[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40044-40052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19461]
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SECURITIES AND EXCHANGE COMMISSION
[Release Nos. 33-7314; 34-37480; International Series Release No. 1010;
File No. S7-19-96]
RIN 3235-AG83
Securities Act Concepts and Their Effects on Capital Formation
AGENCY: Securities and Exchange Commission.
ACTION: Concept Release.
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SUMMARY: The Securities and Exchange Commission (the ``Commission'')
has received the Report of the Advisory Committee on the Capital
Formation and Regulatory Processes (the ``Advisory Committee'')
chartered by the Commission. In addition to its consideration of the
Report of the Advisory Committee (the ``Advisory Committee Report''),
the Commission is reexamining the application of the Securities Act of
1933 and the rules thereunder to securities offerings. Information and
comment are being sought with regard to what reforms could or should be
undertaken, consistent with the Commission's investor protection
mandate, to reform the current regulation of the capital formation
process. Varying approaches, including a ``company registration''
concept recommended by the Advisory Committee, are being considered.
DATES: Comments should be received by September 30, 1996.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth
Street, N.W., Stop 6-9, Washington, D.C., 20549. Comments also may be
submitted electronically to the following electronic mail address:
rule-comment@sec.gov. All comment letters should refer to File No. S7-
19-96; this file number should be included in the subject line if
electronic mail is used. Comment letters will be available for public
inspection and copying at the Commission's Public Reference Room, 450
Fifth Street, N.W., Washington, D.C. 20549. Electronically submitted
comment letters will be posted on the Commission's Internet Web site
(http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Anita Klein, Office of Chief Counsel,
Division of Corporation Finance, (202) 942-2900. For copies of the
Advisory Committee Report, please fax a request to the Office of
Commissioner Wallman at (202) 942-9563 or call (202) 942-0800.1
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\1\ The Advisory Committee Report is also available through the
Commission's Public Reference Room and the Commission's Internet Web
site (http://www.sec.gov). For further information with respect to
the Advisory Committee Report, contact the Advisory Committee staff:
David A. Sirignano, Staff Director, at (202) 942-2870; Dr. Robert
Comment (202) 942-8036; Catherine T. Dixon, (202) 942-2920; Meridith
Mitchell (202) 942-0890; or Luise M. Welby (202) 942-2990.
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SUPPLEMENTARY INFORMATION:
I. Introduction
The Securities Act of 1933 (the ``Securities Act'') 2 and the
rules and regulations thereunder have long provided the foundation for
a capital formation system whose integrity, fairness and liquidity are
unparalleled. Because U.S. capital formation methods and markets are
characterized by innovation, the Commission vigilantly seeks to
identify ways to improve its regulatory framework governing that
system.3 Two studies presented to the
[[Page 40045]]
Commission this year are assisting the Commission with its most recent
efforts to reexamine that regulatory framework.
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\2\ 15 U.S.C. Secs. 77a et seq.
\3\ The current reexamination of the Securities Act registration
system is the most recent step in the modern reevaluation of the
regulatory framework that many date back to the publication of the
1966 article by Milton Cohen which first suggested the integration
of the Securities Act and the Securities Exchange Act of 1934 (the
``Exchange Act'') (15 U.S.C. Secs. 78a et seq.) disclosure systems.
See M. Cohen, ``Truth in Securities'' Revisited, 79 Harv. L. Rev.
1340 (1966). Since the publication of that article, the Commission
has conducted or arranged several studies related to the disclosure
system, including those completed by the Commission's Disclosure
Policy Study Group in 1969 and the Commission's Advisory Committee
on Corporate Disclosure in 1977. See Disclosure to Investors--A
Reappraisal of Administrative Policies under the '33 and '34 Acts
(Mar. 1969) (commonly referred to as the ``Wheat Report''); Report
of the Advisory Committee on Corporate Disclosure to the Securities
and Exchange Commission (Nov. 1977). Those efforts paved the way for
significant integration of the Securities Act and Exchange Act
disclosure systems by the Commission in 1982. See Securities Act
Release No. 6383 (Mar. 3, 1982) [47 FR 11380].
