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1 17 CFR 239.11. 

2 17 CFR.239.13. 

3 17 CFR 239.25. 

4 17 CFR 239.16b. 

5 17 CFR 239.18. 

6 15 U.S.C. 77a et seq. 

7 17 CFR 249.210. 

8 17 CFR 249.308a. 

9 17 CFR 249.310. 

10 15 U.S.C. 78a et seq. 

11 17 CFR 210.1–01 through 210.12–29. 

12 17 CFR 229.10 through 229.1208. 

13See Amendments to Smaller Reporting 

Company Definition, Release No. 33–10107 (Jun. 

27, 2016) [81 FR 43130 (Jul. 1, 2016)] (‘‘Proposing 

Release’’). As the Commission noted in the 

Proposing Release, raising the financial thresholds 

in the SRC definition would be responsive to the 

Fixing America’s Surface Transportation Act of 

2015 (‘‘FAST Act’’) because it would reduce the 

burden on the specified registrants by increasing 

the number of registrants eligible for scaled 

disclosure. See Public Law 114–94, 129 Stat. 1312 

(2015). 

14The comment letters received in response to 

the Proposing Release are available at https://

www.sec.gov/comments/s7-12-16/s71216.htm. 

15 In September 2015 and March 2013, the ACSEC 

recommended revising the SRC definition to 

include registrants with a public float of up to $250 

million. The recommendations made by ACSEC in 

March 2013 also included a recommendation to 

revise the SRC definition for registrants that are 

unable to calculate their public float to include 

registrants with less than $100 million in annual 

revenues. ACSEC Recommendations about 

Expanding Simplified Disclosure for Smaller 

Issuers (Sept. 23, 2015), available at https://

www.sec.gov/info/smallbus/acsec/acsecrecommendations-expanding-simplified-disclosurefor-smaller-issuers.pdf and ACSEC 

Recommendations Regarding Disclosure and Other 

Requirements for Smaller Public Companies (Mar. 

21, 2013), available at https://www.sec.gov/info/ 

smallbus/acsec/acsec-recommendation-032113- 

smaller-public-co-ltr.pdf. Both of these 

recommendations also included a recommendation 

that the Commission revise the ‘‘accelerated filer’’ 

definition to include registrants with a public float 

of $250 million or more, but less than $700 million. 

The accelerated filer definition currently includes 

registrants with a public float of $75 million or 

more, but less than $700 million. See Exchange Act 

Rule 12b–2. See Section II.C for a discussion of the 

accelerated filer definition. 

16The 2017 Small Business Forum recommended 

that the SRC definition be revised to include 

registrants with a public float of less than $250 

million or registrants with annual revenues of less 

than $100 million, excluding large accelerated 

filers. See Final Report of the 2017 SEC Government 

Business Forum on Small Business Capital 

Formation (Mar. 2018), available at https://

www.sec.gov/files/gbfor36.pdf. Registrants with a 

public float of $700 million or more generally 

qualify as large accelerated filers. See Exchange Act 

Rule 12b–2. Prior Small Business Forums made the 

same or similar recommendations. Final Small 

Business Forum reports are available at https:// 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 210, 229, 230, 239, 240, 

and 249 

[Release Nos. 33–10513; 34–83550; File No. 

S7–12–16] 

RIN 3235–AL90 

Smaller Reporting Company Definition 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rules. 

SUMMARY: We are adopting amendments 

to the definition of ‘‘smaller reporting 

company’’ as used in our rules and 

regulations. The amendments expand 

the number of registrants that qualify as 

smaller reporting companies and are 

intended to reduce compliance costs for 

these registrants and promote capital 

formation, while maintaining 

appropriate investor protections. We are 

amending the definition of ‘‘smaller 

reporting company’’ to include 

registrants with a public float of less 

than $250 million, as well as registrants 

with annual revenues of less than $100 

million for the previous year and either 

no public float or a public float of less 

than $700 million. We also are 

amending other rules and forms in light 

of the new definition of ‘‘smaller 

reporting company,’’ including 

amendments to the definitions of 

‘‘accelerated filer’’ and ‘‘large 

accelerated filer’’ to preserve the 

existing thresholds in those definitions. 

Qualifying as a ‘‘smaller reporting 

company’’ will no longer automatically 

make a registrant a non-accelerated filer. 

The Chairman, however, has directed 

the staff to formulate recommendations 

to the Commission for possible 

additional changes to the ‘‘accelerated 

filer’’ definition that, if adopted, would 

have the effect of reducing the number 

of registrants that qualify as accelerated 

filers. 

DATES: The final rules are effective 

September 10, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Amy Reischauer or Jennifer Riegel, 

Office of Small Business Policy, 

Division of Corporation Finance, at 

(202) 551–3460, U.S. Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

adopting amendments to 17 CFR 

230.405 (‘‘Rule 405’’) and Forms S–1,1

S–3,2 S–4,3 S–8,4 and S–11 5 under the 

Securities Act of 1933 (‘‘Securities 

Act’’); 6 17 CFR 240.12b–2 (‘‘Rule 12b– 

2’’) and Forms 10,7 10–Q,8 and 10–K 9

under the Securities Exchange Act of 

1934 (‘‘Exchange Act’’); 10 17 CFR 

210.3–05 (‘‘Rule 3–05’’ of Regulation S– 

X); 11 and 17 CFR 229.10(f) (‘‘Item 10(f)’’ 

of Regulation S–K).12

Table of Contents 

I. Introduction 

II. Final Amendments 

A. Amendments to Smaller Reporting 

Company Definition 

1. Public Float Test 

2. Revenue Test 

B. Amendments to Rule 3–05(b)(2)(iv) of 

Regulation S–X 

C. Amendments to Accelerated Filer and 

Large Accelerated Filer Definitions 

1. Proposed Amendments 

2. Comments 

3. Final Amendments 

III. Other Matters 

IV. Economic Analysis 

A. Baseline 

B. Potential Economic Effects 

1. Introduction 

2. Impact on Eligibility for Smaller 

Reporting Company Status 

3. Estimation of Potential Costs and 

Benefits 

4. Affiliated Ownership and Adverse 

Selection 

5. Effects on Efficiency, Competition and 

Capital Formation 

C. Possible Alternatives 

V. Paperwork Reduction Act 

A. Background 

B. Summary of the Final Amendments 

C. Summary of Comment Letters 

D. Revisions to Burden and Cost Estimates 

1. Form 10–K 

2. Form 10–Q 

3. Form 8–K 

4. Schedule 14A 

5. Schedule 14C 

6. Form 10 

7. Form S–1 

8. Form S–3 

9. Form S–4 

10. Form S–11 

VI. Final Regulatory Flexibility Analysis 

A. Need for, and Objectives of, the Final 

Rules 

B. Significant Issues Raised by Public 

Comments 

C. Small Entities Subject to the Final Rules 

D. Projected Reporting, Recordkeeping and 

Other Compliance Requirements 

E. Agency Action To Minimize Effect on 

Small Entities 

VII. Statutory Amendments and Text of Final 

Rules 

I. Introduction 

On June 27, 2016, the Commission 

proposed amendments that would 

increase the financial thresholds in the 

‘‘smaller reporting company’’ (‘‘SRC’’) 

definition and would have the effect of 

expanding the number of companies 

that benefit from the scaled disclosure 

accommodations available to SRCs.13 In 

developing final rules, we considered 

comment letters received in response to 

the Proposing Release,14 as well as 

recommendations made by the 

Securities and Exchange Commission 

Advisory Committee on Small and 

Emerging Companies (‘‘ACSEC’’) 15 and 

the SEC Government-Business Forum 

on Small Business Capital Formation 

(‘‘Small Business Forum’’).16 The 


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www.sec.gov/info/smallbus/sbforumreps.htm. 

Information about the Small Business Forum is 

available at http://www.sec.gov/info/smallbus/ 

sbforum.shtml. These recommendations also 

included a recommendation that the Commission 

revise the ‘‘accelerated filer’’ definition consistent 

with the recommended changes to the SRC 

definition. See Section II.C for a discussion of the 

accelerated filer definition. 

17See Smaller Reporting Company Regulatory 

Relief and Simplification, Release No. 33–8876 

(Dec. 19, 2007) [73 FR 934 (Jan. 4, 2008)] (‘‘SRC 

Adopting Release’’). 

18The definitions of accelerated filer and large 

accelerated filer are based on public float, but 

currently contain a provision excluding registrants 

that are eligible to use the SRC requirements in 

Regulation S–K for their annual and quarterly 

reports. As a result, raising the SRC public float 

threshold without eliminating that provision 

effectively would raise the accelerated filer public 

float threshold. See Section II.C for a discussion of 

the amendments to the accelerated filer and large 

accelerated filer definitions. 19Several of these scaled disclosure 

accommodations, such as the scaled executive 

compensation disclosures under Item 402(l) 

through (r) of Regulation S–K [17 CFR 229.402(l) 

through (r)], are similar to the disclosure 

accommodations available to an emerging growth 

company (‘‘EGC’’). See Securities Act Rule 405 [17 

CFR 230.405] and Exchange Act Rule 12b–2 [17 

CFR 240.12b–2]. EGCs also are exempt from the 

Sarbanes-Oxley Act Section 404(b) auditor 

attestation of internal control over financial 

reporting. For a discussion of scaled disclosure 

accommodations available to EGCs, see Business 

and Financial Disclosure Required by Regulation 

S–K, Release No. 33–10064 (Apr. 13, 2016) [81 FR 

23915 (April 22, 2016)] (‘‘Regulation S–K Concept 

Release’’). 

20See SRC Adopting Release, 73 FR at 940. Where 

a disclosure requirement applicable to SRCs is more 

stringent than the corresponding requirement for 

non-SRCs, however, SRCs must comply with the 

more stringent standard. The SRC Adopting Release 

identified Item 404 of Regulation S–K [17 CFR 

229.404] as the only instance in Regulation S–K in 

which the disclosure requirements applicable to 

SRCs could be more stringent. 

21 In addition to the accommodations itemized in 

the table, SRCs using Form S–1 may incorporate by 

reference information filed prior and subsequent to 

the effectiveness of the registration statement if they 

meet the eligibility requirements in General 

Instruction VII of Form S–1. See Item 12(b) of Form 

S–1; see also 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. 19, 2016) [81 FR 2743 (Jan. 19, 2016)]. 

Commission last revised the SRC 

definition in 2008.17 Our amendments 

reflect the need to solicit input and 

retrospectively review our rules in order 

to determine whether they are outdated 

or are not functioning as intended. 

Today, we are amending the SRC 

definition in an effort to promote capital 

formation and reduce compliance costs 

for specified registrants by expanding 

the number of registrants that are 

eligible to provide scaled disclosure 

while maintaining appropriate investor 

protections. 

We are adopting the amendments 

generally as proposed with two changes. 

As proposed, we are amending the SRC 

definition to include registrants with a 

public float of less than $250 million, as 

well as registrants with annual revenues 

of less than $100 million for the 

previous year and no public float. In a 

change from the proposal, the SRC 

definition in the final rules also 

includes registrants with annual 

revenues of less than $100 million for 

the previous year and a public float of 

less than $700 million. Specifically, we 

are amending Securities Act Rule 405, 

Exchange Act Rule 12b–2, and Item 

10(f) of Regulation S–K to effect these 

changes. In another change from the 

proposal, we are amending Rule 3– 

05(b)(2)(iv) of Regulation S–X to 

increase the revenue threshold under 

which certain acquirers may omit the 

earliest of the three fiscal years of 

audited financial statements of certain 

targets. Finally, we are adopting 

amendments to the ‘‘accelerated filer’’ 

and ‘‘large accelerated filer’’ definitions 

in Exchange Act Rule 12b–2, as 

proposed, to preserve the application of 

the current public float thresholds in 

those definitions.18 The Chairman, 

however, has directed the staff to 

formulate recommendations to the 

Commission for possible additional 

changes to the ‘‘accelerated filer’’ 

definition that, if adopted, would have 

the effect of reducing the number of 

registrants that qualify as accelerated 

filers in order to promote capital 

formation by reducing compliance costs 

for certain registrants, while 

maintaining appropriate investor 

protections. As part of the staff’s 

consideration of possible recommended 

amendments, the Chairman has directed 

the staff to consider, among other 

things, the historical and current 

relationship between the SRC and 

‘‘accelerated filer’’ definitions. The staff 

has begun work to prepare these 

recommendations. 

Consistent with the proposal, we are 

not amending any of the scaled 

disclosure accommodations available to 

SRCs in Regulation S–K and Regulation 

S–X.19 SRCs may comply with the 

scaled disclosure requirements available 

to them on an item-by-item basis.20 The 

following table summarizes these scaled 

disclosure accommodations.21

Item Scaled disclosure accommodation 

Regulation S–K 

101—Description of Business ............................................ May satisfy disclosure obligations by describing the development of the registrant’s 

business during the last three years rather than five years. Business development 

description requirements are less detailed than disclosure requirements for nonSRCs. 

201—Market Price of and Dividends on the Registrant’s 

Common Equity and Related Stockholder Matters.

Stock performance graph not required. 

301—Selected Financial Data ........................................... Not required. 

302—Supplementary Financial Information ....................... Not required. 

303—Management’s Discussion and Analysis of Financial Condition and Results of Operations (‘‘MD&A’’).Two-year MD&A comparison rather than three-year comparison. 

Two year discussion of impact of inflation and changes in prices rather than three 

years. 

Tabular disclosure of contractual obligations not required. 

305—Quantitative and Qualitative Disclosures About 

Market Risk.

Not required. 

402—Executive Compensation .......................................... Three named executive officers rather than five. 

Two years of summary compensation table information rather than three. 

Not required: 

• Compensation discussion and analysis. 

• Grants of plan-based awards table. 

• Option exercises and stock vested table. 

• Pension benefits table. 

• Nonqualified deferred compensation table. 

• Disclosure of compensation policies and practices related to risk management. 

• Pay ratio disclosure. 


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22 Item 404 also contains the following expanded 

disclosure requirements applicable to SRCs: (1) 

Rather than a flat $120,000 disclosure threshold, the 

threshold is the lesser of $120,000 or 1% of total 

assets, (2) disclosures are required about 

underwriting discounts and commissions where a 

related person is a principal underwriter or a 

controlling person or member of a firm that was or 

is going to be a principal underwriter, (3) 

disclosures are required about the issuer’s parent(s) 

and their basis of control, and (4) an additional year 

of Item 404 disclosure is required in filings other 

than registration statements. 

23See Item 10(f)(1)(i) and (ii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

24Consistent with the current definition, the SRC 

definition in the final rules specifically excludes 

investment companies, asset-backed issuers (as 

defined in Item 1101 of Regulation AB [17 CFR 

229.1101]) and majority-owned subsidiaries of a 

parent that is not a SRC. See Item 10(f)(1) of 

Regulation S–K; Securities Act Rule 405; Exchange 

Act Rule 12b–2. Lower public float and revenue 

thresholds apply to registrants that determined that 

they did not qualify as SRCs in the prior year, but 

are eligible to transition to SRC status. See Item 

10(f)(2)(iii) of Regulation S–K; Securities Act Rule 

405; Exchange Act Rule 12b–2. See also Section II.A 

for a discussion of the amendments to these 

thresholds. 

25Consistent with the current definition, public 

float is computed under the final rules by 

multiplying the aggregate worldwide number of 

shares of a registrant’s voting and non-voting 

common equity held by non-affiliates by the price 

at which the common equity was last sold, or the 

average of the bid and asked prices of common 

equity, in the principal market for the common 

equity. See Item 10(f)(1)(i) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. The determination of public float is premised on 

the existence of a public trading market for the 

issuer’s equity securities. Therefore, an entity with 

equity securities outstanding but not trading in any 

public trading market would not be able to qualify 

on the basis of a public float test. In contrast to 

public float, market capitalization reflects the value 

of a registrant’s voting and non-voting common 

equity held by all holders, whether affiliates or nonaffiliates. 

A reporting registrant calculates its public float as 

of the last business day of its most recently 

completed second fiscal quarter. See Item 10(f)(2)(i) 

of Regulation S–K; Securities Act Rule 405; 

Exchange Act Rule 12b–2. A registrant filing its 

initial registration statement under the Securities 

Act or Exchange Act calculates its public float as 

of a date within 30 days of the date the registration 

statement is filed by multiplying the aggregate 

worldwide number of shares of its voting and nonvoting common equity held by non-affiliates before 

the registration plus, in the case of a Securities Act 

registration statement, the number of such shares 

included in the registration statement by the 

estimated public offering price of the shares. See 

Item 10(f)(2)(ii)(A) of Regulation S–K; Securities Act 

Rule 405; Exchange Act Rule 12b–2. 

26Consistent with the current definition, annual 

revenues are as of the most recently completed 

fiscal year for which audited financial statements 

are available. Item 10(f)(2)(i)(B) and (f)(2)(ii)(B) of 

Regulation S–K; Securities Act Rule 405; Exchange 

Act Rule 12b–2. 

27See Item 10(f)(1)(ii)(A) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. A registrant may have no public float because it 

has no public common equity outstanding or no 

market price for its common equity exists. Based on 

data compiled by our Division of Economic and 

Risk Analysis (‘‘DERA’’), in calendar year 2016, 

approximately 21.5% of registrants that qualified as 

SRCs (and 7.7% of all registrants) had no public 

float. The estimated number of registrants with no 

public float here and elsewhere in this release may 

be over-inclusive due to the difficulty of 

ascertaining this status based on data extracted from 

registrants’ filings. See note 141 for a discussion of 

the methodology used by the staff to obtain this 

data. 

28See Item 10(f)(1)(ii)(B) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

29See Instruction to Paragraph (f) of Item 10 of 

Regulation S–K; Instruction to definition of 

‘‘smaller reporting company’’ in Securities Act Rule 

405; Instruction to definition of ‘‘smaller reporting 

company’’ in Exchange Act Rule 12b–2. 

30See Item 10(f)(1)(ii)(B) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

31For purposes of the first fiscal year ending after 

effectiveness of the amendments, a registrant will 

qualify as a SRC if it meets one of the initial 

qualification thresholds in the revised definition as 

of the date it is required to measure its public float 

or revenues (the ‘‘measurement date’’), even if such 

Item Scaled disclosure accommodation 

404—Transactions With Related Persons, Promoters and 

Certain Control Persons 22.

Description of policies/procedures for the review, approval or ratification of related 

party transactions not required. 

407—Corporate Governance ............................................. Audit committee financial expert disclosure not required in first annual report. 

Compensation committee interlocks and insider participation disclosure not required. 

Compensation committee report not required. 

503—Prospectus Summary, Risk Factors and Ratio of 

Earnings to Fixed Charges.

No ratio of earnings to fixed charges disclosure required. 

No risk factors required in Exchange Act filings. 

601—Exhibits ..................................................................... Statements regarding computation of ratios not required. 

Regulation S–X 

Rule Scaled disclosure 

8–02—Annual Financial Statements .................................. Two years of income statements rather than three years. 

Two years of cash flow statements rather than three years. 

Two years of changes in stockholders’ equity statements rather than three years. 

8–03—Interim Financial Statements .................................. Permits certain historical financial data in lieu of separate historical financial statements of equity investees. 

8–04—Financial Statements of Businesses Acquired or 

to Be Acquired.

Maximum of two years of acquiree financial statements rather than three years. 

8–05—Pro forma Financial Information ............................. Fewer circumstances under which pro forma financial statements are required. 

8–06—Real Estate Operations Acquired or to Be Acquired.Maximum of two years of financial statements for acquisition of properties from related parties rather than three years. 

8–08—Age of Financial Statements .................................. Less stringent age of financial statements requirements. 

II. Final Amendments 

A. Amendments to Smaller Reporting 

Company Definition 

We are adopting amendments to the 

SRC definition to expand the number of 

registrants that qualify as SRCs and 

thereby benefit from scaled disclosure 

requirements. These amendments will 

enable a registrant to qualify as a SRC 

based on a public float test or a revenue 

test.23

Under the final rules, SRCs 

generally 24 are registrants with: 

• A public float of less than $250 

million; 25 or 

• annual revenues of less than $100 

million 26 and either no public float 27 or 

a public float of less than $700 

million.28

As proposed, the final rules increase 

the threshold for determining SRC 

status based on public float from $75 

million to $250 million. A registrant 

that qualifies as a SRC under the public 

float test would qualify regardless of its 

revenues.29 In a change from the 

proposal, the final rules will expand the 

SRC definition to include registrants 

with a public float of less than $700 

million, if they also have annual 

revenues of less than $100 million.30

The following table summarizes the 

amendments to the SRC definition for a 

registrant making an initial 

determination under the amendments 31


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registrant previously did not qualify as a SRC. See 

Item 10(f)(2)(i) and (ii) of Regulation S–K; Securities 

Act Rule 405; Exchange Act Rule 12b–2 for 

additional information about the measurement date. 

For example, a registrant with a September 30 fiscal 

year end that previously was not a SRC and that had 

a public float of $220 million as of March 30, 2018 

(the last business day of its most recently completed 

second quarter) will qualify as a SRC for the fiscal 

year ending September 30, 2018. 

32See Item 10(f)(2)(iii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

33A registrant that does not qualify as a SRC may 

subsequently seek to qualify under either test. 

34A registrant that previously was not a SRC that 

subsequently qualifies based on a public float of 

less than $200 million will qualify as a SRC 

regardless of its revenues. See Instruction to 

Paragraph (f) of Item 10 of Regulation S–K; 

Instruction to definition of ‘‘smaller reporting 

company’’ in Securities Act Rule 405; Instruction to 

definition of ‘‘smaller reporting company’’ in 

Exchange Act Rule 12b–2. 

35See Proposed Item 10(f)(1)(i) and (ii) of 

Regulation S–K; Proposed Securities Act Rule 405; 

Proposed Exchange Act Rule 12b–2. 

36This applies either upon an initial 

determination in the case of registrants filing an 

initial registration statement, or as of an annual 

determination in the case of reporting registrants. 37The proposed $200 million subsequent 

qualification threshold represents 80% of the 

proposed $250 million initial qualification 

threshold. Under the current definition, a registrant 

that previously determined that it did not qualify 

as a SRC because its public float exceeded the 

current $75 million threshold may qualify based on 

a subsequent determination if it has a public float 

of less than $50 million. That registrant would then 

remain a SRC until its public float again exceeded 

$75 million. Consistent with the current definition, 

under the proposed definition, a registrant that 

subsequently qualifies under the $200 million 

public float threshold would remain qualified until 

its public float exceeds $250 million. 

38See Letter from Acorda Therapeutics, Inc. et al., 

August 23, 2016 (‘‘Acorda, et al.’’); Letter from 

Advanced Medical Technology Association, August 

20, 2016 (‘‘AMTA’’); Letter from Biotechnology 

Innovation Organization, August 30, 2016 (‘‘BIO’’); 

Letter from BDO USA, LLP, August 29, 2016 

(‘‘BDO’’); Letter from Center for Audit Quality and 

Counsel of Institutional Investors, August 30, 2016 

(‘‘CAQ/CII’’); Letter from CONNECT, August 4, 

2016 (‘‘CONNECT’’); Letter from Corporate 

Governance Coalition for Investor Value, August 30, 

2016 (‘‘Coalition’’); Letter from Independent 

Community Bankers of America, August 29, 2016 

(‘‘ICBA’’); Letter from MidSouth Bancorp, Inc., 

August 24, 2016 (‘‘MidSouth’’); Letter from Nasdaq, 

August 30, 2016 (‘‘Nasdaq’’); Letter from NYSE 

Group, July 25, 2016 (‘‘NYSE’’); Letter from 

National Venture Capital Association, August 25, 

2016 (‘‘NVCA’’); Letter from Seneca Foods 

Corporation, August 2, 2016 (‘‘Seneca’’); and Letter 

from The Small Business Financial and Regulatory 

Affairs Committee of the Institute of Management 

Accountants, August 24, 2016 (‘‘IMA’’). 

39See AMTA; BDO; BIO; Coalition; ICBA. 

40See AMTA; BDO; BIO; Coalition; ICBA; NVCA; 

and NYSE. See also CONNECT (supporting the 

proposal to amend the SRC definition to encompass 

a wider range of emerging businesses for which 

regulatory costs present a significant burden to 

growth). 

41See Letter from Cable Car Capital LLC, June 28, 

2016 (‘‘Cable Car’’); Letter from CFA Institute, 

August 30, 2016 (‘‘CFA Institute’’); Letter from Ernst 

& Young LLP, September 8, 2016 (‘‘EY’’). 

42See Cable Car. 

