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common target tissues via diverse 

mechanisms of toxicity. Int. J. Androl. 

33:443–462. 

Sathyanarayana S, Calafat AM, Liu F, Swan 

SH. 2008a. Maternal and infant urinary 

phthalate metabolite concentrations: Are 

they related? Environ. Res. 108:413–418. 

Sathyanarayana S, Karr CJ, Lozano P, Brown 

E, Calafat AM, Liu F, et al. 2008b. Baby 

care products: Possible sources of infant 

phthalate exposure. Pediatrics 121:e260– 

268. 

Schutze A, Palmke C, Angerer J, Weiss T, 

Bruning T, Koch HM. 2012. 

Quantification of biomarkers of 

environmental exposure to 

di(isononyl)cyclohexane-1,2- 

dicarboxylate (DINCH®) in urine via 

hplc-ms/ms. J. Chromatogr. B. Analyt. 

Technol. Biomed. Life Sci. 895–896:123– 

130. 

Sexton K, Hattis D. 2007. Assessing 

cumulative health risks from exposure to 

environmental mixtures—three 

fundamental questions. Environmental 

Health Perspectives 115:825–832. 

Silva MJ, Furr J, Samandar E, Preau JL, Jr., 

Gray LE, Needham LL, et al. 2010. 

Urinary and serum metabolites of di-npentyl phthalate in rats. Chemosphere 

82:431–436. 

Skakkebaek NE., Rajpert-De Meyts E, Main 

KM. 2001. Testicular dysgenesis 

syndrome: An increasingly common 

developmental disorder with 

environmental aspects. Hum. Reprod. 

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M, Poulsen PB, Moller L, et al. 2009. 

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exposure of 2 year-olds to chemical 

substances in consumer products. 

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Environment. 

Versar/SRC. 2010a. Review of exposure and 

toxicity data for phthalate substitutes 

Versar, Inc., Springfield, VA 22151. 

Syracuse Research Corporation, North 

Syracuse, NY 13212. Prepared for the 

U.S. Consumer Product Safety 

Commission, Bethesda, MD 20814. 

January 2010. 

Versar/SRC. 2010b. Toxicity review of 

diisobutyl phthalate (DIBP). Versar, Inc., 

Springfield, VA 22151. Syracuse 

Research Corporation, North Syracuse, 

NY 13212. Prepared for the U.S. 

Consumer Product Safety Commission, 

Bethesda, MD 20814. October 2010. 

http://www.cpsc.gov/PageFiles/125773/

dibp.pdf 

Versar/SRC. 2010c. Toxicity review of 

diisooctyl phthalate (DIOP). Versar, Inc., 

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Syracuse, NY. May 2, 2010. Prepared for 

CPSC, contract number CPSC–D–06– 

0006. http://www.cpsc.gov/PageFiles/

125782/diop.pdf. 

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dicyclohexyl phthalate (DCHP). Versar, 

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Research Corporation, North Syracuse, 

NY 13212. Prepared for the U.S. 

Consumer Product Safety Commission, 

Bethesda, MD 20814. October 2010. 

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associated with reduced insl3 gene 

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Hungerbuhler K. 2006. What are the 

sources of exposure to eight frequently 

used phthalic acid esters in Europeans? 

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Temporal trends in phthalate exposures: 

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122:235–241. 

List of Subjects in 16 CFR Part 1307 

Consumer protection, Imports, Infants 

and children, Law enforcement, and 

Toys. 

For the reasons discussed in the 

preamble, the Commission proposes to 

amend Title 16 of the Code of Federal 

Regulations by adding part 1307 to read 

as follows: 

■ 1. Add Part 1307 to read as follows 

PART 1307—PROHIBITION OF 

CHILDREN’S TOYS AND CHILD CARE 

ARTICLES CONTAINING SPECIFIED 

PHTHALATES 

Sec. 

1307.1 Scope and application. 

1307.2 Definitions. 

1307.3 Prohibition on children’s toys and 

child care articles containing specified 

phthalates. 

Authority: The Consumer Product Safety 

Improvement Act of 2008, Pub. L. 110–314, 

Sec. 108, 122 Stat. 3016 (August 14, 2008); 

Pub. L. 112–28, 125 Stat. 273 (August 12, 

2011). 

§ 1307.1 Scope and application. 

This part prohibits the manufacture 

for sale, offer for sale, distribution in 

commerce or importation into the 

United States of any children’s toy or 

child care article containing any of the 

phthalates specified in § 1307.3. 

§ 1307.2 Definitions. 

The definitions of the Consumer 

Product Safety Act (CPSA) (15 U.S.C. 

2052)(a)) and the Consumer Product 

Safety Improvement Act of 2008 

(CPSIA) (Pub. L. 110–314, 108)(g)) apply 

to this part. Specifically, as defined in 

the CPSIA: 

(a) Children’s toy means a consumer 

product designed or intended by the 

manufacturer for a child 12 years of age 

or younger for use by the child when the 

child plays. 

(b) Child care article means a 

consumer product designed or intended 

by the manufacturer to facilitate sleep or 

the feeding of children age 3 and 

younger, or to help such children with 

sucking or teething. 

§ 1307.3 Prohibition of children’s toys and 

child care articles containing specified 

phthalates. 

(a) As provided in section 108(a) of 

the CPSIA, the manufacture for sale, 

offer for sale, distribution in commerce, 

or importation into the United States of 

any children’s toy or child care article 

that contains concentrations of more 

than 0.1 percent of di-(2-ethyhexyl) 

phthalate (DEHP), dibutyl phthalate 

(DBP), or benzyl butyl phthalate (BBP) 

is prohibited. 

(b) In accordance with section 

108(b)(3) of the CPSIA, the manufacture 

for sale, offer for sale, distribution in 

commerce, or importation into the 

United States of any children’s toy or 

child care article that contains 

concentrations of more than 0.1 percent 

of diisononyl phthalate (DINP), 

diisobutyl phthalate (DIBP), di-n-pentyl 

phthalate (DPENP), di-n-hexyl phthalate 

(DHEXP), or dicyclohexyl phthalate 

(DCHP) is prohibited. 

Dated: December 17, 2014. 

Alberta E. Mills, 

Acting Secretary, U.S. Consumer Product 

Safety Commission. 

[FR Doc. 2014–29967 Filed 12–29–14; 8:45 am] 

BILLING CODE 6355–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 230 and 240 

[Release No. 33–9693; 34–73876; File No. 

S7–12–14] 

RIN 3235–AL40 

Changes to Exchange Act Registration 

Requirements To Implement Title V 

and Title VI of the Jobs Act 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Proposed rule. 

SUMMARY: We are proposing 

amendments to our rules to implement 

Title V and Title VI of the Jumpstart Our 

Business Startups Act (the ‘‘JOBS Act’’). 

The proposed amendments would 


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78344 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 

1 17 CFR 240.3b–4. 

2 17 CFR 240.12g–1. 

3 17 CFR 240.12g–2. 

4 17 CFR 240.12g–3. 

5 17 CFR 240.12g–4. 

6 17 CFR 240.12g5–1. 

7 17 CFR 240.12h–3. 

8 15 U.S.C. 78a et seq. 

9 17 CFR 230.405. 

10 15 U.S.C. 77a et seq. 

11Public Law 112–106, 126 Stat. 325 (Apr. 5, 

2012). 

12 15 U.S.C. 78l(g). Congress enacted Section 12(g) 

in 1964 following the release of a study of the 

securities markets conducted by the staff of the 

Commission in the early 1960s, which was 

commissioned by Congress to serve as a basis for 

legislation. Report of Special Study of Securities 

Markets of the Securities and Exchange 

Commission, H.R. Doc. No. 88–95 (1963). Section 

12(g) was enacted to ‘‘improve investor protection 

by extending to the larger companies in the overthe-counter market the registration, reporting, proxy 

solicitation, and insider trading requirements . . . 

applicable to companies listed on an exchange.’’ 

Report of the Committee on Banking and Currency 

to Accompany, S.1642, S. Rep. No. 88–379 (1963) 

at 1. 

13See 15 U.S.C. 78l(g)(1). The Commission has 

the authority, under Section 12(h), to raise the asset 

threshold for Section 12(g) registration. 15 U.S.C. 

78l(h). The Commission raised the asset threshold 

for Section 12(g) registration from $1 million to $3 

million in 1982, $5 million in 1986 and $10 million 

in 1996. See System of Classification for Purposes 

of Exempting Smaller Issuers From Certain 

Reporting and Other Requirements, Release No. 34– 

18647 (Apr. 15, 1982) [47 FR 17046 (Apr. 21, 

1982)], Reporting by Small Issuers, Release No. 34– 

23406 (Jul. 8, 1986) [51 FR 25360 (Jul. 14, 1986)], 

and Relief From Reporting by Small Issuers, Release 

No. 34–37157 (May 1, 1996) [61 FR 21353 (May 9, 

1996)]. For the thresholds applicable to foreign 

private issuers, see infra note 84 and the discussion 

in the following text. 

14See 15 U.S.C. 78l(g)(4) and 17 CFR 240.12g– 

4(a). 

15 15 U.S.C. 78o(d). 

16The changes to Exchange Act Sections 12(g)(1), 

12(g)(4) and 15(d)(1) were effective upon enactment 

revise rules adopted under Section 12(g) 

of the Securities Exchange Act of 1934 

(the ‘‘Exchange Act’’) to reflect the new, 

higher thresholds for registration, 

termination of registration and 

suspension of reporting that were set 

forth in the JOBS Act. The proposed 

rules also would apply the thresholds 

specified for banks and bank holding 

companies to savings and loan holding 

companies. In addition, the proposed 

amendments would revise the definition 

of ‘‘held of record’’ in Exchange Act 

Rule 12g5–1, in accordance with the 

JOBS Act, to exclude certain securities 

held by persons who received them 

pursuant to employee compensation 

plans and establish a non-exclusive safe 

harbor for determining whether 

securities are ‘‘held of record’’ for 

purposes of registration under Exchange 

Act Section 12(g). 

DATES: Comments should be received on 

or before March 2, 2015. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/proposed.shtml); 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

12–14 on the subject line; or 

• Use the Federal eRulemaking Portal 

(http://www.regulations.gov). Follow the 

instructions for submitting comments. 

Paper Comments 

• Send paper comments to Brent J. 

Fields, Secretary, Securities and 

Exchange Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–12–14. This file number 

should be included on the subject line 

if email is used. To help us process and 

review your comments more efficiently, 

please use only one method. The 

Commission will post all comments on 

the Commission’s Internet Web site 

(http://www.sec.gov/rules/

proposed.shtml). Comments are also 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549–1090 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. All comments 

received will be posted without change; 

we do not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Steven G. Hearne, Senior Special 

Counsel, at (202) 551–3430, or Anne 

Krauskopf, Senior Special Counsel, at 

(202) 551–3500, Division of Corporation 

Finance, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: We are 

proposing amendments to Rules 3b–4,1

12g–1,2 12g–2,3 12g–3,4 12g–4,5 12g5– 

1,6 and 12h–3 7 under the Exchange 

Act 8 and an amendment to Rule 405 9

under the Securities Act of 1933 (the 

‘‘Securities Act’’).10

Table of Contents 

I. Introduction 

II. Proposed Amendments Relating to 

Exchange Act Reporting Thresholds 

A. Application of the Increased Thresholds 

for Registration and Reporting 

Obligations 

B. Increased Thresholds for Savings and 

Loan Holding Companies’ Registration 

and Reporting Obligations 

C. Application of the Increased Threshold 

for Accredited Investors 

III. Proposed Amendments to Exchange Act 

Rule 12g5–1 

A. Statutory Requirement and Definition of 

‘‘Employee Compensation Plan’’ 

B. Definition of ‘‘Held of Record’’ and NonExclusive Safe Harbor for Determining 

Holders of Record 

1. Definition of ‘‘Held of Record’’ 

2. Non-Exclusive Safe Harbor for 

Determining Holders of Record 

IV. General Request for Comment 

V. Economic Analysis 

A. Baseline 

B. Analysis of the Proposed Rules 

VI. Paperwork Reduction Act 

VII. Small Business Regulatory Enforcement 

Fairness Act 

VIII. Initial Regulatory Flexibility Act 

Analysis 

A. Reasons for, and Objectives of, the 

Proposed Action 

B. Small Entities Subject to the Proposed 

Rules 

C. Projected Reporting, Recordkeeping and 

Other Compliance Requirements 

D. Duplicative, Overlapping or Conflicting 

Federal Rules 

E. Significant Alternatives 

F. Solicitation of Comment 

IX. Statutory Authority and Text of Proposed 

Rule Amendments 

I. Introduction 

Prior to the enactment of the JOBS 

Act,11 Section 12(g) of the Exchange 

Act 12 required an issuer to register a 

class of its equity securities if, at the end 

of the issuer’s fiscal year, the securities 

were ‘‘held of record’’ by 500 or more 

persons and the issuer had total assets 

exceeding $1 million.13 Under Section 

12(g) and the Commission’s rules prior 

to the JOBS Act amendments, an issuer 

that had a class of equity securities 

registered under Section 12(g) was able 

to terminate that registration if the 

number of record holders of that class 

fell below 300, or the number of record 

holders of that class fell below 500 and 

the issuer’s assets were no more than 

$10 million at the end of each of its last 

three fiscal years.14

Exchange Act Section 15(d) 15

requires an issuer with an effective 

registration statement under the 

Securities Act to file the same reports as 

an issuer with a registered class of 

securities under Exchange Act Section 

12. Prior to the enactment of the JOBS 

Act, an issuer’s reporting obligation was 

automatically suspended under Section 

15(d)(1) if, on the first day of any fiscal 

year other than the year in which the 

registration statement became effective, 

there were fewer than 300 holders of 

record of the class of securities offered 

under the registration statement. 

The JOBS Act amended Sections 12(g) 

and 15(d) of the Exchange Act to adjust 

the thresholds for registration, 

termination of registration and 

suspension of reporting.16 Specifically, 


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Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 78345 

of the JOBS Act and do not require any Commission 

action. We are proposing amendments to our rules 

to reflect the new, higher thresholds provided by 

the JOBS Act in our rules and to implement the 

required safe harbor for securities received pursuant 

to employee compensation plans. 

17Public Law 112–106, Sec. 501, 126 Stat. 326 

(Apr. 5, 2012). 

18Public Law 112–106, Sec. 601, 126 Stat. 326 

(Apr. 5, 2012). 

19 12 U.S.C. 1841. 

20 15 U.S.C. 78o(d)(1). 

21Public Law 112–106, Sec. 502, 126 Stat. 326 

(Apr. 5, 2012). 

22 15 U.S.C. 78l(g)(5). 

23 15 U.S.C. 77e. 

24Public Law 112–106, Sec. 503, 126 Stat. 326 

(Apr. 5, 2012). 

25To facilitate public input on JOBS Act 

rulemaking before the issuance of rule proposals, 

the Commission invited members of the public to 

make their views known on various JOBS Act 

initiatives in advance of any rulemaking by 

submitting comment letters to the Commission’s 

Web site at http://www.sec.gov/spotlight/

jobsactcomments.shtml. Comment letters received 

to date on Title V of the JOBS Act are available at 

http://www.sec.gov/comments/jobs-title-v/jobs-titlev.shtml and on Title VI of the JOBS Act at 

http://www.sec.gov/comments/jobs-title-vi/jobstitle-vi.shtml. 

26See Section II.C. relating to the term 

‘‘accredited investor.’’ See also letters from Wilmer 

Hale (June 25, 2012), and Ledgewood, P.C. (Sept. 

12, 2012) on behalf of their respective clients, a real 

estate investment trust and a real estate limited 

partnership, requesting that the Commission use its 

exemptive authority to revise the holder of record 

threshold to treat non-bank issuers similarly to 

banks and bank holding companies. 

27Under Exchange Act Rule 12g–1, foreign 

private issuers may not rely on the exemption from 

registration provided in that rule if their securities 

are quoted on an automated inter-dealer quotation 

system. The NASDAQ Stock Market was the only 

Continued 

Section 501 of the JOBS Act 17 amended 

Section 12(g)(1) of the Exchange Act to 

require an issuer to register a class of 

equity securities (other than exempted 

securities) within 120 days after its 

fiscal year end if, on the last day of its 

fiscal year, the issuer has total assets of 

more than $10 million and the class of 

equity securities is ‘‘held of record’’ by 

either (i) 2,000 persons, or (ii) 500 

persons who are not accredited 

investors. Section 601 of the JOBS Act 18

further amended Exchange Act Section 

12(g)(1) to require an issuer that is a 

bank or a bank holding company, as 

defined in Section 2 of the Bank 

Holding Company Act of 1956,19 to 

register a class of equity securities (other 

than exempted securities) within 120 

days after the last day of its first fiscal 

year ended after the effective date of the 

JOBS Act if, on the last day of its fiscal 

year, the issuer has total assets of more 

than $10 million and the class of equity 

securities is ‘‘held of record’’ by 2,000 

or more persons. Section 601 of the 

JOBS Act also amended Exchange Act 

Section 12(g)(4) and Exchange Act 

Section 15(d)(1) 20 to enable an issuer 

that is a bank or a bank holding 

company to terminate the registration of 

a class of securities under Section 12(g) 

or suspend reporting under Section 

15(d)(1) if that class is held of record by 

less than 1,200 persons. For other 

issuers, the threshold in Section 12(g)(4) 

for termination of registration and in 

Section 15(d)(1) for suspension of 

reporting remains at 300. 

