by the obligor, stating that this requirement would allow investors to
better track the performance of assets originated by specific
originators.\833\ While these recent

rulemakings have required LEI disclosure only if available, the
Commission has mandated use of LEI in the context of security-based
swap transactions \834\ and has proposed mandatory use of LEI in
investment company reporting.\835\ To the extent that LEIs become more
widely used by regulators and the financial industry, they could
potentially facilitate investor and Commission use of registrant data
by showing networks of control, ownership, liability and risks.
---------------------------------------------------------------------------

    \831\ See Nationally Recognized Statistical Rating
Organizations, Release No. 34-72936 (Aug. 27, 2014) [79 FR 55077
(Sept. 15, 2014)] (``2014 NRSRO Amendments Release''). The
Commission revised Exchange Act Rule 17g-7 to require that NRSROs,
taking rating action with respect to certain obligors or issuers,
disclose the LEI issued by a utility endorsed or otherwise governed
by the Global LEI Regulatory Oversight Committee or the Global LEI
Foundation of the obligor or issuer, if available, or, if an LEI is
not available, the Central Index Key (CIK) number of the obligor or
issuer, if available. Id. See also Rule 17g-7(b)(2)(iii)(A) and
(iv)(A) [17 CFR 240.17g-7].
    \832\ See 2014 NRSRO Amendments Release. The Commission also
stated that coded identifiers like LEI and CIK will add a level of
standardization to the credit rating history data, making for easier
electronic querying and processing. Id.
    \833\ See Credit Risk Retention, Release No. 34-73407 (Oct. 22,
2014) [79 FR 77601 (Dec. 24, 2014)]. Under the final rule's lead
arranger option for open market CLOs, the sponsor is required to
disclose a complete list of every asset held by an open market CLO
(or before the CLO's closing, in a warehouse facility in
anticipation of transfer into the CLO at closing). This list
requires, among other things, the full legal name, Standard
Industrial Classification category code and LEI (if an LEI has been
obtained by the obligor) of the obligor of the loan or asset. [24
CFR 267.9].
    \834\ See Regulation SBSR-Reporting and Dissemination of
Security-Based Swap Information, Release No. 34-74244 (Feb. 11,
2015) [80 FR 14563 (Mar. 19, 2015)] (``2015 Regulation SBSR
Release'').
    \835\ In connection with our efforts to modernize reporting and
disclosure by registered investment companies, the Commission
proposed new Form N-PORT in May of 2015. Form N-PORT would require
certain registered investment companies to report information about
their monthly portfolio holdings in a structured data format. We
proposed inclusion of LEIs in Part A of Form N-PORT and stated that
inclusion of this information would facilitate the ability of
investors and the Commission to link the data reported on Form N-
PORT with data from other filings or sources that is or will be
reported elsewhere as LEIs become more widely used by regulators and
the financial industry. See Investment Company Reporting
Modernization, Release No. 33-9776 (May 20, 2015) [80 FR 33589 (June
12, 2015)] (``2015 Investment Company Release'') at notes 40-43 and
accompanying text.
---------------------------------------------------------------------------

ii. Request for Comment
    261. Should we require registrants to disclose their LEI and the
LEIs of their subsidiaries (if available) in the list of subsidiaries
filed under Item 601(b)(21)? How would this information benefit
investors? Should the industry in which the company operates or the
extent to which the company engages in financial market transactions
affect whether disclosure of LEIs is required? What would be the costs
of requiring disclosure of this information?
    262. Should our rules encourage registrants to obtain an LEI? If
so, how could we structure our rules, consistent with our authority
under the Securities Act and the Exchange Act, to achieve this purpose?
For example, should we make obtaining and maintaining an LEI a
condition to any of our existing disclosure accommodations or
alternatives? Why or why not? If so, should such a condition be limited
to certain types of registrants, such as those operating in financial
services? For registrants that have not obtained an LEI, will these
registrants seek to obtain an LEI in the future absent any regulatory
incentive to do so? In addition to the fees for obtaining and
maintaining an LEI, would there be other costs associated with
obtaining LEIs?
    263. Some registrants may have hundreds or thousands of
subsidiaries or affiliates operating globally while other registrants
have simple corporate structures. If we required registrants to
disclose LEIs (if available) in the list of significant subsidiaries,
should we limit the requirement to larger registrants or larger
subsidiaries, independent of the industry in which the registrant
operates? For example, should we limit the requirement to large
accelerated filers or well-known seasoned issuers (WKSIs)?

H. Scaled Requirements

1. Categories of Registrants Eligible for Scaled Disclosure
    Over the years, the Commission has developed a disclosure system
that provides regulatory relief in the form of reduced disclosure
requirements for certain smaller registrants. Although initially
developed to facilitate smaller companies' access to the capital
markets,\836\ these reduced or scaled disclosure requirements also
apply to annual and quarterly reports. Currently, registrants are
eligible for scaled disclosure if they qualify as an SRC or an EGC.
SRCs are registrants having less than $75 million in public float
(i.e., the aggregate market value of the issuer's outstanding voting
and non-voting common equity held by non-affiliates) or, if public
float is zero, less than $50 million in annual revenue in the last
fiscal year.\837\
---------------------------------------------------------------------------

    \836\ See Small Business Initiatives Adopting Release and Form
S-18 Release.
    \837\ Item 10(f) of Regulation S-K [17 CFR 229.10(f)].
---------------------------------------------------------------------------

    In 2012, Title I of the JOBS Act created a new category of issuer
called an ``emerging growth company.'' Like SRCs, EGCs are eligible for
a variety of accommodations, including scaled disclosure
requirements.\838\ A company qualifies as an EGC if it did not complete
its first registered sale of common equity securities on or before
December 8, 2011 and has total annual gross revenues of less than $1
billion during its most recently completed fiscal year.\839\ A company
retains EGC status until the earliest of the following:
---------------------------------------------------------------------------

    \838\ Public Law 112-106, Secs. 102-104, 126 Stat. 306 (2012).
For a discussion of the scaled disclosure accommodations available
to SRCs and EGCs, see Section IV.H.2.
    \839\ Public Law 112-106, Sec. 101, 126 Stat. 306 (2012); 15
U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80).
---------------------------------------------------------------------------

     The last day of its fiscal year during which its total
annual gross revenues are $1 billion or more;
     the date it is deemed to be a large accelerated filer
under the Commission's rules;
     the date on which it has issued more than $1 billion in
non-convertible debt in the previous three years; or
     the last day of the fiscal year following the fifth
anniversary of the first registered sale of common equity securities of
the issuer.\840\
---------------------------------------------------------------------------

    \840\ Id. In addition, the FAST Act amended Securities Act
Section 6(e)(1) [15 U.S.C. 77 f(e)(1)] to provide a grace period for
EGCs at risk of losing their status as an EGC after the initial
filing or confidential submission of their IPO registration
statement but before the IPO is completed. Such companies shall
continue to be treated as an EGC through the earlier of the
consummation of the IPO or one year after they would otherwise cease
to be an EGC. See Public Law 114-94, Sec. 71002, 129 Stat. 1312
(2015).
---------------------------------------------------------------------------

    The Commission has specified other categories of registrants for
different purposes. These include: Accelerated filers, with a public
float of $75 million or more but less than $700 million; and large
accelerated filers, with a public float of $700 million or more.\841\ A
filer with a public float of less than $75 million is a ``non-
accelerated filer.'' \842\
---------------------------------------------------------------------------

    \841\ Exchange Act Rule 12b-2 [17 CFR 240.12b-2]. Under Rule
12b-2, accelerated filers and large accelerated filers must also
have been subject to the requirements of Exchange Act Section 13(a)
or 15(d) for at least 12 months and must not be eligible to use the
SRC requirements under Regulation S-K for its annual and quarterly
reports. Id. See also Revisions to Accelerated Filer Definition and
Accelerated Deadlines for Filing Periodic Reports, Release No. 33-
8644 (Dec. 21, 2005) [70 FR 76626 (Dec. 27, 2005)] (``2005
Accelerated Filer Revisions Release'').
    \842\ See 2005 Accelerated Filer Revisions Release. While a
``non-accelerated filer'' is not defined in Exchange Act Rule 12b-2,
it represents a category of filer that, among other things, has a
different deadline for filing periodic reports.
---------------------------------------------------------------------------

    These categories determine periodic reporting schedules.\843\ They
also determine the age requirements for financial statements under
Regulation S-X \844\ and certain requirements for audits of internal
control over financial reporting (``ICFR'') under Item 308 of
Regulation S-K.\845\ In addition, accelerated and large accelerated
filers are subject to other disclosure requirements, such as the
requirements to disclose their Internet address,\846\ information about
how they make their periodic reports available,\847\ and a description
of any open unresolved staff

comments on their periodic or current reports.\848\
---------------------------------------------------------------------------

    \843\ See 2005 Accelerated Filer Revisions Release.
    \844\ Rule 3-01 of Regulation S-X [17 CFR 210.3-01].
    \845\ Item 308 of Regulation S-K [17 CFR 229.308].
    \846\ Item 101(e)(3) of Regulation S-K [17 CFR 229.101(e)(3)].
    \847\ Item 101(e)(4) of Regulation S-K [17 CFR 229.101(e)(4)].
    \848\ Item 1B of Part I of Form 10-K.
---------------------------------------------------------------------------

    The following table summarizes the criteria for determining whether
a company qualifies as an EGC, SRC, non-accelerated filer, accelerated
filer or large accelerated filer.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Public float to  re-
                                    Public float \849\    Revenues \850\ to enter     Criteria to exit    enter status  (after    Revenues to re-enter
        Category of filer             to enter status              status                  status               exceeding        status (after exceeding
                                                                                threshold(s))           threshold(s))
--------------------------------------------------------------------------------------------------------------------------------------------------------
EGC..............................  N/A.................  <$1 billion..............   Revenues     N/A.................  N/A.
                                                                                >=$1 billion.
                                                                                5th
                                                                                anniversary of IPO
                                                                                \851\.
                                                                                Non-
                                                                                convertible debt
                                                                                >$1 billion \852\.
                                                                                Float
                                                                                >=$700 million
                                                                                \853\.
SRC..............................  <$75 million........  <$50 million \854\.......  Float >=$75 million.  <$50 million \855\..  <$40 million.\856\
Non-Accelerated Filer............  <$75 million........  N/A......................  Float >=$75 million.  <$50 million \857\..  N/A.
Accelerated Filer................  >=$75 million but     N/A......................  Float <$75 million    <$500 million but     N/A.
                                    <$700 million.                                   or >=$700 million.    >=$50 million \858\.
Large Accelerated Filer..........  >=$700 million......  N/A......................  Float <$700 million.  N/A.................  N/A.
--------------------------------------------------------------------------------------------------------------------------------------------------------

a. Comments Received
---------------------------------------------------------------------------

    \849\ Public float is computed as of the last business day of
company's most recently completed second fiscal quarter. Item 10(f)
of Regulation S-K [17 CFR 229.10(f)].
    \850\ Revenues are as reported in a company's most recently
completed fiscal year. [15 U.S.C. 78c(a)(80)]; Exchange Act Rule
12b-2 [17 CFR 240.12b-2]; Item 10(f) of Regulation S-K [17 CFR
229.10(f)].
    \851\ Ineligibility begins on the last day of the fiscal year in
which the fifth anniversary occurs. [15 U.S.C. 78c(a)(80)]. The
Division has interpreted the phrase ``first sale of common equity
securities'' under the JOBS Act (``IPO'' in the table above) not to
be limited to a company's initial primary offering of common equity
securities for cash. It could also include offering common equity
pursuant to an employee benefit plan on a Form S-8 as well as a
selling shareholder's secondary offering on a resale registration
statement. See Jumpstart Our Business Startups Act Frequently Asked
Questions, Generally Applicable Questions on Title I of the JOBS
Act, Question 2 (Apr. 28, 2012), available at https://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm.
    \852\ Ineligibility begins on the date on which the company has
issued more than $1 billion in non-convertible debt during the
previous three year period. [15 U.S.C. 78c(a)(80)].
    \853\ See supra note 840.
    \854\ Revenue test applies only if public float is zero. Item
10(f)(1)(iii) of Regulation S-K [17 CFR 229.10(f)(1)(iii)].
    \855\ Once a registrant fails to qualify as an SRC, it will
remain unqualified unless its public float falls below $50 million
as of the last business day of its second fiscal quarter, or if
public float is zero, if revenues fall below $40 million during its
previous fiscal year. Item 10(f)(2)(iii) of Regulation S-K [17 CFR
229.10(f)(2)(iii)].
    \856\ Id.
    \857\ Once a registrant becomes an accelerated filer, it will
remain an accelerated filer unless it determines at the end of a
fiscal year that its public float was less than $50 million as of
the last business day of it most recently completed second fiscal
quarter. The registrant will not become an accelerated filer again
unless it subsequently meets the conditions for initial
qualification as an accelerated filer. Rule 12b-2 of the Exchange
Act [17 CFR 240.12b-2].
    \858\ Once a registrant becomes a large accelerated filer, it
will remain a large accelerated filer unless it determines at the
end of a fiscal year that its public float was less than $500
million as of the last business day of it most recently completed
second fiscal quarter. The registrant will not become a large
accelerated filer again unless it subsequently meets the conditions
for initial qualification as a large accelerated filer. Id.
---------------------------------------------------------------------------