Further refinement of the Securities Act registration system
included, for example, the development of the short-form shelf
registration system, which has enabled ``seasoned issuers'' to
conduct a primary offering on a delayed or continuous basis if
certain requirements are met. Shelf registration has afforded an
eligible registrant a certain degree of flexibility by enabling it
to time its offering when market conditions are most advantageous.
The Commission's subsequent adoption of a ``universal'' shelf
registration system in 1992 increased this flexibility even further
by permitting an eligible company to register debt, equity, and
other securities on a single shelf registration statement, without
having to specify the amount of each class of securities to be
offered. See Securities Act Release Nos. 6499 (Nov. 17, 1983) [48 FR
52889] and 6964 (Oct. 22, 1992) [57 FR 48970].
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The first report delivered to the Commission was the Report of the
Task Force on Disclosure Simplification (the ``Task Force'') of March
1996 (the ``Task Force Report'').4 Among many other
recommendations, the Task Force identified a number of areas in which
modernization and simplification of the registration and disclosure
processes could be accomplished.5
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\4\ Report of the Task Force on Disclosure Simplification (March
1996).
\5\ Comment is being solicited infra Section II.B.2, II.B.5 and
II.B.6 with respect to a limited number of specific aspects of the
Task Force Report.
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Today, the second report is being presented to the Commission by
the Advisory Committee, chaired by Commissioner Steven M.H.
Wallman.6 The Advisory Committee has been studying the securities
offering process and the Commission's rules regulating it since
February 1995.7 The objective of the Advisory Committee has been
to assist the Commission in evaluating the efficacy of the regulatory
process relating to the public offering of securities, securities
market trading, and corporate reporting. The Advisory Committee Report
is being published contemporaneously with this release and reflects 18
months of extensive study and analysis of the regulatory
framework.8 The Advisory Committee's work has assisted the
Commission in focusing on diverse developments in the markets (some of
which are more recent in origin and some of which reflect longer-term
trends) and their current effects on the regulatory framework. Those
developments and effects are the impetus for the Commission's current
reexamination of some of the fundamental concepts of the regulatory
framework. The Advisory Committee Report and its recommendations will
be the subject of an ongoing review by the Commission and its
staff.9
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\6\ Report of the Advisory Committee on the Capital Formation
and Regulatory Processes (July 24, 1996).
\7\ The Advisory Committee consisted of: The Honorable Steven
M.H. Wallman, Chairman; Professor John C. Coffee, Jr.; The Honorable
Barber B. Conable, Jr.; Robert K. Elliott; Edward F. Greene; Dr.
George N. Hatsopoulos; A. Bart Holaday; Paul Kolton; Roland M.
Machold; Dr. Burton G. Malkiel; Claudine B. Malone; Charles Miller;
Karen M. O'Brien; and Larry W. Sonsini. The Commission gratefully
acknowledges the time and efforts of the members and staff of the
Advisory Committee in producing a thoughtful and comprehensive
report.
The Advisory Committee held eight public meetings and Committee
members and staff met with a number of groups and individuals
concerned with or affected by the Commission's regulation of the
capital formation process.
\8\ Given the concurrent publication of the Advisory Committee
Report and the recent publication of the Task Force Report, both of
which are available on the Commission's Internet Web site and
through the Commission's Public Reference Room, this release does
not attempt to explain in full the varying proposals to reform the
capital formation regulatory process that give rise to many of the
questions asked in this release. Familiarity with the detailed
discussions contained in those documents is assumed, as is
familiarity with many basic Securities Act concepts. The Commission
strongly urges interested parties to read the Advisory Committee
Report in its entirety, as well as Section III of the Task Force
Report.
