\ Column 1 gives the number of registrants
in each industry that are LAFs under the baseline. Column 2 estimates
the number of these registrants that would become NAFs under the
proposed rules. Column 3 divides column 2 by column 1, resulting in the
percentage of current LAFs in each industry that would become NAFs
under the proposed rules. The industries are sorted from highest to
lowest percentage change.
---------------------------------------------------------------------------
\430\ This information is based on primary Standard Industry
Classification (``SIC'') codes as reported by registrants. The SIC
codes are then assigned to one of Fama-French 49 industries, a
common industry classification in finance research. See Eugene F.
Fama & Kenneth R. French, 49 Industry Portfolios, https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_49_ind_port.html. Some registrants have missing information,
thus the total in EA Table 8 is less than the total number of LAFs
under the existing definition and in the total number of current
LAFs that would become NAFs. For instance, SIC information is
missing for BDCs (including 19 LAF BDCs, of which 13 are expected to
become eligible as NAFs under the proposed amendments).
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Some industries are relatively more commonly represented than
others among the population of newly eligible NAFs, potentially as a
function of the distribution of filer sizes across industries. It is
possible that the proposed amendments would therefore have differential
effects on various sectors, and ascertaining the effects on competition
would require more precise definition of markets than provided in EA
Table 8. As a caveat, the categorization of registrants by industry
codes may be imprecise because registrants are categorized by their
primary business models without accounting for ancillary business. In
addition, emerging and small companies may still have evolving business
models so their proper categorization may be in flux. It is also
possible that the industry distribution would evolve over time
subsequent to the proposed amendments as a function of industry
economic cycles, which affect valuations, and in turn, public float.
Subject to these same caveats, EA Table 9 provides an industry
breakdown of the registrants potentially eligible for the new SNF
subcategory.\431\ As with newly eligible NAFs, some industries are
relatively more commonly represented than others among the population
of SNFs, potentially as a function of the distribution of filer sizes
across industries. It is possible that the proposed extended filing
deadlines afforded to SNFs would therefore have differential effects on
various sectors.
---------------------------------------------------------------------------
\431\ See section IV.B.6. Some registrants have missing
information, thus the total number of SNFs in EA Table 9 is less
than the total number of SNFs (1,072) anticipated under the proposed
rules.
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[[Page 30151]]
b. Other Commission Proposals
The Commission recently proposed to make quarterly periodic reports
voluntary, irrespective of registrants' filer status.\432\ The
Semiannual Proposing Release would permit registrants to provide a
single semiannual report instead of three quarterly reports each year
and could potentially interact with some of the economic costs and
benefits of this proposal, specifically, in the context of the filing
deadline extension and scaled disclosure for quarterly periodic
reports. On the one hand, the Semiannual Proposing Release could partly
reduce the economic effects of this proposal. From the benefit
perspective, the decrease in the required number of quarterly reports,
if adopted in accordance with the Semiannual Proposing Release, would
potentially decrease the projected benefits of the current proposal to
newly eligible NAFs in terms of greater flexibility or compliance cost
savings from the filing deadline extension \433\ and scaled disclosures
because the accommodations would apply to only a single semiannual
report and one annual report instead of three quarterly reports and one
annual report. In turn, from the cost perspective, if the Semiannual
Reporting proposal is adopted and filers would be required to file
fewer periodic reports, and provide less information overall, it could
lessen some of the economic cost of information delay and/or loss that
is incremental to this proposal, which narrows the scope of certain
disclosures and extends the filing deadlines for periodic reports for
affected filers. However, the Semiannual Reporting Proposal would not
affect those impacts of the proposed amendments that stem from the
scaling, and filing deadline extension, with respect to annual reports.
---------------------------------------------------------------------------
\432\ See Semiannual Proposing Release.
\433\ Similarly, the decrease in the required number of
quarterly reports, if adopted, would potentially decrease the
projected benefits of the current proposal to extend the periodic
report filing deadlines for SNFs.
---------------------------------------------------------------------------
On the other hand, the economic effects of regulatory relief in the
two proposals may amplify each other. From the benefit perspective, the
disclosure relief accommodations in this proposal and in the Semiannual
Proposing Release could complement each other by increasing the
attractiveness of becoming or remaining a public company, to the extent
that overall regulatory burden is a factor in these decisions.\434\
From the cost perspective, the effects of disclosure relief
accommodations in this proposal and in the Semiannual Proposing Release
could similarly combine to amplify information asymmetries faced by
investors, who would receive less extensive, more delayed, and less
frequent periodic disclosures if both proposals are adopted.
---------------------------------------------------------------------------
\434\ See discussion in section IV.A above. See also supra note
296 discussing how the amendments proposed under the Registered
Offering Reform Proposal could also complement this proposal by
increasing the attractiveness of becoming or remaining a public
company.
---------------------------------------------------------------------------
c. Auditing Industry Impact
Under the proposed amendments, fewer registrants (roughly 1,596
registrants) would be required to obtain an ICFR auditor attestation.
To the extent this change impacts the scope and timing of audit
procedures at newly identified NAFs, auditors could experience a
decline in revenues. This effect could be amplified by the Semiannual
Proposing Release that would reduce the number of quarterly reviews
each fiscal year from 1 review for each of the first three fiscal
quarters (3 in total) to only 1 review for the first 6 months of each
fiscal year, but only for registrants that choose to file on a
semiannual basis. Further, the reduction in work related to ICFR
attestation could encourage larger audit firms to pursue audit
engagements that they otherwise might have forgone under the baseline,
for example, because of resource constraints that are diminished with
the reduction in work related to ICFR. This could result in larger
audit firms out-competing smaller firms for the audits of certain new
NAFs. Thus, the proposed amendments could increase concentration in the
auditing industry by increasing the market share of the largest audit
firms.
9. Aggregate Monetized Benefits and Costs
Throughout this economic analysis, we have estimated monetized
benefits and costs per filing. In this section, we present aggregate
measures of these monetized effects. These totals include only benefits
and costs that are monetized in the economic analysis and thus do not
encompass all of the proposed amendments' benefits and costs.
a. Annual Monetized Benefits and Costs
EA Tables 9 and 10 report the benefits and costs, respectively,
that are monetized in this economic analysis, on a per-filing basis and
in the aggregate across all affected filings each year. We are able to
quantify the direct benefits and costs of the rule that are due to the
compliance cost savings and increases, respectively. To aggregate these
monetized effects we use estimates of the number of affected filings
and burdens under the Paperwork Reduction Act in section V. As a
caveat, these are averages, and individual registrants' costs and
benefits may differ, depending on their current status and relief
already available to them, the extent to which they elect to avail
themselves of the proposed compliance accommodations, and their
existing compliance and reporting practices and service providers and
costs associated with them.
We estimate that the total aggregate annual monetized benefit is
$1,874,534,145.
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BILLING CODE 8011-01-C
b. Present Values and Annualized Values of Monetized Benefits and Costs
Consistent with the requirements of Executive Order 12866, the
Commission reports estimated total monetized benefits and costs for all
affected entities in two additional ways specified in OMB Circular A-
4.\435\ The two presentations are intended to address the fact that the
various benefits and costs of the proposed amendments would not accrue
at the same point in time; rather, benefits and costs that accrue
sooner are generally more valuable than those that occur later in
time.\436\
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\435\ See E.O. No. 12866 (Sept. 30, 1993), 58 FR 51735, 51741
(Oct. 4, 1993) (requiring agencies to provide an analysis of
benefits, costs, and regulatory alternatives to OIRA for significant
regulatory actions); OMB, Circular A-4, at 31-34, 45 (Sept. 17,
2003) (providing guidance to agencies regarding compliance with E.O.
12866); see also E.O. No. 14215 (Feb. 18, 2025), 90 FR 10447, 10448
(Feb. 24, 2025) (requiring independent agencies to comply with E.O.
No. 12866). In addition, E.O. 14192 requires agencies to provide
their best approximation of the total costs or savings associated
with each new regulation or repealed regulation consistent with the
analyses required by E.O. 12866. See E.O. No. 14192 (Jan. 31, 2025),
90 FR 9065, 9066 (Feb. 6, 2025).
\436\ See Circular A-4, at 32.
---------------------------------------------------------------------------
We report (1) the present values of expected benefits and costs
that are monetized in our Economic Analysis, aggregated across all
affected entities, over a 10-year time horizon, starting in 2026, as
well as (2) the annualized values over the same time horizon that are
derived from the present values. This time horizon represents the
period over which the principal benefits and costs that are monetized
in the Economic Analysis are expected to accrue.\437\ The present
values and annualized values account for the timing of benefits and
costs through discounting, which is a procedure that accounts for the
time value of money.\438\
---------------------------------------------------------------------------
\437\ See id. at 31 (stating that ``[t]he ending point should be
far enough in the future to encompass all the significant benefits
and costs likely to result from the rule''). For the purposes of
this analysis, we assume the effective date of the proposed
amendments, as well as the start year for the analysis's time
horizon, is the present year.
\438\ See id. at 32 (``The Rationale for Discounting'') and 45
(``Treatment of Benefits and Costs over Time''); see also OIRA,
Regulatory Impact Analysis: A Primer, at 11 (Aug. 15, 2011),
available at https://www.reginfo.gov/public/jsp/Utilities/circular-a-4_regulatory-impact-analysis-a-primer.pdf (``To provide an
accurate assessment of benefits and costs that occur at different
points in time or over different time horizons, an agency should use
discounting. Agencies should provide benefit and cost estimates
using both 3% and 7% annual discount rates expressed as a present
value as well as annualized.''); Harvey S. Rosen & Ted Gayer, Public
Finance 151 (8th ed. 2008) (defining present value as ``the value
today of a given amount of money to be paid or received in the
future'').
---------------------------------------------------------------------------
EA Table 11 reports the present values of the aggregate monetized
benefits and costs from EA Tables 9 and 10, respectively. The analysis
uses annual real discount rates of 3 percent and 7 percent over a 10-
year time horizon, starting in 2026.\439\ We estimate that the present
value of total monetized benefits is $16,228,236,426 using a three
percent discount rate and $13,618,957,772 using a seven percent
discount rate. We estimate that the present value of total monetized
cost is $639,941 using a three percent discount rate and $537,047 using
a seven percent discount rate.
---------------------------------------------------------------------------
\439\ This approach is consistent with OMB Circular A-4. See
Circular A-4, at 31-34 (stating that, ``[f]or regulatory analysis,
[agencies] should provide estimates of net benefits using both 3%
and 7%'' discount rates and discussing why those rates are
reasonable default rates). Also, we use a mid-year discount rate.
See OMB, Circular A-94, at 21-22 (Oct. 19, 1992) (stating that,
``When costs and benefits occur in a steady stream, applying mid-
year discount factors is more appropriate.'').
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[[Page 30154]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.033
EA Table 12 reports annualized aggregate monetized benefits and
costs using real discount rates of three percent and seven percent over
a 10-year horizon.\440\ The lump sum present values of aggregate
monetized benefits and costs reported in EA Table 11 are converted in
EA Table 12 into a constant stream of annualized benefits and costs
over a 10-year time horizon, starting in 2026.\441\ Because the annual
aggregated monetized benefits and costs reported in EA Tables 9 and 10,
respectively, are identical in every year of the 10-year time horizon
and because there are no initial benefits or costs at Time 0, the
annualized aggregate monetized benefits and costs in EA Table 12 are
the same as the annual aggregate monetized benefits and costs in EA
Tables 9 and 10, respectively.\442\ We estimate that annualized total
monetized benefits are $1,874,534,145 per year using both a three
percent discount rate and a seven percent discount rate. We estimate
that annualized total monetized costs are $73,960 per year using both a
three percent discount rate and a seven percent discount rate.
---------------------------------------------------------------------------
\440\ This approach is consistent with the recommended treatment
of benefits and costs over time in Circular A-4. See id. at 45
(``You should present annualized benefits and costs using real
discount rates of 3 and 7%'').
\441\ For each discount rate, the annualized monetized benefits
(costs, respectively) in EA Table 11 represent the constant annual
stream of benefits (costs, respectively) whose present value over
the time horizon equates the corresponding present value in EA Table
10. See note 1, EA Table 11 for additional calculation details.
\442\ The annualized benefits and costs present these values
over the 10-year time horizon, starting in the present year.
[GRAPHIC] [TIFF OMITTED] TP21MY26.034
C. Anticipated Effects on Efficiency, Competition, and Capital
Formation
The proposed amendments and associated cost savings for affected
registrants \443\ are expected to enhance shareholder value and improve
economic efficiency. The anticipated decrease in compliance costs, as
well as the reduction in indirect costs, would decrease such
registrants' operating expenses and increase their cash flows realized
per dollar invested by the registrant in its business. The registrants
may choose to redeploy increased internal cash flows toward productive
investment and growth opportunities, improving allocative
efficiency.\444\ Increased profitability is also expected to increase
shareholder value. Increases in shareholder value (which accrue to
[[Page 30155]]
shareholders in those registrants) could encourage additional investor
interest in such registrants, thus improving liquidity and capital
formation.\445\
---------------------------------------------------------------------------
\443\ See, e.g., supra note 334 and accompanying text.
\444\ See, e.g., Lewis & White (2023), supra note 320; Dambra &
Gustafson (2021), supra note 333.
\445\ The aggregate magnitude of the effect of gains from
reduced compliance costs on shareholder value across the affected
registrants is moderated by the modest share of the affected
registrants as a whole in the overall market float (although this
share would increase to the extent the valuation of the affected
registrants grows following the amendments).
---------------------------------------------------------------------------
Under the proposed amendments, the information required to be
provided by NAFs in their public disclosures would be reduced.
Information asymmetries and agency costs generally are more prevalent
where investors have reduced transparency about managerial actions or
the registrant's investment opportunities.\446\ To the extent that
investors and other market participants use the disclosures proposed to
be scaled and cannot obtain comparable information from other sources
(including other disclosures in periodic and current reports or third-
party sources), information asymmetry between investors and company
insiders (and companies) could increase. Information asymmetries limit
investors' ability to value registrants' securities, decreasing the
informational efficiency of prices and weakening investor
protection.\447\ If the proposed amendments increase the level of
information asymmetry or agency costs at some registrants, then
investors may discount the price they are willing to pay for a
registrant's shares, increasing the cost of capital for the
registrant.\448\ These registrants could also have more difficulty
gaining investor confidence when raising new financing, thus incurring
a higher cost of capital.\449\ This could cause these registrants to
forgo valuable investment opportunities.\450\ A registrant in such a
situation and/or other NAFs could potentially decide to voluntarily
continue to provide existing disclosures.\451\ In addition, at the
market level, the use of scaled disclosure may decrease aggregate
information benefits that can accrue to investors and other market
participants (including peer companies, and information intermediaries
that may use disclosures about other companies for valuations, research
coverage, and comparing investment options).\452\
---------------------------------------------------------------------------
\446\ See, e.g., George A. Akerlof, The Market for ``Lemons'':
Quality Uncertainty and the Market Mechanism, 84 Q. J. Econ. 488
(1970).
\447\ See, e.g., D. Diamond & Robert E. Verrecchia, Disclosure,
Liquidity, and the Cost of Capital, 46 J. Fin. 1325 (1991); Michael
Welker, Disclosure Policy, Information Asymmetry, and Liquidity in
Equity Markets, 11 Cont. Acct. Rsch. 801 (1995); Brian J. Bushee &
Christian Leuz, Economic consequences of SEC disclosure regulation:
Evidence from the OTC bulletin board, 39 J. Acct. Econ. 233 (2005)
(finding improved liquidity at companies that chose to comply with
Exchange Act reporting requirements in order to remain eligible for
quotation on OTCBB); Ulf Br[uuml]ggemann, Aditya Kaul, Christian
Leuz & Ingrid M. Werner, The Twilight Zone: OTC Regulatory Regimes
and Market Quality, 31 Rev. Fin. Stud. 898 (2018) (finding that OTC
firms subject to stricter regulatory regimes and disclosure
requirements have higher market quality, higher liquidity, and lower
crash risk); Goldstein et al. (2023), supra note 401 (finding an
increase in a firm's stock liquidity, a decrease in the cost of
equity capital, and an increase in the level of equity financing
around EDGAR implementation, which the paper relates to a decrease
in disclosure processing costs). As a caveat, the cited examples
examine a variety of disclosure contexts. But see 2018 SRC Adopting
Release, at Table 6 (looking at the original adoption of SRC status
and not finding a significant effect on earnings quality or
liquidity and finding a small increase in the incidence of
restatements).
\448\ See, e.g., David Easley & Maureen O'Hara, Information and
the Cost of Capital, 59 J. Fin. 1553 (2004); Christine A. Botosan,
Disclosure and the Cost of Capital: What Do We Know?, 36 Acct. &
Bus. Rsch. 31 (2006) (stating that greater disclosure reduces cost
of capital); D. Diamond & R. Verrecchia, Disclosure, Liquidity, and
the Cost of Capital, 46 J. Fin. 1325 (1991) (showing that revealing
public information to reduce information asymmetry can reduce a
firm's cost of capital by attracting increased demand from large
investors due to increased liquidity of its securities); Richard
Lambert, Christian Leuz & Robert E. Verrecchia, Accounting
Information, Disclosure, and the Cost of Capital, 45 J. Acct. Rsch.
385 (2007) (showing, in a conceptual framework, that ``increasing
the quality of mandated disclosures should in general move the cost
of capital closer to the risk-free rate'' and ``generally reduce the
cost of capital for each firm in the economy,'' and further noting
that ``the benefits of mandatory disclosures are likely to differ
across firms''). See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17215 at note 477 (Mar. 26, 2020)]. As a caveat, while the cited
examples relate to disclosure and cost of capital, they examine a
variety of disclosure contexts.
\449\ See, e.g., survey in Paul M. Healy & Krishna Palepu,
Information Asymmetry, Corporate Disclosure, and the Capital
Markets: A Review of the Empirical Disclosure, 31 J. Acct. Econ. 405
(2001).
\450\ See Hayne E. Leland & David H. Pyle, Informational
Asymmetries, Financial Structure, and Financial Innovation, 32 J.
Fin. 371 (1977). See also Stewart C. Myers & Nicholas S. Maljuf,
Corporate Financing and Investment Decisions When Firms Have
Information that Investors Do Not Have, 13 J. Fin. Econ. 187 (1984),
showing that managers may be unwilling to fund investment projects
with new equity, since the discount new investors require imposes a
cost on existing shareholders.
\451\ See section IV.B.1 and supra notes 389-390 and
accompanying text.
\452\ Several studies have shown that because the registrants,
which incur the costs of disclosure, do not obtain all such benefits
the disclosure provides to the markets at large, a voluntary
disclosure regime may result in a suboptimally low amount of
disclosure. See, e.g., Robert E. Verrecchia, Discretionary
Disclosure, 5 J. Acct. Econ. 179 (1983); Anne Beyer, Daniel A.
Cohen, Thomas Z. Lys, & Beverly R. Walther, The Financial Reporting
Environment: Review of the Recent Literature, 50 J. Acct. & Econ.
296 (2010); Anat R. Admati & Paul Pfleiderer, Forcing Firms to Talk:
Financial Disclosure Regulation and Externalities, 13 Rev. Fin.
Stud. 479 (2000) (showing in a theoretical framework that the
equilibrium of a voluntary disclosure game is often socially
inefficient in the presence of information externalities); Jinji
Hao, Disclosure Regulation, Cost of Capital, and Firm Value, 77 J.
Acct. Econ. 101605 (2024). Agency conflicts may also affect the
level of disclosure. See, e.g., S.P. Kothari, Susan Shu, & Peter
Wysocki, Do Managers Withhold Bad News?, 47 J. Acct. Rsch. 241
(2009).