    S-K Study. One commenter noted that the $1 billion threshold for
EGCs established in the JOBS Act appeared to be arbitrary and opposed
any potential Commission guidance broadening the definition of EGCs,
because it would unnecessarily increase the risks to investors.\859\
Two commenters suggested that the Commission should modify Regulation
S-K to apply to different classes of EGCs, such as those that reach
specified revenue levels lower than $1 billion, or to phase in
different requirements after a certain period of time following the
IPO.\860\
---------------------------------------------------------------------------

    \859\ See letter from Council of Institutional Investors (Aug.
9, 2012) (``CII'').
    \860\ See Silicon Valley and M. Liles.
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative. One commenter suggested that
overreliance on public float to define SRCs and non-accelerated filers
creates a compliance burden for companies with high valuations that
would be considered ``small'' by any ``reasonable observer.'' \861\
This commenter recommended revising the definition of SRC and non-
accelerated filer to include any issuer with public float below $250
million, or annual revenues below $100 million regardless of its public
float, to avoid grouping highly valued small companies with little or
no revenue with larger corporations.
---------------------------------------------------------------------------

    \861\ See Biotech Industry Organization.
---------------------------------------------------------------------------

b. Discussion
    The Commission's practice of providing disclosure accommodations to
smaller companies with less established trading markets dates back to
1979. In providing these accommodations and determining what categories
of registrants are eligible for scaled disclosure requirements, the
Commission has sought to promote capital formation and reduce
compliance costs while maintaining investor protections.\862\
---------------------------------------------------------------------------

    \862\ See, e.g., Form S-18 Release; and Small Business
Initiatives, Release No. 33-6924 (Mar. 11, 1992) [57 FR 9768 (Mar.
20, 1992)] (``Small Business Initiatives Proposing Release'').
---------------------------------------------------------------------------

    Our current system of reporting and registration for SRCs is based
on Form S-18, which allowed an entity that was not previously a
reporting company to raise a limited amount of capital without
immediately incurring the full range of disclosure and reporting
obligations required of other issuers.\863\ As part of a larger effort
to facilitate capital raising by small businesses and reduce the
compliance burdens placed on these companies by the federal securities
laws, the Commission created Regulation S-B in 1992 and rescinded

Form S-18.\864\ Regulation S-B was a new integrated disclosure system
modeled after Form S-18 and specifically tailored to ``small business
issuers,'' which it defined as registrants with annual revenues of less
than $25 million whose voting stock had a public float of less than $25
million.
---------------------------------------------------------------------------

    \863\ See Small Business Initiatives Adopting Release and Form
S-18 Release. Form S-18 was ``in the nature of an experiment'' for
use by certain non-reporting issuers seeking to register certain
offerings of less than $5 million. Registrants using Form S-18 were
permitted to provide narrative disclosure somewhat less extensive
than Form S-1 and audited financial statements for two fiscal years
instead of the three fiscal years required in Form S-1. In addition,
and to help reduce the expenses resulting from registration and
reporting under the Securities Act and the Exchange Act, the
Commission allowed Form S-18 registrants to include this scaled
narrative and financial disclosure in their initial Form 10-K. See
Form S-18 Release. See also Section III.A.2.b for a discussion of
Form S-18.
    Notably, while Form S-18 was intended to facilitate a small
business's access to public capital markets, eligibility to use the
form was not determined by the size of the issuer. After observing
the form's use, the Commission later expanded the availability of
Form S-18. See supra note 78. The offering threshold was raised to
$7.5 million in 1983. See Revisions to Optional Form S-18, Release
No. 33-6489 (Sept. 23, 1983) [48 FR 45386 (Oct. 5, 1983)].
    \864\ See Small Business Initiatives Adopting Release. In
addition to the small business integrated disclosure system and
forms, the Commission revised Regulation A to, among other things,
raise the dollar limit to $5 million in a 12-month period and
revised Rule 504 to, among other things, allow for receipt of freely
transferable securities and remove the proscription on general
solicitation. Id.
---------------------------------------------------------------------------

    In 2007, the Commission replaced the ``small business issuer''
definition with the current definition for ``smaller reporting
companies,'' which expanded the universe of registrants eligible for
scaled disclosure.\865\ Unlike the dual eligibility test under
Regulation S-B, which required separate calculations using both public
float and annual revenues, the 2007 definition, which remains in effect
today, eliminated the revenue test for most companies.\866\ The
Commission stated its belief that this would simplify and streamline
the definition while expanding the number of companies eligible to
qualify. The majority of commenters also supported a revenue test only
if a company is unable to calculate public float.
---------------------------------------------------------------------------

    \865\ See SRC Adopting Release. Several of the amendments the
Commission adopted in the SRC Adopting Release originated in
recommendations made by the Advisory Committee on Smaller Public
Companies (ACSPC), which the Commission chartered in 2005 to assess
the regulatory system for smaller companies. The ACSPC's
recommendations included establishing a system of scaled securities
regulation for ``smaller public companies,'' which referred to
registrants in the lowest six percent of total U.S. equity market
capitalizations, and included: ``microcap companies'' which referred
to registrants in the lowest one percent of total U.S. equity market
capitalization and would have included registrants with
capitalizations below approximately $128 million; and ``smallcap
companies,'' which referred to registrants in the next lowest five
percent of total U.S. equity market capitalization and would have
included registrants with capitalizations between approximately $128
million and $787 million. See Final Report of the Advisory Committee
on Smaller Public Companies to the U.S. Securities and Exchange
Commission, Apr. 23, 2006, available at http://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf.
    \866\ See SRC Adopting Release.
---------------------------------------------------------------------------

    Recently, we have received recommendations to revisit some of our
registrant categories eligible for scaled disclosure, with particular
focus on expanding the SRC definition to include a greater number of
registrants.\867\ In the S-K Study, the staff recommended consideration
of the criteria used to determine eligibility for potential further
scaling of disclosure requirements and, in particular, whether it would
be appropriate to scale for companies other than EGCs. The staff also
noted that any determination of which companies should be allowed to
scale their disclosures, how companies should migrate to a standard
disclosure regime as they mature, and the extent to which disclosure of
previously undisclosed information should later be required should
reflect the overarching economic principles recommended in the S-K
Study. The staff further recommended consideration of the eligibility
criteria for SRCs, as well as the criteria for accelerated filers and
large accelerated filers.\868\
---------------------------------------------------------------------------

    \867\ The Annual SEC Government-Business Forum on Small Business
Capital Formation (``Small Business Forum'') has recommended
revising the SRC definition to include a company with a public float
of less than $250 million or a company with a public float of less
than $700 million with annual revenues of less than $100 million.
See e.g., Final Report of the 2014 SEC Government-Business Forum on
Small Business Capital Formation, May 2015 (``2014 Forum Report''),
available at http://www.sec.gov/info/smallbus/gbfor33.pdf.
    Similarly, the Commission's Advisory Committee on Small and
Emerging Companies (``ACSEC'') recommended the Commission revise the
SRC definition to include companies with a public float of up to
$250 million to extend regulatory relief to a broader range of
smaller public companies, including, among other things, the
exemption from the requirement to provide an auditor attestation of
the registrant's ICFR. Item 308(b) of Regulation S-K [17 CFR
229.308(b)]. Item 308(b) applies to accelerated filers and large
accelerated filers, both of which definitions exclude issuers that
that are eligible to use the SRC requirements in Regulation S-K.
Exchange Act Rule 12b-2 [17 CFR 240.12b-2]. Because the definitions
of accelerated filer and larger accelerated filer specify that they
do not include registrants that are eligible to use the requirements
for SRCs for their annual and quarterly reports, a change to the
threshold for SRCs would extend this exemption even without a
corresponding change to the threshold for accelerated filers.
    The ACSEC also has recommended the Commission revise the
definition of ``accelerated filer'' to include companies with a
public float of $250 million or more, but less than $700 million,
thereby exempting companies with public float between $75 million
and $250 million from the requirement to provide an auditor
attestation of the registrant's ICFR. See e.g., Advisory Committee
on Small and Emerging Companies Recommendations about Expanding
Simplified Disclosure for Smaller Issuers, Sept. 23, 2015 (``2015
ACSEC Recommendations''), available at http://www.sec.gov/info/smallbus/acsec/acsec-recommendations-expanding-simplified-disclosure-for-smaller-issuers.pdf.
    \868\ See S-K Study at 98 and 102-103. For a discussion of the
overarching economic principles of the S-K Study, see Section II.C.
---------------------------------------------------------------------------

    We are interested in receiving input on how we should approach the
eligibility criteria for using scaled disclosure. The FAST Act requires
the Commission to revise Regulation S-K to further scale or eliminate
disclosure requirements to reduce the burden on a variety of smaller
issuers, including SRCs.\869\ In response to this mandate, the staff is
currently evaluating, among other things, the criteria to qualify as an
SRC, and expects to make recommendations to the Commission.
Consequently, we are not addressing the existing criteria in this
release.
---------------------------------------------------------------------------

    \869\ Public Law 114-94, Sec. 72002(1), 129 Stat. 1312 (2015).
---------------------------------------------------------------------------

c. Request for Comment
    264. In the context of registered offerings, the Commission has
determined that certain types of issuers are unsuited for short-form
registration or disclosure-related relief.\870\ These issuers include
reporting companies that are not current in their Exchange Act reports,
issuers that may raise greater potential for abuse (such as blank check
and shell companies) \871\ and issuers that have violated the anti-
fraud provisions of the federal securities laws. Are there types of
registrants that would meet the current criteria for scaled disclosure
but are unsuited for providing such disclosure? If so, which issuers
and why? Should we exclude certain types of registrants from the use of
scaled disclosure and if so, what should be the criteria (e.g., failure
to timely file, subject to enforcement actions for disclosure
violations or fraud, being an ``ineligible issuer'' as defined under
Rule 405 of the Securities Act or disqualified under Regulation A or
Regulation D) and the time period of exclusion?
---------------------------------------------------------------------------

    \870\ See Securities Offering Reform Release.
    \871\ See id., citing Penny Stock Definition for Purposes of
Blank Check Rule, Release No. 33-7024 (Oct. 25, 1993) [58 FR 58099]
(the Commission stated that Congress found blank check companies to
be common vehicles for fraud and manipulation in the penny stock
market, and concluded that the Commission's disclosure-based
regulation and review of such offerings protects investors).
---------------------------------------------------------------------------

    265. Should we tie eligibility for scaled disclosure to a certain
proportion of companies, such as companies in the lowest one percent of
total U.S. market capitalization or the lowest six percent of total
U.S. market capitalization, as previously recommended by the ACSPC?
\872\
---------------------------------------------------------------------------

    \872\ See supra note 865.
---------------------------------------------------------------------------

