[Federal Register Volume 62, Number 63 (Wednesday, April 2, 1997)]
[Rules and Regulations]
[Pages 15604-15607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8359]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 202
[Release Nos. 33-7407; 34-38446; 35-26695; 39-2349; IC-22587; IA-1624]
Informal Guidance Program for Small Entities
AGENCY: Securities and Exchange Commission.
ACTION: Policy statement.
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SUMMARY: The Securities and Exchange Commission is issuing a policy
statement discussing its informal guidance program for small entities
(and others) as required by the Small Business Regulatory Enforcement
Fairness Act, Public Law 104-121, 110 Stat. 857 (1996).
DATES: This Policy becomes effective March 29, 1997.
FOR FURTHER INFORMATION CONTACT: For General Information: Amy Kroll,
Assistant General Counsel, at (202-942-0927) or Anne H. Sullivan,
Senior Counsel, at (202-942-0954), Office of General Counsel. For
information from specific divisions or offices, as follows: James R.
Budge, Special Counsel, at (202-942-295), Division of Corporation
Finance; Natalie Bej, Special Counsel, at (202-942-0660), Division of
Investment Management; Gary W. Sutton, Special Counsel, at (202-942-
0073), Division of Market Regulation; Robert E. Burns, Chief Counsel,
at (202-942-4400), Office of Chief Accountant.
SUPPLEMENTARY INFORMATION: On March 29, 1996, Congress adopted the
Small Business Regulatory Enforcement Fairness Act (``SBREFA''),\1\
which seeks to improve the regulatory climate for small entities \2\
by, among other things:
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\1\ Pub. L. 104-121, 110 Stat. 857 (1996) (codified in scattered
sections of 5 U.S.C., 15 U.S.C., and as a note to 5 U.S.C. 601).
\2\ The definition of ``small entity'' under SBREFA is the same
as the definition of ``small entity'' under the Regulatory
Flexibility Act, 5 U.S.C. 601 et seq. (``Reg. Flex. Act''). SBREFA
section 221(1). The Reg. Flex. Act defines ``small entity'' to
include ``small business.'' Pursuant to the Reg. Flex. Act, 5 U.S.C.
601(3), the Commission adopted appropriate definitions of ``small
business'' for purposes of the Reg. Flex. Act. See 17 CFR 270.0-10;
17 CFR 275.0-7; 17 CFR 240.0-10; 17 CFR 230.157; and 17 CFR 250.110.
The Commission recently proposed amendments to these definitions.
Definitions of ``Small Business'' or ``Small Organization'' Under
the Investment Company Act of 1940, the Investment Advisers Act of
1940, the Securities Exchange Act of 1934, and the Securities Act of
1933, Securities Act Rel. No. 7383, 62 FR 4106 (Jan. 28, 1997). The
Commission extended the comment period on the proposed amendments to
the definitions to April 30, 1997, 62 FR 13356 (Mar. 20, 1997).
Based on an analysis of the language and legislative history of
the Regulatory Flexibility Act, Congress does not appear to have
intended that Act to apply to natural persons (as opposed to
individual proprietorships) or to foreign entities. This
interpretation has not been tested in court, but the Commission
understands that staff at the Small Business Administration
(``SBA'') have taken the same position. Telephone conversation with
Gregory J. Dean, Jr., Assistant Chief Counsel for Finance and
Programs, SBA Office of Advocacy (Mar. 13, 1997).
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[[Page 15605]]
Expanding the extent to which the rule-making process must
include evaluation of the impact of proposed rules and rule changes on
small entities; \3\
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\3\ 5 U.S.C. 603(a) and 605(b), codifying SBREFA sections 241
and 243.
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Expanding the rights of action for small businesses to
seek judicial review of rules impacting small entities; \4\
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\4\ 5 U.S.C. 611, codifying SBREFA section 242.
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Requiring agencies to establish small entity penalty
reduction or waiver policies; \5\ and
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\5\ SBREFA section 223.
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Directing agencies to expand their efforts to provide
formal and informal guidance to small entities.\6\
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\6\ SBREFA sections 212, 213, 214 (codified at 15 U.S.C.
648(c)(3)), and 215.
