[Federal Register Volume 81, Number 90 (Tuesday, May 10, 2016)]
[Rules and Regulations]
[Pages 28689-28706]
[FR Doc No: 2016-10746]

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Rules and Regulations
                                                Federal Register
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Federal Register / Vol. 81, No. 90 / Tuesday, May 10, 2016 / Rules
and Regulations

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release No. 33-10075; 34-77757; File No. S7-12-14]
RIN 3235-AL40

Changes to Exchange Act Registration Requirements To Implement
Title V and Title VI of the JOBS Act

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are amending our rules in light of the statutory changes
made by Title V and Title VI of the Jumpstart Our Business Startups Act
(the ``JOBS Act'') and Title LXXXV of the Fixing America's Surface
Transportation Act (the ``FAST Act''). The amendments revise our rules
to reflect the new, higher thresholds for registration, termination of
registration and suspension of reporting that were set forth in the
JOBS Act and the FAST Act. In addition, the amendments revise the
definition of ``held of record'' in Rule 12g5-1 under the Securities
Exchange Act of 1934 (the ``Exchange Act''), in accordance with the
JOBS Act, to exclude certain securities held by persons who received
them pursuant to employee compensation plans and establish a non-
exclusive safe harbor for determining whether securities are ``held of
record'' for purposes of registration under Exchange Act Section 12(g).

DATES: Effective June 9, 2016.

FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Senior Special
Counsel, at<PHONE_NUMBER>, or Anne Krauskopf, Senior Special Counsel,
at<PHONE_NUMBER>, Division of Corporation Finance, Securities and
Exchange Commission, 100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to Rules 3b-4,\1\
12g-1,\2\ 12g-2,\3\ 12g-3,\4\ 12g-4,\5\ 12g5-1,\6\ and 12h-3 \7\ under
the Exchange Act \8\ and amendments to Rule 405 \9\ under the
Securities Act of 1933 (the ``Securities Act'').\10\
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    \1\ 17 CFR 240.3b-4.
    \2\ 17 CFR 240.12g-1.
    \3\ 17 CFR 240.12g-2.
    \4\ 17 CFR 240.12g-3.
    \5\ 17 CFR 240.12g-4.
    \6\ 17 CFR 240.12g5-1.
    \7\ 17 CFR 240.12h-3.
    \8\ 15 U.S.C. 78a et seq.
    \9\ 17 CFR 230.405.
    \10\ 15 U.S.C. 77a et seq.
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Table of Contents

I. Introduction
II. Amendments Relating To Exchange Act Reporting Thresholds
    A. Application of the Increased Thresholds for Registration and
Reporting Obligations
    B. Application of the Increased Threshold for Accredited
Investors
III. Amendments to Exchange Act Rule 12g5-1
    A. Statutory Requirement and Definition of ``Employee
Compensation Plan''
    B. Definition of ``Held of Record''
    C. Non-exclusive Safe Harbor for Determining Holders of Record
    D. Foreign Private Issuers
IV. Economic Analysis
    A. Baseline
    B. Analysis of the Rules
V. Paperwork Reduction Act
VI. Final Regulatory Flexibility Act Analysis
    A. Need for, and Objectives of, the Action
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Rule Amendments
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Authority and Text of Rule Amendments

I. Introduction

    On December 17, 2014, we proposed amendments \11\ to implement
Title V and Title VI of the JOBS Act.\12\ The JOBS Act amended Sections
12(g) \13\ and 15(d) \14\ of the Exchange Act to adjust the thresholds
for registration, termination of registration and suspension of
reporting.\15\ Specifically, Section 501 of the JOBS Act \16\ amended
Section 12(g)(1) of the Exchange Act \17\ to require an issuer to
register a class of equity securities (other than exempted securities)
within 120 days after its fiscal year-end if, on the last day of its
fiscal year, the issuer has total assets of more than $10 million and
the class of equity securities is ``held of record'' by either (i)
2,000 persons, or (ii) 500 persons who are not accredited investors.
Section 601 of the JOBS Act \18\ further amended Exchange Act Section
12(g)(1) to require an issuer that is a bank or a bank holding company,
as defined in Section 2 of the Bank Holding Company Act of 1956,\19\ to
register a class of equity securities (other than exempted securities)
within 120 days after the last day of its first fiscal year ended after
the effective date of the JOBS Act, on which the issuer has total
assets of more than $10 million and the class of equity securities is
``held of record'' by 2,000 or more persons. Section 601 of the JOBS
Act also amended Exchange Act Section 12(g)(4) \20\ and Exchange Act
Section 15(d)(1) \21\ to enable an issuer that is a bank or a bank
holding company to terminate the registration of a class of securities
under Section 12(g) or suspend reporting under Section 15(d)(1) if that
class is held of record by less than 1,200 persons.\22\ For other
issuers, the threshold in Section 12(g)(4) for termination of
registration and in Section 15(d)(1) for suspension of reporting
remained at 300.\23\ In addition, Section 502 of the JOBS Act \24\
amended Exchange Act Section 12(g)(5) \25\ to exclude from the
definition of ``held of record,'' for the purposes of determining
whether an issuer is required to register a class of equity securities,
securities that are held by persons who received

them pursuant to an ``employee compensation plan'' in transactions
exempted from the registration requirements of Section 5 of the
Securities Act.\26\ Section 503 of the JOBS Act \27\ directed the
Commission to revise the definition of ``held of record'' pursuant to
Exchange Act Section 12(g)(5) to implement the amendment made by
Section 502 of the JOBS Act, and to create a safe harbor for issuers
when determining whether holders received their securities pursuant to
an ``employee compensation plan'' in a transaction exempted from the
registration requirements of Section 5 of the Securities Act.
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    \11\ Changes to Exchange Act Registration Requirements to
Implement Title V and Title VI of the JOBS Act, Release No. 33-9693
(Dec. 17, 2014) [79 FR 78343 (Dec. 30, 2014)] (the ``Proposing
Release'').
    \12\ Public Law 112-106, 126 Stat. 306 (Apr. 5, 2012).
    \13\ 15 U.S.C. 78l(g).
    \14\ 15 U.S.C. 78o(d).
    \15\ The changes to Exchange Act Sections 12(g)(1), 12(g)(4) and
15(d)(1) were effective upon enactment of the JOBS Act and do not
require any Commission action.
    \16\ Sec. 501, 126 Stat. at 325.
    \17\ 15 U.S.C. 78l(g)(1).
    \18\ Sec. 601, 126 Stat. at 326.
    \19\ 12 U.S.C. 1841.
    \20\ 15 U.S.C. 78l(g)(4).
    \21\ 15 U.S.C. 78o(d)(1).
    \22\ See supra note 18.
    \23\ See 15 U.S.C. 78l(g)(4) and 15 U.S.C. 78o(d)(1).
    \24\ Sec. 502, 126 Stat. at 326.
    \25\ 15 U.S.C. 78l(g)(5).
    \26\ 15 U.S.C. 77e.
    \27\ Sec. 503, 126 Stat. at 326.
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    Subsequent to our proposal, Section 85001 of the FAST Act \28\
adjusted the Exchange Act thresholds for registration, termination of
registration and suspension of reporting for savings and loan holding
companies, as defined in Section 10 of the Home Owners' Loan Act,\29\
so that they would be the same as the thresholds for banks and bank
holding companies. This change also was effective upon enactment.
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    \28\ Public Law 114-94 (Dec. 4, 2015).
    \29\ 12 U.S.C. 1461.
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    In connection with the amendments made by Title V and Title VI of
the JOBS Act and Title LXXXV of the FAST Act, we are amending our rules
to reflect the new, higher registration, termination of registration
and suspension of reporting thresholds under amended Exchange Act
Sections 12(g)(1), 12(g)(4) and 15(d)(1). We are also amending Exchange
Act Rule 12g5-1 to reflect the amendment to Exchange Act Section
12(g)(5) and to establish a non-exclusive safe harbor that issuers may
follow when determining if securities held by persons who received them
pursuant to an employee compensation plan in transactions exempted from
the registration requirements of Section 5 of the Securities Act may be
excluded when determining whether they are required to register under
Exchange Act Section 12(g)(1).
    The comment period for the proposed amendments closed on March 2,
2015. We received 11 comment letters on the Proposing Release, which
generally supported the proposals.\30\ We have reviewed and considered
all of these comments. We are adopting the amendments substantially as
proposed, and discuss these amendments and any modifications or
clarifications in detail below.
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    \30\ We also considered pre-proposal comment letters when
formulating the proposed amendments. Pre-proposal comment letters
received on Title V of the JOBS Act are available at http://www.sec.gov/comments/jobs-title-v/jobs-title-v.shtml and on Title VI
of the JOBS Act at http://www.sec.gov/comments/jobs-title-vi/jobs-title-vi.shtml.
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II. Amendments Relating to Exchange Act Reporting Thresholds

A. Application of the Increased Thresholds for Registration and
Reporting Obligations

    Sections 501 and 601 of the JOBS Act amended the Exchange Act to
raise the total assets and held of record thresholds under which
issuers are required to register or permitted to terminate registration
or suspend reporting pursuant to Section 12(g) and 15(d) of the
Exchange Act. Section 85001 of the FAST Act further amended these
provisions to apply the new statutory thresholds for banks and bank
holding companies to savings and loan holding companies.
1. Proposed Rule Amendments
    To harmonize our rules with the statutory changes made to Exchange
Act Sections 12(g)(1), 12(g)(4) and 15(d), we proposed amendments to
Exchange Act Rules 12g-1, 12g-2, 12g-3, 12g-4 and 12h-3, the rules that
govern the mechanics relating to registration, termination of
registration under Section 12(g) and suspension of reporting
obligations under Section 15(d). These rules generally reflected the
holder of record statutory thresholds in Sections 12(g) and 15(d) prior
to the enactment of the JOBS Act.\31\
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    \31\ Prior to adoption of the JOBS Act, the Commission used its
general exemptive authority to provide for a $10 million asset
threshold by rule. JOBS Act Section 501 amended Exchange Act Section
12(g)(1) to raise the statutory threshold from $1 million to $10
million to match the threshold previously provided in Exchange Act
Rule 12g-1.
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    We proposed to revise Rule 12g-1 to reflect the asset and holder of
record thresholds established by Titles V and VI of the JOBS Act
relating to the requirement to register a class of equity securities
under the Exchange Act.\32\ Similarly, we proposed to revise Exchange
Act Rules 12g-2 \33\ and 12g-3 \34\ to reflect the holders of record
thresholds in the Exchange Act, as amended by the JOBS Act, for
terminating registration and suspending reporting for banks and bank
holding companies. In addition, we proposed to amend Exchange Act Rules
12g-4 and 12h-3, the rules which permit issuers to immediately suspend
their duty to file periodic and current reports, to reflect the new
thresholds in Sections 12(g) and 15(d) enacted by the JOBS Act for
banks and bank holding companies.
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    \32\ We also proposed to remove the reference to an automated
inter-dealer quotation system since the NASDAQ Stock Market is now
registered as a securities exchange with the Commission. See In the
Matter of the Application of the Nasdaq Stock Market LLC for
Registration as a National Securities Exchange; Findings, Opinion
and Order of the Commission, Release No. 34-53128 (Jan. 13, 2006)
[71 FR 3550 (Jan. 23, 2006)].
    \33\ Rule 12g-2 addresses securities deemed to be registered
pursuant to Section 12(g)(1) upon termination of certain exemptions.
    \34\ Rule 12g-3 addresses the threshold for the registration of
securities of successor issuers under Section 12(b) or Section
12(g).
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    In light of the fact that savings and loan holding companies
provide similar services to banks and bank holding companies and are
generally subject to similar bank regulatory and supervision
requirements, we also proposed to use our general exemptive authority
to apply the same registration thresholds applicable to banks and bank
holding companies to savings and loan holding companies and to revise
our rules accordingly. As noted above, subsequent to this proposal, the
FAST Act amended the Exchange Act to apply the new statutory thresholds
for banks and bank holding companies to savings and loan holding
companies.\35\
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    \35\ Because of the FAST Act amendment to the Exchange Act, the
Commission no longer needs to adopt changes relating to those
thresholds using its general exemptive authority.
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    Because the new statutory threshold for banks, savings and loan
holding companies and bank holding companies is not reflected in our
existing rules, such institutions seeking to rely on the new 1,200
holder of record threshold to terminate registration and suspend
reporting are not able to rely on the existing procedural
accommodations in our rules to do so immediately. Without the proposed
amendments, a bank, savings and loan holding company or bank holding
company is required to wait 90 days after filing a certification with
the Commission that the number of its holders of record is less than
1,200 persons to terminate its Section 12(g) registration and cease
filing reports required by Exchange Act Section 13(a),\36\ rather than
being able to suspend its Section 13(a) reporting obligations
immediately upon the filing of a Form 15 \37\ in reliance on the rule.
Similarly, without the proposed amendments, banks, savings and loan
holding companies or bank holding companies may not rely on Rule 12h-3
to immediately suspend their Section 15(d) reporting obligations using
the new higher statutory threshold during a fiscal year. Rather,
Section 15(d)(1) provides for suspending a Section 15(d) obligation
only at the beginning of a fiscal year.
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    \36\ 15 U.S.C. 78m(a).
    \37\ 17 CFR 249.323.