    266. Should we allow one or more categories of larger companies,
such as companies with a longer reporting history or more readily
available public information to benefit from scaled disclosure
requirements as a means of reducing compliance costs?
    267. The benefits of disclosure may be greater for smaller
registrants because information asymmetries between investors and
managers of smaller companies are typically higher than for larger,
more seasoned companies with a large following.\873\ However,
disclosure

requirements may impose disproportionate costs on smaller registrants,
especially if these requirements impose fixed rather than variable
costs.\874\ To what extent are the costs imposed by our disclosure
requirements fixed costs that do not scale with the size of a
registrant?
---------------------------------------------------------------------------

    \873\ See, e.g., R. Frankel and X. Li, Characteristics of a
firm's information environment and the information asymmetry between
insiders and outsiders, 37 J. Acct. Econ. 229, 229-259 (June 2004).
See also, L. Cheng, S. Liao, and H. Zhang, The Commitment Effect
versus Information Effect of Disclosure--Evidence from Smaller
Reporting Companies, 88 Acct. Rev. 1239, 1239-1263 (2013).
    \874\ Empirical evidence suggests the imposition of additional
disclosure requirements in the past has imposed disproportionate
costs on smaller registrants relative to larger registrants. See
supra note 169.
---------------------------------------------------------------------------

2. Scaled Disclosure Requirements for Eligible Registrants
    Registrants that qualify as an SRC or EGC are allowed to provide
less detailed disclosure about their business operations and financial
condition and to limit the number of periods for which disclosure is
required.\875\ An SRC may limit the description of the development of
its business under Item 101(h) of Regulation S-K to the last three
years rather than the five years required of other registrants. The
business description should include the registrant's form and year of
organization, any bankruptcy proceedings, any material
reclassification, merger, sale or purchase of assets outside the
ordinary course of business and a description of the business. The
disclosure required in the description of business for SRCs is less
detailed than that required for other reporting companies and does not
require information about seasonality, working capital practices,
backlog information and certain material government contracts.\876\ The
scaled requirements do, however, call for information not specifically
required for other reporting companies, such as the need for government
approval of principal products and services.\877\
---------------------------------------------------------------------------

    \875\ SRCs and EGCs may take advantage of additional scaled
disclosure requirements and other accommodations, such as reduced
executive compensation disclosure under Item 402(n) through (r) of
Regulation S-K [17 CFR 229.402(n) through (r)] that we do not
discuss in detail here, as they are beyond the scope of this
release.
    \876\ Item 101(c)(1)(v), (vi), (viii) and (ix) of Regulation S-K
[17 CFR 229.101(c)(1)].
    \877\ See, e.g., Item 101(h)(4)(viii) of Regulation S-K [17 CFR
229.101(h)].
---------------------------------------------------------------------------

    SRCs also are required to provide only two years of audited
financial statements \878\ rather than the three years required of
other companies.\879\ To the extent a SRC presents only two years of
financial statement information, they also are permitted under Item 303
of Regulation S-K to provide MD&A for only these two years.\880\
---------------------------------------------------------------------------

    \878\ Rule 8-02 of Regulation S-X. [17 CFR 210.8-02].
    \879\ Article 3 of Regulation S-X requires: Audited balance
sheets as of the end of each of the two most recent fiscal years;
audited statements of income and cash flows for each of the three
fiscal years preceding the date of the most recent audited balance
sheet; and an analysis of changes in stockholders' equity for each
period for which an income statement is required. Rules 3-01, 3-02,
and 3-04 of Regulation S-X [17 CFR 210.3-01; 17 CFR 210.3-02; 17 CFR
210.3.04].
    \880\ Instruction 1 to Item 303(a) of Regulation S-K [17 CFR
229.303(a)].
---------------------------------------------------------------------------

    Not all EGCs qualify as SRCs. EGCs are only required to provide two
years of audited financial statements in an initial public offering of
common equity securities and may limit their MD&A to only those audited
periods presented in the financial statements.\881\ In interpretive
guidance, the Division has stated that in any other offering or in an
Exchange Act annual report or registration statement, an EGC that is
not an SRC is required to provide three years of audited financial
statements, except the registrant is not required to include financial
statements for any periods prior to the earliest period presented in
its initial public offering of common equity securities.\882\ In
addition, EGCs may take advantage of an extended transition period for
complying with new or revised financial accounting standards.\883\
---------------------------------------------------------------------------

    \881\ Public Law 112-106, Sec. 102(b)-(c), 126 Stat. 306 (2012).
One study, however, indicated that only fifty-nine percent of EGCs
provided the minimum financial statement disclosures required by the
JOBS Act and voluntarily provided more disclosure. See Ernst & Young
LLP, The JOBS Act: 2015 Mid-Year Update, (Sept. 2015), available at
http://www.ey.com/Publication/vwLUAssets/
JOBSAct_2015MidYear_CC0419_16September2015/$FILE/
JOBSAct_2015MidYear_CC0419_16September2015.pdf. While the JOBS Act
permits EGCs to limit their MD&A to only those audited periods
presented in its financial statements, Division staff has provided
interpretive guidance that Section 102(c) does not permit an EGC to
comply with the SRC provisions of Item 303. An EGC that is not an
SRC is therefore required to include the contractual obligations
table required by Item 303(a)(5). See Question 41, Jumpstart Our
Business Startups Act Frequently Asked Questions, Generally
Applicable Questions on Title I of the JOBS Act, (May 3, 2012),
available at https://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm. Additionally, a non-SRC EGC must
provide three years of audited financial statements in an Exchange
Act registration statement or annual report, and therefore its MD&A
in such filing must cover the same three-year period. See Division
of Corporation Finance Financial Reporting Manual, Section 10220.1.
    \882\ See Questions 30 and 48, Jumpstart Our Business Startups
Act Frequently Asked Questions, Generally Applicable Questions on
Title I of the JOBS Act, (May 3, 2012), available at https://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm.
     Section 71003 of the FAST Act amended Section 102 of the JOBS
Act to allow an EGC that is filing a registration statement (or
submitting a draft registration statement for confidential review)
under Section 6 of the Securities Act on Form S-1 or Form F-1 to
omit financial information for historical periods otherwise required
by Regulation S-X if it reasonably believes the omitted information
will not be required in the filing at the time of the contemplated
offering, so long as the issuer amends the registration statement
prior to distributing a preliminary prospectus to include all
financial information required by Regulation S-X at the time of the
amendment. This provision took effect 30 days after the date of
enactment of the FAST Act. Section 71003 also directs the Commission
to revise the general instructions to Form S-1 and Form F-1 to
reflect this self-executing change. In addition, Section 84001 of
the FAST Act requires the Commission to revise Form S-1 to permit an
SRC to incorporate by reference into its registration statement any
documents filed by the issuer subsequent to the effective date of
the registration statement. Public Law 114-94, Sec. 71003, 129 Stat.
1312 (2015).
    We recently adopted interim final rules to implement Sections
71003 and 84001 of the FAST Act. See Simplification of Disclosure
Requirements for Emerging Growth Companies and Forward Incorporation
by Reference on Form S-1 For Smaller Reporting Companies, Release
No. 33-10003 (Jan. 13, 2016) [81 FR 2743 (Jan. 19, 2016)] (``FAST
Act Interim Rules Release'').
    \883\ 15 U.S.C. 77g(a)(2)(B).
---------------------------------------------------------------------------

    SRCs are not required to provide certain line-item requirements in
Regulation S-K, including Item 201(e) (Market price of and dividends on
the registrant's common equity and related stockholder matters--
Performance Graph),\884\ Item 301 (Selected Financial Data),\885\ Item
302 (Supplementary Financial Data),\886\ Item 303(a)(5) (contractual
obligations table),\887\ Item 305 (Quantitative and Qualitative
Disclosures about Market Risk),\888\ Item 308(b) (Internal Control over
Financial Reporting--auditor's attestation report) \889\ and Item
503(c) (Risk Factors).\890\ Scaled disclosure requirements under these
items differ slightly for EGCs. For example, an EGC is permitted to
limit the selected financial data it includes in a registration
statement under Item 301 to those periods for which audited financial
statements are included in the registration statement. For periodic
reports, an EGC is not required to

provide the selected financial data for any periods earlier than those
for which financial statements were presented in the IPO.\891\ EGCs are
also not required to provide auditor attestations of ICFR and,
accordingly, are not subject to Item 308(b).\892\
---------------------------------------------------------------------------

    \884\ Instruction 6 to Item 201(e) of Regulation S-K [17 CFR
229.201(e)].
    \885\ Item 301(c) of Regulation S-K [17 CFR 229.301(c)].
    \886\ Item 302(c) [17 CFR 229.302(c)].
    \887\ Item 303(d) of Regulation S-K [17 CFR 229.303(d)].
    \888\ Item 305(e) of Regulation S-K [17 CFR 229.305(e)].
Although SRCs are not required to provide the information required
by this item, the adopting release notes that ``if market risk
represents a material known risk or uncertainty, [SRCs], like other
registrants, will continue to be required to discuss those risks and
uncertainties to the extent required by Management's Discussion and
Analysis.'' See Disclosure of Market Risk Sensitive Instruments
Release.
    \889\ Non-accelerated filers, a category that includes SRCs, are
not subject to the requirements of Item 308(b) (attestation report
of the registered public accounting firm). Item 308(b) of Regulation
S-K [17 CFR 229.308(b)].
    \890\ Item 1A, Part I of Form 10-K and Item 1A, Part II of Form
10-Q.
    \891\ Public Law 112-106, Sec. 102(b), 126 Stat. 306 (2012).
Title I of the JOBS Act provided EGCs with a variety of scaled
disclosure and other accommodations. These provisions were effective
upon enactment of the JOBS Act without rulemaking by the Commission.
    \892\ Id. at Sec. 103 (amending Section 404(b) of the Sarbanes-
Oxley Act [Pub. L. 107-204, Sec. 404(b) 116 Stat. 745 (2002)]).
---------------------------------------------------------------------------

    The following table summarizes the scaled disclosure accommodations
available to EGCs and SRCs for periodic reports as well as certain
other filings.\893\
---------------------------------------------------------------------------

    \893\ Many of the scaled disclosure accommodations apply to
filings other than periodic reports. Some of these filings are
identified in the table. Though not within the scope of this
release, this information is included here to provide additional
context.