43See CFA Institute (noting that ‘‘the pension 

benefits table and a disclosure of compensation 

policies and practices related to risk management 

(both of which can be deleted under scaled 

disclosure) are more vital than certain other 

disclosures’’). 

or a current SRC seeking to continue to 

qualify. 

Criteria Current definition Revised definition 

Public Float .......................... Public float of less than $75 million ................................ Public float of less than $250 million. 

Revenues ............................. Less than $50 million of annual revenues and no public 

float.

Less than $100 million of annual revenues and 

• no public float, or 

• public float of less than $700 million. 

Consistent with the current definition, 

and as proposed, under the final rules, 

a registrant that determines that it does 

not qualify as a SRC under the initial 

qualification thresholds will remain 

unqualified unless and until it 

determines that it meets one or more 

lower qualification thresholds. The 

subsequent qualification thresholds, set 

forth in the table below, are set at 80% 

of the initial qualification thresholds.32

Criteria 33 Current definition Revised definition 

Public Float .......................... Public float of less than $50 million ................................ Public float of less than $200 million, if it previously had 

$250 million or more of public float.34

Revenues ............................. Less than $40 million of annual revenues and no public 

float.

Less than $80 million of annual revenues, if it previously had $100 million or more of annual revenues; 

and 

Less than $560 million of public float, if it previously 

had $700 million or more of public float. 

1. Public Float Test 

a. Proposed Amendments 

As proposed, a registrant with a 

public float of less than $250 million 

would qualify as a SRC.35 Consistent 

with the current definition, the 

Commission proposed that once a 

registrant does not qualify as a SRC,36 it 

would remain unqualified until its 

public float falls below another, lower 

threshold. Specifically, the Commission 

proposed amending the rules to provide 

that a registrant that previously did not 

qualify as a SRC would qualify as a SRC 

if it has a public float of less than $200 

million as of its most recently 

completed second fiscal quarter.37

b. Comments 

Most commenters addressed the 

overall costs and benefits of expanding 

the pool of registrants eligible for SRC 

status. Many of these commenters 

expressed general support for the 

proposed amendments to the SRC 

definition.38 Several of these 

commenters stated that the proposed 

definition appropriately considers the 

objectives of capital formation and 

investor protection 39 and promotes 

capital formation or liquidity for smaller 

registrants.40

On the other hand, three commenters 

generally opposed the proposed 

amendments to the SRC definition or 

generally opposed accommodations 

based on company size.41 One of these 

commenters stated that the 

accommodations for SRCs exist solely 

for the expedience of issuers and must 

be balanced against the cost to market 

participants who have less information 

from which to draw conclusions.42

Another of these commenters stated that 

it was concerned that the scaled 

disclosure regime for SRCs may prevent 

investors from receiving all of the 

material information needed to conduct 

a thorough analysis.43 This commenter 


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44See CFA Institute. 

45See EY (noting that it ‘‘previously 

recommended that the Commission consider 

adopting disclosure objectives that would mitigate 

the need for scaling disclosure requirements based 

on the size or nature of a reporting entity’’ and 

citing to its letter dated July 21, 2016 responding 

to the SEC’s concept release on business and 

financial disclosures required by Regulation S–K 

(Release No. 33–10064; File No. S7–06–16)). 

46See CFA Institute; and Seneca. 

47See CFA Institute. 

48See Seneca. 

49See Acorda et al; AMTA; BDO; BIO; CAQ/CII; 

CONNECT; Coalition; ICBA; MidSouth; Nasdaq; 

NVCA; NYSE; Seneca; and IMA. 

50See Letter from Council of State Bioscience 

Associations, August 26, 2016 (‘‘CSBA’’) (stating 

that the Commission should similarly reform the 

accelerated filer definition and institute an 

alternative revenue test for both the SRC and 

accelerated filer definitions). 

51See NYSE. 

52See CFA Institute; and Letter from Kermit 

Kubitz, August 31, 2016 (‘‘Kubitz’’). 

53See Kubitz. 

54See note 19. 

55See note 20. 

56See Item 10(f)(1)(i) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

57This applies either upon an initial 

determination in the case of registrants filing an 

initial registration statement, or as of an annual 

determination in the case of reporting registrants. 

58See Item 10(f)(2)(iii)(A) and Instruction to 

Paragraph (f) of Item 10 of Regulation S–K; 

Securities Act Rule 405 and Instruction to 

definition of ‘‘smaller reporting company’’ in 

Securities Act Rule 405; Exchange Act Rule 12b– 

2 and Instruction to definition of ‘‘smaller reporting 

company’’ in Exchange Act Rule 12b–2. Consistent 

with the current definition, under the amended 

definition, a registrant that subsequently qualifies 

under the $200 million public float threshold 

would remain qualified until its public float 

exceeds $250 million. 

59See Letter from Paul W. Zeller, July 18, 2016 

(‘‘Zeller’’) (suggesting that the Commission, in the 

calculation of public float, adopt a revenue test for 

thinly traded registrants to address price 

manipulation and volatility concerns). 

60See Instructions I.B.1 and I.B.6 of Form S–3; 

Instructions I.B.1 and I.B.5 of Form F–3. Certain 

newly eligible SRCs under the new definition will 

continue to be eligible to rely on Instruction I.B.1 

of Form S–3 and Form F–3 to register primary 

offerings. 

61See Section IV.B. 

62Based on public float values disclosed by 

registrants in their Form 10–K filings, 2,072, or 

28.0%, of the 7,395 registrants that filed a Form 10– 

K in 2016 reported having a public float of less than 

$75 million. 

63Approximately 4,976, or 41.8%, of the 11,898 

registrants that filed Exchange Act annual reports 

in 2006 had a public float of less than $75 million. 

See SRC Adopting Release. The release cites data 

from the Commission’s EDGAR filing system and 

Thomson Financial (‘‘Datastream’’). The Datastream 

data included all registered public firms trading on 

the New York Stock Exchange, the American Stock 

Exchange, the Nasdaq, the Over-the-Counter 

Bulletin Board and the Pink Sheets and excluded 

closed end funds, exchange traded funds, American 

depositary receipts and direct foreign listings. 

64Based on public float values disclosed by 

registrants in their Form 10–K filings, 2,851, or 

38.6%, of the 7,395 registrants that filed a Form 10– 

K in 2016 reported having a public float of less than 

$250 million. 

65See Section IV.B.3.a. 

66See SRC Adopting Release, 73 FR at 934 and 

942 (stating that the Commission was ‘‘adopting 

amendments to its disclosure and reporting 

requirements . . . to expand the number of 

companies that qualify for its scaled disclosure 

requirements for smaller reporting companies;’’ and 

‘‘[w]e believe this standard is appropriately scaled 

in that it reduces costs to smaller companies caused 

by unnecessary information requirements, 

consistent with investor protection.’’). 

also noted that allowing different sized 

entities to use different disclosure 

regimes would signal to investors that 

the entities lack comparable quality.44

The third commenter recommended that 

the Commission consider adopting 

disclosure objectives that would 

mitigate the need to scale disclosure 

requirements based on the size or nature 

of a reporting entity.45

Two commenters stated that the 

proposed amendments would 

potentially provide only marginal cost 

savings.46 One of these commenters did 

not support the proposal and instead 

encouraged the Commission to continue 

its review of scaled disclosure to 

determine which disclosures are 

repetitive and should be deleted and 

which should be retained.47 The other 

commenter stated that the proposed 

change and the resulting reduced 

disclosure requirements for additional 

registrants would have a minimal effect 

on its annual compliance costs.48

Many commenters expressed support 

for the proposed increases in both the 

public float and revenue thresholds.49

One commenter supported the 

amendments and viewed them as an 

acknowledgement that the current 

public float threshold is overly 

restrictive.50 Another commenter 

specifically stated that it supported the 

proposed approach to adjusting the 

thresholds rather than simply relying on 

inflation adjustments.51

Two commenters recommended that 

the Commission review the SRC 

definition periodically to determine 

whether the thresholds being used 

remain appropriate.52 One of these 

commenters specifically recommended 

that the Commission revisit the 

thresholds after three years.53

c. Final Amendments 

After considering the comments 

received, as well as the 

recommendations made by the 

ACSEC54 and the Small Business 

Forum,55 consistent with the proposal, 

we are adopting amendments to the SRC 

definition that will permit registrants 

with a public float of less than $250 

million to qualify as SRCs.56 As is the 

case with the current definition, once a 

registrant determines that it does not 

qualify as a SRC under the applicable 

thresholds,57 it will not subsequently 

qualify until its public float falls below 

another, lower threshold, set at 80% of 

the initial qualification threshold. While 

we did not receive any comments on the 

subsequent qualification thresholds, we 

continue to believe that these thresholds 

are necessary to avoid situations in 

which registrants frequently enter and 

exit SRC status due to small fluctuations 

in their public float and that the 

thresholds do not impose an undue 

burden on registrants seeking to qualify 

for SRC status. Accordingly, we are 

amending the rules to permit a 

registrant that previously did not qualify 

as a SRC because its public float was 

$250 million or more to qualify as a SRC 

if it has a public float of less than $200 

million, regardless of its revenues.58

We are not revising the method of 

calculating public float, as suggested by 

one commenter.59 The staff is not aware 

of significant incidence of manipulation 

or stock price volatility affecting 

qualification under the public float test. 

In addition, the method of calculating 

public float is consistent with the 

existing rules and with the method of 

determining eligibility to use Form S–3 

or Form F–3 to register a primary 

offering.60 This consistency will avoid 

additional burdens or confusion for 

registrants and investors that may result 

if registrants were required to calculate 

their public float in one manner for 

determining SRC status and in another 

manner for Form S–3 or Form F–3 

eligibility. 

We believe that these amendments 

will promote capital formation through 

a modest reduction in compliance costs 

for newly eligible SRCs while 

maintaining appropriate investor 

protections.61 In 2016, approximately 

28% of registrants had less than $75 

million in public float,62 compared to 

approximately 42% of registrants when 

the SRC definition was established.63

Increasing the public float threshold to 

$250 million would have resulted in 

approximately 39% of registrants 

qualifying as SRCs in 2016 based on 

their public float.64

We believe the existing scaled 

disclosure accommodations have 

reduced compliance costs for SRCs.65

These amendments will extend those 

benefits to a broader pool of registrants, 

consistent with the intent of the 

Commission when it adopted the SRC 

definition in 2007.66 Although the 

amendments will permit a broader 

group of registrants to make scaled 

disclosure to their investors, we do not 

believe that this scaling of disclosure 


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67See, e.g., Sections 11, 12, and 17 of the 

Securities Act, Sections 10(b) and 18 of the 

Exchange Act, and Exchange Act Rule 10b–5 [17 

CFR 240.10b–5]. 

68See Securities Act Rule 408 [17 CFR 230.408] 

and Exchange Act Rule 12b–20 [17 CFR 240.12b– 

20]. 

69See Proposed Item 10(f)(1)(ii)(A) of Regulation 

S–K; Proposed Securities Act Rule 405; Proposed 

Exchange Act Rule 12b–2. 

70This applies either upon an initial 

determination in the case of registrants filing an 

initial registration statement, or as of an annual 

determination in the case of reporting registrants. 

71Under the current definition, a registrant that 

previously determined that it did not qualify as a 

SRC because it had no public float and its revenues 

exceeded the current $50 million threshold may 

qualify based on a subsequent determination if it 

had annual revenues of less than $40 million. That 

registrant would then remain a SRC until its 

revenues exceeded $50 million. Consistent with the 

current definition, under the proposed definition, a 

registrant with no public float that subsequently 

qualifies under the $80 million revenue threshold 

would remain qualified until its revenue exceeds 

$100 million. 

72See Proposing Release at text accompanying 

note 22. 73See Acorda, et al. (recommending a revenue 

test, stating that public float is largely a marker of 

future value but paints an inaccurate picture of 

small businesses in the present); AMTA; BIO 

(stating that the Commission should move away 

from its reliance on public float as the ultimate 

arbiter of company size); Letter from Calithera 

Biosciences, August 8, 2016 (‘‘Calithera’’); 

CONNECT; CSBA; Nasdaq (recommending a wellcrafted revenue only threshold); NYSE 

(recommending a simple revenue test without a 

limitation on market capitalization); and Zeller 

(recommending a revenue test for any issuers that 

are thinly traded). See also Section II.A.1.b for a 

discussion of comments addressing the overall costs 

and benefits of expanding the pool of registrants 

eligible for SRC status, including the proposed 

revision to expand the revenue threshold for 

registrants with no public float. 

74See Acorda, et al.; BIO; and Calithera. 

75See BIO (stating that pre-revenue small 

businesses should remain focused on innovation 

and do not have the capital to pay for expensive 

compliance requirements, and therefore allowing 

them to qualify as SRCs until they generate revenue 

would stimulate innovation and drive business 

growth). 

76See Acorda, et al. 

77See AMTA. 

78See NYSE; and Nasdaq. 

79See BIO; and Calithera. 

80See note 19. 

81See note 20. 

82See Item 10(f)(1)(ii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. Under the public float test discussed in Section 

II.A.1., a registrant with public float of less than 

$250 million will qualify as a SRC regardless of its 

revenues. See Instruction to Paragraph (f) of Item 10 

of Regulation S–K; Instruction to definition of 

‘‘smaller reporting company’’ in Securities Act Rule 

405; Instruction to definition of ‘‘smaller reporting 

company’’ in Exchange Act Rule 12b–2. 

83See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; and CSBA. 

84See BIO and Calithera. 

85See note 20. In 2016 and 2017, the Small 

Business Forum recommended that the SRC 

definition be revised to include registrants with a 

public float of less than $250 million or registrants 

with annual revenues of less than $100 million, 

excluding large accelerated filers. Registrants with 

a public float of $700 million or more generally 

qualify as large accelerated filers. See Exchange Act 

Rule 12b–2. In prior years, the Small Business 

Forum recommended that the Commission revise 

the SRC definition to include registrants with a 

public float of less than $250 million or registrants 

with a public float of less than $700 million and 

annual revenues of less than $100 million. See, e.g., 

Final Report of the 2015 SEC Government Business 

Continued 

will detract substantially from the 

investor protection objectives of our 

disclosure regime in light of the other 

protections available under current law 

and regulations. First, the additional 

registrants that will qualify for scaled 

disclosure, like all registrants, will 

remain liable for their disclosures 67

and, in addition to the disclosure 

expressly required by the rules, will 

continue to be required to provide such 

further material information, if any, as 

may be necessary to make any required 

statements, in the light of the 

circumstances under which they are 

made, not misleading.68 Moreover, their 

disclosure also will continue to be 

subject to the Division of Corporation 

Finance’s filing review process. These 

measures of investor protection will 

remain unchanged. 

2. Revenue Test 

a. Proposed Amendments 

As proposed, a registrant with no 

public float would qualify as a SRC if it 

had annual revenues of less than $100 

million during its most recently 

completed fiscal year.69 Consistent with 

the current definition, the Commission 

proposed that once a registrant 

determines that it does not qualify as a 

SRC,70 it would not subsequently 

qualify until its revenues fall below 

another, lower threshold. Specifically 

the Commission proposed amending the 

rules to provide that a registrant with no 

public float that previously determined 

that it did not qualify as a SRC would 

qualify as a SRC if it had annual 

revenues of less than $80 million as of 

the relevant measurement date.71 The 

proposed $80 million subsequent 

qualification threshold would maintain 

the 80% ratio that exists between the 

$50 million initial qualification 

threshold and $40 million subsequent 

qualification threshold in the current 

SRC definition. 

The Proposing Release noted that the 

2015 Small Business Forum 

recommended that the SRC definition 

be revised to include, in addition to 

registrants with a public float of less 

than $250 million, registrants with a 

public float of less than $700 million 

and annual revenues of less than $100 

million.72 The Proposing Release also 

solicited comment on whether the 

Commission should revise the SRC 

definition to include an alternative 

revenue test. 

b. Comments 

Many commenters recommended that 

the Commission add a revenue test to 

the SRC definition for companies with 

a public float.73 Several commenters 

stated that businesses below $100 

million in revenue are viewed by 

reasonable observers as ‘‘small.’’ 74 One 

commenter believed that a revenue test 

would stimulate innovation and drive 

business growth.75 Another commenter 

stated that a revenue test would ensure 

that pre-revenue companies are not 

‘‘forced to divert investment funds . . . 

from science to compliance.’’ 76 Another 

commenter supported an alternative 

revenue test for highly valued prerevenue companies ‘‘to avoid stifling the 

advancement’’ of these companies with 

costly compliance.77 Two commenters 

suggested that we adopt a revenue test 

without a limitation on the public float 

or market capitalization of the 

company.78 Another two commenters 

specifically recommended that the 

Commission adopt a definition based on 

revenues of less than $100 million and 

a public float of less than $700 million, 

as recommended by the Small Business 

Forum.79

c. Final Amendments 

After considering the comments 

received as well as the 

recommendations made by the 

ACSEC80 and the Small Business 

Forum,81 we are adopting the proposed 

amendments to the revenue test of the 

SRC definition and expanding the 

revenue test to include certain 

registrants with a public float. The 

definition in the final rules will include, 

in addition to registrants with a public 

float of less than $250 million, 

registrants with annual revenues of less 

than $100 million during their most 

recently completed fiscal year and 

either no public float (calculated as 

discussed in Section II.A.1) or a public 

float of less than $700 million.82 We are 

persuaded by commenters’ suggestions 

that it is appropriate to provide a 

measure by which a registrant with a 

public float but limited revenues may 

qualify as a SRC.83 This amended 

revenue test expands the proposed 

revenue threshold for companies with 

no public float to permit registrants with 

a public float that is less than $700 

million to qualify based on their 

revenues. The $700 million public float 

threshold included in this amended 

revenue test was recommended by two 

commenters 84 and the Small Business 

Forum.85 This change from the proposal 


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31998 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 

Forum on Small Business Capital Formation (Apr. 

2016), available at https://www.sec.gov/info/ 

smallbus/gbfor34.pdf. 86Excluding the 2,851 registrants that based on 

their 2016 data would qualify under the public float 

test described in Section II.A.1 and the 594 

registrants that would qualify under the proposed 

no public float and less than $100 million in annual 

revenues test, we estimate that this change would 

permit an additional 161 registrants to qualify as a 

SRC. 87See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; CSBA; NYSE; and Nasdaq. 88See NYSE; and Nasdaq. 89Based on public float values and revenues 

disclosed by registrants in their Form 10–K filings 

in 2016, 568, or 7.7%, of the 7,395 registrants that 

filed a Form 10–K in 2016 reported having no 

public float and less than $50 million in annual 

revenues. 90Based on public float values and revenues 

disclosed by registrants in their Form 10–K filings 

in 2016, 26, or 0.4%, of the 7,395 registrants that 

filed a Form 10–K in 2016 had no public float and 

$50 million or more but less than $100 million in 

annual revenues. 

91Based on public float values and revenues 

disclosed by registrants in their Form 10–K filings 

in 2016, 161, or 2.2%, of the 7,395 registrants that 

filed a Form 10–K in 2016 had $250 million or more 

but less than $700 million of public float and less 

than $100 million in annual revenues. 

92This applies either upon an initial 

determination in the case of registrants filing an 

initial registration statement, or as of an annual 

determination in the case of reporting registrants. 

93See Item 10(f)(2)(iii)(B) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. Consistent with the current definition, under the 

amended definition, a registrant with no public 

float that subsequently qualifies under the $80 

million revenue threshold remains qualified until 

its revenue exceeds $100 million. 

94 Id. Consistent with the current definition, 

under the amended definition, a registrant that 

subsequently qualifies under the $560 million 

public float threshold or $80 million revenue 

threshold remains qualified until its public float 

exceeds $700 million or its revenue exceeds $100 

million. 

permits some additional registrants to 

qualify as SRCs,86 and we believe that 

these low-revenue registrants would 

benefit from the cost savings of scaled 

disclosure accommodations and could 

redirect those savings into growing their 

businesses without significantly 

detracting from investor protections. For 

example, these registrants will remain 

liable for their disclosures, will 

continue to be required to provide all 

material information necessary to make 

any required statements not misleading, 

and will continue to be subject to the 

Division of Corporation Finance’s filing 

review process. 

The amended revenue test that we are 

adopting is consistent with the position 

expressed by several commenters 87 that 

it is not necessary to subject capitalintensive, low-revenue registrants with 

larger public floats or market 

capitalizations to the same reporting 

requirements as registrants with larger 

public floats and more well-established, 

revenue-generating businesses. 

Although two commenters suggested 

that we adopt a revenue test without a 

limitation on the public float or market 

capitalization of the company,88 we 

believe that it is appropriate to include 

a public float limitation because, as a 

registrant’s business and public float 

grows, investors should benefit from 

greater disclosure. The additional 

information provided by the registrant 

in these circumstances will assist a 

growing investor base in making 

informed investment decisions and also 

should lead to a lower cost of capital for 

the business as it grows. In this way, the 

amended revenue test in the final rules 

will enable some additional capitalintensive, low-revenue registrants to 

benefit from the cost-savings of scaled 

reporting, while continuing to require 

larger registrants to comply with the 

disclosure requirements applicable to 

non-SRCs. 

In 2016, approximately 7.7% of 

registrants qualified as SRCs by having 

no public float and less than $50 million 

in annual revenues.89 The number of 

registrants that would qualify as SRCs 

would have increased by 26, or 0.4%, 

under the new $100 million annual 

revenue threshold for registrants with 

no public float.90 Expanding the 

definition further to include registrants 

with annual revenues of less than $100 

million and public float of less than 

$700 million would have increased the 

number of eligible registrants by an 

additional 161, or 2.2%.91

Under the current definition, and as 

proposed, once a registrant with no 

public float determines that it does not 

qualify as a SRC,92 it cannot 

subsequently qualify based on revenues 

until its revenues fall below another, 

lower threshold. As discussed above 

with respect to the public float test, 

while we did not receive any comments 

on the subsequent qualification 

thresholds, we believe that a separate, 

lower revenue threshold for these 

registrants helps to avoid situations in 

which registrants enter and exit SRC 

status due to small fluctuations in their 

revenues and does not impose an undue 

burden on registrants seeking to qualify 

for SRC status. Therefore, consistent 

with the proposal, once an issuer with 

no public float determines that it does 

not qualify for SRC status because its 

annual revenues exceeded $100 million, 

it will remain unqualified unless and 

until its annual revenues are less than 

$80 million as of the measurement 

date.93

Consistent with the 80% ratio we are 

adopting for the other subsequent 

qualification thresholds, under the 

amended revenue test, once a registrant 

with public float determines that it does 

not qualify as a SRC because it exceeds 

either or both of the $100 million 

annual revenue and $700 million public 

float thresholds, it will remain 

unqualified unless and until it meets a 

lower threshold for the criteria on 

which it previously failed to qualify 

($80 million of annual revenue and 

$560 million of public float) and 

continues to meet any threshold it 

previously satisfied ($100 million of 

annual revenue or $700 million of 

public float).94 By requiring that a 

registrant satisfy a lower threshold only 

with respect to a threshold it previously 

exceeded, we are attempting to strike a 

balance between avoiding situations in 

which registrants frequently enter and 

exit SRC status due to small fluctuations 

and not imposing an undue burden on 

registrants seeking to qualify for SRC 

status. A registrant that exceeded both 

the public float threshold and the 

revenue threshold, however, would not 

qualify unless and until it met both 

lower thresholds in order to avoid 

situations in which registrants enter and 

exit SRC status due to small fluctuations 

in either their revenues or public float. 

The table below sets forth the thresholds 

for qualification as of the respective 

measurement date under the amended 

revenue test after one or both thresholds 

have been exceeded: 

Prior annual revenues 

Prior public float 

None or less than $700 

million $700 million or more 

Less than $100 million ....................................... Neither threshold exceeded ............................. Public float—Less than $560 million; and 

Revenues—Less than $100 million. 

$100 million or more .......................................... Public float—None or less than $700 million; 

and 

Public float—Less than $560 million; and 

Revenues—Less than $80 million ................... Revenues—Less than $80 million. 


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95Rule 3–05(b)(2) sets forth the requirements for 

financial statements of an acquired business or to 

be acquired business to be provided other than 

when registering securities to be offered to the 

security holders of the business to be acquired. 