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This release sets out the Commission's informal guidance program
for small entities, as required by SBREFA. The Commission has reviewed
the various ways it provides informal compliance guidance to determine
whether it effectively answers ``inquiries of small entities seeking
information on and advice about regulatory compliance,'' and
``utiliz[es] existing functions and personnel of the agency to the
extent practicable.'' \7\
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\7\ Both the statutory language and statements inserted into the
Congressional Record after enactment of SBREFA by the chairmen who
introduced SBREFA stress that, in determining how to comply with the
informal guidance mandate of SBREFA, agencies may exercise their
discretion. See, e.g., ``Small Business Regulatory Enforcement
Fairness Act--Joint Managers Statement of Legislative History and
Congressional Intent,'' 142 Cong. Rec. S3243 (daily ed. Mar. 29,
1996) (hereafter ``Managers Statement'').
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From the time the Commission was created, its staff has provided
the public with a wide range of informal guidance regarding securities
regulation. Commission staff provides informal guidance to members of
the public by telephone and no-action and interpretive letters,
described in detail below. In addition, the Commission, or the staff by
delegation, may issue exemptions from certain statutory and regulatory
requirements. From time to time, the Commission has issued releases
describing these sources of informal guidance. The Commission also has
designated small entity compliance guides that also describe these
sources of informal guidance.\8\
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\8\ See, e.g., 17 CFR 202.2 (pre-filing assistance and
interpretive advice); Procedure Applicable to Requests for No Action
or Interpretive Letters, Securities Act Rel. No. 5127, 36 FR 2600
(Jan. 25, 1971); Procedures Utilized by the Division of Corporation
Finance for Rendering Informal Advice, Securities Act Rel. No. 6253,
45 FR 72644 (Oct. 28, 1980); Procedures Applicable to Requests for
No-Action or Interpretive Letters, Securities Act Rel. No. 6269, 45
FR 81917 (Dec. 5, 1980); and Expedited Publication of Interpretive,
No-Action and Certain Exemption Letters, Securities Act Rel. No.
6764, 53 FR 12412 (Apr. 14, 1988) (releases on no-action and
interpretive letter procedures). See also, ``The Work of the SEC''
and ``Q & A: Small Business and the SEC.''
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The Commission's formal and informal efforts on behalf of small
business date from 1936, when the Commission adopted Regulation A, an
exemption from registration for certain small business offerings.
Chairman William O. Douglas' efforts on behalf of small businesses in
the securities markets were a precursor to the creation of the Small
Business Administration in 1958.\9\ Since the adoption of Regulation A,
the Commission regularly has updated abbreviated disclosure procedures
and exemptions for small businesses and encouraged input from small
businesses.\10\ In 1977, an SEC advisory committee on corporate
disclosure suggested more ways that the Commission could assist small
business capital formation.\11\ Shortly thereafter, in 1979, the
Commission created an Office of Small Business Policy.
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\9\ Seligman, Transformation of Wall Street (2d ed. 1995) at
200-205.
\10\ See, e.g., Securities Act Rel. No. 5125 (Jan. 7, 1971),
increasing the maximum amount of offering price for securities
offered under Regulation A.
\11\ House Committee on Interstate and Foreign Commerce, Report
of the Advisory Committee on Corporate Disclosure to the SEC, H.
Doc. No. 29, 95th Cong, 1st Sess. (1977).
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For fifteen years, the Commission has cosponsored the annual
Government-Business Forum on Small Business Capital Formation, where
small businesses can let state and federal government officials know
how laws, rules and regulations are affecting their ability to raise
capital. In the past year, the Commission appointed a Small Business
Ombudsman. The Commission also initiated ``town hall'' meetings with
small businesses around the country to convey basic information about
securities regulation to small businesses and to learn more about their
concerns and problems in raising capital.12 The Office of Small
Business and the Small Business Ombudsman informally answer questions
from small business issuers about securities registration, securities
offerings, and periodic reporting received by telephone, e-mail, and in
writing.13
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\12\ The Commission held town hall meetings in Los Angeles,
California (September 13, 1996); Minneapolis, Minnesota (September
30, 1996); St. Louis, Missouri (October 9, 1996); Evanston, Illinois
(October 17, 1996); Ft. Lauderdale, Florida (November 6, 1996); and
Cambridge, Massachusetts (November 13, 1996).