------------------------------------------------------------------------
      Scaled disclosure          Emerging growth      Smaller reporting
         requirement                 company               company
------------------------------------------------------------------------
Audited Financial Statements   2 years in    2 years.
 Required.                     a Securities Act
                               registration
                               statement for an
                               IPO of common
                               equity.
                               3 years in
                               an IPO of debt
                               securities.
                               3 years in
                               an annual report or
                               Exchange Act
                               registration
                               statement, unless
                               the company is also
                               an SRC.
Description of Business       Standard disclosure    Development
 (Item 101).                   requirements apply.   of its business
                                                     during the most
                                                     recent three years,
                                                     including:
                                                    [cir] form and year
                                                     of organization;
                                                    [cir] bankruptcy
                                                     proceedings;
                                                    [cir] material
                                                     reclassification,
                                                     merger, sale or
                                                     purchase of assets;
                                                     and
                                                    [cir] description of
                                                     the business.
                                                     Not
                                                     required:
                                                    [cir] seasonality;
                                                    [cir] working
                                                     capital practices;
                                                    [cir] backlog; or
                                                    [cir] government
                                                     contracts.
                                                     Names of
                                                     principal
                                                     suppliers.
                                                     Royalty
                                                     agreements or labor
                                                     contracts.
                                                     Need for
                                                     government approval
                                                     of principal
                                                     products and
                                                     services.
                                                     Effect of
                                                     existing or
                                                     probable
                                                     governmental
                                                     regulations.
Market Price of and           Standard disclosure   Not required to
 Dividends on the              requirements apply.   provide the stock
 Registrant's Common Equity                          performance graph.
 and Related Stockholder
 Matters (Item 201).
Selected Financial Data       Not required to       Not required.
 (Item 301).                   present selected
                               financial data for
                               any period prior to
                               the earliest
                               audited period
                               presented in
                               initial
                               registration
                               statement.
Supplementary Financial Data  Not required until    Not required.
 (Item 302).                   after IPO.
MD&A (Item 303).............  May limit discussion   May limit
                               to those years for    discussion to those
                               which audited         years for which
                               financial             audited financial
                               statements are        statements are
                               included.             included.
                                                     Not
                                                     required to comply
                                                     with contractual
                                                     obligations table
                                                     requirements in
                                                     303(a)(5).
Quantitative and Qualitative  Standard disclosure   Not required, but
 Disclosures about Market      requirements apply.   related disclosure
 Risk (Item 305).                                    may be required in
                                                     MD&A.
Extended Transition for        May elect
 Complying with New or         to defer compliance
 Revised Accounting            with new or revised
 Standards.                    financial
                               accounting
                               standards until a
                               company that is not
                               an ``issuer'' \894\
                               is required to
                               comply with such
                               standards.
                               Any          Standard disclosure
                               decision to forego    requirements apply.
                               the extended
                               transition period
                               is irrevocable.
Internal Control over          Not          Non-accelerated
 Financial Reporting (Item     required to provide   filers, a category
 308).                         attestation report    that includes SRCs,
                               of the registered     are not required to
                               public accounting     provide an
                               firm.                 attestation report
                               Not exempt    of the registered
                               from Item 308(a),     public accounting
                               but newly public      firm.
                               company is not
                               required to comply
                               until it either has
                               filed or has been
                               required to file an
                               annual report for
                               the prior fiscal
                               year.
Executive Compensation         Permitted     2 years of
 Disclosure (Item 402).        to follow             summary
                               requirements for      compensation table
                               SRCs \895\.           information, rather
                               Exempt from   than 3.
                               principal executive   Limited to
                               officer pay ratio     principal executive
                               disclosure.           officer, two most
                                                     highly compensated
                                                     executive officers
                                                     and up to two
                                                     additional
                                                     individuals no
                                                     longer serving as
                                                     executive officers
                                                     at year end.\896\
                                                     Not
                                                     required:
                                                       [cir]
                                                        compensation
                                                        discussion and
                                                        analysis;

                                                       [cir] grants of
                                                        plan-based
                                                        awards table;
                                                       [cir] option
                                                        exercises and
                                                        stock vested
                                                        table;
                                                       [cir] change in
                                                        present value of
                                                        pension
                                                        benefits;
                                                       [cir] CEO pay
                                                        ratio;
                                                       [cir]
                                                        compensation
                                                        policies as
                                                        related to risk
                                                        management; or
                                                       [cir] pension
                                                        benefits table.
                                                     Description
                                                     of retirement
                                                     benefit plans.
Certain Relationships and     Standard disclosure    Lower
 Related Party Transactions    requirements apply.   threshold to
 (Item 404).                                         disclose related
                                                     party transactions.
                                                     Not
                                                     required to
                                                     disclose procedures
                                                     for review,
                                                     approval or
                                                     ratification of
                                                     related party
                                                     transactions.
                                                     Additional
                                                     requirement to
                                                     disclose certain
                                                     controlling
                                                     entities.
                                                     Required to
                                                     disclose related
                                                     party transactions
                                                     not only since the
                                                     beginning of last
                                                     fiscal year but
                                                     also for the
                                                     preceding fiscal
                                                     year.\897\
Corporate Governance (Item    Standard disclosure    Not
 407).                         requirements apply.   required to
                                                     disclose whether it
                                                     has an audit
                                                     committee financial
                                                     expert until its
                                                     second annual
                                                     report following
                                                     IPO.\898\
                                                     Exempt from
                                                     requirements to
                                                     disclose
                                                     compensation
                                                     committee
                                                     interlocks and
                                                     insider
                                                     participation and
                                                     to provide a
                                                     compensation
                                                     committee
                                                     report.\899\
Risk Factors (Item 503(c))..  Standard disclosure   Not required in
                               requirements apply.   periodic
                                                     reports.\900\
Ratio of Earnings to Fixed    Required for same     Not required.\903\
 Charges (Item 503(d)) \901\.  number of years for
                               which it provides
                               selected financial
                               data disclosures
                               \902\.
------------------------------------------------------------------------

    a. Comments Received
---------------------------------------------------------------------------

    \894\ An ``issuer'' is defined in Section 2(a) of the Sarbanes-
Oxley Act to mean an issuer whose securities are registered under
Exchange Act Section 12, that is required to file reports under
Securities Act Section 15(d), or that has filed a registration
statement that has not yet become effective and that it has not
withdrawn. Public Law 107-204, Sec. 2(a), 116 Stat. 747 (2002).
    \895\ Public Law 112-106, Sec. 102(c), 126 Stat. 306 (2012).
    \896\ Item 402(m)(2) of Regulation S-K [17 CFR 229.402(m)(2)].
Companies that are not SRCs must provide disclosure for the
principal executive officer, principal financial officer, three most
highly paid executive officers and up to two additional individuals
no longer serving as executive officers. Item 402(a)(3) of
Regulation S-K [17 CFR 229.402(a)(3)].
    \897\ Item 404(d) of Regulation S-K [17 CFR 229.404(d)].
    \898\ Item 407(g)(1) of Regulation S-K [17 CFR 229.407(g)(1)].
    \899\ Item 407(g)(2) of Regulation S-K [17 CFR 229.407(g)(2)].
    \900\ Item 1A of Form 10-K [17 CFR 249.310]; Item 1A of Form 10-
Q [17 CFR 249.308a]. SRCs also are not required to provide the
information required by Item 503(c) of Regulation S-K in Exchange
Act registration statements on Form 10 [17 CFR 249.210].
    \901\ The staff is separately considering Item 503(d) of
Regulation S-K in developing recommendations for the Commission for
potential changes to update or simplify certain disclosure
requirements. For a description of this project, see Section I.
    \902\ See Jumpstart Our Business Startups Act Frequently Asked
Questions, Generally Applicable Questions on Title I of the JOBS
Act, Question 27 (May 3, 2012), available at https://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm.
    \903\ Item 503(e) of Regulation S-K [17 CFR 229.503(e)].
---------------------------------------------------------------------------

    S-K Study. One commenter encouraged the Commission not to issue
guidance or rules to increase the scope of companies eligible for EGC
status or to defer further the application of internal control
requirements, such as the requirement to provide an auditor attestation
report, for EGCs that outgrow their EGC status.\904\
---------------------------------------------------------------------------

    \904\ See CII.
---------------------------------------------------------------------------

    Two commenters suggested that EGCs should be exempt from Item 305
disclosure.\905\ These commenters specified that companies that have
not yet reached the revenue or market capitalization thresholds that
would disqualify them from EGC status are unlikely to face meaningful
market risks. These commenters also recommended eliminating the
requirement in Item 101(c) to disclose the amount of backlog orders
believed to be firm for EGCs, stating the concept of backlog is not a
``meaningful metric'' for most of these companies. In addition, these
commenters noted that the threshold for agreements that are
``immaterial in amount or significance'' in Item 601(b)(10)(ii)(A) is
too low for EGCs, because they often enter into agreements with parties
that have a five percent or greater ownership of the company.\906\
---------------------------------------------------------------------------

    \905\ See Silicon Valley; M. Liles.
    \906\ Id.
---------------------------------------------------------------------------

    Disclosure Effectiveness Initiative. One commenter generally
supported the concept of scaled disclosure requirements noting that
smaller companies face challenges when preparing annual reports.\907\
Another commenter expressed concerns with a differential disclosure
regime for different sized entities, stating that investors will factor
the differences into their price determinations (i.e., they will price
the lack of transparency, clarity and comparability in what may be
perceived to be lower-quality requirements).\908\ One commenter
recommended that requirements related exclusively to SRCs should be
grouped together under separate headings in Regulation S-K.\909\
---------------------------------------------------------------------------

    \907\ See UK Financial Report Council.
    \908\ See CFA Institute.
    \909\ See Shearman.
---------------------------------------------------------------------------

b. Discussion
    In simplifying disclosure requirements for small businesses, we
seek to facilitate capital formation without compromising investor
protection. Previous Commission efforts in this area have focused on
reducing requirements that impede the formation and growth of small
businesses and,

given the nature of these smaller companies, the Commission determined
are not necessary for the protection of investors.\910\
---------------------------------------------------------------------------

    \910\ See, e.g., Form S-18 Release and Small Business
Initiatives Proposing Release.
---------------------------------------------------------------------------

    The disclosure items formerly required by Form S-18 generally were
consistent with the corresponding items in Form S-1. However, Form S-18
required less extensive narrative disclosure and simplified financial
statements, consistent with Regulation A. Based on input from public
hearings and written comments, the Commission sought to require in Form
S-18 only the information that normally would be applicable to those
small businesses expected to use the form. Accordingly, the Commission
reduced or eliminated requirements that it determined were particularly
burdensome to small businesses and tended to elicit information that,
in the small business context, was less relevant or less beneficial to
investors.\911\
---------------------------------------------------------------------------

    \911\ See Form S-18 Release.
---------------------------------------------------------------------------

    For example, Form S-18 did not use the description of business
requirement from Regulation S-K. Instead, Form S-18 provided smaller
issuers the flexibility to discuss other business-related disclosure,
such as their dependence on a limited number of customers or suppliers
(including suppliers of raw materials or financing) and cyclicality of
their industry, only if it would have ``a material impact upon the
registrant's future financial performance.'' \912\ In addition, Form S-
18 required two years of audited financial statements prepared in
accordance with U.S. GAAP,\913\ similar in content to those required by
Regulation A at the time,\914\ as opposed to the more detailed
requirements in Form S-1. In adopting Form S-18, the Commission stated
its belief that the simplified financial statements and schedules would
result in costs savings to registrants while providing investors
adequate information about these smaller offerings.\915\
---------------------------------------------------------------------------

    \912\ Form S-18 Release at 21570; See also 1977 Regulation S-K
Adopting Release.
    \913\ Specifically, Form S-18 required: (1) A consolidated
balance sheet as of a date within ninety days prior to the date of
filing; and (2) consolidated statements of income, source and
application of funds, and other stockholders' equity for the two
fiscal years prior to the date of filing. See Form S-18 Release.
    \914\ Until 2015, Regulation A required financial statements to
be prepared in accordance with U.S. GAAP. In 2015, the Commission
revised Regulation A to allow Canadian issuers to prepare their
financial statements in accordance with either U.S. GAAP or
International Financial Reporting Standards. See 2015 Regulation A
Release.
    \915\ See Form S-18 Release.
---------------------------------------------------------------------------

    Under Regulation S-B, the narrative disclosure requirements
generally paralleled those in Regulation S-K at the time, except that
Regulation S-B incorporated the simplified requirements of Form S-18.
The financial information required by Regulation S-B was substantially
similar to that required by Form S-18, except that Regulation S-B also
addressed interim financial statement requirements.\916\
---------------------------------------------------------------------------

    \916\ See Small Business Initiatives Adopting Release. See also
supra note 913.
---------------------------------------------------------------------------

    In 2007, the Commission eliminated the separate Regulation S-B
disclosure requirements and instead provided scaled disclosure
requirements in Regulation S-K and Regulation S-X.\917\ For example,
new paragraph (h) to Item 101 of Regulation S-K set forth the
alternative disclosure standards for smaller companies that had
appeared in Item 101 of Regulation S-B.\918\ The Commission included an
index in Item 10 to identify the Items of Regulation S-K containing
scaled disclosure requirements for SRCs.\919\
---------------------------------------------------------------------------

    \917\ See SRC Adopting Release.
    \918\ Item 101(h) of Regulation S-K [17 CFR 229.101(h)].
    \919\ Item 10(f) of Regulation S-K [17 CFR 229.10(f)].
---------------------------------------------------------------------------

    In response to comment letters and the recommendation of the ACSPC,
the Commission revised the requirements in Regulation S-X to require
two years of comparative audited balance sheet data for SRCs, rather
than the one year previously required by Regulation S-B.\920\ The
Commission noted that the additional balance sheet data would provide a
more meaningful presentation for investors without a significant
additional burden on SRCs, because the earlier year data would be
readily available for purposes of preparing the otherwise required
statements of income, cash flows and changes in stockholders'
equity.\921\
---------------------------------------------------------------------------