---------------------------------------------------------------------------
The scope of the proposed amendments should limit such effects,
however. Together the affected registrants account for around six
percent of total market public float, and those registrants would
remain subject to SRC and EGC levels of disclosure. Also, to the extent
that, but for the proposed amendments, some issuers would have remained
private (and been subject to no, or very few, disclosure requirements),
these issuers would become subject to Commission public reporting
requirements under the proposed amendments.
The proposed rules are expected to increase competition by leveling
the regulatory burden and improving comparability across more issuers.
Currently, there are many different combinations of filer status with
different regulatory burdens. For example, registrants classified as
AFs or NAFs could also be SRCs, EGCs, both, or neither.\453\ Under the
proposed amendments, affected issuers would only be LAFs or NAFs, where
some NAFs would be SNFs. Fewer categories of filer status mean that
more issuers would share the same regulatory requirements and lower
regulatory burden, especially since most (roughly 80 percent) of the
issuers would be NAFs. This could help promote competition by reducing
the degree to which regulation may shift the competitive balance
towards firms with lighter regulatory burdens. Further, a lower
regulatory burden could benefit affected registrants where they compete
with private companies and certain FPIs with lighter regulatory
burdens.
---------------------------------------------------------------------------
\453\ See section I.
---------------------------------------------------------------------------
Smaller registrants that currently benefit from scaled regulatory
requirements (e.g., SRCs and EGCs) would no longer have scaled
regulatory requirements compared to many other (typically larger)
companies. These smaller registrants are thus expected to be subject to
heightened competition. Also, the regulatory burdens on registrants
with LAF filer status under the proposed amendments would remain
unchanged, and higher than on other registrants. This could
disadvantage them competitively and also encourage registrants to stay
below the $2 billion threshold for the LAF filer status to avoid higher
costs, thus potentially distorting investment and
[[Page 30156]]
financing incentives.\454\ However, LAFs are larger, more established
companies that disclose more information to investors in their public
disclosures. These factors may make these registrants attractive to
investors as investment opportunities, which would lower their cost of
capital and thereby provide them with competitive advantages.
---------------------------------------------------------------------------
\454\ This is because the two subsets of registrants may share
similar economic characteristics and a minimal difference in the
scale of operations, but the subset of registrants just below the
threshold (that would be treated as NAFs) would incur nonlinearly
lower compliance costs. To the extent such registrants can allocate
these compliance cost savings into growing their business, they may
realize a competitive advantage. See also supra note 342 for
discussion of such bunching.
---------------------------------------------------------------------------
The proposed amendments would apply to--and thus, reduce the
compliance costs for--BDCs,\455\ but not registered closed-end funds
(``CEFs''). To the extent that BDCs and some registered CEFs compete in
the same markets (for the same investors, or for the same portfolio
company investment opportunities), the proposed amendments, if adopted
as proposed, could result in competitive advantages for BDCs
(particularly, smaller BDCs) relative to comparable registered funds.
---------------------------------------------------------------------------
\455\ See supra note 337.
---------------------------------------------------------------------------
The proposed amendments would apply to domestic issuers and FPIs
that file on domestic forms but not to FPIs that file on forms
designated for FPIs.\456\ FPIs that file on FPI forms would continue to
follow existing reporting requirements. To the extent that some FPIs
that file on FPI forms compete in the same markets as domestic form
filers but would not obtain additional relief under the proposed
amendments, the proposed amendments could result in competitive
disadvantages for such FPIs. This effect is likely to be more
pronounced for those FPIs filing on FPI forms that are similar in size
to the domestic filers that become eligible for NAF relief under the
amendments. Some FPIs that file on FPI forms such as Form 20-F and that
would otherwise qualify as NAFs under the amended definition may in
turn elect to file on Form 10-K to avail themselves of the NAF relief,
to the extent that the compliance cost savings from NAF status outweigh
the additional compliance obligations of filing on domestic forms.
---------------------------------------------------------------------------
\456\ Based on staff analysis of EDGAR filings from calendar
year 2024, we estimate that there were 1,144 filers on Form 20-F or
40-F (including 998 filers on Form 20-F and 146 filers on Form 40-
F). Under the existing definition, among those 998 Form 20-F filers,
there were 293 LAFs, 193 AFs, 530 NAFs, and one filer with missing
filer status information. Due to the different reporting
requirements, we are not able to obtain a breakdown of filer status
under the existing definition for Form 40-F filers or information on
public float of Form 20-F or 40-F filers to provide a comparable
breakdown of filers that would be NAFs vs. LAFs under the amended
definition as was provided for domestic filers above. Among all Form
20-F and 40-F filers, we estimate that there were 498 EGC filers.
SRC relief is not applicable to Form 20-F and 40-F filers.
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The proposed amendments may also have effects on capital formation.
While lower compliance costs are one of several factors in the initial
public offering decision, if the proposed amendments incentivize some
companies to enter, or remain in, public capital markets, they would
reduce the cost of access to registered initial and follow-on
offerings, improving access to capital and/or the ability to optimize
the cost of capital, although the magnitude and direction of the effect
is difficult to predict. To the extent the number of reporting
companies grows, investors would be offered a broader array of publicly
traded investment options with greater disclosure and transparency,
which also tend to be more liquid (compared to exempt private
securities offerings by issuers that are not reporting companies),
potentially enabling greater diversification and more efficient capital
allocation within investor portfolios. The proposed amendments may have
a greater impact on registrants (newly qualified NAFs) that would not
qualify for SRC or EGC status under the baseline. Thus, some potential
new public companies incentivized by the proposed amendments could be
larger than typical initial public offering candidates, which
historically have tended to be EGCs.\457\
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\457\ See supra note 229. However, as such issuers tend to be
larger, the compliance cost savings from the proposed rule may be
relatively less impactful for them, compared to SRCs and EGCs.
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D. Reasonable Alternatives
1. LAF Public Float Threshold
As an alternative, we considered raising or lowering the threshold
for the definition of LAF relative to the proposed $2 billion public
float threshold. Raising (or lowering) the LAF public float threshold
under this alternative, relative to the proposed threshold, would
result in larger (or smaller) aggregate economic effects of the rule,
including costs and benefits, compared to the proposal, in proportion
to the larger (smaller) population of filers eligible for scaled
disclosure and other proposed regulatory relief. EA Table 13 below
provides the number of LAFs and share of public float they would
represent, each as calculated under alternative thresholds.
[GRAPHIC] [TIFF OMITTED] TP21MY26.035
2. Seasoning Requirement
The proposed amendments would both amend the threshold (as
discussed above) and expand the seasoning period to qualify as an LAF
from 12 months to 60 months, thus filers that exceed the $2 billion
proposed public float threshold but that have not been reporting for at
least the preceding 60 calendar months
[[Page 30157]]
would remain as NAFs. As an alternative, we considered amending the LAF
threshold without changing the seasoning requirement for LAF status.
Under this alternative, the number of registrants continuing to be
subject to the requirements associated with LAF reporting would
increase, compared to the proposal, from approximately 1,146 (19.2
percent of all registrants) to 1,234 (20.6 percent of all registrants),
since new reporting companies that experience quick increases in public
float since going public would not qualify as NAFs under the
alternative, whereas they would qualify as NAFs, regardless of the size
of their public float, for at least 60 calendar months under the
proposal. This alternative would have extended the benefits of the
proposed regulatory relief to a smaller subset of filers during a
crucial stage of their growth as public companies, compared to the
proposal. This alternative also would have reduced the subset of filers
filing scaled and/or delayed disclosures, which may have accordingly
reduced the information asymmetry and costs to investors, compared to
the proposal.
3. Regulatory Accommodations for NAFs
The proposed amendments extend a number of regulatory
accommodations to NAFs. As an alternative, we considered providing only
a subset of accommodations (for example, only disclosure
accommodations, or only periodic report timing accommodations) to NAFs.
This alternative would result in smaller cost savings, both for
individual filers and for filers in the aggregate, and potentially
smaller costs to investors and capital markets, compared to the
proposal. The respective costs and benefits of the proposed
accommodations are discussed in detail in section IV.B above.
The proposed amendments do not further extend periodic report
filing deadlines (from current NAF deadlines) for all newly-eligible
NAFs, only for SNFs. As an alternative, we considered extending the
filing deadlines for all NAFs. Compared to the proposal, such an
alternative would likely result in greater compliance cost savings and
gains in flexibility for affected NAFs, and correspondingly, in larger
costs to investors and capital markets from the changes in timing for
filing of such filers' periodic reports.
4. SNFs
The proposed amendments define SNFs as NAFs with assets not
exceeding $35 million. As an alternative, we considered other measures
(such as public float or revenues), or other (lower or higher) asset
thresholds for the SNF definition, as discussed in greater detail in
section II.C and the accompanying table.\458\ Depending on whether the
number of SNFs under the alternative definition is higher or lower, the
number of filers that would be afforded greater flexibility in the
preparation of financial statements and other disclosures required in
periodic reports and the potential cost savings for such filers would
be higher or lower, respectively, relative to the proposal. In turn, a
potentially higher (lower) number of SNFs would result in more (fewer)
registrants whose investors will face delays in the availability of
periodic reports, relative to the proposal.
---------------------------------------------------------------------------
\458\ Such alternative thresholds could also be used as the
total asset threshold in the definition of a small entity (other
than an investment company). See section IV.B.7.
---------------------------------------------------------------------------
As another alternative, as discussed in section II.C, we could have
defined SNFs as NAFs that are not registered under section 12(b) (1,256
registrants) or as NAFs that do not have a class of common equity
securities listed for trading on a national securities exchange (1,490
registrants). Such alternative definitions could be less sensitive to
fluctuations in a registrant's assets than the proposed definition.
They also would tailor longer filing deadlines to issuers that are
either traded on marketplaces where other factors already contribute to
lower liquidity and market efficiency, or that are not traded on any
marketplace. Compared to the proposal, the alternative definitions
would provide additional time to file for unlisted registrants with
somewhat larger assets but at the same time would not provide
additional time to file for low-asset filers with higher valuations
that attained an exchange listing.
The proposed amendments would extend the deadlines for SNFs to file
their periodic reports, giving SNFs an additional 30 days to file their
Form 10-Ks and an additional five days to file their Form 10-Qs. As
discussed above, recently, the Commission proposed to amend the rules
related to periodic reporting under the Exchange Act to allow certain
reporting companies to meet their interim reporting obligations either
by filing quarterly reports or semiannual reports at the election of
the company.\459\ To the extent the amendments proposed in the
Semiannual Proposing Release are not adopted as proposed, as an
alternative, we considered allowing SNFs to meet their interim
reporting obligations either by filing quarterly reports or semiannual
reports at the election of the company.\460\ This alternative would
extend additional flexibility and compliance cost savings to SNFs,
compared to the proposal. Conversely, a reduction in the frequency of
interim reporting could result in delayed disclosure of material
information, reduced comparability, and some lost information. Under
this alternative, SNFs could potentially consider the tradeoffs between
the cost savings of providing less frequent interim reporting and the
market benefits of providing more frequent interim reporting and choose
the frequency of reporting that best fits their circumstances.\461\
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\459\ See section IV.A.1.C.
\460\ We also considered the less flexible alternative of
mandating semiannual reporting for all SNFs, but we would expect the
potential costs of a mandatory alternative to be higher than the
costs of an optional alternative would be. See Semiannual Proposing
Release at 25009.
\461\ See Semiannual Proposing Release for a more detailed
discussion. Id.
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E. Request for Comment
We request comments on all aspects of our economic analysis,
including the potential costs and benefits of the proposed amendments
and alternatives, and whether the proposed amendments, if adopted,
would promote efficiency, competition, and capital formation.
Commenters are requested to provide empirical data, estimation
methodologies, and other factual support for their views, in
particular, on the estimates of costs and benefits. In addition, we
request comments on the following:
(41) Would the proposed regulatory relief reduce direct compliance
costs for registrants? What would be the largest driver(s) of the
reduction in compliance costs under the proposal? For example, would
the proposed amendments result in a reduction of auditing costs and if
so, what would the amount of cost savings be? Would the proposed
regulatory relief reduce indirect costs of reporting obligations for
registrants? What specific costs? What would be the effects of the
proposed regulatory relief on efficiency, competition, capital
formation, and investor protection? Would the affected registrants
redeploy the funds freed up from compliance costs in their businesses?
(42) Would the proposed amendments and the anticipated decreases in
direct and indirect cost of reporting obligations have an effect on
companies' decisions to become, or remain, reporting companies? Why or
why not?
[[Page 30158]]
Are there any modifications to the proposed amendments, or additional
accommodations not currently proposed, that could help to encourage
companies to enter or remain in the public markets?
(43) What would be the effects of the proposed amendments to filer
status definitions on investors, market participants and other parties,
including the auditing industry and the capital markets? What would be
the costs to investors of the reduction in information disclosed under
the proposal and in assurance with regard to ICFR of registrants that
avail themselves of the proposed exemption from the auditor attestation
requirement?
(44) Are registrants that would be eligible for the accommodations
under the proposed amendments likely to take advantage of the
accommodations, or are they likely to continue to provide existing
disclosures, obtain ICFR auditor attestation, and/or comply with non-
NAF filing deadlines, on a voluntary basis? What specific
accommodations and why?
(45) Does the increasing complexity in financial reporting, due in
part to the increasing volume of electronic data and greater reliance
on IT systems, enhance the relevance of ICFR to reliable financial
reporting? If so, does this trend have any impact on the costs and
benefits from the proposed exclusion of NAFs from the ICFR auditor
attestation requirement?
(46) Are SNFs likely to benefit from the proposed extended filing
deadlines? Are there alternatives to approaching regulatory
simplifications and relief for the smallest NAFs that we should
consider, and what would be their benefits and costs? Are there
alternative SNF definitions or thresholds we should consider? What
would be the effects of the proposed extended filing deadlines on
investors in SNFs, other market participants, and the capital markets,
particularly with respect to the timing of disclosure of information in
connection with the proposed extension to filing deadlines?
(47) Should we consider alternative size thresholds and/or size
measures for filer statuses to better tailor the disclosure
requirements and regulatory relief for smaller versus larger
registrants?
(48) Would the proposed amendments have significantly different
economic effects for some types of issuers as compared to others? For
example, would the proposed amendments have different effect on BDCs,
face-amount certificate companies, etc.? Would the proposed amendments
have different impacts on FPIs, and would there be potential
implications for US listings?
V. Paperwork Reduction Act
A. Summary of the Collections of Information
Certain provisions of our rules and forms that would be affected by
the proposed amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act
(``PRA'').\462\ We are submitting the proposed amendments to the Office
of Management and Budget (``OMB'') for review and approval in
accordance with the PRA.\463\ The hours and costs associated with
preparing, filing, and sending the forms and retaining records
constitute reporting and cost burdens imposed by each collection of
information. An agency may not conduct or sponsor, and a person is not
required to comply with, a collection of information requirement unless
it displays a currently valid OMB control number. The titles for the
collections of information are:
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\462\ 566 44 U.S.C. 3501 et seq.
\463\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------
Form 10-K (OMB Control No. 3235-0063);
Form 10-Q (OMB Control No. 3235-0070);
Form 10 (OMB Control No. 3235-0064);
Form S-1 (OMB Control No. 3235-0065);
Form S-3 (OMB Control No. 3235-0073);
Form S-4 (OMB Control No. 3235-0324);
Form S-11 (OMB Control No. 3235-0067);
Regulation 14A and Schedule 14A (OMB Control No. 3235-
0059);
Regulation 14C and Schedule 14C (OMB Control No. 3235-
0057); and
Form 20-F (OMB Control No. 3235-0288).
The forms and schedules listed above were adopted under the
Securities Act or Exchange Act, and set forth the disclosure
requirements for securities registration statements, annual and
quarterly reports, and current reports, and set forth the requirements
for proxy statements and information statements provided in connection
with shareholder meetings and corporate actions. Responses to these
collections of information are mandatory. Responses to these
information collections are not kept confidential, and there is no
mandatory retention period for the information disclosed.
A description of the proposed amendments, including the need for
the information and its use, as well as a description of the likely
respondents, can be found in section II above, and a discussion of the
economic effects of the proposed amendments can be found in section IV
above.
B. Estimated Paperwork Burden Effects of the Proposed Amendments
The following PRA Table 1 summarizes the estimated effects of the
proposed amendments on the paperwork burdens associated with the
affected forms.
BILLING CODE 8011-01-P
[[Page 30159]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.036
BILLING CODE 8011-01-C
[[Page 30160]]
C. Incremental and Aggregate Burden and Cost Estimates
We estimate below the incremental increase and decreases and
aggregate decrease in paperwork burden as a result of the proposed
amendments. These estimates represent the average burden for all
respondents, both large and small. In deriving our estimates, we
recognize that the burdens will likely vary among individual
respondents based on a number of factors in addition to the
respondent's filer status, including the size and complexity of their
business. These estimates include the time and the cost of preparing
and reviewing disclosure, filing documents, and retaining records. We
believe that some registrants will experience costs in excess of this
average and some registrants will experience less than the average
costs. Our methodologies for deriving these estimates are discussed
below.
For purposes of the PRA, the burden is generally allocated between
burden hours, which reflect the portion of the burden that is performed
by a registrant internally, and costs, which typically reflect the cost
of outside professionals retained by the registrant in connection with
the information collection. The collection of information burden change
reflected in this PRA analysis are the result of: (1) the reduction in
burden from more registrants becoming eligible for disclosure scaling;
and (2) the reduction in burden from more registrants no longer being
covered by the ICFR auditor attestation requirement.
We note that a number of collections of information are also being
amended to reflect changes to the check boxes that relate to a
registrant's filer status or status as an asset-backed issuer; \464\
however, we believe the incremental burden increase associated with the
added check boxes would be offset by the incremental burden decrease
associated with the removed check boxes; accordingly, we are not
requesting a change in our PRA inventory associated with those proposed
amendments.
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\464\ Specifically, this includes: Form S-1 (OMB Control No.
3235-0065); Form S-4 (OMB Control No. 3235-0324); Form S-3 (OMB
Control No. 3235-0073); Form S-8 (OMB Control No. 3235-0066) Form S-
11 (OMB Control No. 3235-0067); Form 10-K (OMB Control No. 3235-
0063); Form 10-Q (OMB Control No. 3235-0070); Form 10 (OMB Control
No. 3235-0064).
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With respect to disclosure scaling, we considered the reduction in
compliance hours and cost burden estimated for companies newly eligible
for the scaling and accommodations from SRC status in connection with
the PRA analysis in the 2018 SRC Adopting Release and adjusted such
costs for inflation.\465\ We then adjusted this number to account for
additional changes to the rules and forms adopted since 2018, to the
extent such changes affected SRCs and/or EGCs differently than other
registrants.\466\
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\465\ We are adjusting the reduced costs estimate from the 2018
SRC Adopting Release by a factor of 1.5 to reflect the Commission's
determination in 2022 to update for inflation the OMB cost inventory
for its collections of information. See, e.g., Listing Standards for
Recovery of Erroneously Awarded Compensation, Release No. 33-11126
(Oct. 26, 2022) [87 FR 73076 (Nov. 28, 2022)], at n. 549.
\466\ See Pay Versus Performance, Release No. 34-95607 (Aug. 25,
2022) [87 FR 55134 (Sept. 8, 2022)].
