[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Proposed Rules]
[Pages 7186-7188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3845]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 230
[Release No. 33-7388; 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: Proposed rule.
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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 newly revised Section 18 of the Securities Act of
1933. Today, the Commission proposes such a definition.
DATES: Comments should be received on or before March 20, 1997.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
NW., Washington, DC 20549. Comments also may be submitted
electronically at the following E-mail address: rule-comments@sec.gov.
All comment letters should refer to File No. S7-6-96; this file number
should be included in the subject line if E-mail is used. Comment
letters will be available for inspection and copying in the
Commission's Public Reference Room, 450 Fifth Street, NW., Washington,
DC 20549. Electronically submitted comment letters will be posted on
the Commission's Internet Web Site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: James R. Budge, Division of
Corporation Finance, at (202) 942-2950, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission proposes adding Rule 146
1 under the Securities Act of 1933 (``Securities Act'' or ``the
Act'').2 The Rule would define the term ``prepared by or on behalf
of the issuer,'' as that term is used in newly revised Section 18 of
the Act.3
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\1\ The proposed rule would be codified at 17 CFR 230.146.
\2\ 15 U.S.C. 77a et seq.
\3\ 15 U.S.C. 77r.
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I. Background and Proposed Definition
On October 11, 1996, President Clinton signed into law the National
Securities Markets Improvement Act of 1996.4 One significant goal
of this legislation, embodied in revised Section 18 of the Act, is to
reduce duplicative and unnecessary regulatory requirements resulting
from the dual system of federal and state securities regulation. 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
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\4\ Public Law 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.
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The statute requires the Commission to define by rule the phrase
``prepared by or on behalf of the issuer,'' as used in connection with
the prohibition on state regulation of offering documents for covered
securities.7 The Commission today proposes a definition of this
term.
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\7\ New Section 18(d)(2) requires the Commission to adopt this
definition not later than six months after the section's enactment.
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[[Page 7187]]
The Commission believes that the phrase is intended to cover
offering documents prepared with the issuer's knowledge and consent.
Thus, the proposed definition would cover offering documents authorized
by the issuer and prepared by specified persons. Conversely, documents
that are prepared and circulated without issuer authorization would not
be covered.
Specifically, as proposed, if the issuer authorizes the offering
document's production and the document is prepared by a director,
officer, general partner, employee, affiliate, underwriter, attorney,
accountant or agent of the issuer, it would be ``prepared by or on
behalf of the issuer.'' 8 The proposed definition also would
include authorized documents prepared by representatives or agents of
these persons.9
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\8\ In the case of a registered investment company, an agent of
the issuer would generally include the company's investment adviser
or any other agent that performs administrative functions on behalf
of the company.
\9\ As provided by statute, the proposed definition would be
applicable only to Section 18 of the Securities Act.
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Comment is requested as to whether the definition should be
broadened or narrowed by adding persons to or eliminating persons from
the list; specific justification for additions or deletions should be
provided. Should the list include specific examples of persons, such as
employees or attorneys as proposed, or is it sufficient to state simply
that the person be an agent or representative of the issuer? The second
approach would eliminate the need for paragraph (a) of the proposed
definition. As proposed, the definition does not include offering
documents prepared by persons who do not have some formal connection to
the issuer. Should the definition be expanded to include offering
documents approved by the issuer but prepared by a person who does not
have a managerial, employment or other agency relationship with the
issuer? The proposed definition also would encompass only those
offering documents prepared with the authorization of the issuer.
Should such authorization be implied if the document is prepared by
certain individuals, such as underwriters? If implied authorization is
believed appropriate for some persons, commenters are asked to identify
the specific parties and explain why it would be appropriate to imply
consent in those cases.
II. Submission of Comments
Interested persons should submit comment letters in triplicate to
Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC, 20549. Comments also may be
submitted electronically at the following E-mail address: comments@sec.gov. All comment letters should refer to File Number S7-6-
96. This file number should be included on the subject line if E-mail
is used. Comments received will be available for inspection and copying
in the Commission's public reference room, 450 Fifth Street, NW.,
Washington, DC 20549. Electronically submitted comment letters will be
posted on the Commission's Internet web site (http://www.sec.gov).
III. Cost-Benefit Analysis
Commenters should address the costs and benefits of the proposed
definition of ``prepared by or on behalf of the issuer,'' and to
provide any available support for such views, in order to aid the
Commission in its own evaluation of its costs and benefits. The
Commission believes that issuers will not experience changes to their
compliance costs as a result of this rulemaking. For purposes of 5
U.S.C. 804(2), the Commission also requests information regarding the
potential impact of the proposed rule on the economy on an annual
basis. Commenters should provide data supporting their views.
IV. Summary of Initial Regulatory Flexibility Analysis
An initial regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 603 concerning the proposed definition. The
analysis notes that the proposal 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 proposed definition.
As discussed more fully in the analysis, the proposals may affect
persons that are small entities, as defined by the Commission's rules.
It is not expected that significant changes to reporting, recordkeeping
and compliance burdens would result from the proposal, 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
proposed definition. The purpose of the definition is to give guidance
with regard to the meaning of a statutory term.
There are no current federal rules that duplicate, overlap or
conflict with the proposed definition.
Several possible significant alternatives to the proposal were
considered, including, among others, establishing different
requirements for small entities or exempting them from all or part of
the proposed definition. As discussed more fully in the analysis, this
rulemaking does not lend itself to separate treatment for small
businesses. The definition is purposefully crafted in broad terms to
encompass small entities together with other issuers. No public
interest would be served by a definition that would exclude small
entities from enjoying the benefits of state preemption.
Written comments are encouraged with respect to any aspect of the
analysis. Such comments will be considered in the preparation of the
Final Regulatory Flexibility Analysis if the proposed amendments are
adopted. A copy of the analysis may be obtained by contacting James R.
Budge, Division of Corporation Finance, Mail Stop 7-8, 450 Fifth
Street, NW., Washington, DC 20549.
V. Statutory Basis
Rule 146 is being proposed pursuant to Sections 18 and 19 of the
Securities Act.
List of Subjects in M CFR Part 230
Reporting and recordkeeping requirements, Securities.
Text of the Proposal
In accordance with the foregoing, Title 17, chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for part 230 is revised to read in part
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 Sec. 230.146, to read as follows:
Sec. 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)]) shall be
deemed ``prepared by or on behalf of the issuer'' for purposes of
Section 18 of the Act, if the issuer authorizes its production and if
it has been prepared by:
(a) A director, officer, general partner, employee, affiliate,
underwriter,
[[Page 7188]]
attorney, accountant or agent of the issuer; or
(b) An agent or representative of any person specified in paragraph
(a) of this section.
Dated: February 11, 1997.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-3845 Filed 2-14-97; 8:45 am]
BILLING CODE 8010-01-P