Section 502 of the JOBS Act 21

amended Exchange Act Section 

12(g)(5) 22 to exclude from the definition 

of ‘‘held of record,’’ for the purposes of 

determining whether an issuer is 

required to register a class of equity 

securities, securities that are held by 

persons who received them pursuant to 

an ‘‘employee compensation plan’’ in 

transactions exempted from the 

registration requirements of Section 5 of 

the Securities Act.23 Section 503 of the 

JOBS Act 24 instructed the Commission 

to revise the definition of ‘‘held of 

record’’ pursuant to Exchange Act 

Section 12(g)(5) to implement the 

amendment made by Section 502 of the 

JOBS Act, and to create a safe harbor for 

issuers when determining whether 

holders received their securities 

pursuant to an ‘‘employee compensation 

plan’’ in a transaction exempted from 

the registration requirements of Section 

5 of the Securities Act. 

We believe that the increased 

registration threshold established by the 

JOBS Act is intended to permit issuers 

to defer Exchange Act registration until 

issuers have a larger shareholder base. 

In connection with the amendments 

made by Title V and Title VI of the JOBS 

Act, we are proposing to amend our 

rules to reflect the new, higher 

registration, termination of registration 

and suspension of reporting thresholds 

under revised Exchange Act Sections 

12(g)(1), 12(g)(4) and 15(d)(1). We also 

are proposing to permit savings and 

loan holding companies to register, 

terminate registration and suspend 

reporting using the same thresholds that 

apply to banks and bank holding 

companies. Finally, we are proposing to 

amend Exchange Act Rule 12g5–1 to 

reflect the amendment to Exchange Act 

Section 12(g)(5) and establish a nonexclusive safe harbor that issuers may 

follow when determining if securities 

held by persons who received them 

pursuant to an employee compensation 

plan in transactions exempted from the 

registration requirements of Section 5 of 

the Securities Act may be excluded 

when calculating the number of the 

issuer’s holders of record when 

determining whether they are required 

to register under Exchange Act Section 

12(g)(1). 

After enactment of the JOBS Act, we 

sought comment from the public prior 

to the issuance of a proposing release. 

We have considered the pre-proposal 

comment letters received to date on 

Title V and Title VI of the JOBS Act, and 

we are requesting comment on various 

issues relating specifically to the 

proposed amendments.25 In this release, 

we are proposing rule amendments to 

implement and address issues 

specifically related to Title V and Title 

VI of the JOBS Act. We recognize that 

commenters have urged us to consider 

and propose additional amendments. 

For example, several commenters have 

recommended that the Commission 

make rule revisions related to the use of 

the term ‘‘accredited investor’’ or 

permitting other issuers to register, 

terminate registration and suspend 

reporting using the same thresholds that 

apply to banks and bank holding 

companies.26 We have considered the 

suggestions made by these commenters, 

but at this time we are not proposing 

amendments that extend substantially 

beyond reflecting the new statutory 

requirements. 

II. Proposed Amendments Relating to 

Exchange Act Reporting Thresholds 

A. Application of the Increased 

Thresholds for Registration and 

Reporting Obligations 

As a result of the JOBS Act changes 

to Exchange Act Sections 12(g)(1), 

12(g)(4) and 15(d), we are proposing 

changes to Exchange Act Rules 12g–1, 

12g–2, 12g–3, 12g–4 and 12h–3, which 

are the rules that govern the mechanics 

relating to registration, termination of 

registration under Section 12(g) and 

suspension of reporting obligations 

under Section 15(d). These rules 

currently reflect the prior holder of 

record statutory thresholds in Sections 

12(g) and 15(d). We are proposing to 

amend these rules to reflect the new 

thresholds set forth in the JOBS Act. 

Exchange Act Rule 12g–1 currently 

provides that an issuer shall be exempt 

from the registration requirements if, on 

the last day of its most recent fiscal year, 

it had total assets not exceeding $10 

million. JOBS Act Section 501 amended 

Section 12(g)(1) to expressly include the 

$10 million asset threshold. We are 

proposing to revise Rule 12g–1 to reflect 

the asset and holder of record 

thresholds established by Titles V and 

VI of the JOBS Act relating to the 

requirement to register a class of equity 

securities under the Exchange Act. The 

revision would additionally remove an 

outdated reference currently contained 

in the rule.27


tkelley on DSK3SPTVN1PROD with PROPOSALS
78346 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 

automated inter-dealer quotation system in 

existence when this provision was adopted and has 

subsequently registered as a securities exchange 

with the Commission. See In the Matter of the 

Application of the Nasdaq Stock Market LLC for 

Registration as a National Securities Exchange; 

Findings, Opinion and Order of the Commission, 

Release No. 34–53128 (Jan. 13, 2006) [71 FR 3550 

(Jan. 23, 2006)]. As a result, the reference to an 

automated inter-dealer quotation system is no 

longer necessary and we are proposing to remove 

it. 

28Section 12(g)(2)(A) [15 U.S.C. 78l(g)(2)(A)] 

provides an exemption from Section 12(g) 

registration while the class of securities is listed 

and registered on a national securities exchange 

under Exchange Act Section 12(b) [15 U.S.C. 

78l(b)]. Section 12(g)(2)(B) [15 U.S.C. 78l(g)(2)(B)] 

provides an exemption for securities issued by 

registered investment companies. 

29 17 CFR 249.323. 

30 15 U.S.C. 78m(a). 

31 15 U.S.C. 78j(a)(3). 

32The automatic statutory suspension of an 

issuer’s Section 15(d) reporting obligation also is 

not available as to any fiscal year in which the 

issuer’s Securities Act registration statement 

becomes effective or is required to be updated 

pursuant to Section 10(a)(3) of the Securities Act. 

33One commenter expressed support for a change 

permitting banks and bank holding companies to 

immediately suspend Section 13(a) reporting at the 

1,200-holder threshold upon filing Form 15, as is 

permitted for all issuers under current rules at the 

300-holder threshold. See letter from John Marshall 

Bank (Apr. 13, 2012). 

34 15 U.S.C. 78c(a)(6). Exchange Act Section 

3(a)(6) defines a ‘‘bank’’ to include Federal savings 

associations and any other banking institution or 

savings association, as defined in the Home 

Owners’ Loan Act. We read this definition to 

include savings and loan associations and other 

similar entities. 

As noted above, Section 601 of the 

JOBS Act amended Exchange Act 

Section 12(g)(4) to raise the threshold at 

which an issuer that is a bank or a bank 

holding company may terminate 

registration of a class of equity securities 

from 300 to 1,200 holders of record. 

Section 601 similarly amended 

Exchange Act Section 15(d)(1) by 

providing for an automatic suspension 

of the duty to file reports for a bank or 

bank holding company with respect to 

a class of equity security that is held of 

record by less than 1,200 persons at the 

beginning of its fiscal year, provided 

that the bank or bank holding company 

did not have a Securities Act 

registration statement that became 

effective during that year. 

As currently in effect, Exchange Act 

Rules 12g–2 and 12g–3 reflect the 

holders of record thresholds in the 

Exchange Act for terminating 

registration and suspending reporting 

that existed prior to the JOBS Act 

amendments and not the new 

thresholds for banks and bank holding 

companies. Specifically, 

• Rule 12g–2 addresses securities 

deemed to be registered pursuant to 

Section 12(g)(1) upon termination of the 

exemption pursuant to Section 

12(g)(2)(A) or (B) 28 and establishes a 

300-person threshold for such a class of 

securities to be registered under Section 

12(g). 

• Rule 12g–3 addresses the 300- 

person threshold for the registration of 

securities of successor issuers under 

Section 12(b) or Section 12(g). 

In addition, although the statutory 

provisions of Exchange Act Section 

12(g) and 15(d) do not suspend 

reporting obligations immediately when 

an issuer reaches the designated 

threshold, Exchange Act Rules 12g–4 

and 12h–3 permit issuers to 

immediately suspend their duty to file 

periodic and current reports. These 

rules, however, reflect the thresholds in 

Sections 12(g) and 15(d) prior to the 

JOBS Act amendments and not the new 

threshold for banks and bank holding 

companies. Specifically, 

• Rule 12g–4(a) provides that 

termination of registration under 

Section 12(g) shall take effect in 90 

days, or such shorter period as the 

Commission determines, after the issuer 

certifies on Form 15 29 that the class of 

securities is held by less than 300 

persons, or 500 persons where the total 

assets of the issuer have not exceeded 

$10 million on the last day of each of 

the preceding three years. 

• Rule 12g–4(b) provides that the 

duty to file current and periodic reports 

under Exchange Act Section 13(a) 30 for 

that class of securities is suspended 

immediately upon the filing of a 

certification on Form 15 provided that 

the issuer has less than 300 holders of 

record, or 500 holders of record where 

the issuer’s total assets have not 

exceeded $10 million on the last day of 

each of the preceding three years. 

• Rule 12h–3 provides that the duty 

to file current and periodic reports 

under Section 13(a) pursuant to Section 

15(d) for that class of securities is 

suspended immediately upon the filing 

of a certification on Form 15, provided 

that: 

Æ The issuer has less than 300 

holders of record or 500 holders of 

record where the issuer’s total assets 

have not exceeded $10 million on the 

last day of each of the preceding three 

years; 

Æ the issuer has filed its Section 13(a) 

reports for the most recent three 

completed fiscal years, and for the 

portion of the year immediately 

preceding the date of filing the Form 15 

or the period since the issuer became 

subject to the reporting obligation; and 

Æ a registration statement has not 

become effective or was required to be 

updated pursuant to Exchange Act 

Section 10(a)(3) 31 during the fiscal 

year.32

Because the new statutory threshold 

for banks and bank holding companies 

is not reflected in Rule 12g–4, banks and 

bank holding companies seeking to rely 

on the new 1,200-holder threshold may 

not rely on the existing procedural 

accommodations in the rule. As a result, 

the statute requires them to wait 90 days 

after filing a certification with the 

Commission that the number of holders 

of record is less than 1,200 persons to 

terminate their Section 12(g) registration 

and cease filing reports required by 

Section 13(a) rather than being able to 

suspend their Section 13(a) reporting 

obligations immediately upon the filing 

of a Form 15 in reliance on the rule. 

Similarly, banks and bank holding 

companies are not permitted to rely on 

Rule 12h–3 to immediately suspend 

their Section 15(d) reporting obligations 

using the new higher statutory threshold 

during a fiscal year. Rather, Section 

15(d)(1) provides that they may use the 

higher thresholds only when seeking to 

suspend a Section 15(d) obligation on 

the first day of a fiscal year. Similarly 

the new statutory threshold also is not 

reflected in current Rules 12g–2 and 

12g–3, leaving all issuers to refer to the 

lower 300-holder threshold under these 

rules. 

We are proposing to amend these 

rules to include the JOBS Act thresholds 

for banks and bank holding 

companies.33 The proposed changes 

would allow banks and bank holding 

companies to rely on the Commission’s 

rules to suspend reporting immediately, 

to avoid being deemed registered upon 

the termination of certain exemptions or 

as a successor issuer, and to terminate 

their registration during the fiscal year, 

at the higher 1,200-holder threshold. 

B. Increased Thresholds for Savings and 

Loan Holding Companies’ Registration 

and Reporting Obligations 

We are proposing to apply the same 

thresholds to savings and loan holding 

companies that apply to banks and bank 

holding companies. As noted above, 

banks and bank holding companies 

under Title VI of the JOBS Act are 

subject to a higher shareholder 

registration threshold for a class of 

equity security under Section 12(g)(1) of 

the Exchange Act, and a higher 

threshold for termination of registration 

under Section 12(g)(4) and for 

suspension of the duty to file reports 

under Section 15(d)(1). Section 3(a)(6) 

of the Exchange Act defines the term 

‘‘bank’’; 34 however, neither the 

Exchange Act nor the Commission’s 

rules define ‘‘bank holding company.’’ 


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35A savings and loan holding company is a 

company that controls savings associations or other 

savings and loan holding companies, similar to the 

way a bank holding company is a company that 

controls banks or other bank holding companies. 

Savings associations and banks are all depository 

institutions, and each one is regulated by the 

appropriate Federal banking agency. 12 U.S.C. 

1813(q). The definition of ‘‘appropriate Federal 

banking agency’’ provides which federal banking 

agency is the primary regulator for the various types 

of national, state and foreign banks and savings 

associations. 

36See letter from Independent Community 

Bankers of America (Apr. 16, 2012). 

37See, e.g., letters from American Bankers 

Association (Aug. 10, 2012); Community Bankers 

Association of Illinois (May 7, 2012); U.S. 

Representatives Himes and Womack (Nov. 29, 

2012); Wayne Savings Community Bank (Apr. 12, 

2012); U.S. Representative Stivers (May 4, 2012); 

and U.S. Representative Gibbs (Dec. 19, 2012). 

38See letter from American Bankers Association. 

39Savings and loan holding companies were 

identified by examining filings in the relevant 

Standard Industrial Classification codes. 

40The Board of Governors of the Federal Reserve 

System (the ‘‘Board of Governors’’) previously 

determined to exempt commercial savings and loan 

holding companies from its initial requirement that 

savings and loan holding companies generally 

submit the same reports as other banking entities 

regulated by the Board of Governors. See Agency 

Information Collection Activities Regarding Savings 

and Loan Holding Companies: Announcement of 

Board Approval Under Delegated Authority and 

Submission to OMB, (Dec. 23, 2011) [76 FR 81933 

(Dec. 29, 2011)]. There are six commercial savings 

and loan holding companies that are all exchangelisted issuers obligated to file, and would continue 

to be obligated to file, Exchange Act reports 

pursuant to Exchange Act Section 12(b) (15 U.S.C. 

78l(b)). For ease of application and due to the 

limited effect on, and small number of, such 

issuers, we are not proposing to differentiate 

between commercial saving and loan holding 

companies and other savings and loan holding 

companies for purposes of this rulemaking. 

41See id. Title III of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (Pub. L. 111– 

203, 124 Stat. 1376) (the ‘‘Dodd-Frank Act’’) 

abolished the Office of Thrift Supervision, the 

regulator that formerly supervised savings and loan 

holding companies, and transferred its authorities 

(including rulemaking) related to savings and loan 

holding companies to the Board of Governors. The 

Board of Governors assumed supervisory 

responsibility for savings and loan holding 

companies and their non-depository subsidiaries 

beginning on July 21, 2011. The Board of Governors 

is responsible for the consolidated supervision of 

bank holding companies and savings and loan 

holding companies and requires those entities to 

provide data relating to capitalization, liquidity, 

and risk management as well as periodic financial 

reports in order for the Board of Governors to 

analyze the overall financial condition of those 

entities to ensure safe and sound operations. These 

reports include, among others, quarterly 

Consolidated Financial Statements for Bank 

Holding Companies (FR Y–9C) and an Annual 

Report of Bank Holding Companies (FR Y–6). 

42Under our proposal ‘‘savings and loan holding 

company’’ would be defined pursuant to Section 10 

of the Home Owners’ Loan Act. 12 U.S.C. 1461. 43The statutory amendment was effective upon 

enactment of the JOBS Act and does not require any 

Commission action. While this change primarily 

affects issuers that have never had a reporting 

obligation under the Exchange Act, issuers that 

have filed a Securities Act registration statement 

that became effective but have not triggered an 

Exchange Act Section 12(g) registration requirement 

and issuers that have terminated registration or 

suspended their reporting obligation will need to 

monitor the accredited investor status of their 

investors as of the last day of each fiscal year. 

Section 2 of the Bank Holding Company 

Act of 1956 specifically excludes 

‘‘savings and loan holding companies’’ 

from the definition of bank holding 

company.35 Thus, while banks, savings 

associations and bank holding 

companies are covered by Title VI of the 

JOBS Act, savings and loan holding 

companies are not. 

A commenter representing 

community banks asserted that savings 

and loan holding companies should be 

covered by Title VI of the JOBS Act.36

Other commenters from the banking 

industry and Congress have also 

requested that savings and loan holding 

companies be treated similarly to bank 

holding companies for purposes of the 

registration, termination of registration 

and suspension of reporting provisions 

of the Exchange Act.37 One commenter 

acknowledged that the JOBS Act did not 

‘‘expressly extend its new threshold for 

termination of registration to savings 

and loan holding companies,’’ but 

suggested that correction of that 

omission would be ‘‘entirely consistent 

with the intent and purpose of the JOBS 

Act.’’ 38

Based on a review of reporting 

issuers, we estimate that approximately 

125 savings and loan holding companies 

were reporting issuers as of June 30, 

2014, most of which are registered 

pursuant to Section 12(b).39

Approximately 90 of these companies 

reported fewer than 1,200 holders of 

record and would be eligible to 

terminate registration under the 

proposed threshold.40 These savings 

and loan holding companies, however, 

are subject to regulation by the Board of 

Governors and are generally required to 

submit the same reports to banking 

regulators as other banking entities 

regulated by the Board of Governors, 

including banks and bank holding 

companies covered by Title VI of the 

JOBS Act.41

As noted above, the increased 

thresholds provided by the JOBS Act for 

registration, termination of registration 

and suspension of reporting for banks 

and bank holding companies do not 

apply to savings and loan holding 

companies. This creates inconsistent 

treatment among depository 

institutions, resulting in different 

registration requirements for savings 

and loan holding companies that 

otherwise provide services similar to 

those provided by banks and bank 

holding companies and are generally 

subject to similar bank regulatory and 

supervision requirements. We have 

received comments in support of 

treating savings and loan holding 

companies the same as banks and bank 

holding companies with regard to the 

increased thresholds. 

We are proposing to revise our rules 

so that savings and loan holding 

companies are treated in a similar 

manner to banks and bank holding 

companies for the purposes of 

registration, termination of registration 

or suspension of their Exchange Act 

reporting obligations. Unlike for bank 

holding companies, which are able to 

rely on the JOBS Act statutory changes, 

the revised rules would be the sole basis 

on which savings and loan holding 

companies could rely when making 

those determinations. We are proposing 

to apply the new higher thresholds 

applicable to banks and bank holding 

companies to savings and loan holding 

companies 42 because we believe the 

regulatory oversight applicable to 

savings and loan holding companies is 

substantially similar to the regulatory 

oversight for bank holding companies. 

We believe these companies should be 

treated consistently with other 

depository institutions under our rules. 

