[Federal Register Volume 66, Number 120 (Thursday, June 21, 2001)]
[Rules and Regulations]
[Pages 33175-33177]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15455]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 231, 241, 251 and 271

[Release Nos. 33-7985, 34-44424; 35-27419; IC-25003]
RIN 3235-AI14


Application of the Electronic Signatures in Global and National 
Commerce Act To Record Retention Requirements Pertaining to Issuers 
Under the Securities Act of 1933, Securities Exchange Act of 1934 and 
Regulation S-T

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

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SUMMARY: We are publishing guidance on the obligations of issuers to 
maintain certain records under the Securities Act of 1933 (``Securities 
Act''), Securities Exchange Act of 1934 (``Exchange Act'') and 
Regulation S-T in light of the Electronic Signatures in Global and 
National Commerce Act (``E-SIGN'').

EFFECTIVE DATE: June 21, 2001.

FOR FURTHER INFORMATION CONTACT: Mark A. Borges, Division of 
Corporation Finance, at (202) 942-2910.

SUPPLEMENTARY INFORMATION: We are publishing guidance \1\ on the impact 
of E-SIGN \2\ on our rules promulgated under the Securities Act,\3\ 
Exchange Act \4\ and Regulation S-T \5\ that require issuers to retain 
signature authentication documents and certain other records for 
specified time periods.
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    \1\ Except for the discussion in this release about 
authentication documents, our views expressed today do not address 
record retention requirements for investment companies and public 
utility holding companies. Our views also do not address record 
retention requirements for investment advisers, transfer agents or 
broker-dealers. These matters are addressed in separate releases. 
See Investment Company Act Release No. 24991 (May 24, 2001) [66 FR 
29224 (May 30, 2001)] (investment companies and investment 
advisers); Public Utility Holding Company Act Release No. 27404 (May 
24, 2001) [66 FR 29471 (May 31, 2001)] (public utility holding 
companies); Exchange Act Release No. 44238 (May 1, 2001) [66 FR 
22916 (May 7, 2001)] (broker-dealers); and Exchange Act Release No. 
44227 (Apr. 27, 2001) [66 FR 21648 (May 1, 2001)] (transfer agents). 
This release does not in any way affect the record retention 
requirements discussed in those releases.
    As we have previously noted (see Securities Act Release No. 7912 
(Oct. 27, 2000) [65 FR 65736 (Nov. 2, 2000)]; Securities Act Release 
No. 7877 (July 27, 2000) [65 FR 47281 (Aug. 2, 2000)]), we are 
considering the broader implications of the Electronic Signatures in 
Global and National Commerce Act on securities transactions.
    \2\ Pub. L. No. 106-229, 114 Stat. 464 (2000) (codified at 15 
U.S.C. 7001-7006, 7021, 7031).
    \3\ 15 U.S.C. 77a, et seq.
    \4\ 15 U.S.C. 78a, et seq.
    \5\ 17 CFR 232.10--232.601.
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Discussion

I. Background

    E-SIGN seeks to promote electronic commerce by permitting and 
encouraging the use of electronic records and signatures in 
transactions in interstate or foreign commerce.\6\ Generally, E-SIGN 
provides that, with respect to any transaction \7\ within its scope, a 
signature, contract or other record relating to the transaction may not 
be denied legal effect, validity or enforceability solely because it is 
in electronic form.\8\ Similarly, E-SIGN provides that a contract 
relating to such transaction may not be denied legal effect, validity 
or enforceability solely because an electronic signature or electronic 
record was used in its formation.\9\
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    \6\ E-SIGN preamble.
    \7\ E-SIGN section 106(13) [15 U.S.C. 7106(13)] defines the term 
``transaction'' generally to mean ``an action or set of actions 
relating to the conduct of business, consumer or commercial affairs 
between two or more persons.''
    \8\ E-SIGN section 101(a)(1) [15 U.S.C. 7001(a)(1)]. Note, 
however, that section 101(e) of E-SIGN [15 U.S.C. 7001(e)] provides 
that legal effect, validity or enforceability may be denied to a 
contract or other record required to be in writing that is kept in 
electronic form if the electronic record is not in a form that is 
capable of being retained and accurately reproduced for later 
reference by all involved parties.
    \9\ E-SIGN section 101(a)(2) [15 U.S.C. 7001(a)(2)].
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    E-SIGN also encourages the electronic storage of records relating 
to business, consumer and commercial transactions.\10\ Further, E-SIGN 
authorizes federal and state regulatory agencies to set standards and 
formats for the retention of these electronic records.\11\
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    \10\ E-SIGN section 101(d)(1) [15 U.S.C. 7001(d)(1)]. With 
respect to record retention requirements imposed by a federal 
statute or agency rule, E-SIGN became effective on March 1, 2001 
unless a federal regulatory agency had announced, proposed or 
initiated rulemaking to establish performance standards to assure 
accuracy, record integrity and accessibility of electronic records 
on or before that date. Where a federal regulatory agency announced, 
proposed or initiated a rulemaking project on or before March 1, 
2001, the effective date of E-SIGN was postponed until June 1, 2001 
with respect to those record retention requirements. See E-SIGN 
section 107(b)(1) [15 U.S.C. 7007(b)(1)]. On February 28, 2001, we 
published notice of our intention to engage in rulemaking in order 
to provide interpretive guidance and, where appropriate, propose or 
adopt electronic performance standards consistent with E-SIGN. See 
Securities Act Release No. 7955 (Feb. 28, 2001) [66 FR 13273 (Mar. 
5, 2001)]. Accordingly, to the extent that E-SIGN affects any record 
retention requirements under the federal securities laws, E-SIGN 
took effect on June 1, 2001, instead of March 1, 2001.
    \11\ E-SIGN section 104(b)(3) [15 U.S.C. 7004(b)(3)].
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II. E-SIGN's Record Retention Provision

