[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Proposed Rules]
[Pages 78343-78362]
[FR Doc No: 2014-30136]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release No. 33-9693; 34-73876; 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: Proposed rule.

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SUMMARY: We are proposing amendments to our rules to implement Title V
and Title VI of the Jumpstart Our Business Startups Act (the ``JOBS
Act''). The proposed amendments would

revise rules adopted under Section 12(g) of the Securities Exchange Act
of 1934 (the ``Exchange Act'') to reflect the new, higher thresholds
for registration, termination of registration and suspension of
reporting that were set forth in the JOBS Act. The proposed rules also
would apply the thresholds specified for banks and bank holding
companies to savings and loan holding companies. In addition, the
proposed amendments would revise the definition of ``held of record''
in Exchange Act Rule 12g5-1, 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: Comments should be received on or before March 2, 2015.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-12-14 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.

All submissions should refer to File Number S7-12-14. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F Street NE., Washington, DC
20549-1090 on official business days between the hours of 10:00 a.m.
and 3:00 p.m. All comments received will be posted without change; we
do not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.

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 proposing 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 an amendment 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. Proposed Amendments Relating to Exchange Act Reporting
Thresholds
    A. Application of the Increased Thresholds for Registration and
Reporting Obligations
    B. Increased Thresholds for Savings and Loan Holding Companies'
Registration and Reporting Obligations
    C. Application of the Increased Threshold for Accredited
Investors
III. Proposed Amendments to Exchange Act Rule 12g5-1
    A. Statutory Requirement and Definition of ``Employee
Compensation Plan''
    B. Definition of ``Held of Record'' and Non-Exclusive Safe
Harbor for Determining Holders of Record
    1. Definition of ``Held of Record''
    2. Non-Exclusive Safe Harbor for Determining Holders of Record
IV. General Request for Comment
V. Economic Analysis
    A. Baseline
    B. Analysis of the Proposed Rules
VI. Paperwork Reduction Act
VII. Small Business Regulatory Enforcement Fairness Act
VIII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Small Entities Subject to the Proposed Rules
    C. Projected Reporting, Recordkeeping and Other Compliance
Requirements
    D. Duplicative, Overlapping or Conflicting Federal Rules
    E. Significant Alternatives
    F. Solicitation of Comment
IX. Statutory Authority and Text of Proposed Rule Amendments

I. Introduction

    Prior to the enactment of the JOBS Act,\11\ Section 12(g) of the
Exchange Act \12\ required an issuer to register a class of its equity
securities if, at the end of the issuer's fiscal year, the securities
were ``held of record'' by 500 or more persons and the issuer had total
assets exceeding $1 million.\13\ Under Section 12(g) and the
Commission's rules prior to the JOBS Act amendments, an issuer that had
a class of equity securities registered under Section 12(g) was able to
terminate that registration if the number of record holders of that
class fell below 300, or the number of record holders of that class
fell below 500 and the issuer's assets were no more than $10 million at
the end of each of its last three fiscal years.\14\
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    \11\ Public Law 112-106, 126 Stat. 325 (Apr. 5, 2012).
    \12\ 15 U.S.C. 78l(g). Congress enacted Section 12(g) in 1964
following the release of a study of the securities markets conducted
by the staff of the Commission in the early 1960s, which was
commissioned by Congress to serve as a basis for legislation. Report
of Special Study of Securities Markets of the Securities and
Exchange Commission, H.R. Doc. No. 88-95 (1963). Section 12(g) was
enacted to ``improve investor protection by extending to the larger
companies in the over-the-counter market the registration,
reporting, proxy solicitation, and insider trading requirements . .
. applicable to companies listed on an exchange.'' Report of the
Committee on Banking and Currency to Accompany, S.1642, S. Rep. No.
88-379 (1963) at 1.
    \13\ See 15 U.S.C. 78l(g)(1). The Commission has the authority,
under Section 12(h), to raise the asset threshold for Section 12(g)
registration. 15 U.S.C. 78l(h). The Commission raised the asset
threshold for Section 12(g) registration from $1 million to $3
million in 1982, $5 million in 1986 and $10 million in 1996. See
System of Classification for Purposes of Exempting Smaller Issuers
From Certain Reporting and Other Requirements, Release No. 34-18647
(Apr. 15, 1982) [47 FR 17046 (Apr. 21, 1982)], Reporting by Small
Issuers, Release No. 34-23406 (Jul. 8, 1986) [51 FR 25360 (Jul. 14,
1986)], and Relief From Reporting by Small Issuers, Release No. 34-
37157 (May 1, 1996) [61 FR 21353 (May 9, 1996)]. For the thresholds
applicable to foreign private issuers, see infra note 84 and the
discussion in the following text.
    \14\ See 15 U.S.C. 78l(g)(4) and 17 CFR 240.12g-4(a).
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    Exchange Act Section 15(d) \15\ requires an issuer with an
effective registration statement under the Securities Act to file the
same reports as an issuer with a registered class of securities under
Exchange Act Section 12. Prior to the enactment of the JOBS Act, an
issuer's reporting obligation was automatically suspended under Section
15(d)(1) if, on the first day of any fiscal year other than the year in
which the registration statement became effective, there were fewer
than 300 holders of record of the class of securities offered under the
registration statement.
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    \15\ 15 U.S.C. 78o(d).
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    The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act
to adjust the thresholds for registration, termination of registration
and suspension of reporting.\16\ Specifically,

Section 501 of the JOBS Act \17\ amended Section 12(g)(1) of the
Exchange Act 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 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 2,000 or more persons. Section 601
of the JOBS Act also amended Exchange Act Section 12(g)(4) and Exchange
Act Section 15(d)(1) \20\ 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. 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.
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    \16\ 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. We are proposing amendments to our
rules to reflect the new, higher thresholds provided by the JOBS Act
in our rules and to implement the required safe harbor for
securities received pursuant to employee compensation plans.
    \17\ Public Law 112-106, Sec. 501, 126 Stat. 326 (Apr. 5, 2012).
    \18\ Public Law 112-106, Sec. 601, 126 Stat. 326 (Apr. 5, 2012).
    \19\ 12 U.S.C. 1841.
    \20\ 15 U.S.C. 78o(d)(1).
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    Section 502 of the JOBS Act \21\ amended Exchange Act Section
12(g)(5) \22\ 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.\23\ Section 503 of the JOBS Act \24\ instructed
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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    \21\ Public Law 112-106, Sec. 502, 126 Stat. 326 (Apr. 5, 2012).
    \22\ 15 U.S.C. 78l(g)(5).
    \23\ 15 U.S.C. 77e.
    \24\ Public Law 112-106, Sec. 503, 126 Stat. 326 (Apr. 5, 2012).
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    We believe that the increased registration threshold established by
the JOBS Act is intended to permit issuers to defer Exchange Act
registration until issuers have a larger shareholder base. In
connection with the amendments made by Title V and Title VI of the JOBS
Act, we are proposing to amend our rules to reflect the new, higher
registration, termination of registration and suspension of reporting
thresholds under revised Exchange Act Sections 12(g)(1), 12(g)(4) and
15(d)(1). We also are proposing to permit savings and loan holding
companies to register, terminate registration and suspend reporting
using the same thresholds that apply to banks and bank holding
companies. Finally, we are proposing to amend Exchange Act Rule 12g5-1
to reflect the amendment to Exchange Act Section 12(g)(5) and 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
calculating the number of the issuer's holders of record when
determining whether they are required to register under Exchange Act
Section 12(g)(1).
    After enactment of the JOBS Act, we sought comment from the public
prior to the issuance of a proposing release. We have considered the
pre-proposal comment letters received to date on Title V and Title VI
of the JOBS Act, and we are requesting comment on various issues
relating specifically to the proposed amendments.\25\ In this release,
we are proposing rule amendments to implement and address issues
specifically related to Title V and Title VI of the JOBS Act. We
recognize that commenters have urged us to consider and propose
additional amendments. For example, several commenters have recommended
that the Commission make rule revisions related to the use of the term
``accredited investor'' or permitting other issuers to register,
terminate registration and suspend reporting using the same thresholds
that apply to banks and bank holding companies.\26\ We have considered
the suggestions made by these commenters, but at this time we are not
proposing amendments that extend substantially beyond reflecting the
new statutory requirements.
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    \25\ To facilitate public input on JOBS Act rulemaking before
the issuance of rule proposals, the Commission invited members of
the public to make their views known on various JOBS Act initiatives
in advance of any rulemaking by submitting comment letters to the
Commission's Web site at http://www.sec.gov/spotlight/jobsactcomments.shtml. Comment letters received to date 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.
    \26\ See Section II.C. relating to the term ``accredited
investor.'' See also letters from Wilmer Hale (June 25, 2012), and
Ledgewood, P.C. (Sept. 12, 2012) on behalf of their respective
clients, a real estate investment trust and a real estate limited
partnership, requesting that the Commission use its exemptive
authority to revise the holder of record threshold to treat non-bank
issuers similarly to banks and bank holding companies.
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II. Proposed Amendments Relating to Exchange Act Reporting Thresholds

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

    As a result of the JOBS Act changes to Exchange Act Sections
12(g)(1), 12(g)(4) and 15(d), we are proposing changes to Exchange Act
Rules 12g-1, 12g-2, 12g-3, 12g-4 and 12h-3, which are 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 currently reflect the
prior holder of record statutory thresholds in Sections 12(g) and
15(d). We are proposing to amend these rules to reflect the new
thresholds set forth in the JOBS Act.
    Exchange Act Rule 12g-1 currently provides that an issuer shall be
exempt from the registration requirements if, on the last day of its
most recent fiscal year, it had total assets not exceeding $10 million.
JOBS Act Section 501 amended Section 12(g)(1) to expressly include the
$10 million asset threshold. We are proposing 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. The revision would
additionally remove an outdated reference currently contained in the
rule.\27\
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    \27\ Under Exchange Act Rule 12g-1, foreign private issuers may
not rely on the exemption from registration provided in that rule if
their securities are quoted on an automated inter-dealer quotation
system. The NASDAQ Stock Market was the only automated inter-dealer
quotation system in existence when this provision was adopted and
has subsequently 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)]. As a result, the
reference to an automated inter-dealer quotation system is no longer
necessary and we are proposing to remove it.