\9\ See the comprehensive discussions contained in the Advisory
Committee Report concerning market developments and the effects they
have had on the operation of the Securities Act framework. Advisory
Committee Report at pp. 4-9 and Appendix A (``App. A''). Similarly,
see the Task Force Report at pp. 23-28.
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The Advisory Committee Report's primary recommendation is that the
Commission further its integrated disclosure system by implementing a
system based on a ``company registration'' concept first envisioned by
the American Law Institute's Federal Securities Code.10 As
formulated by the Advisory Committee, a company registration system
generally would be accomplished through the following steps:
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\10\ The American Law Institute's Federal Securities Code was
developed, after many years of effort, under the direction of
Professor Louis Loss. See American Law Institute, Federal Securities
Code (1980). See also L. Loss, ``The American Law Institute's
Federal Securities Code Project,'' 25 Bus. Law. 27 (1969).
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On a one-time basis, the issuer 11 files a registration
statement (deemed effective immediately) that includes information
similar to that currently provided in an initial short-form shelf
registration statement. This registration statement could then be used
for all types of securities and all offerings (including those offered
in furtherance of business acquisitions) and all offerings could be
subject to Section 11 strict liability;
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\11\ The Advisory Committee recommends that eligibility for an
initial pilot be limited to issuers that: have registered at least
one public offering under the Securities Act; have been reporting
under the Exchange Act for two years; have a public float of at
least $75 million; and have securities listed on the New York Stock
Exchange, the American Stock Exchange or NASDAQ NMS. Foreign issuers
would be eligible if they file annual, quarterly and other periodic
reports with the Commission on forms designed for domestic issuers,
although the Advisory Committee specifically requests the Commission
to consider whether current foreign issuer eligibility requirements
for Form F-3 primary offerings should be sufficient for eligibility
in the pilot. Most foreign countries (other than Canada) do not
require their issuers to prepare quarterly reports.
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Current and future Exchange Act reports are incorporated by
reference into that registration statement;
Around the time of the offering, transactional and updating
disclosures are filed with the Commission, usually in a Form 8-K that
is incorporated by reference into the registration statement and
subject to Section 11 strict liability, but in certain cases, at the
option of the issuer, through a prospectus supplement like those
traditionally filed in shelf takedowns;
Other than a nominal fee paid at the initial filing, registration
fees would be paid at the time of sale rather than prior to making any
offers (the ``pay as you go'' feature);
Issuers would be required to adopt some disclosure enhancements
(and encouraged to adopt others) that seek to improve the quality and
timeliness of disclosure provided to investors and the markets; and
Formal prospectuses would be required to be physically delivered
only in non-routine transactions and, when so required to be delivered,
they would have to be delivered in time to be considered in connection
with the investment decision. In almost all instances, an issuer could
incorporate by reference filed information into selling materials or
the confirmation of sale to satisfy the legal obligation to deliver a
prospectus (which, under the statute, must precede or accompany a
confirmation of sale).
The Commission seeks comment with respect to the Advisory
Committee's company registration system, as a whole, as well as each of
the separate recommendations contained in the Advisory Committee
Report.12 The Commission is not today proposing and is not in a
position to endorse or reject the views or recommendations expressed in
the Advisory Committee Report, the Task Force Report or any other ideas
contained herein.
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Consideration of public comment on the recommendations in the Advisory
Committee Report, the Task Force Report, and other ideas herein will be
undertaken prior to any future Commission action. In the event the
Commission determines to take such action, a specific proposal will be
published for comment.
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\12\ Comment also is solicited infra Section II.B.1 with respect
to a limited number of specific aspects of the Advisory Committee
Report.
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II. Securities Act Concepts
The Securities Act and the issuer disclosure provisions of the
Exchange Act are premised on the view that investors are best protected
in making investment decisions if they are presented with full and fair
disclosure of all material information about the investments. The
continuing challenge for the Commission lies in adapting the statutory
disclosure framework to developments in the capital markets while
ensuring that investors receive full and fair disclosure in a manner
13 and at a time that allows such informed decision-making.