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2. Comments on Proposed Rule Amendments
    We received comments on the proposed amendments from two
commenters.\38\ These commenters supported the amendments as proposed.
One commenter further agreed with our determination not to propose
amendments to our rules relating to Exchange Act registration that
extend substantially beyond the changes contemplated by the JOBS
Act.\39\ Several commenters also expressed support for our proposal to
treat savings and loan holding companies similar to banks and bank
holding companies for purposes of Exchange Act registration.\40\
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    \38\ See letters from American Bankers Association (Feb. 27,
2015) (``American Bankers'') and American Bar Association (Apr. 10,
2015) (``ABA'').
    \39\ See letter from ABA.
    \40\ See letters from American Bankers, ABA and Independent
Community Bankers Association (Feb. 27, 2015) (``ICBA'').
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3. Final Rule Amendments
    After considering the comments, we are adopting the proposed
amendments to Exchange Act Rules 12g-1, 12g-2, 12g-3, 12g-4 and 12h-3
to reflect the statutory changes made by the JOBS Act and the FAST Act.
As amended, Rule 12g-1 provides that an issuer is not required to
register a class of equity securities pursuant to Section 12(g)(1) if
on the last day of its most recent fiscal year:
     The issuer had total assets not exceeding $10 million; or
     The class of equity securities was held of record by fewer
than 2,000 persons or 500 persons who are not accredited investors (as
such term is defined in Securities Act Rule 501(a)),\41\ determined as
of such day rather than at the time of the sale of the securities; or
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    \41\ 17 CFR 230.501(a).
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     in the case of a bank; a savings and loan holding company,
as such term is defined in section 10 of the Home Owners' Loan Act; or
a bank holding company, as such term is defined in Section 2 of the
Bank Holding Company Act of 1956, the class of equity securities was
held of record by fewer than 2,000 persons.\42\
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    \42\ As observed by one commenter, Section 501 of the JOBS Act
amended Section 12(g)(1) of the Exchange Act to require an issuer to
register a class of equity securities (other than exempted
securities) if, on the last day of its fiscal year, the issuer has
total assets of more than $10 million and the class of equity
securities is ``held of record by either 2,000 persons, or 500
persons who are not accredited investors.'' See letter from Keith P.
Bishop (Mar. 1, 2016). We read this language to provide that an
issuer is not required to register under Section 12(g) if the issuer
has fewer than 2,000 persons, or 500 persons who are not accredited
investors that hold of record. An issuer with more than 2,000
persons, or 500 persons who are not accredited investors, that hold
of record has necessarily met the threshold and would be required to
register pursuant to Section 12(g)(1)(A).
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    As revised, Rule 12g-2, which addresses securities deemed to be
registered pursuant to Section 12(g)(1) upon termination of the
exemption pursuant to Section 12(g)(2)(A) or (B) \43\ and establishes a
300-person threshold for such a class of securities to be registered
under Section 12(g), provides a 1,200-person registration threshold for
a bank, a savings and loan holding company, as such term is defined in
section 10 of the Home Owners' Loan Act, or bank holding company, as
defined in Section 2 of the Bank Holding Company Act of 1956.
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    \43\ Section 12(g)(2)(A) [15 U.S.C. 78l(g)(2)(A)] provides an
exemption from Section 12(g) registration while the class of
securities is listed and registered on a national securities
exchange under Exchange Act Section 12(b) [15 U.S.C. 78l(b)].
Section 12(g)(2)(B) [15 U.S.C. 78l(g)(2)(B)] provides an exemption
for securities issued by registered investment companies.
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    Revised Rule 12g-3, which addresses the 300-person threshold for
the registration of securities of successor issuers under Section 12(b)
or Section 12(g), similarly provides a 1,200-person registration
threshold for a bank, a savings and loan holding company, as such term
is defined in Section 10 of the Home Owners' Loan Act, or bank holding
company, as defined in Section 2 of the Bank Holding Company Act of
1956.
    Revised Rule 12g-4(a) provides that termination of registration
under Section 12(g) shall take effect in 90 days, or such shorter
period as the Commission determines, after the issuer certifies on Form
15 that the class of securities is held of record by fewer than 300
persons, 1,200 persons in the case of a bank, a savings and loan
holding company, as such term is defined in section 10 of the Home
Owners' Loan Act, or a bank holding company, as defined in Section 2 of
the Bank Holding Company Act of 1956, or 500 persons where the total
assets of the issuer have not exceeded $10 million on the last day of
each of the preceding three years. As a result of the changes to Rule
12g-4(a), banks, savings and loan holding companies and bank holding
companies will be able to terminate registration of a class of
securities and suspend immediately their duty to file current and
periodic reports upon filing a certification on Form 15 at the 1,200
person threshold.
    Finally, revised Rule 12h-3 provides that the duty to file current
and periodic reports under Section 13(a) pursuant to Section 15(d) for
that class of securities is suspended immediately upon the filing of a
certification on Form 15, provided that the issuer has fewer than 300
holders of record, 500 holders of record where the issuer's total
assets have not exceeded $10 million on the last day of each of the
preceding three years, or in the case of a bank, a savings and loan
holding company, as such term is defined in Section 10 of the Home
Owners' Loan Act, or bank holding company, as defined in Section 2 of
the Bank Holding Company Act of 1956, 1,200 holders of record; the
issuer has filed its Section 13(a) reports for the most recent three
completed fiscal years, and for the portion of the year immediately
preceding the date of filing the Form 15 or the period since the issuer
became subject to the reporting obligation; and a registration
statement has not become effective or was required to be updated
pursuant to Exchange Act Section 10(a)(3) \44\ during the fiscal
year.\45\
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    \44\ 15 U.S.C. 78j(a)(3).
    \45\ The automatic statutory suspension of an issuer's Section
15(d) reporting obligation also is not available as to any fiscal
year in which the issuer's Securities Act registration statement
becomes effective or is required to be updated pursuant to Section
10(a)(3) of the Securities Act.
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B. Application of the Increased Threshold for Accredited Investors

    Section 501 of the JOBS Act amended Exchange Act Section 12(g)(1)
to increase the threshold that triggers registration by an issuer other
than a bank or bank holding company to total assets exceeding $10
million and a class of equity securities (other than an exempted
security) held of record by either 2,000 persons or 500 persons who are
not accredited investors (as such term is defined by the
Commission).\46\ To rely on the new, higher threshold established by
the JOBS Act, an issuer will need to be able to determine which of its
record holders are accredited investors. A number of pre-proposal
commenters pointed to potential compliance concerns with respect to
identifying accredited investors and recommended ways to facilitate
issuers' use of the increased threshold for holders of record that are
accredited investors.\47\
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    \46\ The statutory amendment was effective upon enactment of the
JOBS Act and does not require any Commission action. While this
change primarily affects issuers that have never had a reporting
obligation under the Exchange Act, issuers that have terminated
registration will need to monitor the accredited investor status of
their holders of record as of the last day of each fiscal year.
    \47\ See, e.g., letters from New York City Bar Association (June
6, 2012) (``NYCBA''), the Business Law Section of the American Bar
Association (June 26, 2013) (``ABA Pre-Proposal'') and Foley &
Lardner (May 24, 2012) (``Foley'').

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1. Proposed Rule Amendment
    We proposed to amend Rule 12g-1 to make clear that the definition
of ``accredited investor'' in Securities Act Rule 501(a) applies in
making determinations under Exchange Act Section 12(g)(1) and that the
``accredited investor'' determination must be made as of the last day
of the fiscal year rather than at the time of the sale of the
securities.\48\ In proposing to use the Rule 501(a) definition, we
stated our belief that applying the familiar concepts of the accredited
investor definition in Rule 501(a) to the registration threshold in
Section 12(g)(1) would facilitate compliance for issuers.\49\ We also
noted our concern that reliance on information previously provided by
security holders in connection with the purchase or transfer of
securities for an indefinite period into the future could result in the
use of outdated information that may no longer be reliable.\50\
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    \48\ Securities Act Rule 501(a) otherwise defines ``accredited
investor'' as being determined at the time of the sale of the
securities.
    \49\ See Proposing Release at Section II.C.
    \50\ Id.
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2. Comments on Proposed Rule Amendment
    We received comments on the proposed approach from five
commenters.\51\ Four commenters supported the use of the Securities Act
Rule 501(a) definition.\52\ Two of these commenters requested that the
Commission provide guidance on how to establish a reasonable belief of
accredited investor status.\53\ A number of commenters supported
establishing a safe harbor for the accredited investor determination
that permits an issuer to rely on previously obtained information
relating to accredited investor status.\54\ These commenters
recommended various safe harbors that permit issuers to rely on:
information obtained at the time securities were initially or most
recently sold to that person; \55\ an annual self-certification or
affirmation; \56\ and determinations made by certain third parties.\57\
Another commenter provided a more limited recommendation that the
Commission permit reliance on accredited investor status determinations
made in offerings during the three months prior to fiscal year-end or
on self-certification by investors if the offering occurred more than
three months but less than twelve months prior to fiscal year-end.\58\
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    \51\ See letters from ABA, Alternative & Direct Investment
Securities Association (Mar. 2, 2015) (``ADISA''), Investment
Program Association (Mar. 2, 2015) (``IPA''), Securities Arbitration
Clinic, Cardozo Law School (Mar. 2, 2015) (``Cardozo'') and Managed
Funds Association (Mar. 2, 2015) (``MFA'').
    \52\ See letters from ABA, ADISA, Cardozo and MFA.
    \53\ See letters from ABA and ADISA. ABA recommended that the
Commission provide guidance by rule or in the text of the release.
    \54\ See letters from ADISA, Milken Institute Center for
Financial Markets (Mar. 2, 2015) (``CFM''), Cleary, Gottlieb, Steen
& Hamilton LLP (Feb. 27, 2015) (``Cleary'') and IPA. CFM suggested
that a safe harbor would create certainty and predictability for
issuers and investors. IPA recommended a safe harbor as an
alternative to determination at time of the last sale and proposed
that securities sold prior to the effective date of any rule should
not be subject to reaffirmation of accredited investor status.
    \55\ See letters from ADISA and CFM.
    \56\ See letters from ADISA and IPA. CFM further recommended
allowing an issuer to assume that an investor's status has not
changed and to query investors ``as needed'' via a written
communication.
    \57\ See letters from ADISA, Cleary and IPA. These commenters
recommended permitting reliance on information from registered
broker-dealers, registered investment advisers, licensed attorneys,
or certified public accountants.
    \58\ See letter from Cleary.
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    One commenter opposed a formal safe harbor out of concern it would
become a de facto minimum standard and recommended instead that the
Commission provide additional guidance.\59\ Specifically, this
commenter recommended that:
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    \59\ See letter from ABA.
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     an issuer should be able to rely on information previously
provided by investors as indicative of their current accredited
investor status, when there is a reasonable basis for doing so;
     an annual confirmation should only be necessary if there
was reason to believe that an investor's status had changed;
     an issuer should be able to rely on certification from
certain third parties; and
     an issuer should not be subject to enforcement if the
basis was reasonable at the time the conclusion was reached.\60\
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    \60\ See letter from ABA. See also letter from IPA advocating
against annual recertification, which noted that any future
adjustments to the definition of accredited investor could affect an
issuer's number of accredited investors. This could cause issuers to
be required to register despite an issuer's efforts to sell only to
an appropriately limited number of accredited and non-accredited
investors at the time of the offer and sale. ABA recommended a
presumption that a person continues to be an accredited investor
under the revised definition to address concerns relating to future
adjustments to the definition of accredited investor.
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    One commenter recommended that the Commission issue a separate rule
or safe harbor with respect to private investment funds.\61\ The
commenter noted that private investment funds that rely on the
exemption in Investment Company Act Section 3(c)(7) \62\ (``3(c)(7)
Funds'') may have an unlimited number of investors that are ``qualified
purchasers,'' a significantly higher standard than ``accredited
investors.'' The commenter recommended a rule that permits 3(c)(7)
Funds to continue to rely on their initial determination of a record
holder's qualified purchaser and accredited investor status on a going
forward basis without requiring additional annual diligence. In the
alternative, the commenter recommended that the Commission provide a
non-exclusive safe harbor that permits 3(c)(7) Funds to send an annual
negative consent letter to record holders asking them to inform the
issuer if their accredited investor status has changed and permits
treatment of a non-response as confirmation of status.
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    \61\ See letter from MFA.
    \62\ 15 U.S.C. 80a-3(c)(7).
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    Two commenters expressed concern about the timing of the
determination and opposed requiring determination as of the last day of
the fiscal year.\63\ One of these commenters claimed that annual
reconfirmation will be costly, will provide little investor protection
and may cause issuers to sell to fewer investors.\64\ This commenter
recommended only requiring yearly recertification if there is a ready
market for the securities and the securities are freely tradable.\65\
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    \63\ See letters from ADISA and IPA. ADISA recommended
permitting issuers to rely on information available at the time they
made a judgment, rather than requiring issuers to update information
as of the end of the fiscal year. IPA recommended that accredited
investor status be determined at the time of last sale, not
annually, and expressed concern regarding the administrative and
reporting costs of determinations required as of the last day of the
fiscal year.
    \64\ See letter from IPA. IPA cited an estimate of ongoing
reporting costs under the Exchange Act of $650,000 annually. This
commenter additionally noted that becoming an Exchange Act reporting
company may be contrary to an issuer's business plan and against
investors' economic interests.
    \65\ See letter from IPA. IPA suggested that most affected
investors will not hold freely tradable securities, muting the
benefits of public company reporting for those investors.
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3. Final Rule Amendment
    After considering the comments, we are adopting an amendment to
Rule 12g-1 as proposed, providing that the term ``accredited investor''
for purposes of Section 12(g)(1) is as defined in Securities Act Rule
501(a).\66\ Consistent with the proposal, the ``accredited investor''
determination for these