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    As noted above, Section 601 of the JOBS Act amended Exchange Act
Section 12(g)(4) to raise the threshold at which an issuer that is a
bank or a bank holding company may terminate registration of a class of
equity securities from 300 to 1,200 holders of record. Section 601
similarly amended Exchange Act Section 15(d)(1) by providing for an
automatic suspension of the duty to file reports for a bank or bank
holding company with respect to a class of equity security that is held
of record by less than 1,200 persons at the beginning of its fiscal
year, provided that the bank or bank holding company did not have a
Securities Act registration statement that became effective during that
year.
    As currently in effect, Exchange Act Rules 12g-2 and 12g-3 reflect
the holders of record thresholds in the Exchange Act for terminating
registration and suspending reporting that existed prior to the JOBS
Act amendments and not the new thresholds for banks and bank holding
companies. Specifically,
     Rule 12g-2 addresses securities deemed to be registered
pursuant to Section 12(g)(1) upon termination of the exemption pursuant
to Section 12(g)(2)(A) or (B) \28\ and establishes a 300-person
threshold for such a class of securities to be registered under Section
12(g).
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    \28\ 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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     Rule 12g-3 addresses the 300-person threshold for the
registration of securities of successor issuers under Section 12(b) or
Section 12(g).
    In addition, although the statutory provisions of Exchange Act
Section 12(g) and 15(d) do not suspend reporting obligations
immediately when an issuer reaches the designated threshold, Exchange
Act Rules 12g-4 and 12h-3 permit issuers to immediately suspend their
duty to file periodic and current reports. These rules, however,
reflect the thresholds in Sections 12(g) and 15(d) prior to the JOBS
Act amendments and not the new threshold for banks and bank holding
companies. Specifically,
     Rule 12g-4(a) provides that termination of registration
under Section 12(g) shall take effect in 90 days, or such shorter
period as the Commission determines, after the issuer certifies on Form
15 \29\ that the class of securities is held by less than 300 persons,
or 500 persons where the total assets of the issuer have not exceeded
$10 million on the last day of each of the preceding three years.
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    \29\ 17 CFR 249.323.
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     Rule 12g-4(b) provides that the duty to file current and
periodic reports under Exchange Act Section 13(a) \30\ for that class
of securities is suspended immediately upon the filing of a
certification on Form 15 provided that the issuer has less than 300
holders of record, or 500 holders of record where the issuer's total
assets have not exceeded $10 million on the last day of each of the
preceding three years.
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    \30\ 15 U.S.C. 78m(a).
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     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:
    [cir] The issuer has less than 300 holders of record or 500 holders
of record where the issuer's total assets have not exceeded $10 million
on the last day of each of the preceding three years;
    [cir] 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
    [cir] a registration statement has not become effective or was
required to be updated pursuant to Exchange Act Section 10(a)(3) \31\
during the fiscal year.\32\
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    \31\ 15 U.S.C. 78j(a)(3).
    \32\ 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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    Because the new statutory threshold for banks and bank holding
companies is not reflected in Rule 12g-4, banks and bank holding
companies seeking to rely on the new 1,200-holder threshold may not
rely on the existing procedural accommodations in the rule. As a
result, the statute requires them to wait 90 days after filing a
certification with the Commission that the number of holders of record
is less than 1,200 persons to terminate their Section 12(g)
registration and cease filing reports required by Section 13(a) rather
than being able to suspend their Section 13(a) reporting obligations
immediately upon the filing of a Form 15 in reliance on the rule.
Similarly, banks and bank holding companies are not permitted to rely
on Rule 12h-3 to immediately suspend their Section 15(d) reporting
obligations using the new higher statutory threshold during a fiscal
year. Rather, Section 15(d)(1) provides that they may use the higher
thresholds only when seeking to suspend a Section 15(d) obligation on
the first day of a fiscal year. Similarly the new statutory threshold
also is not reflected in current Rules 12g-2 and 12g-3, leaving all
issuers to refer to the lower 300-holder threshold under these rules.
    We are proposing to amend these rules to include the JOBS Act
thresholds for banks and bank holding companies.\33\ The proposed
changes would allow banks and bank holding companies to rely on the
Commission's rules to suspend reporting immediately, to avoid being
deemed registered upon the termination of certain exemptions or as a
successor issuer, and to terminate their registration during the fiscal
year, at the higher 1,200-holder threshold.
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    \33\ One commenter expressed support for a change permitting
banks and bank holding companies to immediately suspend Section
13(a) reporting at the 1,200-holder threshold upon filing Form 15,
as is permitted for all issuers under current rules at the 300-
holder threshold. See letter from John Marshall Bank (Apr. 13,
2012).
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B. Increased Thresholds for Savings and Loan Holding Companies'
Registration and Reporting Obligations

    We are proposing to apply the same thresholds to savings and loan
holding companies that apply to banks and bank holding companies. As
noted above, banks and bank holding companies under Title VI of the
JOBS Act are subject to a higher shareholder registration threshold for
a class of equity security under Section 12(g)(1) of the Exchange Act,
and a higher threshold for termination of registration under Section
12(g)(4) and for suspension of the duty to file reports under Section
15(d)(1). Section 3(a)(6) of the Exchange Act defines the term
``bank''; \34\ however, neither the Exchange Act nor the Commission's
rules define ``bank holding company.''

Section 2 of the Bank Holding Company Act of 1956 specifically excludes
``savings and loan holding companies'' from the definition of bank
holding company.\35\ Thus, while banks, savings associations and bank
holding companies are covered by Title VI of the JOBS Act, savings and
loan holding companies are not.
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    \34\ 15 U.S.C. 78c(a)(6). Exchange Act Section 3(a)(6) defines a
``bank'' to include Federal savings associations and any other
banking institution or savings association, as defined in the Home
Owners' Loan Act. We read this definition to include savings and
loan associations and other similar entities.
    \35\ A savings and loan holding company is a company that
controls savings associations or other savings and loan holding
companies, similar to the way a bank holding company is a company
that controls banks or other bank holding companies. Savings
associations and banks are all depository institutions, and each one
is regulated by the appropriate Federal banking agency. 12 U.S.C.
1813(q). The definition of ``appropriate Federal banking agency''
provides which federal banking agency is the primary regulator for
the various types of national, state and foreign banks and savings
associations.
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    A commenter representing community banks asserted that savings and
loan holding companies should be covered by Title VI of the JOBS
Act.\36\ Other commenters from the banking industry and Congress have
also requested that savings and loan holding companies be treated
similarly to bank holding companies for purposes of the registration,
termination of registration and suspension of reporting provisions of
the Exchange Act.\37\ One commenter acknowledged that the JOBS Act did
not ``expressly extend its new threshold for termination of
registration to savings and loan holding companies,'' but suggested
that correction of that omission would be ``entirely consistent with
the intent and purpose of the JOBS Act.'' \38\
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    \36\ See letter from Independent Community Bankers of America
(Apr. 16, 2012).
    \37\ See, e.g., letters from American Bankers Association (Aug.
10, 2012); Community Bankers Association of Illinois (May 7, 2012);
U.S. Representatives Himes and Womack (Nov. 29, 2012); Wayne Savings
Community Bank (Apr. 12, 2012); U.S. Representative Stivers (May 4,
2012); and U.S. Representative Gibbs (Dec. 19, 2012).
    \38\ See letter from American Bankers Association.
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    Based on a review of reporting issuers, we estimate that
approximately 125 savings and loan holding companies were reporting
issuers as of June 30, 2014, most of which are registered pursuant to
Section 12(b).\39\ Approximately 90 of these companies reported fewer
than 1,200 holders of record and would be eligible to terminate
registration under the proposed threshold.\40\ These savings and loan
holding companies, however, are subject to regulation by the Board of
Governors and are generally required to submit the same reports to
banking regulators as other banking entities regulated by the Board of
Governors, including banks and bank holding companies covered by Title
VI of the JOBS Act.\41\
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    \39\ Savings and loan holding companies were identified by
examining filings in the relevant Standard Industrial Classification
codes.
    \40\ The Board of Governors of the Federal Reserve System (the
``Board of Governors'') previously determined to exempt commercial
savings and loan holding companies from its initial requirement that
savings and loan holding companies generally submit the same reports
as other banking entities regulated by the Board of Governors. See
Agency Information Collection Activities Regarding Savings and Loan
Holding Companies: Announcement of Board Approval Under Delegated
Authority and Submission to OMB, (Dec. 23, 2011) [76 FR 81933 (Dec.
29, 2011)]. There are six commercial savings and loan holding
companies that are all exchange-listed issuers obligated to file,
and would continue to be obligated to file, Exchange Act reports
pursuant to Exchange Act Section 12(b) (15 U.S.C. 78l(b)). For ease
of application and due to the limited effect on, and small number
of, such issuers, we are not proposing to differentiate between
commercial saving and loan holding companies and other savings and
loan holding companies for purposes of this rulemaking.
    \41\ See id. Title III of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Pub. L. 111-203, 124 Stat. 1376) (the
``Dodd-Frank Act'') abolished the Office of Thrift Supervision, the
regulator that formerly supervised savings and loan holding
companies, and transferred its authorities (including rulemaking)
related to savings and loan holding companies to the Board of
Governors. The Board of Governors assumed supervisory responsibility
for savings and loan holding companies and their non-depository
subsidiaries beginning on July 21, 2011. The Board of Governors 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. These reports
include, among others, quarterly Consolidated Financial Statements
for Bank Holding Companies (FR Y-9C) and an Annual Report of Bank
Holding Companies (FR Y-6).
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    As noted above, the increased thresholds provided by the JOBS Act
for registration, termination of registration and suspension of
reporting for banks and bank holding companies do not apply to savings
and loan holding companies. This creates inconsistent treatment among
depository institutions, resulting in different registration
requirements for savings and loan holding companies that otherwise
provide services similar to those provided by banks and bank holding
companies and are generally subject to similar bank regulatory and
supervision requirements. We have received comments in support of
treating savings and loan holding companies the same as banks and bank
holding companies with regard to the increased thresholds.
    We are proposing to revise our rules so that savings and loan
holding companies are treated in a similar manner to banks and bank
holding companies for the purposes of registration, termination of
registration or suspension of their Exchange Act reporting obligations.
Unlike for bank holding companies, which are able to rely on the JOBS
Act statutory changes, the revised rules would be the sole basis on
which savings and loan holding companies could rely when making those
determinations. We are proposing to apply the new higher thresholds
applicable to banks and bank holding companies to savings and loan
holding companies \42\ because we believe the regulatory oversight
applicable to savings and loan holding companies is substantially
similar to the regulatory oversight for bank holding companies. We
believe these companies should be treated consistently with other
depository institutions under our rules. We are therefore proposing to
amend Exchange Act Rule 12g-1 to establish an exemption for savings and
loan holding companies from the registration requirement that mirrors
the exemption for banks and bank holding companies established by the
JOBS Act. In addition, we are proposing to revise Exchange Act Rules
12g-2, 12g-3, 12g-4 and 12h-3 to permit savings and loan holding
companies to immediately suspend current and periodic reporting upon
filing Form 15 at the 1,200-holder threshold in the same manner as
banks and bank holding companies.
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    \42\ Under our proposal ``savings and loan holding company''
would be defined pursuant to Section 10 of the Home Owners' Loan
Act. 12 U.S.C. 1461.
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C. 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 security (other than an exempted
security) held of record by either 2,000 persons or 500 persons who are
not accredited investors (as such term is defined by the
Commission).\43\ A number of commenters pointed to potential compliance
concerns with respect to identifying accredited investors and
recommended ways to facilitate issuers' use of the increased threshold
for holders of record that are accredited investors. Some commenters
recommended that the Commission confirm that the term ``accredited

