[Federal Register Volume 62, Number 63 (Wednesday, April 2, 1997)]
[Rules and Regulations]
[Pages 15604-15607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8359]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 202

[Release Nos. 33-7407; 34-38446; 35-26695; 39-2349; IC-22587; IA-1624]


Informal Guidance Program for Small Entities

AGENCY: Securities and Exchange Commission.

ACTION: Policy statement.

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SUMMARY: The Securities and Exchange Commission is issuing a policy 
statement discussing its informal guidance program for small entities 
(and others) as required by the Small Business Regulatory Enforcement 
Fairness Act, Public Law 104-121, 110 Stat. 857 (1996).

DATES: This Policy becomes effective March 29, 1997.

FOR FURTHER INFORMATION CONTACT: For General Information: Amy Kroll, 
Assistant General Counsel, at (202-942-0927) or Anne H. Sullivan, 
Senior Counsel, at (202-942-0954), Office of General Counsel. For 
information from specific divisions or offices, as follows: James R. 
Budge, Special Counsel, at (202-942-295), Division of Corporation 
Finance; Natalie Bej, Special Counsel, at (202-942-0660), Division of 
Investment Management; Gary W. Sutton, Special Counsel, at (202-942-
0073), Division of Market Regulation; Robert E. Burns, Chief Counsel, 
at (202-942-4400), Office of Chief Accountant.

SUPPLEMENTARY INFORMATION: On March 29, 1996, Congress adopted the 
Small Business Regulatory Enforcement Fairness Act (``SBREFA''),\1\ 
which seeks to improve the regulatory climate for small entities \2\ 
by, among other things:
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    \1\ Pub. L. 104-121, 110 Stat. 857 (1996) (codified in scattered 
sections of 5 U.S.C., 15 U.S.C., and as a note to 5 U.S.C. 601).
    \2\ The definition of ``small entity'' under SBREFA is the same 
as the definition of ``small entity'' under the Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq. (``Reg. Flex. Act''). SBREFA 
section 221(1). The Reg. Flex. Act defines ``small entity'' to 
include ``small business.'' Pursuant to the Reg. Flex. Act, 5 U.S.C. 
601(3), the Commission adopted appropriate definitions of ``small 
business'' for purposes of the Reg. Flex. Act. See 17 CFR 270.0-10; 
17 CFR 275.0-7; 17 CFR 240.0-10; 17 CFR 230.157; and 17 CFR 250.110. 
The Commission recently proposed amendments to these definitions. 
Definitions of ``Small Business'' or ``Small Organization'' Under 
the Investment Company Act of 1940, the Investment Advisers Act of 
1940, the Securities Exchange Act of 1934, and the Securities Act of 
1933, Securities Act Rel. No. 7383, 62 FR 4106 (Jan. 28, 1997). The 
Commission extended the comment period on the proposed amendments to 
the definitions to April 30, 1997, 62 FR 13356 (Mar. 20, 1997).
    Based on an analysis of the language and legislative history of 
the Regulatory Flexibility Act, Congress does not appear to have 
intended that Act to apply to natural persons (as opposed to 
individual proprietorships) or to foreign entities. This 
interpretation has not been tested in court, but the Commission 
understands that staff at the Small Business Administration 
(``SBA'') have taken the same position. Telephone conversation with 
Gregory J. Dean, Jr., Assistant Chief Counsel for Finance and 
Programs, SBA Office of Advocacy (Mar. 13, 1997).

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[[Page 15605]]