purposes must be made as of the last day of the issuer's most recent
fiscal year rather than at the time of the sale of the securities.
Commenters supported use of the Securities Act Rule 501(a)
definition.\67\ Rule 501(a) provides that an accredited investor is any
person who comes within one or more of the categories of investors
specified therein, or whom the issuer reasonably believes comes within
any such category. Whether the issuer has a reasonable belief depends
on the particular facts and circumstances surrounding the
determination. Under amended Rule 12g-1, an issuer will need to
determine, based on facts and circumstances, whether prior information
provides a basis for a reasonable belief that the security holder
continues to be an accredited investor as of the last day of the fiscal
year.\68\
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    \66\ Consideration of the use of the ``accredited investor''
definition in this context is distinct from other efforts to
consider the definition. In December 2015, the staff issued a report
addressing the ``accredited investor'' definition and providing
certain recommendations for our consideration. See Report on the
Review of the Definition of Accredited Investor (Dec. 18, 2015),
available at https://www.sec.gov/corpfin/reportspubs/special-studies/review-definition-of-accredited-investor-12-18-2015.pdf.
    \67\ See letters from ABA, ADISA, Cardozo and MFA.
    \68\ If after the issuer has made its determination as of the
end of the fiscal year, it is subsequently determined that an
investor did not, in fact, come within one of the accredited
investor categories, the issuer may rely on that determination for
that fiscal year if it had a reasonable belief at the time the
determination was made.
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    Although some commenters requested that the Commission provide
guidance on making the accredited investor determination in the Section
12(g) context or establish a safe harbor relating to the
determination,\69\ we have decided against doing so. Our rules do not
currently provide a safe harbor for the reasonable belief determination
made under Rule 501(a) for exempt offerings and we do not believe that
the determinations required for Section 12(g) present a more compelling
case for having such a safe harbor. Additionally, as one commenter
noted, a safe harbor could become a de facto minimum standard.\70\ We
believe that requiring issuers to consider their particular facts and
circumstances in establishing a reasonable basis for their
determination provides issuers with appropriate flexibility for making
the determination.\71\
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    \69\ See letters from ABA, ADISA, CFM, Cleary and MFA.
    \70\ See letter from ABA.
    \71\ One commenter requested that the Commission establish a
separate safe harbor or rule with respect to private investment
funds. See letter from MFA. We are declining to provide specific
relief to private investment funds for reasons similar to those
discussed for issuers generally. We believe that a standard where
issuers, including private investment funds, consider their
particular facts and circumstances in establishing a reasonable
basis for believing that a security holder is an accredited investor
is the most appropriate standard to apply at this time.
---------------------------------------------------------------------------

    As adopted, the accredited investor determination under Rule 12g-1
must be made as of the last day of the issuer's most recent fiscal year
rather than at the time of the sale of the securities. Several
commenters recommended that the Commission adopt rules providing that
the determination need not be made at year-end.\72\ We believe that a
fiscal year-end determination date is appropriate because the Section
12(g)(1) requirement to register is triggered if the issuer meets the
specified asset and held of record thresholds at the end of its fiscal
year.
---------------------------------------------------------------------------

    \72\ See letters from ADISA and IPA.
---------------------------------------------------------------------------

    Other commenters recommended permitting an issuer to rely on
previously obtained information relating to accredited investor
status.\73\ We continue to be concerned that permitting issuers to rely
solely on previously obtained information, which in some cases could be
years or decades old, could result in the use of outdated and
unreliable information when making the determination. One commenter
suggested that we permit issuers to rely on accredited investor
determinations made in offerings during the three months prior to
fiscal year-end or on self-certification by investors if the offering
occurred more than three months but less than twelve months prior to
fiscal year-end.\74\ While such information could provide a reasonable
basis for making a determination about accredited investor status as of
the end of the fiscal year, for the reasons set forth above, we believe
that issuers should consider their particular facts and circumstances
before reaching such a conclusion and that the ``reasonable belief''
standard under Rule 501(a) provides issuers with a familiar context and
appropriate flexibility in making such a determination.
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    \73\ See letters from ABA, CFM, Cleary and MFA.
    \74\ See letter from Cleary.
---------------------------------------------------------------------------

III. Amendments to Exchange Act Rule 12g5-1

A. Statutory Requirement and Definition of ``Employee Compensation
Plan''

    Exchange Act Section 12(g)(5), as amended by Section 502 of the
JOBS Act, provides that the definition of ``held of record'' shall not
include securities held by persons who received them pursuant to an
``employee compensation plan'' in transactions exempted from the
registration requirements of Section 5 of the Securities Act. By its
express terms, this new statutory exclusion applies solely for purposes
of determining whether an issuer is required to register a class of
equity securities under the Exchange Act and does not apply to a
determination of whether such registration may be terminated or
suspended.\75\ The provision, which is substantially broader than the
Commission's existing rules exempting compensatory employee stock
options from Section 12(g) registration,\76\ does not define the term
``employee compensation plan.''
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    \75\ The statutory exclusion in Section 12(g)(5) specifically
refers to Exchange Act Section 12(g)(1), which relates to when an
issuer must register its securities with the Commission.
    \76\ Exchange Act Rule 12h-1(f) [17 CFR 240.12h-1(f)] provides
non-reporting issuers with an exemption from Section 12(g)
registration for stock options issued under written compensatory
stock option plans under certain conditions. Exchange Act Rule 12h-
1(g) [17 CFR 240.12h-1(g)] provides reporting issuers a similar
exemption for such stock options. The exemptions provide specific
eligibility requirements and are limited to options issued pursuant
to a written compensatory stock option plan. See Exemption of
Compensatory Stock Options from Registration Under Section 12(g) of
the Securities Exchange Act of 1934, Release No. 34-56887 (Dec. 3,
2007) [72 FR 69554 (Dec. 7, 2007)].
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    Section 503 of the JOBS Act instructs the Commission to amend the
definition of ``held of record'' to implement the amendment in Section
502 and to adopt a safe harbor that issuers can use when determining
whether holders of their securities received them pursuant to an
employee compensation plan in transactions exempted from the
registration requirements of Section 5 of the Securities Act.
1. Proposed Rule Amendment
    We did not propose to define the term ``employee compensation
plan.'' Instead, we proposed to revise the definition of ``held of
record'' and to additionally establish a non-exclusive safe harbor that
relies on the current definition of ``compensatory benefit plan'' in
Rule 701 and the conditions in Rule 701(c).
2. Comments on Proposed Rule Amendment
    We received comments from two commenters generally supportive of
the proposed amendment.\77\ One of those commenters specifically
supported our determination not to create a new definition of the term
``employee compensation plan.'' \78\ This commenter suggested that
application in a Section 12(g) context of the familiar concepts applied
by an issuer in connection with its exempt issuances of compensatory
equity securities under Securities Act Rule 701 would facilitate
compliance by streamlining the issuer's learning curve and simplifying
recordkeeping.
---------------------------------------------------------------------------

    \77\ See letters from ABA and ADISA.
    \78\ See letter from ABA.

---------------------------------------------------------------------------

3. Final Rule Amendment
    After considering the comments, we are adopting an amendment to
Rule 12g5-1 to revise the definition of ``held of record,'' and
establish a non-exclusive safe harbor. By not defining the term
``employee compensation plan,'' and providing for a non-exclusive safe
harbor, we believe issuers will have appropriate flexibility to make a
principles-based determination about securities received as employee
compensation when determining their holders of record under Section
12(g)(5), as well as the added certainty of a safe harbor. We further
believe that developing a new definition for ``employee compensation
plan'' could result in needless complexity and create potential
conflicts with the current definitions of ``compensatory benefit plan''
and ``employee benefit plan.'' \79\ Finally, we note that by
conditioning the new exclusion from ``held of record'' upon the
securities being received pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section 5
of the Securities Act, Section 502 of the JOBS Act uses Securities Act
concepts to identify persons that an issuer may exclude from its
determination of the number of holders of record under Section 12(g)(1)
of the Exchange Act. Because this provision of the JOBS Act includes
concepts from both the Securities Act and Exchange Act,\80\ we believe
that it will facilitate compliance if the terminology used in the new
safe harbor in Exchange Act Rule 12g5-1(a)(8)(ii) is consistent with
the terminology used in our Securities Act rules.
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    \79\ See Rule 701--Exempt Offerings Pursuant to Compensatory
Arrangements, Release No. 33-7645 (Feb. 25, 1999) [64 FR 11095 (Mar.
8, 1999)] (the ``1999 Rule 701 Release''), and Registration of
Securities on Form S-8, Release No. 33-7646 (Feb. 25, 1999) [64 FR
11103 (Mar. 8, 1999)] (the ``1999 Form S-8 Release'').
    \80\ This provision of the JOBS Act relies on concepts from both
the Securities Act and the Exchange Act by establishing that certain
securities received pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section
5 of the Securities Act may be excluded when determining whether an
issuer is required to register under Section 12(g) of the Exchange
Act.
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B. Definition of ``Held of Record''