\13\ These offices receive inquiries from both small issuers
that file documents with the Commission and small issuers that take
advantage of exemptions under the statutes or safe harbors under
Commission rules.
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Informal guidance, for purposes of SBREFA, is an answer to an
inquiry from a small entity concerning information on, and advice
about, compliance with statutes and regulations administered by an
agency, interpreting and applying the law to specific facts supplied by
the small entity.14 The Managers Statement inserted into the
Congressional Record after the enactment of SBREFA by the chairmen who
introduced SBREFA cites the Commission's existing informal guidance
program as a ``successful'' one, and expresses the committees' intent
to encourage the Commission's efforts:
\14\ SBREFA section 213(a).
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The Act directs agencies that regulate small entities to answer
inquiries of small entities seeking information on and advice about
regulatory compliance. Some agencies already have established
successful programs to provide compliance assistance and the
amendment intends to encourages these efforts. For example, the * *
* SEC * * * [has] an established practice of issuing private letter
rulings applying the laws to a particular set of facts.15
\15\ Managers Statement, 142 Cong. Rec. S3243 (daily ed. Mar.
29, 1996). The Committee Chairmen suggested that, although the
legislation did not mandate changes in current programs at a number
of agencies, including the Commission, these agencies should
consider establishing less formal means of providing small entities
with informal guidance, such as the use of toll-free telephone
numbers. The Committees apparently were unaware at the time of these
comments that since October 1994 the Commission has had a toll-free
number for public use, 800-SEC-0330.
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The Commission has reviewed its current informal guidance program,
and has determined that it is consistent with the requirements of
SBREFA. The ommission will monitor this area, however, and may
supplement the informal guidance program should it appear necessary in
the future. The Commission intends that this release serve as a
comprehensive resource for small entities wondering where and how to
obtain informal Commission guidance.
I. Informal Guidance Program
The Commission's operating divisions and offices provide the public
with informal guidance about the applicability of the federal
securities laws to specific facts. Commission staff also provide
informal guidance to the
[[Page 15606]]
general public, issuers and existing and prospective regulated entities
about compliance with registration requirements. This guidance takes
several forms, including publications, responses to inquiries received
by telephone and computer, and no-action and interpretive
letters.16 Staff at Commission headquarters generally respond to
all inquiries. Regional and district office staff may respond to
questions regarding certain matters, or may refer questions to the
appropriate headquarters office for a response.
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\16\ Responses to such inquiries are informal guidance for
purposes of SBREFA only if the Commission staff interprets or
applies the securities laws to specific facts supplied by or on
behalf of a small entity.
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A. Telephone, Computer, and Written Informal Guidance
At the Commission's headquarters, the operating divisions and
offices provide informal guidance as follows:
Division of Investment Management--responds to telephone
and written inquiries and issues no-action and interpretive letters
relating to investment companies and investment advisers through its
Office of Chief Counsel. Telephone number: 202-942-0659.
Division of Market Regulation--responds to telephone and
e-mail inquiries through its Office of Interpretations and Guidance and
issues no-action and interpretive letters about securities markets,
including exchanges, and securities market intermediaries, including
broker-dealers, transfer agents, clearing agencies, and securities
information processors. Telephone number: 202-942-0073. E-mail address:
marketreg@sec.gov.
Division of Corporation Finance--responds to telephone
inquiries and issues no-action and interpretive letters relating to
small business matters through its Office of Small Business. The Small
Business Ombudsman, the Commission's liaison to and spokesman for small
business, also is available through this division. Telephone number:
202-942-2950.
Division of Corporation Finance--responds to all other
telephone inquiries and e-mail inquiries about the offer and sale of
securities, as well as issuer and ownership reporting and stockholder
voting, and issues no-action and interpretive letters through its
Office of Chief Counsel. Telephone number: 202-942-2900.17 E-mail
address: e-prospectus@sec.gov.
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\17\ The Division of Corporation Finance makes publicly
available through the Public Reference Room and publication on the
Commission's Web site a compilation of significant positions
provided in response to telephone inquiries. The Division also makes
public a monthly listing of significant no-action letters, as well
as a summary of those positions.