96 In 1996, the Commission revised Rule 3–05 to 

streamline the requirements for financial statements 

of significant business acquisitions in filings made 

under the Securities Act and the Exchange Act, 

stating: 

‘‘The threshold at which audited financial 

statements of an acquired business are required for 

three years, as required for the issuer itself (except 

for small business issuers), has been raised from 

40% to 50% in recognition of the significant burden 

imposed by the lower threshold. In addition, 

consistent with the criteria for small business 

issuers, financial statements for periods preceding 

the most recent two fiscal years would not be 

required for acquired businesses reporting revenues 

below $25 million.’’ See Streamlining Disclosure 

Requirements Relating to Significant Business 

Acquisitions. Release No. 33–7355 (Oct. 10, 1996) 

[61 FR 54509 (Oct. 18, 1996)] (‘‘1996 Rule 3–05 

Adopting Release’’). 

When the Commission adopted the SRC 

definition (which replaced the small business issuer 

definition) in 2007, it noted: 

‘‘Several comment letters noted that in light of 

the $50 million in revenues threshold proposed for 

determining a company’s qualification as a SRC if 

a company is unable to calculate public float, the 

Commission should consider revising [Rule 3– 

05(b)(2)(iv)] to raise to $50 million the $25 million 

threshold currently used to limit to two the periods 

required for audited financial statements of an 

acquired business. The $25 million threshold was 

based on the $25 million in revenues standard in 

Regulation S–B that we are rescinding. We are 

amending this standard to increase the threshold to 

$50 million in revenues, as suggested by the 

commenters.’’ See SRC Adopting Release. 

97See EY; and BDO. No other commenters 

addressed whether to amend Rule 3–05 of 

Regulation S–X. 

98See EY; see also SRC Adopting Release. 

99See BDO. 

100See Rule 3–05(b)(2)(iv) of Regulation S–X. 

101See Proposing Release, 81 FR at 43136. 

102See Proposing Release, 81 FR at 43137. As 

discussed in the Proposing Release, the ACSEC and 

the Small Business Forum have recommended 

increasing the thresholds in both the SRC and the 

accelerated filer definitions. See notes 19 and 20. 

103Accelerated and large accelerated filers are 

subject to accelerated periodic report filing 

deadlines. In addition, they must provide their 

internet address and disclosure regarding the 

availability of their filings required by Items 

101(e)(3) and (4) of Regulation S–K [17 CFR 

229.101(e)(3) and (4)], as well as disclosure required 

by Item 1B of Form 10–K about unresolved staff 

comments on their periodic or current reports. 

104Public Law 107–204, Sec. 404(b) 116 Stat. 745 

(2002). 

105Paragraphs (1)(iv) of the accelerated filer 

definition and (2)(iv) of the large accelerated filer 

definition in Exchange Act Rule 12b–2. 

106The public float thresholds for exiting SRC 

status and entering accelerated filer status currently 

are both $75 million, and the determinations are 

both made as of the last business day of a 

registrant’s most recently completed second fiscal 

quarter for purposes of the following fiscal year. 

B. Amendments to Rule 3–05(b)(2)(iv) of 

Regulation S–X 

In the Proposing Release, the 

Commission asked whether, if the 

revenue threshold in the SRC definition 

is increased, the threshold in Rule 3–05 

of Regulation S–X also should increase. 

Rule 3–05 of Regulation S–X provides 

the requirements for financial 

statements of businesses acquired or to 

be acquired in certain registration 

statements and current reports. Current 

paragraph (b)(2)(iv) allows certain 

registrants to omit such financial 

statements for the earliest of the three 

fiscal years required if the net revenues 

of the business to be acquired are less 

than $50 million.95 The $50 million 

threshold is based on the revenue 

threshold in the SRC definition.96

Two commenters recommended 

amending Rule 3–05 to increase the 

revenue threshold in paragraph 

(b)(2)(iv) to $100 million to maintain the 

alignment between Rule 3–05 and the 

definition of a SRC.97 One commenter 

noted that this alignment should be 

retained to ‘‘maintain the objective the 

Commission expressed when it adopted 

the 2007 S–X Rule 3–05 relief.’’ 98 The 

other commenter noted that this 

amendment would avoid having the 

financial statement requirements for a 

SRC-sized target company exceed those 

of a similarly sized registrant.99

Consistent with these comments, we 

are amending Rule 3–05 to increase the 

net revenue threshold in Rule 3– 

05(b)(2)(iv) of Regulation S–X to $100 

million.100 Given that the current $50 

million revenue threshold in Rule 3– 

05(b)(2)(iv) was based on the revenue 

threshold in the SRC definition, and in 

light of our decision to increase the 

revenue threshold in the SRC definition 

from $50 million to $100 million, we are 

raising the net revenue threshold in 

Rule 3–05(b)(2)(iv) of Regulation S–X 

from $50 million to $100 million. 

C. Amendments to Accelerated Filer 

and Large Accelerated Filer Definitions 

1. Proposed Amendments 

The Commission proposed amending 

the definitions of ‘‘accelerated filer’’ and 

‘‘large accelerated filer’’ to remove the 

automatic exclusion from these 

definitions of any registrant that 

qualifies as an SRC101 and solicited 

comment on a number of questions 

related to this issue.102 Among other 

requirements,103 being an accelerated 

filer or a large accelerated filer triggers 

the requirement contained in Section 

404(b) of the Sarbanes-Oxley Act 104 to 

have the auditor provide an attestation 

report on internal control over financial 

reporting. Currently, the accelerated 

filer and large accelerated filer 

definitions include a provision that 

specifically excludes registrants that are 

eligible to use the SRC requirements 

under Regulation S–K for their annual 

and quarterly reports.105 As a result, the 

existing public float threshold in the 

accelerated filer definition aligns with 

the current public float threshold in the 

SRC definition.106


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107See BDO; CAQ/CII; CFA Institute; Letter from 

Deloitte, August 23, 2016 (‘‘Deloitte’’); and EY. 

108Study and Recommendations on Section 

404(b) of the Sarbanes-Oxley Act of 2002 For 

Issuers With Public Float Between $75 and $250 

Million (Apr. 2011), available at https://

www.sec.gov/news/studies/2011/404bfloatstudy.pdf. 

109See CFA Institute, citing 2011 Staff Section 

404(b) Study. 

110See EY. 

111See BDO. 

112See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; Coalition; CSBA; ICBA; Letter from The 

Dixie Group, Inc., July 11, 2016 (‘‘Dixie’’); 

MidSouth; Nasdaq; NVCA; NYSE; and Seneca. 

113See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; Coalition; CSBA; ICBA; Dixie; 

MidSouth; Nasdaq; NVCA; NYSE; and Seneca. 

114See BIO (stating that uniformity alone is a 

sufficiently compelling argument to align the two 

definitions, that avoiding investor confusion is an 

important responsibility of the SEC, and that issuers 

and investors alike are used to having one standard 

for small company status); Coalition; Nasdaq; 

NVCA; and NYSE. 

115See Acorda, et al.; AMTA; BIO; Calithera; 

Coalition; CONNECT; CSBA; and Seneca. See also 

Dixie. 

116See Acorda, et al.; BIO; CSBA; ICBA; and 

NVCA. 

117See Acorda, et al.; BIO; Calithera; CONNECT; 

CSBA (stating that ‘‘accelerated filers spend, on 

average, more than $1 million complying with 

Section 404(b)’’); Dixie; and Seneca. 

118See Acorda, et al.; and CONNECT. See also 

CSBA. 

119See BIO. 

120See Calithera. This estimate is generally 

consistent with the estimate set forth by a presenter 

at a recent ACSEC meeting. The presenter stated 

that some biotechnology companies that anticipate 

losing their status as EGCs in the next few years 

‘‘believe they will incur somewhere between 

$150,000 to $350,000 in additional audit fees, 

$50,000 to $150,000 in other consulting costs and 

either $40,000 or as much as $200,000 for internal 

Increasing the SRC public float 

threshold to $250 million without 

eliminating the SRC provision from the 

accelerated filer definition would 

exclude from the definition of 

accelerated filer those registrants that 

are newly eligible to use the SRC 

disclosure requirements, keeping the 

thresholds for both definitions linked as 

they have been historically. 

The Commission proposed to 

eliminate the provision in the 

accelerated filer definition that excludes 

SRCs to maintain the current thresholds 

at which registrants are subject to the 

accelerated filer disclosure and filing 

requirements. As a result, as illustrated 

in Figure 2, some registrants would 

qualify as both SRCs and accelerated 

filers. 

As discussed in the Proposing 

Release, the public float threshold for 

entering large accelerated filer status 

currently is $700 million, so newly 

eligible SRCs under the proposed 

increased public float threshold of $250 

million would not include any 

registrants that currently qualify as large 

accelerated filers. Nevertheless, the 

Commission proposed to eliminate this 

provision because it currently does not 

capture any registrants, would not have 

captured any registrants under the 

proposed amendments, and could lead 

to confusion if retained. 

2. Comments 

Some commenters responded to the 

Commission’s solicitation of comment 

on this issue by supporting the 

elimination of the provisions in the 

accelerated filer and large accelerated 

filer definitions that specifically exclude 

registrants that are eligible to use the 

SRC disclosure requirements for their 

annual or quarterly reports.107 One 

commenter stated that it found no 

compelling argument to support what it 

sees as a weakening of investor 

protections, particularly in light of the 

2011 Staff Section 404(b) Study 108

finding that accelerated filers subject to 

Section 404(b) had a lower restatement 

rate compared to non-accelerated filers 

not subject to Section 404(b).109 Another 

commenter recommended that the 

Commission undertake a separate 

rulemaking before deciding whether to 

change the Section 404(b) 

requirements.110 A third commenter 

recommended that the Commission 

provide more time for registrants with a 

public float of less than $250 million to 

file their periodic reports.111

In contrast, many commenters 

responded to the Commission’s 

solicitation of comment on this issue by 

recommending that the Commission 

increase the thresholds in the 

accelerated filer definition, consistent 

with the changes to the SRC 

definition.112 Commenters 

recommended increasing the public 

float threshold in the accelerated filer 

definition to reduce compliance 

costs 113 and to maintain uniformity 

across our rules.114 Many of these 

commenters stated that Section 404(b) is 

particularly costly for SRCs and 

emerging businesses 115 and that audit 

costs associated with Section 404(b) 

divert capital from core business 

needs.116

Several commenters addressed the 

costs associated with complying with 

the requirements of Section 404(b).117 A 

few commenters stated that, for many 

growing biotechnology companies, the 

Section 404(b) audit represents over $1 

million of capital diversion.118 One 

commenter indicated that Section 

404(b) compliance imposes a significant 

burden on emerging biotech companies, 

citing the 2011 Staff Section 404(b) 

Study that estimated that companies 

with a public float between $75 million 

and $250 million spend, on average, 

$840,276 to comply with Section 

404(b).119 Another commenter 

estimated that it will spend more than 

$400,000 annually on compliance with 

Section 404(b).120 One commenter that 


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labor.’’ See Transcript of Presentation by William 

Newell at September 13, 2017 ACSEC Meeting 

available at https://www.sec.gov/info/smallbus/ 

acsec/acsec-transcript-091317.pdf (pages 49 to 54); 

see also Newell, William J., ‘‘Sarbanes-Oxley 

Section 404(b): Costs of Compliance and Proposed 

Reforms’’, presentation at ACSEC meeting on Sept. 

13, 2017 available at https://www.sec.gov/info/ 

smallbus/acsec/william-newell-acsec-091317.pdf. 

121See Seneca. 

122See Dixie. 

123See Acorda, et al. (stating that the market does 

not demand a Section 404(b) audit as a prerequisite 

for investing in emerging, innovative companies 

and that virtually no EGCs are voluntarily forgoing 

their exemption from Section 404(b)). See also 

Dixie. 

124See MidSouth. 

125See ICBA (citing a 2005 ICBA study that 

estimated that audit fees for publicly held bank 

holding companies would drop dramatically—some 

by as much as 50%—if they were exempted from 

Section 404(b)). 

126See Acorda, et al.; AMTA; BIO; CONNECT; 

Calithera; CSBA; Nasdaq; and NYSE. 

127See ‘‘accelerated filer’’ and ‘‘large accelerated 

filer’’ definitions in Exchange Act Rule 12b–2. 

128The only registrants that would qualify as both 

SRCs and large accelerated filers would be those 

companies (1) that previously qualified as large 

accelerated filers because at one time their public 

float was $700 million or more, (2) whose revenues 

for the most recent fiscal year were less than $100 

million, and (3) whose public float as of the end of 

the most recent second quarter was less than $560 

million, such that they now qualify as SRCs, but not 

less than $500 million, such that they are not 

eligible to exit large accelerated filer status. 

129A non-accelerated filer is a filer that is not an 

‘‘accelerated filer’’ or a ‘‘large accelerated filer.’’ See 

subpart (3) of the accelerated filer and large 

accelerated filer definitions in Exchange Act Rule 

12b–2 [17 CFR 240.12b–2]. 

130See SRC Adopting Release 73 FR at 942. 

131 In conjunction with these amendments, we 

also are adopting technical revisions to Securities 

Act Forms S–1, S–3, S–4, S–8, and S–11 and 

Exchange Act Forms 10, 10–Q and 10–K. These 

amendments modify the cover page of the specified 

forms to remove the parenthetical next to the ‘‘nonaccelerated filer’’ definition that states ‘‘(Do not 

check if a smaller reporting company).’’ After these 

amendments, a registrant should check all 

applicable boxes on the cover page addressing, 

among other things, non-accelerated, accelerated, 

and large accelerated filer status, SRC status, and 

emerging growth company status. 

132Several commenters specifically 

recommended increasing the public float threshold 

in the accelerated filer definition to, among other 

things, maintain uniformity across our rules. See 

BIO; Coalition; Nasdaq; NVCA; and NYSE. 

133See note 29 and related text for a discussion 

of how and when public float is calculated and 

when revenues are measured. 

134The Commission received a number of 

comments in support of expanding the definition of 

SRC to include a revenue test for registrants with 

a public float. See Section II.A.1.b. 

stated that its public float was more 

than $75 million but less than $250 

million estimated that relief from 

Section 404(b) would result in a 35% 

reduction in compliance costs whereas 

there would be no material change in 

such costs from the proposed 

amendments.121 Another commenter 

noted that, while most firms already 

take an integrated accounting approach 

to Section 404(b) requirements that 

includes a complete internal control 

review, if smaller companies were 

exempt from Section 404(b), they would 

avoid the added legal liability of the 

auditor attestation, providing a savings 

opportunity and lowering the cost of 

being public for those companies.122

A few commenters stated that the 

market does not value the audit of such 

internal control 123 or that the costs of 

Section 404(b) outweigh the benefits.124

Another commenter stated that 

expanding relief from Section 404(b) to 

registrants with a public float of less 

than $250 million would encourage 

capital formation because reduced audit 

and disclosure requirements may 

encourage companies that have been 

hesitant to go public to do so.125

A number of commenters 

recommended that the Commission 

allow a revenue test for the accelerated 

filer definition, similar to the amended 

revenue test being adopted by the 

Commission in the SRC definition.126

3. Final Amendments 

As proposed, we are adopting 

amendments to the ‘‘accelerated filer’’ 

and ‘‘large accelerated filer’’ definitions 

in Exchange Act Rule 12b–2 to preserve 

the application of the current thresholds 

contained in those definitions.127

Specifically, we are eliminating from 

the definitions of accelerated filer and 

large accelerated filer the exclusions for 

registrants that are eligible to use the 

SRC requirements under Regulation S– 

K for their annual and quarterly reports. 

After the amendments to the SRC 

definition become effective, some SRCs 

will exceed the public float thresholds 

for initial or subsequent qualification in 

the accelerated filer definition, and a 

few of these registrants also may exceed 

the public float threshold for subsequent 

qualification in the large accelerated 

filer definition.128

Although we are not raising the 

accelerated filer public float threshold 

or modifying the Section 404(b) 

requirements for registrants with a 

public float between $75 million and 

$250 million in this release, as stated 

above, the Chairman has directed the 

staff to formulate recommendations to 

the Commission for possible changes to 

reduce the number of registrants that 

our rules define as accelerated filers. 

Eliminating the SRC provision in the 

accelerated filer and large accelerated 

filer definitions will maintain the 

current thresholds at which registrants 

are subject to the accelerated filer and 

large accelerated filer disclosure and 

filing requirements. In 2007, the 

Commission noted that aligning the SRC 

public float threshold based on the 

levels established for non-accelerated 

filers 129 was practical and avoided 

regulatory complexity.130 These 

amendments will change the current 

relationship between the SRC and 

‘‘accelerated filer’’ definitions by 

allowing a registrant to qualify as both 

a SRC and an accelerated filer.131 We 

acknowledge the regulatory complexity 

created by this potential overlap 

between the SRC and ‘‘accelerated filer’’ 

definitions.132 As part of the staff’s 

consideration of possible recommended 

amendments to the ‘‘accelerated filer’’ 

definition, the Chairman has directed 

the staff to consider, among other 

things, the historical and current 

relationship between the SRC and 

‘‘accelerated filer’’ definitions. 

III. Other Matters 

If any of the provisions of these 

amendments, or the application thereof 

to any person or circumstance, is held 

to be invalid, such invalidity shall not 

affect other provisions or application of 

such provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

IV. Economic Analysis 

As discussed above, we are adopting 

amendments to the definition of SRC as 

used in our rules and regulations. The 

amendments expand the number of 

registrants that are eligible to provide 

scaled disclosure to their investors and 

are intended to reduce compliance costs 

for these registrants and promote capital 

formation, while maintaining 

appropriate investor protections. 

Registrants with a public float of less 

than $250 million (an increase from the 

current $75 million threshold) will 

qualify as SRCs, as will registrants with 

no public float if their revenues are less 

than $100 million (an increase from the 

current $50 million threshold).133 In 

addition, registrants with a public float 

of less than $700 million will qualify as 

SRCs if their revenues are less than $100 

million.134

We also are making corresponding 

amendments to other rules in light of 

the new SRC definition. As proposed, 

we are adopting amendments to the 

‘‘accelerated filer’’ and ‘‘large 

accelerated filer’’ definitions in 

Exchange Act Rule 12b–2 to preserve 

the application of the public float 

thresholds in those definitions. In 

addition, we are amending Rule 3– 

05(b)(2)(iv) of Regulation S–X to 

increase the revenue threshold under 

which certain registrants may omit the 

earliest of the three fiscal years of 


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135Section 23(a)(2) of the Exchange Act requires 

us, when adopting rules, to consider the impact that 

any new rule would have on competition. In 

addition, Section 2(b) of the Securities Act and 

Section 3(f) of the Exchange Act direct us, when 

engaging in rulemaking that requires us to consider 

or determine whether an action is necessary or 

appropriate in the public interest, to consider, in 

addition to the protection of investors, whether the 

action will promote efficiency, competition, and 

capital formation. 

136There are two potential explanations for why 

the number of registrants meeting the SRC 

thresholds exceeds the number of reported SRCs. 

First, the public float and revenue thresholds 

establish eligibility for SRC status, but do not 

require eligible registrants to take advantage of the 

scaled disclosure requirements. Thus, some 

registrants may be opting out of SRC status if they 

do not find the reduced compliance costs to be net 

beneficial. Second, some registrants that appear to 

be eligible may not be if they previously exceeded 

the SRC threshold and were required to meet the 

lower eligibility threshold (i.e., public float of less 

than $50 million or revenues of less than $40 

million) to subsequently qualify as a SRC. 

137Based on analysis by DERA of available data. 

Staff obtained the SRC status and public float data 

from information extracted from exhibits to 

corporate financial reports filed with the 

Commission using eXtensible Business Reporting 

Language (‘‘XBRL’’), available at: http://

www.sec.gov/dera/data/financial-statement-datasets.html. Staff also extracted the SRC status and 

public float directly from Forms 10–K using a 

computer program. For robustness, staff compared 

the SRC status and public float information between 

the two sources and corrected discrepancies using 

data from Ives Group Audit Analytics. Staff 

extracted annual revenue data from the Compustat 

database and XBRL data in Form 10–K filings. 

138Staff determined whether a registrant claimed 

EGC status by parsing several types of filings (for 

example, Forms S–1, S–1/A, 10–K, 10–Q, 8–K, 20– 

F/40–F, and 6–K) filed by that registrant with 

supplemental data drawn from Ives Group Audit 

Analytics. 

139Compustat data on market value is obtained 

for calendar year 2016 filings. Staff obtained 

revenue data either from XBRL data in Form 10– 

K filings or directly from the filing itself. The 

summary statistics presented in Table 2 represent 

those registrants for which information on public 

float and revenue is concurrently available. Market 

value, as used throughout this Economic Analysis, 

is equivalent to market capitalization and presented 

for registrants with available data (described in 

footnote 25). 

audited financial statements of an 

acquired business or business to be 

acquired. 

We are mindful of the costs and 

benefits of the amendments. In this 

economic analysis, we examine the 

existing baseline, which consists of the 

current regulatory framework and 

market practices, and discuss the 

potential costs and benefits of the 

amendments, relative to this baseline, 

and their potential effects on efficiency, 

competition, and capital formation.135

We also consider the potential costs and 

benefits of reasonable alternatives to the 

amendments. Where practicable, we 

have attempted to quantify the 

economic effects of the amendments; 

however, in certain cases, we are unable 

to do so because either the necessary 

data are unavailable or the economic 

effects are not quantifiable. In these 

cases, we provide a qualitative 

assessment of the likely economic 

effects. 

A. Baseline 

In calendar year 2016, 7,395 

registrants filed a Form 10–K with the 

Commission. Excluding investment 

companies, business development 

companies, and ABS issuers, which are 

not eligible for SRC status, 6,739 

registrants filed a Form 10–K in 

calendar year 2016. Of these registrants, 

2,592 (35.1% of all registrants) claimed 

SRC status by checking the box on the 

cover page of their Forms 10–K 

indicating that the registrant was a SRC. 

Under the current definition, a 

registrant with a public float may 

qualify as a SRC if its public float is less 

than $75 million or a registrant with no 

public float may qualify as a SRC if its 

annual revenues are less than $50 

million. An additional 232 filers in 

calendar year 2016 reported public float 

of less than $75 million or no public 

float and revenues of less than $50 

million, but did not check the box on 

the cover page of their Forms 10–K 

indicating that they were SRCs.136 Of 

the 2,592 registrants that claimed SRC 

status in 2016, 1,899 registrants (25.7% 

of all registrants) reported having a 

public float that was less than $75 

million and 509 registrants (6.9% of all 

registrants) reported having no public 

float and revenues of less than $50 

million.137 Of the 2,592 SRCs, 833 

(11.3% of all registrants) also indicated 

in their filings that they were EGCs.138

Table 1 summarizes the number and 

percentage of registrants that claimed 

SRC status in each calendar year over 

the 2013–2016 period. 

TABLE 1—SRCS IN 2013–2016 PERIOD

Filing year Total # of 

registrants # of SRCs % of total 

Qualified 

based on 

public float 

<$75 million 

(% of Total) 

Qualified 

based on no 

public float 

and revenue 

<$50 million 

(% of Total) 

2013 ..................................................................................... 7,624 3,380 44.3 33.5 10.8 

2014 ..................................................................................... 7,642 3,179 41.6 32.7 8.9 

2015 ..................................................................................... 7,557 2,900 38.4 29.7 8.7 

2016 ..................................................................................... 7,395 2,592 35.1 25.7 6.9 

Table 2 shows that, while registrants 

claiming SRC status with available data 

account for a substantial percentage of 

the total number of registrants in 

calendar year 2016, they account for less 

than one percent of the entire public 

float, market value and revenue of all 

registrants.139

TABLE 2—SIZE PROXIES FOR SRCS IN 2016 

Public float Market value Revenue 

Mean .............................................. $14.7 million ................................. $57.2 million ................................. $42.8 million. 

Median ........................................... 4.3 million ..................................... 14.1 million ................................... 1.9 million. 

Aggregate size ............................... 40.1 billion .................................... 98.7 billion .................................... 96.2 billion. 

% of the aggregate size of all registrants.0.15% ............................................ 0.34% ............................................ 0.66%. 


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140The standard Fama-French classification sorts 

Standard Industry Classification codes into 49 main 

industrial categories; available at: http://

mba.tuck.dartmouth.edu/pages/faculty/ken.french/ 

Data_Library/det_49_ind_port.html. 

141 In 2016, SRCs accounted for 57% of all Form 

10–K filers in ‘‘Business Services,’’ 37% in 

‘‘Financial Trading,’’ 20% in ‘‘Banking,’’ 39% in 

‘‘Pharmaceutical Products,’’ 50% in ‘‘Petroleum and 

Natural Gas’’ and 47% in ‘‘Computer Software,’’ 

suggesting that these industries all have a fairly 

high concentration of small registrants. 

142Rule 8–04 of Regulation S–X [17 CFR 210.8– 

04] applies to financial statements of business 

acquired or to be acquired by SRCs. 