    \920\ See SRC Adopting Release.
    \921\ See id.
---------------------------------------------------------------------------

    Unlike Regulation S-B, which required small business issuers to
comply with the entire Regulation S-B disclosure regime, the amendments
to Regulation S-K adopted in 2007 permitted SRCs to comply selectively
with the scaled disclosure requirements on an item-by-item basis.\922\
The Commission intended the amendments to eliminate redundancies and
provide a more streamlined disclosure system for SRCs.\923\
---------------------------------------------------------------------------

    \922\ Id. Where a disclosure requirement applicable to SRCs was
more stringent than the corresponding requirement for other
registrants, SRCs were required to comply with the more stringent
standard. The SRC Adopting Release identified Item 404 of Regulation
S-K as the only instance where the requirements applicable to SRCs
could be more stringent than the larger company standard.
    \923\ Id.
---------------------------------------------------------------------------

    In recent years, the Small Business Forum has recommended that the
Commission:
     Eliminate or significantly reduce the extent of XBRL
tagging requirements for SRCs; and
     permit SRCs to exclude line item-responsive disclosures
from their periodic reports if such disclosures are not material.\924\
---------------------------------------------------------------------------

    \924\ See, e.g., 2014 Forum Report; Final Report of the 2013 SEC
Government-Business Forum on Small Business Capital Formation, June
2014, available at http://www.sec.gov/info/smallbus/gbfor32.pdf;
31st Annual SEC Government-Business Forum on Small Business Capital
Formation Final Report, Nov. 15, 2012, available at http://www.sec.gov/info/smallbus/gbfor31.pdf.
---------------------------------------------------------------------------

    Similarly, in the last few years, the ACSEC has recommended that
the Commission:
     exempt SRCs from XBRL tagging requirements; \925\
---------------------------------------------------------------------------

    \925\ See 2015 ACSEC Recommendations; Advisory Committee on
Small and Emerging Companies Recommendations Regarding Disclosure
and Other Requirements for Smaller Public Companies, Feb. 1, 2013,
(``2013 ACSEC Recommendations''), available at http://www.sec.gov/info/smallbus/acsec/acsec-recommendation-032113-smaller-public-co-ltr.pdf.
---------------------------------------------------------------------------

     exempt SRCs from filing immaterial attachments to material
contracts; \926\ and
---------------------------------------------------------------------------

    \926\ See 2015 ACSEC Recommendations; 2013 ACSEC
Recommendations.
---------------------------------------------------------------------------

     when adopting new disclosure rules, consider whether such
rules place a disproportionate burden on SRCs in terms of the cost of,
and time spent on, compliance with such requirements, and if so,
provide for exemptions from or phase-in periods for such new rules for
SRCs.\927\
---------------------------------------------------------------------------

    \927\ See 2013 ACSEC Recommendations.
---------------------------------------------------------------------------

    In 2015, the FAST Act directed the Commission to revise Regulation
S-K to further scale or eliminate requirements in order to reduce the
burden on EGCs, accelerated filers, SRCs, and other smaller issuers,
while still providing all material information to investors.\928\ Given
these recommendations and the recent legislative directive, we are
seeking public input on whether we should expand or eliminate any of
our scaled disclosure requirements to further ease the compliance
burden for smaller registrants and, if so, how we could do so without
sacrificing investor protection.
---------------------------------------------------------------------------

    \928\ Public Law 114-94, Sec. 72002(1), 129 Stat. 1312 (2015).
---------------------------------------------------------------------------

c. Request for Comment
    268. Are there any disclosure requirements for which scaling is not
appropriate?
    269. How should we assess whether scaled disclosures are effective
at

achieving the Commission's mission of protecting investors, maintaining
fair and orderly markets and facilitating capital formation?
    270. Are there disclosure requirements that are particularly
beneficial for investors in smaller registrants? For example, are there
disclosure requirements that elicit information that is not as readily
available outside of smaller registrants' filings although this
information might be readily available outside of a filing for larger
or more seasoned companies? If so, which requirements and why? Does the
information elicited from smaller registrants by these disclosure
requirements appropriately consider the costs of these requirements to
these smaller registrants?
    271. Are there additional item requirements that we should consider
scaling for SRCs? Are there any current scaled disclosure requirements
that we should scale further or eliminate entirely?
    272. Should we allow EGCs to take advantage of the scaled
disclosure requirements currently available only to SRCs, such as the
less extensive requirements for the description of business set forth
in Item 101(h) of Regulation S-K or the elimination of the contractual
obligations table available under Item 303(d) of Regulation S-K?
    273. Should we reorganize Regulation S-K, as recommended by one
commenter,\929\ to group the requirements related exclusively to SRCs
together under separate headings? Why or why not?
---------------------------------------------------------------------------

    \929\ See Shearman.
---------------------------------------------------------------------------

    274. Should we eliminate or reduce the XBRL tagging requirements
for SRCs? What, if any, XBRL tagging should we require of SRCs?
    275. Should we permit SRCs to exclude disclosure that would be
responsive to specific items in Regulation S-K from their periodic
reports if such disclosures are not material? Should we permit SRCs to
omit all such disclosure or should we limit this accommodation to
specific items in Regulation S-K?
    276. What types of investors or audiences would be affected by
further scaling? How?
    277. Do our scaled disclosure requirements appropriately consider
the costs and benefits of these requirements to smaller registrants and
investors in these registrants? What savings (or costs avoided) for
registrants, including the administrative and compliance costs of
preparing and disseminating disclosure, would likely arise from scaling
additional item requirements? Please provide quantifications of savings
and costs avoided where possible.
3. Frequency of Interim Reporting
    The federal securities laws have required registrants to provide
annual reports since 1934.\930\ In 1955, the Commission adopted rules
requiring registrants to file semi-annual reports on Form 9-K.\931\ In
the proposing release for Form 9-K, the Commission stated that
``consideration should be given to requiring reports of certain
significant information more frequently than annually.'' \932\
Investors and the securities industry supported the semi-annual
reporting proposal, while registrants opposed it.\933\
---------------------------------------------------------------------------

    \930\ As enacted, Section 13 of the Exchange Act required listed
companies to furnish annual reports, and if the Commission required,
quarterly reports. John Hanna, The Securities Exchange Act as
Supplementary of the Securities Act, 4 Law & Contemp. Probs. 256,
256-268 (1937). Exchange Act reporting requirements were extended to
non-listed registrants with the enactment of Section 12 of the
Exchange Act in 1964. See supra note 14.
    \931\ See Semi-Annual Reports, Release No. 34-5189 (June 23,
1955) [20 FR 4816 (July 7, 1955)]. The Form 9-K was filed once a
year, 45 days after the end of the first half the registrant's
fiscal year. The semi-annual report required disclosure with respect
to sales and gross revenues, net income before and after taxes,
extraordinary and special items, and charges and credits to earned
surplus. Form 9-K did not require formal statements of profit and
loss or earned surplus and was not required to be certified.
    \932\ Notice of Proposed Rule Making, Semi-Annual Reports,
Release No. 34-5129 (Jan. 27, 1955) [20 FR 771 (Feb. 4, 1955)] at
772.
    \933\ See Philip Augar, For Markets There is Such a Thing as Too
Much Information, Financial Times, Feb. 1, 2015 (``Augar'').
---------------------------------------------------------------------------

    The Commission has required quarterly reporting since 1970, when it
adopted Form 10-Q to replace the semi-annual report on Form 9-K.\934\
However, prior to adopting Form 10-Q, more than seventy percent of
public companies produced quarterly reports, partially in response to
exchange listing standards.\935\ As adopted in 1970, Form 10-Q required
summarized financial information and profit and loss information in
more detail than was required by Form 9-K, including data on earnings
per common share. In addition, information on a registrant's
capitalization and stockholders' equity was also required.\936\
---------------------------------------------------------------------------

    \934\ See Quarterly Reporting Form, Release No. 34-9004 (Oct.
28, 1970) [35 FR 17537 (Nov. 14, 1970)] (``Form 10-Q Adopting
Release''). Form 10-Q was adopted in response to the Wheat Report.
See Wheat Report at 357-58 (``More and more publicly-held
corporations are releasing condensed quarterly financial
information. Both the New York and American Stock Exchanges require
publication of such information by all listed companies, although
the standards which they set for such information are minimal . . .
The Study carefully examined a significant sample of quarterly
financial reports and releases provided by the two exchanges. It was
readily apparent . . . that they varied from extremely useful to
extremely poor and uninformative . . . It was concluded that a
useful advance in disclosure policy could be achieved by developing
standards for quarterly financial reporting.'').
    \935\ See Arthur Kraft et al., Real Effects of Frequent
Financial Reporting (Cass Business School, City University London,
Working Paper Series No. 26, Aug. 2014) at 2 (``Kraft et al.''). See
also Marty Butler et al., The effect of reporting frequency on the
timeliness of earnings: The cases of voluntary and mandatory interim
reports, 43 J. Acct. Econ. 181, 185 (2007).
    The New York Stock Exchange began requiring annual reports in
1914, and by 1923, over twenty-five percent of NYSE-listed companies
were publishing quarterly reports with another eight percent
publishing semi-annual reports. By 1933, over sixty percent of NYSE-
listed companies were publishing quarterly reports and twelve
percent published semi-annual reports. See James E. Davis, Corporate
Disclosure through the Stock Exchanges, Apr. 24, 1999 (unpublished
paper) (on file with Harvard Law School and available at http://cyber.law.harvard.edu/rfi/papers/disclose.pdf).
    The Form 10-Q proposing release also noted that ``[m]any
publicly held companies are releasing condensed quarterly financial
information, and the major stock exchange[s] require publication of
such information by listed companies.'' Form 10-Q For Disclosure of
Financial Information, Release No. 34-8683 (Sept. 1969) [34 FR 14239
(Sept. 10, 1969)].
    \936\ See Form 10-Q Adopting Release.
---------------------------------------------------------------------------

    In 1981, in connection with its integrated disclosure initiatives,
the Commission revised Form 10-Q to ``build upon the annual reporting
system to ensure meaningful disclosure on a continuous basis by making
quarterly reporting a mechanism to update the annual report.'' \937\
The amendments were intended to complement the previously adopted
revisions relating to annual reporting, and included the addition of
management's discussion and analysis of interim financial
information.\938\ Other significant additions to Form 10-Q over time
have included quantitative and qualitative disclosures about market
risk,\939\ disclosure controls and procedures,\940\ and risk
factors.\941\
---------------------------------------------------------------------------

    \937\ See New Interim Financial Information Provisions and
Revision of Form 10-Q for Quarterly Reporting, Release No. 33-6288
(Feb. 9, 1981) [46 FR 12480 (Feb. 17, 1981)] (``New Interim
Financial Information Release'') at 12481.
    \938\ Id.
    \939\ See Disclosure of Market Risk Sensitive Instruments
Release.
    \940\ See Certification of Disclosure in Companies' Quarterly
and Annual Reports, Release No. 33-8124 (Aug. 29, 2002) [67 FR 57276
(Sept. 9, 2002)].
    \941\ See Securities Offering Reform Release.
---------------------------------------------------------------------------

a. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. One commenter suggested that
semiannual financial reporting may be sufficient for SRCs that are not
listed on a national exchange, noting that scaling the requirement in
this way would align the treatment of SRCs with that of comparable
companies that are now

able to rely on the exemption under Regulation A.\942\
---------------------------------------------------------------------------

    \942\ See Ernst & Young 2.
---------------------------------------------------------------------------

b. Discussion
    The Commission adopted quarterly reporting with the purpose of
ensuring meaningful disclosure to investors on a continuous basis.\943\
The Wheat Report concluded that one of the principal omissions in the
Exchange Act reporting system was the absence of a quarterly summary of
basic financial information prepared using reasonably specific
standards.\944\ The Wheat Report also concluded that ``a regular,
quarterly report would be more useful than the current reports on Form
8-K, which were filed irregularly.'' \945\ Accordingly, quarterly
reports were intended to provide a mechanism to update the information
in an annual report on Form 10-K in a more consistent manner and on a
regular basis.
---------------------------------------------------------------------------