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With respect to the proposed amendments to Item 1B of Form 10-K and
Item 4A of Form 20-F relating to disclosure of material unresolved
staff comments we assume that the burden associated with Item 1B is
incurred internally by the issuer. Since the requirements for
disclosure of material unresolved staff comments currently only apply
to LAFs and AFs, any current NAFs would, under the proposal, be newly
subject to this disclosure requirement. As discussed in sections I and
IV, we estimate that currently 51.9% of registrants are NAFs, or
slightly more than half. Accordingly, we believe it is an appropriate
assumption that the average number of affected filings per year (i.e.,
the number of current NAFs newly subject to the requirements that will
have disclosure to provide) would be consistent with the average number
of responses per year that include the disclosure for LAFs and AFs. The
average number of filings that include this disclosure for the three
year period we observed is 11 for Form 10-K and three for Form 20-
F.\467\ However, recognizing that the number of annual responses that
may include this disclosure could fluctuate significantly, we estimate
up to 20 additional filings per year would be affected for each of Form
10-K and Form 20-F.\468\ We also estimate that complying with Item 1B
or Item 4A requires three burden hours annually for each issuer
potentially subject to the requirement.
---------------------------------------------------------------------------
\467\ See supra note 391.
\468\ Id.
---------------------------------------------------------------------------
With respect to the ICFR auditor attestation requirement, we
considered the Commission's estimate in 2020 that companies no longer
subject to the ICFR auditor attestation requirement would see an
average per response burden reduction for Form 10-K of 375 hours and
$135,000 in costs.\469\ We believe these estimates reflect current
practices and so we have applied them to the further reduction in the
number of issuers that will be required to provide ICFR auditor
attestation, and adjusted the cost burden estimate to account for
inflation,\470\ resulting in updated professional costs of $202,500.
---------------------------------------------------------------------------
\469\ Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178, 17238 (Mar. 26,
2020)].
\470\ See supra note 465.
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The following PRA Table 2 summarizes the estimated per response
burden change set out in PRA Table 1 that is attributable to the
proposed rules for each affected collection of information based on the
above methodologies.
[[Page 30161]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.037
The following PRA Table 3 summarizes the requested paperwork burden
changes to existing information collections, including the estimated
total reporting burdens and costs, under the proposed amendments.
BILLING CODE 8011-01-P
[[Page 30162]]
[GRAPHIC] [TIFF OMITTED] TP21MY26.038
BILLING CODE 8011-01-C
[[Page 30163]]
D. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
Evaluate whether the proposed changes to the collections
of information are necessary for the proper performance of the
functions of the Commission, including whether the information will
have practical utility;
Evaluate the accuracy of our estimates of the additional
burden hours that would result from adoption of the proposed
amendments;
Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
Evaluate whether there are ways to minimize the burden of
the collections of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct them to the OMB Desk Officer for
the U.S. Securities and Exchange Commission,
[email protected], and should send a copy to
Vanessa A. Countryman, Secretary, U.S. Securities and Exchange
Commission, using any of the methods in the ADDRESSES section, with
reference to File No. S7-2026-18. Requests for materials submitted to
OMB by the Commission with regard to the collection of information
should be in writing, refer to File No. S7-2026-18 and be submitted to
the U.S. 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 collections of information between 30 and 60
days after publication of this release. Consequently, a comment to OMB
is best assured of having its full effect if OMB receives it within 30
days of publication.
VI. Congressional Review Act
For purposes of Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (also known as the Congressional
Review Act),\471\ the Commission must seek OMB's determination as to
whether a final regulation constitutes a ``major rule.'' Under the
Congressional Review Act, a rule is considered ``major'' where, if
adopted, it results in or is likely to result in:
---------------------------------------------------------------------------
\471\ 5 U.S.C. chapter 8.
---------------------------------------------------------------------------
An annual effect on the U.S. economy of $100 million or
more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.\472\
---------------------------------------------------------------------------
\472\ See 5 U.S.C. 804(2) (defining ``major rule'').
---------------------------------------------------------------------------
To help inform OMB's determination as to whether any final rule
that results from our proposal would be a ``major rule,'' we solicit
comment and 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 adverse effect on competition, investment,
or innovation.
Commenters are requested to provide empirical data and other
factual support for their views to the extent possible.
VII. Initial Regulatory Flexibility Act Analysis
As noted above, when an agency issues a rulemaking proposal, the
RFA \473\ requires the agency to prepare and make available for public
comment an IRFA that describes the impact of the proposed rule on small
entities.\474\ This IRFA relates to the proposed amendments to rules
and forms described in section II above.
---------------------------------------------------------------------------
\473\ 5 U.S.C. 601 et seq.
\474\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
A. Reasons for, and Objectives of, the Proposed Action
The proposed amendments would streamline the filer status framework
for Exchange Act reporting companies and extend certain accommodations
and scaled disclosures to the majority of filers, with the smallest
filers additionally being granted longer deadlines for their periodic
reports. The proposed amendments are discussed in more detail in
section II above. We discuss the economic impact and potential
alternatives to the amendments in section IV, the estimated compliance
costs and burdens of the amendments under the PRA in section V, and the
present values and annualized values of monetized benefits and costs in
section VI, above.
B. Legal Basis
The amendments contained in this release are proposed under the
authority set forth in sections 6, 7, 10, 19(a), and 28 of the
Securities Act, as amended, and sections 3(b), 12, 13, 14(a), 15(d),
23(a), and 36 of the Exchange Act, as amended.
C. Small Entities Subject to the Proposed Amendments
The proposed amendments to the filer status framework, including to
the filer status categories and their associated disclosure
requirements, would apply to registrants that are small entities,
either as issuers or as investment companies. The RFA defines ``small
entity'' to mean ``small business,'' ``small organization,'' or ``small
governmental jurisdiction.'' \475\ For purposes of the Regulatory
Flexibility Act, currently under our rules, an issuer, other than an
investment company, is 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 and is engaged or proposing to engage in an
offering of securities that does not exceed $5 million.\476\ An
investment company, including a BDC or face-amount certificate company
that is a registrant under the Securities Act or the Exchange Act, is
considered to be 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.\477\ We estimate that, based on calendar year 2024 data, there
were 702 issuers, seven BDCs, and one face-amount certificate company
that may be considered small entities under the current rules
definitions that would be subject to the proposed amendments.\478\
---------------------------------------------------------------------------
\475\ 5 U.S.C. 601(6).
\476\ See 17 CFR 240.0-10(a); see also 17 CFR 230.157 (providing
that an issuer, other than an investment company, is a ``small
business'' or ``small organization'' if it had $5 million or less in
total assets on the last day of its most recent fiscal year).
\477\ 17 CFR 270.0-10(a).
\478\ As discussed in section II.E, supra, we are proposing to
revise to $35 million the current $5 million threshold in our small
business and small organization definitions for issuers for purposes
of the RFA under the Securities Act and Exchange Act. The Commission
also has a pending proposal addressing the definition under the
Investment Company Act of small organization and small business for
purposes of the RFA. See Amendments to the ``Small Business'' and
``Small Organization'' Definitions for Investment Companies and
Investment Advisers for Purposes of the Regulatory Flexibility Act,
Release No. IC-35864 (Jan. 7, 2026) [91 FR 1107 (Jan. 12, 2026)]. We
encourage commenters to review that proposal to determine whether it
might affect their comments on this IRFA.
---------------------------------------------------------------------------
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
The proposed amendments would categorize Exchange Act reporting
[[Page 30164]]
companies into LAFs and NAFs based on public float.\479\ We expect that
all small entities would be NAFs under the proposed rules. NAFs would
receive disclosure scaling and other accommodations. In addition, the
proposed amendments would create a subcategory of NAFs called SNFs,
based on a $35 million asset threshold. All small entities that are
currently NAFs would also qualify as SNFs.
---------------------------------------------------------------------------
\479\ See supra note 25 for a definition of ``public float.''
---------------------------------------------------------------------------
Under the proposed rules, SNFs would have extended deadlines for
filing their periodic reports. As noted in section IV above, we have
found that the smallest registrants, including small entities, face
more difficulty in meeting the existing periodic reporting deadlines
than do other registrants. We have therefore targeted the proposed
reporting deadlines extensions at the smallest registrants, including
small entities. We request comment on how the proposed amendments would
affect small entities.
E. Duplicative, Overlapping, or Conflicting Federal Rules
We do not expect the proposed rules, if adopted, to duplicate,
overlap, or conflict with other rules.
F. Significant Alternatives
The RFA directs us to consider alternatives that would accomplish
our stated objectives, while minimizing any significant adverse impact
on small entities. In connection with the proposed amendments, we
considered the following alternatives:
Establishing different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
Clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities;
Using performance rather than design standards; and
Exempting small entities from all or part of the
requirements.
As noted, we expect that all or nearly all small entities would be
NAFs under the proposed rules. Because the proposal is expected to
reduce compliance burdens, with enhanced scaled disclosure and
reporting accommodations being provided to the smallest registrants,
small entities should largely experience only benefits from the
proposed rules. Therefore, we do not anticipate that small entities
would experience any significant adverse impact from the proposal.
With regard to different compliance or reporting requirements or
timetables that take into account the resources available to small
entities and clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities, the proposal
would create a sub-category of the smallest NAFs, or SNFs, comprising
NAFs reporting total assets of $35 million or less as of the end of an
issuer's two most recent second fiscal quarters, that would have
extended deadlines for filing their Form 10-K and Form 10-Q periodic
reports. Additionally, we considered providing the smallest registrants
with alternative accommodations centered on reducing their accounting
costs, such as requiring fewer years of audited financial statements.
However, given the importance of audited financial statements to
investor decision-making, we did not propose that change, and instead
proposed the extended reporting deadline accommodation.
Because the proposed amendments extend almost all existing scaling
and accommodations to registrants that would not be LAFs under the
proposal, and given that the Commission has issued a separate proposal
to allow reporting companies to report on a semiannual basis,\480\ we
do not believe there are additional accommodations or exemptions that
should be applied to small entities before reporting companies
transition to the proposed filer status framework. Additionally,
although we are proposing to eliminate the SRC filer status, this will
not negatively affect small entities since, under the proposed
amendments, all the same disclosure and other accommodations would be
made available to small entities under NAF filer status, and additional
periodic report filing deadline accommodations would be made available
to small entities under the SNF status. To the extent that a small
entity is currently an SRC but not an EGC, it would also benefit from
the additional EGC accommodations being extended to NAFs.
---------------------------------------------------------------------------
\480\ See supra note 13.
---------------------------------------------------------------------------
We have used design standards rather than performance standards in
connection with the proposed amendments to promote clarity and
comparability. With regard to exempting small entities from all or part
of the requirements, exempting small entities from the amendments we
are proposing would not be appropriate as the amendments provide scaled
disclosure and other reporting accommodations to small entities.
Request for Comment
We encourage the submission of comments with respect to any aspect
of this IRFA. In particular, we request comments regarding:
The number of small entities that may be affected by the
proposed amendments;
The existence or nature of the potential impact of the
proposed amendments on small entities discussed in the analysis;
Whether and to what extent the creation of the proposed
SNF status and accompanying accommodations would benefit small
entities, and whether additional accommodations should be made
available to SNFs;
Whether there are modifications to the proposed amendments
that could further lower the burden on small entities; and
How to quantify the impact of the proposed amendments.
Commenters are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. Comments
will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed amendments are adopted, and will
be placed in the same public file as comments on the proposed
amendments themselves.
Statutory Authority
The rule amendments contained in this release are being proposed
under the authority set forth in sections 6, 7, 10, 19(a), and 28 of
the Securities Act, as amended, and sections 3(b), 12, 13, 14(a), 14A,
15(d), 23(a), and 36 of the Exchange Act, as amended.
List of Subjects in 17 CFR Parts 210, 229, 230, 232, 239, 240, and
249
Reporting and recordkeeping requirements, Securities.
Text of Proposed Amendments
For the reasons set forth in the preamble, the Commission proposes
to amend Title 17, Chapter II of the Code of Federal Regulations as
follows:
PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975
0
1. The authority citation for part 210 continues to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n,
78o(d),
[[Page 30165]]
78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 80a-31,
80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), Pub. L.
112-106, 126 Stat. 310 (2012), unless otherwise noted.
0
2. Revise Sec. 210.2-02(f)(1) to read as follows:
Sec. 210.2-02 Accountants' reports and attestation reports.
* * * * *
(f) Attestation report on internal control over financial
reporting.
(1) Every registered public accounting firm that issues or prepares
an accountant's report for a large accelerated filer (as defined in
Sec. 240.12b-2 of this chapter) that is included in an annual report
required by section 13(a) or 15(d) of the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.) containing an assessment by management of
the effectiveness of the registrant's internal control over financial
reporting must include an attestation report on internal control over
financial reporting.
* * * * *
0
3. Amend Sec. 210.3-01 by revising paragraphs (e) and (i) to read as
follows:
Sec. 210.3-01 Consolidated balance sheets.
* * * * *
(e) For filings made after the number of days specified in
paragraph (i)(2) of this section, the filing must also include a
balance sheet as of an interim date within the following number of days
of the date of filing:
(1) 130 days for large accelerated filers (as defined in Sec.
240.12b-2 of this chapter); and
(2) 135 days for non-accelerated filers (as defined in Sec.
240.12b-2 of this chapter)
* * * * *
(i)
(1) For purposes of paragraphs (c) and (d) of this section, the
number of days is:
(i) 60 days for large accelerated filers (as defined in Sec.
240.12b-2 of this chapter); and
(ii) 90 days for non-accelerated filers (as defined in Sec.
240.12b-2 of this chapter);
(2) For purposes of paragraph (e) of this section, the number of
days is:
(i) 129 days subsequent to the end of the registrant's most recent
fiscal year for large accelerated filers (as defined in Sec. 240.12b-2
of this chapter); and
(ii) 134 days subsequent to the end of the registrant's most recent
fiscal year for non-accelerated filers (as defined in Sec. 240.12b-2
of this chapter).
0
4. Revise Sec. 210.3-02(a) to read as follows:
Sec. 210.3-02 Consolidated statements of comprehensive income and
cash flows.
(a) Audited statements of comprehensive income and cash flows must
be filed for the large accelerated filer (as defined in Sec. 240.12b-2
of this chapter) and its subsidiaries consolidated and for its
predecessors for each of the three fiscal years preceding the date of
the most recent audited balance sheet being filed or such shorter
period as the registrant (including predecessors) has been in
existence.
* * * * *
0
5. Revise Sec. 210.3-09(b) to read as follows:
Sec. 210.3-09 Separate financial statements of subsidiaries not
consolidated and 50 percent or less owned persons.
* * * * *
(b) Insofar as practicable, the separate financial statements
required by this section must be as of the same dates and for the same
periods as the audited consolidated financial statements required by
Sec. Sec. 210.3-01 and 3-02. However, these separate financial
statements are required to be audited only for those fiscal years in
which either the first or third condition set forth in Sec. 210.1-
02(w), substituting 20 percent for 10 percent, is met. For purposes of
a filing on Form 10-K (Sec. 249.310 of this chapter):
(1) If the 50 percent or less owned person is not a large
accelerated filer (as defined in Sec. 240.12b-2 of this chapter), the
required financial statements may be filed as an amendment to the
report no more than the subsidiary's number of filing days, or no more
than six months if the 50 percent or less owned person is a foreign
business, after the end of the registrant's fiscal year.
(2) If the fiscal year of any 50 percent or less owned person ends
no more than 60 days before the date of the registrant's filing, or if
the fiscal year ends after the date of the filing, the required
financial statements may be filed as an amendment to the report no more
than the subsidiary's number of filing days, or no more than six months
if the 50 percent or less owned person is a foreign business, after the
end of such subsidiary's or person's fiscal year.
(3) The term subsidiary's number of filing days means:
(i) 60 days if the 50 percent or less owned person is a large
accelerated filer;
(ii) 90 days if the 50 percent or less owned person is a non-
accelerated filer or is a private company that would not otherwise meet
the definition of a small non-accelerated filer; and
(iii) 120 days if the 50 percent or less owned person is a small
non-accelerated filer or is a private company that would otherwise meet
the definition of a small non-accelerated filer.
* * * * *
0
6. Revise Sec. 210.3-12(g) to read as follows:
Sec. 210.3-12 Age of financial statements at effective date of
registration statement or at mailing date of proxy statement.
* * * * *
(g)(1) For purposes of paragraph (a) of this section, the number of
days is:
(i) 130 days for large accelerated filers (as defined in Sec.
240.12b-2 of this chapter); and
(ii) 135 days for non-accelerated filers (as defined in Sec.
240.12b-2 of this chapter).
(2) For purposes of paragraph (b) of this section, the number of
days is:
(i) 60 days for large accelerated filers (as defined in Sec.
240.12b-2 of this chapter); and
(ii) 90 days for non-accelerated filers (as defined in Sec.
240.12b-2 of this chapter).
0
7. Amend Sec. 210.3-15 by removing paragraphs (a), (b), and (c), and
reserving Sec. 210.3-15.
0
8. Revise and republish Sec. 210.3-19 to read as follows:
Sec. 210.3-19 Special provisions as to business development companies
and face-amount certificate companies that are non-accelerated filers.
(a) A non-accelerated filer (as defined in Sec. 240.12b-2 of this
chapter) that is a business development company or face-amount
certificate company must comply with the requirements of Sec. 210.3-02
as if it were a large accelerated filer, except that for purposes of
paragraph (a) of Sec. 210.3-02, the company may file audited
statements of operations and cash flows for the company and its
subsidiaries and for its predecessors for each of the two fiscal years
preceding the date of the most recent audited balance sheet being filed
or such shorter period as the company (including any predecessors) has
been in existence.
(b) For purposes of reporting separate financial statements of
subsidiaries not consolidated and 50 percent or less owned persons
under Sec. 210.3-09, a non-accelerated filer that is a business
development company or face-amount certificate company may apply
paragraph (b)(2) of Sec. 210.3-09 if the fiscal year of any 50 percent
or less owned person ends no more than 90 days before the date of the
company's filing (or 120 days before the date of the company's filing
if the company is a small non-accelerated filer, as defined in Sec.
240.12b-2 of this chapter).
[[Page 30166]]
(c) Notwithstanding other requirements in Regulation S-X, time
periods for a small non-accelerated filer that is a business
development company or face-amount certificate company are:
(1) 140 days for purposes of paragraphs (a) and (e) of Sec. 210.3-
01 and paragraph (g)(1) of Sec. 210.3-12;
(2) 120 days for purposes of paragraph (i)(1) of Sec. 210.3-01 and
paragraph (g)(2) of Sec. 210.3-12; and
(3) 139 days for purposes of paragraph (i)(2) of Sec. 210.3-01.
(d) Notwithstanding other form and content requirements in
Regulation S-X, a non-accelerated filer that is a business development
company or face-amount certificate company may elect to, for the first
five years after an initial registration with the Commission, defer
complying with any new or revised financial accounting standard until
the date that a company that is not an issuer (as defined under Section
2(a) of the Sarbanes Oxley Act of 2002 (15 U.S.C. 7201(a)) is required
to comply with such new or revised financial accounting standard, if
such standard applies to companies that are not issuers, provided that:
(1) For a business development company or face-amount certificate
company electing this accommodation for this five-year period:
(i) The company must disclose the election at the time the company
files its initial registration statement and apply the election to all
standards; and
(ii) The accommodation will cease on the last day of the fiscal
year in which the fifth anniversary of the company's initial
registration effective date occurs. The annual report of the company
for that fiscal year must reflect the adoption of all new or revised
financial accounting standards that are effective for issuers as of
that date; and
(2) A business development company or face-amount certificate
company electing not to use this accommodation must forgo this
accommodation for all financial accounting standards and may not elect
to rely on this accommodation in any future filings.
0
9. Amend Sec. 210.4-08 by removing and reserving paragraphs (b), (d),
(h), (m), and (n).