Table 3 shows the distribution of 

registrants that were eligible for SRC 

status based on available data in 

calendar year 2016 using the FamaFrench 49-industry classification.140

The ‘‘Business Services’’ industry 

accounts for 10.6% of all SRCs, 

followed by ‘‘Financial Trading’’ (9.8%), 

‘‘Pharmaceutical Products’’ (8.5%), 

‘‘Banking’’ (7.1%), ‘‘Petroleum and 

Natural Gas’’ (5.6%), and ‘‘Computer 

Software’’ (5.2%).141 We note that 

industries with a larger fixed 

component of operating costs, such as 

shipping, defense, and aircraft, tend to 

have fewer SRCs. 

TABLE 3—INDUSTRY DISTRIBUTION OF SRCS IN 2016 

Industry ID Industry # of SRCs % of all SRCs Industry ID Industry # of SRCs % of all SRCs 

1 .......................... Agriculture .......... 26 1.0 26 Defense .............. 2 0.1 

2 .......................... Food Products .... 35 1.3 27 Precious Metals .. 38 1.4 

3 .......................... Candy & Soda .... 3 0.1 28 Non-Metallic and 

Industrial Metal 

Mining.

76 2.9 

4 .......................... Beer & Liquor ..... 18 0.7 29 Coal .................... 3 0.1 

5 .......................... Tobacco Products.9 0.3 30 Petroleum and 

Natural Gas.

149 5.6 

6 .......................... Recreation .......... 23 0.8 31 Utilities ................ 15 0.6 

7 .......................... Entertainment ..... 55 2.0 32 Communication .. 45 1.7 

8 .......................... Printing and Publishing.8 0.3 33 Personal Services.37 1.4 

9 .......................... Consumer Goods 40 1.6 34 Business Services.281 10.7 

10 ........................ Apparel ............... 17 0.6 35 Computers .......... 22 0.8 

11 ........................ Healthcare .......... 37 1.4 36 Computer Software.136 5.2 

12 ........................ Medical Equipment.116 4.4 37 Electronic Equipment.102 3.9 

13 ........................ Pharmaceutical 

Products.

225 8.5 38 Measuring and 

Control Equipment.

41 1.6 

14 ........................ Chemicals ........... 54 2.1 39 Business Supplies.6 0.2 

15 ........................ Rubber and Plastic Products.20 0.8 40 Shipping Containers.2 0.1 

16 ........................ Textiles ............... 4 0.2 41 Transportation .... 24 0.9 

17 ........................ Construction Materials.29 1.1 42 Wholesale ........... 78 3.0 

18 ........................ Construction ....... 22 0.8 43 Retail .................. 82 3.1 

19 ........................ Steel Works ........ 9 0.3 44 Restaurants, Hotels, Motels.28 1.1 

20 ........................ Fabricated Products.5 0.2 45 Banking .............. 187 7.1 

21 ........................ Machinery ........... 54 2.0 46 Insurance ........... 20 0.8 

22 ........................ Electrical Equipment.39 1.5 47 Real Estate ........ 96 3.6 

23 ........................ Automobiles and 

Trucks.

21 0.8 48 Financial Trading 258 9.8 

24 ........................ Aircraft ................ 8 0.3 ........................ Other and Unknown.30 1.1 

25 ........................ Shipbuilding, 

Railroad Equipment.

3 0.1 ........................ ............................ ........................ ........................

As discussed above, we are amending 

Rule 3–05(b)(2)(iv) of Regulation S–X to 

increase the revenue threshold under 

which certain registrants may omit the 

earliest of the three fiscal years of 

audited financial statements of an 

acquired business or business to be 

acquired. Rule 3–05 applies to 

registrants that are not SRCs.142 Rule 3– 

05(b)(2)(iv) provides that, if the acquired 

business is large enough relative to the 

registrant (i.e., any of the significant 

subsidiary tests for the acquired 

business exceed 50%), the registrant 

must file three years of historical 

financial statements of the acquired 

business unless the acquired business 

has revenues of less than $50 million, in 

which case only two years of the 

acquired business’s most recent 

financial statements need to be filed. 

Given the difficulty in accurately 

identifying registrants that have 

acquisitions (1) that meet any of the 

significant subsidiary tests at the 50% 

level and (2) where the acquired 

business has revenues of less than $50 

million, we are unable to estimate the 

number of registrants that were affected 

by the $50 million revenue threshold in 


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143See, e.g., William A. Brock & David S. Evans, 

The Economics of Small Businesses: Their Role and 

Regulation in the U.S. Economy 65 at 70 (1986); C. 

Steven Bradford, Does Size Matter? An Economic 

Analysis of Small Business Exemptions from 

Regulation, College of Law, Faculty Publications. 72 

(2004). See also Cindy R. Alexander et al., 

Economic Effects of SOX Section 404 Compliance: 

A Corporate Insider Perspective, 56 J. Account. & 

Econ. 267–290 at 285 (2013) (noting, among other 

things, that they found ‘‘evidence of fixed costs that 

weigh disproportionately on smaller firms’’). 

144See Lin Cheng, Scott Liao, and Haiwen Zhang, 

Commitment Effect versus Information Effect of 

Disclosure: Evidence from Smaller Reporting 

Companies, 88 Account. Rev. 1239 (Jul. 2013). 

145For a review of the effects of executive 

compensation disclosures on compensation 

practices, see Kevin J. Murphy, ‘‘Executive 

compensation: Where we are, and how we got 

there,’’ Handbook of the Economics of Finance, Vol. 

2. Elsevier (2013) 211–356. See also Benjamin E. 

Hermalin and Michael S. Weisbach, Information 

Disclosure and Corporate Governance, 67 J. Fin. 

195 (2012), and Anya Kleymenova and Irem A. 

Tuna, Regulation of Compensation (June 21, 2017), 

Chicago Booth Research Paper No. 16–07, available 

at SSRN: https://ssrn.com/abstract=2755621. 

146See SRC Adopting Release 73 FR at 942. 

147 If a disclosure requirement applicable to SRCs 

is more stringent than for non-SRCs, however, SRCs 

must comply with the more stringent standard. Item 

404 is the only Regulation S–K disclosure 

requirement that could be more stringent. 

148 Data from 2008 show that registrants do not 

always take advantage of scaled disclosure. In a 

sample of 283 registrants that were newly eligible 

for scaled disclosure in 2008, the evidence from 

Form 10–K and proxy filings by those registrants 

shows that 109 of the registrants chose to maintain 

their disclosure level for all ten eligible items, while 

174 of the registrants reduced the disclosure level 

for at least one eligible item. See Lin Cheng, Scott 

Liao, and Haiwen Zhang, Commitment Effect versus 

Information Effect of Disclosure: Evidence from 

Smaller Reporting Companies, 88 Account. Rev. 

1239 (Jul. 2013) at 1247. 

Rule 3–05(b)(2)(iv) in 2016. We do not 

believe the disclosure accommodation 

in Rule 3–05(b)(2)(iv) is frequently used 

because the acquired business not only 

would need to meet one of the 

significant subsidiary thresholds at the 

50% level compared to the non-SRC 

acquirer, but also would need to have 

less than $50 million of revenues in its 

most recent fiscal year. 

B. Potential Economic Effects 

1. Introduction 

The primary benefit stemming from 

the amendments is a reduction in 

compliance costs for the registrants that 

will newly qualify for SRC status. To the 

extent that the reduced compliance 

costs have a fixed cost component,143

which typically burdens smaller 

registrants disproportionately, the cost 

savings may be particularly helpful for 

those registrants. 

As a secondary effect of the 

amendments, a lower disclosure burden 

could spur growth in the registrants that 

will newly qualify for SRC status to the 

extent that the compliance cost savings 

and other resources (e.g., managerial 

effort) otherwise devoted to disclosure 

and compliance are productively 

deployed in alternative ways. It also 

could encourage capital formation 

because companies that may have been 

hesitant to go public may choose to do 

so if they face reduced disclosure 

requirements. 

With respect to costs, we expect that 

the amendments to the SRC definition 

will result in a modest change in some 

indicators of the overall quality of the 

information environment. Generally, a 

decrease in the amount of direct 

disclosure could increase the 

information asymmetry between 

investors and company insiders, leading 

to lower liquidity and higher costs of 

capital for the affected registrants. For 

example, one study found that, during 

the three-month period following the 

establishment of the SRC definition, 

registrants with public floats of $25 

million or more and less than $75 

million that claimed SRC status 

experienced a significant reduction in 

liquidity relative to comparable 

registrants.144 In addition, one of the 

sources of information asymmetry under 

the amendments will be that the newly 

eligible SRCs will not be required to 

provide certain executive compensation 

disclosures, potentially lowering 

corporate governance transparency of 

these registrants.145 Furthermore, by 

introducing overlap between the SRC 

and the accelerated filer definitions, the 

amendments we are adopting would 

increase regulatory complexity.146

The number of affected registrants 

that will make scaled disclosures will 

ultimately depend on the choices of 

those registrants. That is, the SRC 

definition establishes eligibility for, but 

does not mandate reliance on, any of the 

scaled disclosure accommodations.147

We identified 232 registrants in 2016 

that met either the $75 million public 

float threshold or the $50 million 

revenue threshold for SRC status but did 

not claim SRC status. While some of 

these registrants may not have been 

eligible (for example, a registrant that 

previously did not qualify as a SRC 

because it exceeded the thresholds and 

is now subject to a lower threshold), it 

is possible that some elected not to avail 

themselves of the scaled disclosure 

requirements.148

Under the amendments, we expect 

registrants will weigh their own costs 

and benefits of scaled disclosure and 

decide whether to take advantage of any 

of the scaled disclosure 

accommodations for which they are 

newly eligible. Some registrants may 

determine that the costs of potentially 

reduced liquidity for their securities and 

higher cost of capital exceed the benefits 

of the lower compliance costs. Those 

registrants may elect not to rely on the 

scaled disclosure accommodations 

available to them. On the other hand, 

expanding SRC eligibility could provide 

opportunities for adverse selection in a 

greater number of registrants. For 

example, registrants whose outside 

investors would have benefited from 

more disclosure might choose the less 

burdensome disclosure requirement 

once becoming eligible. The net benefit 

or cost for each newly eligible registrant 

and its investors will ultimately depend 

on the specific facts and circumstances. 

Expanding the pool of registrants 

eligible for SRC status to include 

registrants with revenues of less than 

$100 million and a public float of $250 

million or more and less than $700 

million will increase the cost savings, 

information asymmetries, and other 

effects of scaled disclosure in 

proportion to the increase in the number 

of registrants that become newly eligible 

at those higher thresholds and choose to 

avail themselves of the scaled disclosure 

accommodation. This number is likely 

to be small, as indicated by the evidence 

that 161 (2.2%) of the registrants that 

filed a Form 10–K in 2016 would have 

met the thresholds in the amended 

revenue test for registrants with public 

float. 

The effects of scaled disclosure for 

registrants with a public float of $250 

million or more and less than $700 

million and revenues of less than $100 

million may be different from the effects 

of scaled disclosure for registrants with 

public float nearer to the current 

threshold of $75 million. This is 

because the characteristics of registrants 

eligible for SRC status under the final 

rules may be different from those of 

registrants close to the current 

threshold. For example, differences in 

the relationships between management 

and outside investors in registrants with 

higher public float could affect the level 

of information asymmetries between 

those registrants and investors. This 

may cause those registrants to make 

different decisions about how much 

information they choose to disclose and 

whether to rely on the scaled disclosure 

accommodations, leading to differences 

in the observed use of scaled disclosure 

by different registrants of the same size. 

The 161 additional registrants had an 

average public float of $396 million, 

while those that qualify under the 

current definition had an average public 

float of $15 million, and those that 

would have qualified under the 

proposed rules had an average public 


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149See text accompanying note 146. 

150Float and revenue values are from data in 

Form 10–K filings filed in calendar year 2016 and 

extracted from XBRL exhibits. 

151These percentages reflect the estimated 

number of registrants that qualify under the 

respective public float tests and do not include any 

registrants that are estimated to qualify under the 

respective revenue tests. 

152Using 2016 data, we estimate that, of the 7,395 

total registrants that filed Forms 10–K with 

available data, 3,606 registrants will meet one of the 

SRC thresholds under the amendments. In 

particular, we estimate that 2,851 registrants 

reported public float below $250 million and 

greater than zero in 2016, resulting in a percentage 

of 38.6% (2,851/7,395) of registrants potentially 

qualifying as SRCs under the amended public float 

threshold, and 2,072 registrants reported a public 

float below $75 million in 2016, resulting in a 

percentage of 28.0% (2,072/7,395). Also, we 

estimate that 594 registrants reported no public 

float and annual revenues below $100 million in 

2016, resulting in a percentage of 8.0% (594/7,395) 

of registrants potentially qualifying as SRCs under 

the amended revenue threshold, and 568 registrants 

reported no public float and annual revenues below 

$50 million in 2016, resulting in a percentage of 

7.7% (568/7,395). Finally, we estimate that 161 

registrants reported public float of $250 million or 

more and less than $700 million and annual 

revenues below $100 million in 2016, resulting in 

an additional 2.2% (161/7,395) of registrants 

potentially qualifying as SRCs. 

float of $55 million. These differences 

can affect whether a registrant decides 

to rely on scaled disclosure and how 

that decision affects the registrant’s 

investors. We do not have sufficient 

information about the experiences of 

registrants at the higher public float 

levels with lower revenues 

implementing scaled disclosure to 

estimate the frequency with which these 

registrants will implement scaled 

disclosure, if available. 

Similarly, increasing the revenue 

threshold below which registrants are 

eligible to provide two rather than three 

years of certain acquired businesses’ 

historical financial statements under 

Rule 3–05(b)(2)(iv) from $50 million to 

$100 million will increase the cost 

savings, information asymmetries, and 

other effects of the reduced historical 

financial statement disclosure that 

investors receive at or around the time 

of the acquisition in proportion to the 

increase in the number of registrants 

that acquire businesses with revenues 

below the higher threshold and choose 

to avail themselves of this disclosure 

accommodation. 

Overall, we expect the effect of raising 

the revenue threshold in Rule 3– 

05(b)(2)(iv) of Regulation S–X from $50 

million to $100 million on information 

disclosed by registrants and its 

consequences for registrants and 

investors to be modest. This reflects our 

appraisal that few registrants are eligible 

to provide two rather than three years of 

an acquired business’s historical 

financial statements under Rule 3– 

05(b)(2)(iv), because the acquired 

business not only would need to meet 

one of the significant subsidiary 

thresholds at the 50% level compared to 

the non-SRC acquirer, but the acquired 

business also would need to have less 

than the $50 million of revenues in its 

most recent fiscal year.149 The 

amendments we are adopting will have 

two potentially countervailing effects on 

the number of registrants that are 

eligible for the disclosure 

accommodation in Rule 3–05(b)(2)(iv). 

First, they will increase the number of 

registrants that are eligible to provide 

two rather than three years of an 

acquired business’s historical financial 

statements under Rule 3–05(b)(2)(iv) by 

raising the revenue threshold for 

eligibility. Second, they will reduce the 

number of registrants that are required 

to comply with Rule 3–05, because Rule 

3–05 is only applicable to registrants 

that are not SRCs, and our final rules are 

likely to increase the number of SRCs. 

Thus, the net effect may be to increase 

the number of registrants eligible to 

provide two rather than three years of 

an acquired business’s historical 

financial statements under Rule 3– 

05(b)(2)(iv), but we do not expect the 

net increase to be significant. 

2. Impact on Eligibility for Smaller 

Reporting Company Status 

By increasing the public float 

threshold from $75 million to $250 

million, increasing the annual revenue 

threshold for registrants with no public 

float from $50 million to $100 million, 

and expanding the revenue test to 

include registrants with a public float of 

less than $700 million and revenues of 

less than $100 million in the SRC 

definition, the amendments will permit 

more registrants to qualify as SRCs. To 

estimate the number of additional 

registrants that are likely to be affected 

by the amendments, we use public float 

data and revenue data from Form 10–K 

filings.150 Our estimate of the number of 

registrants likely to be eligible in the 

first year under the new definition that 

would not have qualified under the 

current definition is the number that 

would have been eligible had the rule 

been in effect. We use evidence on the 

composition of those registrants from 

the 2016 data to estimate the likely 

composition of the registrants that 

would be eligible in the first year under 

the new definition. 

We estimate that 966 additional 

registrants will be eligible for SRC status 

in the first year under the new 

definition. These registrants estimated 

to be eligible in the first year comprise 

779 registrants with a public float of $75 

million or more and less than $250 

million, 26 registrants with no public 

float and revenues of $50 million or 

more and less than $100 million, and 

161 registrants with a public float of 

$250 million or more and less than $700 

million and revenues of less than $100 

million. 

The 966 registrants that we estimate 

will be newly eligible for SRC status are 

characterized by an average public float 

of $191 million (median $162 million), 

an average market value of $279 million 

(median $201 million), and average 

revenues of $196 million (median $68 

million). Of these registrants, 365 

currently are EGCs and are eligible for 

certain scaled disclosure under Title I of 

the JOBS Act, including the scaled 

executive compensation disclosures 

available to SRCs under Item 402 of 

Regulation S–K. The newly eligible 

registrants with available data in 2016 

were concentrated in the following 

industries: ‘‘Pharmaceutical Products’’ 

(17.3%), ‘‘Banking’’ (15.2%), ‘‘Financial 

Trading’’ (11.8%), ‘‘Business Services’’ 

(5.2%), and ‘‘Electronic Equipment’’ 

(3.7%). If the distribution of eligible 

registrants does not change over time, 

and if all of them claim SRC status, the 

amendments will lead to a noticeable 

increase in the presence of 

‘‘Pharmaceutical Products’’ and 

‘‘Banking’’ registrants in the pool of 

SRCs. 

Registrants eligible for SRC status 

with available data using the public 

float threshold of less than $250 million 

represent approximately 38.6% of all 

registrants, while only 28.0% of all 

registrants qualify under the existing 

public float threshold of less than $75 

million. The 38.6% of all registrants that 

will qualify under the public float 

threshold would be more in line with 

the 42% of registrants that qualified 

under the public float threshold when 

the Commission first established the 

definition of SRC.151 An additional 

8.0% of registrants will qualify based on 

having no public float and revenues of 

less than $100 million, while currently 

7.7% of registrants reported having no 

public float and less than $50 million in 

revenues.152 Finally, based on the 2016 

data, 2.2% of registrants had a public 

float of $250 million or more and less 

than $700 million and revenues of less 

than $100 million. 

Increasing the percentage of 

registrants that will qualify under the 

public float threshold to align more 

closely with the 2007 level is consistent 

with the rise in market capitalization of 

public companies that has occurred 


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153For example, the S&P 500 index grew by more 

than 80 percent over the decade ending with the 

fourth quarter of 2017. Source: CRSP and St. Louis 

Fed (https://fred.stlouisfed.org/series/GDPDEF). 

154Although there is a clear threshold for 

eligibility, we cannot use the well-known empirical 

method of Regression Discontinuity Design to 

assess the treatment effect of scaled disclosures for 

SRCs. This method requires that the assignment of 

the treatment among registrants be ‘‘as good as 

random’’ around the threshold. Under this 

assumption, the registrants that receive the 

treatment of scaled disclosure (i.e., SRCs) should be 

comparable to those registrants that do not receive 

the treatment because their public float is just above 

the $75 million threshold. Given the exemption 

from Section 404(b) available to current SRCs with 

public float below $75 million, this assumption 

does not hold. 155 Difference-in-difference is a technique used to 

calculate the effect of a variable on a treatment 

group versus a control group. In particular, in the 

analysis below, the average change over time in the 

outcome of a variable for the treatment group is 

compared to the average change over time in the 

outcome of that variable for the control group. 

156This would allow for a $50 million bandwidth 

similar to that used in the Commission’s 2007 rules, 

which raised the threshold for relief from $25 

million to $75 million. 

157The comparison groups help control for 

confounding factors that may also independently 

affect the economic effects associated with scaled 

disclosures. While we determine Treatment Group 

and Control Group 1 based on public float alone, 

we use both public float and revenues to determine 

Control Group 2, because, prior to the 

Commission’s 2007 rules, registrants with public 

float below $25 million were not eligible for scaled 

disclosures if their revenues exceeded $25 million. 

since that time.153 We do not have 

sufficient data to be able to compare the 

percentage of registrants qualifying 

under the revenue threshold when the 

Commission first established the 

definition of SRC to the estimated 8.0% 

that will qualify using a revenue 

threshold of $100 million. Table 4 

summarizes the size of the potential 

SRCs in terms of public float, market 

value, and annual revenue under the 

amendments. 

TABLE 4—SIZE PROXIES FOR SRCS ELIGIBLE UNDER THE AMENDMENTS

Public float Market value Revenue 

Mean .............................................. $59.9 million ................................. $480.1 million ............................... $317.7 million. 

Median ........................................... $12.1 million ................................. $40.9 million ................................. $10.3 million. 

Aggregate size ............................... $202.6 billion ................................ $1,220.5 billion ............................. $1,074.0 billion. 

% of the aggregate size of all registrants.0.9% .............................................. 4.8% .............................................. 8.7%. 

As discussed above, we are amending 

Rule 3–05(b)(2)(iv) of Regulation S–X to 

increase the revenue threshold under 

which certain registrants may omit the 

earliest of the three fiscal years of 

audited financial statements of an 

acquired business or business to be 

acquired. Similar to the baseline 

discussion of Rule 3–05, given the 

difficulty in accurately identifying 

registrants that have acquisitions (1) that 

meet any of the significant subsidiary 

tests at the 50% level and (2) where the 

acquired business has revenues of less 

than $100 million, we are unable to 

estimate the number of registrants that 

will be affected by raising the revenue 

threshold in Rule 3–05(b)(2)(iv) from 

$50 million to $100 million. The 

amendments we are adopting today 

increase the number of registrants that 

qualify as SRCs (which will likely 

decrease the application of Rule 3–05) 

but also increase the revenue threshold 

in Rule 3–05(b)(2)(iv) (which may offset 

the decreased number of companies 

affected by Rule 3–05). Therefore, we do 

not expect that the amendments will 

significantly alter the number of 

registrants that will be eligible to omit 

the earliest of three years of financial 

statements of an acquired business 

pursuant to Rule 3–05(b)(2)(iv). 

3. Estimation of Potential Costs and 

Benefits 

In this section, we estimate the 

incremental costs and benefits 

associated with SRC-related scaled 

disclosures, using a multivariate 

empirical analysis. We cannot isolate 

the costs and benefits associated with 

scaled disclosures using available data 

from SRCs, because we cannot with the 

data isolate the effects of scaled 

disclosures from the effects of some 

other accommodations, such as the 

exemption from Section 404(b) that is 

currently available to all SRCs through 

their status as non-accelerated filers.154

Under the final rules, some newly 

eligible SRCs will be able to provide 

scaled disclosures but will continue to 

be subject to Section 404(b) as 

accelerated filers. 

It is possible, however, to isolate the 

effects of scaled disclosures on 

registrants with public float slightly 

below or above the current $75 million 

public float threshold using 2006–2009 

data. This is because, as a result of the 

rules that established the SRC definition 

in 2007, registrants with public float of 

$25 million or more and less than $75 

million experienced no change in the 

Section 404(b) exemption (that is, they 

remained exempt from the requirement), 

but became eligible for the SRC scaled 

disclosures. Our empirical method is a 

difference-in-difference estimation 

between a treatment group and a control 

group that is the basis for 

comparison.155 In particular, the 

treatment group (‘‘Treatment Group’’) 

consists of registrants with public float 

of $25 million or more and less than $75 

million that claimed SRC status in 2008. 

Two natural control groups exist. The 

first (‘‘Control Group 1’’) consists of 

registrants that did not qualify for SRC 

status because they had public float at 

or just above $75 million ($75 million 

or more and less than $125 million).156

The second (‘‘Control Group 2’’) 

consists of registrants with public float 

and revenues below $25 million that 

were already eligible for scaled 

disclosures at that time and thus not 

affected by the Commission’s 2007 

rules.157

To analyze the economic effects of 

eligibility for scaled disclosures 

resulting from the Commission’s 2007 

rules by this method, we compare the 

Treatment Group with Control Group 1 

and Control Group 2 in the following 

areas: Cost savings, information 

environment, liquidity, and growth. We 

then use the analysis to extrapolate the 

likely effects of the expansion of 

eligibility for SRC status under the final 

rules. In extrapolating the likely effects, 

we place particular emphasis on the 

comparison between the Treatment 

Group and Control Group 1, which 

represents a closer group in size to the 

newly eligible SRCs under the final 

rules. 