    \943\ See New Interim Financial Information Release.
    \944\ See Wheat Report at 332-334.
    \945\ See id. at 332.
---------------------------------------------------------------------------

    The value of quarterly financial reporting has been the subject of
debate.\946\ Opponents of quarterly reporting argue that frequent
financial reporting may lead management to focus on short-term results
to meet or beat earnings targets rather than on long-term
strategies.\947\ Consequently, some have argued that quarterly reports
should be discontinued \948\ or made voluntary \949\ in the United
States.\950\
---------------------------------------------------------------------------

    \946\ The debate over quarterly reporting sometimes includes
concerns of ``short-termism.'' The discussion here is not intended
to capture all aspects of, or issues raised in, the short-termism
debate.
    For a list of recent publications on short-termism, see Therese
Strand, Re-Thinking Short-Termism and the Role of Patient Capital in
Europe: Perspectives on the New Shareholder Rights Directive, 22
Colum. J. Eur. L. 1, footnote 26 (2015) at footnote 26.
    \947\ See Kraft et al.
    \948\ See Martin Lipton, Legal & General Calls for End to
Quarterly Reporting, Aug. 19, 2015, available at http://www.wlrk.com/webdocs/wlrknew/AttorneyPubs/WLRK.24734.15.pdf. The
author suggests that the Commission should consider the UK's move
toward discontinuing quarterly reporting in pursuing disclosure
reform initiatives. He notes that Legal & General Investment
Management, a global investment firm with more than [pound]700
billion in assets under its management, contacted the boards of
London Stock Exchange's 350 largest companies to support the
discontinuation of quarterly reporting. According to the author,
Legal & General emphasized that short-term reporting ``is not
necessarily conducive to building a sustainable business'' and
``adds little value for companies that are operating in long-term
business cycles.'' See also David Benoit, Time to End Quarterly
Reports, Law Firm Says, The Wall Street Journal, Aug. 19, 2015,
available at; http://www.wsj.com/articles/time-to-end-quarterly-reports-law-firm-says-1440025715.
    \949\ See Augar.
    \950\ Other jurisdictions have eliminated quarterly reporting.
For example, in the European Union, the requirement for issuers
traded on a regulated market to publish financial information more
frequently than annual financial reports and semi-annual reports was
abolished in 2013. See Directive 2013/50/EU of the European
Parliament and of the Council, Oct. 22, 2013, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013L0050.
Following implementation, E.U. member states generally will require
only annual and semi-annual reports. However, an E.U. member state
may require issuers to publish additional periodic financial
information if the requirement does not constitute a significant
financial burden and if the required information is proportionate to
the factors that contribute to investment decisions. Id.
---------------------------------------------------------------------------

    On the other hand, some advocates of frequent reporting, typically
on a quarterly basis, point out that greater frequency improves the
timeliness of earnings and reduces information asymmetry between
managers and investors.\951\ Others are skeptical of the benefits of
eliminating quarterly reporting requirements.\952\ According to one
survey of institutional investors, fifty-eight percent of investors
preferred to receive information on a quarterly basis to confirm or
reframe expectations.\953\ Some advocates have expressed concern that
eliminating quarterly reporting requirements would result in
inconsistent reporting intervals across registrants and potentially,
from period to period.\954\ Meanwhile, others argue that delaying a
report by a few months would not fix the problems of short-
termism.\955\
---------------------------------------------------------------------------

    \951\ See Kraft et al.
    \952\ See Ronald Barusch, Dealpolitik: Attention CFOs--Don't Get
Your Hopes Up for an End to Quarterly Reporting, The Wall Street
Journal Blog, Aug. 20, 2015 (``Barusch''), available at http://blogs.wsj.com/moneybeat/2015/08/20/dealpolitik-attention-cfos-dont-get-your-hopes-up-for-an-end-to-quarterly-reporting (``Eliminating
quarterly reporting won't make investors any less interested in
quarterly results. Analysts and professional investors will do their
best to figure out what the quarterly would have shown even if
companies don't disclose it themselves.'').
    \953\ See Ernst & Young, Right team, right story, right price,
(2013), available at http://www.ey.com/Publication/vwLUAssets/
Investment_appetite_up_for_IPOs_among_institutional_investors/$FILE/
Institutional_Investor_Survey.pdf.
    \954\ See, e.g., Barusch (expressing concerns that eliminating
the quarterly report requirement could allow public companies to
``provide just what they want the public to know in whatever
intervals they choose,'' whereas the ``current rules require
quarterly GAAP-compliant financial information in a standard
format'').
    \955\ See Barry Ritholtz, Wrong Fix for Short-Term Corporate
Thinking, Bloomberg, Aug. 20, 2015, available at http://www.bloombergview.com/articles/2015-08-20/wrong-fix-for-short-term-corporate-thinking; and Mark J. Roe, The Imaginary Problem of
Corporate Short-Termism, The Wall Street Journal, Aug. 17, 2015,
available at www.wsj.com/articles/the-imaginary-problem-of-corporate-short-termism-1439853276.
---------------------------------------------------------------------------

    The value of quarterly reporting may vary by industry or by the
size of the registrant. For example, investors in smaller, capital-
intensive technology companies may focus more on significant business
or technology developments than on quarterly financial reports.\956\
Similarly, the costs of more frequent reporting may impose a
disproportionate burden on smaller or less capitalized
registrants.\957\ At the same time, smaller registrants may be more
volatile and quarterly reporting may provide more timely disclosure of
performance issues.\958\ Additionally, because smaller, capital-
intensive companies may need greater or more frequent access to capital
markets, more frequent reporting may provide greater investor
confidence and a lower cost of capital for these companies.\959\
---------------------------------------------------------------------------

    \956\ See Transcript, Meeting of SEC Advisory Committee on Small
and Emerging Companies (Sept. 23, 2015) at 64-65 (noting that some
biotechnology companies may not trade on their financial quarterly
reporting but rather, may trade on their fundamental clinical
development and regulatory events). The ACSEC discussed issues
raised by quarterly reporting for small and emerging companies at
its September 2015 meeting but did not issue formal recommendations.
See id.
    \957\ See id. at 60-61.
    \958\ See id. at 74.
    \959\ See id. at 87-90.
---------------------------------------------------------------------------

c. Request for Comment
    278. Do investors, registrants and the markets benefit from
quarterly reporting? What are the benefits and costs to investors,
registrants and the markets from the current system of quarterly
reporting? Should we revise or eliminate our rules requiring quarterly
reporting? Why or why not?
    279. Should the reporting requirements be different for different
types of registrants? Should we consider permitting SRCs to file
periodic reports on a less frequent basis, such as semi-annually? If
so, what disclosures should we require in those reports?
    280. Should we allow other categories of registrants to file
periodic reports on a less frequent basis, such as semi-annually? If
so, which categories of registrants should be permitted to file less
frequently, and what disclosure should be required?
    281. Should we require certain registrants to file periodic reports
on a more frequent basis such as monthly?
    282. Should we consider reducing the level of disclosure required
in the quarterly reports for the first and third quarters? If so, what
disclosure should we require in these abbreviated quarterly reports?
Should the disclosure requirements for SRCs be the same as those that
apply to other categories of registrants?
    283. Do quarterly reporting obligations influence the strategic
goals and timelines of registrants' management? Do quarterly reporting

obligations help or hinder long-term decision making by registrants?
    284. What types of investors or audiences are most likely to value
the information that registrants disclose in quarterly reports?
    285. What are the savings (or costs avoided) for registrants,
including the administrative and compliance costs of preparing and
disseminating disclosure, that would likely arise from revising or
eliminating our rules requiring quarterly reporting? Please provide
quantifications of savings and costs avoided where possible.

V. Presentation and Delivery of Important Information

    Given the volume, complexity and sophistication of corporate
disclosures, the presentation and delivery of information may play a
significant role in investors' ability to access and use important
disclosure. The Commission's own disclosure system creates some
fragmentation of information, in both location and time. Registrants
provide disclosure on Forms 10-K, 10-Q, and 8-K, which are filed on
EDGAR. Registrants also can provide broad, non-exclusionary
distribution of information under Regulation FD either on Form 8-K or
through press releases, conference calls, or Web sites.\960\ In
addition, registrants may use tools such as cross-referencing and
incorporation by reference to reduce repetitive disclosure and present
more streamlined information in each filing. As different investors and
third parties likely use disclosures in different ways, the benefits of
different presentation and delivery approaches may vary.
---------------------------------------------------------------------------

    \960\ See Selective Disclosure and Insider Trading, Release No.
33-7881 (Aug. 15, 2000) [65 FR 51716 (Aug. 24, 2000)] (``Regulation
FD Release'').
---------------------------------------------------------------------------

    The S-K Study recommended that the staff consider ways to present
information that would improve the readability and navigability of
disclosure. It also recommended that the staff explore methods to
discourage repetition and disclosure of immaterial information.\961\
Additionally, the FAST Act requires the Commission to issue regulations
permitting registrants to submit a summary page in their Form 10-K only
if each item on the summary page includes a cross-reference (by
electronic link or otherwise) from each item in the summary to the
related material in the Form 10-K.\962\
---------------------------------------------------------------------------

    \961\ See S-K Study at 98-99.
    \962\ Public Law 114-94, Sec. 72001, 129 Stat. 1312 (2015).
---------------------------------------------------------------------------

    In light of the S-K Study's recommendations and the recent FAST Act
mandate, we are seeking public input on how our rules can facilitate
the readability and navigability of disclosure documents. We are
seeking public input on the use of tools such as cross-referencing,
incorporation by reference, hyperlinks and registrant Web sites as well
as other ways we could change our disclosure requirements to improve
the readability and navigability of registrant filings.\963\ Given the
various types of filings and other delivery methods available to
registrants, we also are seeking input on where information should be
provided directly and in full, and where references to the location of
the information may suffice. Additionally, we are interested in whether
any required disclosures would be more effective if we required
registrants to present them in a specified format, such as a tabular or
graphic presentation, to layer the disclosures by means of a summary or
overview, or to provide certain information as structured data.
---------------------------------------------------------------------------

    \963\ Some of the concepts raised in this section, such as
incorporation by reference to Securities Act filings, may include
filings outside of the scope of this release.
---------------------------------------------------------------------------

A. Cross-Referencing

    In lieu of presenting duplicative disclosure, our rules generally
permit registrants to cross-reference to information in one section of
a document to satisfy a disclosure requirement in another section of
the document. Several items in Regulation S-K specify that a company
may include in its financial statements or related notes a cross-
reference to certain information in the non-financial statement
disclosure or, conversely, a company may cross-reference from the
disclosure to the financial statements or notes thereto.\964\ In
addition to allowing for cross-referencing, Item 303(a)(4) of
Regulation S-K requires that the substance of the cross-referenced
information be integrated into the discussion to help inform readers of
the significance of the information that is omitted from MD&A.\965\
---------------------------------------------------------------------------

    \964\ See, e.g., Items 101(b) and (d)(2), 202(a)(5), and
Instruction 5 to Item 303(a)(4) of Regulation S-K [17 CFR 229.101(b)
and (d)(2), 17 CFR 229.202(a)(5), and 17 CFR 229.303(a)(4)]. For a
discussion of circumstances where cross-referencing would not be
permissible or appropriate, see Section V.A.2.c.
    \965\ Instruction 5 to Item 303(a)(4) of Regulation S-K [17
CFR229.303(a)(4)].
---------------------------------------------------------------------------

1. Comments Received
    S-K Study. None.
    Disclosure Effectiveness Initiative. Many commenters provided
recommendations supporting the use of cross-referencing.\966\ A few of
these commenters recommended clear and precise cross-references to help
investors locate important information in the current volume of
disclosure.\967\ Several supported greater use of cross-referencing to
eliminate redundancies.\968\ One of these commenters supported the use
of cross-referencing where appropriate to eliminate duplicative
information but suggested that any referenced document should be
considered ``filed with the SEC'' for legal and liability
purposes.\969\ One of these commenters supported cross-referencing so
long as the level of auditor assurance was not diminished.\970\ This
same commenter noted that many sections within Commission filings are
meant to touch on the same topic but from a different perspective and
encouraged the Commission to consider not whether those sections should
be eliminated, but whether they should be tailored to meet the original
disclosure objective.
---------------------------------------------------------------------------

