Recently Enacted Transportation Law Includes a Number of Changes to the Federal Securities Laws
Dec. 10, 2015
On Friday, December 4, 2015, President Obama signed into law H.R.22 -- the Fixing America’s Surface Transportation (FAST) Act. The new law includes several amendments to the federal securities laws. Some of these provisions must be implemented by Commission rulemaking or study, while others are self-executing. Consistent with its practice following enactment of the JOBS Act, the Division intends to consider providing additional guidance as questions are presented.
The Division of Corporation Finance today highlights the new provisions.
Title LXXI, Improving Access to Capital for Emerging Growth Companies
Section 71001 – Filing Requirement for Public Filing Prior to Public Offering
The JOBS Act allows “emerging growth companies” (EGCs) to submit for confidential, non-public staff review a draft registration statement for an initial public offering. Section 6(e) of the Securities Act previously required the issuer to publicly file the registration statement and all previously submitted drafts no later than 21 days before the date on which the issuer conducts a road show. Section 71001 of the FAST Act shortens that period to 15 days. This provision became effective upon enactment. EGCs with initial public offerings pending before the FAST Act became law or at any time thereafter may take advantage of the provision. Consistent with the Division’s JOBS Act interpretations of Section 6(e), if an EGC does not conduct a road show, the non-public drafts must be filed at least 15 days before the effectiveness of the registration statement.
Section 71002 – Grace Period for Change of Status of Emerging Growth Companies
The FAST Act also amends Section 6(e)(1) to provide that an issuer that qualifies as an EGC at the time it initiates the registration process, either by submitting a draft registration statement or by filing it publicly, but which subsequently ceases to be an EGC, will continue to be treated as an EGC until the earlier of the date on which the issuer “consummates its initial public offering . . . or the end of the 1-year period beginning on the date the company ceases to be an emerging growth company.” This provision became effective upon enactment. In the Division’s view, EGCs with registration statements pending at the time of enactment may rely on the provision.
Section 71003 – Simplified Disclosure Requirements for Emerging Growth Companies
Section 71003 amends Section 102 of the JOBS Act to allow an issuer that is an EGC to “omit financial information for historical periods otherwise required by Regulation S-X” if it “reasonably believes [the omitted information] will not be required to be included in the [filing] at the time of the contemplated offering,” so long as the issuer amends the registration statement prior to distributing a preliminary prospectus to include all financial information required at the time of the amendment. The provision will become effective 30 days after the date of enactment. The provision further directs the Commission to amend the instructions to Forms S-1 and F-1 to reflect this statutory change. The Division will not object if EGCs apply this provision immediately.
Title LXXII – Disclosure Modernization and Simplification
Section 72001 – Summary Page for Form 10-K
Section 72001 requires the Commission to issue rules that permit issuers to include a summary page in their annual reports filed on Form 10-K. Currently, an issuer is not prohibited from including a summary in an annual report on Form 10-K provided the summary fairly represents the material information in the report. The FAST Act imposes an additional requirement that each item in the summary must include a cross-reference to material contained in the Form 10-K. Rulemaking will be required to implement this provision.
Section 72002 – Improvement of Regulation S-K
The statute requires the Commission to revise Regulation S-K to further scale or eliminate requirements relating to EGCs, accelerated filers, smaller reporting companies and other smaller issuers, and eliminate duplicative, overlapping, outdated or unnecessary provisions of Regulation S-K. The required revisions would not apply to provisions for which the Commission determines that further study is necessary to determine their efficacy.
Section 72003 – Study on Modernization and Simplification of Regulation S-K
The statute requires the Commission to carry out a study of the requirements of Regulation S-K to determine how best to modernize and simplify disclosure requirements, emphasizing a company by company approach without boilerplate or static requirements, and evaluate methods of information delivery and presentation that discourage repetition and disclosure of immaterial information. The Commission is required to consult with the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies and issue a report of findings and recommendations to Congress.
Title LXXVI – Reforming Access for Investments in Startup Enterprises
Section 76001 -- Exempted Transactions
The statute adds a new exemption to Section 4 of the Securities Act for secondary sales of securities that are purchased by an accredited investor, among other requirements. This new exemption became effective upon enactment and does not require Commission rulemaking.
Title LXXXIV – Small Company Simple Registration
Section 84001 – Forward Incorporation by Reference for Form S-1
The statute requires the Commission to amend Form S-1 to allow smaller reporting companies to incorporate by reference in a registration statement on that form any documents that the company files after the effective date of the registration statement. This provision will require Commission rulemaking.
Title LXXXV – Holding Company Registration Threshold Equalization
Section 85001 – Registration Threshold for Savings and Loan Holding Companies
The FAST Act amends Section 12(g) of the Exchange Act 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. This provision became effective upon enactment. The Division is evaluating the effect of this provision on the Commission’s proposal, Changes to Exchange Act Registration Requirements to Implement Title V and Title VI of the JOBS Act, Release No. 33-9693 (http://www.gpo.gov/fdsys/pkg/FR-2014-12-30/pdf/2014-30136.pdf).
December 10, 2015