0
10. Amend Sec. 210.5-02 by:
0
a. In paragraph 19, removing paragraph (b) and removing the paragraph
(a) designation;
0
b. In paragraph 20, removing the words ``indicating the current portion
of deferred income taxes,'';
0
c. In paragraph 22, removing paragraph (b) and removing the paragraph
(a) designation; and
0
d. In paragraph 27(c), removing the words ``(See also Sec. 210.4-
08(d).)''.
0
11. Revise and republish Sec. 210.8-01 through 210.8-08 and the
undesignated center heading ``Article 8 Financial Statements of Smaller
Reporting Companies'' to read as follows:
Article 8 Financial Statements of Non-Accelerated Filers
Sec. 210.8-01 General requirements for Article 8.
(a) Sections 210.8-01 through 210.8-08 (Article 8):
(1) May be applied to financial statements filed for non-
accelerated filers, including small non-accelerated filers (as defined
in Sec. 240.12b-2 of this chapter);
(2) Are not applicable to financial statements prepared for the
purposes of Item 17 or Item 18 of Form 20-F;
(3) Are not applicable to financial statements prepared for
investment companies; and
(4) Financial statements of a non-accelerated filer, its
predecessors or any businesses to which the registrant is a successor
must be prepared in accordance with generally accepted accounting
principles in the United States.
(b) Non-accelerated filers electing to prepare their financial
statements with the form and content required in Article 8 need not
apply the other form and content requirements in Regulation S-X with
the exception of the following:
(1) The report and qualifications of the independent accountant
must comply with the requirements of Sec. Sec. 210.2-01 through 210.2-
07 (Article 2);
(2) The description of accounting policies must comply with Sec.
210.4-08(n);
(3) Non-accelerated filers engaged in oil and gas producing
activities must follow the financial accounting and reporting standards
specified in Sec. 210.4-10 with respect to such activities;
(4) The form, order, and terminology of the financial statements
must comply with the requirements of Sec. 210.4-01(a); and
(5) Summarized financial information of subsidiaries not
consolidated and 50 percent or less owned persons accounted for by the
equity method by the registrant or a subsidiary of the registrant must
be presented in the notes to the financial statements as required by
Sec. 210.4-08(g), substituting 20 percent for 10 percent when the
criteria in Sec. 210.1-02(w) are applied.
(c) The requirements of Sec. 210.3-10 are applicable to financial
statements for a subsidiary of a non-accelerated filer that issues
securities guaranteed by the non-accelerated filer or guarantees
securities issued by the non-accelerated filer. Disclosures about
guarantors and issuers of guaranteed securities registered or being
registered must be presented as required by Sec. 210.13-01.
(d) The requirements of Sec. 210.3-16 or Sec. 210.13-02 are
applicable if a non-accelerated filer's securities registered or being
registered are collateralized by the securities of the non-accelerated
filer's affiliates. Section 210.13-02 must be followed unless Sec.
210.3-16 applies. The periods presented for purposes of compliance with
Sec. 210.3-16 are those required by Sec. 210.8-02.
(e) The Commission, where consistent with the protection of
investors, may permit the omission of one or more of the financial
statements or the substitution of appropriate statements of comparable
character. The Commission by informal written notice may require the
filing of other financial statements where necessary or appropriate.
(f) Section 210.3-06 applies to the preparation of financial
statements of non-accelerated filers.
(g) For the first five years after an initial registration with the
Commission, non-accelerated filers may elect to defer complying with
any new or revised financial accounting standard until the date that a
company that is not an issuer (as defined under Section 2(a) of the
Sarbanes Oxley Act of 2002 (15 U.S.C. 7201(a)) is required to comply
with such new or revised financial accounting standard, if such
standard applies to companies that are not issuers. Non-accelerated
filers electing this accommodation for this five-year period must
disclose the election at the time the non-accelerated filer files its
initial registration statement and apply the election to all standards.
This accommodation will cease on the last day of the fiscal year in
which the fifth anniversary of the non-accelerated filer's initial
registration effective date occurs. The annual report for that fiscal
year must reflect the adoption of all new or revised financial
accounting standards that are effective for issuers as of that date.
Non-accelerated filers electing not to use this accommodation must
forgo this accommodation for all financial accounting standards and may
not elect to rely on this accommodation in any future filings.
Sec. 210.8-02 Annual financial statements.
Non-accelerated filers (as defined in Sec. 240.12b-2 of this
chapter) must file an audited balance sheet for the registrant and its
subsidiaries consolidated and for its predecessors as of the end of
each of the most recent two fiscal years, or as of a date within 135
days (or 140 days if a small non-accelerated filer) if the
[[Page 30167]]
issuer has existed for a period of less than one fiscal year, and
audited statements of comprehensive income, cash flows, and changes in
stockholders' equity for each of the two fiscal years preceding the
date of the most recent audited balance sheet (or such shorter period
as the registrant has been in business).
Sec. 210.8-03 Interim financial statements.
(a) Interim financial statements must include a balance sheet as of
the end of the issuer's most recent fiscal quarter, a balance sheet as
of the end of the preceding fiscal year, and statements of
comprehensive income and statements of cash flows for the interim
period up to the date of the interim balance sheet and the comparable
period of the preceding fiscal year. Interim financial statements may
be unaudited; however, before filing, interim financial statements
included in quarterly reports on Form 10-Q (Sec. 249.308(a) of this
chapter) must be reviewed by an independent public accountant using
applicable professional standards and procedures for conducting such
reviews, as may be modified or supplemented by the Commission. If, in
any filing, the issuer states that interim financial statements have
been reviewed by an independent public accountant, a report of the
accountant on the review must be filed with the interim financial
statements.
(b) Condensed format. Interim financial statements may be condensed
as follows:
(1) Include separate captions for each balance sheet component
presented in the annual financial statements that represents 10% or
more of total assets. Present cash and retained earnings regardless of
relative significance to total assets. Present totals for current
assets and current liabilities when a registrant presents a classified
balance sheet in its annual financial statements.
(2) Include net sales or gross revenue, each cost and expense
category presented in the annual financial statements that exceeds 20%
of sales or gross revenues, provision for income taxes, and
discontinued operations in statements of comprehensive income (or the
statement of net income if comprehensive income is presented in two
separate but consecutive financial statements). Substitute net interest
income for sales for purposes of determining items to be disclosed for
financial institutions.
(3) Include cash flows from operating, investing, and financing
activities as well as cash at the beginning and end of each period and
the increase or decrease in such balance in cash flow statements.
(4) Additional line items may be presented to facilitate the
usefulness of the interim financial statements, including their
comparability with annual financial statements.
(5) Provide the information required by Sec. 210.3-04 for the
current and comparative year-to-date periods, with subtotals for each
interim period.
(c) Disclosure required and additional instructions as to content.
(1) Footnotes. Provide footnote and other disclosures as needed for
fair presentation and to ensure that the financial statements are not
misleading.
(2) Summarized financial information of subsidiaries not
consolidated and 50 percent or less owned persons
(i) Disclose the summarized statement of comprehensive income
information specified in Sec. 210.1-02(bb)(1)(ii) on an individual or
group basis for each:
(A) majority-owned subsidiary not consolidated by the registrant or
by a subsidiary of the registrant that meets any of the conditions
specified in the definition of significant subsidiary in Sec. 210.1-
02(w), substituting 20 percent for 10 percent; and
(B) 50 percent or less owned person accounted for by the equity
method by either the registrant or a subsidiary of the registrant that
meets either the investment test or income test specified in the
definition of significant subsidiary in Sec. 210.1-02(w)(1),
substituting 20 percent for 10 percent.
(ii) The summarized statement of comprehensive income information
required by paragraph (c)(2)(i) of this section need not be provided
for any unconsolidated subsidiary or person that would not be required
pursuant to Sec. 240.13a-13 or Sec. 240.15d-13 of this chapter to
file quarterly financial information with the Commission if it were a
registrant.
(3) Material accounting changes. The registrant's independent
accountant must provide a letter in the first Form 10-Q (Sec. 249.308a
of this chapter) filed after the change indicating whether or not the
change is to a preferable method.
(4) Financial statements of and disclosures about guarantors and
issuers of guaranteed securities. The requirements of Sec. 210.3-10
are applicable to financial statements for a subsidiary of a non-
accelerated filer that issues securities guaranteed by the non-
accelerated filer or guarantees securities issued by the non-
accelerated filer. Present disclosures about guarantors and issuers of
guaranteed securities registered or being registered as required by
Sec. 210.13-01.
(5) Disclosures about affiliates whose securities collateralize an
issuance. Present disclosures about a non-accelerated filer's
affiliates whose securities collateralize any class of securities
registered or being registered and the related collateral arrangement
as required by Sec. 210.13-02.
Instruction to Sec. 210.8-03. Where Sec. Sec. 210.8-01 through
210.8-08 (Article 8 of this part) are applicable to quarterly reports
on a Form 10-Q (Sec. 249.308a of this chapter) and the interim period
is more than one quarter, statements of comprehensive income must also
be provided for the most recent interim quarter and the comparable
quarter of the preceding fiscal year.
Sec. 210.8-04 Financial statements of businesses acquired or to be
acquired.
Apply Sec. 210.3-05 substituting Sec. Sec. 210.8-02 and 210.8-03,
as applicable, wherever Sec. 210.3-05 references Sec. Sec. 210.3-01
and 210.3-02.
Sec. 210.8-05 Pro forma financial information.
(a) Pro forma financial information must be disclosed when any of
the conditions in Sec. 210.11-01 exist.
(b) The preparation, presentation, and disclosure of pro forma
financial information must comply with Sec. Sec. 210.11-01 through
210.11-03 (Article 11), except that the pro forma financial information
may be condensed pursuant to Sec. 210.8-03(a).
Sec. 210.8-06 Real estate operations acquired or to be acquired.
Apply Sec. 210.3-14 substituting Sec. Sec. 210.8-02 and 210.8-03,
as applicable, wherever Sec. 210.3-14 references Sec. Sec. 210.3-01
and 210.3-02.
Sec. 210.8-07 [Reserved]
Sec. 210.8-08 Age of financial statements.
(a) At the date of filing, financial statements included in filings
other than filings on Form 10-K must be not less current than the
financial statements that would be required in Forms 10-K and 10-Q if
such reports were required to be filed. If required financial
statements are as of a date 135 days (or within 140 days for a small
non-accelerated filer) or more before the date a registration statement
becomes effective or proxy material is expected to be mailed, update
the financial statements to include financial statements for an interim
period ending within 135 days (or 140 days for a small non-accelerated
filer) of the effective or expected mailing date. Interim financial
statements must be prepared and presented in accordance with paragraph
(b) of this section.
[[Page 30168]]
(b) When the anticipated effective or mailing date falls within 45
days after the end of the non-accelerated filer's fiscal year, the
filing may include financial statements only as current as of the end
of the third fiscal quarter; Provided, however, that if the audited
financial statements for the recently completed fiscal year are
available or become available before effectiveness or mailing, they
must be included in the filing; and
(c) For interim financial statements, if the effective date or
anticipated mailing date falls after 45 days but within 90 days of the
end of the non-accelerated filer's fiscal year (or after 45 days but
within 120 days of the end of the small non-accelerated filer's fiscal
year), the non-accelerated filer (or small non-accelerated filer) is
not required to provide the audited financial statements for such year
end provided that the following conditions are met:
(1) All reports due have been filed;
(2) For the most recent fiscal year for which audited financial
statements are not yet available, the non-accelerated filer reasonably
and in good faith expects to report income from continuing operations
attributable to the registrant before taxes; and
(3) For at least one of the two fiscal years immediately preceding
the most recent fiscal year the non-accelerated filer reported income
from continuing operations attributable to the registrant before taxes.
0
12. Amend Sec. 210.10-01 by:
0
a. Removing and reserving paragraph (b)(2).
0
b. Removing and reserving paragraph (b)(7).
0
13. Amend Sec. 210.15-01 by removing the words ``smaller reporting
company based on its annual revenues as of the most recently completed
fiscal year for which audited financial statements are available,'' and
adding, in their place, the words ``non-accelerated filer'' in the
following places:
0
a. Paragraph (b);
0
b. Paragraph (c); and
0
c. Paragraph (d).
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
0
14. The authority citation for part 229 continues to read as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-
31(c), 80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C.
1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec.
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).
0
15. Amend Sec. 229.10 to:
0
a. Add (b)(3); and
0
b. Revise (f).
The addition and revision to read as follows:
Sec. 229.10 (Item 10) General.
* * * * *
(b) * * *
(3) Investor understanding.
(i) When management chooses to include its projections in a
Commission filing, the disclosures accompanying the projections should
facilitate investor understanding of the basis for and limitations of
projections. In this regard investors should be cautioned against
attributing undue certainty to management's assessment, and the
Commission believes that investors would be aided by a statement
indicating management's intention regarding the furnishing of updated
projections. The Commission also believes that investor understanding
would be enhanced by disclosure of the assumptions which in
management's opinion are most significant to the projections or are the
key factors upon which the financial results of the enterprise depend
and encourages disclosure of assumptions in a manner that will provide
a framework for analysis of the projection.
(ii) Management also should consider whether disclosure of the
accuracy or inaccuracy of previous projections would provide investors
with important insights into the limitations of projections. In this
regard, consideration should be given to presenting the projections in
a format that will facilitate subsequent analysis of the reasons for
differences between actual and forecast results. An important benefit
may arise from the systematic analysis of variances between projected
and actual results on a continuing basis, since such disclosure may
highlight for investors the most significant risk and profit-sensitive
areas in a business operation.
(iii) With respect to previously issued projections, registrants
are reminded of their responsibility to make full and prompt disclosure
of material facts, both favorable and unfavorable, regarding their
financial condition. This responsibility may extend to situations where
management knows or has reason to know that its previously disclosed
projections no longer have a reasonable basis.
(iv) Since a registrant's ability to make projections with relative
confidence may vary with all the facts and circumstances, the
responsibility for determining whether to discontinue or to resume
making projections is best left to management. However, the Commission
encourages registrants not to discontinue or to resume projections in
Commission filings without a reasonable basis.
* * * * *
(f) Emerging Growth Companies. An emerging growth company, as
defined in 17 CFR 230.405 and 17 CFR 240.12b-2 of this chapter, is:
(1) Exempt from the requirement to:
(i) Provide a registered public accounting firm's attestation
report on the registrant's internal control over financial reporting
(Sec. 229.308(b) and Sec. 210.2-02 of this chapter);
(ii) Provide pay ratio disclosure (Sec. 229.402(u));
(iii) Provide pay versus performance disclosure (Sec. 229.402(v));
(iv) Provide a compensation committee report (Sec. 229.407(e));
(v) Provide disclosure of payments by resource extraction issuers
(Sec. 240.13q-1 of this chapter);
(vi) Conduct shareholder advisory votes to approve executive
compensation (Sec. 240.14a-21(a) of this chapter);
(vii) Conduct shareholder advisory votes on frequency of say-on-pay
(Sec. 240.14a-21(b) of this chapter); and
(viii) Conduct shareholder advisory votes on golden parachute
compensation (Sec. 240.14a-21(c) of this chapter) and provide
disclosure on golden parachute compensation (Sec. 229.402(t) and Sec.
229.1011(b)).
(2) Permitted to:
(i) Provide audited statements of comprehensive income, cash flows,
and changes in stockholders' equity, and management's discussion and
analysis related to such statements, for each of the two fiscal years
preceding the date of the most recent audited balance sheet in an
initial registration statement for an offering of common equity
securities (Sec. 229.303, Sec. 210.3-02, and Sec. 210.3-04 of this
chapter); and
(ii) Disclose the same scaled executive compensation information as
an issuer with a market value of outstanding voting and nonvoting
common equity held by non-affiliates of less than $75,000,000 (Sec.
229.402).
0
16. Revise and republish Sec. 229.101 to read as follows:
Sec. 229.101 (Item 101) Description of business.
(a) General development of business.
(1) Describe the general development of the business of the
registrant, its
[[Page 30169]]
subsidiaries, and any predecessor(s). A registrant must describe the
development of its business for the period of time that is material to
an understanding of the general development of the business. In
describing developments, only information material to an understanding
of the general development of the business is required. If a registrant
seeks to incorporate by reference a description of the development of
its business in reliance on Sec. 230.411(b) or Sec. 240.12b-23(a) of
this chapter as applicable, the registrant must provide an update to
the general development of its business disclosing all of the material
developments that have occurred since the most recent registration
statement or report that includes a full discussion of the general
development of its business. In addition, the registrant must
incorporate by reference, and include one active hyperlink to one
registration statement or report that includes, the full discussion of
the general development of the registrant's business. If the registrant
has not been in business for three years, provide the same information
for predecessor(s) of the registrant if there are any. This business
development description must include:
(i) Form and year of organization.
(ii) Any bankruptcy, receivership or similar proceeding.
(iii) Any material reclassification, merger, consolidation, or
purchase or sale of a significant amount of assets not in the ordinary
course of business.
(iv) A brief description of the business that includes a
discussion, to the extent material to an understanding of the
registrant, of:
(A) Principal products or services and their markets;
(B) Distribution methods of the products or services;
(C) Status of any publicly announced new product or service;
(D) Competitive business conditions and the registrant's
competitive position in the industry and methods of competition;
(E) Sources and availability of raw materials and the names of
principal suppliers;
(F) Dependence on one or a few major customers;
(G) Patents, trademarks, licenses, franchises, concessions, royalty
agreements or labor contracts, including duration;
(H) Need for any government approval of principal products or
services, and if government approval is necessary and the registrant
has not yet received that approval, discuss the status of the approval
within the government approval process;
(I) Effect of existing or probable governmental regulations on the
business;
(J) Costs and effects of compliance with environmental laws
(Federal, State and local); and
(K) Number of total employees and number of full-time employees.
(v) The following disclosure in any registration statement filed
under the Securities Act of 1933:
(A) Whether the registrant will voluntarily send an annual report
to security holders if it is not required to do so and whether the
report will include audited financial statements;
(B) Whether the registrant files reports with the Securities and
Exchange Commission, identifying those reports and other information
the registrant files with the Commission; and
(C) A statement that the Commission maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commission, including the address of that site (http://www.sec.gov) and
the registrant's internet address, if available.
(vi) Disclosure regarding the enforceability of civil liabilities
against foreign persons if the registrant is a foreign private issuer
filing a registration statement under the Securities Act. The
disclosure must address the following matters:
(A) Whether or not investors may bring actions under the civil
liability provisions of the U.S. Federal securities laws against the
foreign private issuer, any of its officers and directors who are
residents of a foreign country, any underwriters or experts named in
the registration statement that are residents of a foreign country, and
whether investors may enforce these civil liability provisions when the
assets of the issuer or these other persons are located outside of the
United States;
(B) The investor's ability to effect service of process within the
United States on the foreign private issuer or any person;
(C) The investor's ability to enforce judgments obtained in U.S.
courts against foreign persons based upon the civil liability
provisions of the U.S. Federal securities laws;
(D) The investor's ability to enforce, in an appropriate foreign
court, judgments of U.S. courts based upon the civil liability
provisions of the U.S. Federal securities laws;
(E) The investor's ability to bring an original action in an
appropriate foreign court to enforce liabilities against the foreign
private issuer or any person based upon the U.S. Federal securities
laws; and
(F) The name of counsel if the disclosure is based on an opinion of
counsel included in the prospectus and filed as an exhibit to the
registration statement a signed consent of counsel to the use of its
name and opinion.