    Section 503 of the JOBS Act directed the Commission to revise the
definition of ``held of record'' pursuant to Section 12(g)(5) to
provide that securities held by persons who received them pursuant to
an employee compensation plan in transactions exempted from the
registration requirements of Section 5 of the Securities Act may be
excluded when calculating the number of holders of record of a class of
equity securities for purposes of determining the issuer's registration
obligation under Section 12(g)(1). We received pre-proposal comments
addressing issues about the scope of the definition. One commenter
recommended that securities issued in a subsequent transaction
(including a business combination) that is exempt from, or otherwise is
not subject to, the registration requirements of Section 5 to eligible
employees, former employees and other covered persons in exchange for
securities covered by the Section 12(g)(5) compensatory plan securities
carve-out also should be excluded.\81\ The same commenter further
recommended that securities issued in unregistered transactions based
on the ``no sale'' theory \82\ should be included within the definition
of ``transactions exempt from Section 5.''
---------------------------------------------------------------------------

    \81\ See letter from ABA Pre-Proposal.
    \82\ The ``no sale'' theory relates to the issuance of
compensatory grants made by employers to broad groups of employees
pursuant to broad-based stock bonus plans without Securities Act
registration under the theory that the awards are not an offer or
sale of securities under Section 2(a)(3) of the Securities Act [15
U.S.C. 77b(a)(3)]. See Employee Benefit Plans; Interpretations of
Statute, Release No. 33-6188 (Feb. 1, 1980) [45 FR 8960 (Feb. 11,
1980)] at Section II.A.5.d; Employee Benefit Plans, Release No. 33-
6281 (Jan. 15, 1981) [46 FR 8446 (Jan. 27, 1981)] at Section III.
Many issuers rely on the ``no sale'' theory when making such awards
to employees where no consideration--and hence no ``value''--is
received by the issuer in return. The staff has not objected to
these issuances in a series of no-action letters. See, e.g., no-
action letter to Verint Systems Inc. (May 24, 2007).
---------------------------------------------------------------------------

1. Proposed Rule Amendment
    We proposed to amend the definition of ``held of record'' to
provide that when determining whether an issuer is required to register
a class of equity securities with the Commission pursuant to Exchange
Act Section 12(g)(1) an issuer may exclude securities that are either:
     held by persons who received the securities pursuant to an
employee compensation plan in transactions exempt from the registration
requirements of Section 5 of the Securities Act;
     held by persons who received the securities pursuant to an
employee compensation plan in transactions that did not involve a sale
within the meaning of Section 2(a)(3) of the Securities Act; or
     held by persons eligible to receive securities from the
issuer pursuant to Securities Act Rule 701(c) who received the
securities in a transaction exempt from the registration requirements
of Section 5 of the Securities Act in exchange for securities
excludable under proposed Rule 12g5-1(a)(7).
    Section 502 of the JOBS Act refers specifically to ``transactions
exempted'' from the Securities Act Section 5 registration requirements.
A number of issuers, however, issue securities to employees without
Securities Act registration on the basis that the issuance is not a
sale under Section 2(a)(3) of the Securities Act and therefore does not
trigger the registration requirement of Securities Act Section 5, which
applies only to the offer and sale of securities.\83\ While securities
issued to employees in transactions that do not involve a sale under
Section 2(a)(3) are not technically ``transactions exempted from the
registration requirements of section 5,'' they are similar to other
compensatory issuances to employees in exempt transactions in that the
issuer provides the awards to employees for a compensatory purpose. We
therefore proposed to exclude such ``no sale'' issuances from the
definition of ``held of record'' in Rule 12g5-1 for purposes of
determining an issuer's obligation to register a class of securities
under the Exchange Act.
---------------------------------------------------------------------------

    \83\ See id.
---------------------------------------------------------------------------

    Additionally, we proposed to permit an issuer to exclude securities
of holders who are persons eligible to receive securities from the
issuer pursuant to Rule 701(c) and who acquired the securities in
exchange for securities excludable under the proposed definition. The
proposed exclusion was intended to facilitate the ability of an issuer
to conduct restructurings, business combinations and similar
transactions that are exempt from Securities Act registration so that
if the securities being surrendered in such a transaction would not
have been counted under the proposed definition of ``held of record,''
the securities issued in the exchange also would not be counted under
this definition.\84\ The securities issued in the exchange would be
deemed to have a compensatory purpose because they would replace other
securities previously issued pursuant to an employee compensation plan.
We believed such an approach would be consistent with the intent of
Section 502 of the JOBS Act and would provide issuers with appropriate
flexibility to conduct certain business combinations and similar
transactions.
---------------------------------------------------------------------------

    \84\ As proposed and consistent with Rule 701(c), securities
held of record by former employees would be excluded when
determining the securities held of record only if the employees were
employed by or providing services to the surviving issuer at the
time the exchange securities were offered.

---------------------------------------------------------------------------

2. Comments on Proposed Rule Amendment
    We received comments on the proposed amendment from two commenters,
both generally supporting the amendment.\85\ One commenter supported
the proposed amendment to the definition of ``held of record'' to
implement JOBS Act Section 503, but recommended that the Commission
clarify and extend the scope of the proposed exclusion for securities
received in exchange for excludable securities.\86\ The commenter
recommended that the Commission revise the exclusion for employee
compensation plan securities acquired through a business combination to
encompass securities that are ``exempt from, or not subject to, the
registration requirements of Section 5 of the Securities Act.'' The
commenter noted that the proposed language, if construed literally, may
not apply to exempt securities under Section 3 of the Securities Act,
such as securities issued under Section 3(a)(9) (in connection with
exchange offers), Regulation A or Rule 504 or 505 of Regulation D,
because those exemptions are securities-based rather than transaction-
based. Finally, the commenter noted that business combinations do not
always involve an exchange and suggested additional clarification that
the rule would apply to securities received ``in exchange for, in
substitution for or upon conversion or exercise of'' the original
securities.
---------------------------------------------------------------------------

    \85\ See letters from ABA and ADISA.
    \86\ See letter from ABA.
---------------------------------------------------------------------------

    This commenter additionally recommended that the Commission expand
the exclusion for securities issued in business combinations and
similar transactions that replace securities previously issued pursuant
to an employee compensation plan to include former employees,
directors, general partners, trustees, officers, or consultants and
advisors who were employed by, or providing services to, a predecessor
of the issuer or a company acquired in a business combination. The
commenter expressed concern that denying the exclusion to former
employees could inhibit issuers from entering into business combination
transactions.
3. Final Rule Amendment
    After considering the comments, we are adopting Exchange Act Rule
12g5-1(a)(8)(i) with the clarifications and changes detailed below.\87\
We are amending the definition of ``held of record'' to provide that
when determining whether an issuer is required to register a class of
equity securities with the Commission pursuant to Exchange Act Section
12(g)(1) an issuer may exclude securities that are:
---------------------------------------------------------------------------

    \87\ As part of the amendments to Regulation A, we adopted a new
Exchange Act Rule 12g5-1(a)(7) providing a conditional exemption to
the definition of ``held of record'' for securities issued in Tier 2
Regulation A offerings. Amendments to Regulation A, Rel. No. 33-9741
(Mar. 25, 2015) [80 FR 21805 (Apr. 20, 2015)]. We proposed to use
Rule 12g5-1(a)(7) for the exemption and safe harbor under the
definition of ``held of record'' for certain employee compensation
plan securities in the Proposing Release. Because Rule 12g5-1(a)(7)
has been adopted in relation to Regulation A, we are adopting the
proposed exemption and safe harbor as Exchange Act Rule 12g5-
1(a)(8).
---------------------------------------------------------------------------

     Held by persons who received the securities pursuant to an
employee compensation plan in transactions exempt from, or not subject
to, the registration requirements of Section 5 of the Securities Act;
or
     held by persons who received the securities in a
transaction exempt from, or not subject to, the registration
requirements of Section 5 of the Securities Act from this issuer, a
predecessor of the issuer or an acquired company in substitution or
exchange for excludable securities under Exchange Act Rule 12g5-
1(a)(8)(i)(A), as long as the persons were eligible to receive
securities pursuant to Rule 701(c) at the time the excludable
securities were originally issued to them.
    Consistent with one commenter's suggestion,\88\ we are revising the
language in new Exchange Act Rule 12g5-1(a)(8)(i)(A) to encompass
securities received in transactions exempt from, or not subject to, the
registration requirements of Section 5. Such transactions include
transactions that did not involve a sale of securities within the
meaning of Section 2(a)(3) of the Securities Act, as well as
transactions involving exempt securities, such as sales of securities
made pursuant to Section 3 of the Securities Act. As we indicated in
the Proposing Release, while securities issued to employees in
transactions that do not involve a sale under Section 2(a)(3) are not
technically ``transactions exempted from the registration requirements
of Section 5,'' they are similar to other compensatory issuances to
employees in exempt transactions in that the issuer provides the awards
to employees for a compensatory purpose. We believe it is consistent
with the statutory relief to also exclude from the definition of ``held
of record'' in Rule 12g5-1 exempt securities issued to employees
pursuant to an employee compensation plan. These exempt securities are
similarly issued to employees for compensatory purposes and their
issuance does not require registration under the Securities Act.
---------------------------------------------------------------------------

    \88\ See letter from ABA.
---------------------------------------------------------------------------

    We are adopting new Exchange Act Rule 12g5-1(a)(8)(i)(B) to provide
relief in the context of business combinations. We are clarifying and
expanding the proposed relief to encompass securities held by former
employees of the issuer or its predecessors. In response to a
commenter's concern that the term ``in exchange for'' is not broad
enough to capture all of the ways in which a person may receive new
securities in place of existing securities held prior to a business
combination, we have revised the language by using the phrase ``in
substitution or exchange for'' to cover various methods of how those
securities may be received in place of the existing securities, such as
upon conversion or exercise of such securities. In response to a
commenter's concerns,\89\ we are revising proposed Rule 12g5-
1(a)(8)(i)(B) to also permit securities to be excluded if they were
received by former employees in an exempt transaction in substitution
or exchange for excludable securities, where the former employees were
eligible under Rule 701(c) to receive the original securities at the
time of issuance. Under the exemption as proposed, securities received
in such an exchange by former employees of an issuer and employees of
an acquired issuer or the target company in a business combination
would not have been excludable. Requiring issuers to count those
securities for Exchange Act registration purposes could, as the
commenter noted, inhibit issuers from entering into economically
beneficial business combinations. Such former employees of the issuer,
and employees of a predecessor of the issuer or an acquired company,
will have received the original securities pursuant to an employee
compensation plan in a transaction exempt from, or not subject to, the
registration requirements of Section 5 of the Securities Act. We
therefore believe it is appropriate to exclude the securities received
by these former employees \90\ in such an exchange when determining
whether an issuer is required to register under Section 12(g)(1).
---------------------------------------------------------------------------

    \89\ Id.
    \90\ Rule 701(c) provides appropriate limitations on who may
qualify as an employee, former employee, or permitted family member
transferee. See discussion in Section III.C.3.a.
---------------------------------------------------------------------------

C. Non-Exclusive Safe Harbor for Determining Holders of Record

    Section 503 of the JOBS Act directed the Commission to establish a
safe

harbor in Rule 12g5-1 that issuers can rely on when determining if
securities held by persons who received them pursuant to an employee
compensation plan in transactions exempted from the registration
requirements of Section 5 of the Securities Act may be excluded when
calculating the number of holders of record of a class of equity
securities for purposes of determining the issuer's registration
obligation under Section 12(g)(1). One pre-proposal commenter
recommended that the Commission expressly provide a non-exclusive safe
harbor akin to the Securities Act Rule 506 safe harbor under Securities
Act Section 4(a)(2).\91\ This commenter recommended that the safe
harbor provide that an issuer may treat an issuance of securities as
exempt from Securities Act registration for purposes of Section
12(g)(5) if that issuer had a reasonable belief that the exemption was
available at the time the securities were issued.\92\
---------------------------------------------------------------------------