We are therefore proposing to amend 

Exchange Act Rule 12g–1 to establish an 

exemption for savings and loan holding 

companies from the registration 

requirement that mirrors the exemption 

for banks and bank holding companies 

established by the JOBS Act. In 

addition, we are proposing to revise 

Exchange Act Rules 12g–2, 12g–3, 12g– 

4 and 12h–3 to permit savings and loan 

holding companies to immediately 

suspend current and periodic reporting 

upon filing Form 15 at the 1,200-holder 

threshold in the same manner as banks 

and bank holding companies. 

C. Application of the Increased 

Threshold for Accredited Investors 

Section 501 of the JOBS Act amended 

Exchange Act Section 12(g)(1) to 

increase the threshold that triggers 

registration by an issuer other than a 

bank or bank holding company to total 

assets exceeding $10 million and a class 

of equity security (other than an 

exempted security) held of record by 

either 2,000 persons or 500 persons who 

are not accredited investors (as such 

term is defined by the Commission).43 A 

number of commenters pointed to 

potential compliance concerns with 

respect to identifying accredited 

investors and recommended ways to 

facilitate issuers’ use of the increased 

threshold for holders of record that are 

accredited investors. Some commenters 

recommended that the Commission 

confirm that the term ‘‘accredited 


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44 17 CFR 230.501(a). 

45See letters from New York City Bar Association 

(June 6, 2012) (‘‘NYCBA’’) and the Business Law 

Section of the American Bar Association (June 26, 

2013) (‘‘ABA’’). The ABA letter further requested 

that the Commission provide guidance on the type 

of information upon which issuers may rely and 

specifically recommended that the Commission not 

require issuers to take reasonable steps to verify 

accredited investor status. 

46See letter from ABA. 

47See letters from Foley & Lardner (May 24, 2012) 

and NYCBA. Foley & Lardner recommended 

allowing reliance on information obtained at the 

time the issuer’s securities were initially issued, or, 

in the alternative, when the securities were most 

recently issued, when making the determination of 

whether the holders are accredited for purposes of 

counting holders under Section 12(g). NYCBA 

recommended that the Commission expressly 

permit an issuer ‘‘to rely on any determination of 

‘accredited investor’ status made in connection 

with the issuer’s most recent sale of securities to the 

relevant investor, or the most recent transfer to the 

investor in connection with which the issuer 

actually determined that the investor was 

‘accredited.’ ’’ Other commenters also supported 

permitting issuers to rely on information previously 

provided if an investor fails to provide the issuer 

with updated information. See letters from ABA 

and Keith Paul Bishop (June 13, 2012). 

48See letter from ABA. ABA suggested that the 

rule should provide some flexibility on the timing 

of the determination. This would permit issuers to 

rely on information available to them at the time 

they made a judgment regarding accredited investor 

status, rather than requiring issuers to update the 

information as of the end of the fiscal year. See also 

letter from NYCBA recommending that the 

Commission adopt rules open to the possibility that 

limited access trading venues may be able to treat 

all participants as accredited investors. One 

commenter recommended that the Commission 

require issuers to determine accredited investor 

status as of the last day of each fiscal year. See letter 

from Keith Paul Bishop. 

49Under Securities Act Rule 501(a) the categories 

of accredited investor include: A bank, insurance 

company, registered investment company, business 

development company, or small business 

investment company; an employee benefit plan 

(within the meaning of the Employee Retirement 

Income Security Act) if a bank, insurance company, 

or registered investment adviser makes the 

investment decisions, or if the plan has total assets 

in excess of $5 million; a tax exempt charitable 

organization, corporation or partnership with assets 

in excess of $5 million; a director, executive officer, 

or general partner of the company selling the 

securities; an enterprise in which all the equity 

owners are accredited investors; an individual with 

a net worth of at least $1 million, not including the 

value of his or her primary residence; an individual 

with income exceeding $200,000 in each of the two 

most recent calendar years or joint income with a 

spouse exceeding $300,000 for those years and a 

reasonable expectation of the same income level in 

the current year; and a trust with assets of at least 

$5 million, not formed only to acquire the securities 

offered, and whose purchases are directed by a 

person who meets the legal standard of having 

sufficient knowledge and experience in financial 

and business matters to be capable of evaluating the 

merits and risks of the prospective investment. 

50We have already requested comment on this 

definition. See Amendments to Regulation D, Form 

D and Rule 156, Release No. 33–9416 (Jul. 10, 2013) 

[78 FR 44806 (Jul. 24, 2013)]. 

51Although the term ‘‘accredited investor’’ is also 

defined in Securities Act Rule 215 [17 CFR 230.215] 

for the purpose of the statutory exemption from 

registration under Section 4(a)(5) [15 U.S.C. 

78d(a)(5)], the definition of ‘‘accredited investor’’ 

contained in Securities Act Rule 501(a) of 

Regulation D is the more commonly understood 

meaning of the term, given the prevalence of the use 

of Regulation D for exempt offerings. 

52Securities Act Rule 501(a) otherwise defines 

‘‘accredited investor’’ as being determined at the 

time of the sale of the securities. 

53See supra note 47. 54The procedures used in a Rule 506 offering may 

vary depending on a number of factors, including 

the nature of the purchaser and whether the offering 

is pursuant to Rule 506(b) or Rule 506(c). Rule 

506(c) requires an issuer to take reasonable steps to 

verify that purchasers of securities sold in such 

offering are accredited investors. As we previously 

recognized when we adopted Rule 506(c), ‘‘issuers 

may have to apply a stricter and more costly 

process to determine accredited investor status than 

what they currently use.’’ See Eliminating the 

Prohibition Against General Solicitation and 

General Advertising in Rule 506 and Rule 144A 

Offerings, Release No. 33–9415 (Jul. 10, 2013) [78 

FR 44771 (Jul. 24, 2013)]. 

investor’’ as used in this provision of 

the JOBS Act has the same meaning as 

set forth in Securities Act Rule 501(a) 44

of Regulation D.45 One commenter 

further recommended that the 

Commission permit an issuer to rely on 

an annual affirmation from investors 

that their accredited investor status has 

not changed.46 Other commenters 

recommended that the Commission 

provide guidance or a safe harbor to 

allow issuers to rely on an ongoing basis 

on information previously obtained 

about a shareholder’s accredited 

investor status.47 Commenters also 

recommended that the Commission 

provide additional flexibility by, for 

example, permitting issuers to rely on 

the determinations made by certain 

third parties, such as financial 

intermediaries, or permitting 

determinations during a reasonable 

period before or after the fiscal year 

end.48

To rely on the new, higher threshold 

established by the JOBS Act, an issuer 

will need to be able to determine which 

of its record holders are accredited 

investors. We are not proposing to 

establish a new definition of ‘‘accredited 

investor’’ for the purposes of Section 

12(g)(1). Securities Act Rule 501(a) 

contains a definition of ‘‘accredited 

investor’’ that includes any person who 

comes within, or who the issuer 

reasonably believes comes within, any 

of eight enumerated categories.49

Section 413(b) of the Dodd-Frank Act 

specifically requires the Commission to 

undertake a review of the ‘‘accredited 

investor’’ definition in its entirety, as it 

relates to natural persons, every four 

years and no earlier than July 10, 

2014.50

We are proposing that the definition 

of ‘‘accredited investor’’ in Securities 

Act Rule 501(a) apply in making 

determinations under Exchange Act 

Section 12(g)(1).51 The ‘‘accredited 

investor’’ determination would be made 

as of the last day of the fiscal year rather 

than at the time of the sale of the 

securities.52 Issuers conducting 

offerings in reliance on an exemption 

from Securities Act registration in 

which purchasers must be accredited 

investors typically take appropriate 

steps to establish a reasonable belief that 

a prospective investor is an accredited 

investor. This reasonable belief is based 

on an issuer’s due diligence and 

depends on the particular facts and 

circumstances surrounding the 

determination. We believe applying the 

familiar concepts of the accredited 

investor definition in Rule 501(a) to the 

registration threshold in Section 12(g)(1) 

would facilitate compliance for issuers. 

After an issuer completes its offering 

and has sold securities to purchasers 

who have been determined to be 

accredited investors, it is not required to 

periodically assess an investor’s 

continued status as an accredited 

investor. We recognize that issuers may 

have difficulty determining whether 

existing security holders are accredited 

investors for purposes of the threshold 

in Section 12(g)(1) and that providing a 

safe harbor or other guidance could help 

to mitigate costs for issuers seeking to 

determine accredited investor status. 

Some commenters have suggested that 

we permit issuers to rely on information 

previously provided by these security 

holders in connection with the purchase 

or transfer of securities for an indefinite 

period into the future.53 We believe 

such reliance could, however, result in 

the use of outdated information that 

may no longer be reliable. Instead, an 

issuer will need to determine, based on 

facts and circumstances, whether it can 

rely upon prior information to form a 

reasonable basis for believing that the 

security holder continues to be an 

accredited investor as of the last day of 

the fiscal year. 

Without new guidance from the 

Commission, when making the 

determination at fiscal year-end of 

whether a security holder is an 

accredited investor for purposes of 

Exchange Act Section 12(g)(1), issuers 

would likely use procedures similar to 

those used when relying on Rule 506.54

We recognize that the accredited 

investor determination under the 

Securities Act is made in the context of 

an investor making an investment 

decision, while in the Exchange Act 

context it is made when an issuer is 

considering whether it must register a 

class of securities with the Commission. 

In light of this, we are considering 

whether a different approach would be 

appropriate for determining accredited 


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55See supra note 40. 

investor status under Section 12(g) and 

solicit comment on the appropriate 

structure and criteria for such an 

approach below. 

Request for Comment 

1. We are proposing to revise Rule 

12g–1 to reflect changes made by Titles 

V and VI of the JOBS Act. Should we 

include the requirements of Section 

12(g)(1) in our rules as proposed? 

Should we delete the provision in the 

current Rule 12g–1 that precludes 

foreign private issuers from relying on 

the exemption from registration if their 

securities are quoted on an automated 

inter-dealer quotation system, as 

proposed? 

2. The higher registration and 

reporting thresholds could result in 

issuers having a significant number of 

shareholders with freely tradable shares 

who lack current disclosure information 

about the issuer. How would investors 

get the information they need in 

connection with purchases and sales? 

What investor protection issues are 

raised when these security holders 

engage in secondary market transactions 

and how might they be addressed? 

3. Should we extend the new 

registration, termination of registration 

and suspension of reporting thresholds 

for banks and bank holding companies 

to savings and loan holding companies, 

as proposed? We are proposing to use 

the definition of ‘‘savings and loan 

holding company’’ as defined in Section 

10 of the Home Owners’ Loan Act. Does 

the proposed definition cover the 

appropriate entities? If not, what 

definition should be used? 

4. We are proposing to permit savings 

and loan holding companies to use the 

higher thresholds equivalent to those 

available to banks and bank holding 

companies. Are there facts and 

circumstances, other than those 

discussed above, that we should 

consider in evaluating whether to 

provide those higher thresholds? How 

would using different thresholds for 

savings and loan holding companies 

impact market participants and 

investors? What effect would different 

thresholds have on competition between 

savings and loan holding companies 

and other depository institutions, such 

as banks and bank holding companies? 

5. The population of savings and loan 

holding companies includes commercial 

savings and loan holding companies 

that the Board of Governors exempted 

from its initial requirement that savings 

and loan holding companies generally 

submit the same reports as other 

banking entities regulated by the Board 

of Governors.55 These commercial 

savings and loan holding companies are 

all exchange-listed issuers that are 

currently registered and required to file 

reports under Section 12(b) of the 

Exchange Act. Should these companies 

be permitted to rely on the higher 

thresholds applicable to banks and bank 

holding companies? Should we instead 

carve out such savings and loan holding 

companies or provide other limitations 

for these companies? 

6. Some commenters have 

recommended that we provide a safe 

harbor or other guidance to provide 

issuers with more certainty on how to 

establish a reasonable belief that a 

security holder is an accredited investor 

and therefore qualifies under the 

definition. Are there circumstances in 

the determination required to be made 

under Section 12(g) that suggest the 

need for a safe harbor or guidance, and 

if so, is one preferable over the other? 

What should be the parameters of any 

safe harbor or guidance? Should a safe 

harbor or other guidance specify the 

methods of inquiry an issuer could 

make or the documents it should obtain 

that would establish a reasonable belief? 

What methods or standards should we 

adopt and what steps should we require 

in making the determination? What 

negative effects on investors, if any, 

could result from providing a safe 

harbor or other guidance? Absent a safe 

harbor or other guidance, what burdens 

would the issuer face in establishing 

reasonable belief that a security holder 

is an accredited investor and in making 

the determination as to whether it has 

exceeded the Section 12(g) thresholds 

for Exchange Act reporting? Please 

quantify, if possible, the expected costs 

of establishing a reasonable belief every 

year for each accredited investor and 

compare the expected costs to the 

estimated costs of registration. 

7. If the rules were to include a safe 

harbor or other guidance, should we 

permit an issuer to form its reasonable 

belief that a person is an accredited 

investor based on determinations made 

by specified third parties? For example, 

in Securities Act Rule 506(c)(2)(ii)(C) we 

allow issuers to rely on a written 

confirmation by a registered brokerdealer, a registered investment adviser, 

a licensed attorney, or a certified public 

accountant to satisfy the requirement 

that the issuer take reasonable steps to 

verify the accredited investor status of a 

purchaser. Should a similar written 

confirmation be sufficient here? Should 

we permit written confirmations from 

other third parties not subject to 

regulatory oversight? Why or why not? 

If we permit written confirmations from 

third parties that are not subject to 

regulatory oversight such as those found 

in Rule 506(c)(2)(ii)(C), should we 

require issuers to perform some level of 

due diligence on the accredited investor 

determinations made by those third 

parties or on the third parties making 

those determinations? Would the 

answer depend on the nature of the 

third party? Alternatively, should we 

permit an issuer to rely on a written 

certification by the investor, on other 

specified information obtained by the 

issuer, or on a combination of a 

certification and other information? 

What information, other than a written 

investor certification, would it be 

appropriate to require? Would the 

answer depend on whether an issuer 

had determined at the time of the initial 

investment that the investor was an 

accredited investor? For what period of 

time should that determination be 

considered reliable? Should the safe 

harbor or other guidance specify that 

determinations made a specified period 

before or after the fiscal year end would 

be deemed to be reasonable? If so, what 

would be a reasonable time period for 

making such determination? What 

documentation, if any, should be 

retained by the issuer? 

8. For purposes of any safe harbor or 

other guidance, should we permit an 

issuer to rely on previously obtained 

information relating to the person’s 

accredited investor status, such as 

information obtained at the time the 

issuer’s securities were initially, or most 

recently, sold to that person? Should 

such a provision be limited to situations 

in which the issuer does not have 

information that would lead it to believe 

that the previously obtained information 

was incorrect, unreliable or had 

changed? Should we place a time limit 

on the permitted use of previously 

obtained information, such as only 

permitting the use of information 

received within the preceding six 

months or year? Should an issuer be 

able to rely on information previously 

obtained if the security holder failed to 

respond to an issuer’s request for an 

annual affirmation of accredited 

investor status? 

III. Proposed Amendments to Exchange 

Act Rule 12g5–1 

A. Statutory Requirement and Definition 

of ‘‘Employee Compensation Plan’’ 

Exchange Act Section 12(g)(5), as 

amended by Section 502 of the JOBS 

Act, provides that the definition of 

‘‘held of record’’ shall not include 

securities held by persons who received 

them pursuant to an ‘‘employee 


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56The statutory exclusion in Section 12(g)(5) 

specifically refers to Exchange Act Section 12(g)(1), 

which relates to when an issuer must register its 

securities with the Commission. 

57Exchange Act Rule 12h–1(f) [17 CFR 240.12h– 

1(f)] provides non-reporting issuers with an 

exemption from Section 12(g) registration for stock 

options issued under written compensatory stock 

option plans under certain conditions. Exchange 

Act Rule 12h–1(g) [17 CFR 240.12h–1(g)] provides 

a similar exemption for stock options for reporting 

issuers that are required to file such periodic 

reports. The exemptions provide specific eligibility 

requirements and are limited to options issued 

pursuant to a written compensatory stock option 

plan. See Exemption of Compensatory Stock 

Options from Registration Under Section 12(g) of 

the Securities Exchange Act of 1934, Release No. 

34–56887 (Dec. 3, 2007) [72 FR 69554 (Dec. 7, 

2007)] (the ‘‘Compensatory Stock Options 

Release’’). 

58See Proposed Rule 12g5–1(a)(7). 

59See letter from Foley & Lardner recommending 

a broad definition of ‘‘employee compensation 

plan’’ that would include arrangements that are not 

written. See also letter from Keith Paul Bishop 

recommending a broad definition of ‘‘employee 

compensation plan.’’ 

60See letter from NYCBA. For a more detailed 

explanation of Securities Act Rule 701, see infra 

notes 66 and 72. 

61See letter from ABA. ABA indicated that ‘‘it is 

important that the concept of ‘employee 

compensation plan’ encompass both traditional 

plans and individual compensatory agreements and 

include compensatory arrangements established by 

the various entities related to the issuer enumerated 

in Rule 701(c).’’ 

62See id. 

63See id. 

64See id., indicating that state corporate law 

generally requires some documentation of 

authorized issuances of equity securities. This 

recommendation contrasts with recommendations 

of other commenters suggesting that the term 

‘‘employee compensation plan’’ should not be read 

to require a written arrangement. See supra note 59. 

65See, e.g., letter from David C. Fisher (June 13, 

2012), recommending that ‘‘securities acquired in 

an issuer-sponsored internal market, limited to 

transactions in securities received pursuant to the 

issuer’s employee compensation plans, will be 

considered securities received pursuant to an 

employee compensation plan.’’ See also letter from 

NYCBA suggesting that ‘‘ ‘closed system’ platforms 

and trading venues’’ may be able to afford issuers 

a reasonable basis to determine that participants are 

excludable employees. 