(2) Registrants that are not subject to the reporting requirements
of section 13(a) or 15(d) of the Exchange Act prior to the filing of a
registration statement on Form S-1 (Sec. 239.11 of this chapter) or on
Form 10 (Sec. 249.210 of this chapter) and that (including
predecessors) have not received revenue from operations during the last
three fiscal years must provide the following information:
(i) A description of the plan of operation for:
(A) The remainder of the fiscal year if the registration statement
is filed prior to the end of the registrant's second fiscal quarter;
(B) The remainder of the fiscal year and for the first six months
of the next fiscal year if the registration statement is filed
subsequent to the end of the registrant's second fiscal quarter; or
(C) If a description of the registrant's plan of operation is not
available, the reasons for its not being available.
(ii) Disclosure relating to such matters as:
(A) In the case of a registration statement on Form S-1, a
statement in narrative form indicating:
(1) The registrant's opinion as to the period of time that the
proceeds from the offering will satisfy cash requirements and whether
in the next six months it will be necessary to raise additional funds
to meet the expenditures required for operating the business of the
registrant;
(2) The specific reasons for such opinion, including identifying
categories of expenditures and sources of cash resources; however,
amounts of expenditures and cash resources need not be provided; and
(3) If the narrative statement is based on a cash budget, furnish
such budget to the Commission as supplemental information, but not as
part of the registration statement;
(B) An explanation of material product research and development to
be performed during the period covered in the plan;
(C) Any anticipated material acquisition of plant and equipment and
the capacity thereof;
(D) Any anticipated material changes in number of employees in the
various departments such as research and development, production, sales
or administration; and
[[Page 30170]]
(E) Other material areas which may be peculiar to the registrant's
business.
b. General development of business for large accelerated filers. A
registrant that is a large accelerated filer, as defined in Sec.
230.405 and 240.12b-2 of this chapter, must additionally consider:
(1) In describing the general development of the business of the
registrant, its subsidiaries, and any predecessor(s) this disclosure
may include, but is not limited to:
(i) Any material changes to a previously disclosed business
strategy;
(ii) The nature and effects of any material bankruptcy,
receivership, or any similar proceeding with respect to the registrant
or any of its significant subsidiaries;
(iii) The nature and effects of any material reclassification,
merger or consolidation of the registrant or any of its significant
subsidiaries; and
(iv) The acquisition or disposition of any material amount of
assets otherwise than in the ordinary course of business.
(2) In describing the business done and intended to be done by the
registrant and its subsidiaries, this disclosure should focus on the
registrant's dominant segment or each reportable segment about which
financial information is presented in the financial statements. When
describing each segment, only information material to an understanding
of the business taken as a whole is required.
(i) Disclosure may include, but should not be limited to:
(A) Revenue-generating activities, products and/or services, and
any dependence on revenue-generating activities, key products,
services, product families or customers, including governmental
customers;
(B) Status of development efforts for new or enhanced products,
trends in market demand and competitive conditions;
(C) Resources material to a registrant's business, such as:
(1) Sources and availability of raw materials; and
(2) The duration and effect of all patents, trademarks, licenses,
franchises, and concessions held;
(D) A description of any material portion of the business that may
be subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the Government; and
(E) The extent to which the business is or may be seasonal.
(ii) Discuss the following with respect to, and to the extent
material to an understanding of, the registrant's business taken as a
whole, except that, if the information is material to a particular
segment, additionally identify that segment.
(A) The material effects that compliance with government
regulations, including environmental regulations, may have upon the
capital expenditures, earnings and competitive position of the
registrant and its subsidiaries, including the estimated capital
expenditures for environmental control facilities for the current
fiscal year and any other material subsequent period; and
(B) A description of the registrant's human capital resources,
including the number of persons employed by the registrant, and any
human capital measures or objectives that the registrant focuses on in
managing the business (such as, depending on the nature of the
registrant's business and workforce, measures or objectives that
address the development, attraction and retention of personnel).
(c) Available information. Disclose the information in paragraphs
(c)(1), (c)(2) and (c)(3) of this section in any registration statement
the registrant files under the Securities Act (15 U.S.C. 77a et seq.),
and disclose the information in paragraph (c)(3) of this section in the
registrant's annual report on Form 10-K (Sec. 249.310 of this
chapter). Further disclose the information in paragraph (c)(4) of this
section if the registrant is a large accelerated filer (as defined in
Sec. 240.12b-2 of this chapter) filing an annual report on Form 10-K
(Sec. 249.310 of this chapter):
(1) Whether the registrant files reports with the Securities and
Exchange Commission. If the registrant is a reporting company, identify
the reports and other information the registrant files with the
Commission.
(2) State that the Commission maintains an internet site that
contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the
Commission and state the address of that site (https://www.sec.gov).
(3) Disclose the registrant's internet address, if the registrant
has one.
(4)
(i) Whether the registrant makes available free of charge on or
through its internet website, the registrant's annual report on Form
10-K, quarterly reports on Form 10-Q (Sec. 249.308a of this chapter),
current reports on Form 8-K (Sec. 249.308 of this chapter), and
amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) as soon
as reasonably practicable after the registrant electronically files
such material with, or furnishes it to, the Commission;
(ii) If the registrant does not make its filings available in this
manner, the reasons the registrant does not do so (including, where
applicable, that the registrant does not have an internet website); and
(iii) If the registrant does not make its filings available in this
manner, whether the registrant voluntarily will provide electronic or
paper copies of its filings free of charge upon request.
(d) Reports to security holders. Disclose the following information
in any registration statement the registrant files under the Securities
Act:
(1) If the Commission's proxy rules or regulations, or stock
exchange requirements, do not require the registrant to send an annual
report to security holders or to holders of American depository
receipts, describe briefly the nature and frequency of reports that the
registrant will provide to security holders. Specify whether the
reports that the registrant provides will contain financial information
that has been examined and reported on, with an opinion expressed
``by'' an independent public or certified public accountant.
(2) For a foreign private issuer, if the report will not contain
financial information prepared in accordance with U.S. generally
accepted accounting principles, the registrant must state whether the
report will include a reconciliation of this information with U.S.
generally accepted accounting principles.
Instruction 1 to Item 101: In determining what information about
the segments is material to an understanding of the registrant's
business taken as a whole and therefore required to be disclosed, the
registrant should take into account both quantitative and qualitative
factors such as the significance of the matter to the registrant (e.g.,
whether a matter with a relatively minor impact on the registrant's
business is represented by management to be important to its future
profitability), the pervasiveness of the matter (e.g., whether it
affects or may affect numerous items in the segment information), and
the impact of the matter (e.g., whether it distorts the trends
reflected in the segment information). Situations may arise when
information should be disclosed about a segment, although the
information in quantitative terms may not appear significant to the
registrant's business taken as a whole.
Instruction 2 to Item 101: Base the determination of whether
information about segments is required for a particular year upon an
evaluation of interperiod comparability. For instance, interperiod
comparability would require
[[Page 30171]]
a registrant to report segment information in the current period even
if not material under the criteria for reportability of FASB ASC Topic
280, Segment Reporting, if a segment has been significant in the
immediately preceding period and the registrant expects it to be
significant in the future.
Instruction 3 to Item 101: The Commission, upon written request of
the registrant and where consistent with the protection of investors,
may permit the omission of any of the information required by this Item
or the furnishing in substitution thereof of appropriate information of
comparable character.
0
17. Amend Sec. 229.201 by
0
a. Revising paragraph (a)(1)(iii);
0
b. Revising paragraph (e)(1); and
0
c. Removing and reserving Instruction 6 to paragraph (e).
Sec. 229.201 (Item 201) Market price of and dividends on the
registrant's common equity and related stockholder matters.
* * * * *
(a) * * *
(1) * * *
(iii) Where there is no established public trading market for a
class of common equity, furnish a statement to that effect and, if
applicable, state the range of high and low bid information for each
full quarterly period within the two most recent fiscal years and any
subsequent interim period for which financial statements are included,
or are required to be included by 17 CFR 210.3-01 through 210.3-20
(Article 3 of Regulation S-X) or 17 CFR 210.8-01 through 8-08 (Article
8 of Regulation S-X), indicating the source of such quotations. Qualify
reference to quotations by appropriate explanation. For purposes of
this Item the existence of limited or sporadic quotations should not of
itself be deemed to constitute an ``established public trading
market.''
* * * * *
(e) Performance Graph.
(1) For a registrant that is a large accelerated filer (as defined
in Sec. 230.405 and Sec. 240.12b-2 of this chapter) or an investment
company, provide a line graph comparing the yearly percentage change in
the registrant's cumulative total shareholder return on a class of
common stock registered under section 12 of the Exchange Act (as
measured by dividing the sum of the cumulative amount of dividends for
the measurement period, assuming dividend reinvestment, and the
difference between the registrant's share price at the end and the
beginning of the measurement period; by the share price at the
beginning of the measurement period) with:
* * * * *
Instructions to Item 201(e): * * *
6. [Reserved].
* * * * *
0
18. Revise and republish Sec. 229.302 to read as follows:
Sec. 229.302 (Item 302) Supplementary financial information.
When there are one or more retrospective changes to the statements
of comprehensive income for any of the quarters within the two most
recent fiscal years or any subsequent interim period for which
financial statements are included or are required to be included by
Sec. Sec. 210.3-01 through 210.3-20 of this chapter (Article 3 of
Regulation S-X) that individually or in the aggregate are material, a
registrant that is a large accelerated filer (as defined in Sec.
230.405 and Sec. 240.12b-2 of this chapter), except a foreign private
issuer or mutual life insurance company, must provide an explanation of
the reasons for such material changes and disclose, for each affected
quarterly period and the fourth quarter in the affected year,
summarized financial information related to the statements of
comprehensive income as specified in Sec. 210.1-02(bb)(1)(ii) of this
chapter (Rule 1-02(bb)(1)(ii) of Regulation S-X) and earnings per share
reflecting such changes.
Instruction to 17 CFR 229.302: If the financial statements to which
this information relates have been reported on by an accountant,
appropriate professional standards and procedures, as enumerated in
Auditing Standards issued by the Public Company Accounting Oversight
Board, must be followed by the reporting accountant with regard to this
disclosure.
0
19. Amend Sec. 229.303 by:
0
a. Revising ``Instruction to paragraph (b): 1.''; and
0
b. Revising paragraph (c).
The revisions to read as follows:
Sec. 229.303 (Item 303) Management's discussion and analysis of
financial condition and results of operations.
* * * * *
(b) Full fiscal years. * * *
Instructions to paragraph (b): 1. Generally, the discussion must
cover the periods covered by the financial statements included in the
filing and the registrant may use any presentation that in the
registrant's judgment enhances a reader's understanding. For
registrants providing financial statements covering three years in a
filing, discussion about the earliest of the three years may be omitted
if such discussion was already included in the registrant's prior
filings on EDGAR that required disclosure in compliance with Sec.
229.303 (Item 303 of Regulation S-K), provided that registrants
electing not to include a discussion of the earliest year must include
a statement that identifies the location in the prior filing where the
omitted discussion may be found.
* * * * *
(c) Interim periods. If interim period financial statements are
included or are required to be included by 17 CFR 210.3 [Article 3 of
Regulation S-X] or 17 CFR 210.8 [Article 8 of Regulation S-X], a
management's discussion and analysis of the financial condition and
results of operations must be provided so as to enable the reader to
assess material changes in financial condition and results of
operations between the periods specified in paragraphs (c)(1) and (2)
of this section. The discussion and analysis must include a discussion
of material changes in those items specifically listed in paragraph (b)
of this section.
* * * * *
0
20. Amend Sec. 229.305 by:
0
a. Revising paragraph (a) introductory text;
0
b. Revising paragraph (a)(1) introductory text;
0
c. Revising paragraph (a)(2);
0
d. Revising paragraph (a)(3);
0
e. Revising paragraph (a)(4);
0
f. Revising paragraph (b) introductory text;
0
g. Revising paragraph (b)(2); and
0
h. Removing and reserving paragraph (e).
The revisions to read as follows:
Sec. 229.305 Quantitative and qualitative disclosures about market
risk.
(a) Quantitative information about market risk. Registrants that
are large accelerated filers (as defined in Sec. 230.405 and Sec.
240.12b-2 of this chapter) must:
(1) Provide, in their reporting currency, quantitative information
about market risk as of the end of the latest fiscal year, in
accordance with one of the following three disclosure alternatives. In
preparing this quantitative information, registrants must categorize
market risk sensitive instruments into instruments entered into for
trading purposes and instruments entered into for purposes other than
trading purposes. Within both the trading and other than trading
portfolios, separate quantitative information must be presented, to the
extent material, for each market risk exposure category (i.e., interest
rate risk, foreign currency exchange rate risk, commodity price risk,
and other relevant market risks, such as equity price risk). A
registrant may use one of the three alternatives set forth in this
[[Page 30172]]
section for all of the required quantitative disclosures about market
risk. A registrant also may choose, from among the three alternatives,
one disclosure alternative for market risk sensitive instruments
entered into for trading purposes and another disclosure alternative
for market risk sensitive instruments entered into for other than
trading purposes. Alternatively, a registrant may choose any disclosure
alternative, from among the three alternatives, for each risk exposure
category within the trading and other than trading portfolios. The
three disclosure alternatives are:
* * * * *
(2) Discuss material limitations that cause the information
required under paragraph (a)(1) of this Item 305 not to reflect fully
the net market risk exposures of the entity. This discussion must
include summarized descriptions of instruments, positions, and
transactions omitted from the quantitative market risk disclosure
information or the features of instruments, positions, and transactions
that are included, but not reflected fully in the quantitative market
risk disclosure information.
(3) Present summarized market risk information for the preceding
fiscal year. In addition, registrants must discuss the reasons for
material quantitative changes in market risk exposures between the
current and preceding fiscal years. Information required by this
paragraph (a)(3), however, is not required if disclosure is not
required under paragraph (a)(1) of this Item 305 for the current fiscal
year. Information required by this paragraph (a)(3) is not required for
the first fiscal year end in which a registrant must present Item 305
information.
(4) If there is a change to disclosure alternatives or key model
characteristics, assumptions, and parameters used in providing
quantitative information about market risk (e.g., changing from tabular
presentation to value at risk, changing the scope of instruments
included in the model, or changing the definition of loss from fair
values to earnings), and if the effects of any such change is material:
(i) Explain the reasons for the change; and
(ii) Either provide summarized comparable information, under the
new disclosure method, for the year preceding the current year or, in
addition to providing disclosure for the current year under the new
method, provide disclosures for the current year and preceding fiscal
year under the method used in the preceding year.
* * * * *
(b) Qualitative information about market risk. Registrants that are
large accelerated filers (as defined in Sec. 230.405 and Sec.
240.12b-2 of this chapter) must:
(1) To the extent material, describe:
* * * * *
(2) Present qualitative information about market risk separately
for market risk sensitive instruments entered into for trading purposes
and those entered into for purposes other than trading.
* * * * *
(e) [Reserved]
* * * * *
0
21. Amend Sec. 229.308 by:
0
a. Revising paragraph (a)(4);
0
b. Revising paragraph (b); and
0
c. Revising Instruction to Item 308.
Sec. 229.308 (Item 308) Internal control over financial reporting.
(a) * * *
(4) If the registrant is a large accelerated filer (as defined in
Sec. 240.12b-2 of this chapter), or otherwise includes in its annual
report a registered public accounting firm's attestation report on
internal control over financial reporting, a statement that the
registered public accounting firm that audited the financial statements
included in the annual report containing the disclosure required by
this Item has issued an attestation report on the registrant's internal
control over financial reporting.
(b) Attestation report of the registered public accounting firm. If
the registrant is a large accelerated filer (as defined in Sec.
240.12b-2 of this chapter), provide the registered public accounting
firm's attestation report on the registrant's internal control over
financial reporting in the registrant's annual report containing the
disclosure required by this Item.
* * * * *
Instructions to Item 308: 1. A registrant need not comply with
paragraph (a) of this Item until it either had been required to file an
annual report pursuant to section 13(a) or 15(d) of the Exchange Act
(15 U.S.C. 78m or 78o(d)) for the prior fiscal year or had filed an
annual report with the Commission for the prior fiscal year. A
registrant that does not comply must include a statement in its annual
report in substantially the following form: ``This annual report does
not include a report of management's assessment regarding internal
control over financial reporting or an attestation report of the
company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for
newly public companies.''
2. The registrant must maintain evidential matter, including
documentation, to provide reasonable support for management's
assessment of the effectiveness of the registrant's internal control
over financial reporting.
0
22. Amend Sec. 229.402 by:
0
a. Adding paragraph (a)(7);
0
b. Removing and reserving paragraph (l);
0
c. Revising paragraph (t)(1);
0
d. Revising the Instructions to Item 402(t);
0
e. Removing and reserving Instruction 7.3 to Item 402(u) and
Instruction 8 to Item 402(u);
0
f. Revising the introductory text to paragraph (v) and paragraph
(v)(2);
0
g. Removing and reserving paragraph (v)(8); and
0
h. Revising Instruction to paragraph (x)(2).
The revisions to read as follows:
Sec. 229.402 (Item 402) Executive compensation.
(a) General. * * *
(7) Treatment of non-accelerated filers. A non-accelerated filer
(as defined in Sec. 230.405 and Sec. 240.12b-2 of this chapter):
(i) May provide the disclosure in paragraphs (m) through (r) in
lieu of the disclosure required in paragraphs (a) through (k); and
(ii) Is exempt from providing the disclosure required in paragraphs
(s) through (v).
* * * * *
(l) [Reserved]
(t) Golden parachute compensation.
(1) In connection with any proxy or consent solicitation material
providing the disclosure required by section 14A(b)(1) of the Exchange
Act (15 U.S.C. 78n-1(b)(1)) or any proxy or consent solicitation that
includes disclosure under Item 14 of Schedule 14A (Sec. 240.14a-101 of
this chapter) pursuant to Note A of Schedule 14A, with respect to each
named executive officer of the acquiring company and the target
company, provide the information specified in paragraphs (t)(2) and (3)
of this section regarding any agreement or understanding, whether
written or unwritten, between such named executive officer and the
acquiring company or target company, concerning any type of
compensation, whether present, deferred or contingent, that is based on
or otherwise relates to an acquisition, merger, consolidation, sale or
other disposition of all or
[[Page 30173]]
substantially all assets of the issuer, as follows: * * *
* * * * *
Instruction to Item 402(t). The obligation to provide the
information in this Item 402(t) does not apply to agreements and
understandings described in paragraph (t)(1) of this section with
senior management of foreign private issuers, as defined in Sec.
240.3b-4 of this chapter.
(u) Pay ratio disclosure--
* * * * *
Instruction 7 to Item 402(u)--Transition periods for registrants. *
* *
3. [Reserved]
Instruction 8 to Item 402(u)--[Reserved]
* * * * *
(v) Pay versus performance. In connection with any proxy or
information statement for which the rules of the Commission require
executive compensation disclosure pursuant to this section:
* * * * *
(2) * * *
(ii) The PEO's (as defined in paragraph (a)(3) of this section)
total compensation for the covered fiscal year as reported in the
Summary Compensation Table pursuant to paragraph (c)(2)(x) of this
section, and the average total compensation reported for the remaining
named executive officers collectively reported pursuant to such
applicable paragraph (column (d)). If more than one person served as
the registrant's PEO during the covered fiscal year, provide the total
compensation, as reported in accordance with the immediately preceding
sentence, for each person who served as the PEO during that period
separately in an additional column (b) for each such person.