investor'' as used in this provision of the JOBS Act has the same
meaning as set forth in Securities Act Rule 501(a) \44\ of Regulation
D.\45\ One commenter further recommended that the Commission permit an
issuer to rely on an annual affirmation from investors that their
accredited investor status has not changed.\46\ Other commenters
recommended that the Commission provide guidance or a safe harbor to
allow issuers to rely on an ongoing basis on information previously
obtained about a shareholder's accredited investor status.\47\
Commenters also recommended that the Commission provide additional
flexibility by, for example, permitting issuers to rely on the
determinations made by certain third parties, such as financial
intermediaries, or permitting determinations during a reasonable period
before or after the fiscal year end.\48\
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    \43\ 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 filed a
Securities Act registration statement that became effective but have
not triggered an Exchange Act Section 12(g) registration requirement
and issuers that have terminated registration or suspended their
reporting obligation will need to monitor the accredited investor
status of their investors as of the last day of each fiscal year.
    \44\ 17 CFR 230.501(a).
    \45\ See letters from New York City Bar Association (June 6,
2012) (``NYCBA'') and the Business Law Section of the American Bar
Association (June 26, 2013) (``ABA''). The ABA letter further
requested that the Commission provide guidance on the type of
information upon which issuers may rely and specifically recommended
that the Commission not require issuers to take reasonable steps to
verify accredited investor status.
    \46\ See letter from ABA.
    \47\ See letters from Foley & Lardner (May 24, 2012) and NYCBA.
Foley & Lardner recommended allowing reliance on information
obtained at the time the issuer's securities were initially issued,
or, in the alternative, when the securities were most recently
issued, when making the determination of whether the holders are
accredited for purposes of counting holders under Section 12(g).
NYCBA recommended that the Commission expressly permit an issuer
``to rely on any determination of `accredited investor' status made
in connection with the issuer's most recent sale of securities to
the relevant investor, or the most recent transfer to the investor
in connection with which the issuer actually determined that the
investor was `accredited.' '' Other commenters also supported
permitting issuers to rely on information previously provided if an
investor fails to provide the issuer with updated information. See
letters from ABA and Keith Paul Bishop (June 13, 2012).
    \48\ See letter from ABA. ABA suggested that the rule should
provide some flexibility on the timing of the determination. This
would permit issuers to rely on information available to them at the
time they made a judgment regarding accredited investor status,
rather than requiring issuers to update the information as of the
end of the fiscal year. See also letter from NYCBA recommending that
the Commission adopt rules open to the possibility that limited
access trading venues may be able to treat all participants as
accredited investors. One commenter recommended that the Commission
require issuers to determine accredited investor status as of the
last day of each fiscal year. See letter from Keith Paul Bishop.
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    To rely on the new, higher threshold established by the JOBS Act,
an issuer will need to be able to determine which of its record holders
are accredited investors. We are not proposing to establish a new
definition of ``accredited investor'' for the purposes of Section
12(g)(1). Securities Act Rule 501(a) contains a definition of
``accredited investor'' that includes any person who comes within, or
who the issuer reasonably believes comes within, any of eight
enumerated categories.\49\ Section 413(b) of the Dodd-Frank Act
specifically requires the Commission to undertake a review of the
``accredited investor'' definition in its entirety, as it relates to
natural persons, every four years and no earlier than July 10,
2014.\50\
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    \49\ Under Securities Act Rule 501(a) the categories of
accredited investor include: A bank, insurance company, registered
investment company, business development company, or small business
investment company; an employee benefit plan (within the meaning of
the Employee Retirement Income Security Act) if a bank, insurance
company, or registered investment adviser makes the investment
decisions, or if the plan has total assets in excess of $5 million;
a tax exempt charitable organization, corporation or partnership
with assets in excess of $5 million; a director, executive officer,
or general partner of the company selling the securities; an
enterprise in which all the equity owners are accredited investors;
an individual with a net worth of at least $1 million, not including
the value of his or her primary residence; an individual with income
exceeding $200,000 in each of the two most recent calendar years or
joint income with a spouse exceeding $300,000 for those years and a
reasonable expectation of the same income level in the current year;
and a trust with assets of at least $5 million, not formed only to
acquire the securities offered, and whose purchases are directed by
a person who meets the legal standard of having sufficient knowledge
and experience in financial and business matters to be capable of
evaluating the merits and risks of the prospective investment.
    \50\ We have already requested comment on this definition. See
Amendments to Regulation D, Form D and Rule 156, Release No. 33-9416
(Jul. 10, 2013) [78 FR 44806 (Jul. 24, 2013)].
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    We are proposing that the definition of ``accredited investor'' in
Securities Act Rule 501(a) apply in making determinations under
Exchange Act Section 12(g)(1).\51\ The ``accredited investor''
determination would be made as of the last day of the fiscal year
rather than at the time of the sale of the securities.\52\ Issuers
conducting offerings in reliance on an exemption from Securities Act
registration in which purchasers must be accredited investors typically
take appropriate steps to establish a reasonable belief that a
prospective investor is an accredited investor. This reasonable belief
is based on an issuer's due diligence and depends on the particular
facts and circumstances surrounding the determination. We believe
applying the familiar concepts of the accredited investor definition in
Rule 501(a) to the registration threshold in Section 12(g)(1) would
facilitate compliance for issuers.
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    \51\ Although the term ``accredited investor'' is also defined
in Securities Act Rule 215 [17 CFR 230.215] for the purpose of the
statutory exemption from registration under Section 4(a)(5) [15
U.S.C. 78d(a)(5)], the definition of ``accredited investor''
contained in Securities Act Rule 501(a) of Regulation D is the more
commonly understood meaning of the term, given the prevalence of the
use of Regulation D for exempt offerings.
    \52\ Securities Act Rule 501(a) otherwise defines ``accredited
investor'' as being determined at the time of the sale of the
securities.
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    After an issuer completes its offering and has sold securities to
purchasers who have been determined to be accredited investors, it is
not required to periodically assess an investor's continued status as
an accredited investor. We recognize that issuers may have difficulty
determining whether existing security holders are accredited investors
for purposes of the threshold in Section 12(g)(1) and that providing a
safe harbor or other guidance could help to mitigate costs for issuers
seeking to determine accredited investor status. Some commenters have
suggested that we permit issuers to rely on information previously
provided by these security holders in connection with the purchase or
transfer of securities for an indefinite period into the future.\53\ We
believe such reliance could, however, result in the use of outdated
information that may no longer be reliable. Instead, an issuer will
need to determine, based on facts and circumstances, whether it can
rely upon prior information to form a reasonable basis for believing
that the security holder continues to be an accredited investor as of
the last day of the fiscal year.
---------------------------------------------------------------------------

    \53\ See supra note 47.
---------------------------------------------------------------------------

    Without new guidance from the Commission, when making the
determination at fiscal year-end of whether a security holder is an
accredited investor for purposes of Exchange Act Section 12(g)(1),
issuers would likely use procedures similar to those used when relying
on Rule 506.\54\ We recognize that the accredited investor
determination under the Securities Act is made in the context of an
investor making an investment decision, while in the Exchange Act
context it is made when an issuer is considering whether it must
register a class of securities with the Commission. In light of this,
we are considering whether a different approach would be appropriate
for determining accredited