    \91\ See letter from ABA Pre-Proposal recommending that the
Commission provide ``that the safe harbor(s) is not the exclusive
means by which an issuer may comply with the `compensatory plan
carve-out' provisions of Section 12(g)(5).'' This commenter
suggested that ``failure to satisfy all conditions to reliance on
the safe harbor(s) should not preclude reliance on the statutory
carve-out itself.''
    \92\ See letter from ABA Pre-Proposal.
---------------------------------------------------------------------------

1. Proposed Rule Amendment
    We proposed a non-exclusive safe harbor that would provide that a
person will be deemed to have received the securities pursuant to an
employee compensation plan if such person received them pursuant to a
compensatory benefit plan in transactions that met the conditions of
Securities Act Rule 701(c).
2. Comments on Proposed Rule Amendment
    We received comments on the proposed amendment from two commenters,
both generally supporting the amendment.\93\ One commenter, while
generally supportive of the rule and safe harbor, expressed concern
that an issuer's ability to rely on the safe harbor was conditioned on
the issuer's ability to demonstrate compliance with all of the express
requirements of an exemption, placing undue emphasis on technical
aspects of the exemption that should not serve as the basis for
determining whether an issuer should be required to register under
Section 12(g).\94\ This commenter suggested that Section 503 of the
JOBS Act should be read to mandate that the safe harbor provide
certainty with respect to the exempt offering condition of JOBS Act
Section 502 and that if the safe harbor requires an issuer to establish
annually that each issuance of exempt equity securities satisfied an
available Securities Act exemption, then the safe harbor would impose a
significant ongoing burden on the issuer. The commenter recommended
revising the safe harbor so that, solely for purposes of Exchange Act
Section 12(g), the original issuance would be deemed to have satisfied
the Securities Act exemption condition if the conditions of Securities
Act Rule 701(c) are satisfied at the end of the fiscal year.\95\
---------------------------------------------------------------------------

    \93\ See letters from ABA and ADISA.
    \94\ See letter from ABA.
    \95\ Id.
---------------------------------------------------------------------------

    Two commenters made recommendations that the Commission provide
more guidance on the application of Securities Act Rule 701(c), or
modify the application of Rule 701(c) in the Section 12(g) context.\96\
One commenter recommended that there be no limit on the categories of
persons who may receive securities pursuant to an employee compensation
plan for purposes of the safe harbor.\97\ Another commenter recommended
expanding the provisions of Securities Act Rule 701(c) to exempt any
consultants and advisors, instead of maintaining the limitation in Rule
701(c) to consultants and advisors who are natural persons.\98\ This
commenter also recommended that the Commission explicitly provide that
Rule 701(c) extends to family members who acquire equity securities
initially issued pursuant to a compensatory benefit plan from an
employee (or former employee) by gift or domestic relations order, or
upon an employee's death or disability, as well as to the executor or
guardian of the employee, former employee, or family member who
acquires the securities upon such person's death or disability.
---------------------------------------------------------------------------

    \96\ See letters from ABA and ADISA.
    \97\ See letter from ADISA.
    \98\ See letter from ABA.
---------------------------------------------------------------------------

3. Final Rule Amendment and Interpretation
    After considering the comments, we are adopting the proposed
amendment to Exchange Act Rule 12g5-1(a)(8) with the additions and
clarifications detailed below. We are adopting a non-exclusive safe
harbor.\99\ The safe harbor provides that:
---------------------------------------------------------------------------

    \99\ Failure to satisfy all of the conditions of the non-
exclusive safe harbor would not preclude reliance on Section
12(g)(5) or other provisions of the rule.
---------------------------------------------------------------------------

     an issuer may deem a person to have received the
securities pursuant to an employee compensation plan if such plan and
the person who received the securities pursuant to the plan met the
plan and participant conditions of Securities Act Rule 701(c); and
     an issuer may, solely for the purposes of Section 12(g),
deem the securities to have been issued in a transaction exempt from,
or not subject to, the registration requirements of Section 5 of the
Securities Act if the issuer had a reasonable belief at the time of the
issuance that the securities were issued in such a transaction.
a. Employee Compensation Plan
    We believe that using the conditions of Rule 701(c) to structure
the employee compensation plan safe harbor for the determination that a
person received the securities pursuant to an employee compensation
plan allows issuers to apply well understood principles of an existing
Securities Act exemption to the new Exchange Act registration
determination created by the JOBS Act. We believe application in a
Section 12(g) context of the familiar concepts applied in connection
with the issuance of compensatory equity securities under Securities
Act Rule 701 will facilitate compliance and simplify recordkeeping.
    Rule 701 exempts from Securities Act registration offers and sales
of securities pursuant to certain compensatory benefit plans and
contracts relating to compensation. Rule 701(c) limits this exemption
to offers and sales of securities under a written compensatory benefit
plan established by the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent, for
the participation of their employees, directors, general partners,
trustees, officers, or consultants and advisors.\100\

Rule 701(c)(1) sets forth special requirements for consultants and
advisors \101\ and Rule 701(c)(3) defines eligible family members.\102\
---------------------------------------------------------------------------

    \100\ Securities Act Rule 701(c) exempts offers and sales of
securities (including plan interests and guarantees pursuant to Rule
701(d)(2)(ii)) under a written compensatory benefit plan (or written
compensation contract) established by the issuer, its parents, its
majority-owned subsidiaries or majority-owned subsidiaries of the
issuer's parent, for the participation of their employees,
directors, general partners, trustees (where the issuer is a
business trust), officers, or consultants and advisors, and their
family members who acquire such securities from such persons through
gifts or domestic relations orders. This section exempts offers and
sales to former employees, directors, general partners, trustees,
officers, consultants and advisors only if such persons were
employed by or providing services to the issuer at the time the
securities were offered. In addition, the term ``employee'' includes
insurance agents who are exclusive agents of the issuer, its
subsidiaries or parents, or who derive more than 50% of their annual
income from those entities. As explained in the 1999 Rule 701
Release at Section II.D, Rule 701 is also available to persons with
a de facto employment relationship with the issuer. Such a
relationship would exist where a person not employed by the issuer
provides the issuer services that traditionally are performed by an
employee and the compensation paid for those services is the primary
source of the person's earned income.
    \101\ The Commission adopted amendments to Form S-8 and the Rule
405 definition of ``employee benefit plan'' that made Form S-8
available for the issuance of securities to consultants or advisors
only if: They are natural persons; they provide bona fide services
to the registrant; and the services are not in connection with the
offer or sale of securities in a capital-raising transaction, and do
not directly or indirectly promote or maintain a market for the
registrant's securities. See 1999 Form S-8 Release and 1999 Rule 701
Release. Rule 701(c)(1) applies the same limitations regarding
consultants and advisors as those provided in Form S-8 and the Rule
405 definition of ``employee benefit plan.''
    \102\ Rule 701 is available for the exercise of employee benefit
plan options by an employee's family member who has acquired the
options from the employee through a gift or a domestic relations
order. As defined in Exchange Act Rule 701(c)(3) [17 CFR
230.701(c)(3)], for this purpose, ``family member'' includes any
child, stepchild, grandchild, parent, stepparent, grandparent,
spouse, former spouse, sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing
the employee's household (other than a tenant or employee), a trust
in which these persons have more than 50% of the beneficial
interest, a foundation in which these persons (or the employee)
control the management of assets, and any other entity in which
these persons (or the employee) own more than 50% of the voting
interests.
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    The safe harbor we are adopting today is available for the plan
participants enumerated in Rule 701(c), including employees, directors,
general partners, trustees, officers and certain consultants and
advisors.\103\ The safe harbor also is available for permitted family
member transferees with respect to securities issued pursuant to a plan
that are acquired by gift or domestic relations order from plan
participants, or such securities acquired by permitted family member
transferees in connection with options transferred to them by the plan
participant through gifts or domestic relations orders.\104\ Because
the safe harbor is limited to holders who are persons specified in Rule
701(c), once these persons subsequently transfer the securities to
holders not specified in Rule 701(c), whether or not for value, the
securities must be counted as held of record by the transferee for
purposes of determining whether the issuer is subject to the
registration and reporting requirements of Exchange Act Section
12(g)(1).
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    \103\ Unlike traditional employees, consultants and advisors
typically provide their services to multiple clients rather than to
the same issuer on a dedicated basis. This distinction may cause
them to be less likely to hold the securities they receive as
compensation and more likely to sell them. As a result the
Commission limited the consultants and advisors eligible to rely on
the exemption. See 1999 Rule 701 Release at Section II.D. We believe
that in light of the Rule 701 restrictions applicable to consultants
and advisors, the compensatory nature of the transactions justifies
treating consultants and advisors who are eligible to receive
securities in compensatory transactions that satisfy the conditions
of Rule 701(c) as persons who receive securities pursuant to an
employee compensation plan for purposes of the Rule 12g5-1 safe
harbor. Furthermore, since the securities would no longer be
eligible for the exclusion under the safe harbor following their
transfer, we believe the potential for abuse would be limited.
However, in spite of one commenter's recommendation (see letter from
ABA), we see no reason to expand the scope of eligible consultants
and advisors under Section 12(g) or Rule 701, which the Commission
narrowed in 1999 in order to address abuses in the use of Form S-8
and Rule 701. See Registration of Securities on Form S-8, Release
No. 33-7646 (Feb. 25, 1999) [64 FR 11103 (Mar. 8, 1999)]; Rule 701--
Exempt Offerings Pursuant to Compensatory Arrangements, Release No.
33-7645 (Feb 25, 1999) [64 FR 11095 (Mar. 8, 1999)].
    \104\ See Rule 701--Exempt Offerings Pursuant to Compensatory
Arrangements, Release No. 33-7511 (Feb. 27, 1998) [63 FR 10785 (Mar.
5, 1998)] at Section III.E.4. Including family member transferees in
the safe harbor is consistent with the approach in Rule 701(c),
which provides an exemption to family member transferees in
connection with stock options because of their common economic
interest and the non-capital raising nature of the transactions.
---------------------------------------------------------------------------

    An issuer may rely on the safe harbor when determining the holders
of securities issued in reliance on Securities Act Rule 701, as well as
holders of securities issued in transactions otherwise exempted from,
or not subject to, the registration requirements of the Securities Act
that satisfy the conditions of Rule 701(c), even if all the other
conditions of Rule 701, such as issuer eligibility in Rule 701(b)(1),
the volume limitations in Rule 701(d) or the disclosure delivery
provisions in Rule 701(e), are not met. Thus, the safe harbor is
available for holders of securities received in other employee
compensation plan transactions exempted from, or not subject to, the
registration requirements of Section 5 of the Securities Act, such as
securities issued in reliance on Securities Act Section 4(a)(2),
Regulation A, Regulation D, or Regulation S under the Securities Act,
that also meet the conditions of Rule 701(c).
b. Securities Issued in Exempt Transactions
    In response to comments, we are adding a provision to the safe
harbor relating to the determination that the securities were issued in
a transaction exempt from, or not subject to, the registration
requirements of Section 5 of the Securities Act. The addition to the
safe harbor provides that, solely for purposes of Section 12(g) of the
Exchange Act, an issuer may deem securities to have been exempt from,
or not subject to, the registration requirements of Section 5 of the
Securities Act if the issuer had a reasonable belief at the time of
issuance that the securities were issued in a transaction that was
exempt from, or not subject to, the registration requirements of
Section 5.
    While one commenter recommended that the safe harbor should deem
the securities qualified for the Securities Act exemption if the
conditions of Securities Act Rule 701(c) were met as of the end of the
fiscal year,\105\ we believe that such a safe harbor would go too far
and negate the requirement that the securities have been issued in a
transaction exempt from, or not subject to, the registration
requirements of Section 5 of the Securities Act at the time of
issuance. Instead, the safe harbor provides issuers with relief from
the burden of establishing that earlier issuances of securities
satisfied an appropriate exemption on an annual basis provided it had a
reasonable belief that it had complied with the appropriate
registration requirements or the conditions of an applicable exemption
at the time of issuance.
---------------------------------------------------------------------------