66 In 1988, the Commission adopted Securities 

Act Rule 701 [17 CFR 230.701] to provide an 

exemption from Securities Act registration for offers 

and sales of securities made pursuant to 

compensatory benefit plans by issuers that are not 

subject to the reporting requirements of Section 13 

or 15(d) of the Exchange Act. See Compensatory 

Benefit Plans and Contracts, Release No. 33–6768 

(Apr. 14, 1988) [53 FR 12918 (Apr. 20, 1988)] (the 

‘‘Rule 701 Adopting Release’’). 

67See Rule 701—Exempt Offerings Pursuant to 

Compensatory Arrangements, Release No. 33–7645 

(Feb. 25, 1999) [64 FR 11095 (Mar. 8, 1999)] (the 

‘‘1999 Rule 701 Release’’), and Registration of 

Securities on Form S–8, Release No. 33–7646 (Feb. 

25, 1999) [64 FR 11103 (Mar. 8, 1999)] (the ‘‘1999 

Form S–8 Release’’). 

68Securities Act Rule 405 defines an ‘‘employee 

benefit plan’’ as any written purchase, savings, 

option, bonus, appreciation, profit sharing, thrift, 

incentive, pension or similar plan or written 

compensation contract solely for employees, 

directors, general partners, trustees (where the 

compensation plan’’ in transactions 

exempted from the registration 

requirements of Section 5 of the 

Securities Act. By its express terms, this 

new statutory exclusion applies solely 

for purposes of determining whether an 

issuer is required to register a class of 

equity securities under the Exchange 

Act and does not apply to a 

determination of whether such 

registration may be terminated or 

suspended.56 The provision, which is 

substantially broader than the 

Commission’s current rules exempting 

compensatory employee stock options 

from Section 12(g) registration,57 does 

not define the term ‘‘employee 

compensation plan.’’ 

Section 503 of the JOBS Act instructs 

the Commission to amend the definition 

of ‘‘held of record’’ to implement the 

amendment in Section 502 and to adopt 

a safe harbor that issuers can use when 

determining whether holders of their 

securities received them pursuant to an 

employee compensation plan in exempt 

transactions. We are proposing to 

amend Exchange Act Rule 12g5–1 to 

implement the statutory exclusion 

created by Section 502 of the JOBS Act 

and to establish a non-exclusive safe 

harbor for issuers as directed by Section 

503.58

Subsequent to the adoption of the 

JOBS Act, a number of commenters 

provided recommendations to the 

Commission as to how ‘‘employee 

compensation plan’’ should be defined. 

Some commenters recommended that 

the Commission interpret the term 

broadly to promote the use of employee 

equity issuances.59 One commenter 

indicated that ‘‘linking the scope of Rule 

701 and amended Section 12(g)(5) 

makes sense, in light of the apparent 

purpose of the latter provisions, and 

will avoid needless complexity.’’ 60

Another commenter recommended that 

the Commission establish a nonexclusive safe harbor without 

recommending a specific definition for 

‘‘employee compensation plan.’’ 61 This 

commenter suggested that ‘‘application 

in a Section 12(g) context of the familiar 

concepts applied in connection with the 

exempt issuance of compensatory equity 

securities under Rule 701 will facilitate 

compliance by streamlining a smaller 

issuer’s learning curve and simplifying 

recordkeeping.’’ 62 In addition, this 

commenter specifically recommended 

that the safe harbor ‘‘explicitly import 

the interpretation of Rule 701(c)’’ in 

order to incorporate ‘‘the full range of 

compensatory arrangements and 

security holders described in Rule 

701(c) under the Securities Act’’ and 

that it ‘‘should cover equity securities in 

the hands of the full range of 

participants and permitted transferees 

enumerated in Rule 701(c).’’ 63 This 

commenter also indicated that ‘‘the 

requirement of a written arrangement is 

reasonable in the Section 12(g)(5) 

context, as well as for Rule 701.’’ 64

Commenters also made specific 

recommendations regarding additional 

securities that should be considered 

‘‘securities received pursuant to an 

employee compensation plan.’’ 65

Instead of creating a new definition 

for the term ‘‘employee compensation 

plan,’’ we are proposing to revise the 

definition of ‘‘held of record’’ and 

establish a non-exclusive safe harbor 

that relies on the current definition of 

‘‘compensatory benefit plan’’ in Rule 

701 and the conditions in Rule 701(c).66

Although some commenters 

recommended that we create a new, 

broad definition, we believe that by not 

defining the term ‘‘employee 

compensation plan,’’ and by providing 

for a non-exclusive safe harbor, we are 

providing issuers with flexibility in 

their determination under Section 

12(g)(5). We concur with some 

commenters who recommended 

applying the Rule 701 concepts that 

issuers already employ for exempt 

issuances, and propose to use those 

concepts as part of the non-exclusive 

safe harbor. We further believe that 

developing a new definition for 

‘‘employee compensation plan’’ at this 

time potentially could result in needless 

complexity and create conflicts with the 

current definitions of ‘‘compensatory 

benefit plan’’ and ‘‘employee benefit 

plan,’’ which the Commission has 

sought to harmonize.67

By conditioning the new exclusion 

from ‘‘held of record’’ upon the 

securities being received pursuant to an 

employee compensation plan in 

transactions exempted from the 

registration requirements of Section 5 of 

the Securities Act, Section 502 of the 

JOBS Act uses Securities Act concepts 

to identify persons that an issuer may 

exclude from its determination of the 

number of holders of record under 

Section 12(g)(1) of the Exchange Act. 

Given this express interaction between 

Securities Act and Exchange Act 

concepts in this provision of the JOBS 

Act, we believe that it would facilitate 

compliance if the terminology we use in 

proposed Exchange Act Rule 12g5– 

1(a)(7) is consistent with the 

terminology used in our Securities Act 

rules. 

In regulating securities offerings to 

employees, we use the term ‘‘employee 

benefit plan,’’ as defined in Securities 

Act Rule 405,68 for Securities Act Form 


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registrant is a business trust), officers, or 

consultants or advisors. However, consultants or 

advisors may participate in an employee benefit 

plan only if: (1) They are natural persons; (2) They 

provide bona fide services to the registrant; and (3) 

The services are not in connection with the offer or 

sale of securities in a capital-raising transaction, 

and do not directly or indirectly promote or 

maintain a market for the registrant’s securities. 

69The Commission permits issuers that are 

subject to Exchange Act reporting requirements to 

register the offer and sale of securities to employees 

pursuant to employee benefit plans on Form S–8. 

This form provides for abbreviated disclosure and 

automatic effectiveness upon filing. See Adoption 

of Form S–8, Release No. 33–3480 (June 16, 1953) 

[18 FR 3688 (June 27, 1953)]. See also Registration 

and Reporting Requirements for Employee Benefit 

Plans, Release No. 33–6867 (June 6, 1990) [55 FR 

23909 (June 13, 1990)] (the ‘‘1990 Form S–8 

Release’’). 

70 17 CFR 230.701(c)(2). 

71See the Rule 701 Adopting Release. 

72Securities Act Rule 701(c) exempts offers and 

sales of securities (including plan interests and 

guarantees pursuant to paragraph (d)(2)(ii)) under a 

written compensatory benefit plan (or written 

compensation contract) established by the issuer, its 

parents, its majority-owned subsidiaries or 

majority-owned subsidiaries of the issuer’s parent, 

for the participation of their employees, directors, 

general partners, trustees (where the issuer is a 

business trust), officers, or consultants and 

advisors, and their family members who acquire 

such securities from such persons through gifts or 

domestic relations orders. This section exempts 

offers and sales to former employees, directors, 

general partners, trustees, officers, consultants and 

advisors only if such persons were employed by or 

providing services to the issuer at the time the 

securities were offered. In addition, the term 

‘‘employee’’ includes insurance agents who are 

exclusive agents of the issuer, its subsidiaries or 

parents, or who derive more than 50% of their 

annual income from those entities. As explained in 

the 1999 Rule 701 Release at Section II.D, Rule 701 

is also available to persons with a de facto 

employment relationship with the issuer. Such a 

relationship would exist where a person not 

employed by the issuer provides the issuer services 

that traditionally are performed by an employee and 

the compensation paid for those services is the 

primary source of the person’s earned income. 

73Form S–8 and Rule 701 are available for the 

exercise of employee benefit plan options by an 

employee’s family member who has acquired the 

options from the employee through a gift or a 

domestic relations order. See the 1999 Form S–8 

Release at Section III and the 1999 Rule 701 Release 

at Section II.E. As defined in Exchange Act Rule 

701(c)(3) [17 CFR 230.701(c)(3)], for this purpose, 

‘‘family member’’ includes any child, stepchild, 

grandchild, parent, stepparent, grandparent, spouse, 

former spouse, sibling, niece, nephew, mother-inlaw, father-in-law, son-in-law, daughter-in-law, 

brother-in-law, or sister-in-law, including adoptive 

relationships, any person sharing the employee’s 

household (other than a tenant or employee), a trust 

in which these persons have more than 50% of the 

beneficial interest, a foundation in which these 

persons (or the employee) control the management 

of assets, and any other entity in which these 

persons (or the employee) own more than 50% of 

the voting interests. 

74The Commission adopted amendments to Form 

S–8 and the Rule 405 definition of ‘‘employee 

benefit plan’’ that made Form S–8 available for the 

issuance of securities to consultants or advisors 

only if: they are natural persons; they provide bona 

fide services to the registrant; and the services are 

not in connection with the offer or sale of securities 

in a capital-raising transaction, and do not directly 

or indirectly promote or maintain a market for the 

registrant’s securities. See 1999 Form S–8 Release 

and 1999 Rule 701 Release. Rule 701(c)(1) applies 

the same limitations regarding consultants and 

advisors as those provided in Form S–8 and the 

Rule 405 definition of ‘‘employee benefit plan.’’ 

75As proposed, this amendment would not affect 

the definition of ‘‘held of record’’ when determining 

the number of holders for the purposes of 

termination of registration or suspension of 

reporting or with regard to the number of holders 

reported pursuant to Item 201(b) of Regulation 

S–K (17 CFR 229.201(b)). 

76See letter from ABA recommending that the 

Commission provide ‘‘that the safe harbor(s) is not 

the exclusive means by which an issuer may 

comply with the ‘compensatory plan carve-out’ 

provisions of Section 12(g)(5).’’ This commenter 

suggested that ‘‘failure to satisfy all conditions to 

reliance on the safe harbor(s) should not preclude 

reliance on the statutory carve-out itself.’’ 

77See id. 

78See id. The ‘‘no sale’’ theory relates to the 

issuance of compensatory grants made by 

employers to broad groups of employees pursuant 

to broad-based stock bonus plans under the theory 

that the awards are not an offer or sale of securities 

under Section 2(a)(3) of the Securities Act [15 

U.S.C. 77b(a)(3)]. See Employee Benefit Plans; 

Interpretations of Statute, Release No. 33–6188 

(Feb. 1, 1980) [45 FR 8960 (Feb. 11, 1980)] at 

Section II.A.5.d; Employee Benefit Plans, Release 

No. 33–6281 (Jan. 15, 1981) [46 FR 8446 (Jan. 27, 

1981)] at Section III. Many issuers rely on the ‘‘no 

sale’’ theory when making such awards to 

employees where no consideration—and hence no 

‘‘value’’—is received by the issuer in return. The 

staff has not objected to these issuances in a series 

of no-action letters. See, e.g., no-action letter to 

Verint Systems Inc. (May 24, 2007). 

S–8 registration,69 but use the term 

‘‘compensatory benefit plan’’ in the 

Securities Act Rule 701 exemption. A 

‘‘compensatory benefit plan’’ under 

Rule 701(c)(2) is broadly defined as 

‘‘any purchase, savings, option, bonus, 

stock appreciation, profit sharing, thrift, 

incentive, deferred compensation, 

pension or similar plan.’’ 70 When 

adopting Rule 701, the Commission 

expressly stated that it patterned the 

definition of ‘‘compensatory benefit 

plan’’ on the definition used in 

Securities Act Rule 405.71 Rule 701 

includes a number of conditions 

consistent with the Rule 405 definition 

of ‘‘employee benefit plan.’’ In 

particular, Rule 701(c) limits the 

exemption to offers and sales of 

securities under a written compensatory 

benefit plan established by the issuer for 

the participation of its employees and 

other specified persons.72 Many of the 

conditions applicable to exempt offers 

and sales made under Rule 701 are also 

similar to conditions placed on Form 

S–8 registration of securities to be 

offered under an ‘‘employee benefit 

plan’’ as defined in Rule 405. For 

example, Rule 701(c)(3) defines eligible 

family members consistent with Form 

S–8.73 In addition, the Rule 701 

exemption includes a number of 

conditions to its use, including but not 

limited to conditions that the plan be 

written and delivered to employees; that 

the plan be established by the issuer, its 

parents, its majority-owned subsidiaries 

or majority-owned subsidiaries of the 

issuer’s parent, for the participation of 

their employees, directors, general 

partners, trustees, officers, or 

consultants and advisors; 74 and that the 

amount of securities sold be limited. 

B. Definition of ‘‘Held of Record’’ and 

Non-Exclusive Safe Harbor for 

Determining Holders of Record 

As directed by Section 503 of the 

JOBS Act, the Commission is proposing 

to amend the definition of ‘‘held of 

record’’ and to establish a safe harbor in 

Rule 12g5–1 that issuers can rely on 

when determining if securities held by 

persons who received them pursuant to 

an employee compensation plan in 

transactions exempted from the 

registration requirements of Section 5 of 

the Securities Act may be excluded 

when calculating the number of holders 

of record of a class of equity securities 

for purposes of determining the issuer’s 

registration obligation under Section 

12(g)(1)(A).75 We received comments 

addressing issues about the scope of the 

safe harbor. One commenter 

recommended that the Commission 

expressly provide that the safe harbor is 

a non-exclusive safe harbor akin to the 

Securities Act Rule 506 safe harbor 

under Securities Act Section 4(a)(2).76

This commenter also recommended that 

a safe harbor should provide that in a 

‘‘subsequent transaction (including a 

business combination) that is exempt 

from, or otherwise is not subject to, the 

registration requirements of Section 5, 

the securities issued in that transaction 

to eligible employees, former 

employees, and other covered persons 

in exchange for securities covered by 

the Section 12(g)(5) compensatory plan 

securities carve out’’ would also be 

covered.77 The same commenter further 

recommended that securities issued in 

unregistered transactions based on the 

‘‘no sale’’ theory should be included 

within the definition of ‘‘transactions 

exempt from section 5.’’ 78

1. Definition of ‘‘Held of Record’’ 

We are proposing to amend the 

definition of ‘‘held of record’’ to provide 

that when determining whether an 

issuer is required to register a class of 

equity securities with the Commission 

pursuant to Exchange Act Section 

12(g)(1) an issuer may exclude securities 

that are either: 

• Held by persons who received the 

securities pursuant to an employee 

compensation plan in transactions 

exempt from the registration 


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79See supra note 72 and 73 and infra note 82 

(describing the types of persons eligible to receive 

securities under Rule 701(c)). 

80Consistent with Rule 701(c), securities held of 

record by former employees would be excluded 

when determining the securities held of record only 

if the employees were employed by or providing 

services to the surviving issuer at the time the 

exchange securities were offered. 

81As proposed, failure to satisfy all of the 

conditions of the non-exclusive safe harbor would 

not preclude reliance on Section 12(g)(5) or other 

provisions of proposed Rule 12g5–1(a)(7). 

82A de facto employee would be considered an 

employee for purposes of proposed Rule 12g5– 

1(a)(7). For purposes of Rule 701, the scope of 

eligible consultants and advisors is the same as 

under Form S–8. See 1999 Rule 701 Release at 

Section II.D and 1999 Form S–8 Release at Section 

II.A.1. This also would be the case for purposes of 

proposed Rule 12g5–1(a)(7). We note that unlike 

traditional employees, consultants and advisors 

typically provide their services to multiple clients 

rather than to the same issuer on a dedicated basis. 

This distinction may cause them to be less likely 

to hold the securities they receive as compensation 

and more likely to sell them. However, the fact that 

securities would no longer be eligible for the 

exclusion under the safe harbor following their 

transfer should limit the potential for abuse. We 

believe that in light of the Rule 701 restrictions 

applicable to consultants and advisors, the 

compensatory nature of the transactions justifies 

treating consultants and advisors who are eligible 

to receive securities in compensatory transactions 

that satisfy the conditions of Rule 701(c) as persons 

who receive securities pursuant to an employee 

compensation plan for purposes of the proposed 

safe harbor. 

83See Rule 701—Exempt Offerings Pursuant to 

Compensatory Arrangements, Release No. 33–7511 

(Feb. 27, 1998) [63 FR 10785 (Mar. 5, 1998)] at 

Section III.E.4. Including family member transferees 

in the safe harbor would be consistent with the 

approach in Rule 701(c), which provides an 

exemption to family member transferees in 

connection with stock options because of their 

common economic interest and the non-capital 

raising nature of the transactions. 

84The definition of ‘‘foreign private issuer’’ is 

contained in Exchange Act Rule 3b–4(c) [17 CFR 

240.3b–4(c)]. A foreign private issuer is any foreign 

issuer other than a foreign government, except for 

an issuer that (1) has more than 50% of its 

outstanding voting securities held of record by U.S. 

residents and (2) any of the following: (i) A majority 

of its officers and directors are citizens or residents 

of the United States; (ii) more than 50% of its assets 

are located in the United States; or (iii) its business 

is principally administered in the United States. 