We believe that the evidence from 

analysis of changes in the information 

environments of registrants around the 

2007 amendments is a suitable basis for 

evaluating the effects of the current 

amendments on registrants with public 

floats at the low end of the range that 

are newly eligible for scaled disclosure. 

We included a similar analysis in the 

Proposing Release and solicited 

comments on this analysis, including 

ways to better quantify the effects of 

scaled disclosure on SRCs, but did not 

receive any comments in response. 


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158The 2007 rule amendments affected the 

reporting practices of registrants with public floats 

near the $75 million threshold (i.e., $25 million or 

more and less than $75 million) and, accordingly, 

may indicate the effects of increasing the public 

float threshold on registrants with public float of 

$75 million or slightly more than $75 million. 

159One limitation of difference-in-difference and 

regression discontinuity design studies of the 

effects of changes in regulatory rules is that their 

results are more applicable in evaluating the effects 

of the changes on the registrants whose 

characteristics most closely resemble those who 

were affected by the event under the analysis than 

in evaluating effects on other registrants. See, e.g., 

Leuz and Wysocki (2016). 

160For example, among other factors, we note that 

the Commission approved Public Company 

Accounting Oversight Board Auditing Standard No. 

5 regarding Audits of Internal Control over 

Financial Reporting (AS 5). Among other things, AS 

5 was intended to reduce unnecessary costs by 

making the audit scalable to fit the size and 

complexity of a company. AS 5 became effective in 

November 2007, and registrants with fiscal years 

ending between July and November were allowed 

to avail themselves of the provision earlier. The 

adoption and implementation of AS 5 in 2007 could 

have had an impact on the audit fees of all 

registrants subject to Section 404(b). Given that in 

our analysis both Treatment Group and Control 

Group 1 were affected by AS 5, however, the 

difference-in-difference methodology should 

control for the potential effects of AS 5 on audit 

fees. In addition, based on registrants’ fiscal year 

end, we have no reason to believe that early 

adopters were more or less concentrated in 

Treatment Group than Control Group 1. See also 

Commission Guidance Regarding Management’s 

Report on Internal Control Over Financial Reporting 

Under Section 13(a) or 15(d) of the Securities 

Exchange Act of 1934, Release No. 33–8810 (Jun. 

20, 2007) [72 FR 35324 (Jun. 27, 2007)]. 

161 If there is a fixed (dollar value) component in 

audit expenses that apply to registrants of all sizes, 

then the estimates under this alternative approach 

can be viewed as the upper bound of the potential 

audit fee savings. 

162The inflation adjustment was performed using 

the CPI calculator of the Bureau of Labor Statistics 

(http://data.bls.gov/cgi-bin/cpicalc.pl). 

While the 2007 amendments resulted 

in changes that are similar to what we 

expect will occur under the current 

amendments, our analysis is subject to 

a number of assumptions and 

limitations. The evidence from the 2007 

amendments may be less suitable as a 

basis for evaluating the effects of the 

current amendments on registrants with 

relatively higher levels of public float 

than for evaluating potential effects of 

the current amendments on registrants 

with public float around the $75 million 

threshold.158 It is thus more challenging 

to quantify the likely effects of the 

current amendments on newly eligible 

SRCs with public float levels that are 

farther from the $75 million level, such 

as those closer to the $250 million and 

$700 million levels.159 We believe those 

challenges may be less pronounced for 

registrants that have other 

characteristics, such as revenue, similar 

to those of the registrants that were 

affected by the prior rules. 

a. Potential Cost Savings: Estimates 

Based on Changes in Audit Fees 

The cost savings from scaled 

disclosures could include savings of 

resources that are likely to be used for 

the relevant parts of disclosures, for 

example, managerial and employee 

time, other internal resources, and audit 

fees related to certain disclosures. 

Among these potential savings, changes 

in audit fees are readily quantifiable. To 

the extent that the scaled disclosure 

accommodations affect information that 

must be audited, scaled disclosures of 

the audited portions of the filings 

should lead to a reduction in audit 

expenses. Because many of the scaled 

disclosures available to SRCs relate to 

governance and executive compensation 

disclosures that are not subject to audit, 

a reduction in audit fees is likely a small 

part of the total cost savings associated 

with scaled disclosures. However, 

quantifying the change in audit fees can 

potentially help us estimate the entire 

cost savings. 

To estimate the cost savings from the 

amendments, we first examine changes 

in the audit fees of registrants that were 

newly eligible to use scaled disclosures 

as a result of the 2007 amendments 

relative to those in the control, or 

comparison, groups between the preamendment 2006–2007 period and the 

post-amendment 2008–2009 period. 

Audit fee data come from the Ives Group 

Audit Analytics database. We include 

only registrants that had both preamendment and post-amendment audit 

fee data in the analysis. Table 5 reflects 

the general results. 

TABLE 5—PRE- AND POST-COMMISSION’S 2007 AMENDMENTS AUDIT FEES FOR SRCS AND CONTROL GROUPS

Fiscal year 

Treatment Group 

(SRCs 

w/public float 

$25m–$75m) 

Control Group 1 

(Non-SRCs 

w/public float 

$75m–$125m) 

Control Group 2 

(SRCs 

w/public float 

and revenues 

below $25m) 

Avg. 2006–2007 ......................................................................................................... $311,105 $676,194 $113,757 

Avg. 2008–2009 ......................................................................................................... $267,252 $654,463 $101,854 

Number of Observations ............................................................................................ 1,315 694 962

For SRCs with public floats of $25 

million or more and less than $75 

million, in 2008–2009, average audit 

fees declined by $43,853. In contrast, 

both Control Group 1, which just missed 

eligibility for SRC status, and Control 

Group 2, which already was eligible for 

scaled disclosures, experienced smaller 

declines in average audit fees after the 

adoption of the 2007 amendments: 

$21,731 and $11,903, respectively. 

Thus, the difference-in-difference 

estimate of the savings in audit fees 

associated with scaled disclosures is 

between $22,122 and $31,950 per SRC 

with public float around the $75 million 

threshold. Although two different 

control groups are used to control for 

other factors that may have caused the 

changes in audit fees noted in Table 5 

during the 2006–2009 period,160 the 

effect of the 2008 financial crisis may 

not be completely ruled out and could 

make the estimated savings in audit fees 

appear larger than they actually were. 

We also estimate the savings in audit 

fees in terms of a percentage reduction, 

instead of a dollar value.161 The audit 

fees for the Treatment Group declined 

by 14.1% in the 2008–2009 period 

relative to the 2006–2007 period, but 

only by 3.2% for Control Group 1 and 

10.5% for Control Group 2. Thus, the 

difference-in-difference estimate of the 

treatment effect in terms of a percentage 

reduction is a 3.6% to 10.9% reduction 

in the audit fees. 

For the 966 newly eligible registrants 

that we estimate would be potentially 

affected by the amendments, the average 

audit fees were $658,735 in fiscal year 

2016. Thus, if we use the dollar value 

estimates of the audit fee savings, the 

estimated reduction in audit fees would 

be between $28,490 and $41,147 for this 

group, which are the inflation-adjusted 

values of the audit fee savings estimates 

in 2008 and 2009.162 This estimate of 

savings on audit fees for the newly 

eligible registrants is approximately 


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163Estimates based on data from 2006 to 2009 

may not be directly applicable to the estimation of 

audit fees for the newly eligible registrants under 

the rule amendments. On the one hand, because 

auditors may charge larger registrants more for 

auditing the same disclosure items, our estimate 

could be viewed as a conservative estimate on the 

potential savings of audit fees for the newly eligible 

SRCs. On the other hand, if there were any 

increased competition in the auditing industry 

since 2009, then it could have led to lower audit 

expenses for the same disclosure items. Thus, our 

estimate could be higher or lower than the actual 

savings on audit fees for SRCs in 2008 and 2009. 164 In using these proxies, we do not mean to 

suggest that scaled disclosure would be expected to 

directly cause an increase in earnings management 

or an increased incidence of material restatements, 

as there is little direct connection between the types 

of disclosure governed by our scaled disclosure 

requirements and the disclosure affected by a 

restatement. 

165Specifically, for each number reported in 

Table 6, we estimate the following equation: 

y = a + b * SRC + c * After + d * [SRC * After] 

where the single-letter terms ‘‘a’’ to ‘‘d’’ are 

coefficients to be estimated; ‘‘SRC’’ equals one for 

the treatment group and zero for the comparison 

group; and ‘‘After’’ equals one for fiscal years 2008 

and 2009 and zero for fiscal years 2006 and 2007. 

The treatment effect is reflected in the coefficient 

estimate d, which is the differential value of the 

variable y for treated firms following the start of the 

treatment. A statistically negative estimate of d is 

consistent with a reduction in the value of the 

dependent variable y (Institutional Ownership, 

Institutional Block Ownership, etc.) for treated 

firms. 

4.3% ($28,491/$658,735) to 6.2% 

($41,148/$658,735) of the audit fees. 

We recognize that this analysis of the 

audit fee data is subject to a number of 

assumptions, some of which may not be 

fully applicable when estimating the 

potential change in audit expenses as a 

result of the amendments.163 As a result, 

there are limitations to our ability to 

draw conclusions from the analysis. For 

example, we recognize that audit 

expenses are only one component of 

costs for registrants and that changes in 

audit fees do not capture the full range 

of potential cost savings stemming from 

scaled disclosures. There are cost 

savings apart from the audit, such as 

cost savings resulting from a SRC not 

being required to prepare a 

compensation discussion and analysis 

and from other scaled disclosures in 

Item 402 of Regulation S–K. These cost 

savings likely will include both internal 

cost savings (such as employee and 

managerial time and resources) and 

external cost savings from fees for other 

outside professionals such as attorneys. 

Given the nature of scaled disclosures 

available to SRCs, we expect these other 

cost savings to be much larger than the 

cost savings in audit fees. In the 

Proposing Release, we assumed that 

25% of the total cost savings from 

scaled disclosure comes from savings in 

audit fees and 75% of the savings comes 

from reduction in other expenses. We 

solicited comments on this assumption 

and on whether we should use a 

different assumption but did not receive 

any comments in response. 

Accordingly, we use the same 

assumption here. 

Given this assumption, we estimate 

total annual cost savings per newly 

eligible registrant with a public float 

around the $75 million threshold to be 

between $98,439 ($24,610 × 4) and 

$298,052 ($74,513 × 4). The savings to 

registrants that become newly eligible 

with public floats closer to the $250 

million and $700 million thresholds, 

will vary from this estimate by amounts 

that are difficult to quantify, because 

these registrants are less comparable to 

the Control Groups, and will depend on 

the facts and circumstances of the newly 

eligible registrant. For example, the 

audit cost for some of these registrants 

may be higher as a result of greater 

complexity in their business operations, 

increasing the cost savings associated 

with SRC status. 

b. Information Environment, Liquidity, 

and Growth 

A registrant’s information 

environment can be measured by the 

amount of useful information available 

to investors and the quality of that 

information. To gauge the potential 

effects on the degree of external 

information production about the 

registrant that could benefit investors, 

we determine a registrant’s percentage 

of institutional ownership, total 5% 

block institutional ownership, and 

analyst coverage (i.e., whether a 

registrant is covered by at least one 

analyst and the number of analysts). 

To measure disclosure quality, we use 

four discretionary accrual measures 

commonly used in the accounting 

literature as proxies for earnings 

management and the incidence of 

material restatements (based on the first 

year of financial statements restated and 

the filing year). Scaled disclosure may 

contribute to lowering the overall 

quality of the information environment, 

which is proxied in this analysis by the 

propensity for earnings management 

and the incidence of material 

restatements.164 The data on 

restatements are from the Ives Group 

Audit Analytics database. A material 

restatement is defined as a restatement 

that is reported under Item 4.02 of Form 

8–K. 

To examine the potential effects on 

liquidity, we focus on the share 

turnover ratio, which is calculated by 

dividing the total number of shares 

traded over a period by the number of 

shares outstanding. To assess the effects 

of scaled disclosures on growth, we 

examine a registrant’s capital 

investment, which is measured by the 

capital expenditures to assets ratio, as a 

proxy for real growth. Because there is 

a high concentration of SRCs in 

industries for which research and 

development (‘‘R&D’’) investment is 

important (e.g., pharmaceutical 

products and electronic equipment), we 

also examine a registrant’s investment 

in R&D. Finally, we examine asset 

growth, which is the growth rate in book 

assets, which could capture a 

registrant’s growth through both capital 

investment and acquisition. 

Table 6 reports the estimated 

treatment effect. The number in the 

Treatment Group vs. Control Group 1 

column reflects the difference between: 

(1) The average change in the metric for 

the Treatment Group, from the 2006– 

2007 period, when it was not eligible for 

scaled disclosure, to the 2008–2009 

period, when it was eligible for scaled 

disclosure, and (2) the average change in 

the metric between the same periods for 

Control Group 1, which was never 

eligible for scaled disclosure. Similarly, 

the number in the Treatment Group vs. 

Control Group 2 column reflects the 

difference between: (1) The average 

change in the metric for the Treatment 

Group from the 2006–2007 period, 

when it was not eligible for scaled 

disclosure, to the 2008–2009 period, 

when it was eligible for scaled 

disclosure and (2) the average change in 

the metric between the same periods for 

Control Group 2, which had been 

eligible for scaled disclosure for both 

periods.165

TABLE 6—SCALED DISCLOSURES AND THE INFORMATION ENVIRONMENT, LIQUIDITY, AND GROWTH 166

Treatment Group 

vs. 

Control Group 1 

Treatment Group 

vs. 

Control Group 2 

Information Environment: 


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166This table shows changes in the information 

environment, liquidity, and growth upon the 

introduction of scaled disclosure for SRCs. 

Treatment Group consists of SRCs with public float 

of $25 million or more and less than $75 million 

in fiscal year 2008. Control Group 1 consists of nonSRCs with public float of $75 million or more and 

less than $125 million. Control Group 2 consists of 

small business issuers with public float and 

revenues below $25 million. Institutional 

Ownership is total percentage institutional 

ownership. Block Institutional Ownership is total 

block (5%) institutional ownership. Number of 

Analysts is the number of analysts following a 

registrant. Analyst Coverage Dummy is a dummy 

variable indicating the existence of analyst 

following. Earnings Mgmt. 1–4 are four different 

discretionary accruals measures. Earnings Mgmt. 1 

follows Kothari, Leone, and Wasley (2005), and 

Earnings Mgmt. 2–4 follows Dechow, Sloan, and 

Sweeney (1995).1 Material Restatement (Filing 

Year) is a dummy variable that equals one if a 

registrant discloses restatement under Item 4.02 of 

Form 8–K in that year, and zero otherwise. Material 

Restatement (First Year Restated) is a dummy 

variable that equals one if the material reason for 

the restatement under Item 4.02 of Form 8–K 

originated in that year, and zero otherwise. Share 

Turnover is the ratio of shares traded over shares 

outstanding. Capital Investment is capital 

expenditures over book assets. R&D investment is 

R&D expenditures over revenue. Asset Growth is 

the annual growth rate of book assets. ***, **, and 

* indicate significance at 1%, 5%, and 10% 

confidence levels, respectively. 

167 In contrast, Chang et al. (2013) did find a 

negative and significant effect of the Commission’s 

2007 amendments on SRCs’ liquidity. The 

difference in the results could stem from the use of 

a different empirical methodology, sample, and 

sample period. Chang et al. (2013) excluded 

financial companies. While the authors examined a 

pre-amendment period of April to June 2007, we 

included the entire 2006 and 2007 periods. Also, 

while the authors examined a post-amendment 

period of February to August 2008, we included the 

entire 2008 and 2009 periods. In addition, the 

authors focus on a set of illiquidity measures, while 

we focus on the share turnover ratio, a commonly 

used liquidity measure. 

TABLE 6—SCALED DISCLOSURES AND THE INFORMATION ENVIRONMENT, LIQUIDITY, AND GROWTH 166—Continued 

Treatment Group 

vs. 

Control Group 1 

Treatment Group 

vs. 

Control Group 2 

External Information Production: 

Institutional Ownership .................................................................................................................. ***¥0.052 ***¥0.022 

Institutional Block Ownership ........................................................................................................ **¥0.016 ¥0.002 

Number of Analysts ....................................................................................................................... ¥0.179 ¥0.068 

Analyst Coverage Dummy ............................................................................................................ ***¥0.099 *** 0.087 

Information Environment: 

Disclosure Quality: 

Earnings Mgmt. 1 .......................................................................................................................... 0.025 0.015 

Earnings Mgmt. 2 .......................................................................................................................... 0.024 0.013 

Earnings Mgmt. 3 .......................................................................................................................... 0.020 0.024 

Earnings Mgmt. 4 .......................................................................................................................... 0.018 0.023 

Material Restatement (Filing Year) ............................................................................................... 0.018 0.015 

Material Restatement (First Year Restated) ................................................................................. ** 0.036 0.016 

Liquidity: 

Share Turnover Ratio ¥0.063 ¥0.052 

Growth: 

Capital Investment ......................................................................................................................... 0.005 ¥0.005 

R&D Investment ............................................................................................................................ ¥0.035 ¥0.002 

Asset Growth Rate ........................................................................................................................ ¥0.005 ***¥0.282 

The results in Table 6 suggest that the 

scaled disclosures had a negative effect 

on institutional ownership. The 

Treatment Group, which became 

eligible for scaled disclosures, 

experienced a 5.2% greater decrease in 

average institutional ownership from 

period to period than the registrants in 

Control Group 1, which remained 

ineligible for scaled disclosures, and a 

2.2% greater decrease in average 

institutional ownership from period to 

period than the registrants in Control 

Group 2, which were eligible for scaled 

disclosures throughout both periods. 

The results reflect a positive effect on 

material restatements in SRCs based on 

the first year restated, while the effect 

on analyst coverage is inconclusive. 

SRCs tend to lose analyst coverage 

relative to comparable registrants that 

just missed eligibility, but they gain 

coverage relative to even smaller 

registrants that already were eligible for 

scaled disclosures. There is no 

statistically significant effect on 

earnings quality as captured by 

discretionary accruals measures or the 

incidence of material restatement based 

on when the restatement was filed. 

Overall, the evidence suggests a modest, 

but statistically significant, negative 

effect of scaled disclosure on SRCs’ 

overall information environment. 

The effect of scaled disclosures on 

share turnover ratio is negative but 

statistically insignificant, suggesting no 

significant effect of scaled disclosures 

on SRCs’ liquidity.167 Because the 

newly eligible registrants are larger in 

market value and have more 

institutional ownership and analyst 

coverage than the current SRCs, to the 

extent those registrants rely on the 

accommodations, we do not expect a 

significant negative impact on their 

liquidity. 

The results in Table 6 indicate no 

clear difference between SRCs and 

registrants in Control Group 1 and 

Control Group 2 in terms of changes in 

capital investment and R&D investment. 

The effect on asset growth rate is mixed. 

There is no significant difference 

between the Treatment Group and 

Control Group 1, but compared to 

Control Group 2, the Treatment Group 

had deterioration in asset growth rate 

after the 2007 rules. Overall, our 

empirical analysis suggests that scaled 

disclosures have only a minimal effect 

on growth in current SRCs relative to 

the Control Groups. Thus, we do not 

expect the use of scaled disclosures to 

have a significant effect on the growth 

of the newly eligible registrants under 

the final rules. 

c. Rule 3–05 

Similar to our discussion of the 

amendments to the SRC definition, we 

generally expect a modest reduction in 

compliance costs for registrants that are 

eligible to provide two rather than three 

years of historical financial statements 

of certain acquired businesses under 

Rule 3–05(b)(2)(iv), with corresponding 

potential modest increases in 

information asymmetries. We expect the 

magnitude of the effects of the change 

in the revenue threshold in Rule 3– 

05(b)(2)(iv) to be smaller for those 

registrants that acquire relevant 

businesses and their investors, as 

compared to the change in the SRC 

definition for newly eligible registrants 

and their investors. The reason for this 

expectation is that the revenue 


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168See Section I for a discussion of the scaled 

disclosure accommodations available to SRCs. 

169Specifically, for each number reported in 

Table 7, we estimate the following equation: 

y = a + b * SRC + c * After + d * HighAff + e 

* [SRC * After] + f * [SRC * HighAff] + g * [After 

* HighAff] + h * [SRC * HighAff * After] 

where the single-letter terms ‘‘a’’ to ‘‘h’’ are 

coefficients to be estimated. ‘‘After’’ and ‘‘SRC’’ are 

defined in note 169. ‘‘HighAff’’ is a dummy variable 

equal to one if the firm’s affiliated ownership is 

greater than the sample median of 0.42; otherwise, 

‘‘HighAff’’ is equal to zero. The treatment effect of 

interest is measured by the coefficient h, which is 

the differential value of the variable y for treated 

firms with high affiliated ownership, following the 

start of the treatment. See also note 169. 

170This table shows the differences in the 

changes between registrants with high affiliated 

ownership and those with low affiliated ownership 

upon the introduction of scaled disclosure for SRCs. 

Affiliated ownership is the percentage of a 

registrant’s market value of equity that is owned by 

threshold in Rule 3–05(b)(2)(iv) only 

affects the historical financial 

statements of the acquired businesses 

(by limiting them to two years rather 

than three years), whereas a registrant 

that qualifies as a SRC will be able to 

comply with a number of scaled 

disclosure accommodations, including 

providing two years of financial 

statements and scaled executive 

compensation disclosures.168

d. Conclusion 

Taken together, our empirical analysis 

suggests that, for most of the newly 

eligible SRCs under the final rules, 

scaled disclosures may generate a 

modest, but statistically significant, 

amount of cost savings in terms of the 

reduction in compliance costs, a 

modest, but statistically significant, 

deterioration in some of the proxies 

used to assess the overall quality of 

information environment, and a muted 

effect on the growth of the registrant’s 

capital investments, investments in 

R&D, and assets. We expect the effects 

on registrants that are newly eligible for 

reduced disclosure under Rule 3– 

05(b)(2)(iv) to be lesser in magnitude but 

qualitatively similar. 

4. Affiliated Ownership and Adverse 

Selection 

In general, holding market value 

constant, the use of public float to 

define eligibility favors registrants with 

more affiliated ownership. If we 

consider two registrants with the same 

market value but different affiliated 

ownership, the one with greater 

affiliated ownership will have a lower 

public float, which is the value of nonaffiliated ownership, and thus will be 

more likely to qualify for SRC status 

based on the public float threshold. This 

could be problematic if the adverse 

selection problem creates a conflict of 

interest between affiliated owners—who 

are often the decision makers—and nonaffiliated owners—who are often the 

uninformed minority shareholders on 

whom reduced disclosure may have a 

greater impact. We examine whether the 

effects of scaled disclosure on 

registrants’ information environment, 

liquidity, and growth depend on the 

percentage of affiliated ownership, 

which is the market value of affiliated 

equity shares divided by the registrant’s 

total market value of equity. The average 

affiliated ownership is 43% for SRCs in 

the treatment group in years 2008 and 

2009 (median 42%). Specifically, we 

examine whether and to what extent the 

effects of scaled disclosure on 

information environment, liquidity, and 

growth differ for SRCs with high, or 

above-average, affiliated ownership as 

compared to low, or below-average, 

affiliated ownership. 

The results are reflected in Table 7. 

The number in the Treatment Group vs. 

Control Group 1 column reflects the 

difference between: (1) The difference 

between the average metric of 

registrants in the Treatment Group with 

affiliated ownership that is higher than 

the group median and that of the 

registrants in the Treatment Group with 

affiliated ownership that is lower than 

the group median and (2) the difference 

between the average metric of 

registrants in Control Group 1 with 

affiliated ownership that is higher than 

the group median and that of the 

registrants in Control Group 1 with 

affiliated ownership that is lower than 

the group median. Similarly, the 

number in the Treatment Group vs. 

Control Group 2 column reflects the 

difference between: (1) The difference 

between the average metric for the 

higher-than-median affiliated ownership 

registrants and that of the lower-thanmedian affiliated ownership registrants 

in the Treatment Group and (2) the 

difference between the average metrics 

for the same sectors of Control Group 

2.169

TABLE 7—AFFILIATED OWNERSHIP AND ADVERSE SELECTION 170

Treatment Group 

vs. 

Control Group 1 

Treatment Group 

vs. 