    \105\ See letter from ABA.
---------------------------------------------------------------------------

c. Interpretative Guidance Relating to Acquisitions by Family Members
    One commenter recommended that the Commission provide guidance
regarding the application of Rule 701 to certain equity securities
initially issued pursuant to a compensatory benefit plan acquired from
an employee (or former employee) by gift or domestic relations order,
or upon an employee's (or former employee's) death or disability.\106\
In light of the nature of such transactions, family members (as defined
in Rule 701(c)) who receive the equity securities as a result of the
employee's (or former employee's) gift, domestic relations order, or
death are also considered as persons who received ``the securities
pursuant to an employee compensation plan'' for purposes of Rule 12g5-
1(a)(8).\107\
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    \106\ See letter from ABA.
    \107\ In general we understand that guardians or members of a
committee for incompetent former employees, or similar persons duly
authorized by law to administer the assets of former employees would
administer the assets for the benefit of the former employee and
title would not have transferred to these agents. In such
circumstances, the securities would meet the conditions of Rule
701(c) for purposes of determining the holders of record.
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D. Foreign Private Issuers

1. Proposed Rule Amendments
    While ``foreign private issuers'' \108\ would be able to rely on
Exchange Act

Rule 12g5-1(a)(8) when making their determination of the number of U.S.
resident holders under Exchange Act Rule 12g3-2(a), we proposed to
amend Exchange Act Rule 3b-4 to clarify that securities held by
employees must continue to be counted for the purpose of determining
the percentage of the issuer's outstanding securities held by U.S.
residents, and thus for determining whether an issuer qualifies as a
foreign private issuer. We also proposed to amend the definition of
``foreign private issuer'' under Securities Act Rule 405 to reinsert an
omitted instruction but with a proposed revision, identical to that
proposed under Exchange Act Rule 3b-4, clarifying that securities held
by employees must continue to be counted for the purposes of
determining the percentage of the issuer's outstanding securities held
by U.S. residents and foreign private issuer status under the
Securities Act.\109\
---------------------------------------------------------------------------

    \108\ See Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)]. A
foreign private issuer is any foreign issuer other than a foreign
government, except for an issuer that (1) has more than 50% of its
outstanding voting securities held of record by U.S. residents and
(2) any of the following: (i) A majority of its officers and
directors are citizens or residents of the United States; (ii) more
than 50% of its assets are located in the United States; or (iii)
its business is principally administered in the United States.
    \109\ 17 CFR 230.405. The definition of ``foreign private
issuer'' under the Securities Act is intended to be the same as the
definition under Exchange Act Rule 3b-4.
---------------------------------------------------------------------------

2. Comments on Proposed Rule Amendments
    We received comments on the proposed amendments from one commenter,
who supported the proposed amendments relating to foreign private
issuers.\110\
---------------------------------------------------------------------------

    \110\ See letter from ABA.
---------------------------------------------------------------------------

3. Final Rule Amendments
    After considering the comments, we are adopting the amendments
substantially as proposed. Under the rules we are adopting, foreign
private issuers may rely on Rule 12g5-1(a)(8) when making their
determination of the number of U.S. resident holders under Exchange Act
Rule 12g3-2(a).\111\ Under Rule 12g3-2(a), foreign private issuers that
meet the asset and shareholder threshold for registration under Section
12(g) are exempt from registering any class of securities under that
section if the class of securities is held by fewer than 300 holders
resident in the United States.\112\ For purposes of determining whether
this threshold is met, Rule 12g3-2(a)(1) specifies that the method
shall be as provided in Exchange Act Rule 12g5-1, except that
securities held of record by brokers, dealers, banks and nominees for
the accounts of customers resident in the United States shall be
counted as held by the number of separate accounts for which the
securities are held.\113\ Because the rule directs issuers to the
definition of ``held of record'' in Rule 12g5-1, the statutory changes
to Section 12(g)(5) as well as the amendment to Rule 12g5-1 adopted
today also apply to the determination of a foreign private issuer's
U.S. resident holders for the purposes of the Rule 12g3-2(a)
analysis.\114\
---------------------------------------------------------------------------

    \111\ 17 CFR 240.12g3-2(a).
    \112\ Id.
    \113\ The amendment to Rule 12g5-1 is limited to determinations
under Section 12(g). The definition of ``foreign private issuer'' in
Exchange Act Rule 3b-4 contains a cross-reference to Rule 12g3-2(a)
for purposes of calculating record ownership in determining whether
more than 50% of an issuer's outstanding voting securities are
directly or indirectly held by residents of the United States. In
contrast to the approach in Rule 12g3-2(a), Rule 3b-4 clarifies that
securities held by employees must continue to be counted for the
purpose of determining the percentage of the issuer's outstanding
securities held by U.S. residents, and thus for determining whether
an issuer qualifies as a foreign private issuer. See Instruction to
paragraph (c)(1) of Rule 3b-4. We are revising the Instruction to
paragraph (c)(1)A.2. from the proposal to clarify that all of Rule
12g5-1(a)(8) does not apply for purposes of making a determination
under Rule 405 as to foreign private issuer status.
    \114\ The definition of ``foreign private issuer'' under the
Securities Act, which is found in Securities Act Rule 405, is the
same as the definition under Exchange Act Rule 3b-4. We are
similarly amending the foreign private issuer definition under Rule
405 to reinsert an omitted instruction with an identical revision to
that in Rule 3b-4, clarifying that securities held by employees must
continue to be counted for the purposes of determining the
percentage of the issuer's outstanding securities held by U.S.
residents and foreign private issuer status under the Securities
Act.
---------------------------------------------------------------------------

IV. Economic Analysis

    Title V and Title VI of the JOBS Act increased the registration
thresholds for issuers, amended the definition of ``held of record'' to
exclude securities issued pursuant to employee compensation plans and
increased the thresholds for termination of registration and suspension
of reporting under the Exchange Act for banks and bank holding
companies. The FAST Act similarly increased the thresholds for
registration, termination of registration and suspension of reporting
under the Exchange Act for savings and loan holding companies. The
Commission is adopting amendments to implement Title V and Title VI of
the JOBS Act and Title LXXXV of the FAST Act.
    In adopting rules or amendments, we are mindful of the costs
imposed by and the benefits obtained from our rules. The discussion
below attempts to address the economic effects of the amendments,
including the likely costs and benefits of the amendments as well as
the effect of the amendments on efficiency, competition and capital
formation.\115\ Some of the costs and benefits stem from the statutory
mandates of Title V and Title VI of the JOBS Act and Title LXXXV of the
FAST Act, while others are affected by the discretion we exercise in
revising our rules to reflect this mandate. For purposes of this
economic analysis, we address the benefits and costs resulting from the
mandatory statutory provisions and our exercise of discretion together
because the two types of costs and benefits are not readily separable.
We also analyze the benefits and costs of significant alternatives to
the amendments that were suggested by commenters and that we considered
on our own accord.
---------------------------------------------------------------------------

    \115\ 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 that the 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. 15 U.S.C. 78w(a). Further, 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.
---------------------------------------------------------------------------

A. Baseline

    The baseline for our economic analysis of the amendments, including
the baseline for our consideration of the effects on efficiency,
competition and capital formation, is the state of the market as well
as market practices prior to enactment of the JOBS Act and the FAST
Act. Prior to the JOBS Act, issuers were required to register a class
of their equity securities with the Commission upon reaching 500
holders of record and total assets of $10 million \116\ and were
allowed to terminate registration or suspend the duty to file periodic
and current reports with the Commission when the number of holders of
record had fallen below 300, or below 500 and total assets had not
exceeded $10 million on the last day of each of the issuer's three most
recent fiscal years. In addition, Exchange Act Rules 12h-1(f) and 12h-
1(g) permitted issuers to exclude stock options issued under written
compensatory benefit plans under certain conditions from the
registration requirements of Section 12(g).
---------------------------------------------------------------------------

    \116\ See supra note 31.
---------------------------------------------------------------------------

    The JOBS Act raised the thresholds at which an issuer is required
to register a class of equity securities with the Commission pursuant
to Section 12(g) and provided that persons holding certain employee
compensation plan

securities need not be counted when determining whether an issuer is
required to register. The JOBS Act also raised the thresholds at which
an issuer that is either a bank or a bank holding company is permitted
to terminate registration or suspend reporting obligations with the
Commission. These statutory changes were effective immediately upon
signing of the JOBS Act. As a result, some banks and bank holding
companies were newly eligible to terminate registration or suspend
reporting. As of December 31, 2015, we estimate that approximately 103
such institutions have elected to do so.\117\ We estimate that there
are approximately 486 banks and bank holding companies that currently
report to the Commission,\118\ of which some may be eligible to
terminate registration under the JOBS Act but have elected to continue
reporting.
---------------------------------------------------------------------------

    \117\ The Commission staff derived this estimate of the number
of banks and bank holding companies that have elected to terminate
registration or suspend reporting by analyzing Form 15 filings on
EDGAR.
    \118\ The Commission staff derived this estimate by analyzing
annual filings submitted to the Commission as of December 31, 2015
for the most recently completed fiscal year.
---------------------------------------------------------------------------

    Subsequent to the JOBS Act, the FAST Act raised the thresholds at
which savings and loan holding companies are required to register and
permitted to terminate registration or suspend reporting obligations to
the same thresholds as apply to banks and bank holding companies. These
statutory changes were effective immediately upon signing of the FAST
Act. We estimate that, as of December 31, 2015, there are approximately
64 savings and loan holding companies that currently report to the
Commission, approximately 28 of which are eligible to terminate
registration or suspend reporting under the amendments.\119\
---------------------------------------------------------------------------

    \119\ Id. We note, however, that 25 of these 28 savings and loan
holding companies are listed on a national securities exchange and
required to report under Section 12(b) of the Exchange Act. In order
to cease reporting, these issuers would be required to delist from
the exchange.
---------------------------------------------------------------------------

    We are amending specified Exchange Act rules to reflect the new,
higher threshold for banks, savings and loan holding companies and bank
holding companies under Section 12(g)(4) and Section 15(d)(1). For
those banks, savings and loan holding companies and bank holding
companies that are eligible to terminate registration under Section
12(g), the amendments will provide the same procedural accommodations
available to other issuers under current rules by permitting these
institutions to suspend their reporting obligations immediately upon
the filing of a certification on Form 15 with the Commission.
    In addition, the amendments apply the definition of ``accredited
investor'' in Securities Act Rule 501(a) in making determinations under
Exchange Act Section 12(g)(1), revise the definition of ``held of
record'' in Rule 12g5-1, and establish a non-exclusive safe harbor for
issuers to rely on when determining whether securities were received
pursuant to an employee compensation plan in transactions exempt from,
or not subject to, the registration requirements of Section 5 of the
Securities Act. The non-exclusive safe harbor, as adopted, permits an
issuer to rely on the definition of ``compensatory benefit plan'' in
Securities Act Rule 701 and the conditions in Securities Act Rule
701(c) in determining whether a person has received securities pursuant
to an employee compensation plan. It also permits an issuer to rely on
a reasonable belief at the time of issuance that the securities were
issued in a transaction exempt from, or not subject to, the
registration requirements of Section 5.
    We considered alternative definitions of ``employee compensation
plan.'' We also considered whether to provide additional guidance with
respect to the determination of accredited investor status when
establishing the number of holders of record. These decisions may
affect how a non-reporting issuer counts its holders of record for the
purpose of the registration thresholds under the Exchange Act; hence,
they could affect whether an issuer becomes subject to Exchange Act
reporting. However, due to limited availability of shareholder
information on these non-reporting issuers, we are unable to quantify
the number of non-reporting issuers that might be affected by these
decisions.