(iii) The executive compensation actually paid to the PEO (column
(c)) and the average executive compensation actually paid to the
remaining named executive officers collectively (column (e)). If more
than one person served as the registrant's PEO during the covered
fiscal year, provide the compensation actually paid to each person who
served as PEO during that period separately in an additional column (c)
for each such person. For purposes of columns (c) and (e) of the table
required by paragraph (v)(1) of this section, executive compensation
actually paid must be the total compensation for the covered fiscal
year for each named executive officer as provided in paragraph
(c)(2)(x) of this section, adjusted to: * * *
* * * * *
(8) [Reserved]
* * * * *
(x) Disclosure of the registrant's policies and practices related
to the grant of certain equity awards close in time to the release of
material nonpublic information.
* * * * *
Instruction to paragraph (x)(2). A registrant that is a non-
accelerated filer may limit the disclosures in the table to its PEO,
the two most highly compensated executive officers other than the PEO
who were serving as executive officers at the end of the last completed
fiscal year, and up to two additional individuals who would have been
the most highly compensated but for the fact that the individual was
not serving as an executive officer at the end of the last completed
fiscal year.
* * * * *
0
23. In addition to the amendments set forth above, in 17 CFR 229.402,
remove the words ``smaller reporting company'' and add, in their place,
the words ``non-accelerated filer'' in the following places:
0
a. Paragraph (m)(1), (m)(2)(i), (m)(2)(ii), (m)(2)(iii), Instruction 2
to Item 402(m)(2), Instruction 2 to Item 402(m)(2), 402(m)(3),
402(m)(5)(i), 402(m)(5)(ii), 402(m)(5)(iii), and 402(m)(5)(v);
0
b. Paragraph (n)(1), Instruction 1 to Item 402(n)(2)(v) and (n)(2)(vi),
Instruction 2 to Item 402(n)(2)(v) and (n)(2)(vi), Instruction to Item
402(n)(2)(viii), (n)(2)(ix), (n)(2)(ix)(C), (n)(2)(ix)(D)(1),
(n)(2)(ix)(D)(2), (n)(2)(ix)(E), (n)(2)(ix)(F), Instruction 4 to Item
402(n)(2)(ix), and Instruction1 to Item 402(n);
0
c. Paragraph (p)(1) and Instruction 3 to Item 402(p)(2);
0
d. Paragraph (q)(2); and
0
e. Paragraph (r)(1), (r)(2)(vii), (r)(2)(vii)(C), (r)(2)(vii)(D),
(r)(2)(vii)(E), (r)(2)(vii)(F), (r)(2)(vii)(H), Instruction to Item
402(r)(2)(vii).
0
24. In addition to the amendments set forth above, in 17 CFR 229.402,
remove the words ``smaller reporting companies'' and add, in their
place, the words ``non-accelerated filers'' in the following places:
0
a. The heading to paragraph (m), and (m)(5);
0
b. The heading to paragraph (n), and instruction 2 to Instructions to
Item 402(n)(2)(iii) and (iv);
0
c. The heading to paragraph (o);
0
d. The heading to paragraph (p), and instruction 3 to Instructions to
Item 402(p)(2);
0
e. The heading to paragraph (q); and
0
f. The heading to paragraph (r) and Instruction to Item 402(r)(2)(vii).
0
25. Revise and republish Sec. 229.404 to read as follows:
Sec. 229.404 (Item 404) Transactions with related persons, promoters
and certain control persons.
(a) Transactions with related persons. Describe any transaction,
since the beginning of the registrant's last fiscal year, or any
currently proposed transaction, in which the registrant was or is to be
a participant and the amount involved exceeds $120,000, and in which
any related person had or will have a direct or indirect material
interest.
(1) Disclose the following information regarding the transaction:
(i) The name of the related person and the basis on which the
person is a related person.
(ii) The related person's interest in the transaction with the
registrant, including the related person's position(s) or
relationship(s) with, or ownership in, a firm, corporation, or other
entity that is a party to, or has an interest in, the transaction.
(iii) The approximate dollar value of the amount involved in the
transaction.
(iv) The approximate dollar value of the amount of the related
person's interest in the transaction, computed without regard to the
amount of profit or loss.
(v) In the case of indebtedness, disclosure of the amount involved
in the transaction must include the largest aggregate amount of
principal outstanding during the period for which disclosure is
provided, the amount thereof outstanding as of the latest practicable
date, the amount of principal paid during the periods for which
disclosure is provided, the amount of interest paid during the period
for which disclosure is provided, and the rate or amount of interest
payable on the indebtedness.
(vi) Any other information regarding the transaction or the related
person in the context of the transaction that is material to investors
in light of the circumstances of the particular transaction.
(2) For the purposes of paragraph (a) of this section, the term
related person means:
(i) Any person who was in any of the following categories at any
time during the specified period for which disclosure under paragraph
(a) of this Item is required:
(A) Any director or executive officer of the registrant;
(B) Any nominee for director, when the information called for by
paragraph (a) of this Item is being presented in a proxy or information
statement relating to the election of that nominee for director; or
[[Page 30174]]
(C) Any immediate family member of a director or executive officer
of the registrant, or of any nominee for director when the information
called for by paragraph (a) of this Item is being presented in a proxy
or information statement relating to the election of that nominee for
director, which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law of such director, executive officer or
nominee for director, and any person (other than a tenant or employee)
sharing the household of such director, executive officer or nominee
for director; and
(ii) Any person who was in any of the following categories when a
transaction in which such person had a direct or indirect material
interest occurred or existed:
(A) A security holder covered by Item 403(a) (Sec. 229.403(a)); or
(B) Any immediate family member of any such security holder, which
means any child, stepchild, parent, stepparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law of such security holder, and any person (other
than a tenant or employee) sharing the household of such security
holder.
(3) For purposes of paragraph (a) of this section, a transaction
includes, but is not limited to, any financial transaction, arrangement
or relationship (including any indebtedness or guarantee of
indebtedness) or any series of similar transactions, arrangements or
relationships.
(4) The amount involved in the transaction is computed by
determining the dollar value of the amount involved in the transaction
in question, including:
(i) In the case of any lease or other transaction providing for
periodic payments or installments, the aggregate amount of all periodic
payments or installments due on or after the beginning of the
registrant's last fiscal year, including any required or optional
payments due during or at the conclusion of the lease or other
transaction providing for periodic payments or installments; and
(ii) In the case of indebtedness, the largest aggregate amount of
all indebtedness outstanding at any time since the beginning of the
registrant's last fiscal year and all amounts of interest payable on it
during the last fiscal year.
(5) In the case of a transaction involving indebtedness:
(i) Amounts due from the related person for purchases of goods and
services subject to usual trade terms, for ordinary business travel and
expense payments and for other transactions in the ordinary course of
business may be excluded from the calculation of the amount of
indebtedness and need not be disclosed;
(ii) Disclosure need not be provided of any indebtedness
transaction for the related persons specified in paragraph (a)(2)(ii)
of this section; and
(iii) If the lender is a bank, savings and loan association, or
broker-dealer extending credit under Federal Reserve Regulation T (12
CFR part 220) and the loans are not disclosed as past due, nonaccrual
or troubled debt restructurings in the consolidated financial
statements, disclosure under the paragraph (a) may consist of a
statement, if such is the case, that the loans to such persons:
(A) Were made in the ordinary course of business;
(B) Were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with persons not related to the lender; and
(C) Did not involve more than the normal risk of collectibility or
present other unfavorable features.
(6)(i) Disclosure of an employment relationship or transaction
involving an executive officer and any related compensation solely
resulting from that employment relationship or transaction need not be
provided pursuant to this paragraph (a) if:
(A) The compensation arising from the relationship or transaction
is reported pursuant to Item 402 (Sec. 229.402);
(B) The executive officer is not an immediate family member (as
specified in Instruction 1 to paragraph (a) of this Item) and such
compensation would have been reported under Item 402 (Sec. 229.402) as
compensation earned for services to the registrant if the executive
officer was a named executive officer as that term is defined in Item
402(a)(3) (Sec. 229.402(a)(3)), and such compensation had been
approved, or recommended to the board of directors of the registrant
for approval, by the compensation committee of the board of directors
(or group of independent directors performing a similar function) of
the registrant; or
(C) The transaction involves the recovery of erroneously awarded
compensation computed as provided in 17 CFR 240.10D-1(b)(1)(iii) and
the applicable listing standards for the registrant's securities, that
is disclosed pursuant to Item 402(w) (Sec. 229.402(w)).
(ii) Disclosure of compensation to a director need not be provided
pursuant to this paragraph (a) if the compensation is reported pursuant
to Item 402(k) (Sec. 229.402(k)).
(7) A person who has a position or relationship with a firm,
corporation, or other entity that engages in a transaction with the
registrant will not be deemed to have an indirect material interest
within the meaning of this paragraph (a) where:
(i) The interest arises only:
(A) From such person's position as a director of another
corporation or organization that is a party to the transaction; or
(B) From the direct or indirect ownership by such person and all
other persons specified in Instruction 1 to paragraph (a) of this Item,
in the aggregate, of less than a ten percent equity interest in another
person (other than a partnership) which is a party to the transaction;
or
(C) From both such position and ownership; or
(ii) The interest arises only from such person's position as a
limited partner in a partnership in which the person and all other
persons specified in Instruction 1 to paragraph (a) of this Item, have
an interest of less than ten percent, and the person is not a general
partner of and does not hold another position in the partnership.
(8) Disclosure need not be provided pursuant to paragraph (a) of
this Item if:
(i) The transaction is one where the rates or charges involved in
the transaction are determined by competitive bids, or the transaction
involves the rendering of services as a common or contract carrier, or
public utility, at rates or charges fixed in conformity with law or
governmental authority;
(ii) The transaction involves services as a bank depositary of
funds, transfer agent, registrar, trustee under a trust indenture, or
similar services; or
(iii) The interest of the related person arises solely from the
ownership of a class of equity securities of the registrant and all
holders of that class of equity securities of the registrant received
the same benefit on a pro rata basis.
(b) Review, approval or ratification of transactions with related
persons. A registrant that is a large accelerated filer (as defined in
Sec. 230.405 and Sec. 240.12b-2 of this chapter) must:
(1) Describe the registrant's policies and procedures for the
review, approval, or ratification of any transaction required to be
reported under paragraph (a) of this Item. While the material features
of such policies and procedures will vary depending on the particular
circumstances, examples of such
[[Page 30175]]
features may include, in given cases, among other things:
(i) The types of transactions that are covered by such policies and
procedures;
(ii) The standards to be applied pursuant to such policies and
procedures;
(iii) The persons or groups of persons on the board of directors or
otherwise who are responsible for applying such policies and
procedures; and
(iv) A statement of whether such policies and procedures are in
writing and, if not, how such policies and procedures are evidenced.
(2) Identify any transaction required to be reported under
paragraph (a) of this Item since the beginning of the registrant's last
fiscal year where such policies and procedures did not require review,
approval or ratification or where such policies and procedures were not
followed.
Instruction to Item 404(b). Disclosure need not be provided
pursuant to this paragraph regarding any transaction that occurred at a
time before the related person became one of the enumerated persons in
paragraph (a)(2)(i)(A), (B), or (C) of this section if such transaction
did not continue after the related person became one of such enumerated
persons.
(c) Promoters and certain control persons.
(1) A registrant that is filing a registration statement on Form S-
1 under the Securities Act (Sec. 239.11 of this chapter) or on Form 10
under the Exchange Act (Sec. 249.210 of this chapter) and that had a
promoter at any time during the past five fiscal years must:
(i) State the names of the promoter(s), the nature and amount of
anything of value (including money, property, contracts, options or
rights of any kind) received or to be received by each promoter,
directly or indirectly, from the registrant and the nature and amount
of any assets, services or other consideration therefore received or to
be received by the registrant; and
(ii) As to any assets acquired or to be acquired by the registrant
from a promoter, state the amount at which the assets were acquired or
are to be acquired and the principle followed or to be followed in
determining such amount, and identify the persons making the
determination and their relationship, if any, with the registrant or
any promoter. If the assets were acquired by the promoter within two
years prior to their transfer to the registrant, also state the cost
thereof to the promoter.
(2) A registrant must provide the disclosure required by paragraphs
(c)(1)(i) and (c)(1)(ii) of this Item as to any person who acquired
control of a registrant that is a shell company (as defined in Sec.
230.405 and Sec. 240.12b-2 of this chapter), or any person that is
part of a group, consisting of two or more persons that agree to act
together for the purpose of acquiring, holding, voting or disposing of
equity securities of a registrant, that acquired control of a
registrant that is a shell company.
Instructions to Item 404. 1. If the information called for by this
Item is being presented in a registration statement filed pursuant to
the Securities Act or the Exchange Act, information must be given for
the periods specified in the Item and, in addition, for the two fiscal
years preceding the registrant's last fiscal year, unless the
information is being incorporated by reference into a registration
statement on Form S-4 (17 CFR 239.25), in which case, information must
be given for the periods specified in the Item.
2. A foreign private issuer will be deemed to comply with this Item
if it provides the information required by Item 7.B. of Form 20-F (17
CFR 249.220f) with more detailed information provided if otherwise made
publicly available or required to be disclosed by the issuer's home
jurisdiction or a market in which its securities are listed or traded.
0
26. Amend Sec. 229.407 by:
0
a. Revising paragraph (d)(5)(i);
0
b. Revising paragraphs (e)(4) and (e)(5); and
0
c. Removing and Reserving paragraph (g).
The revisions to read as follows:
Sec. 229.407 (Item 407) Corporate governance.
* * * * *
(d) Audit committee. * * *
(5) Audit committee financial expert.
(i) For a registrant, except in its first annual report following
the effective date of its first registration statement filed under the
Securities Act (15 U.S.C. 77a et seq.) or Exchange Act (15 U.S.C. 78a
et seq.):
(A) Disclose that the registrant's board of directors has
determined that the registrant either:
(1) Has at least one audit committee financial expert serving on
its audit committee; or
(2) Does not have an audit committee financial expert serving on
its audit committee.
(B) Disclose the name of any identified audit committee financial
expert and whether that person is independent, as independence for
audit committee members is defined in the listing standards applicable
to the listed issuer.
(C) If the registrant does not have an audit committee financial
expert, explain why.
Instruction to Item 407(d)(5)(i). If the registrant's board of
directors has determined that the registrant has more than one audit
committee financial expert serving on its audit committee, the
registrant may, but is not required to, disclose the names of those
additional persons. A registrant choosing to identify such persons must
indicate whether they are independent pursuant to paragraph
(d)(5)(i)(B) of this Item.
* * * * *
(e) Compensation committee. * * *
(4) Under the caption ``Compensation Committee Interlocks and
Insider Participation'' a large accelerated filer (as defined in Sec.
230.405 and Sec. 240.12b-2 of this chapter) must:
(i) * * *
(C) Had any relationship requiring disclosure by the registrant
under any paragraph of Item 404 (Sec. 229.404). In this event, the
disclosure required by Item 404 (Sec. 229.404) must accompany such
identification.
(ii) If the registrant has no compensation committee (or other
board committee performing equivalent functions), identify each officer
and employee of the registrant, and any former officer of the
registrant, who, during the last completed fiscal year, participated in
deliberations of the registrant's board of directors concerning
executive officer compensation.
* * * * *
(iv) Accompany the disclosure required under paragraph (e)(4)(iii)
of this section regarding a compensation committee member or other
director of the registrant who also served as an executive officer of
another entity with the disclosure called for by 17 CFR 229.404 with
respect to that person.
Instruction to Item 407(e)(4). For purposes of paragraph (e)(4) of
this section, the term entity must not include an entity exempt from
tax under section 501(c)(3) of the Internal Revenue Code (26 U.S.C.
501(c)(3)).
(5) For a large accelerated filer (as defined in Sec. 230.405 and
Sec. 240.12b-2 of this chapter) under the caption ``Compensation
Committee Report'':
* * * * *
(g) [Reserved]
* * * * *
0
27. Revise Instruction 6 of the Instructions to Item 504 in Sec.
229.504 to read as follows:
[[Page 30176]]
Sec. 229.504 (Item 504) Use of proceeds.
* * * * *
Instructions to Item 504: * * *
6. Where the registrant indicates that the proceeds may, or will,
be used to finance acquisitions of other businesses, include the
identity of such businesses, if known, or, if not known, the nature of
the businesses to be sought, the status of any negotiations with
respect to the acquisition, and a brief description of such business.
Where, however, pro forma financial statements reflecting such
acquisition are not required by Sec. Sec. 210.1-01 through 210.13-02
(Regulation S-X) of this chapter, including Sec. 210.8-05 (Rule 8-05
of Regulation S-X) of this chapter for non-accelerated filers, to be
included in the registration statement, the possible terms of any
transaction, the identification of the parties thereto or the nature of
the business sought need not be disclosed, to the extent that the
registrant reasonably determines that public disclosure of such
information would jeopardize the acquisition. Where Regulation S-X,
including Sec. 210.8-04 (Rule 8-04 of Regulation S-X) of this chapter
for non-accelerated filers, as applicable, would require financial
statements of the business to be acquired to be included, the
description of the business to be acquired must be more detailed.
* * * * *
0
28. Amend 17 CFR 229.914 by, in paragraph (c)(2), removing the words
``, earnings per share amounts, and ratio of earnings to fixed
charges'' and adding, in their place, ``and earnings per share
amounts''.
0
29. Revise Instruction 1 of the Instructions to Item 1011(b) in Sec.
229.1011 to read as follows:
Sec. 229.1011 (Item 1011) Additional information.
* * * * *
Instructions to Item 1011(b).
1. The obligation to provide the information in paragraph (b) of
this section does not apply where the issuer whose securities are the
subject of the Rule 13e-3 transaction or tender offer is a foreign
private issuer, as defined in Sec. 240.3b-4 of this chapter, or a non-
accelerated filer, as defined in Rule 12b-2 of the Exchange Act (Sec.
240.12b-2 of this chapter).
* * * * *
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
30. 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. 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
* * * * *
0
31. Amend Sec. 230.157 by:
0
a. In paragraph (a), removing the words ``were $5 million or less and
that is engaged or proposing to engage in small business financing''
and adding, in their place, ``were $35 million or less'';
0
b. In paragraph (a), removing the second sentence.
0
32. Amend Sec. 230.405 by:
0
a. Removing the definition of smaller reporting company; and
0
b. Adding the definition of Large accelerated filer, non-accelerated
filer, and small non-accelerated filer.
The addition to read as follows:
Sec. 230.405 Definition of terms.
Unless the context otherwise requires, all terms used in Regulation
C (Sec. Sec. 230.400 to 230.499), or in the forms for registration
have the same meanings as in the Act and in the general rules and
regulations. In addition, the following definitions apply, unless the
context otherwise requires:
* * * * *
Large accelerated filer, non-accelerated filer, and small non-
accelerated filer--An issuer must assess its filer status annually, as
of the last day of its fiscal year, applying the following terms. This
requirement and the definitions in this part do not apply to asset-
backed issuers (as defined in Item 1101(b) of Regulation AB (Sec.
229.1101(b) of this chapter)).
(1) Large accelerated filer. The term large accelerated filer
means:
(i) For an issuer that is not currently a large accelerated filer:
(A) Has been subject to the reporting requirements of section 13(a)
or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) for a period of at least
the preceding sixty consecutive calendar months; and
(B) Had a public float of $2 billion or more for the current and
immediately prior fiscal years.
(ii) An issuer that is currently a large accelerated filer will
remain a large accelerated filer until its public float is less than $2
billion for each of two consecutive fiscal years.
(iii) Public float for purposes of this section is computed for
each fiscal year by multiplying:
(1) The aggregate worldwide number of shares of the issuer's voting
and non-voting common equity held by non-affiliates as of the last day
of the issuer's second fiscal quarter; by
(2) The average price at which the common equity was last sold, or
the average of the bid and asked prices of such common equity, in the
principal market for such common equity, over the last ten trading days
of the issuer's second fiscal quarter.