    <bullet> Expanding the extent to which the rule-making process must 
include evaluation of the impact of proposed rules and rule changes on 
small entities; \3\
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    \3\ 5 U.S.C. 603(a) and 605(b), codifying SBREFA sections 241 
and 243.
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    <bullet> Expanding the rights of action for small businesses to 
seek judicial review of rules impacting small entities; \4\
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    \4\ 5 U.S.C. 611, codifying SBREFA section 242.
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    <bullet> Requiring agencies to establish small entity penalty 
reduction or waiver policies; \5\ and
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    \5\ SBREFA section 223.
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    <bullet> Directing agencies to expand their efforts to provide 
formal and informal guidance to small entities.\6\
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    \6\ SBREFA sections 212, 213, 214 (codified at 15 U.S.C. 
648(c)(3)), and 215.
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    This release sets out the Commission's informal guidance program 
for small entities, as required by SBREFA. The Commission has reviewed 
the various ways it provides informal compliance guidance to determine 
whether it effectively answers ``inquiries of small entities seeking 
information on and advice about regulatory compliance,'' and 
``utiliz[es] existing functions and personnel of the agency to the 
extent practicable.'' \7\
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    \7\ Both the statutory language and statements inserted into the 
Congressional Record after enactment of SBREFA by the chairmen who 
introduced SBREFA stress that, in determining how to comply with the 
informal guidance mandate of SBREFA, agencies may exercise their 
discretion. See, e.g., ``Small Business Regulatory Enforcement 
Fairness Act--Joint Managers Statement of Legislative History and 
Congressional Intent,'' 142 Cong. Rec. S3243 (daily ed. Mar. 29, 
1996) (hereafter ``Managers Statement'').
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    From the time the Commission was created, its staff has provided 
the public with a wide range of informal guidance regarding securities 
regulation. Commission staff provides informal guidance to members of 
the public by telephone and no-action and interpretive letters, 
described in detail below. In addition, the Commission, or the staff by 
delegation, may issue exemptions from certain statutory and regulatory 
requirements. From time to time, the Commission has issued releases 
describing these sources of informal guidance. The Commission also has 
designated small entity compliance guides that also describe these 
sources of informal guidance.\8\
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    \8\ See, e.g., 17 CFR 202.2 (pre-filing assistance and 
interpretive advice); Procedure Applicable to Requests for No Action 
or Interpretive Letters, Securities Act Rel. No. 5127, 36 FR 2600 
(Jan. 25, 1971); Procedures Utilized by the Division of Corporation 
Finance for Rendering Informal Advice, Securities Act Rel. No. 6253, 
45 FR 72644 (Oct. 28, 1980); Procedures Applicable to Requests for 
No-Action or Interpretive Letters, Securities Act Rel. No. 6269, 45 
FR 81917 (Dec. 5, 1980); and Expedited Publication of Interpretive, 
No-Action and Certain Exemption Letters, Securities Act Rel. No. 
6764, 53 FR 12412 (Apr. 14, 1988) (releases on no-action and 
interpretive letter procedures). See also, ``The Work of the SEC'' 
and ``Q & A: Small Business and the SEC.''
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    The Commission's formal and informal efforts on behalf of small 
business date from 1936, when the Commission adopted Regulation A, an 
exemption from registration for certain small business offerings. 
Chairman William O. Douglas' efforts on behalf of small businesses in 
the securities markets were a precursor to the creation of the Small 
Business Administration in 1958.\9\ Since the adoption of Regulation A, 
the Commission regularly has updated abbreviated disclosure procedures 
and exemptions for small businesses and encouraged input from small 
businesses.\10\ In 1977, an SEC advisory committee on corporate 
disclosure suggested more ways that the Commission could assist small 
business capital formation.\11\ Shortly thereafter, in 1979, the 
Commission created an Office of Small Business Policy.
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    \9\ Seligman, Transformation of Wall Street (2d ed. 1995) at 
200-205.
    \10\ See, e.g., Securities Act Rel. No. 5125 (Jan. 7, 1971), 
increasing the maximum amount of offering price for securities 
offered under Regulation A.
    \11\ House Committee on Interstate and Foreign Commerce, Report 
of the Advisory Committee on Corporate Disclosure to the SEC, H. 
Doc. No. 29, 95th Cong, 1st Sess. (1977).
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    For fifteen years, the Commission has cosponsored the annual 
Government-Business Forum on Small Business Capital Formation, where 
small businesses can let state and federal government officials know 
how laws, rules and regulations are affecting their ability to raise 
capital. In the past year, the Commission appointed a Small Business 
Ombudsman. The Commission also initiated ``town hall'' meetings with 
small businesses around the country to convey basic information about 
securities regulation to small businesses and to learn more about their 
concerns and problems in raising capital.<SUP>12 The Office of Small 
Business and the Small Business Ombudsman informally answer questions 
from small business issuers about securities registration, securities 
offerings, and periodic reporting received by telephone, e-mail, and in 
writing.<SUP>13
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    \12\ The Commission held town hall meetings in Los Angeles, 
California (September 13, 1996); Minneapolis, Minnesota (September 
30, 1996); St. Louis, Missouri (October 9, 1996); Evanston, Illinois 
(October 17, 1996); Ft. Lauderdale, Florida (November 6, 1996); and 
Cambridge, Massachusetts (November 13, 1996).
    \13\ These offices receive inquiries from both small issuers 
that file documents with the Commission and small issuers that take 
advantage of exemptions under the statutes or safe harbors under 
Commission rules.
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    Informal guidance, for purposes of SBREFA, is an answer to an 
inquiry from a small entity concerning information on, and advice 
about, compliance with statutes and regulations administered by an 
agency, interpreting and applying the law to specific facts supplied by 
the small entity.<SUP>14 The Managers Statement inserted into the 
Congressional Record after the enactment of SBREFA by the chairmen who 
introduced SBREFA cites the Commission's existing informal guidance 
program as a ``successful'' one, and expresses the committees' intent 
to encourage the Commission's efforts:

    \14\ SBREFA section 213(a).
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    The Act directs agencies that regulate small entities to answer 
inquiries of small entities seeking information on and advice about 
regulatory compliance. Some agencies already have established 
successful programs to provide compliance assistance and the 
amendment intends to encourages these efforts. For example, the * * 
* SEC * * * [has] an established practice of issuing private letter 
rulings applying the laws to a particular set of facts.<SUP>15

    \15\ Managers Statement, 142 Cong. Rec. S3243 (daily ed. Mar. 
29, 1996). The Committee Chairmen suggested that, although the 
legislation did not mandate changes in current programs at a number 
of agencies, including the Commission, these agencies should 
consider establishing less formal means of providing small entities 
with informal guidance, such as the use of toll-free telephone 
numbers. The Committees apparently were unaware at the time of these 
comments that since October 1994 the Commission has had a toll-free 
number for public use, 800-SEC-0330.
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    The Commission has reviewed its current informal guidance program, 
and has determined that it is consistent with the requirements of 
SBREFA. The ommission will monitor this area, however, and may 
supplement the informal guidance program should it appear necessary in 
the future. The Commission intends that this release serve as a 
comprehensive resource for small entities wondering where and how to 
obtain informal Commission guidance.

I. Informal Guidance Program

    The Commission's operating divisions and offices provide the public 
with informal guidance about the applicability of the federal 
securities laws to specific facts. Commission staff also provide 
informal guidance to the

[[Page 15606]]

general public, issuers and existing and prospective regulated entities 
about compliance with registration requirements. This guidance takes 
several forms, including publications, responses to inquiries received 
by telephone and computer, and no-action and interpretive 
letters.<SUP>16 Staff at Commission headquarters generally respond to 
all inquiries. Regional and district office staff may respond to 
questions regarding certain matters, or may refer questions to the 
appropriate headquarters office for a response.
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    \16\ Responses to such inquiries are informal guidance for 
purposes of SBREFA only if the Commission staff interprets or 
applies the securities laws to specific facts supplied by or on 
behalf of a small entity.
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A. Telephone, Computer, and Written Informal Guidance

    At the Commission's headquarters, the operating divisions and 
offices provide informal guidance as follows:
    <bullet> Division of Investment Management--responds to telephone 
and written inquiries and issues no-action and interpretive letters 
relating to investment companies and investment advisers through its 
Office of Chief Counsel. Telephone number: 202-942-0659.
    <bullet> Division of Market Regulation--responds to telephone and 
e-mail inquiries through its Office of Interpretations and Guidance and 
issues no-action and interpretive letters about securities markets, 
including exchanges, and securities market intermediaries, including 
broker-dealers, transfer agents, clearing agencies, and securities 
information processors. Telephone number: 202-942-0073. E-mail address: 
<a href="/cdn-cgi/l/email-protection#0b666a79606e7f796e6c4b786e68256c647d"><span class="__cf_email__" data-cfemail="204d41524b4554524547605345430e474f56">[email protected]</span></a>.
    <bullet> Division of Corporation Finance--responds to telephone 
inquiries and issues no-action and interpretive letters relating to 
small business matters through its Office of Small Business. The Small 
Business Ombudsman, the Commission's liaison to and spokesman for small 
business, also is available through this division. Telephone number: 
202-942-2950.
    <bullet> Division of Corporation Finance--responds to all other 
telephone inquiries and e-mail inquiries about the offer and sale of 
securities, as well as issuer and ownership reporting and stockholder 
voting, and issues no-action and interpretive letters through its 
Office of Chief Counsel. Telephone number: 202-942-2900.<SUP>17 E-mail 
address: <a href="/cdn-cgi/l/email-protection#15703865677a66657076616066556670763b727a63"><span class="__cf_email__" data-cfemail="41246c31332e32312422353432013224226f262e37">[email protected]</span></a>.
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    \17\ The Division of Corporation Finance makes publicly 
available through the Public Reference Room and publication on the 
Commission's Web site a compilation of significant positions 
provided in response to telephone inquiries. The Division also makes 
public a monthly listing of significant no-action letters, as well 
as a summary of those positions.
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    <bullet> Office of Chief Accountant--responds to telephone and 
written inquiries from registrants and their legal and accounting 
advisers on financial reporting matters, including, but not limited to, 
auditor independence, interpretations of FASB accounting standards, and 
Commission reporting requirements under Regulation S-X. This office, in 
conjunction with the Division of Corporation Finance, also publishes 
Staff Accounting Bulletins that address specific issues of accounting 
and auditing practice, usually based on specific facts.<SUP>18 Staff 
Accounting Bulletins are informal guidance for purposes of SBREFA when 
they address accounting and auditing practice with regard to specific 
sets of facts.
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    \18\ See 17 CFR 211.
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B. No-Action and Interpretive Letters