B. Analysis of the Amendments

    The amendments will affect reporting issuers generally, and banks,
bank holding companies and savings and loan holding companies
specifically, as well as non-reporting issuers, employees and other
investors. We analyze the costs and benefits associated with the
amendments below.
1. Increased Regulatory Thresholds for Banks, Savings and Loan Holding
Companies and Bank Holding Companies
    As discussed above, the JOBS Act and the FAST Act amended Sections
12(g) and 15(d) of the Exchange Act to raise the thresholds at which
banks, savings and loan holding companies and bank holding companies
may terminate registration or suspend their obligations to file reports
with the Commission from 300 to 1,200 holders of record.\120\ However,
without the amendments being adopted today, banks, savings and loan
holding companies and bank holding companies that want to use the
higher thresholds must wait 90 days after filing a certification with
the Commission that the number of holders of record is less than 1,200
persons to terminate their Section 12(g) registration and cease filing
reports required by Section 13(a) and must wait until the first day of
the fiscal year to suspend any Section 15(d) reporting obligations. For
other issuers, our existing rules afford procedural accommodations that
allow them to suspend their reporting obligations immediately upon the
filing of a certification on Form 15.
---------------------------------------------------------------------------

    \120\ For other issuers, the threshold in Section 12(g)(4) for
termination of registration and in Section 15(d)(1) for suspension
of reporting remains at 300 holders of record.
---------------------------------------------------------------------------

    To make these procedural accommodations applicable to banks,
savings and loan holding companies and bank holding companies, as
proposed, the amendments revise Exchange Act Rules 12g-2, 12g-3, 12g-4
and 12h-3 to reflect the 1,200 holders of record threshold for banks,
savings and loan holding companies and bank holding companies. This
will permit banks, savings and loan holding companies and bank holding
companies to rely on these rules to cease reporting during a fiscal
year, rather than wait the 90 days or until the end of the reporting
year prescribed under the Exchange Act. This will reduce issuer
compliance and reporting costs during the fiscal year the issuer ceases
reporting \121\ and may lessen potential confusion that could arise
from the differences in the thresholds contained in the statute and our
existing rules. At the same time, extending these procedural
accommodations could accelerate the loss of investor access to current
information about the issuer. We note, however that this effect is
likely mitigated by the non-SEC regulatory disclosure requirements that
will continue to apply to regulated banks, savings and loan holding
companies and bank holding companies after adoption of today's
amendments.
---------------------------------------------------------------------------

    \121\ See letter from ABA indicating that these costs could be
especially onerous for financially distressed firms and from ICBA.
---------------------------------------------------------------------------

    We believe that the amendments adopted under this rule will not
have a significant impact on competition. To the extent that savings
pursuant to lower compliance and reporting costs could possibly be used
to increase institutions' lending activities, the amendments may lead
to higher levels

of investment and capital formation in the economy.
    As stated above, we estimate that there are approximately 550
banks, savings and loan holding companies and bank holding companies
that currently report with the Commission. Many of these reporting
issuers have more than 1,200 holders of record and are not eligible to
cease reporting under the new higher thresholds. However, approximately
192 of these reporting banks, savings and loan holding companies and
bank holding companies have between 300 and 1,199 holders of record and
may be eligible to cease reporting. Many of these banks and bank
holding companies have likely been eligible to deregister or suspend
reporting since the adoption of the JOBS Act, but have chosen to
continue as reporting issuers. One explanation for why many of these
issuers have chosen not to deregister is that most (143) are also
listed on national securities exchanges and if they chose to deregister
or suspend reporting under the Exchange Act, they would have to give up
their national exchange listing.\122\ While a higher percentage of
savings and loan holding companies have become eligible to terminate
their registration or suspend reporting under the FAST Act,
approximately 50 of 64 reporting savings and loan holding companies are
registered pursuant to Section 12(b). Based on staff research, most of
the newly eligible savings and loan holding companies (approximately 25
of the 28) would have to delist from a national securities exchange to
cease reporting under the Exchange Act.
---------------------------------------------------------------------------

    \122\ Listing on a national securities exchange triggers current
and periodic Exchange Act reporting requirements under Section
12(b).
---------------------------------------------------------------------------

    We believe that the likelihood of large numbers of eligible banks,
savings and loan holding companies and bank holding companies
terminating registration or suspending reporting based on the new
higher thresholds in future years is low. While a relatively larger
number of banks and bank holding companies (69) relied on the new
thresholds to exit Exchange Act reporting immediately after the
adoption of the JOBS Act in 2012, the numbers of such issuers relying
on the new thresholds to exit substantially decreased over the
subsequent three years (18 in 2013, 7 in 2014 and 6 in 2015).\123\ As
banks and bank holding companies remain subject to other regulatory
reporting requirements,\124\ many have chosen to continue reporting,
and bear ongoing reporting costs, even though they are eligible to
cease reporting under Section 12(g) of the Exchange Act. We expect to
see a similar trend with respect to the deregistrations of savings and
loan holding companies.
---------------------------------------------------------------------------

    \123\ The Commission staff derived this estimate by analyzing
Form 15 filings submitted to the Commission. These numbers indicate
that approximately 4%, 1% and 1% of the reporting bank and bank
holding companies deregistered during 2013, 2014 and 2015,
respectively.
    \124\ The Board of Governors of the Federal Reserve System is
responsible for the consolidated supervision of bank holding
companies and savings and loan holding companies and requires those
entities to provide data relating to capitalization, liquidity, and
risk management as well as periodic financial reports in order for
the Board of Governors to analyze the overall financial condition of
those entities to ensure safe and sound operations.
---------------------------------------------------------------------------

    In deciding whether to terminate registration or suspend their
reporting obligations, we anticipate that banks, savings and loan
holding companies and bank holding companies will weigh the benefits of
being a public company against the burden of additional disclosure
costs. Commonly cited benefits of being a public company include the
ability to obtain a lower cost of capital for investment and growth,
increased liquidity through a broader shareholder base, and greater
ability to finance acquisitions and offer equity-based incentive
contracts.\125\ Commonly cited costs of being a public company include
the need to comply with increased regulations and regulatory
supervision, including requirements for independent audits,\126\
disclosure of information to competitors, loss of control and ownership
dilution.\127\
---------------------------------------------------------------------------

    \125\ See J. Brau, Why Do Firms Go Public?, Oxford Handbook of
Entrepreneurial Finance (2010) (providing a general discussion of
the different rationales for firms to go public); U. Celikyurt, M.
Sevilir, and A. Shivdasani, Going Public to Acquire? The Acquisition
Motive in IPOs, J. FIN. ECON. (2010) (arguing that firms go public
so as to facilitate acquisitions); M. Pagano, F. Panetta, and L.
Zingales, Why Do Companies Go Public? An Empirical Analysis, J. FIN.
(1998) (showing that initial public offerings are generally followed
by lower cost of credit and increased turnover in control); T.
Chemmanur and P. Fulghieri, A Theory of the Going Public Decision,
REV. FIN.STUD. (1999) (arguing that going public broadens the
ownership base of the firm); R. Rosen, S. Smart and C. Zutter, Why
Do Firms Go Public? Evidence From the Banking Industry, Working
Paper (2005) (finding that banks that go public are more likely to
grow faster, earn higher profits, employ more leverage and become
acquirers when compared to their non-reporting counterparts),
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=686473.
    \126\ See letter from IPA. IPA cited an estimate of ongoing
reporting costs under the Exchange Act of $650,000 annually. This
commenter additionally noted that becoming an Exchange Act reporting
company may be contrary to an issuer's business plan and against
investors' economic interests. See also letter from ABA positing
that once the initial cost of implementing reporting procedures are
undertaken, the ongoing costs of reporting are not a significant
burden on capital formation and job creation.
    \127\ See J. Brau and S. Fawcett, Initial Public Offerings: An
Analysis of Theory and Practice, J. FIN. (2006) (reporting based on
a survey of CFOs that ``desire to maintain decision-making
control,'' ``disclosing information to competitors,'' ``SEC
reporting requirements'' and ``to avoid ownership dilution'' are
among the top five reasons why firms choose to stay private); J.
Farre-Mensa, Why Are Most Firms Privately Held?, Working paper,
Harvard University (2011) (documenting that firms in industries with
high disclosure costs (i.e., where it is easier for competitors to
appropriate a firm's intellectual property) tend to remain private),
available at http://www.cemfi.es/ftp/pdf/papers/wshop/Farre-Mensa_JobMarketPaper.pdf.
---------------------------------------------------------------------------

2. Use of the Term ``Accredited Investor'' in Exchange Act Section
12(g)
    Section 501 of the JOBS Act raises the number of holders of record
at which an issuer is required to register a class of equity securities
under the Exchange Act from 500 persons to 2,000 persons or 500 persons
who are not accredited investors. In order for an issuer to rely on the
new, higher threshold established by the JOBS Act, the issuer must make
accredited investor determinations if it has more than 500 holders of
record.
    We are amending Exchange Act Rule 12g-1 to clarify that the
definition of ``accredited investor'' in Securities Act Rule 501(a)
applies when making determinations under Exchange Act Section 12(g)(1)
and that such determination must be made as of the last day of the
fiscal year rather than at the time of sale of the securities. Under
Rule 501(a), an accredited investor is any person who comes within one
or more of the categories of investors specified therein, or who the
issuer reasonably believes comes within any such category. Many issuers
and investors are familiar with the Rule 501(a) definition as it is a
central component for private offerings conducted under Securities Act
Rule 506 of Regulation D.\128\ Consequently, the amendment should
facilitate compliance.\129\ Developing an alternative definition for
purposes of Section 12(g)(1) could impose costs on issuers and
investors by requiring them to familiarize themselves with, and apply,
a new and different standard.\130\ Due to limitations in available
data, we are unable to estimate how many issuers will be impacted by
using the Rule 501(a) definition of ``accredited investor.''
---------------------------------------------------------------------------

    \128\ The Rule 501(a) definition is also used in connection with
other unregistered offerings, for example for offerings conducted
pursuant to amended Regulation A or the recently adopted Regulation
Crowdfunding.
    \129\ See letter from ABA.
    \130\ Id.
---------------------------------------------------------------------------

    Requiring issuers to make the accredited investor determination at
the end of the fiscal year rather than at the time of sale of
securities will ensure that the information is timely and consistent