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

    \54\ The procedures used in a Rule 506 offering may vary
depending on a number of factors, including the nature of the
purchaser and whether the offering is pursuant to Rule 506(b) or
Rule 506(c). Rule 506(c) requires an issuer to take reasonable steps
to verify that purchasers of securities sold in such offering are
accredited investors. As we previously recognized when we adopted
Rule 506(c), ``issuers may have to apply a stricter and more costly
process to determine accredited investor status than what they
currently use.'' See Eliminating the Prohibition Against General
Solicitation and General Advertising in Rule 506 and Rule 144A
Offerings, Release No. 33-9415 (Jul. 10, 2013) [78 FR 44771 (Jul.
24, 2013)].
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Request for Comment
    1. We are proposing to revise Rule 12g-1 to reflect changes made by
Titles V and VI of the JOBS Act. Should we include the requirements of
Section 12(g)(1) in our rules as proposed? Should we delete the
provision in the current Rule 12g-1 that precludes foreign private
issuers from relying on the exemption from registration if their
securities are quoted on an automated inter-dealer quotation system, as
proposed?
    2. The higher registration and reporting thresholds could result in
issuers having a significant number of shareholders with freely
tradable shares who lack current disclosure information about the
issuer. How would investors get the information they need in connection
with purchases and sales? What investor protection issues are raised
when these security holders engage in secondary market transactions and
how might they be addressed?
    3. Should we extend the new registration, termination of
registration and suspension of reporting thresholds for banks and bank
holding companies to savings and loan holding companies, as proposed?
We are proposing to use the definition of ``savings and loan holding
company'' as defined in Section 10 of the Home Owners' Loan Act. Does
the proposed definition cover the appropriate entities? If not, what
definition should be used?
    4. We are proposing to permit savings and loan holding companies to
use the higher thresholds equivalent to those available to banks and
bank holding companies. Are there facts and circumstances, other than
those discussed above, that we should consider in evaluating whether to
provide those higher thresholds? How would using different thresholds
for savings and loan holding companies impact market participants and
investors? What effect would different thresholds have on competition
between savings and loan holding companies and other depository
institutions, such as banks and bank holding companies?
    5. The population of savings and loan holding companies includes
commercial savings and loan holding companies that the Board of
Governors exempted from its initial requirement that savings and loan
holding companies generally submit the same reports as other banking
entities regulated by the Board of Governors.\55\ These commercial
savings and loan holding companies are all exchange-listed issuers that
are currently registered and required to file reports under Section
12(b) of the Exchange Act. Should these companies be permitted to rely
on the higher thresholds applicable to banks and bank holding
companies? Should we instead carve out such savings and loan holding
companies or provide other limitations for these companies?
---------------------------------------------------------------------------

    \55\ See supra note 40.
---------------------------------------------------------------------------

    6. Some commenters have recommended that we provide a safe harbor
or other guidance to provide issuers with more certainty on how to
establish a reasonable belief that a security holder is an accredited
investor and therefore qualifies under the definition. Are there
circumstances in the determination required to be made under Section
12(g) that suggest the need for a safe harbor or guidance, and if so,
is one preferable over the other? What should be the parameters of any
safe harbor or guidance? Should a safe harbor or other guidance specify
the methods of inquiry an issuer could make or the documents it should
obtain that would establish a reasonable belief? What methods or
standards should we adopt and what steps should we require in making
the determination? What negative effects on investors, if any, could
result from providing a safe harbor or other guidance? Absent a safe
harbor or other guidance, what burdens would the issuer face in
establishing reasonable belief that a security holder is an accredited
investor and in making the determination as to whether it has exceeded
the Section 12(g) thresholds for Exchange Act reporting? Please
quantify, if possible, the expected costs of establishing a reasonable
belief every year for each accredited investor and compare the expected
costs to the estimated costs of registration.
    7. If the rules were to include a safe harbor or other guidance,
should we permit an issuer to form its reasonable belief that a person
is an accredited investor based on determinations made by specified
third parties? For example, in Securities Act Rule 506(c)(2)(ii)(C) we
allow issuers to rely on a written confirmation by a registered broker-
dealer, a registered investment adviser, a licensed attorney, or a
certified public accountant to satisfy the requirement that the issuer
take reasonable steps to verify the accredited investor status of a
purchaser. Should a similar written confirmation be sufficient here?
Should we permit written confirmations from other third parties not
subject to regulatory oversight? Why or why not? If we permit written
confirmations from third parties that are not subject to regulatory
oversight such as those found in Rule 506(c)(2)(ii)(C), should we
require issuers to perform some level of due diligence on the
accredited investor determinations made by those third parties or on
the third parties making those determinations? Would the answer depend
on the nature of the third party? Alternatively, should we permit an
issuer to rely on a written certification by the investor, on other
specified information obtained by the issuer, or on a combination of a
certification and other information? What information, other than a
written investor certification, would it be appropriate to require?
Would the answer depend on whether an issuer had determined at the time
of the initial investment that the investor was an accredited investor?
For what period of time should that determination be considered
reliable? Should the safe harbor or other guidance specify that
determinations made a specified period before or after the fiscal year
end would be deemed to be reasonable? If so, what would be a reasonable
time period for making such determination? What documentation, if any,
should be retained by the issuer?
    8. For purposes of any safe harbor or other guidance, should we
permit an issuer to rely on previously obtained information relating to
the person's accredited investor status, such as information obtained
at the time the issuer's securities were initially, or most recently,
sold to that person? Should such a provision be limited to situations
in which the issuer does not have information that would lead it to
believe that the previously obtained information was incorrect,
unreliable or had changed? Should we place a time limit on the
permitted use of previously obtained information, such as only
permitting the use of information received within the preceding six
months or year? Should an issuer be able to rely on information
previously obtained if the security holder failed to respond to an
issuer's request for an annual affirmation of accredited investor
status?

III. Proposed 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.\56\ The provision,
which is substantially broader than the Commission's current rules
exempting compensatory employee stock options from Section 12(g)
registration,\57\ does not define the term ``employee compensation
plan.''
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    \56\ 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.
    \57\ 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 a similar exemption for stock
options for reporting issuers that are required to file such
periodic reports. 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)] (the ``Compensatory Stock Options Release'').
---------------------------------------------------------------------------

    Section 503 of the JOBS Act instructs the Commission to amend the
definition of ``held of record'' to implement the amendment in Section
502 and to adopt a safe harbor that issuers can use when determining
whether holders of their securities received them pursuant to an
employee compensation plan in exempt transactions. We are proposing to
amend Exchange Act Rule 12g5-1 to implement the statutory exclusion
created by Section 502 of the JOBS Act and to establish a non-exclusive
safe harbor for issuers as directed by Section 503.\58\
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    \58\ See Proposed Rule 12g5-1(a)(7).
---------------------------------------------------------------------------

    Subsequent to the adoption of the JOBS Act, a number of commenters
provided recommendations to the Commission as to how ``employee
compensation plan'' should be defined. Some commenters recommended that
the Commission interpret the term broadly to promote the use of
employee equity issuances.\59\ One commenter indicated that ``linking
the scope of Rule 701 and amended Section 12(g)(5) makes sense, in
light of the apparent purpose of the latter provisions, and will avoid
needless complexity.'' \60\ Another commenter recommended that the
Commission establish a non-exclusive safe harbor without recommending a
specific definition for ``employee compensation plan.'' \61\ This
commenter suggested that ``application in a Section 12(g) context of
the familiar concepts applied in connection with the exempt issuance of
compensatory equity securities under Rule 701 will facilitate
compliance by streamlining a smaller issuer's learning curve and
simplifying recordkeeping.'' \62\ In addition, this commenter
specifically recommended that the safe harbor ``explicitly import the
interpretation of Rule 701(c)'' in order to incorporate ``the full
range of compensatory arrangements and security holders described in
Rule 701(c) under the Securities Act'' and that it ``should cover
equity securities in the hands of the full range of participants and
permitted transferees enumerated in Rule 701(c).'' \63\ This commenter
also indicated that ``the requirement of a written arrangement is
reasonable in the Section 12(g)(5) context, as well as for Rule 701.''
\64\ Commenters also made specific recommendations regarding additional
securities that should be considered ``securities received pursuant to
an employee compensation plan.'' \65\
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    \59\ See letter from Foley & Lardner recommending a broad
definition of ``employee compensation plan'' that would include
arrangements that are not written. See also letter from Keith Paul
Bishop recommending a broad definition of ``employee compensation
plan.''
    \60\ See letter from NYCBA. For a more detailed explanation of
Securities Act Rule 701, see infra notes 66 and 72.
    \61\ See letter from ABA. ABA indicated that ``it is important
that the concept of `employee compensation plan' encompass both
traditional plans and individual compensatory agreements and include
compensatory arrangements established by the various entities
related to the issuer enumerated in Rule 701(c).''
    \62\ See id.
    \63\ See id.
    \64\ See id., indicating that state corporate law generally
requires some documentation of authorized issuances of equity
securities. This recommendation contrasts with recommendations of
other commenters suggesting that the term ``employee compensation
plan'' should not be read to require a written arrangement. See
supra note 59.
    \65\ See, e.g., letter from David C. Fisher (June 13, 2012),
recommending that ``securities acquired in an issuer-sponsored
internal market, limited to transactions in securities received
pursuant to the issuer's employee compensation plans, will be
considered securities received pursuant to an employee compensation
plan.'' See also letter from NYCBA suggesting that `` `closed
system' platforms and trading venues'' may be able to afford issuers
a reasonable basis to determine that participants are excludable
employees.
---------------------------------------------------------------------------

    Instead of creating a new definition for the term ``employee
compensation plan,'' we are proposing to revise the definition of
``held of record'' and establish a non-exclusive safe harbor that
relies on the current definition of ``compensatory benefit plan'' in
Rule 701 and the conditions in Rule 701(c).\66\ Although some
commenters recommended that we create a new, broad definition, we
believe that by not defining the term ``employee compensation plan,''
and by providing for a non-exclusive safe harbor, we are providing
issuers with flexibility in their determination under Section 12(g)(5).
We concur with some commenters who recommended applying the Rule 701
concepts that issuers already employ for exempt issuances, and propose
to use those concepts as part of the non-exclusive safe harbor. We
further believe that developing a new definition for ``employee
compensation plan'' at this time potentially could result in needless
complexity and create conflicts with the current definitions of
``compensatory benefit plan'' and ``employee benefit plan,'' which the
Commission has sought to harmonize.\67\
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    \66\ In 1988, the Commission adopted Securities Act Rule 701 [17
CFR 230.701] to provide an exemption from Securities Act
registration for offers and sales of securities made pursuant to
compensatory benefit plans by issuers that are not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act.
See Compensatory Benefit Plans and Contracts, Release No. 33-6768
(Apr. 14, 1988) [53 FR 12918 (Apr. 20, 1988)] (the ``Rule 701
Adopting Release'').
    \67\ 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'').
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    By conditioning the new exclusion from ``held of record'' upon the
securities being received pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section 5
of the Securities Act, Section 502 of the JOBS Act uses Securities Act
concepts to identify persons that an issuer may exclude from its
determination of the number of holders of record under Section 12(g)(1)
of the Exchange Act. Given this express interaction between Securities
Act and Exchange Act concepts in this provision of the JOBS Act, we
believe that it would facilitate compliance if the terminology we use
in proposed Exchange Act Rule 12g5-1(a)(7) is consistent with the
terminology used in our Securities Act rules.
    In regulating securities offerings to employees, we use the term
``employee benefit plan,'' as defined in Securities Act Rule 405,\68\
for Securities Act Form