    As noted above, the Commission's Divisions of Market Regulation, 
Investment Management and Corporation Finance provide informal written 
advice in the form of no-action and interpretive letters. In a no-
action letter a Division states that it will not recommend any 
enforcement action to the Commission if the requesting party acts in 
accordance with specific facts and representations made in its letter. 
In some instances the Division will state that it is not able to give 
such assurance. In an interpretive letter a Division interprets a 
specific statutory provision, rule or regulation in the context of a 
factual situation described in the request. The Divisions will not 
respond to certain types of questions, including, for example, 
hypothetical or overly general ones.<SUP>19 In general, only the party 
or parties requesting a no-action or interpretive position may rely on 
a no-action or interpretive letter, and they may rely on the position 
with regard only to the specific facts addressed in the letter. In 
certain cases, however, the staff of a Division may approve reliance by 
third parties.<SUP>20
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    \19\ See Commission releases on no-action and interpretive 
advice cited at n.8.
    \20\ The Divisions of Corporation Finance and Market Regulation 
specify when others may rely upon the advice in a no-action letter. 
The Division of Investment Management generally permits third 
parties to rely on no-action or interpretive letters to the extent 
that the third party's facts and circumstances are substantially 
similar to those described in the underlying request for a no-action 
or interpretive letter.
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    Staff no-action and interpretive letters are available to the 
public at Commission headquarters and at certain regional offices. 
Computerized legal research firms also provide these letters, usually 
for a fee. Letters are available to the public as soon as practicable 
after the staff sends the letter to the requesting party. No-action and 
interpretive letters may be treated as confidential for up to 120 days, 
however, if the Division issuing the letter determines that a request 
for such treatment is reasonable and appropriate.<SUP>21
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    \21\ See 17 CFR 200.81.
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    The Commission takes the position that staff no-action and 
interpretive positions do not constitute Commission precedent and do 
not bind subsequent Commission action.<SUP>22 Although staff informal 
guidance assists the public to understand how to comply with the 
Commission's rules and policies, the Commission reserves the right to 
act contrary to staff advice. On the other hand, the Commission 
occasionally issues interpretive releases on selected subjects or areas 
of the law designed to inform the public about the staff's current 
views and to reduce the need for no-action and interpretive requests. 
In addition, when proposing or adopting rules and rule amendments, the 
Commission may cite with approval letters issued by the staff in the 
area. In each of these cases, the Commission effectively adopts the 
staff positions as its own. In appropriate cases, the Commission, or 
the Divisions by delegated authority, also may grant exemptive relief, 
subject to compliance with specified conditions, from certain statutory 
and regulatory provisions. Although exemptions technically are not 
informal guidance, they provide relief from regulatory burdens that is 
less formal than rulemaking. Third parties ordinarily cannot rely on 
exemptions.
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    \22\ SBREFA provides that ``[i]n any civil or administrative 
action against a small entity, guidance given by an agency applying 
the law to facts provided by the small entity may be considered as 
evidence of the reasonableness or appropriateness of any proposed 
fines, penalties or damages sought against such small entity.'' 
SBREFA section 213(a).
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II. Inspections, Examinations and Enforcement Actions Do Not Provide 
Informal Guidance

    The Office of Compliance Inspections and Examinations (``OCIE'') 
examines registered broker-dealers, investment advisers, and investment 
companies. If, during the course of an examination or inspection, OCIE 
uncovers a potential securities law violation, it may refer the matter 
to the Division of Enforcement, or issue a deficiency letter to the 
regulated entity. At times, a regulated entity will receive a 
deficiency letter

[[Page 15607]]

and also will be referred to the Division of Enforcement. Deficiency 
letters describe problems found in an examination, and direct the 
recipient to correct the problems in a given period of time.
    The Division of Enforcement does not provide any informal guidance 
to the public as to compliance with the securities laws. The Division 
investigates possible violations of the federal securities laws with a 
view toward advising the Commission whether civil or administrative 
action should be initiated, and prosecutes any such actions approved by 
the Commission.<SUP>23
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    \23\ SBREFA requires agencies to establish penalty reduction 
policies for small entities, which the Commission is doing in a 
companion release issued today. Securities Act Rel. No. 7408 (Mar. 
27, 1997).
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III. Information Outside the Informal Guidance Program

    The Commission also provides numerous sources for general 
information that are outside the informal guidance program. A brief 
description of these follows.