with issuers' facts and circumstances at the end of each year.
Permitting an issuer to rely on an ongoing basis on information
previously obtained relating to accredited investors status, such as
allowing reliance on information obtained by the issuer at the time the
securities were initially issued to the investor or at the time the
securities were most recently issued to the investor, would likely be
less costly than requiring the issuer to establish a reasonable belief
that the investor is an accredited investor. This, however, could also
lead to reliance on outdated information, potentially causing issuers
with more than 500 non-accredited investors to fail to register,
thereby leaving investors in those issuers with less information and
protection under the federal securities laws.
    Not providing specific guidance or rules on how to establish a
reasonable belief of a security holder's status as an accredited
investor for purposes of determining holders of record could result in
some uncertainty and possibly higher costs for issuers. We believe,
however, that the ``reasonable belief'' standard under Rule 501(a)
provides issuers with appropriate flexibility to use the method that
works best, given their individual circumstances, to determine the
accredited investor status of their shareholders. We also believe that
this standard may help to mitigate some of the concerns relating to
higher costs under the adopted provision by allowing issuers to rely on
previous/other determinations if they have a reasonable belief that the
security holder continues to be or is an accredited investor. We also
note that many issuers are familiar with and routinely use the
``reasonable belief'' standard without such guidance when making
private offerings in reliance on Regulation D.
    Some commenters recommended that the Commission address potential
compliance issues related to the accredited investor threshold by
providing a safe harbor for determining accredited investor
status.\131\ A safe harbor could increase efficiency by providing
issuers with a prescribed process to determine and update the
accredited investor status of their investors. For example, a safe
harbor that permits an issuer to rely on an annual affirmation of
accredited investor status by the investor, other information obtained
by the issuer or on a combination of a certification and other
information may be less costly than requiring an issuer to establish a
reasonable basis for its determination through other means. Similarly,
a safe harbor with specified time limits on the permitted use of the
information \132\ or conditioned upon the issuer not having information
that the previously obtained information was incorrect, unreliable or
had changed could address some of the concerns related to higher costs
or outdated information. Another alternative would be a safe harbor
that permits an issuer to rely on a third-party certification for
determining the accredited investor status of investors.\133\
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    \131\ See letters from ABA, Foley and NYCBA. See also letters
from ADISA, CFM, Cleary and IPA.
    \132\ See letter from Cleary suggesting a safe harbor permitting
accredited investor status determinations made in offerings during
the three months prior to fiscal year-end or on self-certifications
by investors if the offering occurred more than three months but
less than twelve months prior to fiscal year-end.
    \133\ See letter from IPA suggesting that relying upon third
parties might allow issuers to reduce the cost of compliance for
accredited investor determinations. We do not have adequate
information about third-party certification providers and the
characteristics of this industry to assess this alternative in terms
of reliability and cost of the provided certification services. To
the extent that reputational concerns would incentivize third-party
certification providers to perform reliable and updated due
diligence, third-party certification could potentially provide
accurate information at a cost that economies of scale may lessen.
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    Despite the benefits described above, providing a specific method
(or methods) under a safe harbor could become a de facto minimum
standard which we believe would reduce the flexibility available to
issuers for determining accredited investor status.\134\ Moreover, at-
least for some issuers, a prescribed method may be less accurate and
more burdensome than alternate non-prescribed methods in establishing
the accredited status of investors. For example, a safe harbor
providing for annual certification could be costly and have adverse
impacts on small issuers and their investors,\135\ discouraging
accredited investors from investing in their securities, and leading to
lower levels of investment.\136\
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    \134\ See letter from ABA.
    \135\ See letter from IPA.
    \136\ See letter from CFM.
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3. Definition of ``Held of Record'' and Safe Harbor for Employee
Compensation Plan Securities
    Section 12(g)(5), as amended by Section 502 of the JOBS Act,
excludes from the definition of ``held of record'' securities held by
persons who received them pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section 5
of the Securities Act for purposes of determining whether an issuer is
required to register a class of security pursuant to Section
12(g)(1).\137\ Section 503 of the JOBS Act directs the Commission to
adopt a safe harbor that issuers can use when making their holder of
record determinations.
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    \137\ Prior to the JOBS Act, employees who obtained securities
under an issuer's employee compensation plan were not excluded from
the shareholders of record calculation.
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    We believe that, by making it easier for non-reporting companies
that issue securities to their employees to remain below the
registration and reporting thresholds in the Exchange Act, the
statutory changes will benefit issuers by allowing them to better
control how and when they become subject to reporting requirements,
while continuing to use securities to compensate employees.\138\ These
changes could be particularly beneficial for smaller or cash-
constrained issuers that could more easily issue securities to their
employees as a form of compensation without being subject to Exchange
Act reporting requirements and the associated compliance costs.
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    \138\ See letter from ABA.
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    However, investors in these issuers, including employees, may be
adversely affected by a delay in the potential registration of a class
of securities and the associated reporting because they otherwise might
benefit from the information provided through such reporting. As a
result, the amendments to the definition of ``held of record'' and the
non-exclusive safe harbor being adopted today could have an impact on
the potential costs and benefits of Exchange Act registration for
affected issuers and their investors by affecting areas such as the
ease of relying upon the statutory exemption under Section 12(g), the
number of non-reporting companies able to forestall registration, and
the amount of information available to investors in those issuers'
securities, with effects, for example, on price efficiency and
liquidity. We further discuss the economic impact of specific aspects
of these amendments below.
    Instead of establishing a new definition for the term ``employee
compensation plan,'' we are amending the definition of ``held of
record'' to permit an issuer to exclude securities held by persons who
received them pursuant to an employee compensation plan in transactions
exempted from, or not subject to, the registration requirements of
Section 5 of the Securities Act and adopting a safe harbor providing
that this condition will be satisfied if the securities were received
pursuant to a compensatory benefit plan in transactions that meet

the conditions of Rule 701(c). By not creating a new definition and
relying on familiar concepts, the amendments should facilitate
compliance and simplify recordkeeping by issuers.\139\
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    \139\ See letter from ABA.
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    In a change from the proposal, we are revising the amendments to
the definition of ``held of record'' to make clear that, in addition to
securities issued to employees in transactions exempted from the
registration requirements of Securities Act Section 5 (such as
securities issued in a Rule 506 offering) or those issued to employees
in transactions that did not involve a sale of securities within the
meaning of Securities Act Section 2(a)(3), the amended definition also
will permit issuers to exclude exempt securities issued to employees
pursuant to Securities Act Section 3 (such as securities issued in a
Regulation A or Rule 504 offering). The amendment will provide
consistency in treatment of securities received pursuant to employee
compensation plans in primary transactions that are exempt from Section
5 registration requirements or not subject to Section 5 registration
requirements.\140\ This could lower issuer costs and facilitate
compliance. At the same time, such an expanded definition of ``held of
record'' could reduce the number of holders of record of an issuer and
potentially allow the issuers to delay or avoid Exchange Act reporting.
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    \140\ Id.
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    The amendments will permit issuers to exclude securities held by
former employees who received the securities in a transaction exempt
from, or not subject to, the registration requirements of Securities
Act Section 5 in substitution or exchange for securities excludable
under the proposed definition of held of record, as long as the former
employees were eligible, at the time of issuance, to receive the
original excludable securities. Relative to the proposal, the amended
definition will also include such securities held by former employees
who were employed by or providing services to a predecessor or an
acquired company. By providing uniform treatment for all securities
issued in exempt transactions, such provisions could lower issuer costs
and facilitate compliance. Permitting exclusion of securities received
by former employees and covered persons and securities exchanged or
substituted for such original excludable securities also is likely to
remove disincentives for issuers to engage in value-enhancing business
combinations or other similar transactions,\141\ which will benefit
issuers and their investors. In this way, the amendments may also lead
to a more efficient allocation of resources amongst firms that could
improve growth prospects over the longer run.
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    \141\ Id.
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    As proposed, the amendments establish a non-exclusive safe harbor
that issuers can rely on when determining whether holders of securities
received pursuant to an employee compensation plan may be excluded.
Consistent with the proposal, the safe harbor being adopted relies on
the conditions in existing Rule 701(c). Relying on an existing standard
that is already understood by market participants will make it easier
for issuers to avail themselves of this safe harbor than if we proposed
a new alternative standard. While generally broad in application, the
conditions in Rule 701(c) impose certain limitations, such as requiring
that securities be sold under a compensatory benefit plan, that the
plan be written, that the plan be established by the issuer or certain
specified related entities and that participation be limited to
employees and certain other specified persons. Although we are unable
to quantify the impact of adopting this safe harbor, as we cannot
reliably predict the number of issuers that would rely on it, we can
qualitatively assess its impact. A safe harbor that applies the
familiar concepts of existing Rule 701(c) should create efficiencies in
its application and avoid conflicts with existing rules, which could
reduce costs, especially for smaller issuers.\142\
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    \142\ See letter from ABA which states that Rule 701 is the
primary exemption relied upon by smaller and other non-reporting
issuers for such transactions.
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    In a change from the proposal, the safe harbor also includes a
reasonable belief standard. The inclusion of such a standard will
obviate the need for issuers to re-establish that earlier issuances
satisfied an appropriate exemption at the time of issuance. This should
provide greater regulatory certainty, leading to lower compliance
burdens for issuers.\143\ Similarly, the interpretative guidance set
forth in this release regarding transfers to family members of such
exempt securities through the employee's death, disability or domestic
relations order provides greater regulatory certainty with respect to
specific circumstances that are unexpected or out of control of the
issuer, which will benefit issuers intending to use equity
compensation.\144\
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    \143\ Id.
    \144\ Id.
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    Finally, as proposed, the amendments also provide that foreign
private issuers will be able to rely on the adopted safe harbor when
making their determination of the number of U.S. resident holders under
Exchange Act Rule 12g3-2(a). While we are unable to quantify the number
of foreign private issuers that will be impacted due to limitations in
the available data, the amendments may allow some foreign private
issuers to delay registering with and reporting to the Commission. The
cost and benefit tradeoffs of Exchange Act registration for foreign
private issuers will be analogous to the ones discussed above for
domestic issuers. Additionally, the flexibility accorded by the
amendments will benefit the U.S.-based employees of foreign private
issuers by putting them on equal footing with employees in domestic
private companies.\145\
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    \145\ Id.
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V. Paperwork Reduction Act

    Certain provisions of our disclosure rules and forms applicable to
issuers contain ``collection of information'' requirements within the
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\146\ The
hours and costs associated with preparing and filing forms and
retaining records constitute reporting and cost burdens imposed by the
collection of information requirements. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information requirement unless it displays a currently valid Office of
Management and Budget (``OMB'') control number. Compliance with the
information collections is mandatory. Responses to the information
collections are not kept confidential and there is no mandatory
retention period for the collections of information.
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    \146\ 44 U.S.C. 3501 et seq.
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    The amendments adopted today do not alter the disclosure
requirements set forth in our rules and forms; however, the JOBS Act
and FAST Act amendments to Exchange Act Sections 12(g) and 15(d) and
the amendments to our rules to reflect those statutory amendments are
expected to insubstantially decrease the number of filings made
pursuant to these rules and forms. Exchange Act Rules 12g-1, 12g-2,
12g-3, 12g-4 and 12h-3 set forth when an issuer's securities are
required to be registered and the procedures for a registrant to
terminate its registration or suspend its duty to file reports. The
amendments provide thresholds that issuers may rely on when determining
their registration and reporting

obligations.\147\ Exchange Act Section 12(g)(5) and the amendment to
Exchange Act Rule 12g5-1 also exclude securities received pursuant to
certain employee compensation plans from the determination of when an
issuer is required to initially register with the Commission. These
changes will reduce the number of registrants required to initially
register a class of securities with the Commission as well as
accelerate the ability of some registrants to cease filing after they
have crossed below the statutory thresholds. For purposes of the PRA,
as discussed below, we estimate that the amendments will not
substantially reduce the number of filings received, nor will they
affect the incremental burden or cost per filing.
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    \147\ We also are amending Rule 12g-1 to reflect the new higher
thresholds in Section 12(g)(1).
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    The titles for the affected collections of information are:
    (1) ``Form 10'' (OMB Control No. 3235-0064); \148\
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    \148\ 17 CFR 249.10.
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    (2) ``Form 20-F'' (OMB Control No. 3235-0288); \149\
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    \149\ 17 CFR 249.220f.
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    (3) ``Form 40-F'' (OMB Control No. 3235-0381); \150\
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    \150\ 17 CFR 249.240f.
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    (4) ``Form 10-K'' (OMB Control No. 3235-0063); \151\
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    \151\ 17 CFR 249.310.
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    (5) ``Form 10-Q'' (OMB Control No. 3235-0070); \152\
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    \152\ 17 CFR 249.308a.
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    (6) ``Form 8-K'' (OMB Control No. 3235-0060); \153\
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    \153\ 17 CFR 249.308.
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    (7) ``Schedule 14A'' (OMB Control No. 3235-0059); \154\
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    \154\ 17 CFR 240.14a-101.
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    (8) ``Schedule 14C'' (OMB Control No. 3235-0057); \155\ and
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    \155\ 17 CFR 240.14c-101.
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    (9) ``Form 15'' (OMB Control No. 3235-0167).

The forms were adopted under the Exchange Act and the Securities Act
and set forth the disclosure requirements for periodic, current and
other reports required to be filed by issuers registered with the
Commission.
    We estimate that there are approximately 579 Exchange Act
registrants that are bank holding companies or savings and loan holding
companies. We estimate that approximately 100 bank holding companies
have filed Forms 15 to terminate or suspend their reporting obligations
under the Exchange Act based on the statutory changes in the JOBS
Act.\156\ To put these numbers in context, the current PRA estimate for
the number of annual reports on Form 10-K filed annually is 8,137.
Moreover, for certain changes, such as the amendments to the definition
of ``held of record'' in Rule 12g5-1, we do not have access to data to
support a reliable estimate of the number of issuers that will not be
required to file reports based on the JOBS Act amendments and our
implementation of those amendments.
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    \156\ After the JOBS Act became effective, there was an increase
in the number of termination and suspension of registrations by bank
holding companies. We do not anticipate a similar rate of
deregistration for bank holding companies after revising our rules
to reflect the new, higher deregistration threshold. As the FAST Act