==========================================START OF PAGE 1======
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230
[Release No. 33-7418; File Number S7-6-97]
RIN 3235-AH14
Definition of "prepared by or on behalf of the issuer" for
purposes of determining if an offering document is subject to
state regulation.
AGENCY: Securities and Exchange Commission
ACTION: Final Rule
SUMMARY: The National Securities Markets Improvements Act of
1996 mandates that the Securities and Exchange Commission
("Commission") adopt a definition of the phrase "prepared by or
on behalf of the issuer" found in Section 18 of the Securities
Act of 1933. The Commission today adopts this definition,
thereby providing guidance as to when an offering document is
subject to state regulation.
EFFECTIVE DATE: Rule 146 will be effective on May 6, 1997.
FOR FURTHER INFORMATION CONTACT: James R. Budge, Division of
Corporation Finance, at (202) 942-2950, Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Commission today adds Rule
146 -[1]- under the Securities Act of 1933 ("Securities Act"
or "the Act"). -[2]- The Rule defines the term "prepared by
or on behalf of the issuer," for purposes of recently revised
Section 18 of the Act. -[3]-
---------FOOTNOTES----------
-[1]- The rule is codified at 17 CFR 230.146.
-[2]- 15 U.S.C. 77a et seq.
-[3]- 15 U.S.C. 77r.
==========================================START OF PAGE 2======
I. BACKGROUND
Congress enacted the National Securities Markets Improvement
Act of 1996, which became effective on October 11, 1996.
-[4]- The statute reallocates regulatory responsibility
relating to securities offerings between the federal and state
governments based on the nature of the security or offering.
Among other things, it preempts state laws requiring or with
respect to registration or qualification of covered securities as
defined in the Act. -[5]- It also prohibits states from
directly or indirectly prohibiting, limiting or imposing any
conditions on the use of any offering document for a covered
security if the offering document is "prepared by or on behalf of
the issuer." -[6]-
II. RULE 146
The statute requires the Commission to define by rule the
phrase "prepared by or on behalf of the issuer," as used in
---------FOOTNOTES----------
-[4]- P.L. 104-290, 110 Stat. 3416 (1996).
-[5]- The term "covered security" is defined in new
section 18(b) [15 U.S.C. 77r(b)].
-[6]- The term "offering document" is defined in new
section 18(d)(1) [15 U.S.C. 77r(d)(1)], as
follows:
(1) Offering Document. - The term "offering document" --
(A) has the meaning given the term "prospectus" in
section 2(10), but without regard to the provisions of
subparagraphs (A) and (B) of that section; and
(B) includes a communication that is not deemed to
offer a security pursuant to a rule of the Commission.
==========================================START OF PAGE 3======
connection with the prohibition on state regulation of offering
documents for covered securities. -[7]- The Commission
proposed a definition in February 1997 -[8]- and received
three comment letters. Today it adopts the definition, slightly
modified from the proposed version.
The Commission continues to believe, as it stated in the
proposing release, that the phrase is intended to cover offering
documents prepared with the issuer's knowledge and consent.
Thus, the definition encompasses offering documents authorized
and approved by the issuer. Conversely, documents that are
prepared and circulated without issuer involvement are not
covered, and are subject to state regulation.
Like the proposal, the final rule requires a two-step
approach to this process. First, the issuer must authorize the
production of the document. This provision does not require a
board of directors to act with respect to each document connected
to a securities offering. A company may authorize agents or
representatives to act in its stead. The final rule clarifies
the proposed language by specifically acknowledging authorization
by an agent or representative chosen by the issuer for that
purpose.
---------FOOTNOTES----------
-[7]- Section 18(d)(2) requires the Commission to adopt
this definition not later than six months after
the section's enactment.
-[8]- Release No. 33-7388 (February 11, 1997) [62 FR
7186] ("Proposing Release").
==========================================START OF PAGE 4======
The second step requires the issuer, or its agent or
representative, to approve an authorized offering document before
its use. The proposal reflected this concept in its requirement
that an authorized document be prepared by "a director, officer,
general partner, employee, affiliate, underwriter, attorney,
accountant or agent of the issuer." In light of the public
comment, and upon further consideration, the Commission has
recrafted this provision to clarify its intentions and make the
rule simpler. In the final rule, an issuer-authorized offering
document (including one authorized by the issuer's agent or
representative) is within the definition if the issuer or its
agent or representative approves a prepared document before its
use. The rule does not require the same person who authorized
the document's production to be responsible for approving the
prepared document. It is intended that this agent or
representative will have reviewed the document in advance.