(2) Non-accelerated filer. The term non-accelerated filer means an
issuer that is not a large accelerated filer.
(3) Small non-accelerated filer. The term small non-accelerated
filer means an issuer that:
(i) For an issuer that is not currently a small non-accelerated
filer:
(A) Is a non-accelerated filer; and
(B) As of the end of each of its two most recent second fiscal
quarters had total assets of $35 million or less.
(ii) An issuer that is currently a small non-accelerated filer will
remain a small non-accelerated filer until:
(A) It qualifies as a large accelerated filer; or
(B) Its total assets exceed $35 million as of the end of each of
its two most recent second fiscal quarters.
Note to paragraph (3): For an issuer filing an initial
registration statement, a non-accelerated filer must assess total
assets as of the end of the two annual periods presented in the
initial registration statement.
(4) Transition. When an issuer qualifies for a new filer status,
the requirements and accommodations of that status apply to the issuer
beginning with the annual report on Form 10-K for the fiscal year in
which such filer status was determined.
Instruction to Definition of ``Large accelerated filer, non-
accelerated filer, and small non-accelerated filer'': These definitions
do not apply to a foreign private issuer that elects to comply with the
rules and use the forms designated for foreign private issuers.
* * * * *
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
0
33. The authority citation for part 232 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78n-1, 78o(d), 78w(a), 78ll, 80a-
6(c), 80a-8, 80a-29, 80a-30, 80a-37, 7201 et seq.; and 18 U.S.C.
1350, unless otherwise noted.
* * * * *
0
34. Remove Sec. 232.405(f).
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
0
35. 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,
[[Page 30177]]
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
36. Amend Form S-1 (referenced in Sec. 239.11) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company'' and adding, in their place, the words ``Indicate by
check mark whether the registrant is a large accelerated filer, a non-
accelerated filer, a small non-accelerated filer, or an emerging growth
company.''
0
b. On the cover, removing the words ``See the definitions of `large
accelerated filer,' `accelerated filer,' `smaller reporting company'
and `emerging growth company' in Rule 12b-2 of the Exchange Act,'' and
adding, in their place, the words ``See the definitions of `large
accelerated filer,' `non-accelerated filer,' `small non-accelerated
filer,' and `emerging growth company' in Rule 12b-2 of the Exchange
Act.''
0
c. On the cover, removing the check box with the words ``Accelerated
filer'' and adding, in its place, a check box with the words ``Small
non-accelerated filer''.
0
d. On the cover, removing the check box with the words ``Smaller
reporting company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In Item 11, paragraph (e), removing the words ``smaller reporting
company'' and adding, in their place, ``non-accelerated filer''.
0
g. In Item 12, paragraph (b), removing the words ``smaller reporting
company, as defined in Rule 405 (17 CFR 230.405)'' and adding, in their
place, ``non-accelerated filer, as defined in 17 CFR 240.12b-2 of this
chapter''.
0
h. In Item 12, paragraph (b), removing the words ``smaller reporting
company making this election'' and adding, in their place, ``non-
accelerated filer making this election''.
Note: The text of Form S-1 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
37. Amend Form S-3 (referenced in Sec. 239.13) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company'' and adding, in their place, the words ``Indicate by
check mark whether the registrant is a large accelerated filer, a non-
accelerated filer, a small non-accelerated filer, or an emerging growth
company.''
0
b. On the cover, removing the words ``See the definitions of `large
accelerated filer,' `accelerated filer,' `smaller reporting company'
and `emerging growth company' in Rule 12b-2 of the Exchange Act.'' and
adding, in their place, the words ``See the definitions of `large
accelerated filer,' `non-accelerated filer,' `small non-accelerated
filer,' and `emerging growth company' in Rule 12b-2 of the Exchange
Act.''
0
c. On the cover, removing the check box with the words ``Accelerated
filer'' and adding, in its place, a check box with the words ``Small
non-accelerated filer''.
0
d. On the cover, removing the check box with the words ``Smaller
reporting company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In General Instruction II.C., removing the words ``A smaller
reporting company, defined in Rule 405 (17 CFR 230.405), that is
eligible to use Form S-3 shall use the disclosure items in Regulation
S-K (17 CFR 229.10 et seq.) with specific attention to the scaled
disclosure provided for smaller reporting companies, if any. Smaller
reporting companies may provide the financial information called for by
Article 8 of Regulation S-X in lieu of the financial information called
for by Item 11 in this Form.'' and adding, in their place, ``For a non-
accelerated filer, defined in Rule 405 (17 CFR 230.405), that is
eligible to use Form S-3 use the disclosure items in Regulation S-K (17
CFR 229.10 et seq.) with specific attention to the scaled disclosure
provided for non-accelerated filers, if any. Non-accelerated filers may
provide the financial information called for by Article 8 of Regulation
S-X in lieu of the financial information called for by Item 11 in this
Form.
Note: The text of Form S-3 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
38. Amend Form S-4 (referenced in Sec. 239.25) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company.'' and adding, in their place, ``Indicate by check mark
whether the registrant is a large accelerated filer, a non-accelerated
filer, a small non-accelerated filer, or an emerging growth company.''
0
b. On the cover, removing the words ``See the definitions of `large
accelerated filer,' `accelerated filer,' `smaller reporting company,'
and `emerging growth company' in Rule 12b-2 of the Exchange Act.'' and
adding, in their place, ``See the definitions of `large accelerated
filer,' `non-accelerated filer,' `small non-accelerated filer,' and
`emerging growth company' in Rule 12b-2 of the Exchange Act.''
0
c. On the cover, removing the check box with the words ``Accelerated
filer'' and adding, in its place, a check box with the words ``Small
non-accelerated filer''.
0
d. On the cover, removing the check box with the words ``Smaller
reporting company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for company with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act.'' and adding, in their place, ``If a non-accelerated
filer that is no more than five years after its initial registration,
indicate by check mark if the registrant has elected to use the
extended transition period for complying with certain new or revised
financial accounting standards.''
0
f. In General Instruction I, paragraph 1, removing the words ``A
smaller reporting company'' and adding, in their place, ``A non-
accelerated filer''.
0
g. In Part I, Item 5, removing the words ``A smaller reporting
company'' and adding, in their place, ``A non-accelerated filer''.
0
h. In Part I, Item 12, paragraph (a)(3), removing the words ``Smaller
reporting
[[Page 30178]]
companies'' and adding, in their place, ``Non-accelerated filers''.
Note: The text of Form S-4 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
39. Amend Form S-8 (referenced in Sec. 239.16b) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company'' and adding, in their place, the words ``Indicate by
check mark whether the registrant is a large accelerated filer, a non-
accelerated filer, a small non-accelerated filer, or an emerging growth
company.''
0
b. On the cover, removing the words ``See the definitions of `large
accelerated filer,' `accelerated filer,' `smaller reporting company'
and `emerging growth company' in Rule 12b-2 of the Exchange Act.'' and
adding, in their place, the words ``See the definitions of `large
accelerated filer,' `non-accelerated filer,' `small non-accelerated
filer,' and `emerging growth company' in Rule 12b-2 of the Exchange
Act.''
0
c. On the cover, removing the check box with the words ``Accelerated
filer'' and adding, in its place, a check box with the words ``Small
non-accelerated filer''.
0
d. On the cover, removing the check box with the words ``Smaller
reporting company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In General Instructions B.3., removing the words ``A 'small
reporting company,' defined in Sec. 230.405, shall refer to the
disclosure items in Regulation S-K (17 CFR 229.10 et seq.) with
specific attention to the scaled disclosure provided for smaller
reporting companies, if any.'' and adding, in their place, ``For a
'non-accelerated filer,' defined in Sec. 230.405, refer to the
disclosure items in Regulation S-K (17 CFR 229.10 et seq.) with
specific attention to the scaled disclosure provided for non-
accelerated filers, if any.''
Note: The text of Form S-8 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
40. Amend Form S-11 (referenced in Sec. 239.18) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company'' and adding, in their place, the words ``Indicate by
check mark whether the registrant is a large accelerated filer, a non-
accelerated filer, a small non-accelerated filer, or an emerging growth
company.''
0
b. On the cover, removing the words ``See the definitions of `large
accelerated filer,' `accelerated filer,' `smaller reporting company'
and `emerging growth company' in Rule 12b-2 of the Exchange Act.'' and
adding, in their place, the words ``See the definitions of `large
accelerated filer,' `non-accelerated filer,' `small non-accelerated
filer,' and `emerging growth company' in Rule 12b-2 of the Exchange
Act.''
0
c. On the cover, removing the check box with the words ``Accelerated
filer'' and adding, in its place, a check box with the words ``Small
non-accelerated filer''.
0
d. On the cover, removing the check box with the words ``Smaller
reporting company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B)
of Securities Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In Part I., Item 27, removing the words ``A small reporting
company'' and adding, in their place, ``A non-accelerated filer''.
Note: The text of Form S-11 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
41. Amend Form 1-A (referenced in Sec. 239.90) in Part II(a)(1)(ii) by
removing the words ``smaller reporting companies'' and adding, in their
place, ``non-accelerated filers''.
Note: The text of Form 1-A does not, and these amendments will
not, appear in the Code of Federal Regulations.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
42. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o,
78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll,
78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11,
1681w(a)(1), 6801-6809, 6825, 7201 et seq., and 8302; 7 U.S.C.
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203,
939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602,
126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
43. Amend Sec. 240.0-10 by, in paragraph (a), removing the words ``$5
million or less'' and adding, in their place, ``$35 million or less''.
0
44. Remove Sec. 240.10A-3(a)(5).
0
45. Revise Sec. 240.10C-1(b)(5)(i) and (ii) to read as follows:
Sec. 240.10C-1 Listing standards relating to compensation committees.
* * * * *
(b) Required standards. * * *
(5) General exemptions.
(i) The national securities exchanges and national securities
associations, pursuant to section 19(b) of the Act (15 U.S.C. 78s(b))
and the rules thereunder, may exempt from the requirements of this
section certain categories of issuers, as the national securities
exchange or national securities association determines is appropriate,
taking into consideration, among other relevant factors, the potential
impact of such requirements on non-accelerated filers (as defined in
Sec. 240.12b-2 of this chapter).
(ii) The requirements of this section do not apply to any
controlled company or to any non-accelerated filer (as defined in Sec.
240.12b-2 of this chapter).
* * * * *
0
46. Amend Sec. 240.12b-2 by:
0
a. Revising the introductory text;
0
b. Removing the definition Accelerated filer and large accelerated
filer;
0
c. Removing the definition Smaller reporting company; and
0
d. Adding the definition Large accelerated filer, non-accelerated
filer, and small non-accelerated filer.
The revision and addition to read as follows:
Sec. 240.12b-2 Definitions.
Unless the context otherwise requires, the following terms, when
used in the rules contained in this regulation or in
[[Page 30179]]
Regulation 13A or 15D or in the forms for statements and reports filed
pursuant to sections 12, 13 or 15(d) of the Act, have the respective
meanings indicated in this rule:
* * * * *
Large accelerated filer, non-accelerated filer, and small non-
accelerated filer--An issuer must assess its filer status annually, as
of the last day of its fiscal year, applying the following terms. This
requirement and the definitions in this part do not apply to asset-
backed issuers (as defined in Item 1101(b) of Regulation AB (Sec.
229.1101(b) of this chapter)).
(1) Large accelerated filer. The term large accelerated filer
means:
(i) For an issuer that is not currently a large accelerated filer:
(A) Has been subject to the reporting requirements of section 13(a)
or 15(d) of the Act (15 U.S.C. 78m or 78o(d)) for a period of at least
the preceding sixty consecutive calendar months; and
(B) Had a public float of $2 billion or more for the current and
immediately prior fiscal years.
(ii) An issuer that is currently a large accelerated filer will
remain a large accelerated filer until its public float is less than $2
billion for each of two consecutive fiscal years.
(iii) Public float for purposes of this section is computed for
each fiscal year by multiplying:
(1) The aggregate worldwide number of shares of the issuer's voting
and non-voting common equity held by non-affiliates as of the last day
of the issuer's second fiscal quarter; by
(2) The average price at which the common equity was last sold, or
the average of the bid and asked prices of such common equity, in the
principal market for such common equity, over the last ten trading days
of the issuer's second fiscal quarter.
(2) Non-accelerated filer. The term non-accelerated filer means an
issuer that is not a large accelerated filer.
(3) Small non-accelerated filer. The term small non-accelerated
filer means an issuer that:
(i) For an issuer that is not currently a small non-accelerated
filer:
(A) Is a non-accelerated filer; and
(B) As of the end of each of its two most recent second fiscal
quarters had total assets of $35 million or less.
(ii) An issuer that is currently a small non-accelerated filer will
remain a small non-accelerated filer until:
(A) It qualifies as a large accelerated filer; or
(B) Its total assets exceed $35 million as of the end of each of
its two most recent second fiscal quarters.
Note to paragraph (3): For an issuer filing an initial
registration statement, a non-accelerated filer must assess total
assets as of the end of the two annual periods presented in the
initial registration statement.
(4) Transition. When an issuer qualifies for a new filer status,
the requirements and accommodations of that status apply to the issuer
beginning with the annual report on Form 10-K for the fiscal year in
which such filer status was determined.
Instruction to Definition of ``Large accelerated filer, non-
accelerated filer, and small non-accelerated filer'': These definitions
do not apply to a foreign private issuer that elects to comply with the
rules and use the forms designated for foreign private issuers.
* * * * *
0
47. Revise Sec. 240.13a-10(j) to read as follows:
Sec. 240.13a-10 Transition reports.
* * * * *
(j)(1) For transition reports to be filed on the form appropriate
for annual reports of the issuer, the number of days is:
(i) 60 days for large accelerated filers (as defined in Sec.
240.12b-2);
(ii) 90 days for non-accelerated filers (as defined in Sec.
240.12b-2) and asset-backed issuers (as defined in Sec. 229.1101(b));
(iii) 120 days for small non-accelerated filers (as defined in
Sec. 240.12b-2); and
(2) For transition reports to be filed on Form 10-Q (Sec. 249.308a
of this chapter) the number of days is:
(i) 40 days for large accelerated filers (as defined in Sec.
240.12b-2);
(ii) 45 days for non-accelerated filers (as defined in Sec.
240.12b-2); and
(iii) 50 days for small non-accelerated filers (as defined in Sec.
240.12b-2).
* * * * *
0
48. Revise Sec. 240.13a-13(a) to read as follows:
Sec. 240.13a-13 Quarterly reports on Form 10-Q (Sec. 249.308a of
this chapter).
(a) Except as provided in paragraphs (b) and (c) of this section,
every issuer that has securities registered pursuant to section 12 of
the Act and is required to file annual reports pursuant to section 13
of the Act, and has filed or intends to file such reports on Form 10-K
(Sec. 249.310 of this chapter), must file a quarterly report on Form
10-Q (Sec. 249.308a of this chapter) within the period specified in
General Instruction A.1. to that form for each of the first three
quarters of each fiscal year of the issuer, commencing with the first
fiscal quarter following the most recent fiscal year for which full
financial statements were included in the registration statement, or,
if the registration statement included financial statements for an
interim period subsequent to the most recent fiscal year end meeting
the requirements of Article 10 of Regulation S-X, or Rule 8-03 of
Regulation S-X for non-accelerated filers, for the first fiscal quarter
subsequent to the quarter reported upon in the registration statement.
The first quarterly report of the issuer must be filed either within 45
days after the effective date of the registration statement, 50 days
after the effective date of the registration statement of a small non-
accelerated filer, or on or before the date on which such report would
have been required to be filed if the issuer has been required to file
reports on Form 10-Q as of its last fiscal quarter, whichever is later.
* * * * *
0
49. Revise Sec. 240.13q-1(d)(3) to read as follows:
Sec. 240.13q-1 Disclosure of payments made by resource extraction
issuers.
* * * * *
(d) Exemptions--* * *
(3) Non-accelerated filers and emerging growth companies. An issuer
that is a non-accelerated filer or an emerging growth company, each as
defined under Sec. 240.12b-2, is exempt from, and need not comply
with, the requirements of this section, unless it is subject to the
resource extraction payment disclosure requirements of an alternative
reporting regime, which has been deemed by the Commission to require
disclosure that satisfies the transparency objectives of Section 13(q)
(15 U.S.C. 78m(q)), pursuant to Sec. 240.13q-1(c).
* * * * *
0
50. Revise Sec. 240.14a-3(b)(1) to read as follows:
Sec. 240.14a-3 Information to be furnished to security holders.
* * * * *
(b) * * *
(1) The report must include, for the registrant and its
subsidiaries, consolidated and audited balance sheets as of the end of
the two most recent fiscal years and audited statements of income and
cash flows for each of the three most recent fiscal years prepared in
accordance with Regulation S-X (part 210 of this chapter), except that
the provisions of Article 3 (other than Sec. Sec. 210.3-03(e), 210.3-
04 and 210.3-20) and Article 11 do not apply. Any financial statement
schedules or exhibits or separate financial statements which may
otherwise be required in filings with the Commission may be omitted. If
the financial statements of
[[Page 30180]]
the registrant and its subsidiaries consolidated in the annual report
filed or to be filed with the Commission are not required to be
audited, the financial statements required by this paragraph may be
unaudited. A non-accelerated filer may provide the information in
Article 8 of Regulation S-X (Sec. 210.8 of this chapter) in lieu of
the financial information required by this paragraph (b)(1).
* * * * *
0
51. Remove and reserve Sec. 240.14a-20.
0
52. Revise and republish Sec. 240.14a-21 to read as follows:
Sec. 240.14a-21 Shareholder approval of executive compensation,
frequency of votes for approval of executive compensation and
shareholder approval of golden parachute compensation.
(a) Not less frequently than once every three years, in a
solicitation made by a registrant, other than an emerging growth
company as defined in Rule 12b-2 (Sec. 240.12b-1), that relates to an
annual or other meeting of shareholders at which directors will be
elected and for which the rules of the Commission require executive
compensation disclosure pursuant to Item 402 of Regulation S-K (Sec.
229.402 of this chapter), the registrant must include a separate
resolution subject to shareholder advisory vote to approve the
compensation of its named executive officers, as disclosed pursuant to
Item 402 of Regulation S-K.
Instruction to paragraph (a): The registrant's resolution must
indicate that the shareholder advisory vote under this subsection is to
approve the compensation of the registrant's named executive officers
as disclosed pursuant to Item 402 of Regulation S-K (Sec. 229.402 of
this chapter). The following is a non-exclusive example of a resolution
that would satisfy the requirements of this subsection: ``RESOLVED,
that the compensation paid to the company's named executive officers,
as disclosed pursuant to Item 402 of Regulation S-K, including the
Compensation Discussion and Analysis, compensation tables and narrative
discussion is hereby APPROVED.''
(b) Not less frequently than once every six years, in a
solicitation made by a registrant, other than an emerging growth
company as defined in Rule 12b-2 (Sec. 240.12b-1), that relates to an
annual or other meeting of shareholders at which directors will be
elected and for which the rules of the Commission require executive
compensation disclosure pursuant to Item 402 of Regulation S-K (Sec.
229.402 of this chapter), the registrant must include a separate
resolution subject to shareholder advisory vote as to whether the
shareholder vote required by paragraph (a) of this section should occur
every 1, 2, or 3 years.
