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Statement at Open Meeting on Amendments to Smaller Reporting Company Definition

June 28, 2018

With that, I will turn to the first item on the agenda, which is a recommendation from the Division of Corporation Finance to adopt final amendments to the smaller reporting company definition. 

One of the priorities for the Commission is to facilitate capital formation opportunities for all companies, including reasonable access to public markets for small and emerging businesses.  Doing so will not only provide these companies with access to capital, but it also will create expanded opportunities for Main Street investors.  A step in this direction is to recognize that a one-size regulatory structure for public companies does not fit all. 

The smaller reporting company definition amendments that we are considering for adoption today broaden the spectrum of companies that would be eligible to provide scaled disclosures as public companies.  These amendments take into account the views expressed by commenters on the proposing release, as well as recommendations made by the Commission’s Advisory Committee on Small and Emerging Companies and the SEC Government-Business Forum on Small Business Capital Formation. 

Today’s amendments will permit a broader group of smaller companies to provide scaled disclosure to their public market investors, while also maintaining investor protections.  Importantly, like all public companies, these companies will have substantial public disclosure requirements, will remain liable for their required disclosures, as well as any materially misleading statements, and will continue to be subject to the Division of Corporation Finance’s filing review process.  To be clear, I do not believe this expansion of our scaled disclosure program will detract from the investor protection objectives of our public company disclosure regime.  And, as is not emphasized enough, the degree of protection provided to a Main Street investor in a public company that falls within the smaller reporting company definition is almost always substantially higher than to an investor in a similar private company.     

The proposal on the smaller reporting company definition, which was issued before I arrived at the Commission, discussed but did not squarely raise the important issue of adjusting the thresholds at which a small public company becomes an “accelerated filer.”  Accelerated filers are subject to, among other things, the auditor attestation requirement contained in Section 404(b) of the Sarbanes-Oxley Act.  In light of the comments received on this topic in connection with the proposal, I have directed the staff, and the staff has begun, to formulate recommendations to the Commission for possible additional changes to the “accelerated filer” definition.  I have directed them to consider ways in which reducing the number of companies that qualify as accelerated filers may promote capital formation by reducing compliance costs for those companies, while maintaining important investor protections.  It might have been attractive to tackle the thresholds for mandatory application of 404(b) today, but it is important to me that we approach this issue in a thoughtful manner, including further opportunity for staff analysis.  In the meantime, I am pleased that we are taking this step today to right-size compliance requirements for smaller companies. 

Before I turn it over to the staff to provide a detailed discussion of their recommendation, let me acknowledge a few individuals, realizing that countless current and former members of the staff also contributed to this effort:

From the Division of Corporation Finance:  Bill Hinman, Betsy Murphy, Tamara Brightwell, Amy Reischauer, Julie Davis, Jenny Riegel, Charlie Guidry, Todd Hardiman, and Heather Mackintosh.

From the Division of Economic and Risk Analysis:  Chyhe Becker, Scott Bauguess, Vanessa Countryman, Hari Phatak , Cindy Alexander, Tristan Chiappetti, Mariesa Ho, Daniel Bresler, and Wei Liu.

From the Office of the General Counsel:  Bob Stebbins, Bryant Morris, and Dorothy McCuaig.

From the Office of the Chief Accountant:  Wes Bricker, Jeff Minton, and Giles Cohen.

And now, I will turn it over to Bill Hinman, the Director of the Division of Corporation Finance, for the staff’s presentation of the recommendation.

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