S-8 registration,\69\ but use the term ``compensatory benefit plan'' in
the Securities Act Rule 701 exemption. A ``compensatory benefit plan''
under Rule 701(c)(2) is broadly defined as ``any purchase, savings,
option, bonus, stock appreciation, profit sharing, thrift, incentive,
deferred compensation, pension or similar plan.'' \70\ When adopting
Rule 701, the Commission expressly stated that it patterned the
definition of ``compensatory benefit plan'' on the definition used in
Securities Act Rule 405.\71\ Rule 701 includes a number of conditions
consistent with the Rule 405 definition of ``employee benefit plan.''
In particular, Rule 701(c) limits the exemption to offers and sales of
securities under a written compensatory benefit plan established by the
issuer for the participation of its employees and other specified
persons.\72\ Many of the conditions applicable to exempt offers and
sales made under Rule 701 are also similar to conditions placed on Form
S-8 registration of securities to be offered under an ``employee
benefit plan'' as defined in Rule 405. For example, Rule 701(c)(3)
defines eligible family members consistent with Form S-8.\73\ In
addition, the Rule 701 exemption includes a number of conditions to its
use, including but not limited to conditions that the plan be written
and delivered to employees; that the plan be established by the issuer,
its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent, for the participation of their
employees, directors, general partners, trustees, officers, or
consultants and advisors; \74\ and that the amount of securities sold
be limited.
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    \68\ Securities Act Rule 405 defines an ``employee benefit
plan'' as any written purchase, savings, option, bonus,
appreciation, profit sharing, thrift, incentive, pension or similar
plan or written compensation contract solely for employees,
directors, general partners, trustees (where the registrant is a
business trust), officers, or consultants or advisors. However,
consultants or advisors may participate in an employee benefit plan
only if: (1) They are natural persons; (2) They provide bona fide
services to the registrant; and (3) 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.
    \69\ The Commission permits issuers that are subject to Exchange
Act reporting requirements to register the offer and sale of
securities to employees pursuant to employee benefit plans on Form
S-8. This form provides for abbreviated disclosure and automatic
effectiveness upon filing. See Adoption of Form S-8, Release No. 33-
3480 (June 16, 1953) [18 FR 3688 (June 27, 1953)]. See also
Registration and Reporting Requirements for Employee Benefit Plans,
Release No. 33-6867 (June 6, 1990) [55 FR 23909 (June 13, 1990)]
(the ``1990 Form S-8 Release'').
    \70\ 17 CFR 230.701(c)(2).
    \71\ See the Rule 701 Adopting Release.
    \72\ Securities Act Rule 701(c) exempts offers and sales of
securities (including plan interests and guarantees pursuant to
paragraph (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.
    \73\ Form S-8 and Rule 701 are 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. See the 1999 Form S-8 Release at Section III and
the 1999 Rule 701 Release at Section II.E. 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.
    \74\ 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.''
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B. Definition of ``Held of Record'' and Non-Exclusive Safe Harbor for
Determining Holders of Record

    As directed by Section 503 of the JOBS Act, the Commission is
proposing to amend the definition of ``held of record'' and to
establish a safe harbor in Rule 12g5-1 that issuers can rely on when
determining if securities held by persons who received them pursuant to
an employee compensation plan in transactions exempted from the
registration requirements of Section 5 of the Securities Act may be
excluded when calculating the number of holders of record of a class of
equity securities for purposes of determining the issuer's registration
obligation under Section 12(g)(1)(A).\75\ We received comments
addressing issues about the scope of the safe harbor. One commenter
recommended that the Commission expressly provide that the safe harbor
is a non-exclusive safe harbor akin to the Securities Act Rule 506 safe
harbor under Securities Act Section 4(a)(2).\76\ This commenter also
recommended that a safe harbor should provide that in a ``subsequent
transaction (including a business combination) that is exempt from, or
otherwise is not subject to, the registration requirements of Section
5, the securities issued in that transaction to eligible employees,
former employees, and other covered persons in exchange for securities
covered by the Section 12(g)(5) compensatory plan securities carve
out'' would also be covered.\77\ The same commenter further recommended
that securities issued in unregistered transactions based on the ``no
sale'' theory should be included within the definition of
``transactions exempt from section 5.'' \78\
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    \75\ As proposed, this amendment would not affect the definition
of ``held of record'' when determining the number of holders for the
purposes of termination of registration or suspension of reporting
or with regard to the number of holders reported pursuant to Item
201(b) of Regulation S-K (17 CFR 229.201(b)).
    \76\ See letter from ABA 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.''
    \77\ See id.
    \78\ See id. 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 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).
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1. Definition of ``Held of Record''
    We are proposing to amend the definition of ``held of record'' to
provide that when determining whether an issuer is required to register
a class of equity securities with the Commission pursuant to Exchange
Act Section 12(g)(1) an issuer may exclude securities that are either:
     Held by persons who received the securities pursuant to an
employee compensation plan in transactions exempt from the registration

requirements of Section 5 of the Securities Act or that did not involve
a sale within the meaning of Section 2(a)(3) of the Securities Act; or
     held by persons eligible to receive securities from the
issuer pursuant to Exchange Act Rule 701(c) who received the securities
in a transaction exempt from the registration requirements of Section 5
of the Securities Act in exchange for securities excludable under
proposed Rule 12g5-1(a)(7).
    Section 502 of the JOBS Act refers specifically to ``transactions
exempted'' from the Securities Act Section 5 registration requirements.
A number of issuers, however, issue securities to employees without
Securities Act registration on the basis that the issuance is not a
sale under Section 2(a)(3) of the Securities Act and therefore do not
trigger the registration requirement of Securities Act Section 5, which
applies only to the offer and sale of securities. While securities
issued to employees in transactions that do not involve a sale under
Section 2(a)(3) are not technically ``transactions exempted from the
registration requirements of section 5,'' they are similar to other
compensatory issuances to employees in exempt transactions in that the
issuer provides the awards to employees for a compensatory purpose. We
are therefore proposing to exclude such ``no sale'' issuances from the
definition of ``held of record'' in Rule 12g5-1 for purposes of
determining an issuer's obligation to register a class of securities
under the Exchange Act.
    As proposed, the rule would also permit an issuer to exclude
holders who are persons eligible to receive securities from the issuer
pursuant to Rule 701(c) and who acquired the securities in exchange for
securities excludable under the proposed definition.\79\ The proposed
exclusion is intended to facilitate the ability of an issuer to conduct
restructurings, business combinations and similar transactions that are
exempt from Securities Act registration so that if the securities being
surrendered in such a transaction would not have been counted under the
proposed definition of ``held of record,'' the securities issued in the
exchange also would not be counted under this definition.\80\ The
securities issued in the exchange would be deemed to have a
compensatory purpose because they would replace other securities
previously issued pursuant to an employee compensation plan. We believe
such an approach would be consistent with the intent of Section 502 of
the JOBS Act and would provide issuers with appropriate flexibility to
conduct certain business combinations and similar transactions.
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    \79\ See supra note 72 and 73 and infra note 82 (describing the
types of persons eligible to receive securities under Rule 701(c)).
    \80\ 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.
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2. Non-Exclusive Safe Harbor for Determining Holders of Record
    We are proposing a non-exclusive safe harbor under proposed Rule
12g5-1(a)(7) that would provide that a person will be deemed to have
received the securities pursuant to an employee compensation plan if
such person received them pursuant to a compensatory benefit plan in
transactions that met the conditions of Securities Act Rule 701(c).\81\
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    \81\ As proposed, 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 proposed Rule 12g5-1(a)(7).
---------------------------------------------------------------------------

    As proposed, an issuer would be able to rely on the safe harbor for
determining the holders of securities issued in reliance on Securities
Act Rule 701, as well as holders of securities issued in transactions
otherwise exempted from, or not subject to, the registration
requirements of the Securities Act that satisfy the conditions of Rule
701(c), even if all the other conditions of Rule 701, such as issuer
eligibility in Rule 701(b)(1), the volume limitations in Rule 701(d) or
the disclosure delivery provisions in Rule 701(e), were not met. Thus,
the safe harbor would be available for holders of securities received
in other employee compensation plan transactions exempted from, or not
subject to, the registration requirements of Section 5 of the
Securities Act, such as securities issued in reliance on Securities Act
Section 4(a)(2), Regulation D of the Securities Act, or Regulation S of
the Securities Act, that meet the conditions of Rule 701(c).
    We believe that using the conditions of Rule 701(c) to structure
the safe harbor for determining whether holders received their
securities pursuant to an employee compensation plan in exempt
transactions would allow issuers to apply well understood principles of
an existing Securities Act exemption to the new Exchange Act
registration determination under the JOBS Act. The safe harbor would be
available for the plan participants enumerated in Rule 701(c),
including employees, directors, general partners, trustees, officers
and certain consultants and advisors.\82\ The safe harbor also would be
available for permitted family member transferees with respect to
securities acquired by gift or domestic relations order, or securities
acquired by them in connection with options transferred to them by the
plan participant through gifts or domestic relations orders.\83\
Because the safe harbor would be limited to holders who are persons
specified in Rule 701(c) who received the securities under specified
circumstances, once these persons subsequently transfer the securities,
whether or not for value, the securities would need to be counted as
held of record by the transferee for purposes of determining whether
the issuer is subject to the registration and reporting requirements of
Exchange Act Section 12(g)(1).
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    \82\ A de facto employee would be considered an employee for
purposes of proposed Rule 12g5-1(a)(7). For purposes of Rule 701,
the scope of eligible consultants and advisors is the same as under
Form S-8. See 1999 Rule 701 Release at Section II.D and 1999 Form S-
8 Release at Section II.A.1. This also would be the case for
purposes of proposed Rule 12g5-1(a)(7). We note that 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. However, the fact that securities would no longer be
eligible for the exclusion under the safe harbor following their
transfer should limit the potential for abuse. 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 proposed safe harbor.
    \83\ 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 would be 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.
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    In addition, under the proposed rules, foreign private issuers \84\
would be able to rely on the safe harbor when making their
determination of the number of U.S. resident holders under Exchange Act
Rule 12g3-2(a).\85\ Under Rule 12g3-2(a), foreign private issuers that
meet