    Under E-SIGN, if a statute, regulation or other rule of law 
requires that a contract or other record relating to a transaction be 
retained, that requirement is met by retaining an electronic record of 
the information in the contract or other record if the electronic 
record
    <bullet> Accurately reflects the information set forth in the 
contract or other record; and
    <bullet> Remains accessible to all persons who are entitled to 
access by statute, regulation or rule of law, for the period required 
by such statute, regulation or rule of law, in a form that is capable 
of being accurately reproduced for later reference.\12\
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    \12\ E-SIGN section 101(d)(1) [15 U.S.C. 7001(d)(1)]. E-SIGN 
preserves our authority to interpret this provision. E-SIGN section 
104(b)(1) [15 U.S.C. 7004(b)(1)].
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    E-SIGN generally supersedes pre-existing regulatory agency 
requirements that a record be kept on paper if that record is generated 
in a business, consumer or commercial transaction.\13\ If, however, the 
record is generated

[[Page 33176]]

principally for governmental purposes, it is not subject to E-SIGN.\14\
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    \13\ See Office of Management and Budget, Memorandum for the 
Heads of Departments and Agencies from Jacob J. Lew, No. M-00-15, 
OMB Guidance on Implementing the Electronic Signatures in Global and 
National Commerce Act (Sept. 25, 2000), Part III, B.1 (``OMB 
Guidance'').
    \14\ Id. at Part I, B and Part III, B.1. The OMB Guidance 
provides two examples that illustrate this point. In the first 
example, E-SIGN applies to a governmental agency's requirement that 
a seller retain a copy of the contract of sale for a regulated 
substance for future audit or law enforcement purposes because the 
contract is generated as part of a commercial transaction. In the 
second example, E-SIGN does not apply to a governmental agency's 
requirement that a seller retain a copy of an audit of its 
consumption of the regulated substance because retention is not 
``related to'' a commercial transaction, but occurs to comply with a 
governmental requirement. See also 146 Cong. Rec. H4357 (daily ed. 
Jun. 14, 2000) (statement of Rep. Dingell).
    Records generated to comply with governmental requirements are 
subject to the Government Paperwork Elimination Act [Pub. L. No. 
105-277, Title XVII, Secs. 1701--1710 (1998) (codified at 44 U.S.C. 
3504)], which is effective October 21, 2003.
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III. Record Retention Requirements Imposed on Issuers Under the 
Securities Act, Exchange Act and Regulation S-T