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\13\ In accordance with a Task Force Report recommendation, the
Commission is currently contemplating the ``plain English'' approach
to prospectus writing in another context. See Task Force Report at
pp. 17-18. This release focuses on the content of the information
delivered rather than the language in which information is
presented.
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Faced with the following developments, among others: increasing
institutionalization of the markets; advances in technology and
communication media; continuing globalization of securities markets;
and the erosion of distinctions between private and public
transactions, the Commission is examining whether the existing investor
protection mechanisms, such as registration of both offers and sales
and physical delivery of final prospectuses to investors around the
time of sale, remain the best methods for accomplishing this full
disclosure objective. The Commission is considering as well whether
specific aspects of the integration of the registration requirements
under the Securities Act and the periodic reporting requirements under
the Exchange Act, if adjusted, could better serve investors' needs for
full disclosure. Finally, the Commission is considering whether certain
distinctions between public and private offerings of public companies
remain necessary and how the increasingly institutional nature of
investors should be reflected in the regulatory framework.
A. Request for Comments on Securities Act Concepts
In this release, the Commission seeks comment on the best methods
for eliminating unnecessary obstacles to capital formation while
improving the quality and timing of disclosure and, therefore, investor
protection. To assist the Commission in its deliberations, certain
concepts that are central to the current capital-raising process and
transcend any one approach to reform are highlighted below. Comment is
solicited regarding the best approach to resolving concerns raised by
those concepts, whether that approach is one or more of the approaches
mentioned herein, a combination thereof, or any approach not described
in this release. In commenting on the issues and approaches discussed
in this release, commenters are requested to focus on how those matters
impact on full and fair disclosure to investors in a manner and at a
time that allows for informed investment decisions.
1. Quality of ongoing disclosure. Investors in primary offerings
for repeat issuers and investors in the secondary markets generally
rely on periodic disclosure prepared pursuant to the Exchange
Act.14 The existing Securities Act registration system for larger,
seasoned issuers is heavily dependent upon incorporation of disclosure
from such reports into the registration statement.15 Some
observers have suggested that, while issuers undertaking registration
of public offerings often devote significant resources to developing
disclosure of the quality required under the Securities Act, equivalent
resources are not necessarily devoted to preparing disclosure in
Exchange Act periodic reports.
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\14\ For domestic companies, Exchange Act periodic disclosure is
generally provided in annual reports on Form 10-K (17 CFR 249.310)
due 90 days after the end of the fiscal year, quarterly reports on
Form 10-Q (17 CFR 249.308a) due 45 days after the end of the fiscal
quarter and ``material events'' reports on Form 8-K (17 CFR 249.308)
due within a specified number of days (either 5 business days or 15
calendar days) after the event occurs.
\15\ See Form S-3, 17 CFR 239.13.
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Given the importance of investor protection, both with respect to
investors in primary offerings and investors in the secondary trading
markets,16 the Commission solicits comment regarding whether, in
fact, a significant difference exists in the quality of disclosure
between Securities Act and Exchange Act documents. If such a difference
exists, what Commission action should be taken to address this concern?
Should enhancement of current safeguards (such as the application of
liability provisions) or the adoption of newly devised
safeguards,17 or both, be used to ensure that disclosure in
Exchange Act documents is equal in quality to that in Securities Act
documents?
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\16\ It is estimated that the secondary trading market for
equity securities was roughly 35 times as large (in aggregate dollar
terms) as the amount registered for primary offerings in 1995. See
Advisory Committee Report at p. 2.
\17\ See, e.g., Advisory Committee Report regarding certain
disclosure enhancements at pp. 26-28 and infra Section II.B.1.b.
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Are there particular aspects of Exchange Act disclosure that are in
need of improvement, and thus require specific Commission focus? Is
there information in Securities Act disclosure that should be mandated
in Exchange Act reports?18 To enhance disclosure quality, should
further participation of persons independent of the issuer, such as
independent accountants, be required in the preparation of Exchange Act
reports?