    \966\ See, e.g., letter from Thomas Amy (June 5, 2014) (``T.
Amy''); CCMC; SCSGP; CFA Institute; Shearman; ABA 2; letter from
William J. Klein and Thomas J. Amy (Dec. 12, 2014) (``Klein and Amy
1''); letter from William J. Klein and Thomas J. Amy (Aug. 31, 2015)
(``Klein and Amy 4''); AFL-CIO.
    \967\ See, e.g., T. Amy; Klein and Amy 1; Klein and Amy 4.
    \968\ See, e.g., ABA 2; CCMC; CFA Institute; Shearman.
    \969\ See AFL-CIO.
    \970\ See CFA Institute.
---------------------------------------------------------------------------

    Some commenters suggested that the Commission require or encourage
the use of cross-references within filings.\971\ One of these
commenters recommended a new Commission policy on the avoidance of
duplication and the use of cross-references.\972\ This commenter
recommended adding instructions to specific Regulation S-K items to
encourage the use of cross-references to avoid duplicative
disclosure.\973\ This commenter also recommended that the inclusion of
responsive disclosure anywhere in a document should be sufficient to
satisfy the disclosure requirement without the need to include

a cross-reference in each item calling for the information.\974\
---------------------------------------------------------------------------

    \971\ See, e.g., Klein and Amy 1 (recommending that the
Commission consider requiring that filers: (1) Make specific cross-
references between the line items on their financial statements and
the related notes, including the page where the note may be found;
and (2) include a detailed table of contents or index for the notes,
which would increase the transparency of financial information and
make it easier to read and understand); Klein and Amy 4 (reiterating
their previous recommendations and recommending that the Commission
consider requiring that filers provide specific cross-references
between all discussions of Legal Proceedings that appear in
different sections of the report and in the notes to the financial
statements); ABA 2; Shearman.
    \972\ See ABA 2.
    \973\ See id. (recommending amendments to Items 101(c)(ix) and
303(a)(1), (4) and (5) to state that ``cross-references should be
used to avoid duplicative disclosure'').
    \974\ See id. The one exception recommended was for the
financial statements and notes to the financial statements, where
cross-references should not be used to satisfy U.S. GAAP
requirements. However, where the financial statements and notes to
the financial statements include disclosure that is responsive to
Regulation S-K items, the commenter recommended that the rules allow
an appropriate cross-reference to the relevant financial statement
disclosure to satisfy the requirement.
---------------------------------------------------------------------------

2. Discussion
    We recognize that an investor may find it easier to access all
relevant information in a single location, even if a portion of the
information is repeated elsewhere in the document. However, repetitive
disclosure may obscure relevant information or render it difficult to
evaluate the importance of the information. Below, we consider ways in
which cross-references could potentially be used to reduce redundant
disclosure and improve the navigability of lengthy documents.
a. Cross-References to Reduce Repetitive Disclosure
    Where different disclosure requirements call for the same
information in separate parts of the same document, as discussed above,
our rules generally allow the registrant to cross-reference to the
applicable discussion in another part of the document rather than
duplicating the disclosure.\975\ In some instances, Regulation S-K and
U.S. GAAP requirements call for similar but not identical
disclosures.\976\ A registrant, subject to certain conditions, may
present all the information required by both requirements in one
location, with the second location simply containing a cross-reference
back to the first location.\977\ In this way, the related disclosures
may be logically presented together and both requirements met in their
separate locations within the filing while avoiding duplicative or
partially duplicative disclosure.
---------------------------------------------------------------------------

    \975\ See Section V.A.
    In the Securities Act context, Commission staff has discouraged
registrants from repeating disclosure in multiple places in a
prospectus, instead encouraging the inclusion of a brief overview to
provide context in one section along with a cross-reference to more
detailed discussion elsewhere. See also Updated Staff Legal Bulletin
No. 7. In addition, Securities Act Rule 421(b), amended at the same
time as our Plain English Rules, discourages repeating disclosure in
more than one location that lengthens the filing without enhancing
the quality of the information. See Note 4 to Rule 421(b) [17 CFR
230.421(b)]; Plain English Disclosure Adopting Release.
    \976\ See, e.g., Item 103 of Regulation S-K (Legal proceedings)
[17 CFR 229.103] and ASC Topic 450 (Contingencies); Item 404 of
Regulation S-K (Transactions with related persons, promoters and
certain control persons) [17 CFR 229.404] and ASC Topic 850 (Related
Party Disclosures). The staff is separately considering Item 103 in
developing recommendations for potential changes to update or
simplify the requirements. For a description of these
recommendations, see Section I.
    \977\ In some instances, a cross-reference is effectively
prohibited because it would be inconsistent with the disclosure
requirement. For example, the table of contractual obligations calls
for aggregated information in a single location. A registrant could
not satisfy the requirement to provide the data required in the
table of contractual obligations with a cross-reference in MD&A to
multiple financial statement footnotes. See Item 303(a)(5) of
Regulation S-K [17 CFR 229.303(a)(5)]; and Off-Balance Sheet and
Contractual Obligations Adopting Release.
---------------------------------------------------------------------------

    In seeking input on how registrants can most effectively present
and deliver important information, we recognize that information may be
relevant to more than one filing or more than one section of a given
filing. Registrants often repeat information in response to different
item requirements in Form 10-K. For example, disclosure about the
registrant's business appears in the Business section, and parts of
that disclosure may be repeated in MD&A, risk factors, and the
footnotes to the financial statements. Repetition of this information
may be beneficial in certain contexts, such as a registrant with a
complex organizational structure or business model. Repetition also may
provide users of disclosure with direct access to the information they
need in a consistent location, particularly to the extent that
different audiences for disclosure focus on different filings or
sections of filings. In other instances, such repetition can be
distracting.
i. Request for Comment
    286. Do investors find that cross-referencing within a filing in
lieu of repeating the disclosure helps them locate important
information? Why or why not?
    287. Are there specific items in Regulation S-K that would benefit
from greater use of cross-referencing to reduce duplicative disclosure?
If so, which items? For these specific items, should we amend the item
to specifically encourage use of cross-references? Alternatively, and
as suggested by a commenter,\978\ should we amend these items to meet
the original disclosure objective more effectively?
---------------------------------------------------------------------------

    \978\ See CFA Institute.
---------------------------------------------------------------------------

    288. Does cross-referencing negatively affect investors' ability to
use disclosure by creating inconsistency in the location of information
across different registrants and different filings? To what extent does
cross-referencing introduce challenges with respect to comparative
analyses or large-scale automated processing of disclosure?
    289. Should we require registrants to provide certain disclosures
in the same location (e.g., under a specific item of the form) in every
filing, rather than permitting cross-referencing? If so, which
information should be located consistently and where should that
information be located?
    290. To what extent does the flexibility to use cross-references
reduce compliance and administrative costs to registrants of preparing
and disseminating disclosures? Please provide quantifications if
possible.
b. Cross-References To Navigate Disclosure
    Cross-references can also assist readers in navigating disclosure
where disclosures are not necessarily duplicative but relate to the
same topic and may be required in multiple locations throughout a
filing.\979\ For example, a discussion in the business section about
how a registrant generates revenue may benefit from a cross-reference
to the registrant's revenue recognition policy. Similarly, a risk
factor that the registrant may not be able to meet payments on its
outstanding debt may benefit from a reference to the debt footnote in
the financial statements. Including these cross-references may help
readers obtain a more complete picture by directing them to other
similar information that the reader may not have otherwise reviewed. In
addition, where registrants include a summary or overview of their
filing or part of their filing, as contemplated by the FAST Act,\980\
cross-references can assist the reader in locating the more detailed
disclosure included elsewhere in the filing.\981\
---------------------------------------------------------------------------

    \979\ For a discussion of hyperlinks, see Section V.C.
    \980\ Public Law 114-94, Sec. 72001, 129 Stat. 1312 (2015).
    \981\ See, e.g., H.R. Rep. 114-279, 114th Cong., 1st Sess. 4
(2015) (stating ``[b]ecause the typical 10-K . . . is hundreds of
pages long, investors find it difficult to locate important
information'' and that ``a summary page would enable companies to
concisely disclose pertinent information . . . [and] would also
enable investors to more easily access the most relevant information
about a company''). For a discussion of layered disclosure, see
Section V.F.
---------------------------------------------------------------------------

i. Request for Comment
    291. Are there certain items or topics that would benefit from a
cross-reference to related or more comprehensive disclosure in
different parts of the filing? If so, what are those items or topics?
    292. Do cross-references that identify related information make the
disclosure more or less readable?
c. Limitations on Cross-Referencing
    Registrants' ability to use cross-references is not unlimited, as
the

Commission has discouraged cross-references that render disclosure
unclear or incomplete. It also has acknowledged that vague or excessive
cross-references can hinder the reader's ability to locate and
understand information.\982\ Moreover, even specific cross-references
may draw the reader away from key information.\983\
---------------------------------------------------------------------------

    \982\ See Plain English Disclosure, Release No. 33-7380 (Jan.
14, 1997) [62 FR 3152 (Jan. 21, 1997)].
    \983\ See U.S. Securities and Exchange Commission, Office of
Investor Education and Assistance. A Plain English Handbook: How to
Create Clear SEC Disclosure Documents (1998), available at https://www.sec.gov/pdf/handbook.pdf.
---------------------------------------------------------------------------

    While none of our rules prohibit the use of cross-references, there
may be instances where cross-references would not satisfy the
requirements or would detract from the readability or completeness of
the disclosure. For example, the Commission has stated that its MD&A
rules are intended to provide, in one section of a filing, a discussion
of all the material impacts on the registrant's financial condition or
results of operations, including those arising from circumstances
discussed elsewhere in the filing.\984\
---------------------------------------------------------------------------

    \984\ See 1989 MD&A Interpretive Release. This guidance predated
the use of hyperlinking technology. For a discussion of the
limitations on hyperlinks to related materials, see Section V.C.
---------------------------------------------------------------------------

    Cross-referencing is contemplated under auditing standards.\985\
However, some auditors have expressed concern that cross-referencing
from the financial statements to MD&A may confuse users on the
auditor's responsibilities and what information the auditor's report
covers.\986\ Others have stated that the financial statements and the
related notes should stand on their own so they can be audited or
reviewed, as applicable.\987\
---------------------------------------------------------------------------