A. Municipal Securities Ombudsman

    The Municipal Securities Ombudsman, in the Office of Municipal 
Securities, assists municipal securities issuers in obtaining 
information from Commission staff. The telephone number for the 
Municipal Securities Ombudsman is 202-942-7300. The e-mail address is 
<a href="/cdn-cgi/l/email-protection#66090b152615030548010910"><span class="__cf_email__" data-cfemail="f59a9886b5869096db929a83">[email protected]</span></a>.

B. Commission Web Site

    The Commission maintains a site on the World Wide Web at <a href="http://
www.sec.gov">http://
www.sec.gov</a>. This Web site contains brochures, news, and information 
about the Commission, including a list of Commission Internet mailboxes 
at htpp://www.sec.gov/asec/mailboxes. The Commission also provides 
access to its electronic filing database, known as EDGAR, through the 
Web site. The EDGAR database includes most recently filed registration 
statements, periodic reports and other disclosure documents filed with 
the Commission. The Web site also includes a page that contains 
information of special interest to small businesses, and a list of 
pending and completed Commission rulemakings of particular relevance to 
small businesses.

C. General Publications and Information on Request

    The Commission makes available a variety of publications and 
resources for information about the Commission and the federal 
securities laws. On January 28, 1997, the Commission designated many of 
these publications as small business compliance guides and described 
how to obtain these materials.<SUP>24
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    \24\ Securities Act Rel. No. 7342; 62 FR 4104 (Jan. 28, 1997) 
(codified at 17 CFR 202.8).
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D. General Information, Filings and Releases on Request

    The Commission's Office of Investment Education and Assistance 
produces educational material and programs for the public that describe 
preventive measures investors can take to protect their investments 
from fraud and abuse. Members of the public may reach this office at 
the Commission's toll-free number, 800-SEC-0330, to obtain information 
on topics of current interest and to obtain specific publications. 
Members of the public also may telephone the Public Reference Room at 
202-942-8090, or write to the Public Reference Room at the Securities 
and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549 
to obtain non-confidential documents from the Commission.<SUP>25 
Information available from the Public Reference Room includes copies of 
Commission opinions, statements of policy adopted by the Commission, 
certain staff manuals and instructions, indices of opinions and 
statements of policy, required filings with the Commission that are not 
confidential, requests or petitions for a change in Commission rules, 
no-action and interpretive letters, exemptions from Commission 
regulation (when publicly available), transcripts of public 
proceedings, and Commission reports to Congress.<SUP>26 Some of these 
items also may be retrieved from the Commission's Web site.

    \25\ The Commission generally will not publish or make available 
materials:
    (1) specifically authorized by executive order to be kept secret 
or that are classified;
    (2) related solely to internal personnel rules and practices;
    (3) specifically exempted from disclosure by statute;
    (4) containing privileged and confidential personal financial 
information or disclosing trade secrets;
    (5) that are interagency or intra-agency memoranda or 
communications, except those which would routinely be made available 
in litigation;
    (6) that are records whose release would constitute a clearly 
unwarranted invasion of personal privacy;
    (7) that are records compiled for law enforcement purposes;
    (8) contained in or related to any examination of financial 
institutions; or
    (9) that set forth geological or geophysical information and 
data concerning wells.
    17 CFR 200.80(b).
    \26\ The Public Reference Room charges for copies of these 
materials.
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IV. Regulatory Requirements

    The Commission's informal guidance program is not an agency rule 
and, therefore, the provisions of the Administrative Procedure Act 
(``APA'') regarding notice of proposed rulemaking, opportunities for 
public participation, and prior publication are not applicable.<SUP>27 
Similarly, the provisions of the Regulatory Flexibility Act, which 
apply only when notice and comment are required by the APA or another 
statute, are not applicable.<SUP>28

    \27\ 5 U.S.C. 553.
    \28\ 5 U.S.C. 601-602.
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    Dated: March 27, 1997.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-8359 Filed 4-1-97; 8:45 am]
BILLING CODE 8010-01-P


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