Of course, state law controls how a company authorizes
activities. For example, if under state law the board of
directors or other governing body may delegate authorization or
approval authority for all offering documents to an individual,
committee, or even an outside entity such as an underwriter, then
the authorization or approval of that person would be sufficient
for Rule 146. -[9]-
---------FOOTNOTES----------
-[9]- As provided by statute, the definition is
applicable only to Section 18 of the Securities
Act. As noted in the Proposing Release, in the
case of a registered investment company, an agent
(continued...)
==========================================START OF PAGE 5======
III. COST-BENEFIT ANALYSIS
There were no responses to the Commission's solicitation of
comment regarding the costs and benefits of this definition. The
Commission, at Congress' behest, crafted Rule 146 to provide
guidance with respect to how to interpret the language of the
statute. Therefore, the economic burdens and benefits relating
to state preemption generally will be attributable to the
statute. While the Commission expects the economic effects of
this rule to be minimal, the definition will allow greater
certainty about when an offering document is subject to state
review.
IV. SUMMARY OF FINAL REGULATORY FLEXIBILITY ANALYSIS
A final regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 604 concerning this definition. The
analysis notes that the rulemaking relates to a Congressional
mandate to define the term "prepared by or on behalf of the
issuer" for purposes of Section 18 of the Act and describes the
reasons for and purposes of the definition.
The analysis states that no comments were received in
response to Commission solicitation with respect to the Initial
Regulatory Flexibility Analysis. The analysis goes on to state
---------FOOTNOTES----------
-[9]-(...continued)
of the issuer would include, without limitation,
the issuer's investment adviser, attorney,
underwriter, depositor or any other agent that
performs administrative functions on behalf of the
company.
==========================================START OF PAGE 6======
that there are approximately 1100 reporting companies that
satisfy the definition of "small business" under Exchange Act
Rule 0-10, but there is no reliable way to determine the impact
of the rule on these entities, because it cannot be determined
how many of these entities may raise capital, thereby benefiting
from the rule. The Commission does not expect that significant
changes to reporting, recordkeeping and compliance burdens will
result from the rule, inasmuch as the substantive effects of the
changes to Section 18 are controlled primarily by the terms of
the legislation, and not by the terms of this definition. The
purpose of the definition is to give guidance with regard to the
meaning of a statutory term.
The Commission considered whether there are any appropriate
steps available to minimize the economic impact of rule on small
businesses and determined that establishing different
requirements for small entities or exempting them from all or
part of the definition would not serve the public interest, nor
would it aid small businesses. The definition is purposefully
crafted to give small entities equal footing with large companies
with respect to the benefits of state preemption that Congress
envisioned when it enacted revised Section 18.
V. EFFECTIVE DATE
The effective date for Rule 146 is [insert date of Federal
Register publication], the Federal Register publication date. In
==========================================START OF PAGE 7======
accordance with the Administrative Procedure Act 5 U.S.C.
553(d)(3), the Commission finds that the statutory mandate to
adopt a rule within six months of the statute's effective date
provides good cause to establish an effective date less than 30
days after publication of these rules. The early effective date
will also allow affected persons to begin relying on the new
definition immediately by eliminating confusion in the
marketplace over whether a document is "prepared by or on behalf
of the issuer" for purposes of the statute. Finally, because the
definition does not impose any new burdens, the public would
derive no benefit from the time provided by a delayed
implementation date.
VI. STATUTORY BASIS
Rule 146 is being adopted pursuant to Sections 18 and 19 of
the Securities Act.
List of Subjects in Part 230
Reporting and recordkeeping requirements, Securities.
==========================================START OF PAGE 8======
TEXT OF THE AMENDMENT
In accordance with the foregoing, Title 17, chapter II of
the Code of Federal Regulations is amended as follows:
PART 230 - GENERAL RULES AND REGULATIONS, SECURITIES ACT OF
1933
1. The general authority citation for Part 230 is revised
to read as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s,
77sss, 78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8,
80a-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
2. By adding _230.146, to read as follows:
_230.146 Definition of "prepared by or on behalf of the issuer"
for purposes of Section 18 of the Act.
Prepared by or on behalf of the issuer. An offering
document (as defined in Section 18(d)(1) of the Act [15 U.S.C.
77r(d)(1)]) is "prepared by or on behalf of the issuer" for
purposes of Section 18 of the Act, if the issuer or an agent or
representative:
(a) Authorizes the document's production, and
(b) Approves the document before its use.
By the Commission.
Jonathan G. Katz
Secretary
Dated: April 30, 1997
_