85 17 CFR 240.12g3–2(a). 

requirements of Section 5 of the 

Securities Act or that did not involve a 

sale within the meaning of Section 

2(a)(3) of the Securities Act; or 

• held by persons eligible to receive 

securities from the issuer pursuant to 

Exchange Act Rule 701(c) who received 

the securities in a transaction exempt 

from the registration requirements of 

Section 5 of the Securities Act in 

exchange for securities excludable 

under proposed Rule 12g5–1(a)(7). 

Section 502 of the JOBS Act refers 

specifically to ‘‘transactions exempted’’ 

from the Securities Act Section 5 

registration requirements. A number of 

issuers, however, issue securities to 

employees without Securities Act 

registration on the basis that the 

issuance is not a sale under Section 

2(a)(3) of the Securities Act and 

therefore do not trigger the registration 

requirement of Securities Act Section 5, 

which applies only to the offer and sale 

of securities. While securities issued to 

employees in transactions that do not 

involve a sale under Section 2(a)(3) are 

not technically ‘‘transactions exempted 

from the registration requirements of 

section 5,’’ they are similar to other 

compensatory issuances to employees in 

exempt transactions in that the issuer 

provides the awards to employees for a 

compensatory purpose. We are therefore 

proposing to exclude such ‘‘no sale’’ 

issuances from the definition of ‘‘held of 

record’’ in Rule 12g5–1 for purposes of 

determining an issuer’s obligation to 

register a class of securities under the 

Exchange Act. 

As proposed, the rule would also 

permit an issuer to exclude holders who 

are persons eligible to receive securities 

from the issuer pursuant to Rule 701(c) 

and who acquired the securities in 

exchange for securities excludable 

under the proposed definition.79 The 

proposed exclusion is intended to 

facilitate the ability of an issuer to 

conduct restructurings, business 

combinations and similar transactions 

that are exempt from Securities Act 

registration so that if the securities being 

surrendered in such a transaction would 

not have been counted under the 

proposed definition of ‘‘held of record,’’ 

the securities issued in the exchange 

also would not be counted under this 

definition.80 The securities issued in the 

exchange would be deemed to have a 

compensatory purpose because they 

would replace other securities 

previously issued pursuant to an 

employee compensation plan. We 

believe such an approach would be 

consistent with the intent of Section 502 

of the JOBS Act and would provide 

issuers with appropriate flexibility to 

conduct certain business combinations 

and similar transactions. 

2. Non-Exclusive Safe Harbor for 

Determining Holders of Record 

We are proposing a non-exclusive safe 

harbor under proposed Rule 12g5– 

1(a)(7) that would provide that a person 

will be deemed to have received the 

securities pursuant to an employee 

compensation plan if such person 

received them pursuant to a 

compensatory benefit plan in 

transactions that met the conditions of 

Securities Act Rule 701(c).81

As proposed, an issuer would be able 

to rely on the safe harbor for 

determining the holders of securities 

issued in reliance on Securities Act Rule 

701, as well as holders of securities 

issued in transactions otherwise 

exempted from, or not subject to, the 

registration requirements of the 

Securities Act that satisfy the conditions 

of Rule 701(c), even if all the other 

conditions of Rule 701, such as issuer 

eligibility in Rule 701(b)(1), the volume 

limitations in Rule 701(d) or the 

disclosure delivery provisions in Rule 

701(e), were not met. Thus, the safe 

harbor would be available for holders of 

securities received in other employee 

compensation plan transactions 

exempted from, or not subject to, the 

registration requirements of Section 5 of 

the Securities Act, such as securities 

issued in reliance on Securities Act 

Section 4(a)(2), Regulation D of the 

Securities Act, or Regulation S of the 

Securities Act, that meet the conditions 

of Rule 701(c). 

We believe that using the conditions 

of Rule 701(c) to structure the safe 

harbor for determining whether holders 

received their securities pursuant to an 

employee compensation plan in exempt 

transactions would allow issuers to 

apply well understood principles of an 

existing Securities Act exemption to the 

new Exchange Act registration 

determination under the JOBS Act. The 

safe harbor would be available for the 

plan participants enumerated in Rule 

701(c), including employees, directors, 

general partners, trustees, officers and 

certain consultants and advisors.82 The 

safe harbor also would be available for 

permitted family member transferees 

with respect to securities acquired by 

gift or domestic relations order, or 

securities acquired by them in 

connection with options transferred to 

them by the plan participant through 

gifts or domestic relations orders.83

Because the safe harbor would be 

limited to holders who are persons 

specified in Rule 701(c) who received 

the securities under specified 

circumstances, once these persons 

subsequently transfer the securities, 

whether or not for value, the securities 

would need to be counted as held of 

record by the transferee for purposes of 

determining whether the issuer is 

subject to the registration and reporting 

requirements of Exchange Act Section 

12(g)(1). 

In addition, under the proposed rules, 

foreign private issuers 84 would be able 

to rely on the safe harbor when making 

their determination of the number of 

U.S. resident holders under Exchange 

Act Rule 12g3–2(a).85 Under Rule 12g3– 

2(a), foreign private issuers that meet 


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86The proposed amendment to Rule 12g5–1 

would be limited to determinations under Section 

12(g). The definition of ‘‘foreign private issuer’’ in 

Exchange Act Rule 3b–4 contains a cross-reference 

to Rule 12g3–2(a) for purposes of calculating record 

ownership in determining whether more than 50% 

of an issuer’s outstanding voting securities are 

directly or indirectly held by residents of the 

United States. In contrast to the proposed approach 

to Rule 12g3–2(a), we are proposing to amend Rule 

3b–4 to clarify that securities held by employees 

must continue to be counted for the purpose of 

determining the percentage of the issuer’s 

outstanding securities held by U.S. residents, and 

thus for determining whether an issuer qualifies as 

a foreign private issuer. See the proposed amended 

instruction to paragraph (c)(1) of Rule 3b–4. 

87The definition of ‘‘foreign private issuer’’ under 

the Securities Act, which is found in Securities Act 

Rule 405 [17 CFR 230.405], is the same as the 

definition under Exchange Act Rule 3b–4. The 

definition of ‘‘foreign private issuer’’ under the 

Securities Act was last amended in Foreign Issuer 

Reporting Enhancements, Release No. 33–8959 

(Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)]. At that 

time, an instruction to paragraph (1) of the 

definition, which was the same as the Instruction 

to Paragraph (c)(1) of Rule 3b–4, was inadvertently 

omitted. We are proposing to amend the foreign 

private issuer definition under Rule 405 to reinsert 

the omitted instruction but with a proposed 

revision, identical to that proposed under Rule 3b– 

4, clarifying that securities held by employees must 

continue to be counted for the purposes of 

determining the percentage of the issuer’s 

outstanding securities held by U.S. residents and 

foreign private issuer status under the Securities 

Act. 

88See Compensatory Stock Options Release, 

supra note 57. 

89See letter from ABA, which suggested that 

while Rule 12h–1(f) may no longer be necessary, 

Rule 12h–1(g) may have continuing applications. 

Specifically, there may be instances in which an 

issuer subject to an Exchange Act reporting 

requirement may issue to employees compensatory 

options that are part of a class of equity securities 

not registered under the Exchange Act. 

the asset and shareholder threshold of 

Section 12(g) are exempt from 

registering any class of securities under 

that section if the class of securities is 

held by fewer than 300 holders resident 

in the United States. For purposes of 

determining whether this threshold is 

met, Rule 12g3–2(a)(1) specifies that the 

method shall be as provided in 

Exchange Act Rule 12g5–1, subject to 

specific provisions relating to brokers, 

dealers, banks and nominees.86 Because 

the rule directs issuers to the definition 

of ‘‘held of record’’ in Rule 12g5–1, the 

statutory changes to Section 12(g)(5) as 

well as the proposed changes to Rule 

12g5–1 would also apply to the 

determination of a foreign private 

issuer’s U.S. resident holders for the 

purposes of the Rule 12g3–2(a) 

analysis.87

Request for Comment 

9. Instead of leaving the term 

‘‘employee compensation plan’’ 

undefined and providing a safe harbor 

for purposes of determining the number 

of holders of record under Section 

12(g)(1), should we create a new 

definition for purposes of the 

determination? If a new definition 

would be preferable, please describe 

how ‘‘employee compensation plan’’ 

should be defined and explain why a 

definition would be preferable. 

10. In some circumstances issuers 

may rely on a ‘‘no sale’’ theory under 

Section 2(a)(3) of the Securities Act to 

issue securities to employees. As 

proposed, securities held by persons 

who received those securities pursuant 

to an award to employees that did not 

involve a sale within the meaning of 

Securities Act Section 2(a)(3) would be 

excluded from the definition of ‘‘held of 

record’’ for purposes of determining an 

issuer’s Exchange Act Section 12(g) 

registration obligations. Should these 

securities be excluded from the 

definition? 

11. The exclusion from ‘‘held of 

record’’ in proposed Exchange Act Rule 

12g5–1(a)(7)(i) for securities received 

pursuant to employee compensation 

plans would include within its scope 

holders of securities received pursuant 

to an employee compensation plan in 

transactions that do not involve a sale 

within the meaning of Section 2(a)(3) or 

that are exempt from the registration 

requirements of Section 5. Further, the 

safe harbor proposed in Rule 12g5– 

1(a)(7)(ii) would be available to 

securities issued in those transactions as 

long as the person received the 

securities pursuant to a compensatory 

benefit plan in transactions that met the 

conditions of Securities Act Rule 701(c). 

Should the scope of the safe harbor be 

more limited, such as by restricting it to 

securities received pursuant to exempt 

transactions that meet all of the 

requirements of Securities Act Rule 701, 

the requirements of Regulation D or 

another specified subset of exemptions? 

If so, please explain why. 

12. We are proposing a non-exclusive 

safe harbor that relies, in part, on 

existing Rule 701(c) to establish 

guidelines for an issuer to use when 

determining whether holders of their 

securities received them pursuant to an 

employee compensation plan. Does 

using existing Rule 701(c) provide 

sufficient guidance to issuers? Should 

we provide additional guidance for 

implementing the safe harbor? If so, 

please explain what additional guidance 

is needed. 

13. For purposes of the safe harbor, 

should we limit the categories of 

persons who may receive securities 

pursuant to employee compensation 

plans? For example, our proposed safe 

harbor includes consultants and 

advisors because they qualify under 

Rule 701. Should they only be included 

if they are natural persons and meet the 

other Rule 701(c) conditions, as 

proposed? Alternatively, should 

consultants and advisors be excluded? 

14. Should we, as proposed, permit 

securities held by family member 

transferees acquired by gift or domestic 

relations order, or securities acquired by 

them in connection with options 

transferred to them by the plan 

participant through gifts or domestic 

relations orders to be excluded? If we 

modify the scope of the transferees or 

the type of securities, what 

modifications would be appropriate? 

15. Exchange Act Rules 12h–1(f) 

and12h–1(g) exempt compensatory 

employee stock options from 

registration under Exchange Act Section 

12(g) by exempting issuers from 

counting holders of stock options 

received pursuant to written 

compensatory stock option plans under 

specified conditions.88 How does the 

exclusion provided by Section 502 of 

the JOBS Act and our proposals, 

including our proposal to exclude 

securities that do not involve a sale 

under Section 2(a)(3) of the Securities 

Act, affect the continuing need for these 

rules? 89 Should either Rule 12h–1(f) or 

Rule 12h–1(g) be rescinded in light of 

the amendments made by Section 502 of 

the JOBS Act and our proposals? 

Alternatively, are there any 

modifications needed to reflect the 

changes related to Section 502 and make 

the rules more useful? 

16. Should we permit an issuer to 

exclude from the ‘‘held of record’’ 

determination securities issued to 

security holders in an exchange exempt 

from registration under the Securities 

Act where the securities surrendered by 

those holders in the exchange were 

received by them pursuant to a 

compensatory benefit plan that met the 

conditions of the proposed rule? As 

proposed, the exclusion would be 

limited to securities issued in an 

exchange exempt from Securities Act 

registration to persons eligible to receive 

securities pursuant to Rule 701(c) from 

the issuer, such as former employees 

who were employed by or providing 

services to the surviving issuer at the 

time the exchange securities were 

offered. Should the Commission 

consider expanding the exclusion to 

securities received by other former 

employees in such an exempt exchange 

where the securities to be surrendered 

in the exchange were received pursuant 

to a compensatory benefit plan in 

transactions that met the conditions of 

the proposed rule? Would the 

possibility that an exempt exchange 

could cause a number of former 


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90 In its consideration of the JOBS Act, Congress 

considered other definitions of ‘‘held of record’’ but 

ultimately did not define the term for purposes of 

the provisions of Section 12(g). 

91Section 23(a)(2) of the Exchange Act requires 

the Commission, when making rules under the 

Exchange Act, to consider the impact on 

competition that the rules would have, and 

prohibits the Commission from adopting any rule 

that would impose a burden on competition not 

necessary or appropriate in furtherance of the 

Exchange Act. 15 U.S.C. 78w(a). Further, Section 

2(b) of the Securities Act [15 U.S.C. 77b(b)] and 

Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] 

require the Commission, when engaging in 

rulemaking where it is required to consider or 

determine whether an action is necessary or 

appropriate in the public interest, to consider, in 

addition to the protection of investors, whether the 

action will promote efficiency, competition and 

capital formation. 

92The Commission staff derived this estimate of 

the number of banks and bank holding companies 

that have elected to terminate registration or 

suspend reporting by analyzing Form 15 filings on 

EDGAR. Commission staff is continuing to monitor 

such filings. 

93The Commission staff derived this estimate by 

analyzing annual filings submitted to the 

Commission during calendar year 2013. 

employees previously counted as 

exempt from the ‘‘held of record’’ 

determination to be counted as holders 

of record immediately on 

consummation of the exchange inhibit 

companies from entering into these 

transactions? 

17. Foreign private issuers are subject 

to different standards relating to when 

they are required to register a class of 

equity securities under the Exchange 

Act. Should the Commission permit 

foreign private issuers to exclude 

securities received pursuant to an 

‘‘employee compensation plan’’ in 

transactions exempt from, or not subject 

to, the Securities Act registration 

requirements from the 300 U.S. holders 

threshold in Exchange Act Rule 12g3– 

2(a), as proposed? Should we instead 

require foreign private issuers to 

continue counting these securities when 

determining their number of U.S. 

holders? Should we further permit 

issuers to exclude such securities for 

purposes of assessing whether an issuer 

qualifies as a foreign private issuer or 

should such securities be included in 

this determination, as would be 

required under our proposed 

amendments to Securities Act Rule 405 

and Exchange Act Rule 3b–4? 

IV. General Request for Comment 

We request and encourage any 

interested person to submit comments 

regarding the proposed rule 

amendments, specific issues discussed 

in this release, and other matters that 

may have an effect on the proposed 

rules. We request comment from the 

point of view of issuers, investors and 

other market participants. We note that 

comments are of particular assistance to 

us if accompanied by supporting data 

and analysis of the issues addressed in 

those comments, particularly 

quantitative information as to the costs 

and benefits. If alternatives to the 

proposals are suggested, supporting data 

and analysis and quantitative 

information as to the costs and benefits 

of those alternatives are of particular 

assistance. Commenters are urged to be 

as specific as possible. 

Request for Comment 

18. Are there other rules or forms that 

should be revised or updated as a result 

of the statutory changes made by Title 

V and Title VI of the JOBS Act? If so, 

please explain what revisions are 

needed? 

19. The definition of ‘‘held of record’’ 

in Exchange Act Rule 12g5–1 requires 

an issuer, for the purposes of 

determining whether it is subject to the 

provisions of Section 12(g) or Section 

15(d), to count as holders of record only 

persons identified as owners on records 

of security holders maintained by or on 

behalf of the issuer in accordance with 

accepted practice and subject to certain 

conditions. This rule simplifies an 

issuer’s determination process by 

allowing it to look to security holders 

that appear in its records. Are there 

alternative definitions of ‘‘held of 

record’’ that would more appropriately 

address the purposes of Section 12(g)? 90

V. Economic Analysis 

Title V and Title VI of the JOBS Act 

increased the registration thresholds for 

issuers, amended the definition of ‘‘held 

of record’’ to exclude securities issued 

pursuant to employee compensation 

plans and increased the thresholds for 

termination of registration and 

suspension of reporting under the 

Exchange Act for banks and bank 

holding companies. The Commission is 

proposing rules to implement Title V 

and Title VI of the JOBS Act. 

In proposing rules or amendments, we 

are mindful of the costs imposed by and 

the benefits obtained from our rules. 

The discussion below attempts to 

address the economic effects of the 

proposed amendments, including the 

likely costs and benefits of the 

amendments as well as the effect of the 

amendments on efficiency, competition 

and capital formation.91 Some of the 

costs and benefits stem from the 

statutory mandates of Title V and Title 

VI, while others are affected by the 

discretion we exercise in revising our 

rules to reflect this mandate. These two 

types of costs and benefits may not be 

entirely separable to the extent our 

discretion is exercised to realize the 

benefits that we believe were intended 

by Title V and Title VI. We request 

comment on all aspects of the economic 

effects, such as the costs and benefits, of 

the amendments that we are proposing. 

We particularly appreciate comments 

that distinguish between the economic 

effects that are attributed to the statutory 

mandate itself and the economic effects 

that are the result of policy choices 

made by the Commission in 

implementing the statutory mandate. 

A. Baseline 

The baseline for our economic 

analysis of the proposed rules, 

including the baseline for our 

consideration of the effects on 

efficiency, competition and capital 

formation, is the state of the market as 

well as market practices prior to the 

JOBS Act. Prior to the JOBS Act, issuers 

were required to register their equity 

securities with the Commission upon 

reaching 500 holders of record and total 

assets of $10 million, and were allowed 

to terminate registration or suspend the 

duty to file with the Commission when 

the number of holders of record had 

fallen below 300. However, Exchange 

Act Rules 12h–1(f) and 12h–1(g) 

permitted issuers to exclude stock 

options issued under written 

compensatory benefit plans under 

certain conditions from the registration 

requirements of Section 12(g). 