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Office of Chief Accountant--responds to telephone and
written inquiries from registrants and their legal and accounting
advisers on financial reporting matters, including, but not limited to,
auditor independence, interpretations of FASB accounting standards, and
Commission reporting requirements under Regulation S-X. This office, in
conjunction with the Division of Corporation Finance, also publishes
Staff Accounting Bulletins that address specific issues of accounting
and auditing practice, usually based on specific facts.18 Staff
Accounting Bulletins are informal guidance for purposes of SBREFA when
they address accounting and auditing practice with regard to specific
sets of facts.
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\18\ See 17 CFR 211.
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B. No-Action and Interpretive Letters
As noted above, the Commission's Divisions of Market Regulation,
Investment Management and Corporation Finance provide informal written
advice in the form of no-action and interpretive letters. In a no-
action letter a Division states that it will not recommend any
enforcement action to the Commission if the requesting party acts in
accordance with specific facts and representations made in its letter.
In some instances the Division will state that it is not able to give
such assurance. In an interpretive letter a Division interprets a
specific statutory provision, rule or regulation in the context of a
factual situation described in the request. The Divisions will not
respond to certain types of questions, including, for example,
hypothetical or overly general ones.19 In general, only the party
or parties requesting a no-action or interpretive position may rely on
a no-action or interpretive letter, and they may rely on the position
with regard only to the specific facts addressed in the letter. In
certain cases, however, the staff of a Division may approve reliance by
third parties.20
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\19\ See Commission releases on no-action and interpretive
advice cited at n.8.
\20\ The Divisions of Corporation Finance and Market Regulation
specify when others may rely upon the advice in a no-action letter.
The Division of Investment Management generally permits third
parties to rely on no-action or interpretive letters to the extent
that the third party's facts and circumstances are substantially
similar to those described in the underlying request for a no-action
or interpretive letter.
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Staff no-action and interpretive letters are available to the
public at Commission headquarters and at certain regional offices.
Computerized legal research firms also provide these letters, usually
for a fee. Letters are available to the public as soon as practicable
after the staff sends the letter to the requesting party. No-action and
interpretive letters may be treated as confidential for up to 120 days,
however, if the Division issuing the letter determines that a request
for such treatment is reasonable and appropriate.21
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\21\ See 17 CFR 200.81.
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The Commission takes the position that staff no-action and
interpretive positions do not constitute Commission precedent and do
not bind subsequent Commission action.22 Although staff informal
guidance assists the public to understand how to comply with the
Commission's rules and policies, the Commission reserves the right to
act contrary to staff advice. On the other hand, the Commission
occasionally issues interpretive releases on selected subjects or areas
of the law designed to inform the public about the staff's current
views and to reduce the need for no-action and interpretive requests.
In addition, when proposing or adopting rules and rule amendments, the
Commission may cite with approval letters issued by the staff in the
area. In each of these cases, the Commission effectively adopts the
staff positions as its own. In appropriate cases, the Commission, or
the Divisions by delegated authority, also may grant exemptive relief,
subject to compliance with specified conditions, from certain statutory
and regulatory provisions. Although exemptions technically are not
informal guidance, they provide relief from regulatory burdens that is
less formal than rulemaking. Third parties ordinarily cannot rely on
exemptions.
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\22\ SBREFA provides that ``[i]n any civil or administrative
action against a small entity, guidance given by an agency applying
the law to facts provided by the small entity may be considered as
evidence of the reasonableness or appropriateness of any proposed
fines, penalties or damages sought against such small entity.''
SBREFA section 213(a).
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II. Inspections, Examinations and Enforcement Actions Do Not Provide
Informal Guidance
The Office of Compliance Inspections and Examinations (``OCIE'')
examines registered broker-dealers, investment advisers, and investment
companies. If, during the course of an examination or inspection, OCIE
uncovers a potential securities law violation, it may refer the matter
to the Division of Enforcement, or issue a deficiency letter to the
regulated entity. At times, a regulated entity will receive a
deficiency letter
[[Page 15607]]
and also will be referred to the Division of Enforcement. Deficiency
letters describe problems found in an examination, and direct the
recipient to correct the problems in a given period of time.