the asset and shareholder threshold of Section 12(g) are exempt from
registering any class of securities under that section if the class of
securities is held by fewer than 300 holders resident in the United
States. For purposes of determining whether this threshold is met, Rule
12g3-2(a)(1) specifies that the method shall be as provided in Exchange
Act Rule 12g5-1, subject to specific provisions relating to brokers,
dealers, banks and nominees.\86\ Because the rule directs issuers to
the definition of ``held of record'' in Rule 12g5-1, the statutory
changes to Section 12(g)(5) as well as the proposed changes to Rule
12g5-1 would also apply to the determination of a foreign private
issuer's U.S. resident holders for the purposes of the Rule 12g3-2(a)
analysis.\87\
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    \84\ The definition of ``foreign private issuer'' is contained
in 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.
    \85\ 17 CFR 240.12g3-2(a).
    \86\ The proposed amendment to Rule 12g5-1 would be 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 proposed approach
to Rule 12g3-2(a), we are proposing to amend 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.
See the proposed amended instruction to paragraph (c)(1) of Rule 3b-
4.
    \87\ The definition of ``foreign private issuer'' under the
Securities Act, which is found in Securities Act Rule 405 [17 CFR
230.405], is the same as the definition under Exchange Act Rule 3b-
4. The definition of ``foreign private issuer'' under the Securities
Act was last amended in Foreign Issuer Reporting Enhancements,
Release No. 33-8959 (Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)].
At that time, an instruction to paragraph (1) of the definition,
which was the same as the Instruction to Paragraph (c)(1) of Rule
3b-4, was inadvertently omitted. We are proposing to amend the
foreign private issuer definition under Rule 405 to reinsert the
omitted instruction but with a proposed revision, identical to that
proposed under 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.
---------------------------------------------------------------------------

Request for Comment
    9. Instead of leaving the term ``employee compensation plan''
undefined and providing a safe harbor for purposes of determining the
number of holders of record under Section 12(g)(1), should we create a
new definition for purposes of the determination? If a new definition
would be preferable, please describe how ``employee compensation plan''
should be defined and explain why a definition would be preferable.
    10. In some circumstances issuers may rely on a ``no sale'' theory
under Section 2(a)(3) of the Securities Act to issue securities to
employees. As proposed, securities held by persons who received those
securities pursuant to an award to employees that did not involve a
sale within the meaning of Securities Act Section 2(a)(3) would be
excluded from the definition of ``held of record'' for purposes of
determining an issuer's Exchange Act Section 12(g) registration
obligations. Should these securities be excluded from the definition?
    11. The exclusion from ``held of record'' in proposed Exchange Act
Rule 12g5-1(a)(7)(i) for securities received pursuant to employee
compensation plans would include within its scope holders of securities
received pursuant to an employee compensation plan in transactions that
do not involve a sale within the meaning of Section 2(a)(3) or that are
exempt from the registration requirements of Section 5. Further, the
safe harbor proposed in Rule 12g5-1(a)(7)(ii) would be available to
securities issued in those transactions as long as the person received
the securities pursuant to a compensatory benefit plan in transactions
that met the conditions of Securities Act Rule 701(c). Should the scope
of the safe harbor be more limited, such as by restricting it to
securities received pursuant to exempt transactions that meet all of
the requirements of Securities Act Rule 701, the requirements of
Regulation D or another specified subset of exemptions? If so, please
explain why.
    12. We are proposing a non-exclusive safe harbor that relies, in
part, on existing Rule 701(c) to establish guidelines for an issuer to
use when determining whether holders of their securities received them
pursuant to an employee compensation plan. Does using existing Rule
701(c) provide sufficient guidance to issuers? Should we provide
additional guidance for implementing the safe harbor? If so, please
explain what additional guidance is needed.
    13. For purposes of the safe harbor, should we limit the categories
of persons who may receive securities pursuant to employee compensation
plans? For example, our proposed safe harbor includes consultants and
advisors because they qualify under Rule 701. Should they only be
included if they are natural persons and meet the other Rule 701(c)
conditions, as proposed? Alternatively, should consultants and advisors
be excluded?
    14. Should we, as proposed, permit securities held by family member
transferees acquired by gift or domestic relations order, or securities
acquired by them in connection with options transferred to them by the
plan participant through gifts or domestic relations orders to be
excluded? If we modify the scope of the transferees or the type of
securities, what modifications would be appropriate?
    15. Exchange Act Rules 12h-1(f) and12h-1(g) exempt compensatory
employee stock options from registration under Exchange Act Section
12(g) by exempting issuers from counting holders of stock options
received pursuant to written compensatory stock option plans under
specified conditions.\88\ How does the exclusion provided by Section
502 of the JOBS Act and our proposals, including our proposal to
exclude securities that do not involve a sale under Section 2(a)(3) of
the Securities Act, affect the continuing need for these rules? \89\
Should either Rule 12h-1(f) or Rule 12h-1(g) be rescinded in light of
the amendments made by Section 502 of the JOBS Act and our proposals?
Alternatively, are there any modifications needed to reflect the
changes related to Section 502 and make the rules more useful?
---------------------------------------------------------------------------

    \88\ See Compensatory Stock Options Release, supra note 57.
    \89\ See letter from ABA, which suggested that while Rule 12h-
1(f) may no longer be necessary, Rule 12h-1(g) may have continuing
applications. Specifically, there may be instances in which an
issuer subject to an Exchange Act reporting requirement may issue to
employees compensatory options that are part of a class of equity
securities not registered under the Exchange Act.
---------------------------------------------------------------------------

    16. Should we permit an issuer to exclude from the ``held of
record'' determination securities issued to security holders in an
exchange exempt from registration under the Securities Act where the
securities surrendered by those holders in the exchange were received
by them pursuant to a compensatory benefit plan that met the conditions
of the proposed rule? As proposed, the exclusion would be limited to
securities issued in an exchange exempt from Securities Act
registration to persons eligible to receive securities pursuant to Rule
701(c) from the issuer, such as former employees who were employed by
or providing services to the surviving issuer at the time the exchange
securities were offered. Should the Commission consider expanding the
exclusion to securities received by other former employees in such an
exempt exchange where the securities to be surrendered in the exchange
were received pursuant to a compensatory benefit plan in transactions
that met the conditions of the proposed rule? Would the possibility
that an exempt exchange could cause a number of former

employees previously counted as exempt from the ``held of record''
determination to be counted as holders of record immediately on
consummation of the exchange inhibit companies from entering into these
transactions?
    17. Foreign private issuers are subject to different standards
relating to when they are required to register a class of equity
securities under the Exchange Act. Should the Commission permit foreign
private issuers to exclude securities received pursuant to an
``employee compensation plan'' in transactions exempt from, or not
subject to, the Securities Act registration requirements from the 300
U.S. holders threshold in Exchange Act Rule 12g3-2(a), as proposed?
Should we instead require foreign private issuers to continue counting
these securities when determining their number of U.S. holders? Should
we further permit issuers to exclude such securities for purposes of
assessing whether an issuer qualifies as a foreign private issuer or
should such securities be included in this determination, as would be
required under our proposed amendments to Securities Act Rule 405 and
Exchange Act Rule 3b-4?

IV. General Request for Comment

    We request and encourage any interested person to submit comments
regarding the proposed rule amendments, specific issues discussed in
this release, and other matters that may have an effect on the proposed
rules. We request comment from the point of view of issuers, investors
and other market participants. We note that comments are of particular
assistance to us if accompanied by supporting data and analysis of the
issues addressed in those comments, particularly quantitative
information as to the costs and benefits. If alternatives to the
proposals are suggested, supporting data and analysis and quantitative
information as to the costs and benefits of those alternatives are of
particular assistance. Commenters are urged to be as specific as
possible.

Request for Comment

    18. Are there other rules or forms that should be revised or
updated as a result of the statutory changes made by Title V and Title
VI of the JOBS Act? If so, please explain what revisions are needed?
    19. The definition of ``held of record'' in Exchange Act Rule 12g5-
1 requires an issuer, for the purposes of determining whether it is
subject to the provisions of Section 12(g) or Section 15(d), to count
as holders of record only persons identified as owners on records of
security holders maintained by or on behalf of the issuer in accordance
with accepted practice and subject to certain conditions. This rule
simplifies an issuer's determination process by allowing it to look to
security holders that appear in its records. Are there alternative
definitions of ``held of record'' that would more appropriately address
the purposes of Section 12(g)? \90\
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    \90\ In its consideration of the JOBS Act, Congress considered
other definitions of ``held of record'' but ultimately did not
define the term for purposes of the provisions of Section 12(g).
---------------------------------------------------------------------------

V. 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 Commission is proposing rules to implement Title V and
Title VI of the JOBS Act.
    In proposing rules or amendments, we are mindful of the costs
imposed by and the benefits obtained from our rules. The discussion
below attempts to address the economic effects of the proposed
amendments, including the likely costs and benefits of the amendments
as well as the effect of the amendments on efficiency, competition and
capital formation.\91\ Some of the costs and benefits stem from the
statutory mandates of Title V and Title VI, while others are affected
by the discretion we exercise in revising our rules to reflect this
mandate. These two types of costs and benefits may not be entirely
separable to the extent our discretion is exercised to realize the
benefits that we believe were intended by Title V and Title VI. We
request comment on all aspects of the economic effects, such as the
costs and benefits, of the amendments that we are proposing. We
particularly appreciate comments that distinguish between the economic
effects that are attributed to the statutory mandate itself and the
economic effects that are the result of policy choices made by the
Commission in implementing the statutory mandate.
---------------------------------------------------------------------------