Control Group 2 

Information Environment: 

External Information Production: 

Institutional Ownership .................................................................................................................. ***¥0.127 *¥0.110 

Institutional Block Ownership ........................................................................................................ **¥0.079 *¥0.126 

Number of Analysts ....................................................................................................................... **¥0.742 ** 1.277 

Analyst Coverage Dummy ............................................................................................................ ¥0.052 ** 0.500 

Information Environment: 

Disclosure Quality: 

Earnings Mgmt. 1 .......................................................................................................................... 0.010 0.286 

Material Restatement (Filing Year) ............................................................................................... 0.038 ¥0.040 

Material Restatement (Beginning Year) ........................................................................................ ** 0.084 0.001 

Liquidity: 

Share Turnover Ratio .................................................................................................................... 0.052 0.059 

Growth: 

Capital Investment ......................................................................................................................... ** 0.029 0.049 

R&D Investment ............................................................................................................................ 0.014 ¥0.756 

Asset Growth Rate ........................................................................................................................ 0.136 ¥1.485 

Our analysis suggests that affiliated 

ownership may exacerbate the potential 


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affiliated parties (i.e., corporate insiders and 10% 

block owners). Registrants with high (low) affiliated 

ownership include registrants with affiliated 

ownership above (below) the sample median. A 

negative and significant estimate means that scaled 

disclosures have a more negative effect on SRCs 

with high affiliated ownership than on those with 

low affiliated ownership. ***, **, and * indicate 

significance at 1%, 5%, and 10% confidence levels, 

respectively. 171See Section IV.B.1. 

172The inflation adjustment was performed using 

the CPI calculator of the Bureau of Labor Statistics 

(http://data.bls.gov/cgi-bin/cpicalc.pl). 

173An EGC is defined as an issuer that had total 

annual gross revenues of less than $1.07 million 

during its most recently completed fiscal year. 

Public Law 112–106, Sec. 101, 126 Stat. 306 (2012); 

15 U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80). Inflation 

Adjustments and Other Technical Amendments 

under Titles I and II of the JOBS Act, Release No. 

33–10332 (Mar. 31, 2017) [82 FR 17545 (Apr. 12, 

2017)]. 

negative effects of scaled disclosure on 

external information production by 

professionals such as institutional 

investors. There is also some evidence 

that larger affiliated ownership may 

exacerbate the adverse effect of scaled 

disclosure on material restatements 

based on when such restatement was 

triggered in SRCs (relative to Control 

Group 1). At the same time, scaled 

disclosures tend to have a more positive 

effect on SRCs’ capital investment when 

affiliated ownership is higher. Overall, 

there is inconclusive evidence that 

affiliated ownership is associated with 

adverse selection in current SRCs. 

5. Effects on Efficiency, Competition 

and Capital Formation 

The final rules may have competitive 

effects. On one hand, the amendments 

may reduce the compliance-related 

costs of newly eligible registrants 

relative to current SRCs. The 

amendments may also increase the 

competitive advantage of the newly 

eligible registrants relative to noneligible registrants that compete with 

them in the product market. However, 

because there is no clear evidence that 

scaled disclosures have a significant 

effect on the growth of current SRCs, we 

expect these potentially positive 

competitive effects to be modest. On the 

other hand, setting any eligibility 

threshold may create a competitive 

disadvantage for those registrants that 

miss eligibility because their public 

float or revenue is just above the 

specified threshold, relative to the 

newly eligible registrants. However, our 

economic analysis suggests that this 

potentially negative effect also is likely 

to be modest. 

As discussed above, our empirical 

analysis suggests that scaled disclosures 

are unlikely to have a significant 

negative effect on the overall 

information environment of SRCs. Thus, 

we do not expect the amendments to 

have a significant negative effect on the 

information efficiency of affected 

parties. Finally, it is difficult to quantify 

the effect of scaled disclosures on 

capital formation. The Commission’s 

2007 amendments coincided with the 

2008 financial crisis and its aftermath, 

which contributed to extremely thin 

public capital market activities. The 

potential cost savings and the potential 

negative consequences of scaled 

disclosure for reporting companies 

discussed in Tables 5 and 6 (based on 

data encompassing the period during 

the financial crisis) are modest. These 

figures do not include potential cost 

savings from newly-eligible companies 

that may contemplate going public.171

C. Possible Alternatives 

In this section, we present several 

alternatives to the final rules and 

discuss their relative costs and benefits. 

As a first alternative, we could have 

used a different registrant size metric in 

the SRC definition. While public float 

has the advantage of capturing the value 

held by non-affiliated investors who 

may be more affected by informational 

asymmetries, the disadvantage of public 

float is twofold. First, reported public 

float numbers are not easily verifiable. 

Second, using public float to define 

eligibility may increase adverse 

selection due to conflicts of interest 

between affiliated and non-affiliated 

owners. We considered equity market 

value as an alternative size metric to 

public float. Equity market value is in 

many instances more accessible and 

more easily verifiable than public float. 

It does not as effectively differentiate 

registrants based on the degree of 

informational asymmetry concerns, but 

it also does not favor registrants with 

more affiliated ownership. If we define 

registrants as SRCs when they have (1) 

less than $250 million in equity market 

value, (2) no equity market value and 

revenue below $100 million, or (3) less 

than $700 million in equity market 

value and revenue below $100 million, 

the number of registrants estimated to 

become eligible for scaled disclosure 

declines by five percent, relative to the 

number that are estimated to be eligible 

under the rule amendments with 

available 2016 data on public float, 

revenue and market value. Thus, this 

alternative would lead to a slightly 

smaller pool of registrants eligible for 

SRC status than under the amendments. 

As a second alternative, we could 

have used different thresholds. Neither 

public float nor revenue data show a 

natural breakpoint for different 

thresholds. For example, we could take 

inflation since 2007 into account, 

raising the public float threshold from 

$75 million to $86.2 million and the 

revenue threshold from $50 million to 

$57.5 million. An inflation adjustment 

of the current thresholds would expand 

the pool of eligible SRCs by 83 

registrants, 78 of which reported public 

float of between $75 million and $86.2 

million in their 2016 Form 10-Ks, and 

five of which had no public float and 

revenue of between $50 million and 

$57.5 million.172 Alternatively, instead 

of the $250 million public float 

threshold for all registrants and the $700 

million public float threshold for 

registrants with revenue below $100 

million, we could have allowed the 

$700 million public float threshold to 

apply to all registrants, regardless of 

revenue. A test capturing all registrants 

with less than $700 million in public 

float, regardless of revenue, would have 

expanded the pool of eligible SRCs with 

available data by 1,029 registrants. 

Because the $700 million is the 

threshold in the ‘‘large accelerated filer’’ 

definition, the effect of this alternative 

would be to permit all accelerated filers 

to provide the SRC scaled disclosures. 

For registrants with no public float or 

public float of less than $700 million, 

instead of the $100 million revenue 

threshold, we could have used a 

revenue threshold of $1 billion. A $1 

billion revenue threshold would make 

scaled disclosure accommodations for 

SRCs and EGCs generally more 

consistent for the subset of SRCs that 

have no public float or public float of 

less than $700 million.173 Using 2016 

data, we estimate that if we were to 

increase the revenue threshold from 

$100 million to $1 billion in addition to 

the accommodations being adopted, 

there would be 879 newly eligible 

registrants based on revenues, in 

addition to the 966 newly eligible 

registrants under the final rules. 

Expanding the pool of registrants 

eligible for SRC status using this 

alternative revenue threshold would 

further reduce overall compliance costs 

for registrants but also potentially 

increase the informational asymmetries 

and other adverse effects associated 

with scaled disclosures. Relative to the 

current SRCs or the newly eligible SRCs 

under the final rules, these additional 

qualifying registrants also may have 

different characteristics that could affect 

the appropriateness of scaled disclosure. 

For example, the 879 additional 

registrants under this alternative are 

much larger, implying that any cost 

savings from scaled disclosures would 

generate a much smaller impact on the 

registrants’ market value, and may not 


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32012 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 

174 44 U.S.C. 3501 et seq. 175 44 U.S.C. 3507(d); 5 CFR 1320.11. 176The paperwork burdens from Regulation S–X, 

Regulation S–K, Regulation C, and Regulation 12B 

are imposed through the forms that are subject to 

the requirements in those regulations and are 

reflected in the analysis of those forms. To avoid 

a PRA inventory reflecting duplicative burdens and 

for administrative convenience, we assign a onehour burden to each of Regulation S–X, Regulation 

S–K, Regulation C, and Regulation 12B. 

177As noted above, registrants claiming SRC 

status have the option to comply with the scaled 

disclosures available to them on an item-by-item 

basis. 

178See note 99. 

179See note 180. 

180See IMA. 

justify the potential loss of 

informational transparency. 

As a third alternative, we could have 

considered reducing the number of 

registrants that our rules define as 

accelerated filers, which would expand 

the number of registrants eligible for the 

Sarbanes-Oxley Act Section 404(b) 

exemption. The newly eligible SRCs 

under the final rules will remain 

accelerated filers and must comply with 

Section 404(b). This creates two tiers 

among SRCs. Registrants with public 

floats below $75 million are eligible for 

the scaled disclosures and, as nonaccelerated filers, are exempt from 

Section 404(b). Registrants with either 

(1) public floats of $75 million or more 

and less than $250 million or (2) public 

floats of $75 million or more and less 

than $700 million and less than $100 

million in revenues will be eligible only 

for the scaled disclosures and, as 

accelerated filers, must comply with 

Section 404(b). In evaluating the costs 

and benefits of this alternative, we 

considered the comments that the 

Commission received in response to the 

Proposing Release. In light of these 

comments, as stated above, the 

Chairman has directed the staff to 

formulate recommendations to the 

Commission for possible changes to 

reduce the number of registrants that 

our rules define as accelerated filers. 

V. Paperwork Reduction Act 

A. Background 

The final rules will affect existing 

rules, regulations and forms that contain 

‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).174 We are submitting the 

proposals to the Office of Management 

and Budget (‘‘OMB’’) for review in 

accordance with the PRA and its 

implementing regulations.175 We also 

requested comment on the changes to 

these ‘‘collection of information’’ 

requirements in the Proposing Release. 

The titles of the collections of 

information are: 176

(1) ‘‘Regulation S–X’’ (OMB Control No. 

3235–0009); 

(2) ‘‘Regulation S–K’’ (OMB Control No. 

3235–0071); 

(3) ‘‘Regulation C’’ (OMB Control No. 

3235–0074); 

(4) ‘‘Regulation 12B’’ (OMB Control No. 

3235–0062); 

(5) ‘‘Form 10–K’’ (OMB Control No. 3235– 

0063); 

(6) ‘‘Form 10–Q’’ (OMB Control No. 3235– 

0070); 

(7) ‘‘Form 8–K’’ (OMB Control No. 3235– 

0060); 

(8) ‘‘Regulation 14A and Schedule 14A’’ 

(OMB Control No. 3235–0059); 

(9) ‘‘Regulation 14C and Schedule 14C’’ 

(OMB Control No. 3235–0057); 

(10) ‘‘Form 10’’ (OMB Control No. 3235– 

0064); 

(11) ‘‘Form S–1’’ (OMB Control No. 3235– 

0065); 

(12) ‘‘Form S–3’’ (OMB Control No. 3235– 

0073); 

(13) ‘‘Form S–4’’ (OMB Control No. 3235– 

0324); and 

(14) ‘‘Form S–11’’ (OMB Control No. 3235– 

0067). 

We adopted the existing rules, 

regulations, and forms pursuant to the 

Securities Act and the Exchange Act. 

These rules, regulations, and forms set 

forth the disclosure requirements for 

annual and quarterly reports, proxy and 

information statements, current reports, 

and registration statements that are 

prepared by registrants to provide 

investors information to make informed 

investment and voting decisions. 

The hours and costs associated with 

preparing disclosure, filing information 

required by forms, and retaining records 

constitute reporting and cost burdens 

imposed by collection of information 

requirements. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information requirement unless it 

displays a currently valid control 

number. Compliance with the 

information collections listed above is 

mandatory to the extent applicable to 

each registrant.177 Responses to the 

information collections are not kept 

confidential and there is no mandatory 

retention period for the information 

disclosed. 

B. Summary of the Final Amendments 

As described in more detail above, we 

are adopting final rules to amend the 

definition of SRC to encompass a greater 

number of registrants and to revise Rule 

3–05(b)(2)(iv) of Regulation S–X to align 

the revenue threshold in that rule with 

the new revenue threshold in the 

definition of SRC. The final rules make 

scaled disclosure accommodations 

available to a larger number of 

registrants. As a result, the final rules 

should decrease the disclosure 

requirements for registrants that fall 

within the expanded thresholds of the 

SRC definition and should decrease the 

disclosure burden for registrants 

acquiring other companies by increasing 

the number of acquired companies for 

which Rule 3–05(b)(2)(iv) of Regulation 

S–X permits one less year of financial 

information to be disclosed. 

In the Proposing Release, we 

proposed to amend the SRC definition 

to include registrants with a public float 

of less than $250 million, as well as 

registrants with annual revenues of less 

than $100 million for the previous year 

and no public float. We are adopting the 

amendments generally as proposed with 

two changes. In a change from the 

proposal, the SRC definition in the final 

rules also will include registrants with 

annual revenues of less than $100 

million for the previous year and a 

public float of less than $700 million. 

As detailed below, the burden estimates 

for the respective forms and schedules 

have been revised to reflect that the SRC 

scaled disclosure accommodations also 

will be available to the additional 

registrants that come within these 

revised thresholds. 

In another change from the proposal, 

we are amending Rule 3–05(b)(2)(iv) of 

Regulation S–X to increase the revenue 

threshold under which certain 

registrants may omit from certain 

registration statements or current 

reports the earliest of the three fiscal 

years of audited financial statements of 

an acquired business or business to be 

acquired.178 Accordingly, we have 

added two new titles, ‘‘Regulation S–X’’ 

(OMB Control No. 3235–0009) and 

‘‘Form 8–K’’ (OMB Control No. 3235– 

0060), to the collections of information 

affected by the final rules. The impact 

of the amendment to Rule 3–05(b)(2)(iv) 

is reflected in the burden estimates for 

the applicable forms.179 However, as 

discussed below, while we estimate that 

the amendment to Rule 3–05 may 

decrease the existing paperwork burden 

for some issuers, we do not believe it 

will change the total burden estimates 

for the relevant registration statements 

and current reports. 

The final rules do not change the 

amount of information required to be 

included in Exchange Act reports by 

any registrant because of its status as an 

accelerated filer or a large accelerated 

filer. 

C. Summary of Comment Letters 

One commenter addressed the 

specific PRA-related comment requests 

in the Proposing Release.180 This 


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181 Id. 

182 Id. 

183 Id. 

184 Id. 

185These estimates reflect the difference between 

(1) our estimates of the burden hours and costs for 

each affected collection of information under the 

final rules and (2) the current estimates for each 

affected collection of information prior to 

effectiveness of the final rules. The current 

estimates for some of the affected collections of 

information have changed since the Proposing 

Release due to changes in our rules that are 

unrelated to the amendments we are adopting. As 

a result, our estimated changes in the burden hours 

and costs for each affected collection of information 

in this release may differ from our estimates for the 

same collection of information in the Proposing 

Release. 

186We recognize that the costs of retaining 

outside professionals may vary depending on the 

nature of the professional services, but for purposes 

of this PRA analysis, we estimate that such costs 

will average $400 per hour. This is the rate we 

typically estimate for outside legal services used in 

connection with public company reporting. See 

Section VI.D below for a discussion of the 

professional skills needed to comply with the 

amendments. 

187This estimated realization rate reflects the 

percentage of registrants eligible to claim SRC status 

in 2016 that claimed such status. Based on data 

collected by DERA, 2,408, or approximately 91.2%, 

of an estimated 2,640 eligible registrants claimed 

SRC status. 

In addition, this estimated realization rate is 

further reduced to reflect that a portion of newly 

eligible SRCs may already qualify as EGCs, which 

are eligible to rely on certain scaled disclosure 

requirements for a limited period, including some 

of the scaled requirements available to SRCs. Based 

on data collected by DERA, 365, or approximately 

37.8%, of the 966 registrants in 2016 that would 

have been newly eligible for scaled disclosure 

under the final rules were EGCs and therefore 

already benefitting from a portion of these 

estimated savings. 

188We calculated an annual average over a threeyear period because OMB approval of PRA 

submissions covers a three-year period. 

189Our decreased burden estimates take into 

account, and are net of, any increased burden that 

may result from SRCs providing expanded 

disclosures under disclosure requirements that are 

more stringent for SRCs than for non-SRCs, such as 

Item 404 of Regulation S–K. 

190We estimate that 966 additional registrants 

will be eligible under the final rules to use the 

scaled disclosure requirements available to SRCs for 

their annual and quarterly reports in the first year. 

We base this estimate on the number of additional 

registrants that would have been eligible to use 

scaled disclosure for their annual and quarterly 

reports in 2016, based on data collected by DERA 

from annual reports on Form 10–K filed in 2016. 

The data show that 779 registrants had a public 

float of $75 million or more but less than $250 

million, 26 registrants had no public float and 

annual revenues of $50 million or more but less 

than $100 million, and 161 registrants had a public 

float of $250 million or more but less than $700 

million and annual revenues of less than $100 

million. 

191Consistent with our analysis in the SRC 

Adopting Release and the Proposing Release, we 

estimate the compliance burden for a Form 10–K for 

a SRC using all scaled disclosure available to be the 

same as the last available PRA inventory for 

completing a Form 10–KSB, which was 1,272 

burden hours and a cost of $169,600 (424 

professional hours × $400/hour) per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Form 10–K by up to 504,062.65 hours (1,793.80 

internal hours per filing using standard Regulation 

S–K and Regulation S–X disclosure minus 1,272.00 

internal hours per filing using scaled disclosure = 

521.80 internal hours saved per filing × 966 filings) 

and decrease the cost by up to $67,291,651.41 

(598.15 professional hours per filing using standard 

Regulation S–K and Regulation S–X disclosure 

minus 424.00 professional hours per filing using 

scaled disclosure = 174.15 external hours saved per 

filing × $400 per hour = $69,660.09 external cost 

savings per filing × 966 filings). 

192This estimated decrease in the compliance 

burden for Form 10–K is based on 80% × 

504,062.65 internal hours saved = 403,250.12 

internal hours saved and 80% × $67,291,651.41 

external cost savings = $53,833,312.13 external cost 

savings. 

commenter stated that the proposed 

adjustment to the SRC definition is fair 

and that the details provided as the 

basis for the cost reduction estimates 

appear to be thorough and specific.181

As to the ways to enhance the 

information collected, the commenter 

stated that the burden of preparing 

information remained with the 

respective registrant and that registrants 

may be required to provide additional 

disclosure if they are entering into 

capital transactions.182 As to ways to 

minimize the burden of the collection of 

information, the commenter stated that 

XBRL may facilitate the evaluation of 

data.183 Lastly, the commenter stated 

that the list of collections of information 

appeared to be complete and that it was 

not aware of any collection of 

information that would be negatively 

affected.184

D. Revisions to Burden and Cost 

Estimates 

For purposes of the PRA, the final 

rules decrease the burden hour and 

costs estimates for Form 10–K, Form 

10–Q, Schedule 14A, Schedule 14C, 

Form 10, Form S–1, Form S–3, Form S– 

4, and Form S–11 by approximately 

493,016 burden hours and decrease 

external costs by approximately 

$66,242,345.185

Our burden hour and cost estimates 

below reflect the average burdens for all 

registrants that may benefit from the 

expanded accommodations. In deriving 

our estimates, we recognize that the 

burdens likely will vary among 

individual registrants based on a 

number of factors, including the size 

and complexity of their business. We 

believe that some registrants will 

experience costs in excess of this 

average and some registrants will 

experience less than the average costs. 

For quarterly and annual reports and 

for proxy and information statements, 

we estimate that 75% of the burden of 

preparation is carried by the registrant 

internally and that 25% of the burden 

is carried by outside professionals 

retained by the registrant at an average 

cost of $400 per hour.186 For registration 

statements, we estimate that 25% of the 

burden of preparation is carried by the 

registrant internally and that 75% of the 

burden is carried by outside 

professionals retained by the registrant 

at an average cost of $400 per hour. 

While we cannot predict with certainty 

the number of newly eligible SRCs that 

will begin to use the scaled disclosure 

provisions, for purposes of our PRA 

calculations, we estimate that 80% of 

them will do so.187

For purposes of the PRA, we estimate 

that over a three-year period,188 the 

annual aggregate decreased burden 189

resulting from the amendments in the 

final rules will average: 

• 403,250 hours and $53,883,321 of 

external costs for Form 10–K; 

• 88,864 hours and $11,851,661 of 

external costs for Form 10–Q; 

• 481 hours and $64,160 of external 

costs for Schedule 14A; 

• 11 hours and $1,440 of external 

costs for Schedule 14C; 

• nine hours and $11,163 of external 

costs for Form 10; 

• 145 hours and $174,000 of external 

costs for Form S–1; 

• 38 hours and $45,600 of external 

costs for Form S–3; 

• 203 hours and $243,600 of external 

costs for Form S–4; and 

• 15 hours and $17,400 of external 

costs for Form S–11. 

1. Form 10–K 

We estimate that approximately 966 

additional registrants will satisfy the 

revised definition of a SRC and become 

eligible to use scaled disclosure in their 

annual reports on Form 10–K. These 

registrants could experience burden and 

cost savings under the final rules.190 We 

estimate that, if all of these registrants 

used all of the scaled disclosure 

requirements, they would save an 

estimated 504,063 burden hours and an 

aggregate cost of $67,291,651.191

Based on our assumption that 80% of 

newly eligible registrants will begin to 

use scaled disclosure, we estimate an 

aggregate decrease of 403,250 internal 

burden hours and costs of $53,833,321 

for Form 10–K.192

2. Form 10–Q 

We assume that the same 

approximately 966 registrants will 

become newly eligible to use scaled 

disclosure for purposes of their 

quarterly reports. We estimate that if all 

of these registrants used all of the scaled 

SRC requirements, they would save 


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193Similar to our approach to estimating the 

reduced compliance burden for a Form 10–K using 

scaled disclosure, we base our estimates of the 

reduced compliance burden for SRCs using all 

scaled disclosure available for certain other filings 

on the last available PRA inventory for completing 

the most comparable form under Regulation SB. We 

estimate the compliance burden for a Form 10–Q 

for a SRC using all scaled disclosure available to be 

the same as the last available PRA inventory for 

completing a Form 10–QSB, which was 102.24 

burden hours and a cost of $13,362 (34.08 

professional hours × $400/hour) per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Form 10–Q by up to 111,080.34 hours (140.57 

internal hours per filing using standard Regulation 

S–K disclosure minus 102.24 internal hours per 

filing using scaled disclosure = 38.33 internal hours 

saved per filing × 966 registrants × 3 filings per 

year) and decrease the cost by up to $14,814,576.00 

(46.86 professional hours per filing using standard 

Regulation S–K disclosure minus 34.08 professional 

hours per filing using scaled disclosure = 12.78 

external hours saved per filing × $400 per hour = 

$5,112 external cost savings per filing × 966 

registrants × 3 filings per year). 

194This estimated decrease in the compliance 

burden for Form 10–Q is based on 80% × 

111,080.34 internal hours saved = 88,864.27 

internal hours saved and 80% × $14,814,576.00 

external cost savings = $11,851,660.80 external cost 

savings. 

195See Section IV.B.1. 

196See SRC Adopting Release. 

197We base this estimate on the number of 

definitive proxy statements on Schedule 14A filed 

in 2016 by registrants that would have been newly 

eligible to use scaled disclosure under the final 

rules. Based on data collected by DERA, registrants 

with a public float of $75 million or more but less 

than $250 million filed 652 definitive proxy 

statements on Schedule 14A, registrants with no 

public float and annual revenues of $50 million or 

more but less than $100 million filed 17 definitive 

proxy statements on Schedule 14A, and registrants 

with a public float of $250 million or more but less 

than $700 million and annual revenues of less than 

$100 million filed 133 definitive proxy statements 

on Schedule 14A. 

198We base our estimate of the reduced 

compliance burden for Schedule 14A for a SRC 

using all scaled disclosure available on our estimate 

of the compliance burden for Item 407(d)(5) and 

(e)(4) and (5) of Regulation S–K [17 CFR 

229.407(d)(5) and (e)(4) and (5)], with which SRCs 

are not required to comply. We estimate this burden 

to be 0.75 burden hours and a cost of $100 (0.25 

professional hours × $400/hour) per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Schedule 14A by up to 601.57 hours (0.75 

internal hours saved per filing × 802 filings) and 

decrease the cost by up to $80,200.00 (0.25 

professional hours saved per filing × $400 per hour 

= $100 external cost savings per filing × 802 filings). 