The JOBS Act raised the thresholds at 

which an issuer is required to register a 

class of equity securities with the 

Commission pursuant to Section 12(g), 

provided that persons holding certain 

employee compensation plan securities 

need not be counted when determining 

whether an issuer is required to register, 

and raised the thresholds at which 

banks and bank holding companies are 

permitted to terminate registration or 

suspend reporting obligations with the 

Commission. These statutory changes 

made by the JOBS Act went into effect 

as soon as the JOBS Act was signed into 

law. As a result of the JOBS Act, some 

banks and bank holding companies 

were newly eligible to terminate 

registration or suspend reporting, and as 

of June 30, 2014, we estimate that more 

than 90 have elected to do so.92 We 

estimate that there are approximately 

500 banks and bank holding companies 

that currently report to the 

Commission,93 of which some may be 

eligible to terminate registration under 

the JOBS Act but have elected to 

continue reporting. We are proposing to 

amend specified Exchange Act rules to 

reflect the new, higher threshold for 

banks and bank holding companies 

under Section 12(g)(4) and Section 


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94 Id. 

95See supra note 41. 96See J. Brau, Why Do Firms Go Public?, Oxford 

Handbook of Entrepreneurial Finance (2010) 

(providing a general discussion of the different 

rationales for firms to go public); U. Celikyurt, M. 

Sevilir, and A. Shivdasani, Going Public to Acquire? 

The Acquisition Motive in IPOs, J. FIN. ECON. 

(2010) (arguing that firms go public so as to 

facilitate acquisitions); M. Pagano, F. Panetta, and 

L. Zingales, Why Do Companies Go Public? An 

Empirical Analysis, J. FIN. (1998) (showing that 

IPOs are generally followed by lower cost of credit 

and increased turnover in control); T. Chemmanur 

and P. Fulghieri, A Theory of the Going Public 

Decision, REV. FIN. STUD. (1999) (arguing that 

going public broadens the ownership base of the 

firm); R. Rosen, S. Smart and C. Zutter, Why Do 

Firms Go Public? Evidence From the Banking 

Industry, Working Paper (2005) (finding that banks 

that go public are more likely to grow faster, earn 

higher profits, employ more leverage and become 

acquirers when compared to their non-reporting 

counterparts). 

97See J. Brau and S. Fawcett, Initial Public 

Offerings: An Analysis of Theory and Practice, J. 

FIN. (2006) (reporting based on a survey of CFOs 

that ‘‘desire to maintain decision-making control,’’ 

‘‘disclosing information to competitors,’’ ‘‘SEC 

reporting requirements’’ and ‘‘to avoid ownership 

dilution’’ are among the top five reasons why firms 

choose to stay private); J. Farre-Mensa, Why Are 

Most Firms Privately Held?, Working paper, 

Harvard University (2011) (documenting that firms 

in industries with high disclosure costs (i.e., where 

it is easier for competitors to appropriate a firm’s 

intellectual property) tend to remain private). 

15(d)(1). For those banks and bank 

holding companies that would be 

eligible to terminate registration under 

Section 12(g), the proposed rules set 

forth procedural accommodations that 

are available to other issuers under 

current rules to accelerate the process. 

The proposed rules would also permit 

savings and loan holding companies to 

use the same, higher thresholds for 

registration, termination of registration 

and suspension of the reporting 

obligation that apply to banks and bank 

holding companies. There are 

approximately 125 savings and loan 

holding companies that currently report 

to the Commission.94 As we explain in 

more detail below, we estimate that 

approximately 90 would be eligible to 

terminate registration or suspend 

reporting under the proposed rules. 

In addition, the proposed rules would 

apply the definition of ‘‘accredited 

investor’’ in Securities Act Rule 501(a) 

in making determinations under 

Exchange Act Section 12(g)(1). Finally, 

the proposed rules would revise the 

definition of ‘‘held of record’’ and 

establish the scope of a non-exclusive 

safe harbor for issuers to rely on when 

determining whether securities were 

received pursuant to an employee 

compensation plan in transactions 

exempted from the registration 

requirements of Section 5 of the 

Securities Act or did not involve a sale 

within the meaning of Section 2(a)(3) of 

the Securities Act. The proposed safe 

harbor would rely on the definition of 

‘‘compensatory benefit plan’’ in 

Securities Act Rule 701 and the 

conditions in Securities Act Rule 701(c). 

We considered alternative definitions 

of ‘‘employee compensation plan.’’ We 

also considered whether to provide 

additional guidance with respect to the 

determination of accredited investor 

status when establishing the number of 

holders of record. These decisions may 

affect how a non-reporting issuer counts 

its holders of record for the purpose of 

the registration thresholds under the 

Exchange Act; hence it could affect 

whether an issuer can remain a nonreporting issuer. However, due to 

limited availability of shareholder 

information on these non-reporting 

issuers, we are unable to quantify the 

number of non-reporting issuers that 

might be affected by these decisions. 

B. Analysis of the Proposed Rules 

The proposal would affect registrants 

generally, and banks, bank holding 

companies and savings and loan 

holding companies specifically, as well 

as non-reporting issuers, employees and 

other investors. We analyze the costs 

and benefits associated with the 

proposed rules below. 

Increased Thresholds for Banks and 

Bank Holding Companies 

The JOBS Act amended Sections 12(g) 

and 15(d) of the Exchange Act to raise 

the thresholds at which banks and bank 

holding companies may terminate 

registration or suspend their obligations 

to file reports with the Commission to 

1,200 holders of record. These changes 

were effective immediately upon the 

enactment of the JOBS Act, and banks 

and bank holding companies may rely 

on the amended provisions to terminate 

registration or suspend their reporting 

obligations. However, under the statute, 

banks and bank holding companies that 

want to use the higher threshold must 

wait 90 days after filing a certification 

with the Commission that the number of 

holders of record is less than 1,200 

persons to terminate their Section 12(g) 

registration and cease filing reports 

required by Section 13(a) and must wait 

until the first day of the fiscal year to 

suspend any Section 15(d) reporting 

obligations. Our existing rules afford 

issuers with procedural 

accommodations that let them suspend 

their reporting obligations immediately 

upon the filing of a certification on 

Form 15. To make these procedural 

accommodations applicable to banks 

and bank holding companies at the 

higher threshold, we are proposing to 

revise Exchange Act Rules 12g–2, 12g– 

3, 12g–4 and 12h–3 to reflect the 1,200 

holders threshold for banks and bank 

holding companies, which would 

permit banks and bank holding 

companies to rely on the rules to cease 

reporting during a fiscal year, rather 

than wait the prescribed 90 days or until 

the end of the reporting year. This 

would reduce issuer compliance and 

reporting costs during the fiscal year the 

issuer ceased reporting, but would also 

accelerate the loss of investor access to 

current information about the issuer. 

The proposed changes also would 

harmonize the statutory and regulatory 

thresholds and lessen potential 

confusion that could arise from the 

differences in the thresholds contained 

in the statute and the existing rules. 

We estimate that there are 

approximately 500 banks and bank 

holding companies that currently report 

with the Commission. Many of these 

reporting issuers have more than 1,200 

holders of record and would not be 

eligible to cease reporting under the 

new thresholds. Out of that 500, 143 

reporting banks and bank holding 

companies have between 300 and 1,200 

holders of record and may be eligible to 

cease reporting, although 89 of them 

would have to give up a national 

exchange listing to do so. Because banks 

and bank holding companies remain 

subject to other regulatory reporting 

requirements,95 it is possible that they 

would continue reporting even if they 

are eligible to cease reporting under the 

Exchange Act. We anticipate that banks 

and bank holding companies would 

weigh the benefits of being a public 

company against the burden of 

additional disclosure costs, in deciding 

whether to terminate registration or 

suspend their reporting obligation. 

Commonly cited benefits of being a 

public company include the ability to 

obtain a lower cost of capital for 

investment and growth, increased 

liquidity through a broader shareholder 

base, and greater ability to finance 

acquisitions and offer equity-based 

incentive contracts.96 Commonly cited 

costs of being a public company include 

the need to comply with increased 

regulations and regulatory supervision, 

including requirements for independent 

audits, disclosure of information to 

competitors, loss of control and 

ownership dilution.97

Permitting Savings and Loan Holding 

Companies To Use the Higher 

Thresholds 

We are proposing to apply the 2,000- 

holders of record threshold for 

registration to savings and loan holding 

companies in revised Exchange Act 

Rule 12g–1. We are also proposing to 


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98The Commission staff derived this estimate by 

analyzing annual filings submitted to the 

Commission. 

99While the proposed rules should have effects 

on competition by ensuring that savings and loan 

holding companies are not put at a disadvantage 

relative to banks and bank holding companies, the 

termination of registration or suspension of 

reporting by savings and loan holding companies 

may lessen the information available to investors 

and adversely affect efficiency and capital 

formation by possibly increasing information 

asymmetries, monitoring costs, and cost of capital. 

However, the impact on efficiency and capital 

formation may be mitigated to the extent that the 

reports that savings and loan holding companies 

file with banking regulators contain information 

comparable to that mandated by the reporting 

requirements under the Exchange Act. 

extend the increased thresholds 

established by Section 601 of the JOBS 

Act to savings and loan holding 

companies by specifically including 

them in revisions to Exchange Act Rules 

12g–2, 12g–3, 12g–4 and 12h–3 that 

accommodate banks and bank holding 

companies at the higher 1,200 holders of 

record threshold for termination of 

registration or suspension of the duty to 

file reports. As a result, savings and loan 

holding companies would be able to 

delay registration with the Commission 

until they reach the 2,000-holder 

threshold, and savings and loan holding 

companies with between 300 and 1,199 

holders of record would be newly 

eligible to terminate or suspend their 

Exchange Act reporting obligations. 

We estimate that approximately 125 

savings and loan holding companies 

had a class of securities registered 

pursuant to the Exchange Act as of June 

30, 2014; 98 of these approximately 100 

are registered pursuant to Section 12(b). 

By analyzing the number of holders of 

record for these companies, the staff 

determined that approximately 90 of the 

125 savings and loan holding companies 

would be eligible to terminate 

registration or suspend reporting. Most 

of the newly eligible companies would 

have to give up a national securities 

exchange listing to do so. Because 

delisting from a national securities 

exchange could severely impact the 

liquidity of traded securities, many of 

these savings and loan holding 

companies may be unwilling to suspend 

their reporting requirements even if 

such an action was available to them. 

We therefore do not expect many of 

these savings and loan holding 

companies to avail themselves of the 

extended provisions. 

If we do not extend the provisions of 

Section 601 to savings and loan holding 

companies, there would be inconsistent 

treatment relative to banks and bank 

holding companies, resulting in 

different registration requirements and 

levels of disclosure for savings and loan 

holding companies that provide similar 

services and are generally subject to the 

same regulatory requirements. This 

could have an adverse impact on their 

ability to compete. Alternatively, 

savings and loan holding companies 

could seek to become chartered as banks 

or bank holding companies and thereby 

incur associated costs; this could distort 

the competitive balance of products and 

services offered by these institutions. 

Applying consistent treatment 

between savings and loan holding 

companies and banks and bank holding 

companies would lessen the likelihood 

of changes to the current competitive 

balance between these institutions. 

Moreover, the potential loss of 

information that would otherwise be 

made public through Exchange Act 

reporting if the provisions of Section 

601 are extended to savings and loan 

holding companies would be mitigated 

because the savings and loan holding 

companies would continue to file 

reports with banking regulators.99 As a 

result, extending the relief to savings 

and loan holding companies to provide 

consistent treatment relative to banks 

and bank holding companies may have 

a positive impact on the overall 

efficiency of markets served by the 

potentially affected institutions. 

Definition and Safe Harbor for 

Securities ‘‘Held of Record’’ 

Section 12(g)(5), as amended by 

Section 502 of the JOBS Act, excludes 

from the definition of ‘‘held of record’’ 

securities held by persons who received 

them pursuant to an employee 

compensation plan in transactions 

exempted from the registration 

requirements of Section 5 of the 

Securities Act for purposes of 

determining whether an issuer is 

required to register a class of security 

pursuant to Section 12(g)(1). Section 

503 of the JOBS Act directs the 

Commission to adopt a safe harbor that 

issuers can use when making the holder 

of record determination. By making it 

easier for non-reporting companies that 

issue securities to their employees to 

remain below the registration and 

reporting thresholds in the Exchange 

Act, the statutory changes could benefit 

issuers by allowing them to better 

control how and when they become 

subject to the reporting requirements, 

while continuing to use securities to 

compensate employees. These changes 

could be particularly beneficial for 

smaller or cash-constrained issuers that 

could more easily issue securities to 

their employees as a form of 

compensation without being subject to 

Exchange Act reporting requirements 

and the associated compliance costs. 

However, for these issuers, the potential 

registration of a class of securities and 

the associated reporting may be delayed, 

adversely impacting investors, 

including employees, who otherwise 

might benefit from the information 

provided through Exchange Act 

reporting requirements. As a result, the 

proposed rules regarding the definition 

of ‘‘held of record’’ and the scope of the 

safe harbor could have an impact on the 

potential costs and benefits to the 

affected issuers and their investors by 

affecting areas such as the ease of 

relying upon the statutory exemption, 

the number of non-reporting companies 

able to forestall registration, and the 

amount of information available to 

investors in those issuers. 

Instead of establishing a new 

definition for the term ‘‘employee 

compensation plan,’’ we are proposing 

to amend the definition of ‘‘held of 

record’’ to permit an issuer to exclude 

securities held by persons who received 

them pursuant to an employee 

compensation plan in transactions 

exempted from the registration 

requirements of Section 5 of the 

Securities Act, or not involving a sale 

within the meaning of Section 2(a)(3) of 

the Securities Act. Proposing to exclude 

securities issued to employees in 

transactions that do not involve a sale 

under Section 2(a)(3) from the definition 

of ‘‘held of record’’ for purposes of 

determining an issuer’s obligation to 

register a class of securities under the 

Exchange Act would be beneficial to 

issuers who rely on the ‘‘no sale’’ theory 

when making compensatory grants to 

certain employees. Excluding such ‘‘no 

sale’’ securities could reduce the 

number of holders of record of an issuer 

and potentially delay required Exchange 

Act reporting. 

We are also proposing to establish a 

non-exclusive safe harbor that relies on 

Securities Act Rule 701(c) and the 

definition of ‘‘compensatory benefit 

plan’’ in that rule to assist issuers in 

making the determination of whether 

holders of securities received pursuant 

to an employee compensation plan may 

be excluded. We believe that relying on 

an existing definition that is already 

understood by market participants 

would make it easier for issuers to avail 

themselves of this safe harbor than if we 

proposed a new alternative definition. 

The proposed non-exclusive safe harbor 

relies upon the conditions in existing 

Rule 701(c). While generally broad in 

application, the conditions in Rule 

701(c) provide limitations, such as 

requiring that securities be sold under a 

compensatory benefit plan, that the plan 

be written, that the plan be established 


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100See, e.g., letters from ABA, Foley & Lardner 

and NYCBA. 101 44 U.S.C. 3501 et seq. 

by the issuer or certain specified related 

entities and that participation be limited 

to employees and certain other specified 

persons. Although we are unable to 

quantify the impact of proposing this 

safe harbor because we cannot measure 

the number of issuers that would rely on 

the safe harbor, we can qualitatively 

assess the proposed safe harbor’s 

impact. A safe harbor that applies the 

familiar concepts of existing Rule 701(c) 

should create efficiencies in applying 

the safe harbor and avoid conflicts with 

existing rules, which should reduce 

costs more significantly for smaller 

issuers seeking to rely upon the 

proposed safe harbor. 

Foreign private issuers would be able 

to rely on the proposed safe harbor 

when making their determination of the 

number of U.S. resident holders under 

Exchange Act Rule 12g3–2(a). While we 

are unable to quantify the number of 

foreign private issuers that would be 

impacted, we acknowledge that it may 

allow some foreign private issuers to 

delay registering with and reporting to 

the Commission. The considerations 

about cost and benefit tradeoffs for 

foreign private issuers would be 

analogous to the ones discussed above 

for domestic issuers. 

Use of the Term ‘‘Accredited Investor’’ 

in Exchange Act Section 12(g) 

Section 501 of the JOBS Act raises the 

threshold number of holders of record at 

which an issuer is required to register a 

class of equity securities under the 

Exchange Act to 2,000 persons or 500 

persons who are not accredited 

investors. The provision was effective 

upon enactment of the JOBS Act. In 

order for an issuer to rely on the new, 

higher threshold established by the 

JOBS Act, the issuer will need to be able 

to make accredited investor 

determinations if it has more than 500 

holders of record. 

We propose that the definition of 

‘‘accredited investor’’ as specified in 

Securities Act Rule 501(a) determined 

as of the last day of the fiscal year rather 

than at the time of sale of the securities 

apply when making determinations 

under Exchange Act Section 12(g)(1). 

Issuers are familiar with this definition, 

which should facilitate compliance. 

Developing an alternative definition for 

purposes of Section 12(g)(1) could 

impose costs on issuers by requiring 

them to familiarize themselves with, 

and apply, a new and different standard. 

We are unable to estimate how many 

issuers would be impacted by using the 

Rule 501(a) definition of ‘‘accredited 

investor’’ as compared to an alternative 

definition. We acknowledge that not 

providing specific guidance or rules on 

how to confirm a security holder’s 

status as an accredited investor for 

purposes of determining holders of 

record could result in some uncertainty 

for issuers. 

Some commenters have 

recommended that the Commission 

address potential compliance issues 

related to the accredited investor 

threshold by providing a safe harbor for 

determining accredited investor 

status.100 We could, among other things, 

permit an issuer to rely on an annual 

affirmation of accredited investor status 

by the investor or rely on an ongoing 

basis on information regarding 

accredited investor status received by 

the issuer at the time the securities were 

initially issued to the investor or at the 

time the securities were most recently 

issued to the investor, or permit issuers 

to otherwise rely on information 

previously provided by an investor. 

