Speech by SEC Commissioner:
Re-designing the Eligibility Criteria for Short-Form Registration
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission
July 26, 2011
Today the SEC is considering whether to adopt amendments to the eligibility criteria of its short-form registration process.1 Up to now, credit ratings have been used to determine whether a securities offering is eligible for the SEC’s streamlined short-form registration process. Under the rules in effect since 1982, a primary offering of debt securities deemed “investment grade” by a nationally recognized statistical rating organization may qualify for short-form registration, regardless of the issuer’s public float.2 As the Commission stated when it adopted short-form registration eligibility requirements, the goal was to “meet the objective of relating short-form registration to the existence of widespread following in the marketplace.”3
In the staff review of this provision, they ascertained that the rating reference functions as a proxy for whether or not an issuer was widely followed. And that short-form eligibility should not be based on a measure of credit-worthiness.4 Given this, the staff has put forth the recommendation before us today that would tie eligibility for short-form registration to indicators that the staff believes show that a company’s debt is widely followed in the capital markets. I do note that these amendments do not apply to asset-backed securities, which are the subject of a separate proposal before the Commission.
I appreciate the staff’s efforts in preparing this recommendation and will support it.
1 Form S-3, and its counterpart for foreign private issuers, Form F-3, are often referred to as “short-form” registration statements. These forms allow eligible issuers to rely on reports they have filed under the Exchange Act to satisfy many of the disclosure requirements under the Securities Act. Short-form eligibility for primary offerings also enables eligible issuers to conduct primary offerings “off-the-shelf,” providing considerable flexibility in accessing the public securities markets in response to changes in the market and other factors. Issuers that are eligible to register these primary “shelf” offerings are permitted to register securities offerings prior to planning any specific offering and, once the registration statement is effective, offer securities in one or more tranches without waiting for further Commission action. To be eligible to use Form S-3 or Form F-3, an issuer must meet the form’s eligibility requirements as to registrants, which generally pertain to reporting history under the Exchange Act, and at least one of the form’s transaction requirements. The reference to credit ratings is contained in Instruction I.B.2 of Form S-3, which permits issuers to register primary offerings for cash of non-convertible securities (other than asset-backed securities), if such securities carry an investment grade rating. Issuers may register primary offerings of non-convertible securities regardless of credit rating pursuant to Instruction I.B.1 or Instruction D, to the extent such instructions are otherwise applicable.
2 Reporting companies with at least $75 million of common equity public float may use Form S-3 to register primary offerings of debt regardless of credit rating. In addition, reporting companies that have issued $1 billion aggregate principal amount of debt securities in registered offerings for cash over the preceding three years, as “well-known seasoned issuers,” may also use Form S-3 to register debt offering regardless of credit rating. The public float test and the WKSI definition were both designed to identify issuers which are actively and widely followed in the securities markets. See, e.g., Release No. 33-6331, 46 FR41902 at 41906 (August 18, 1981); Release No. 33-8591, 70 FR 44722 at 44726-27 (August 3, 2005).
3 Release No. 33-6383, 47 FR 11380 at 11384 (March 16, 1982).
4 As the release today makes clear, the SEC believes “that wide following in the market place, rather than credit quality, is the appropriate test for Form S-3 eligibility.” Accordingly, the actions taken in the Security Ratings release are “in light of” but do not “implement” Section 939A of the Dodd-Frank Act.