199This estimated decrease in the compliance 

burden for Schedule 14A is based on 80% × 601.57 

internal hours saved = 481.25 internal hours saved 

and 80% × $80,200.00 external cost savings = 

$64,160.00 external cost savings. 

200We base this estimate on the number of 

definitive information statements on Schedule 14C 

filed in 2016 by registrants that would have been 

newly eligible to use scaled disclosure under the 

final rules. Based on data collected by DERA, 

registrants with a public float of $75 million or 

more but less than $250 million filed nine 

definitive information statements on Schedule 14C, 

registrants with no public float and annual revenues 

of $50 million or more but less than $100 million 

filed no definitive information statements on 

Schedule 14C, and registrants with a public float of 

$250 million or more but less than $700 million and 

annual revenues of less than $100 million filed nine 

definitive information statements on Schedule 14C. 

201Similar to Schedule 14A, we base our estimate 

of the decrease in the compliance burden for 

Schedule 14C for a SRC using all scaled disclosure 

available on our estimate of the compliance burden 

for Item 407(d)(5) and (e)(4) and (5) of Regulation 

S–K, which is 0.75 burden hours and a cost of $100 

(0.25 professional hours × $400/hour) per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Schedule 14C by up to 13.48 hours (0.75 internal 

hours saved per filing × 18 filings) and decrease the 

cost by up to $1,800.00 (0.25 professional hours 

saved per filing × $400 per hour = $100 external 

cost savings per filing × 18 filings). 202This estimated decrease in the compliance 

burden for Schedule 14C is based on 80% × 13.48 

internal hours saved = 10.79 internal hours saved 

and 80% × $1,800 external cost savings = $1,440 

external cost savings. 203We generally base our estimated number of 

each type of registration statement filed on the 

average number of that type of registration 

statement filed in each of the calendar years 2014 

through 2016 by registrants that would have been 

newly eligible to use scaled disclosure under the 

final rules. 

Based on data collected by DERA, registrants that 

would have been newly eligible to use scaled 

disclosure under the final rules filed an average of 

less than one registration statement on Form 10 per 

year during the period 2014 through 2016. 

However, we believe an estimate of one Form 10 

is more reasonable because, as reflected in the 

Proposing Release, such registrants have filed more 

than one Form 10 in prior years. 

204We estimate the compliance burden for a Form 

10 for a SRC using all scaled disclosure available 

to be the same as the last available PRA inventory 

for completing a Form 10–SB, which was 44.50 

burden hours and a cost of $53,400 (133.50 

professional hours × $400/hour) per report. 

Accordingly, if all eligible registrants used all 

available scaled disclosure, we estimate that the 

final rules will decrease the compliance burden of 

Form 10 by up to 9.30 hours (53.80 internal hours 

per filing using standard Regulation S–K and 

Regulation S–X disclosure minus 44.50 internal 

hours per filing using scaled disclosure = 9.30 

internal hours saved per filing × one filing) and 

decrease the cost by up to $11,163.20 (161.41 

professional hours per filing using standard 

Regulation S–K and Regulation S–X disclosure 

minus 133.50 professional hours per filing using 

scaled disclosure = 27.91 external hours saved per 

filing × $400 per hour = $11,163.20 external cost 

savings per filing × one filing). 

205Based on data collected by DERA, during 2014 

through 2016, registrants with a public float of $75 

111,080 burden hours and an aggregate 

cost of $14,814,576.193

Assuming that 80% of newly eligible 

registrants will begin to use scaled 

disclosure, we estimate an aggregate 

decrease of 88,864 internal burden 

hours and costs of $11,851,661 for Form 

10–Q.194

3. Form 8–K 

We estimate that the amendments to 

Rule 3–05 may decrease the existing 

paperwork burden for some registrants 

but not change the total burden 

estimates for Form 8–K. This reflects 

our appraisal that few registrants are 

eligible to rely on the $50 million 

threshold in Rule 3–05(b)(2)(iv) and our 

expectation that the amendments will 

not significantly change the number of 

registrants that are eligible to rely on 

Rule 3–05(b)(2)(iv).195 This also is 

consistent with the Commission’s 

estimate of the impact on the 

compliance burden for Form 8–K when 

it revised Rule 3–05 of Regulation S–X 

in 2007 to increase the threshold in Rule 

3–05(b)(iv) from $25 million to $50 

million.196

4. Schedule 14A 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately 802 definitive proxy 

statements on Schedule 14A per year.197

We estimate that if all of these 

registrants used all of the scaled SRC 

requirements, they would save 602 

burden hours and an aggregate cost of 

$80,200.198

Assuming that 80% of newly eligible 

registrants will begin to use scaled 

disclosure, we estimate an aggregate 

decrease of 481 internal burden hours 

and costs of $64,160 for Schedule 

14A.199

5. Schedule 14C 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately 18 definitive information 

statements on Schedule 14C per year.200

We estimate that if all of these 

registrants used all of the scaled SRC 

requirements, they would save 14 

burden hours and an aggregate cost of 

$1,800.201

Assuming that 80% of newly eligible 

registrants will begin to use scaled 

disclosure, we estimate an aggregate 

decrease in burden of 11 internal 

burden hours and costs of $1,440 for 

Schedule 14C.202

6. Form 10 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

one registration statements on Form 10 

per year.203 Assuming that this 

registrant uses all of the scaled SRC 

requirements, we estimate an aggregate 

decrease of nine internal burden hours 

and cost of $11,163 for Form 10.204 Due 

to the low number of Form 10 filers and 

rounding considerations, we assume 

that all newly eligible registrants filing 

Form 10 will begin to use scaled 

disclosure and therefore realize the full 

extent of burden and cost savings. 

7. Form S–1 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately 25 registration 

statements on Form S–1 per year.205 We 


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million or more but less than $250 million filed an 

average of approximately 17 registration statements 

on Form S–1 each year, registrants with no public 

float and annual revenues of $50 million or more 

but less than $100 million filed an average of 

approximately two registration statements on Form 

S–1 each year, and registrants with a public float 

of $250 million or more but less than $700 million 

and annual revenues of less than $100 million filed 

an average of six registration statements on Form S– 

1 each year. 

206We estimate the compliance burden for a Form 

S–1 for a SRC using all scaled disclosure available 

to be the same as the last available PRA inventory 

for completing a Form SB–2, which was 159.50 

burden hours and a cost of $191,400 (478.50 

professional hours × $400/hour) per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Form S–1 by up to 181.25 hours (166.75 internal 

hours per filing using standard Regulation S–K and 

Regulation S–X disclosure minus 159.50 internal 

hours per filing using scaled disclosure = 7.25 

internal hours saved per filing × 25 filings) and 

decrease the cost by up to $217,500.00 (500.25 

professional hours per filing using standard 

Regulation S–K and Regulation S–X disclosure 

minus 478.50 professional hours per filing using 

scaled disclosure = 21.75 external hours saved per 

filing × $400 per hour = $8,700 external cost savings 

per filing × 25 filings). 

207This estimated decrease in the compliance 

burden for Form S–1 is based on 80% × 181.25 

internal hours saved = 145.00 internal hours saved 

and 80% × $217,500.00 external cost savings = 

$174,000.00 external cost savings. 

208Based on data collected by DERA, during 2014 

through 2016, registrants with a public float of $75 

million or more but less than $250 million filed an 

average of approximately 148 registration 

statements on Form S–3 each year, registrants with 

no public float and annual revenues of $50 million 

or more but less than $100 million filed an average 

of two registration statements on Form S–3 each 

year, and registrants with a public float of $250 

million or more but less than $700 million and 

annual revenues of less than $100 million filed an 

average of 40 registration statements on Form S–3 

each year. 

209We base our estimate of the reduced 

compliance burden for Form S–3 for a SRC using 

all scaled disclosure available on our estimate of the 

average compliance burden for Items 503(d) and 

504 of Regulation S–K [17 CFR 229.503(d) and 

229.504], which requirements are scaled for SRCs. 

We estimate the decrease in compliance burden for 

a registration statement on Form S–3 for a SRC 

using all scaled disclosure available to be 0.25 

burden hours and a cost of $300 (0.75 professional 

hours × $400/hour) per filing. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules would decrease the compliance burden 

of Form S–3 by up to 47.50 hours (0.25 internal 

hours saved per filing × 190 filings) and decrease 

the cost by up to $57,000.00 ($300 external cost 

savings per filing × 190 filings). 

210This estimated decrease in the compliance 

burden for Form S–3 is based on 80% × 47.50 

internal hours saved = 38.00 internal hours saved 

and 80% × $57,000.00 external cost savings = 

$45,600.00 external cost savings. 

211Based on data collected by DERA, during 2014 

through 2016, registrants with a public float of $75 

million or more but less than $250 million filed an 

average of approximately 30 registration statements 

on Form S–4 each year, registrants with no public 

float and revenues of $50 million or more but less 

than $100 million filed an average of approximately 

one registration statement on Form S–4 each year, 

and registrants with a public float of $250 million 

or more but less than $700 million and annual 

revenues of less than $100 million filed an average 

of four registration statements on Form S–4 each 

year. 

212We estimate the reduction in the compliance 

burden for Form S–4 for a SRC using all scaled 

disclosure available to be the same as the reduction 

in the compliance burden for a Form S–1 for a SRC 

using all scaled disclosure available as compared to 

standard Regulation S–K and Regulation S–X 

disclosure, which was 7.25 burden hours and a cost 

of $8,700 (21.75 professional hours × $400/hour) 

per report. 

Accordingly, we estimate that, if all eligible 

registrants used all available scaled disclosure, the 

final rules will decrease the compliance burden of 

Form S–4 by up to 253.75 hours (7.25 internal 

hours saved per filing × 35 filings) and decrease the 

annual cost by up to $304,500.00 ($8,700 external 

cost savings per filing × 35 filings). 

213This estimated decrease in the compliance 

burden for Form S–4 is based on 80% × 253.75 

internal hours saved = 203.00 internal hours saved 

and 80% × $304,500.00 external cost savings = 

$243,600.00 external cost savings. 

214Based on data collected by DERA, during 2014 

through 2016, registrants with a public float of $75 

million or more but less than $250 million filed an 

average of approximately one registration statement 

on Form S–11 each year, registrants with no public 

float and revenues of $50 million or more but less 

than $100 million filed an average of less than one 

registration statement on Form S–11 each year, and 

registrants with a public float of $250 million or 

more but less than $700 million and annual 

revenues of less than $100 million filed an average 

of one registration statement on Form S–11 each 

year. 

215We estimate the reduction in the compliance 

burden for Form S–11 for a SRC using all scaled 

disclosure available to be the same as reduction in 

the compliance burden for Form S–1 for a SRC 

using all scaled disclosure available as compared to 

standard Regulation S–K disclosure and Regulation 

S–X, which was 7.25 burden hours and a cost of 

$8,700 (21.75 professional hours × $400/hour) per 

report. 

Accordingly, we estimate that, if both eligible 

registrants used all available scaled disclosure, the 

final rules will decrease the compliance burden of 

Form S–11 by up to 14.50 hours (7.25 internal 

hours saved per filing × two filings) and decrease 

the annual cost by up to $17,400.00 ($8,700 external 

cost savings per filing × two filings). 

216 5 U.S.C. 601 et seq. 

217 5 U.S.C. 553. 

218 5 U.S.C. 604. 

estimate that if all of these registrants 

use all of the scaled SRC requirements, 

they would save 181 burden hours and 

an aggregate cost of $217,500.206

Assuming that 80% of these newly 

eligible registrants will begin to use 

scaled disclosure, we estimate an 

aggregate decrease of 145 internal 

burden hours and costs of $174,000 for 

Form S–1.207

8. Form S–3 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately 190 registration 

statements on Form S–3 per year.208 We 

estimate that if all of these registrants 

use all of the scaled SRC requirements, 

they would save 48 burden hours and 

an aggregate cost of $57,000.209

Assuming that 80% of the newly 

eligible registrants will begin to use 

scaled disclosure, we estimate an 

aggregate decrease of 38 internal burden 

hours and costs of $ 45,600 for Form S– 

3.210

9. Form S–4 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately 35 registration 

statements on Form S–4 per year.211 We 

estimate that if all of these registrants 

use all of the scaled SRC requirements, 

they would save 254 burden hours and 

an aggregate cost of $304,500.212

Assuming that 80% of newly eligible 

registrants will begin to use scaled 

disclosure, we estimate an aggregate 

decrease of 203 internal burden hours 

and costs of $243,600 for Form S–4.213

10. Form S–11 

We estimate that registrants newly 

eligible to use scaled disclosure will file 

approximately two registration 

statements on Form S–11 per year.214

Assuming that both of these registrants 

use all of the scaled SRC requirements, 

we estimate an aggregate decrease of 15 

burden hours and cost of $17,400 for 

Form S–11.215

Due to the low number of Form S–11 

filers and rounding considerations, we 

assume that both of the newly eligible 

registrants filing Form S–11 will begin 

to use scaled disclosure and realize the 

full extent of burden and cost savings. 

VI. Final Regulatory Flexibility 

Analysis 

The Regulatory Flexibility Act 

(‘‘RFA’’) 216 requires us, in promulgating 

rules under Section 553 of the 

Administrative Procedure Act,217 to 

consider the impact of those rules on 

small entities. We have prepared this 

Final Regulatory Flexibility Analysis 

(‘‘FRFA’’) in accordance with Section 

604 of the RFA.218 This FRFA relates to 

amendments to the SRC definition as 

used in our rules and Rule 3–05 of 

Regulation S–X. An Initial Regulatory 

Flexibility Analysis (‘‘IRFA’’) was 

prepared in accordance with the RFA 

and was included in the Proposing 

Release. 

A. Need for, and Objectives of, the Final 

Rules 

The amendments to the SRC 

definition in the final rules are intended 

to promote capital formation through a 

modest reduction in compliance costs 

and disclosure burdens for these 

registrants by expanding the number of 

registrants that qualify as SRCs and are 

eligible to provide scaled disclosure, 

while maintaining appropriate investor 

protections. These amendments will 


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219See Item 10(f)(1)(i) and (ii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

220See Acorda et al; AMTA; BDO; BIO; CAQ/CII; 

CONNECT; Coalition; ICBA; MidSouth; Nasdaq; 

NVCA; NYSE; Seneca; and IMA. 

221See Acorda, et al; AMTA; BIO; Calithera; 

CONNECT; CSBA; Nasdaq; NYSE; and Zeller. 

222BIO. 

223Acorda, et al. 

224AMTA. 

225See BIO; and Calithera. 

226See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; and CSBA. 

227See notes 20 and 89 for a discussion of the 

Small Business Forum recommendations. 

228See Item 10(f)(1)(ii) of Regulation S–K; 

Securities Act Rule 405; Exchange Act Rule 12b– 

2. 

229See Section II.A.2. 

230See NYSE; and Nasdaq. 

231See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; CSBA; NYSE; and Nasdaq. 

232See EY; and BDO. 

233See 1996 Rule 3–05 Adopting Release and SRC 

Adopting Release. 

234See BDO; CAQ/CII; CFA Institute; Deloitte; 

and EY. 

235See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; Coalition; CSBA; ICBA; Dixie; 

MidSouth; Nasdaq; NVCA; NYSE; and Seneca. 

236See Acorda, et al.; AMTA; BIO; Calithera; 

CONNECT; Coalition; CSBA; ICBA; Dixie; 

MidSouth; Nasdaq; NVCA; NYSE; and Seneca. 

237See BIO; Coalition; Nasdaq; NVCA; and NYSE. 

enable a registrant to qualify as a SRC 

based on a public float test or a revenue 

test that includes registrants both with 

and without a public float.219 We 

believe that the amendments will permit 

a broader group of registrants to make 

scaled disclosure to their investors 

without significantly detracting from 

investor protections. 

The amendments to Rule 3– 

05(b)(2)(iv) of Regulation S–X will 

maintain the consistency of the revenue 

thresholds in Rule 3–05 and the 

definition of a SRC. The current revenue 

threshold in Rule 3–05(b)(2)(iv) was 

based on the revenue threshold in the 

SRC definition, and the final rules 

maintain this consistency by increasing 

the revenue threshold in Rule 3– 

05(b)(2)(iv) to $100 million. This 

amendment will enable more registrants 

to omit the earliest of the three fiscal 

years of audited financial statements of 

an acquired business or business to be 

acquired in certain registration 

statements and current reports. 

The amendments to the accelerated 

filer and large accelerated filer 

definitions in Exchange Act Rule 12b– 

2 maintain the current thresholds at 

which registrants are subject to 

accelerated and large accelerated filer 

disclosure and filing requirements. At 

this time, we are not raising the 

accelerated filer public float threshold 

or modifying the Section 404(b) 

requirements for registrants. 

The need for, and objectives of, the 

final rules are discussed in more detail 

in Sections II and IV above. 

B. Significant Issues Raised by Public 

Comments 

In the Proposing Release, we 

requested comment on all aspects of the 

IRFA, including the number of small 

entities that would be affected by the 

proposed amendments, the existence or 

nature of the potential impact of the 

proposals on small entities discussed in 

the analysis, and how to quantify the 

impact of the proposed amendments. 

We did not receive any comments 

specifically addressing the IRFA. We 

did, however, receive comments from 

members of the public on matters that 

could potentially impact small entities. 

These comments are discussed at length 

by topic in the corresponding 

subsections of Section II above. 

While many commenters expressed 

support for the proposed amendments 

to the SRC definition,220 commenters 

also recommended making changes to 

the proposed rules that would further 

expand the number of registrants that 

would qualify as SRCs and would be 

eligible to rely on the scaled disclosure 

requirements. For example, many 

commenters recommended that the 

Commission allow a revenue test for 

companies with a public float.221

Commenters stated that a revenue test 

would ‘‘stimulat[e] innovation and drive 

business growth,’’ 222 ‘‘ensure that prerevenue companies are not forced to 

divert investment funds . . . from 

science to compliance,’’ 223 and help 

‘‘avoid stifling the advancement of 

[these] companies that face costly 

compliance burdens.’’ 224 Two 

commenters specifically recommended 

that the Commission adopt a test based 

on revenues of less than $100 million 

and a public float of less than $700 

million, as recommended by the Small 

Business Forum.225 In response to 

commenters 226 and recommendations 

from the Small Business Forum,227 the 

definition in the final rules will include, 

in addition to registrants with a public 

float of less than $250 million, 

registrants with annual revenues of less 

than $100 million during their most 

recently completed fiscal year and 

either no public float or a public float 

of less than $700 million.228 As 

described above, we believe that it is 

appropriate to provide a measure by 

which a registrant with public float but 

with limited revenues may qualify as a 

SRC.229

We are not, however, adopting a 

revenue test without a limitation on the 

public float or market capitalization of 

the company, as specifically suggested 

by two commenters.230 We believe the 

amended revenue test in the final rules 

is consistent with the position 

expressed by these commenters and 

others 231 that it is not necessary to 

subject capital-intensive, low-revenue 

registrants with larger public floats or 

market capitalizations to the same 

reporting requirements as registrants 

with larger public floats and more wellestablished, revenue-generating 

businesses. The amended revenue test 

in the final rules will enable these 

registrants to benefit from the costsavings of scaled reporting, while 

recognizing that as a registrant’s 

business and public float grows, 

investors should benefit from greater 

disclosure. The additional information 

provided by the registrant in these 

circumstances will assist a growing 

investor base in making informed 

investment decisions and should also 

lead to a lower cost of capital for the 

business as it grows. 

Two commenters recommended 

amending Rule 3–05 to increase the 

revenue threshold in paragraph 

(b)(2)(iv) to $100 million to maintain the 

alignment between Rule 3–05 and the 

definition of a SRC.232 Given that the 

current revenue threshold in Rule 3– 

05(b)(2)(iv) was based on the revenue 

threshold in the SRC definition 233 and 

that the final rules, among other things, 

increase the revenue threshold in the 

SRC definition from $50 million to $100 

million, we believe it is appropriate to 

raise the net revenue threshold in Rule 

3–05(b)(2)(iv) of Regulation S–X from 

$50 million to $100 million. 

While some commenters supported 

eliminating the provision in the 

accelerated filer and large accelerated 

filer definitions that specifically 

excludes registrants that are eligible to 

use the SRC disclosure requirements for 

their annual or quarterly reports,234

many other commenters recommended 

that the Commission increase the 

thresholds in the accelerated filer 

definition, consistent with the changes 

to the SRC definition.235 Commenters 

recommended increasing the public 

float threshold in the accelerated filer 

definition to reduce compliance 

costs 236 and to maintain consistency in 

the rules.237

The final rules include amendments 

to the accelerated filer and large 

accelerated filer definitions in Exchange 

Act Rule 12b–2 to maintain the current 

thresholds at which registrants are 

subject to accelerated and large 

accelerated filer disclosure and filing 

requirements. These amendments will 

change the current relationship between 


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238 In conjunction with these amendments, we 

also are adopting technical revisions to Securities 

Act Forms S–1, S–3, S–4, S–8, and S–11 and 

Exchange Act Forms 10, 10–Q and 10–K. These 

amendments modify the cover page of the specified 

forms to remove the parenthetical next to the ‘‘nonaccelerated filer’’ definition that states ‘‘(Do not 

check if a smaller reporting company).’’ After these 

amendments, a registrant should check all 

applicable boxes on the cover page addressing, 

among other things, non-accelerated, accelerated, 

and large accelerated filer status, SRC status, and 

emerging growth company status. 

239This estimate is based on staff analysis of 

XBRL data submitted by filers, excluding coregistrants, with EDGAR filings of Forms 10–K filed 

during the calendar year of January 1, 2016 to 

December 31, 2016. 

240As discussed in note 20, Item 404 is the only 

disclosure item in Regulation S–K that may require 

more extensive information for SRCs than for nonSRCs. See also note 22. 

the SRC and ‘‘accelerated filer’’ 

definitions by allowing a registrant to 

qualify as both a SRC and an accelerated 

filer.238 As stated above, the Chairman 

has directed the staff to formulate 

recommendations to the Commission for 

possible changes to reduce the number 

of registrants that our rules define as 

accelerated filers. As part of the staff’s 

consideration of possible recommended 

amendments, the Chairman has directed 

the staff to consider, among other 

things, the historical and current 

relationship between the SRC and 

‘‘accelerated filer’’ definitions. 

We believe that the final rules will 

reduce disclosure burdens by expanding 

the number of registrants that will 

qualify as SRCs and that are eligible to 

provide scaled disclosure, while 

maintaining appropriate investor 

protections. 

C. Small Entities Subject to the Final 

Rules 

For purposes of the RFA, under 17 

CFR 230.157 (Securities Act Rule 157), 

an issuer, other than an investment 

company, is a ‘‘small business’’ or 

‘‘small organization’’ if it had total 

assets of $5 million or less on the last 

day of its most recent fiscal year and is 

engaged or proposing to engage in an 

offering of securities not exceeding $5 

million. Under 17 CFR 240.0–10(a) 

(Exchange Act Rule 0–10(a)), an issuer, 

other than an investment company, is a 

‘‘small business’’ or ‘‘small 

organization’’ if it had total assets of $5 

million or less on the last day of its most 

recent fiscal year. 

We estimate that there are currently 

1,181 entities that qualify as ‘‘small’’ 

under the definitions set forth above.239

We believe it is likely that virtually all 

small businesses or small organizations, 

as defined in our rules described above, 

are already encompassed within the 

current SRC definition and the current 

revenue threshold in Rule 3–05(b)(2)(iv) 

of Regulation S–X and will continue to 

be encompassed within the revised 

thresholds contained in the final rules. 

To the extent any small business or 

small organization, as defined for RFA 

purposes, is not already encompassed 

within the current SRC definition and 

the current revenue threshold in Rule 3– 

05(b)(2)(iv) of Regulation S–X, we 

believe it is likely that the revised 

thresholds contained in the final rules 

will capture those entities. 

D. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

The amendments to the SRC 

definition in the final rules increase the 

number of registrants eligible to provide 

scaled disclosures in response to 

Regulation S–K and Regulation S–X 

disclosure requirements. These 

amendments do not revise the scaled 

disclosure requirements themselves, but 

could modestly decrease the disclosures 

required for registrants that will qualify 

as SRCs under the expanded thresholds. 