Addressing potential compliance 

issues relating to the use of ‘‘accredited 

investor’’ in Section 12(g) could 

increase efficiency by providing issuers 

with a prescribed process to determine 

and update the accredited investor 

status of their investors. For example, a 

safe harbor that permits an issuer to rely 

on an annual affirmation of accredited 

investor status by the investor, other 

information obtained by the issuer or on 

a combination of a certification and 

other information would likely be less 

costly than requiring an issuer to 

establish a reasonable basis for its 

determination through other means. 

These methods, however, may be less 

accurate in establishing whether the 

investor is accredited. 

Alternatively, a safe harbor that 

permits an issuer to rely on an ongoing 

basis on information previously 

obtained relating to accredited investors 

status, such as allowing reliance on 

information obtained by the issuer at the 

time the securities were initially issued 

to the investor or at the time the 

securities were most recently issued to 

the investor would likely be even less 

costly than requiring the issuer to seek 

an annual affirmation of accredited 

investor status by the investor or to 

establish a reasonable belief that the 

investor is an accredited investor, but 

could also lead to more outdated 

information. Permitting issuers to rely 

on inaccurate information to determine 

accredited investor status could result 

in issuers with more than 500 nonaccredited investors failing to register 

and leaving investors in those issuers 

with less information and protection 

under the federal securities laws. These 

costs may be mitigated if the safe harbor 

specified time limits on the permitted 

use of the information or if the safe 

harbor were conditioned upon the 

issuer not having information that the 

previously obtained information was 

incorrect, unreliable or had changed. 

Another alternative would be a safe 

harbor that permits an issuer to rely on 

a third party certification for 

determining the accredited investor 

status of investors. We do not have 

adequate information about third party 

certification providers and the 

characteristics of this industry to assess 

this alternative in terms of reliability 

and cost of the provided certification 

services. To the extent that reputational 

concerns would incentivize the third 

party certification providers to perform 

reliable and updated due diligence, 

third party certification could 

potentially provide accurate information 

at a cost that economies of scale may 

lessen. 

Request for Comment 

18. In this release we have discussed 

the anticipated costs and benefits of the 

proposed rules. We request data to 

quantify the costs and the value of the 

benefits described throughout this 

release. We seek estimates of these costs 

and benefits, as well as any costs and 

benefits not described, that may result 

from the adoption of these proposed 

amendments. We also request comments 

on the qualitative benefits and costs we 

have identified and any benefits and 

costs we may have overlooked. 

VI. Paperwork Reduction Act 

Certain provisions of our disclosure 

rules and forms applicable to issuers 

contain ‘‘collection of information’’ 

requirements within the meaning of the 

Paperwork Reduction Act of 1995 

(‘‘PRA’’).101 The hours and costs 

associated with preparing and filing 

forms and retaining records constitute 

reporting and cost burdens imposed by 

the collection of information 

requirements. An agency may not 

conduct or sponsor, and a person is not 

required to respond to, a collection of 

information requirement unless it 

displays a currently valid Office of 

Management and Budget (‘‘OMB’’) 

control number. Compliance with the 

information collections is mandatory. 

Responses to the information collections 

are not kept confidential and there is no 

mandatory retention period for the 

collections of information. 

The amendments proposed today do 

not alter the disclosure requirements set 

forth in the rules and forms; however, 


tkelley on DSK3SPTVN1PROD with PROPOSALS
78358 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 

102We are proposing to amend Rule 12g–1 to 

reflect the new higher thresholds in Section 12(g)(1) 

and to establish an increased registration threshold 

for savings and loan holding companies. 

103The changes to Rule 12g5–1 are expected to 

affect the number of issuers required to register 

with the Commission; however, we do not have 

access to data to support an estimate of the number 

of issuers that will not be required to file reports 

based on the JOBS Act amendments and our 

proposed implementation of such amendments. 

Due to the lack of data, for PRA purposes we are 

not intending to provide a reduced estimate of the 

number of issuers. 

104 17 CFR 249.10. 

105 17 CFR 249.220f. 

106 17 CFR 249.240f. 

107 17 CFR 249.310. 

108 17 CFR 249.308a. 

109 17 CFR 249.308. 

110 17 CFR 240.14a–101. 

111 17 CFR 240.14c–101. 

112After the JOBS Act became effective, we saw 

an increase in the number of termination and 

suspension of registrations by bank holding 

companies. We do not anticipate a similar rate of 

deregistration for bank holding companies after 

revising our rules to reflect the new, higher 

deregistration threshold. 

113 44 U.S.C. 3507(d); 5 CFR 1320.11. 

114Public Law 104–121, Tit. II, 110 Stat. 857 

(1996). 

the JOBS Act amendments to Exchange 

Act Sections 12(g) and 15(d) and the 

proposed amendments to our rules to 

reflect those statutory amendments are 

expected to immaterially decrease the 

number of filings made pursuant to 

these rules and forms. Exchange Act 

Rules 12g–1, 12g–2, 12g–3, 12g–4 and 

12h–3 set forth when an issuer’s 

securities are required to be registered 

and the procedures for a registrant to 

terminate its registration or suspend its 

duty to file reports. The proposed 

amendments would provide thresholds 

that issuers may rely on when 

determining their registration and 

reporting obligations and would allow 

savings and loan holding companies to 

use the same registration and 

termination of registration or 

suspension of reporting thresholds that 

apply to banks and bank holding 

companies.102 Exchange Act Section 

12(g)(5) and the proposed amendment to 

Exchange Act Rule 12g5–1 also exclude 

securities received pursuant to certain 

employee compensation plans from the 

determination of when an issuer is 

required to initially register with the 

Commission. These changes would 

reduce the number of registrants 

required to continue filing with the 

Commission and also reduce the 

number of issuers required to initially 

register a class of securities.103 For 

purposes of the PRA, we estimate that 

the amendments would not materially 

reduce the number of filings received, 

nor would the changes affect the 

incremental burden or cost per filing. 

The titles for the affected collections 

of information are: 

(1) ‘‘Form 10’’ (OMB Control No. 

3235–0064); 104

(2) ‘‘Form 20–F’’ (OMB Control No. 

3235–0288); 105

(3) ‘‘Form 40–F’’ (OMB Control No. 

3235–0381); 106

(4) ‘‘Form 10–K’’ (OMB Control No. 

3235–0063); 107

(5) ‘‘Form 10–Q’’ (OMB Control No. 

3235–0070); 108

(6) ‘‘Form 8–K’’ (OMB Control No. 

3235–0060); 109

(7) ‘‘Schedule 14A’’ (OMB Control No. 

3235–0059); 110

(8) ‘‘Schedule 14C’’ (OMB Control No. 

3235–0057); 111

(9) ‘‘Form 15’’ (OMB Control No. 

3235–0167). 

The forms were adopted under the 

Exchange Act and set forth the 

disclosure requirements for periodic, 

current and other reports required to be 

filed by issuers registered with the 

Commission. 

We estimate that there are 

approximately 625 Exchange Act 

registrants that are bank holding 

companies or savings and loan holding 

companies. We estimate that 

approximately 90 bank holding 

companies have filed Forms 15 to 

terminate or suspend their reporting 

obligations under the Exchange Act 

based on the statutory changes in the 

JOBS Act.112 We further estimate that 

approximately 90 savings and loan 

holding companies or similar entities 

with fewer than 1,200 holders of record 

would be eligible to file a Form 15 after 

our proposed changes. To put these 

numbers in context, the current PRA 

estimate for the number of annual 

reports on Form 10–K filed annually is 

8,137. Because the proposed rule 

amendments do not affect our estimates 

of the burden or cost per filing and we 

do not anticipate a material decrease in 

the number of filings as a result of the 

proposed rule amendments, we are not 

submitting revised burden estimates for 

these collections of information to OMB 

for review in accordance with the PRA 

and its implementing regulations at this 

time.113

We request comment on our approach 

and the accuracy of the current 

estimates. Pursuant to 44 U.S.C. 

3506(c)(2)(A), the Commission solicits 

comments to: (1) Evaluate whether the 

collection of information is necessary 

for the proper performance of the 

functions of the agency, including 

whether the information will have 

practical utility; (2) evaluate the 

accuracy of the Commission’s estimate 

of burden of the collection of 

information; (3) determine whether 

there are ways to enhance the quality, 

utility and clarity of the information to 

be collected; and (4) evaluate whether 

there are ways to minimize the burden 

of the collection of information on those 

who are required to respond, including 

through the use of automated collection 

techniques or other forms of information 

technology. 

Persons submitting comments on the 

collection of information requirements 

should direct the comments to the 

Office of Management and Budget, 

Attention: Desk Officer for the 

Securities and Exchange Commission, 

Office of Information and Regulatory 

Affairs, Washington, DC 20503, and 

send a copy to Secretary, Securities and 

Exchange Commission, 100 F Street NE., 

Washington, DC 20549–1090, with 

reference to File No. S7–12–14. 

Requests for materials submitted to 

OMB by the Commission with regard to 

these collections of information should 

be in writing, refer to File No. S7–12– 

14, and be submitted to the Securities 

and Exchange Commission, Office of 

FOIA Services, 100 F Street NE., 

Washington, DC 20549–2736. OMB is 

required to make a decision concerning 

the collection of information between 30 

and 60 days after publication of this 

release. Consequently, a comment to 

OMB is assured of having its full effect 

if OMB receives it within 30 days of 

publication. 

VII. Small Business Regulatory 

Enforcement Fairness Act 

For purposes of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (‘‘SBREFA’’),114 the Commission 

must advise OMB as to whether a 

proposed regulation constitutes a 

‘‘major’’ rule. Under SBREFA, a rule is 

considered ‘‘major’’ where, if adopted, it 

results or is likely to result in: 

• An annual effect on the economy of 

$100 million or more (either in the form 

of an increase or a decrease); 

• a major increase in costs or prices 

for consumers or individual industries; 

or 

• significant adverse effects on 

competition, investment or innovation. 

If a rule is ‘‘major,’’ its effectiveness will 

generally be delayed for 60 days 

pending Congressional review. 

We request comment on whether our 

proposed amendments would be a 

‘‘major rule’’ for purposes of SBREFA. 

We solicit comment and empirical data 

on: 

• The potential effect on the U.S. 

economy on an annual basis; 


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115 17 CFR 270.0–10(a). 

116 17 CFR 240.0–10(a). 

• any potential increase in costs or 

prices for consumers or individual 

industries; and 

• any potential effect on competition, 

investment or innovation. 

We request those submitting comments 

to provide empirical data and other 

factual support for their views to the 

extent possible. 

VIII. Initial Regulatory Flexibility Act 

Analysis 

The Commission has prepared this 

Initial Regulatory Flexibility Act 

Analysis in accordance with 5 U.S.C. 

603. This Initial Regulatory Flexibility 

Act Analysis relates to the proposed 

amendments to Securities Act Rule 405 

and Exchange Act Rules 3b–4, 12g–1, 

12g–2, 12g–3, 12g–4, 12g5–1, and 12h– 

3. 

A. Reasons for, and Objectives of, the 

Proposed Action 

The primary reason for, and objective 

of, the proposed amendments is to 

implement Title V and Title VI of the 

JOBS Act. The JOBS Act directs the 

Commission to issue rules to implement 

the changes and specifically charges the 

Commission with amending the 

definition of ‘‘held of record’’ and 

establishing a safe harbor for the 

determination relating to ‘‘employee 

compensation plan’’ securities. We are 

proposing rules that would revise 

existing rules to reflect the new, higher 

Exchange Act registration, termination 

of registration and suspension of 

reporting thresholds for banks and bank 

holding companies, apply the definition 

of ‘‘accredited investor’’ in Securities 

Act Rule 501(a) in making 

determinations under Exchange Act 

Section 12(g)(1), revise the definition of 

‘‘held of record’’ to exclude certain 

securities held by persons who received 

them pursuant to employee 

compensation plans, and establish a 

non-exclusive safe harbor for issuers to 

follow when determining whether those 

securities are ‘‘held of record.’’ We are 

also proposing to provide relief from the 

Exchange Act registration requirements 

for savings and loan holding companies 

by applying the same thresholds to 

savings and loan holding companies 

that apply to banks and bank holding 

companies. Permitting savings and loan 

holding companies to register, terminate 

registration and suspend reporting using 

the same thresholds as banks and bank 

holding companies would provide 

consistent treatment across depository 

institutions. Revising the definition and 

providing a non-exclusive safe harbor to 

issuers relating to the determination of 

securities ‘‘held of record’’ would 

further assist issuers in determining 

which holders of record they are 

required to count under the registration 

requirements of Exchange Act Section 

12(g). 

B. Small Entities Subject to the 

Proposed Rules 

For purposes of the Regulatory 

Flexibility Act, an investment company 

is a small entity if it, together with other 

investment companies in the same 

group of related investment companies, 

has net assets of $50 million or less as 

of the end of its most recent fiscal 

year.115 Exchange Act Rule 0–10(a) 116

defines an entity, other than an 

investment company, to be 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 

approximately 900 issuers that are 

required to file with the Commission, 

other than investment companies, that 

may be considered small entities. 

The proposed rules establishing the 

use of the Securities Act Rule 501(a) 

definition of ‘‘accredited investor’’ 

under Exchange Act Section 12(g)(1) 

and amending the definition of ‘‘held of 

record’’ to exclude certain securities 

held by persons who received them 

pursuant to employee compensation 

plans and establishing a non-exclusive 

safe harbor for issuers to follow when 

determining whether those securities 

are ‘‘held of record’’ may affect small 

issuers relying on the revised rules and 

safe harbor to determine the number of 

holders of record. While an issuer is not 

required to register a class of equity 

securities pursuant to Section 12(g) of 

the Exchange Act until the issuer’s total 

assets exceed $10 million, a small 

business or small organization may rely 

on the rules when determining to whom 

to issue securities and whether to 

compensate employees with securities. 

By providing guidance on the meaning 

of the term ‘‘accredited investor’’ in the 

Exchange Act context, the proposed 

rules may facilitate private offerings and 

the ability of an issuer to determine 

their registration and reporting 

obligations. By excluding certain 

employee compensation securities from 

the definition of ‘‘held of record,’’ the 

proposed rules would facilitate the use 

of equity compensation by small issuers, 

thereby helping them to preserve cash 

and giving them greater ability to 

determine when the Exchange Act 

Section 12(g) registration obligation 

would be triggered. 

We cannot estimate the number of 

small entities affected by these proposed 

rules. By definition, they are not yet 

subject to Section 12(g) registration and 

reporting requirements, which are 

triggered by the issuer having total 

assets exceeding $10 million as of the 

last day of its fiscal year. We do not 

otherwise have information about the 

number of shareholders at small 

entities, including those who have 

received securities as a result of 

employee compensation plans. We 

request comment on the number of 

small entities that would be impacted 

by our proposals, including any 

available empirical data. 

C. Projected Reporting, Recordkeeping 

and Other Compliance Requirements 

When determining whether an issuer 

must register under Section 12(g)(1), the 

issuer would be permitted to rely on the 

proposed rules. The proposed use of the 

Securities Act Rule 501(a) definition of 

‘‘accredited investor’’ and safe harbor 

under the proposed amendment to the 

definition of ‘‘held of record’’ would 

assist an issuer in determining the 

number of holders of record. In order for 

an issuer to rely on the safe harbor, the 

securities would need to be issued in a 

transaction exempt from, or not subject 

to, the registration requirements and 

satisfy the requirements of Rule 701(c), 

which includes the requirement that the 

securities be offered or sold under a 

written compensatory benefit plan or 

written compensation contract. In 

addition, issuers seeking to rely upon 

the safe harbor may need to maintain 

records to help establish their 

compliance with the safe harbor 

conditions. We are not aware of any 

other recordkeeping or compliance 

requirements associated with the 

proposed definition and safe harbor. 

The proposed rules and amendments 

affecting banks, bank holding 

companies and savings and loan 

holding companies would not add any 

new reporting, recordkeeping or other 

compliance requirements on those 

entities and we are not aware of any 

bank, bank holding company, or savings 

and loan holding company registrants 

with less than $5 million in assets. The 

proposed rules would raise the 

thresholds relating to registration for 

those entities and reduce their 

compliance burdens. 

D. Duplicative, Overlapping or 

Conflicting Federal Rules 

The Commission believes that there 

are no rules that duplicate, overlap or 

conflict with the proposed rules or 

amendments. 


tkelley on DSK3SPTVN1PROD with PROPOSALS
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117 5 U.S.C. 603(c). 

118Under Section 12(g) an issuer is not required 

to register unless the issuer has total assets 

exceeding $10 million at the end of its fiscal year. 

E. Significant Alternatives 

Pursuant to Section 3(a) of the 

Regulatory Flexibility Act,117 the 

Commission must consider certain types 

of alternatives, including: (1) The 

establishment of differing compliance or 

reporting requirements or timetables 

that take into account the resources 

available to small entities; (2) the 

clarification, consolidation or 

simplification of compliance and 

reporting requirements under the rule 

for small entities; (3) the use of 

performance rather than design 

standards; and (4) an exemption from 

coverage of the rule, or any part of the 

rule, for small entities. 

We are proposing that the current 

definition of ‘‘accredited investor’’ in 

Securities Act Rule 501(a) apply in 

making determinations under Exchange 

Act Rule 12g–1(b)(1). We could develop 

a new definition of ‘‘accredited 

investor’’ for purposes of Section 

12(g)(1); however, given the prevalence 

of the use of Regulation D for exempt 

offerings, many issuers are familiar with 

and rely upon the definition in Rule 

501(a). The increased registration 

threshold established by the JOBS Act is 

intended to permit issuers, including 

small entities, to defer Exchange Act 

registration until issuers have a larger 

shareholder base. Because proposed 

Rule 12g–1(b)(1) is intended to facilitate 

an issuer’s ability to make the 

determination of when it is required to 

register, we believe use of the familiar 

Rule 501(a) definition of ‘‘accredited 

investor’’ will further this regulatory 

objective for all issuers, including small 

entities. 