The Division of Enforcement does not provide any informal guidance
to the public as to compliance with the securities laws. The Division
investigates possible violations of the federal securities laws with a
view toward advising the Commission whether civil or administrative
action should be initiated, and prosecutes any such actions approved by
the Commission.23
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\23\ SBREFA requires agencies to establish penalty reduction
policies for small entities, which the Commission is doing in a
companion release issued today. Securities Act Rel. No. 7408 (Mar.
27, 1997).
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III. Information Outside the Informal Guidance Program
The Commission also provides numerous sources for general
information that are outside the informal guidance program. A brief
description of these follows.
A. Municipal Securities Ombudsman
The Municipal Securities Ombudsman, in the Office of Municipal
Securities, assists municipal securities issuers in obtaining
information from Commission staff. The telephone number for the
Municipal Securities Ombudsman is 202-942-7300. The e-mail address is
oms@sec.gov.
B. Commission Web Site
The Commission maintains a site on the World Wide Web at http://
www.sec.gov. This Web site contains brochures, news, and information
about the Commission, including a list of Commission Internet mailboxes
at htpp://www.sec.gov/asec/mailboxes. The Commission also provides
access to its electronic filing database, known as EDGAR, through the
Web site. The EDGAR database includes most recently filed registration
statements, periodic reports and other disclosure documents filed with
the Commission. The Web site also includes a page that contains
information of special interest to small businesses, and a list of
pending and completed Commission rulemakings of particular relevance to
small businesses.
C. General Publications and Information on Request
The Commission makes available a variety of publications and
resources for information about the Commission and the federal
securities laws. On January 28, 1997, the Commission designated many of
these publications as small business compliance guides and described
how to obtain these materials.24
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\24\ Securities Act Rel. No. 7342; 62 FR 4104 (Jan. 28, 1997)
(codified at 17 CFR 202.8).
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D. General Information, Filings and Releases on Request
The Commission's Office of Investment Education and Assistance
produces educational material and programs for the public that describe
preventive measures investors can take to protect their investments
from fraud and abuse. Members of the public may reach this office at
the Commission's toll-free number, 800-SEC-0330, to obtain information
on topics of current interest and to obtain specific publications.
Members of the public also may telephone the Public Reference Room at
202-942-8090, or write to the Public Reference Room at the Securities
and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549
to obtain non-confidential documents from the Commission.25
Information available from the Public Reference Room includes copies of
Commission opinions, statements of policy adopted by the Commission,
certain staff manuals and instructions, indices of opinions and
statements of policy, required filings with the Commission that are not
confidential, requests or petitions for a change in Commission rules,
no-action and interpretive letters, exemptions from Commission
regulation (when publicly available), transcripts of public
proceedings, and Commission reports to Congress.26 Some of these
items also may be retrieved from the Commission's Web site.
\25\ The Commission generally will not publish or make available
materials:
(1) specifically authorized by executive order to be kept secret
or that are classified;
(2) related solely to internal personnel rules and practices;
(3) specifically exempted from disclosure by statute;
(4) containing privileged and confidential personal financial
information or disclosing trade secrets;
(5) that are interagency or intra-agency memoranda or
communications, except those which would routinely be made available
in litigation;
(6) that are records whose release would constitute a clearly
unwarranted invasion of personal privacy;
(7) that are records compiled for law enforcement purposes;
(8) contained in or related to any examination of financial
institutions; or
(9) that set forth geological or geophysical information and
data concerning wells.
17 CFR 200.80(b).
\26\ The Public Reference Room charges for copies of these
materials.
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IV. Regulatory Requirements
The Commission's informal guidance program is not an agency rule
and, therefore, the provisions of the Administrative Procedure Act
(``APA'') regarding notice of proposed rulemaking, opportunities for
public participation, and prior publication are not applicable.27
Similarly, the provisions of the Regulatory Flexibility Act, which
apply only when notice and comment are required by the APA or another
statute, are not applicable.28
\27\ 5 U.S.C. 553.
\28\ 5 U.S.C. 601-602.
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Dated: March 27, 1997.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-8359 Filed 4-1-97; 8:45 am]
BILLING CODE 8010-01-P