    \91\ Section 23(a)(2) of the Exchange Act requires the
Commission, when making rules under the Exchange Act, to consider
the impact on competition that the rules would have, 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 proposed rules,
including the baseline for our consideration of the effects on
efficiency, competition and capital formation, is the state of the
market as well as market practices prior to the JOBS Act. Prior to the
JOBS Act, issuers were required to register their equity securities
with the Commission upon reaching 500 holders of record and total
assets of $10 million, and were allowed to terminate registration or
suspend the duty to file with the Commission when the number of holders
of record had fallen below 300. However, Exchange Act Rules 12h-1(f)
and 12h-1(g) permitted issuers to exclude stock options issued under
written compensatory benefit plans under certain conditions from the
registration requirements of Section 12(g).
    The JOBS Act raised the thresholds at which an issuer is required
to register a class of equity securities with the Commission pursuant
to Section 12(g), provided that persons holding certain employee
compensation plan securities need not be counted when determining
whether an issuer is required to register, and raised the thresholds at
which banks and bank holding companies are permitted to terminate
registration or suspend reporting obligations with the Commission.
These statutory changes made by the JOBS Act went into effect as soon
as the JOBS Act was signed into law. As a result of the JOBS Act, some
banks and bank holding companies were newly eligible to terminate
registration or suspend reporting, and as of June 30, 2014, we estimate
that more than 90 have elected to do so.\92\ We estimate that there are
approximately 500 banks and bank holding companies that currently
report to the Commission,\93\ of which some may be eligible to
terminate registration under the JOBS Act but have elected to continue
reporting. We are proposing to amend specified Exchange Act rules to
reflect the new, higher threshold for banks and bank holding companies
under Section 12(g)(4) and Section

15(d)(1). For those banks and bank holding companies that would be
eligible to terminate registration under Section 12(g), the proposed
rules set forth procedural accommodations that are available to other
issuers under current rules to accelerate the process.
---------------------------------------------------------------------------

    \92\ 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. Commission staff is continuing to monitor such filings.
    \93\ The Commission staff derived this estimate by analyzing
annual filings submitted to the Commission during calendar year
2013.
---------------------------------------------------------------------------

    The proposed rules would also permit savings and loan holding
companies to use the same, higher thresholds for registration,
termination of registration and suspension of the reporting obligation
that apply to banks and bank holding companies. There are approximately
125 savings and loan holding companies that currently report to the
Commission.\94\ As we explain in more detail below, we estimate that
approximately 90 would be eligible to terminate registration or suspend
reporting under the proposed rules.
---------------------------------------------------------------------------

    \94\ Id.
---------------------------------------------------------------------------

    In addition, the proposed rules would apply the definition of
``accredited investor'' in Securities Act Rule 501(a) in making
determinations under Exchange Act Section 12(g)(1). Finally, the
proposed rules would revise the definition of ``held of record'' and
establish the scope of a non-exclusive safe harbor for issuers to rely
on when determining whether securities were received pursuant to an
employee compensation plan in transactions exempted from the
registration requirements of Section 5 of the Securities Act or did not
involve a sale within the meaning of Section 2(a)(3) of the Securities
Act. The proposed safe harbor would rely on the definition of
``compensatory benefit plan'' in Securities Act Rule 701 and the
conditions in Securities Act Rule 701(c).
    We considered alternative definitions of ``employee compensation
plan.'' We also considered whether to provide additional guidance with
respect to the determination of accredited investor status when
establishing the number of holders of record. These decisions may
affect how a non-reporting issuer counts its holders of record for the
purpose of the registration thresholds under the Exchange Act; hence it
could affect whether an issuer can remain a non-reporting issuer.
However, due to limited availability of shareholder information on
these non-reporting issuers, we are unable to quantify the number of
non-reporting issuers that might be affected by these decisions.

B. Analysis of the Proposed Rules

    The proposal would affect registrants generally, and banks, bank
holding companies and savings and loan holding companies specifically,
as well as non-reporting issuers, employees and other investors. We
analyze the costs and benefits associated with the proposed rules
below.
Increased Thresholds for Banks and Bank Holding Companies
    The JOBS Act amended Sections 12(g) and 15(d) of the Exchange Act
to raise the thresholds at which banks and bank holding companies may
terminate registration or suspend their obligations to file reports
with the Commission to 1,200 holders of record. These changes were
effective immediately upon the enactment of the JOBS Act, and banks and
bank holding companies may rely on the amended provisions to terminate
registration or suspend their reporting obligations. However, under the
statute, banks and bank holding companies that want to use the higher
threshold must wait 90 days after filing a certification with the
Commission that the number of holders of record is less than 1,200
persons to terminate their Section 12(g) registration and cease filing
reports required by Section 13(a) and must wait until the first day of
the fiscal year to suspend any Section 15(d) reporting obligations. Our
existing rules afford issuers with procedural accommodations that let
them suspend their reporting obligations immediately upon the filing of
a certification on Form 15. To make these procedural accommodations
applicable to banks and bank holding companies at the higher threshold,
we are proposing to revise Exchange Act Rules 12g-2, 12g-3, 12g-4 and
12h-3 to reflect the 1,200 holders threshold for banks and bank holding
companies, which would permit banks and bank holding companies to rely
on the rules to cease reporting during a fiscal year, rather than wait
the prescribed 90 days or until the end of the reporting year. This
would reduce issuer compliance and reporting costs during the fiscal
year the issuer ceased reporting, but would also accelerate the loss of
investor access to current information about the issuer. The proposed
changes also would harmonize the statutory and regulatory thresholds
and lessen potential confusion that could arise from the differences in
the thresholds contained in the statute and the existing rules.
    We estimate that there are approximately 500 banks and bank holding
companies that currently report with the Commission. Many of these
reporting issuers have more than 1,200 holders of record and would not
be eligible to cease reporting under the new thresholds. Out of that
500, 143 reporting banks and bank holding companies have between 300
and 1,200 holders of record and may be eligible to cease reporting,
although 89 of them would have to give up a national exchange listing
to do so. Because banks and bank holding companies remain subject to
other regulatory reporting requirements,\95\ it is possible that they
would continue reporting even if they are eligible to cease reporting
under the Exchange Act. We anticipate that banks and bank holding
companies would weigh the benefits of being a public company against
the burden of additional disclosure costs, in deciding whether to
terminate registration or suspend their reporting obligation. Commonly
cited benefits of being a public company include the ability to obtain
a lower cost of capital for investment and growth, increased liquidity
through a broader shareholder base, and greater ability to finance
acquisitions and offer equity-based incentive contracts.\96\ Commonly
cited costs of being a public company include the need to comply with
increased regulations and regulatory supervision, including
requirements for independent audits, disclosure of information to
competitors, loss of control and ownership dilution.\97\
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    \95\ See supra note 41.
    \96\ 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 IPOs 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).
    \97\ 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).
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Permitting Savings and Loan Holding Companies To Use the Higher
Thresholds
    We are proposing to apply the 2,000-holders of record threshold for
registration to savings and loan holding companies in revised Exchange
Act Rule 12g-1. We are also proposing to

extend the increased thresholds established by Section 601 of the JOBS
Act to savings and loan holding companies by specifically including
them in revisions to Exchange Act Rules 12g-2, 12g-3, 12g-4 and 12h-3
that accommodate banks and bank holding companies at the higher 1,200
holders of record threshold for termination of registration or
suspension of the duty to file reports. As a result, savings and loan
holding companies would be able to delay registration with the
Commission until they reach the 2,000-holder threshold, and savings and
loan holding companies with between 300 and 1,199 holders of record
would be newly eligible to terminate or suspend their Exchange Act
reporting obligations.
    We estimate that approximately 125 savings and loan holding
companies had a class of securities registered pursuant to the Exchange
Act as of June 30, 2014; \98\ of these approximately 100 are registered
pursuant to Section 12(b). By analyzing the number of holders of record
for these companies, the staff determined that approximately 90 of the
125 savings and loan holding companies would be eligible to terminate
registration or suspend reporting. Most of the newly eligible companies
would have to give up a national securities exchange listing to do so.
Because delisting from a national securities exchange could severely
impact the liquidity of traded securities, many of these savings and
loan holding companies may be unwilling to suspend their reporting
requirements even if such an action was available to them. We therefore
do not expect many of these savings and loan holding companies to avail
themselves of the extended provisions.
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    \98\ The Commission staff derived this estimate by analyzing
annual filings submitted to the Commission.
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    If we do not extend the provisions of Section 601 to savings and
loan holding companies, there would be inconsistent treatment relative
to banks and bank holding companies, resulting in different
registration requirements and levels of disclosure for savings and loan
holding companies that provide similar services and are generally
subject to the same regulatory requirements. This could have an adverse
impact on their ability to compete. Alternatively, savings and loan
holding companies could seek to become chartered as banks or bank
holding companies and thereby incur associated costs; this could
distort the competitive balance of products and services offered by
these institutions.
    Applying consistent treatment between savings and loan holding
companies and banks and bank holding companies would lessen the
likelihood of changes to the current competitive balance between these
institutions. Moreover, the potential loss of information that would
otherwise be made public through Exchange Act reporting if the
provisions of Section 601 are extended to savings and loan holding
companies would be mitigated because the savings and loan holding
companies would continue to file reports with banking regulators.\99\
As a result, extending the relief to savings and loan holding companies
to provide consistent treatment relative to banks and bank holding
companies may have a positive impact on the overall efficiency of
markets served by the potentially affected institutions.
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    \99\ While the proposed rules should have effects on competition
by ensuring that savings and loan holding companies are not put at a
disadvantage relative to banks and bank holding companies, the
termination of registration or suspension of reporting by savings
and loan holding companies may lessen the information available to
investors and adversely affect efficiency and capital formation by
possibly increasing information asymmetries, monitoring costs, and
cost of capital. However, the impact on efficiency and capital
formation may be mitigated to the extent that the reports that
savings and loan holding companies file with banking regulators
contain information comparable to that mandated by the reporting
requirements under the Exchange Act.
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Definition and Safe Harbor for Securities ``Held of Record''
    Section 12(g)(5), as amended by Section 502 of the JOBS Act,
excludes from the definition of ``held of record'' securities held by
persons who received them pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section 5
of the Securities Act for purposes of determining whether an issuer is
required to register a class of security pursuant to Section 12(g)(1).
Section 503 of the JOBS Act directs the Commission to adopt a safe
harbor that issuers can use when making the holder of record
determination. By making it easier for non-reporting companies that
issue securities to their employees to remain below the registration
and reporting thresholds in the Exchange Act, the statutory changes
could benefit issuers by allowing them to better control how and when
they become subject to the reporting requirements, while continuing to
use securities to compensate employees. These changes could be
particularly beneficial for smaller or cash-constrained issuers that
could more easily issue securities to their employees as a form of
compensation without being subject to Exchange Act reporting
requirements and the associated compliance costs. However, for these
issuers, the potential registration of a class of securities and the
associated reporting may be delayed, adversely impacting investors,
including employees, who otherwise might benefit from the information
provided through Exchange Act reporting requirements. As a result, the
proposed rules regarding the definition of ``held of record'' and the
scope of the safe harbor could have an impact on the potential costs
and benefits to the affected issuers and their investors by affecting
areas such as the ease of relying upon the statutory exemption, the
number of non-reporting companies able to forestall registration, and
the amount of information available to investors in those issuers.
    Instead of establishing a new definition for the term ``employee
compensation plan,'' we are proposing to amend the definition of ``held
of record'' to permit an issuer to exclude securities held by persons
who received them pursuant to an employee compensation plan in
transactions exempted from the registration requirements of Section 5
of the Securities Act, or not involving a sale within the meaning of
Section 2(a)(3) of the Securities Act. Proposing to exclude securities
issued to employees in transactions that do not involve a sale under
Section 2(a)(3) from the definition of ``held of record'' for purposes
of determining an issuer's obligation to register a class of securities
under the Exchange Act would be beneficial to issuers who rely on the
``no sale'' theory when making compensatory grants to certain
employees. Excluding such ``no sale'' securities could reduce the
number of holders of record of an issuer and potentially delay required
Exchange Act reporting.
    We are also proposing to establish a non-exclusive safe harbor that
relies on Securities Act Rule 701(c) and the definition of
``compensatory benefit plan'' in that rule to assist issuers in making
the determination of whether holders of securities received pursuant to
an employee compensation plan may be excluded. We believe that relying
on an existing definition that is already understood by market
participants would make it easier for issuers to avail themselves of
this safe harbor than if we proposed a new alternative definition. The
proposed non-exclusive safe harbor relies upon the conditions in
existing Rule 701(c). While generally broad in application, the
conditions in Rule 701(c) provide limitations, such as requiring that
securities be sold under a compensatory benefit plan, that the plan be
written, that the plan be established