    Several of our disclosure rules require issuers to retain records 
related to the documents filed with us or distributed to investors. Of 
principal concern to us is the provision in Regulation S-T that 
requires issuers to retain manually-signed signature pages or other 
documents that signatories must execute (``authentication documents'') 
to authenticate, acknowledge or otherwise adopt their signatures that 
appear in typed form within electronically filed documents.\15\ These 
authentication documents must be executed before or at the time an 
issuer makes an electronic filing. The filer must retain each 
authentication document for a period of five years and furnish it to us 
upon request. Comparable requirements exist under the Securities Act 
and the Exchange Act where typed, duplicated or facsimile signatures 
appear on a document that we permit issuers to file with us in paper 
form.\16\
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    \15\ See Item 302(b) of Regulation S-T [17 CFR 232.302(b)]. 
Since 1993, we have required most documents filed or otherwise 
submitted to us to be transmitted electronically to our Electronic 
Data Gathering, Analysis and Retrieval, or EDGAR, system. Regulation 
S-T, in conjunction with the EDGAR Filer Manual and the electronic 
filing provisions of applicable rules, regulations and forms, 
governs the electronic submission of documents filed or otherwise 
submitted to us via EDGAR. See Item 10(a) of Regulation S-T [17 CFR 
232.10(a)].
    \16\ See Securities Act Rule 402(e) [17 CFR 230.402(e)]; 
Securities Act Rule 471(b) [17 CFR 230.471(b)]; Exchange Act Rule 
12b-11(d) [17 CFR 240.12b-11(d)]; and Exchange Act Rule 14d-1(h) [17 
CFR 240.14d-1(h)]. A similar requirement is applicable to beneficial 
owners of more than ten percent of any class of equity securities 
registered under Section 12 of the Exchange Act [15 U.S.C. 78l], and 
the officers and directors of the issuer of such security who are 
subject to Section 16(a) of the Exchange Act [15 U.S.C. 78p(a)]. See 
Exchange Act Rule 16a-3(i) [17 CFR 240.16a-3(i)] (retention of 
manually-signed signature page for any Section 16(a) statement filed 
with a typed, duplicated or facsimile signature).
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    We believe that these requirements to retain authentication 
documents are not subject to E-SIGN because authentication documents 
are records generated principally for governmental purposes rather than 
in connection with a business, consumer or commercial transaction.\17\ 
Moreover, these authentication documents arise in the context of a 
governmental filing. Governmental filings are expressly excluded from 
E-SIGN.\18\ Accordingly, issuers subject to these retention 
requirements should continue to retain the paper original of all 
authentication documents.\19\
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    \17\ As explained in the adopting release for Regulation S-T, 
generally the authentication document retention requirement was 
established to provide a satisfactory means by which signatories 
could authenticate and adopt their typed signatures appearing on 
filed documents for evidentiary purposes. See Securities Act Release 
No. 6977, Section III.F.2 (Feb. 23, 1993) [58 FR 14628 (Mar. 18, 
1993)]. Subsequently, comparable changes were made to the signature 
requirements for paper filings under the Securities Act and Exchange 
Act. See Securities Act Release No. 7300, Section IV (May 31, 1996) 
[61 FR 30397 (June 14, 1996)].
    \18\ E-SIGN section 104(a) [15 U.S.C. 7004(a)].
    \19\ Similarly, officers, directors and greater than ten percent 
beneficial owners who are subject to Section 16(a) of the Exchange 
Act should continue to retain the paper original of their 
authentication documents. See Exchange Act Rule 16a-3(i) [17 CFR 
240.16a-3(i)].
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    Other rules under the Securities Act, Exchange Act and Regulation 
S-T that require issuers to retain records \20\ do not expressly 
require that the records be retained in paper form.\21\ Accordingly, 
issuers may elect to keep these records in electronic form as long as 
the storage method selected offers the same assurances of accuracy and 
accessibility as are provided by paper retention.
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    \20\ See, for example, Securities Act Rule 428(a)(2) [17 CFR 
230.428(a)(2)] (issuers filing registration statements on Form S-8 
[17 CFR 239.16b] required to retain documents comprising the Form S-
8 prospectus for a period of five years after last use) and Item 
405(b)(2)(ii) of Regulation S-K [17 CFR 229.405(b)(2)(ii)] (issuers 
that maintain for a period of two years the written representation 
of any reporting person under Section 16(a) of the Exchange Act [15 
U.S.C. 78p(a)] that they were not required to file an annual 
statement of beneficial ownership of securities on Form 5 [17 CFR 
249.105] for the issuer's most recently completed fiscal year not 
required to identify reporting person as having failed to file a 
Form 5 for that year).
    \21\ We note, however, that Item 304(c) of Regulation S-T [17 
CFR 232.304(c)] requires electronic filers to retain for a period of 
five years a copy of each publicly distributed document, in the 
format used, that contains graphic, image, audio or video material 
where such material is not included in the filed version of the 
document. Therefore, if graphic or image material is distributed to 
investors in paper, an issuer would have to retain the information 
in paper under the rule. We will not object, however, if issuers 
elect to keep graphic or image information in electronic form, so 
long as it is a form that replicates the appearance of the 
distributed document.
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    At this time, we do not believe that the specification of any 
additional standards \22\ for the electronic retention of issuer 
records subject to E-SIGN is needed to protect investors. If questions 
arise about the accuracy, integrity or accessibility of electronic 
records in the future, we may exercise our authority to impose 
appropriate standards for electronic retention.
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    \22\ E-SIGN permits us to establish performance standards to 
assure the accuracy, record integrity and accessibility of records 
that are required to be retained. See E-SIGN section 104(b)(3)(A) 
[15 U.S.C. 7004(b)(3)(A)].
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List of Subjects

17 CFR Parts 231 and 241

    Securities.

17 CFR Part 251

    Holding companies; Securities.

17 CFR Part 271

    Investment companies; Securities.

Amendments to the Code of Federal Regulations

    For the reasons set forth in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is amended as set forth below:

PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 
1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

    1. Part 231 is amended by adding Release No. 33-7985 and the 
release date of June 14, 2001, to the list of interpretive releases.

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

    2. Part 241 is amended by adding Release No. 34-44424 and the 
release date of June 14, 2001, to the list of interpretive releases.

PART 251--INTERPRETATIVE RELEASES RELATING TO THE PUBLIC UTILITY 
HOLDING COMPANY ACT OF 1935 AND GENERAL RULES AND REGULATIONS 
THEREUNDER

    3. Part 251 is amended by adding Release No. 35-27419 and the 
release date of June 14, 2001, to the list of interpretive releases.

[[Page 33177]]

PART 271--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

    4. Part 271 is amended by adding Release No. IC-25003 and the 
release date of June 14, 2001, to the list of interpretive releases.

    Dated: June 14, 2001.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-15455 Filed 6-20-01; 8:45 am]
BILLING CODE 8010-01-P