(c) In a solicitation made by a registrant, other than an emerging
growth company as defined in Rule 12b-2 (Sec. 240.12b-1), for a
meeting of shareholders at which shareholders are asked to approve an
acquisition, merger, consolidation or proposed sale or other
disposition of all or substantially all the assets of the registrant,
the registrant must include a separate resolution subject to
shareholder advisory vote to approve any agreements or understandings
and compensation disclosed pursuant to Item 402(t) of Regulation S-K
(Sec. 229.402(t) of this chapter), unless such agreements or
understandings have been subject to a shareholder advisory vote under
paragraph (a) of this section. Consistent with section 14A(b) of the
Exchange Act (15 U.S.C. 78n-1(b)), any agreements or understandings
between an acquiring company and the named executive officers of the
registrant, where the registrant is not the acquiring company, are not
required to be subject to the separate shareholder advisory vote under
this paragraph.
(d) Non-accelerated filers, as defined in Rule 12b-2 (Sec.
240.12b-2), are exempt from the requirements of this section.
Instruction 1 to Sec. 240.14a-21: Disclosure relating to the
compensation of directors required by Item 402(k) (Sec. 229.402(k) of
this chapter) is not subject to the shareholder vote required by
paragraph (a) of this section. If a registrant includes disclosure
pursuant to Item 402(s) of Regulation S-K (Sec. 229.402(s) of this
chapter) about the registrant's compensation policies and practices as
they relate to risk management and risk-taking incentives, these
policies and practices would not be subject to the shareholder vote
required by paragraph (a) of this section. To the extent that risk
considerations are a material aspect of the registrant's compensation
policies or decisions for named executive officers, the registrant is
required to discuss them as part of its Compensation Discussion and
Analysis under Sec. 229.402(b) of this chapter, and therefore such
disclosure would be considered by shareholders when voting on executive
compensation.
Instruction 2 to Sec. 240.14a-21: If a registrant includes
disclosure of golden parachute compensation arrangements pursuant to
Item 402(t) (Sec. 229.402(t) of this chapter) in an annual meeting
proxy statement, such disclosure would be subject to the shareholder
advisory vote required by paragraph (a) of this section.
Instruction 3 to Sec. 240.14a-21: A registrant that becomes a
large accelerated filer as defined in in Rule 12b-2 (Sec. 240.12b-2)
must include the separate resolutions described under Sec. 240.14a-
21(a) and Sec. 240.14a-21(b) in connection with the first solicitation
subject to Sec. 240.14a-21(a) and Sec. 240.14a-21(b), respectively,
that the registrant conducts after becoming a large accelerated filer.
0
53. Revise Sec. 240.15d-2(a) to read as follows:
Sec. 240.15d-2 Special financial report.
(a) If the registration statement under the Securities Act of 1933
did not contain certified financial statements for the registrant's
last full fiscal year (or for the life of the registrant if less than a
full fiscal year) preceding the fiscal year in which the registration
statement became effective, the registrant must, within 90 days after
the effective date of the registration statement, or within 120 days
after the effective date of the registration statement of a small non-
accelerated filer, file a special report furnishing certified financial
statements for the last full fiscal year or other period, as the case
may be, meeting the requirements of the form appropriate for annual
reports of the registrant. If the registrant is a foreign private
issuer as defined in Sec. 230.405 of this chapter, then the special
financial report must be filed on the appropriate form for annual
reports of the registrant and be filed by the later of 90 days after
the date on which the registration statement became effective, or four
months following the end of the registrant's last full fiscal year.
0
54. Revise Sec. 240.15d-10(j) to read as follows:
Sec. 240.15d-10 Transition reports.
* * * * *
(j) (1) For transition reports to be filed on the form appropriate
for annual reports of the issuer, the number of days is:
(i) 60 days for large accelerated filers (as defined in Sec.
240.12b-2);
(ii) 90 days for non-accelerated filers (as defined in Sec.
240.12b-2) and asset-backed issuers (as defined in Sec. 229.1101(b));
and
(iii) 120 days for small non-accelerated filers (as defined in
Sec. 240.12b-2); and
(2) For transition reports to be filed on Form 10-Q (Sec. 249.308a
of this chapter) the number of days is:
(i) 40 days for large accelerated filers (as defined in Sec.
240.12b-2);
(ii) 45 days for non-accelerated filers (as defined in Sec.
240.12b-2); and
[[Page 30181]]
(iii) 50 days for small non-accelerated filers (as defined in Sec.
240.12b-2).
* * * * *
0
55. Revise Sec. 240.15d-13 to read as follows:
Sec. 240.15d-13 Quarterly reports on Form 10-Q (Sec. 249.308 of
this chapter).
(a) Except as provided in paragraphs (b) and (c) of this section,
every issuer that has securities registered pursuant to the Securities
Act and is required to file annual reports pursuant to section 15(d) of
the Act on Form 10-K (Sec. 249.310 of this chapter) must file a
quarterly report on Form 10-Q (Sec. 249.308 of this chapter) within
the period specified in General Instruction A.1 to that form for each
of the first three quarters of each fiscal year of the issuer,
commencing with the first fiscal quarter following the most recent
fiscal year for which full financial statements were included in the
registration statement, or, if the registration statement included
financial statements for an interim period after the most recent fiscal
year end meeting the requirements of Article 10 of Regulation S-X, or
Rule 8-03 of Regulation S-X for non-accelerated filers, for the first
fiscal quarter after the quarter reported upon in the registration
statement. The first quarterly report of the issuer must be filed
either within 45 days after the effective date of the registration
statement, 50 days after the effective date of the registration
statement of a small non-accelerated filer, or on or before the date on
which such report would have been required to be filed if the issuer
had been required to file reports on Form 10-Q as of its last fiscal
quarter, whichever is later.
(b) The provisions of this rule do not apply to the following
issuers:
(1) Investment companies required to file reports pursuant to Sec.
270.30a-1;
(2) Foreign private issuers required to file reports pursuant to
Sec. 240.15d-16; and
(3) Asset-backed issuers required to file reports pursuant to Sec.
240.15d-17.
(c) Part I of the quarterly reports on Form 10-Q need not be filed
by:
(1) Mutual life insurance companies; or
(2) Mining companies not in the production stage but engaged
primarily in the exploration for the development of mineral deposits
other than oil, gas or coal, if all of the following conditions are
met:
(i) The registrant has not been in production during the current
fiscal year or the two years immediately prior thereto; except that
being in production for an aggregate period of not more than eight
months over the three-year period is not a violation of this condition.
(ii) Receipts from the sale of mineral products or from the
operations of mineral producing properties by the registrant and its
subsidiaries combined have not exceeded $500,000 in any of the most
recent six years and have not aggregated more than $1,500,000 in the
most recent six fiscal years.
(d) Notwithstanding the foregoing provisions of this section, the
financial information required by Part I of Form 10-Q will not be
deemed to be ``filed'' for the purpose of section 18 of the Act or
otherwise subject to the liabilities of that section of the Act, but is
subject to all other provisions of the Act.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
0
56. The authority citation for part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), sec. 107
Pub. L. 112-106, 126 Stat. 313 (2012), sec. 72001 Pub. L. 114-94,
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat.
1063 (2020), unless otherwise noted.
* * * * *
0
57. Amend Form 10 (referenced in Sec. 249.210) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of `large accelerated filer,'
`accelerated filer,' `smaller reporting company,' and `emerging growth
company' in Rule 12b-2 of the Exchange Act.'' and adding, in their
place, ``Indicate by check mark whether the registrant is a large
accelerated filer, a non-accelerated filer, a small non-accelerated
filer, an asset-backed issuer, or an emerging growth company. See the
definitions of `large accelerated filer,' `non-accelerated filer,'
`small non-accelerated filer,' and `emerging growth company' in Rule
12b-2 of the Exchange Act, and `asset-backed issuer' in Item 1101(b) of
Regulation AB.''
0
b. On the cover, removing the check box labeled ``Accelerated filer''
and adding, in its place, a check box labeled ``Small non-accelerated
filer''.
0
c. On the cover, removing the check box labeled ``Smaller reporting
company'' and adding, in its place, a check box labeled ``Asset-backed
issuer''.
0
d. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards pursuant to Section 13(a) of the
Exchange Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
e. In Item 1A., removing the words ``Smaller reporting company'' and
adding, in their place, ``Non-accelerated filer''.
0
f. In Item 13., removing the words ``Smaller reporting companies'' and
adding, in their place, ``Non-accelerated filers''.
0
g. In the Signatures section, removing the words ``Print the name and
title of the signing officer under his signature'' and adding, in their
place, ``Print the name and title of the signing officer under his or
her signature''.
Note: The text of Form 10 does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
58. Amend Form 20-F (referenced in Sec. 249.220f) by:
0
a. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of `large accelerated filer,' `accelerated filer,' `smaller
reporting company' and `emerging growth company' in Rule 12b-2 of the
Exchange Act.'' and adding, in their place, ``Indicate by check mark
whether the registrant is an emerging growth company. See the
definition of `emerging growth company' in Rule 12b-2 of the Exchange
Act.''
0
b. On the cover, removing the check boxes for ``Large accelerated
filer'', ``accelerated filer'', and ``Non-accelerated filer''.
0
c. In General Instruction B, paragraph (f), removing the words ``A
foreign private issuer that is a smaller reporting company, as defined
in Rule 12b-2 under the Exchange Act (17 CFR 240.12b-2), may not use
the scaled disclosure requirements in Regulation S-X and Regulation S-K
available to smaller reporting companies for the purposes of preparing
this Form'' and adding, in their place ''A foreign private issuer may
not use the scaled disclosure requirements in Regulation S-X and
Regulation S-K available to non-accelerated filers, as defined in Rule
12b-2 under the Exchange Act (17 CFR 240.12b-2), for the purposes of
preparing this Form''
0
d. In Part I, revising Item 4A.
[[Page 30182]]
0
e. In Part I, Item 11, revising paragraph (e).
0
f. In Part II, Item 15, revising paragraph (b)(4).
0
g. In Part II, Item 15, revising paragraph (c).
Note: Form 20-F is attached as Appendix A to this document.
Form 20-F will not appear in the Code of Federal Regulations.
0
59. Amend Form 8-K (referenced in Sec. 249.308) by:
0
a. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards''.
0
b. In Item 3.02(b), removing the words ``smaller reporting company''
and adding, in their place, ``non-accelerated filer (as defined in 17
CFR 240.12b-2)''.
0
c. In the Instructions to Item 3.02, removing Instruction 2.
0
d. In Item 9.01(a), removing the words ``smaller reporting companies''
and adding, in their place, ``non-accelerated filers''.
0
e. In Item 9.01(b), removing the words ``smaller reporting companies''
and adding, in their place, ``non-accelerated filers''.
Note: The text of Form 8-K does not, and these amendments will
not, appear in the Code of Federal Regulations.
0
60. Revise Sec. 249.308a to read as follows:
Sec. 249.308a Form 10-Q, for quarterly and transition reports under
sections 13 or 15(d) of the Securities Exchange Act of 1934.
(a) Use Form 10-Q for quarterly reports under section 13 or 15(d)
of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)),
required to be filed pursuant to Sec. 240.13a-13 or Sec. 240.15d-13
of this chapter. A quarterly report on this form pursuant to Sec.
240.13a-13 or Sec. 240.15d-13 of this chapter must be filed within the
following period after the end of the first three fiscal quarters of
each fiscal year, but no quarterly report need be filed for the fourth
quarter of any fiscal year:
(1) 40 days after the end of the fiscal quarter for large
accelerated filers (as defined in Sec. 240.12b-2 of this chapter);
(2) 45 days after the end of the fiscal quarter for non-accelerated
filers (as defined in Sec. 240.12b-2 of this chapter); and
(3) 50 days after the end of the fiscal quarter for small non-
accelerated filers (as defined in Sec. 240.12b-2 of this chapter).
(b) Use Form 10-Q for transition and quarterly reports filed
pursuant to Sec. 240.13a-10 or Sec. 240.15d-10 of this chapter. Such
transition or quarterly reports must be filed in accordance with the
requirements set forth in Sec. 240.13a-10 or Sec. 240.15d-10 of this
chapter applicable when the registrant changes its fiscal year end.
0
61. Amend Form 10-Q (referenced in Sec. 249.308a) by:
0
a. Revising General Instruction A.
0
b. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of `large accelerated filer,'
`accelerated filer,' `smaller reporting company,' and `emerging growth
company' in Rule 12b-2 of the Exchange Act'' and adding, in their
place, ``Indicate by check mark whether the registrant is a large
accelerated filer, a non-accelerated filer, a small non-accelerated
filer, or an emerging growth company. See the definitions of `large
accelerated filer,' `non-accelerated filer,' `small non-accelerated
filer,' and `emerging growth company' in Rule 12b-2 of the Exchange
Act''.
0
c. On the cover, removing the check box labeled ``Accelerated filer''
and adding, in its place, a check box labeled ``Small non-accelerated
filer''.
0
d. On the cover, removing the check box labeled ``Smaller reporting
company''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards pursuant to Section 13(a) of the
Exchange Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In Part I, Item 1, removing the words ``smaller reporting company''
and adding, in their place, ``non-accelerated filer''.
0
g. In Part II, revising Item 1A.
0
h. In the Signatures section, removing the words ``Print the name and
title of the signing officer under his signature'' and adding, in their
place, ``Print the name and title of the signing officer under his or
her signature''.
Note: Form 10-Q is attached as Appendix B to this document.
Form 10-Q will not appear in the Code of Federal Regulations.
0
62. Revise Sec. 249.310(a) and (b) to read as follows:
Sec. 249.310 Form 10-K, for annual and transition reports pursuant to
sections 13 or 15(d) of the Securities Exchange Act of 1934.
(a) Use this form for annual reports pursuant to sections 13 or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d))
for which no other form is prescribed and for transition reports filed
pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.
(b) File annual reports on this form within the following period:
(1) 60 days after the end of the fiscal year covered by the report
for large accelerated filers (as defined in Sec. 240.12b-2 of this
chapter);
(2) 90 days after the end of the fiscal year covered by the report
for non-accelerated filers (as defined in Sec. 240.12b-2 of this
chapter) and asset-backed issuers (as defined in Sec. 229.1101(b) of
this chapter); and
(3) 120 days after the end of the fiscal year covered by the report
for small non-accelerated filers (as defined in Sec. 240.12b-2 of this
chapter).
* * * * *
0
63. Amend Form 10-K (referenced in Sec. 249.310) by:
0
a. Revising General Instruction A.
0
b. On the cover, removing the words ``Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of `large accelerated filer,'
`accelerated filer,' `smaller reporting company' and `emerging growth
company' in Rule 12b-2 of the Exchange Act.'' and adding, in their
place, ``Indicate by check mark whether the registrant is a large
accelerated filer, a non-accelerated filer, a small non-accelerated
filer, an asset-backed issuer, or an emerging growth company. See the
definitions of `large accelerated filer,' `non-accelerated filer,'
`small non-accelerated filer,' and `emerging growth company' in Rule
12b-2 of the Exchange Act, and `asset-backed issuer' in Item 1101(b) of
Regulation AB.''
0
c. On the cover, removing the check box labeled ``Accelerated filer''
and adding, in its place, a check box labeled ``Small non-accelerated
filer''.
0
d. On the cover, removing the check box labeled ``Smaller reporting
[[Page 30183]]
company'' and adding, in its place, a check box labeled ``Asset-backed
issuer''.
0
e. On the cover, removing the words ``If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards pursuant to Section 13(a) of the
Exchange Act.'' and adding, in their place, the words ``If a non-
accelerated filer that is no more than five years after its initial
registration, indicate by check mark if the registrant has elected to
use the extended transition period for complying with certain new or
revised financial accounting standards.''
0
f. In Part I, revising Item 1A.
0
g. In Part I, revising Item 1B.
0
h. In the Signatures section, removing the words ``Print the name and
title of each signing officer under his signature'' and adding, in
their place, ``Print the name and title of each signing officer under
his or her signature''.
Note: Form 10-K is attached as Appendix C to this document.
Form 10-K will not appear in the Code of Federal Regulations.
By the Commission.
Dated: May 19, 2026.
Vanessa A. Countryman,
Secretary.
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix A--Form 20-F
Form 20-F
* * * * *
Indicate by check mark whether the registrant is an emerging
growth company. See the definition ``emerging growth company'' in
Rule 12b-2 of the Exchange Act. [ballot]
If an emerging growth company is no more than five years after
its initial registration and prepares its financial statements in
accordance with U.S. GAAP, indicate by check mark if the registrant
has elected to use the extended transition period for complying with
certain new or revised financial accounting standards. [ballot]
* * * * *
General Instructions
* * * * *
B. General Rules and Regulations That Apply to This Form
* * * * *
(f) A foreign private issuer may not use the scaled disclosure
requirements in Regulation S-X and Regulation S-K available to non-
accelerated filers, as defined in Rule 12b-2 under the Exchange Act
(17 CFR 240.12b-2), for the purposes of preparing this Form.
* * * * *
Part I
* * * * *
Item 4A. Unresolved Staff Comments
In an annual report, if the registrant has received written
comments from the Commission staff regarding its periodic reports
under the Exchange Act not less than 180 days before the end of its
fiscal year to which the annual report relates, and such comments
remain unresolved, disclose the substance of any such unresolved
comments that the registrant believes are material. Such disclosure
may provide other information including the position of the
registrant with respect to any such comment.
* * * * *
Item 11. Quantitative and Qualitative Disclosures About Market Risk
* * * * *
(e) Exemption. Registrants that would otherwise not meet the
requirements to be large accelerated filers, as defined in Sec.
230.405 of this chapter and Sec. 240.12b-2 of this chapter, need
not provide the information required by this Item 11.
* * * * *
Part II
* * * * *
Item 15. Controls and Procedures
* * * * *
(b) * * *
(4) If an issuer, other than an emerging growth company (as
defined in 17 CFR 240.12b-2), had an aggregate worldwide market
value of the voting and non-voting common equity held by its non-
affiliates of $75 million or more as of the last business day of the
issuer's most recently completed second fiscal quarter, or otherwise
includes in its annual report a registered public accounting firm's
attestation report on internal control over financial reporting, a
statement that the registered public accounting firm that audited
the financial statements included in the annual report containing
the disclosure required by this Item has issued an attestation
report on management's assessment of the issuer's internal control
over financial reporting.
(c) Attestation report of the registered public accounting firm.
If an issuer, other than an emerging growth company (as defined in
17 CFR 240.12b-2), had an aggregate worldwide market value of the
voting and non-voting common equity held by its non-affiliates of
$75 million or more as of the last business day of the issuer's most
recently completed second fiscal quarter, and where the Form is
being used as an annual report filed under Section 13(a) or 15(d) of
the Exchange Act by an issuer, other than an emerging growth company
(as defined in 17 CFR 240.12b-2), provide the registered public
accounting firm's attestation report on management's assessment of
the issuer's internal control over financial reporting in the
issuer's annual report containing the disclosure required by this
Item.
* * * * *
Appendix B--Form 10-Q
Form 10-Q
General Instructions
A. Rule as to Use of Form 10-Q
0
1. Use Form 10-Q for quarterly reports under Section 13 or 15(d) of the
Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), filed
pursuant to Rule 13a-13 (17 CFR 240.13a-13) or Rule 15d-13 (17 CFR
240.15d-13). File a quarterly report on this Form pursuant to Rule 13a-
13 or Rule 15d-13 within the following period after the end of each of
the first three fiscal quarters of each fiscal year, but no report need
be filed for the fourth quarter of any fiscal year:
a. 40 days after the end of the fiscal quarter for large
accelerated filers (as defined in 17 CFR 240.12b-2);
b. 45 days after the end of the fiscal quarter for non-
accelerated filers (as defined in 17 CFR 240.12b-2); and
c. 50 days after the end of the fiscal quarter for small non-
accelerated filers (as defined in 17 CFR 240.12b-2).
* * * * *
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[FR Doc. 2026-10222 Filed 5-20-26; 8:45 am]
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