The proposed amendment to the 

definition of ‘‘held of record’’ and 

related safe harbor, if adopted, would 

apply to all issuers, including small 

entities, that choose to exclude 

securities held by persons who received 

them pursuant to employee 

compensation plans in certain exempt 

transactions or transactions not 

involving a sale within the meaning of 

Securities Act Section 2(a)(3). The 

proposed amendment and safe harbor 

help define the contours of an 

exemption from registration for issuers 

that might otherwise cross the Section 

12(g) registration thresholds. 

The proposed rules are intended to 

permit issuers, including small entities, 

to exclude certain securities from the 

determination and to assist issuers in 

making that determination by clarifying 

and simplifying requirements for all 

entities. Establishing different 

compliance or reporting requirements 

relating to employee compensation plan 

securities or accredited investor 

determinations for small entities could 

complicate the rules and make them 

more difficult to apply as those issuers 

grow, cease to be small entities, and are 

required to determine whether they 

must register with the Commission.118

With respect to the use of performance 

standards rather than design standards, 

we note that the holder of record 

threshold is a statutorily created design 

standard, requiring issuers to register if 

their holders of record coupled with 

their total assets cross the threshold. As 

we are modifying the definition of ‘‘held 

of record’’ and clarifying the 

determination of ‘‘accredited investor’’ 

under this statutory design standard, we 

did not evaluate whether a performance 

standard would be more useful. 

F. Solicitation of Comment 

We are soliciting comments regarding 

this analysis. We request comment on 

the number of small entities that would 

be subject to the rules and whether the 

proposed rules would have any effects 

that have not been discussed. We 

request that commenters describe the 

nature of any effects on small entities 

subject to the rules and provide 

empirical data to support the nature and 

extent of the effects. 

IX. Statutory Authority and Text of 

Proposed Rule Amendments 

The amendments contained in this 

release are being proposed under the 

authority set forth in Section 19 of the 

Securities Act, as amended, Sections 

3(b), 12(g), 12(h), 15(d) and 23(a) of the 

Exchange Act, as amended, and Section 

503 and Section 602 of the JOBS Act. 

List of Subjects in 17 CFR Parts 230 and 

240 

Reporting and recordkeeping 

requirements, Securities. 

Text of the Amendments 

For the reasons set out above, the 

Commission proposes to amend Title 

17, chapter II of the Code of Federal 

Regulations, as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for part 230 

continues to read as follows: 

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

77d, 77d note, 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), 126 

Stat. 313 (2012), unless otherwise noted. 

* * * * * 

■ 2. Amend § 230.405 by adding an 

Instruction to paragraph (1) to the 

definition of ‘‘Foreign private issuer’’ to 

read as follows: 

§ 230.405 Definitions of terms. 

* * * * * 

Foreign private issuer. (1) * * * 

INSTRUCTION TO PARAGRAPH (1): 

To determine the percentage of 

outstanding voting securities held by 

U.S. residents: 

A. Use the method of calculating 

record ownership in § 240.12g3–2(a) of 

this chapter, except that: 

(1) The inquiry as to the amount of 

shares represented by accounts of 

customers resident in the United States 

may be limited to brokers, dealers, 

banks and other nominees located in: 

(i) The United States, 

(ii) The issuer’s jurisdiction of 

incorporation, and 

(iii) The jurisdiction that is the 

primary trading market for the issuer’s 

voting securities, if different than the 

issuer’s jurisdiction of incorporation; 

and 

(2) Notwithstanding § 240.12g5– 

1(a)(7)(i)(A) of this chapter, the issuer 

shall not exclude securities held by 

persons who received the securities 

pursuant to an employee compensation 

plan. 

B. If, after reasonable inquiry, the 

issuer is unable to obtain information 

about the amount of shares represented 

by accounts of customers resident in the 

United States, the issuer may assume, 

for purposes of this definition, that the 

customers are residents of the 

jurisdiction in which the nominee has 

its principal place of business. 

C. Count shares of voting securities 

beneficially owned by residents of the 

United States as reported on reports of 

beneficial ownership provided to the 

issuer or filed publicly and based on 

information otherwise provided to the 

issuer. 

* * * * * 

PART 240—GENERAL RULES AND 

REGULATIONS, SECURITIES 

EXCHANGE ACT OF 1934 

■ 3. The general authority citation for 

part 240 is revised to read 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. 


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

1350, Pub. L. 111–203, 939A, 124 Stat. 1376, 

2010, and Pub. L. 112–106, sec. 503 and 602, 

126 Stat. 326 (2012), unless otherwise noted. 

* * * * * 

■ 4. Amend § 240.3b–4 by revising the 

Instruction to Paragraph (c)(1) to read as 

follows: 

§ 240.3b–4 Definition of ‘‘foreign 

government,’’ ‘‘foreign issuer’’ and ‘‘foreign 

private issuer’’. 

* * * * * 

(c) * * * 

INSTRUCTION TO PARAGRAPH 

(c)(1): To determine the percentage of 

outstanding voting securities held by 

U.S. residents: 

A. Use the method of calculating 

record ownership in § 240.12g3–2(a), 

except that: 

(1) Your inquiry as to the amount of 

shares represented by accounts of 

customers resident in the United States 

may be limited to brokers, dealers, 

banks and other nominees located in: 

(i) The United States, 

(ii) Your jurisdiction of incorporation, 

and 

(iii) The jurisdiction that is the 

primary trading market for your voting 

securities, if different than your 

jurisdiction of incorporation; and 

(2) Notwithstanding § 240.12g5– 

1(a)(7)(i)(A) of this chapter, you shall 

not exclude securities held by persons 

who received the securities pursuant to 

an employee compensation plan. 

B. If, after reasonable inquiry, you are 

unable to obtain information about the 

amount of shares represented by 

accounts of customers resident in the 

United States, you may assume, for 

purposes of this definition, that the 

customers are residents of the 

jurisdiction in which the nominee has 

its principal place of business. 

C. Count shares of voting securities 

beneficially owned by residents of the 

United States as reported on reports of 

beneficial ownership provided to you or 

filed publicly and based on information 

otherwise provided to you. 

* * * * * 

■ 5. Revise § 240.12g–1 and the section 

heading to read as follows: 

§ 240.12g–1 Registration of securities; 

Exemption from section 12(g). 

An issuer is not required to register a 

class of equity security pursuant to 

section 12(g)(1) of the Act (15 U.S.C. 

78l(g)(1)) if on the last day of its most 

recent fiscal year: 

(a) The issuer had total assets not 

exceeding $10 million; or 

(b) (1) The class of equity security was 

held of record by fewer than 2,000 

persons or 500 persons who are not 

accredited investors (as such term is 

defined in § 230.501(a) of this chapter, 

determined on such day rather than at 

the time of the sale of the securities); or 

(2) In the case of a bank; a savings and 

loan holding company, as such term is 

defined in section 10 of the Home 

Owners’ Loan Act (12 U.S.C. 1461); or 

a bank holding company, as such term 

is defined in section 2 of the Bank 

Holding Company Act of 1956 (12 

U.S.C. 1841); the class of equity security 

was held of record by fewer than 2,000 

persons. 

■ 6. Revise § 240.12g–2 to read as 

follows: 

§ 240.12g–2 Securities deemed to be 

registered pursuant to section 12(g)(1) upon 

termination of exemption pursuant to 

section 12(g)(2)(A) or (B). 

Any class of securities which would 

have been required to be registered 

pursuant to section 12(g)(1) of the Act 

(15 U.S.C. 78l(g)(1)) except for the fact 

that it was exempt from such 

registration by section 12(g)(2)(A) of the 

Act (15 U.S.C. 78l(g)(2)(A)) because it 

was listed and registered on a national 

securities exchange, or by section 

12(g)(2)(B) of the Act (15 U.S.C. 

78l(g)(2)(B)) because it was issued by an 

investment company registered 

pursuant to section 8 of the Investment 

Company Act of 1940 (15 U.S.C. 80a–8), 

shall upon the termination of the listing 

and registration of such class or the 

termination of the registration of such 

company and without the filing of an 

additional registration statement be 

deemed to be registered pursuant to 

section 12(g)(1) if at the time of such 

termination: 

(a) The issuer of such class of 

securities has elected to be regulated as 

a business development company 

pursuant to sections 55 through 65 of 

the Investment Company Act of 1940 

(15 U.S.C. 80a–54 through 64) and such 

election has not been withdrawn; or 

(b) Securities of the class are not 

exempt from such registration pursuant 

to section 12 of the Act (15 U.S.C. 78l) 

or rules thereunder and all securities of 

such class are held of record by 300 or 

more persons, or in the case of a bank; 

a savings and loan holding company, as 

such term is defined in section 10 of the 

Home Owners’ Loan Act (12 U.S.C. 

1461); or a bank holding company, as 

such term is defined in section 2 of the 

Bank Holding Company Act of 1956 (12 

U.S.C. 1841); 1,200 or more persons. 

■ 7. Amend § 240.12g–3 by revising 

paragraphs (a)(2), (b)(2) and (c)(2) to 

read as follows: 

§ 240.12g–3 Registration of securities of 

successor issuers under section 12(b) or 

12(g). 

(a) * * * 

(2) All securities of such class are 

held of record by fewer than 300 

persons, or in the case of a bank; a 

savings and loan holding company, as 

such term is defined in section 10 of the 

Home Owners’ Loan Act (12 U.S.C. 

1461); or a bank holding company, as 

such term is defined in section 2 of the 

Bank Holding Company Act of 1956 (12 

U.S.C. 1841); 1,200 persons. 

* * * * * 

(b) * * * 

(2) All securities of such class are 

held of record by fewer than 300 

persons, or in the case of a bank; a 

savings and loan holding company, as 

such term is defined in section 10 of the 

Home Owners’ Loan Act (12 U.S.C. 

1461); or a bank holding company, as 

such term is defined in section 2 of the 

Bank Holding Company Act of 1956 (12 

U.S.C. 1841); 1,200 persons. 

* * * * * 

(c) * * * 

(2) All securities of such class are 

held of record by fewer than 300 

persons, or in the case of a bank; a 

savings and loan holding company, as 

such term is defined in section 10 of the 

Home Owners’ Loan Act (12 U.S.C. 

1461); or a bank holding company, as 

such term is defined in section 2 of the 

Bank Holding Company Act of 1956 (12 

U.S.C. 1841); 1,200 persons. 

* * * * * 

■ 8. Amend § 240.12g–4 by revising 

paragraph (a) to read as follows: 

§ 240.12g–4 Certifications of termination 

of registration under section 12(g). 

(a) Termination of registration of a 

class of securities under section 12(g) of 

the Act (15 U.S.C. 78l(g)) shall take 

effect 90 days, or such shorter period as 

the Commission may determine, after 

the issuer certifies to the Commission 

on Form 15 (§ 249.323 of this chapter) 

that the class of securities is held of 

record by: 

(1) Fewer than 300 persons; 

(2) Fewer than 500 persons, where the 

total assets of the issuer have not 

exceeded $10 million on the last day of 

each of the issuer’s most recent three 

fiscal years; or 

(3) In the case of a bank; a savings and 

loan holding company, as such term is 

defined in section 10 of the Home 

Owners’ Loan Act (12 U.S.C. 1461); or 

a bank holding company, as such term 

is defined in section 2 of the Bank 

Holding Company Act of 1956 (12 

U.S.C. 1841); fewer than 1,200 persons. 

* * * * * 


tkelley on DSK3SPTVN1PROD with PROPOSALS
78362 Federal Register / Vol. 79, No. 249 / Tuesday, December 30, 2014 / Proposed Rules 

■ 9. Amend § 240.12g5–1 by adding 

paragraph (a)(7) to read as follows: 

§ 240.12g5–1 Definition of securities ‘‘held 

of record’’. 

* * * * * 

(a) * * * 

(7)(i) For purposes of determining 

whether an issuer is required to register 

a class of equity securities with the 

Commission pursuant to section 12(g)(1) 

of the Act (15 U.S.C. 78l(g)(1)), an issuer 

may exclude securities: 

(A) Held by persons who received the 

securities pursuant to an employee 

compensation plan in transactions; 

(1) Exempt from the registration 

requirements of section 5 of the 

Securities Act of 1933 (15 U.S.C. 77e); 

or 

(2) That did not involve a sale within 

the meaning of section 2(a)(3) of the 

Securities Act of 1933 (15 U.S.C. 

77b(a)(3)); and 

(B) Held by persons eligible to receive 

securities from the issuer pursuant to 

§ 230.701(c) of this chapter who 

received the securities in a transaction 

exempt from the registration 

requirements of section 5 of the 

Securities Act (15 U.S.C. 77e) in 

exchange for securities excludable 

under this paragraph (a)(7). 

(ii) As a non-exclusive safe harbor 

under this paragraph (a)(7), a person 

will be deemed to have received the 

securities pursuant to an employee 

compensation plan if such person 

received the securities pursuant to a 

compensatory benefit plan in 

transactions that meet the conditions of 

§ 230.701(c) of this chapter. 

* * * * * 

■ 10. Amend § 240.12h–3 by revising 

paragraph (b)(1) to read as follows: 

§ 240.12h–3 Suspension of duty to file 

reports under section 15(d). 

* * * * * 

(b) * * * 

(1) Any class of securities, other than 

any class of asset-backed securities, held 

of record by: 

(i) Fewer than 300 persons; 

(ii) Fewer than 500 persons, where the 

total assets of the issuer have not 

exceeded $10 million on the last day of 

each of the issuer’s three most recent 

fiscal years; or 

(iii) In the case of a bank; a savings 

and loan holding company, as such term 

is defined in section 10 of the Home 

Owners’ Loan Act (12 U.S.C. 1461); or 

a bank holding company, as such term 

is defined in section 2 of the Bank 

Holding Company Act of 1956 (12 

U.S.C. 1841); fewer than 1,200 persons; 

and 

* * * * * 

By the Commission. 

Dated: December 17, 2014. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2014–30136 Filed 12–29–14; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF DEFENSE 

Office of the Secretary 

32 CFR Part 199 

[DOD–2014–HA–0133] 

RIN 0720–AB62 

TRICARE; Revision of Nonparticipating 

Providers Reimbursement Rate; 

Removal of Cost Share for Dental 

Sealants; TRICARE Dental Program 

AGENCY: Office of the Secretary, DoD. 

ACTION: Proposed rule. 

SUMMARY: The Department of Defense 

(DoD) proposes several amendments to 

the TRICARE Dental Program (TDP) 

regulation. Specifically, this proposed 

rule revises the benefit payment 

provision for nonparticipating providers 

to more closely mirror industry 

practices by requiring TDP 

nonparticipating providers to be 

reimbursed (minus the appropriate costshare) at the lesser of billed charges: or 

the network maximum allowable charge 

for similar services in that same locality 

(region) or state. This rule also updates 

the regulatory provisions regarding 

dental sealants to clearly categorize 

them as a preventive service and, 

consequently, eliminate the current 20 

percent cost-share applicable to sealants 

to conform the language in the 

regulation to the statute. 

DATES: Written comments received at 

the address indicated below by March 2, 

2015 will be accepted. 

ADDRESSES: You may submit comments, 

identified by docket number and or 

Regulatory Information Number (RIN) 

number and title, by any of the 

following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Mail: Federal Docket Management 

System Office, 4800 Mark Center Drive, 

Suite 02G09, Alexandria, VA 22350– 

3100. 

Instructions: All submissions received 

must include the agency name and 

docket number or RIN for this Federal 

Register document. The general policy 

for comments and other submissions 

from members of the public is to make 

these submissions available for public 

viewing on the Internet at http://

www.regulations.gov as they are 

received without change, including any 

personal identifiers or contact 

information. 

FOR FURTHER INFORMATION CONTACT: Col 

Gary C. Martin, Defense Health Agency, 

telephone (703) 681–0039. 

SUPPLEMENTARY INFORMATION: 

I. Executive Summary 

1. Purpose of Regulatory Actions 

a. Need for Regulatory Actions 

(1) Revision of Nonparticipating 

Providers’ Reimbursement Rate 

Prior to 2006, TRICARE Dental 

Program (TDP) participating and 

nonparticipating providers were 

reimbursed at the equivalent of not less 

than the 50th percentile of prevailing 

charges made for similar services in the 

same locality (region) or state, or the 

provider’s actual charge, whichever is 

lower, less any cost-share amount due 

for authorized services. This provision 

was included in the regulation to 

constitute a significant financial 

incentive for participation of providers 

in the contractor’s network and to 

ensure a network of quality providers 

through use of a higher reimbursement 

rate. Over time, the Department 

discovered that this provision placed an 

unnecessary burden on contractors with 

already established, high quality 

provider networks with reimbursement 

rates below the 50th percentile that 

were of sufficient size to meet the access 

requirements of the TDP. Consequently, 

the Department of Defense published a 

final rule in the Federal Register on 

January 11, 2006 (71 FR 1695), revising 

the participating provider’s 

reimbursement rate for the TDP that has 

resulted in significant cost savings to 

the TDP enrollees and the Government. 

Since over 80 percent of all TDP care 

was provided by network dentists, the 

need to also change the reimbursement 

rate for nonparticipating dentists was 

overlooked and not included in the 

2006 rule change. However, over the 

past eight years this has created an 

incentive for some network providers to 

leave the TDP network and for other 

providers not to become network 

providers. As the rule is currently 

written, depending on the geographic 

location, some non-network providers 

are actually reimbursed at a higher 

amount than they would have been had 

they been a participating provider and 

receiving the negotiated network rate. 

Specifically, the revision will require 

TDP nonparticipating providers to be 

reimbursed (minus the appropriate costshare) at the lesser of (1) billed charges: 


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