    \985\ AU 508, Paragraph 41 provides: Inadequate disclosure.
Information essential for a fair presentation in conformity with
generally accepted accounting principles should be set forth in the
financial statements (which include the related notes). When such
information is set forth elsewhere in a report to shareholders, or
in a prospectus, proxy statement, or other similar report, it should
be referred to in the financial statements. [Emphasis added]
    \986\ See, e.g., letter from PricewaterhouseCoopers LLP to FASB,
Nov. 29, 2012, available at http://www.fasb.org/cs/BlobServer?blobkey=id&blobnocache=true&blobwhere=1175825243422&blobheader=application%2Fpdf&blobheadername2=Content-Length&blobheadername1=Content-Disposition&blobheadervalue2=621509&blobheadervalue1=filename%3DDISFR.DP.0029.PRICEWATERHOUSECOOPERS_LLP.pdf&blobcol=urldata&blobtable=MungoBlobs (recommending that notes not cross-reference to MD&A as it
will not be clear what the audit report covers).
    \987\ See, e.g., Financial Accounting Standards Board and Center
for Audit Quality, Financial Statement Disclosure Effectiveness:
Forum Observations Summary, Oct. 2012, available at http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176160567809 (``FASB/CAQ Forum'') (noting that some
participants opposed cross-referencing as a tool to address
disclosure overlap between MD&A and notes to financial statements
due to concerns related to audit responsibility or because they felt
that MD&A and the notes should each stand on their own); letter from
PricewaterhouseCoopers LLP to FASB, July 10, 2014, available at
http://www.fasb.org/jsp/FASB/CommentLetter_C/CommentLetterPage&cid=1218220137090&project_id=2014-200 (expressing
concern that disclosures presented outside the audited financial
statements prepared in accordance with U.S. GAAP may not be subject
to the same degree of scrutiny and assurance). See also ABA 2
(recommending a policy encouraging cross-referencing, except in the
financial statements and notes to the financial statements, which
should be considered a standalone section).
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    In addition, the financial statements are not covered by the PSLRA
safe harbor from liability for forward-looking statements. The PSLRA
does, however, cover MD&A disclosures.\988\ While nothing prohibits
cross-referencing between the financial statements and, for example,
MD&A, forward-looking statements pulled from MD&A into the financial
statements could ``lose'' their PSLRA safe harbor. Accordingly,
preparers concerned about forward-looking information may have a
disincentive to include a cross-reference in the financial statements
to forward-looking information elsewhere in the document out of concern
that doing so would effectively pull the statements into the financial
statements and expose the registrant to liability without the
protection of the PSLRA for such statements.\989\
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    \988\ 15 U.S.C. 78u-5. See also Off-Balance Sheet and
Contractual Obligations Adopting Release.
    \989\ See e.g., FASB/CAQ Forum.
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i. Request for Comment
    293. Are there items or topics where cross-references detract from
the readability of a filing? Are there items or topics where we should
prohibit cross-references and require all related information be
presented in a single location? What are these items or topics?
    294. Some of the Commission's guidance limiting the use of cross-
referencing pre-date the expanded use of technology that allows
registrants to hyperlink to referenced disclosure.\990\ In light of
technological changes that allow hyperlinks, which we discuss below,
should we reconsider those rules that seek to provide investors with
information in a single location?
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    \990\ See supra note 984.
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    295. Should we introduce requirements or guidance for the use of
cross-references in order to increase the consistency in location of
information across periods and registrants? If so, what requirements or
guidance should we consider?

B. Incorporation by Reference

    Rule 12b-23 of the Exchange Act generally allows a registrant to
incorporate by reference information in any part of a registration
statement or report in answer, or partial answer, to any other item of
a registration statement or report.\991\ In Form 10-K, registrants may
incorporate by reference the information called for by Parts I and II
\992\ of Form 10-K from the company's annual report to security
holders. Registrants also may incorporate by reference the information
required by Part III of Form 10-K from the registrant's definitive
proxy statement or information statement, as applicable.\993\ The staff
has provided interpretive guidance on Rule 12b-23, stating that within
the guidelines specified by the rule, a registrant may incorporate by
reference into its own Exchange Act documents any information contained
in the filed documents of another issuer.\994\
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    \991\ Exchange Act Rule 12b-23 [17 CFR 240.12b-23]. In addition,
Item 10(d) of Regulation S-K provides that where rules, regulations,
or instructions to forms permit incorporation by reference,
information may be incorporated by reference to the specific
document and to the prior filing or submission containing the
information. 17 CFR 229.10(d).
    \992\ Subject to some scaled disclosure requirements discussed
in Section IV.H above, Parts I and II of Form 10-K generally require
the following information:
     Part I: Business, Risk Factors, Unresolved Staff Comments,
Properties, Legal Proceedings, and Mine Safety Disclosures.
     Part II: Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities,
Selected Financial Data, MD&A, Quantitative and Qualitative
Disclosures about Market Risk, Financial Statements and
Supplementary Data, Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure, Controls and Procedures, and
Other Information.
    \993\ Subject to some scaled disclosure requirements discussed
in Section IV.H, Part III of Form 10-K generally requires the
following information: Directors, Executive Officers and Corporate
Governance; Executive Compensation; Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters;
Certain Relationships and Related Transactions and Director
Independence; and Principal Accounting Fees and Services.
    To incorporate Part III information into the Form 10-K, the
proxy statement or information statement must be filed not later
than 120 days after the end of the fiscal year covered by the Form
10-K See General Instruction G(3) to Form 10-K.
    \994\ See Exchange Act Rules Compliance and Disclosure
Interpretations Question 134.01, available at http://www.sec.gov/divisions/corpfin/guidance/exchangeactrules-interps.htm.
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    Rule 12b-23 provides that where material is incorporated by
reference:
     The material must be clearly identified by page,
paragraph, and caption or otherwise;
     the filing must state that the specified matter is
incorporated by

reference at the particular place in the report where the information
is required; and
     except in certain circumstances, a copy of any information
incorporated by reference or the pertinent pages of the document
containing such information must be filed as an exhibit to the report
where it is incorporated by reference.\995\
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    \995\ Exchange Act Rule 12b-23 [17 CFR 240.12b-23]. Rule 12b-
23(a)(3) provides that the following need not be filed as an
exhibit: A proxy or information statement incorporated by reference
in response to Part III of Form 10-K; a form of prospectus filed
pursuant to 17 CFR 230.424(b) incorporated by reference in response
to Item 1 of Form 8-A; and information filed on Form 8-K.
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    For exhibits, Rule 12b-32 allows any document or part thereof filed
with the Commission to be incorporated by reference as an exhibit to
any report filed with the Commission by the registrant or any other
person.\996\ Registrants regularly satisfy exhibit filing requirements
by relying on Rule 12b-32 to incorporate exhibits by reference to
previously filed reports or registration statements.\997\ Rule 12b-32
also allows a registrant to meet the exhibit filing requirement of Rule
12b-23(a)(3) by incorporating by reference as an exhibit the document
or portion of the document containing the information incorporated by
reference under that rule.\998\
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    \996\ Rule 12b-32 [17 CFR 240.12b-32].
    \997\ Item 601(a) of Regulation S-K [17 CFR 229.601(a)].
    \998\ Rule 12b-23 [17 CFR 240.12b-23(a)(3)].
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1. Comments Received
    S-K Study. None.
    Disclosure Effectiveness. One commenter suggested that the
Commission encourage the use of incorporation by reference by revising
Rule 12b-23(a)(3) to eliminate the requirement that copies of the
pertinent pages containing incorporated disclosure be filed as an
exhibit and ease the navigability of filings by requiring incorporated
disclosure to be made accessible via hyperlink in the filed
document.\999\ Another commenter stated that many registrants fail to
provide the page, paragraph, citation or other information required by
Rule 12b-23(b), rendering the references less helpful.\1000\
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    \999\ See ABA 2.
    \1000\ See Klein and Amy 1; Klein and Amy 4.
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2. Discussion
    The Commission has a long history of permitting incorporation by
reference.\1001\ Incorporation by reference was a key component of Form
S-3, introduced as part of the integrated disclosure system, based on
the efficient market theory.\1002\ The Commission envisioned that its
integrated disclosure system would eliminate duplicative disclosure by
allowing registrants to incorporate by reference information filed in
Exchange Act reports into Securities Act registration statements.\1003\
The Commission also acknowledged that incorporation by reference has
limitations, as there is no assurance that the mere reference to
incorporated information will be meaningful to an investor or potential
investor.\1004\
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    \1001\ See Release No. 34-51 (Nov. 27, 1934) [not published in
the Federal Register] (adopting the first Exchange Act rule, JB4,
allowing registrants to incorporate by reference as an exhibit any
document previously or concurrently filed with the Commission under
the Exchange Act); see also Registration and Reporting Rules and
Rules of General Application [13 FR 9321 (Dec. 31, 1948)] and 1948
Adoption of Amendments to General Rules and Regulations Release
(adopting early versions of Rules 12b-23 and 12b-32).
    \1002\ See 1982 Integrated Disclosure Adopting Release at 11382
(stating that ``Form S-3, in reliance on the efficient market
theory, allows maximum use of incorporation by reference of Exchange
Act reports and requires the least disclosure to be presented in the
prospectus and delivered to investors'' and that ``[g]enerally, the
Form S-3 prospectus will present the same transaction-specific
information as will be presented in a Form S-1 . . . The prospectus
will not be required to present any information concerning the
registrant unless there has been a material change . . . which has
not been reported in an Exchange Act filing or the Exchange Act
reports incorporated by reference do not reflect certain restated
financial statements or other financial information.''). For a
description of the efficient market theory, see supra note 163.
    \1003\ See 1980 Form 10-K Proposing Release.
    Certain Commission forms allow historical incorporation by
reference, meaning a registrant or issuer may incorporate
information by reference to previous filings. Examples include
Exchange Act Form 8-A, which allows for incorporation by reference
of the description of a registrant's securities if a comparable
description is contained in a prior filing. See Instruction to Item
1 of Form 8-A [17 CFR 249.208a]. Certain Securities Act registration
statements also permit historical incorporation by reference, such
as Form S-3, Form S-4, and Form S-11, which allow incorporation by
reference of previous Exchange Act filings into the prospectus. See
Item 12(a) of Form S-3 [17 CFR 239.13]; Item 11(a) of Form S-4 [17
CFR 239.25]; Item 29(a) of Form S-11 [17 CFR 239.18].
    Certain Securities Act forms allow for forward incorporation by
reference by certain issuers, where an issuer is permitted to
forward incorporate by reference to Exchange Act reports filed in
the future. Examples include Form S-3 and Form S-4. See Item 12(b)
of Form S-3 [17 CFR 239.13]; Item 11(b) of Form S-4 [17 CFR 239.25].
In addition, the FAST Act recently directed the Commission to revise
Form S-1 to permit SRCs to incorporate by reference to future
filings. Public Law 114-94, Sec. 84001, 129 Stat. 1312 (2015); See
also FAST Act Interim Rules Release.
    Given the scope of this release and its focus on Exchange Act
periodic reports, the discussion here generally is limited to
historical incorporation by reference.
    \1004\ See 1980 Form 10-K Proposing Release.
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    The Commission initially limited eligibility to incorporate by
reference in registration statements to seasoned, exchange-traded
companies based on the likelihood that the information in the
incorporated filings has been thoroughly analyzed and reflected in the
price or rating of the securities offered. For these types of
registrants, the Commission concluded that the cost savings to
registrants of not having to repeat or refile information disclosed
elsewhere outweighed the risk to investors that the stock price does
not reflect the omitted information.\1005\
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    \1005\ See id.
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    The integrated disclosure system also gave rise to the current
structure of Form 10-K that allows registrants to incorporate Parts I
and II from the annual report to shareholders and Part III from the
definitive proxy statement.\1006\ For periodic reports, registrants
regularly incorporate by reference the information required by Part III
of Form 10-K from their definitive proxy statements. Fewer registrants
incorporate Parts I and II of Form 10-K from their annual reports to
shareholders.\1007\ This likely is because many companies have
eliminated their separate annual report to shareholders and instead use
Form 10-K to satisfy their Rule 14a-3 requirements.\1008\ For exhibits,
registrants often incorporate by reference exhibits from prior filings
into their periodic reports.
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    \1006\ See 1980 Form 10-K Adopting Release. Although Form 10-K
was amended in 1980 to reflect the current structure, the Commission
has allowed some form of incorporation by reference from the annual
report to shareholders to satisfy requirements of Form 10-K since
1942. See Amendment to Forms for Registration and Filing Annual
Reports [7 FR 10653 (Dec. 22, 1942)] and Release No. 34-3347 [not
published in the Federal Register] (Dec. 18, 1942).
    \1007\ Based on data compiled by DERA, in calendar year 2014
approximately two percent of registrants incorporated some portion
of the information required in either Part I or Part II of their
Form 10-K from their annual report to shareholders, with more
registrants incorporating Part II information than Part I
information.
    \1008\ Exchange Act Rule 14a-3 [17 CFR 240.14a-3]; see Randi
Morrison and Broc Romanek, Annual Report & 10-K Wrap Handbook:
Practice Guide & Toolkit, Jul. 2014 (noting that more than fifty
percent of companies use a ``10-K wrap''); Neil Stewart, Designers
discuss trends in the latest crop of annual reports, IR Magazine,
Jun. 14, 2011, available at http://www.irmagazine.com/articles/earnings-calls-financial-reporting/18271/directions-annual-reports/
(noting that investors are ``far more likely to [receive] a plain
10K filing or perhaps a 10K-wrap'' and that ``[t]he traditional
annual report may have been all but killed off by the austere 10K-
wrap'').