Consistent with the amendments to 

the revenue threshold in the SRC 

definition, the amendment to Rule 3–05 

of Regulation S–X raises the net revenue 

threshold in Rule 3–05(b)(2)(iv) of 

Regulation S–X from $50 million to 

$100 million. Current Rule 3– 

05(b)(2)(iv) allows certain registrants to 

omit financial statements of businesses 

acquired or to be acquired in certain 

registration statements and current 

reports for the earliest of the three fiscal 

years required if the net revenues of the 

business to be acquired are less than $50 

million. With the amendment, those 

registrants will become eligible to omit 

the relevant financial statements for 

acquired businesses with net annual 

revenues of $50 million or more but less 

than $100 million in the most recent 

fiscal year. In this way, the amendment 

to Rule 3–05 could moderately decrease 

the existing disclosure requirements for 

some registrants; however, we do not 

expect that the number of registrants 

affected by the amendments will be 

significant. 

Both (i) the amendments to the SRC 

definition, which expand the number of 

registrants that qualify for the scaled 

disclosure based on revenue and public 

float measures, and (ii) the amendment 

to Rule 3–05 of Regulation S–X, which 

expands the pool of acquired companies 

for which registrants are required to 

provide only two years of financials, 

reduce disclosure already required to be 

prepared under our rules. Accordingly, 

there are no particular professional 

skills needed to comply with the 

amendments themselves. Consistent 

with the current rules, however, a 

registrant will need to monitor the 

applicable thresholds for disclosure and 

to comply with the underlying existing 

disclosure requirements, which may 

require the use of professional skills, 

including information technology, 

accounting, and legal skills. 

The amendments are discussed in 

detail in Section II above. We discuss 

the economic impact, including the 

estimated compliance costs and 

burdens, of the final rules in Section IV 

(Economic Analysis) and Section V 

(Paperwork Reduction Act) above. 

E. Agency Action To Minimize Effect on 

Small Entities 

The RFA directs us to consider 

significant alternatives that would 

accomplish the stated objectives of the 

amendments, while minimizing any 

significant adverse impact on small 

entities. Accordingly, we considered the 

following alternatives: 

• Establishing different compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; 

• clarifying, consolidating or 

simplifying compliance and reporting 

requirements for small entities under 

our rules as revised by the amendments; 

• using performance rather than 

design standards; and 

• exempting small entities from 

coverage of all or part of the 

amendments. 

The amendments generally do not 

create any new compliance or reporting 

requirements. Instead, the amendments 

expand the number of companies 

eligible for the different compliance and 

reporting requirements available to 

SRCs and increase the revenue 

threshold to qualify for the disclosure 

accommodation in Rule 3–05(b)(2)(iv) of 

Regulation S–X.240 As a result, we do 

not believe it is necessary or appropriate 

to exempt small entities in connection 

with this rulemaking. The amendments 

are intended to increase the number of 

registrants eligible to provide scaled 

disclosures under Regulation S–K and 

Regulation S–X. To the extent any small 

entity is not already encompassed 

within the current SRC definition or the 

current revenue threshold in Rule 3– 

05(b)(2)(iv) of Regulation S–X, we 

believe it is likely that the revised 

thresholds contained in the final rules 

will capture those entities, thereby 

enabling them to provide scaled 

disclosures. Therefore, we believe that 

the amendments will simplify 

compliance and reporting requirements 

for small entities. Small entities may 

avail themselves of the amendments 

upon their effective date. This timetable 


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241See Section IV.C. (alternatives include (i) 

using a different registrant size metric in the SRC 

definition, (ii) revising the SRC definition using 

different thresholds, and (iii) reducing the number 

of registrants that our rules define as accelerated 

filers, which would expand the number of 

registrants eligible for the Sarbanes-Oxley Act 

Section 404(b) exemption). 

242See Section IV.B. 

will provide newly-eligible small 

entities with the ability to take 

advantage of the scaled disclosure 

requirements at the earliest possible 

date. In this regard, we do not believe 

that it is necessary to establish a 

different timetable for small entities. 

With respect to the use of performance 

rather than design standards, because 

the amendments are not expected to 

have any significant adverse effect on 

small entities (and are, in fact, expected 

to relieve burdens for some such 

entities), we do not believe it is 

necessary to use performance standards 

in connection with this rulemaking. 

In Section IV, above, we discuss 

additional alternatives that we have 

considered and their economic 

impact.241 We note that those 

alternatives, such as using a different 

threshold or different standard for 

determining SRC status, would be 

unlikely to have a significant effect on 

smaller entities because, as noted above, 

we believe virtually all small entities are 

already eligible for SRC status. 

Similarly, with respect to the alternative 

of not amending the accelerated and 

large accelerated filer definitions, we 

believe there are very few small entities 

that will be considered accelerated filers 

under the definitions in the final rules, 

and, therefore, this alternative would 

not significantly affect small entities.242

VII. Statutory Amendments and Text of 

Final Rules 

The rule amendments described in 

this release are being adopted pursuant 

to Sections 7, 10 and 19 of the Securities 

Act (15 U.S.C. 77a et seq.), as amended, 

Sections 3(b), 12, 13, 15(d) and 23(a) of 

the Exchange Act (15 U.S.C. 78a et seq.), 

as amended, and Section 72002 of the 

FAST Act. 

List of Subjects in 17 CFR Parts 210, 

229, 230, 239, 240, and 249 

Reporting and recordkeeping 

requirements, Securities. 

For the reasons set out in the 

preamble, the Commission is amending 

title 17, chapter II of the Code of Federal 

Regulations as follows: 

PART 210—FORM AND CONTENT OF 

AND REQUIREMENTS FOR FINANCIAL 

STATEMENTS, SECURITIES ACT OF 

1933, SECURITIES EXCHANGE ACT 

OF 1934, INVESTMENT COMPANY ACT 

OF 1940, INVESTMENT ADVISERS ACT 

OF 1940, AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975 

■ 1. The authority citation for part 210 

continues to read as follows: 

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 

77z–2, 77z–3, 77aa(25), 77aa(26), 77nn(25), 

77nn(26), 78c, 78j–1, 78l, 78m, 78n, 78o(d), 

78q, 78u–5, 78w, 78ll, 78mm, 80a–8, 80a–20, 

80a–29, 80a–30, 80a–31, 80a–37(a), 80b–3, 

80b–11, 7202 and 7262, and sec. 102(c), Pub. 

L. 112–106, 126 Stat. 310 (2012), unless 

otherwise noted. 

■ 2. Amend § 210.3–05 by revising 

paragraph (b)(2)(iv) to read as follows: 

§ 210.3–05 Financial statements of 

businesses acquired or to be acquired. 

* * * * * 

(b) * * * 

(2) * * * 

(iv) If any of the conditions exceed 50 

percent, the full financial statements 

specified in §§ 210.3–01 and 210.3–02 

shall be furnished. However, financial 

statements for the earliest of the three 

fiscal years required may be omitted if 

net revenues reported by the acquired 

business in its most recent fiscal year 

are less than $100 million. 

* * * * * 

PART 229—STANDARD 

INSTRUCTIONS FOR FILING FORMS 

UNDER SECURITIES ACT OF 1933, 

SECURITIES EXCHANGE ACT OF 

1934, AND ENERGY POLICY AND 

CONSERVATION ACT OF 1975— 

REGULATION S–K 

■ 3. The authority citation for part 229 

continues to read as follows: 

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 

77k, 77s, 77z–2, 77z–3, 77aa(25), 77aa(26), 

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 

77nnn, 77sss, 78c, 78i, 78j, 78j–3, 78l, 78m, 

78n, 78n–1, 78o, 78u–5, 78w, 78ll, 78mm, 

80a–8, 80a–9, 80a–20, 80a–29, 80a–30, 80a– 

31(c), 80a–37, 80a–38(a), 80a–39, 80b–11, 

and 7201 et seq., and 18 U.S.C. 1350; sec. 

953(b), Pub. L. 111–203, 124 Stat. 1904 

(2010); and sec. 102(c), Pub. L. 112–106, 126 

Stat. 310 (2012). 

■ 4. Amend § 229.10 by revising 

paragraphs (f)(1) and (2) to read as 

follows: 

§ 229.10 (Item 10) General. 

* * * * * 

(f) * * * 

(1) Definition of smaller reporting 

company. As used in this part, the term 

smaller reporting company means an 

issuer that is not an investment 

company, an asset-backed issuer (as 

defined in § 229.1101), or a majorityowned subsidiary of a parent that is not 

a smaller reporting company and that: 

(i) Had a public float of less than $250 

million; or 

(ii) Had annual revenues of less than 

$100 million and either: 

(A) No public float; or 

(B) A public float of less than $700 

million. 

(2) Determination. Whether an issuer 

is a smaller reporting company is 

determined on an annual basis. 

(i) For issuers that are required to file 

reports under section 13(a) or 15(d) of 

the Exchange Act: 

(A) Public float is measured as of the 

last business day of the issuer’s most 

recently completed second fiscal quarter 

and computed by multiplying the 

aggregate worldwide number of shares 

of its voting and non-voting common 

equity held by non-affiliates by the price 

at which the common equity was last 

sold, or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 

which audited financial statements are 

available; and 

(C) An issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in its quarterly report on Form 

10–Q for the first fiscal quarter of the 

next year, indicating on the cover page 

of that filing, and in subsequent filings 

for that fiscal year, whether it is a 

smaller reporting company, except that, 

if a determination based on public float 

indicates that the issuer is newly 

eligible to be a smaller reporting 

company, the issuer may choose to 

reflect this determination beginning 

with its first quarterly report on Form 

10–Q following the determination, 

rather than waiting until the first fiscal 

quarter of the next year. 

(ii) For determinations based on an 

initial registration statement under the 

Securities Act or Exchange Act for 

shares of its common equity: 

(A) Public float is measured as of a 

date within 30 days of the date of the 

filing of the registration statement and 

computed by multiplying the aggregate 

worldwide number of shares of its 

voting and non-voting common equity 

held by non-affiliates before the 

registration plus, in the case of a 

Securities Act registration statement, the 

number of shares of its voting and nonvoting common equity included in the 

registration statement by the estimated 

public offering price of the shares; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 


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which audited financial statements are 

available; and 

(C) The issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in the registration statement 

and must appropriately indicate on the 

cover page of the filing, and subsequent 

filings for the fiscal year in which the 

filing is made, whether it is a smaller 

reporting company. The issuer must redetermine its status at the end of its 

second fiscal quarter and then reflect 

any change in status as provided in 

paragraph (f)(2)(i)(C) of this section. In 

the case of a determination based on an 

initial Securities Act registration 

statement, an issuer that was not 

determined to be a smaller reporting 

company has the option to re-determine 

its status at the conclusion of the 

offering covered by the registration 

statement based on the actual offering 

price and number of shares sold. 

(iii) Once an issuer determines that it 

does not qualify for smaller reporting 

company status because it exceeded one 

or more of the current thresholds, it will 

remain unqualified unless when making 

its annual determination either: 

(A) It determines that its public float 

was less than $200 million; or 

(B) It determines that its public float 

and its annual revenues meet the 

requirements for subsequent 

qualification included in the following 

chart: 

Prior annual revenues 

Prior public float 

None or less than $700 million $700 million or more 

Less than $100 million ....................................... Neither threshold exceeded ............................. Public float—Less than $560 million; and 

Revenues—Less than $100 million. 

$100 million or more .......................................... Public float—None or less than $700 million; 

and.

Public float—Less than $560 million; and 

Revenues—Less than $80 million ................... Revenues—Less than $80 million. 

Instruction 1 to paragraph (f): A registrant 

that qualifies as a smaller reporting company 

under the public float thresholds identified 

in paragraphs (f)(1)(i) and (f)(2)(iii)(A) of this 

section will qualify as a smaller reporting 

company regardless of its revenues. 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 5. The authority citation for part 230 

continues to read in part as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

■ 6. Amend § 230.405 by revising the 

definition of ‘‘smaller reporting 

company’’ to read as follows: 

§ 230.405 Definitions of terms. 

* * * * * 

Smaller reporting company. As used 

in this part, the term smaller reporting 

company means an issuer that is not an 

investment company, an asset-backed 

issuer (as defined in § 229.1101 of this 

chapter), or a majority-owned subsidiary 

of a parent that is not a smaller 

reporting company and that: 

(1) Had a public float of less than 

$250 million; or 

(2) Had annual revenues of less than 

$100 million and either: 

(i) No public float; or 

(ii) A public float of less than $700 

million. 

(3) Whether an issuer is a smaller 

reporting company is determined on an 

annual basis. 

(i) For issuers that are required to file 

reports under section 13(a) or 15(d) of 

the Exchange Act: 

(A) Public float is measured as of the 

last business day of the issuer’s most 

recently completed second fiscal quarter 

and computed by multiplying the 

aggregate worldwide number of shares 

of its voting and non-voting common 

equity held by non-affiliates by the price 

at which the common equity was last 

sold, or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 

which audited financial statements are 

available; and 

(C) An issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in its quarterly report on Form 

10–Q for the first fiscal quarter of the 

next year, indicating on the cover page 

of that filing, and in subsequent filings 

for that fiscal year, whether it is a 

smaller reporting company, except that, 

if a determination based on public float 

indicates that the issuer is newly 

eligible to be a smaller reporting 

company, the issuer may choose to 

reflect this determination beginning 

with its first quarterly report on Form 

10–Q following the determination, 

rather than waiting until the first fiscal 

quarter of the next year. 

(ii) For determinations based on an 

initial registration statement under the 

Securities Act or Exchange Act for 

shares of its common equity: 

(A) Public float is measured as of a 

date within 30 days of the date of the 

filing of the registration statement and 

computed by multiplying the aggregate 

worldwide number of shares of its 

voting and non-voting common equity 

held by non-affiliates before the 

registration plus, in the case of a 

Securities Act registration statement, the 

number of shares of its voting and nonvoting common equity included in the 

registration statement by the estimated 

public offering price of the shares; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 

which audited financial statements are 

available; and 

(C) The issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in the registration statement 

and must appropriately indicate on the 

cover page of the filing, and subsequent 

filings for the fiscal year in which the 

filing is made, whether it is a smaller 

reporting company. The issuer must redetermine its status at the end of its 

second fiscal quarter and then reflect 

any change in status as provided in 

paragraph (3)(i)(C) of this definition. In 

the case of a determination based on an 

initial Securities Act registration 

statement, an issuer that was not 

determined to be a smaller reporting 

company has the option to re-determine 

its status at the conclusion of the 

offering covered by the registration 

statement based on the actual offering 

price and number of shares sold. 

(iii) Once an issuer determines that it 

does not qualify for smaller reporting 

company status because it exceeded one 

or more of the current thresholds, it will 

remain unqualified unless when making 

its annual determination either: 

(A) It determines that its public float 

was less than $200 million; or 


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32020 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 

(B) It determines that its public float 

and its annual revenues meet the 

requirements for subsequent 

qualification included in the following 

chart: 

Prior annual revenues 

Prior public float 

None or less than $700 million $700 million or more 

Less than $100 million ....................................... Neither threshold exceeded ............................. Public float—Less than $560 million; and 

Revenues—Less than $100 million. 

$100 million or more .......................................... Public float—None or less than $700 million; 

and.

Public float—Less than $560 million; and 

Revenues—Less than $80 million ................... Revenues—Less than $80 million. 

Instruction 1 to definition of ‘‘smaller 

reporting company’’: A registrant that 

qualifies as a smaller reporting company 

under the public float thresholds identified 

in paragraphs (1) and (3)(iii)(A) of this 

definition will qualify as a smaller reporting 

company regardless of its revenues. 

* * * * * 

PART 239—FORMS PRESCRIBED 

UNDER THE SECURITIES ACT OF 1933 

■ 7. The authority citation for part 239 

continues to read in part as follows: 

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 

77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m, 78n, 

78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 

78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a– 

10, 80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 

and 80a–37; and sec. 107, Pub. L. 112–106, 

126 Stat. 312, unless otherwise noted. 

* * * * * 

■ 8. Amend Form S–1 (referenced in 

§ 239.11) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 7(a)(2)(B) of the 

Securities Act.’’ The revisions read as 

follows: 

Note: The text of Form S–1 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form S–1 

Registration Statement Under the 

Securities Act of 1933 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 9. Amend Form S–3 (referenced in 

§ 239.13) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 7(a)(2)(B) of the 

Securities Act.’’ The revisions read as 

follows: 

Note: The text of Form S–3 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form S–3 

Registration Statement Under the 

Securities Act of 1933 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 10. Amend Form S–8 (referenced in 

§ 239.16b) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 7(a)(2)(B) of the 

Securities Act.’’ The revisions read as 

follows: 

Note: The text of Form S–8 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form S–8 

Registration Statement Under the 

Securities Act of 1933 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 11. Amend Form S–11 (referenced in 

§ 239.18) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 7(a)(2)(B) of the 

Securities Act.’’ The revisions read as 

follows: 

Note: The text of Form S–11 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 


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Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 32021 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form S–11 

Registration Statement Under the 

Securities Act of 1933 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 12. Amend Form S–4 (referenced in 

§ 239.25) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 7(a)(2)(B) of the 

Securities Act.’’ The revisions read as 

follows: 

Note: The text of Form S–4 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form S–4 

Registration Statement Under the 

Securities Act of 1933 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 13. The authority citation for part 240 

continues to read in part as follows: 

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 

77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 

78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 

78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 

78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 

80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– 

4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. 

2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 

1350; and Pub. L. 111–203, 939A, 124 Stat. 

1887 (2010); and secs. 503 and 602, Pub. L. 

112–106, 126 Stat. 326 (2012), unless 

otherwise noted. 

* * * * * 

■ 14. Amend § 240.12b–2 by: 

■ a. In the definition of ‘‘accelerated 

filer and large accelerated filer’’: 

■ i. Adding the word ‘‘and’’ at the end 

of paragraph (1)(ii); 

■ ii. Removing ‘‘; and’’ at the end of 

paragraph (1)(iii) and in its place adding 

a period; 

■ iii. Removing paragraph (1)(iv); 

■ iv. Adding the word ‘‘and’’ at the end 

of paragraph (2)(ii); 

■ v. Removing ‘‘; and’’ at the end of 

paragraph (2)(iii) and in its place adding 

a period; and 

■ vi. Removing paragraph (2)(iv). 

■ b. Revising the definition of ‘‘smaller 

reporting company’’. 

The addition and revision reads as 

follows: 

§ 240.12b–2 Definitions. 

* * * * * 

Smaller reporting company. As used 

in this part, the term smaller reporting 

company means an issuer that is not an 

investment company, an asset-backed 

issuer (as defined in § 229.1101 of this 

chapter), or a majority-owned subsidiary 

of a parent that is not a smaller 

reporting company and that: 

(1) Had a public float of less than 

$250 million; or 

(2) Had annual revenues of less than 

$100 million and either: 

(i) No public float; or 

(ii) A public float of less than $700 

million. 

(3) Whether an issuer is a smaller 

reporting company is determined on an 

annual basis. 

(i) For issuers that are required to file 

reports under section 13(a) or 15(d) of 

the Exchange Act: 

(A) Public float is measured as of the 

last business day of the issuer’s most 

recently completed second fiscal quarter 

and computed by multiplying the 

aggregate worldwide number of shares 

of its voting and non-voting common 

equity held by non-affiliates by the price 

at which the common equity was last 

sold, or the average of the bid and asked 

prices of common equity, in the 

principal market for the common equity; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 

which audited financial statements are 

available; and 

(C) An issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in its quarterly report on Form 

10–Q for the first fiscal quarter of the 

next year, indicating on the cover page 

of that filing, and in subsequent filings 

for that fiscal year, whether it is a 

smaller reporting company, except that, 

if a determination based on public float 

indicates that the issuer is newly 

eligible to be a smaller reporting 

company, the issuer may choose to 

reflect this determination beginning 

with its first quarterly report on Form 

10–Q following the determination, 

rather than waiting until the first fiscal 

quarter of the next year. 

(ii) For determinations based on an 

initial registration statement under the 

Securities Act or Exchange Act for 

shares of its common equity: 

(A) Public float is measured as of a 

date within 30 days of the date of the 

filing of the registration statement and 

computed by multiplying the aggregate 

worldwide number of shares of its 

voting and non-voting common equity 

held by non-affiliates before the 

registration plus, in the case of a 

Securities Act registration statement, the 

number of shares of its voting and nonvoting common equity included in the 

registration statement by the estimated 

public offering price of the shares; 

(B) Annual revenues are as of the 

most recently completed fiscal year for 

which audited financial statements are 

available; and 

(C) The issuer must reflect the 

determination of whether it came within 

the definition of smaller reporting 

company in the registration statement 

and must appropriately indicate on the 

cover page of the filing, and subsequent 

filings for the fiscal year in which the 

filing is made, whether it is a smaller 

reporting company. The issuer must redetermine its status at the end of its 

second fiscal quarter and then reflect 

any change in status as provided in 

paragraph (3)(i)(C) of this definition. In 

the case of a determination based on an 

initial Securities Act registration 

statement, an issuer that was not 

determined to be a smaller reporting 

company has the option to re-determine 

its status at the conclusion of the 

offering covered by the registration 


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32022 Federal Register / Vol. 83, No. 132 / Tuesday, July 10, 2018 / Rules and Regulations 

statement based on the actual offering 

price and number of shares sold. 

(iii) Once an issuer determines that it 

does not qualify for smaller reporting 

company status because it exceeded one 

or more of the current thresholds, it will 

remain unqualified unless when making 

its annual determination either: 

(A) It determines that its public float 

was less than $200 million; or 

(B) It determines that its public float 

and its annual revenues meet the 

requirements for subsequent 

qualification included in the following 

chart: 

Prior annual revenues 

Prior public float 

None or less than $700 million $700 million or more 

Less than $100 million ....................................... Neither threshold exceeded ............................. Public float—Less than $560 million; and 

Revenues—Less than $100 million. 

$100 million or more .......................................... Public float—None or less than $700 million; 

and.

Public float—Less than $560 million; and 

Revenues—Less than $80 million ................... Revenues—Less than $80 million. 

Instruction 1 to definition of ‘‘smaller 

reporting company’’: A registrant that 

qualifies as a smaller reporting company 

under the public float thresholds identified 

in paragraphs (1) and (3)(iii)(A) of this 

definition will qualify as a smaller reporting 

company regardless of its revenues. 

* * * * * 

PART 249—FORMS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 15. The authority citation for part 249 

continues to read in part as follows: 

Authority: 15 U.S.C. 78a et seq. and 7201 

et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C. 1350; 

Sec. 953(b), Pub. L. 111–203, 124 Stat. 1904; 

Sec. 102(a)(3), Pub. L. 112–106, 126 Stat. 309 

(2012); Sec. 107, Pub. L. 112–106, 126 Stat. 

313 (2012), and Sec. 72001, Pub. L. 114–94, 

129 Stat. 1312 (2015), unless otherwise 

noted. 

* * * * * 

■ 16. Amend Form 10 (referenced in 

§ 249.210) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 13(a) of the 

Exchange Act.’’ The revisions read as 

follows: 

Note: The text of Form 10 does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form 10 

General Form for Registration of 

Securities 

Pursuant to Section 12(b) or (g) of the 

Securities Exchange Act of 1934 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 17. Amend Form 10–Q (referenced in 

§ 249.308a) by revising the text and 

check boxes on the cover page 

immediately before the text ‘‘If an 

emerging growth company, indicate by 

check mark if the registrant has elected 

not to use the extended transition 

period for complying with any new or 

revised financial accounting standards 

provided pursuant to Section 13(a) of 

the Exchange Act.’’ The revisions read 

as follows: 

Note: The text of Form 10–Q does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form 10–Q 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

■ 18. Amend Form 10–K (referenced in 

§ 249.310) by revising the text and check 

boxes on the cover page immediately 

before the text ‘‘If an emerging growth 

company, indicate by check mark if the 

registrant has elected not to use the 

extended transition period for 

complying with any new or revised 

financial accounting standards provided 

pursuant to Section 13(a) of the 

Exchange Act.’’ The revisions read as 

follows: 

Note: The text of Form 10–K does not, and 

this amendment will not, appear in the Code 

of Federal Regulations. 

United States Securities and Exchange 

Commission 

Washington, DC 20549 

Form 10–K 

* * * * * 

Indicate by check mark whether the 

registrant is a large accelerated filer, an 

accelerated filer, a non-accelerated filer, 

a smaller reporting company, or an 

emerging growth company. See the 

definitions of ‘‘large accelerated filer,’’ 

‘‘accelerated filer,’’ ‘‘smaller reporting 

company,’’ and ‘‘emerging growth 

company’’ in Rule 12b–2 of the 

Exchange Act. 

Large accelerated filer b 

Accelerated filer b 

Non-accelerated filer b 

Smaller reporting company b 

Emerging growth company b 

* * * * * 

By the Commission. 

Dated: June 28, 2018. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–14306 Filed 7–9–18; 8:45 am] 

BILLING CODE 8011–01–P 


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