by the issuer or certain specified related entities and that
participation be limited to employees and certain other specified
persons. Although we are unable to quantify the impact of proposing
this safe harbor because we cannot measure the number of issuers that
would rely on the safe harbor, we can qualitatively assess the proposed
safe harbor's impact. A safe harbor that applies the familiar concepts
of existing Rule 701(c) should create efficiencies in applying the safe
harbor and avoid conflicts with existing rules, which should reduce
costs more significantly for smaller issuers seeking to rely upon the
proposed safe harbor.
    Foreign private issuers would be able to rely on the proposed safe
harbor when making their determination of the number of U.S. resident
holders under Exchange Act Rule 12g3-2(a). While we are unable to
quantify the number of foreign private issuers that would be impacted,
we acknowledge that it may allow some foreign private issuers to delay
registering with and reporting to the Commission. The considerations
about cost and benefit tradeoffs for foreign private issuers would be
analogous to the ones discussed above for domestic issuers.
Use of the Term ``Accredited Investor'' in Exchange Act Section 12(g)
    Section 501 of the JOBS Act raises the threshold number of holders
of record at which an issuer is required to register a class of equity
securities under the Exchange Act to 2,000 persons or 500 persons who
are not accredited investors. The provision was effective upon
enactment of the JOBS Act. In order for an issuer to rely on the new,
higher threshold established by the JOBS Act, the issuer will need to
be able to make accredited investor determinations if it has more than
500 holders of record.
    We propose that the definition of ``accredited investor'' as
specified in Securities Act Rule 501(a) determined as of the last day
of the fiscal year rather than at the time of sale of the securities
apply when making determinations under Exchange Act Section 12(g)(1).
Issuers are familiar with this definition, which should facilitate
compliance. Developing an alternative definition for purposes of
Section 12(g)(1) could impose costs on issuers by requiring them to
familiarize themselves with, and apply, a new and different standard.
We are unable to estimate how many issuers would be impacted by using
the Rule 501(a) definition of ``accredited investor'' as compared to an
alternative definition. We acknowledge that not providing specific
guidance or rules on how to confirm a security holder's status as an
accredited investor for purposes of determining holders of record could
result in some uncertainty for issuers.
    Some commenters have recommended that the Commission address
potential compliance issues related to the accredited investor
threshold by providing a safe harbor for determining accredited
investor status.\100\ We could, among other things, permit an issuer to
rely on an annual affirmation of accredited investor status by the
investor or rely on an ongoing basis on information regarding
accredited investor status received by the issuer at the time the
securities were initially issued to the investor or at the time the
securities were most recently issued to the investor, or permit issuers
to otherwise rely on information previously provided by an investor.
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    \100\ See, e.g., letters from ABA, Foley & Lardner and NYCBA.
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    Addressing potential compliance issues relating to the use of
``accredited investor'' in Section 12(g) could increase efficiency by
providing issuers with a prescribed process to determine and update the
accredited investor status of their investors. For example, a safe
harbor that permits an issuer to rely on an annual affirmation of
accredited investor status by the investor, other information obtained
by the issuer or on a combination of a certification and other
information would likely be less costly than requiring an issuer to
establish a reasonable basis for its determination through other means.
These methods, however, may be less accurate in establishing whether
the investor is accredited.
    Alternatively, a safe harbor that permits an issuer to rely on an
ongoing basis on information previously obtained relating to accredited
investors status, such as allowing reliance on information obtained by
the issuer at the time the securities were initially issued to the
investor or at the time the securities were most recently issued to the
investor would likely be even less costly than requiring the issuer to
seek an annual affirmation of accredited investor status by the
investor or to establish a reasonable belief that the investor is an
accredited investor, but could also lead to more outdated information.
Permitting issuers to rely on inaccurate information to determine
accredited investor status could result in issuers with more than 500
non-accredited investors failing to register and leaving investors in
those issuers with less information and protection under the federal
securities laws. These costs may be mitigated if the safe harbor
specified time limits on the permitted use of the information or if the
safe harbor were conditioned upon the issuer not having information
that the previously obtained information was incorrect, unreliable or
had changed.
    Another alternative would be a safe harbor that permits an issuer
to rely on a third party certification for determining the accredited
investor status of investors. We do not have adequate information about
third party certification providers and the characteristics of this
industry to assess this alternative in terms of reliability and cost of
the provided certification services. To the extent that reputational
concerns would incentivize the third party certification providers to
perform reliable and updated due diligence, third party certification
could potentially provide accurate information at a cost that economies
of scale may lessen.
Request for Comment
    18. In this release we have discussed the anticipated costs and
benefits of the proposed rules. We request data to quantify the costs
and the value of the benefits described throughout this release. We
seek estimates of these costs and benefits, as well as any costs and
benefits not described, that may result from the adoption of these
proposed amendments. We also request comments on the qualitative
benefits and costs we have identified and any benefits and costs we may
have overlooked.

VI. 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'').\101\ The
hours and costs associated with preparing and filing forms and
retaining records constitute reporting and cost burdens imposed by the
collection of information requirements. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information requirement unless it displays a currently valid Office of
Management and Budget (``OMB'') control number. Compliance with the
information collections is mandatory. Responses to the information
collections are not kept confidential and there is no mandatory
retention period for the collections of information.
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    \101\ 44 U.S.C. 3501 et seq.
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    The amendments proposed today do not alter the disclosure
requirements set forth in the rules and forms; however,

the JOBS Act amendments to Exchange Act Sections 12(g) and 15(d) and
the proposed amendments to our rules to reflect those statutory
amendments are expected to immaterially decrease the number of filings
made pursuant to these rules and forms. Exchange Act Rules 12g-1, 12g-
2, 12g-3, 12g-4 and 12h-3 set forth when an issuer's securities are
required to be registered and the procedures for a registrant to
terminate its registration or suspend its duty to file reports. The
proposed amendments would provide thresholds that issuers may rely on
when determining their registration and reporting obligations and would
allow savings and loan holding companies to use the same registration
and termination of registration or suspension of reporting thresholds
that apply to banks and bank holding companies.\102\ Exchange Act
Section 12(g)(5) and the proposed amendment to Exchange Act Rule 12g5-1
also exclude securities received pursuant to certain employee
compensation plans from the determination of when an issuer is required
to initially register with the Commission. These changes would reduce
the number of registrants required to continue filing with the
Commission and also reduce the number of issuers required to initially
register a class of securities.\103\ For purposes of the PRA, we
estimate that the amendments would not materially reduce the number of
filings received, nor would the changes affect the incremental burden
or cost per filing.
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    \102\ We are proposing to amend Rule 12g-1 to reflect the new
higher thresholds in Section 12(g)(1) and to establish an increased
registration threshold for savings and loan holding companies.
    \103\ The changes to Rule 12g5-1 are expected to affect the
number of issuers required to register with the Commission; however,
we do not have access to data to support an estimate of the number
of issuers that will not be required to file reports based on the
JOBS Act amendments and our proposed implementation of such
amendments. Due to the lack of data, for PRA purposes we are not
intending to provide a reduced estimate of the number of issuers.
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    The titles for the affected collections of information are:
    (1) ``Form 10'' (OMB Control No. 3235-0064); \104\
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    \104\ 17 CFR 249.10.
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    (2) ``Form 20-F'' (OMB Control No. 3235-0288); \105\
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    \105\ 17 CFR 249.220f.
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    (3) ``Form 40-F'' (OMB Control No. 3235-0381); \106\
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    \106\ 17 CFR 249.240f.
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    (4) ``Form 10-K'' (OMB Control No. 3235-0063); \107\
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    \107\ 17 CFR 249.310.
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    (5) ``Form 10-Q'' (OMB Control No. 3235-0070); \108\
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    \108\ 17 CFR 249.308a.