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\18\ See, e.g., Advisory Committee Report regarding Risk Factors
at p. 27 and Appendix B (``App. B''), pp. 56-57.
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If various reforms would result in disclosure less often being
prepared specifically in connection with the offering process, or would
allow issuers quicker, more frequent (potentially continuous) access to
the capital markets, would any concern about existing Exchange Act
disclosure quality be exacerbated? Are improvements needed to ensure
that Exchange Act reports provide a more current stream of information
to investors? For example, should consideration be given to adopting a
requirement, similar to certain self-regulatory organizations'
requirements, that information that could materially affect the market
for an issuer's securities be disclosed promptly in a public filing
with the Commission?19 Should the filing dates for Exchange Act
reports (e.g. Form 8-K) be accelerated or should the events that
trigger such reports be broadened?20 Should the disclosure of
particular events be accelerated?21
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\19\ See, e.g., New York Stock Exchange Listed Company Manual
Sec. 202.05; American Stock Exchange Company Guide Sec. 1102; and
National Association of Securities Dealers By-laws, Schedule D.
\20\ See, e.g., Advisory Committee Report at p. 27 and App. B,
pp. 55-56.
\21\ See, e.g., Advisory Committee Report at p. 27.
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2. Informing Investors. a. Constructive versus Physical Delivery
The Securities Act prohibits persons from sending securities through
interstate commerce ``for the purpose of sale or for delivery after
sale, unless accompanied or preceded by a prospectus that meets the
requirements'' of Securities Act Section 10(a).22 In addition, the
Section 10(a) prospectus must be sent or given prior to or at the same
time with any communication, such as selling
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materials or confirmations, that would otherwise fall within the broad
definition of ``prospectus.''23 These prospectus delivery
provisions, which were established to ensure that investors would be
fully informed, today are fulfilled in some cases by physical delivery
of written prospectuses and in some cases by a mixture of physical
delivery of transaction-specific information and constructive delivery
(through the issuer incorporating the information by reference from
filed documents) of company information. Through the 1995 adoption of
Rule 434, the Commission has allowed constructive delivery of some
transaction-specific information in limited circumstances by larger
issuers.24
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\22\ 15 U.S.C. Sec. 77j(a). Section 5(b)(2) of the Securities
Act, 15 U.S.C. Sec. 77e(b)(2).
\23\ See Section 2(10)(a) of the Securities Act, 15 U.S.C.
Sec. 77b(10)(a).
\24\ See Securities Act Release No. 7168 (May 11, 1995) [60 FR
26604]. For larger, seasoned issuers, Securities Act Rule 434 (17
CFR 230.434) currently allows constructive delivery of transaction-
specific information (other than that relating to the description of
the securities offered) and company information (other than material
issuer developments) in firm commitment underwritten offerings for
cash.
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The Commission is considering whether there are circumstances under
which constructive delivery to investors of all offering information
(including both company and transaction-specific disclosure) would
provide sufficient investor protection. Have advances in technology and
communications now established a system whereby ``accessibility''
provides roughly the same amount of investor protection as physical
delivery? Should reliance solely on constructive delivery be permitted
only if access is assured not only through the Commission but also
through other media? Is the broad dissemination of publicly available
information regarding a company, which the ``efficient market
hypothesis'' assumes,25 in fact a reality for most investors, and
not just sophisticated ones, at any given time? Does it matter, under
the ``efficient market hypothesis'' or otherwise, if just sophisticated
investors have this information? Is it useful to require this
information to be physically delivered if, as under the current system,
it is not required to be delivered until days after the investment
decision is made? On what basis are investors in the secondary markets
making investment decisions?
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\25\ The ``efficient market hypothesis'' generally provides that
the price of a company's publicly traded securities fully reflects
all available information about the company at any given time. See,
e.g., L. Loss and J. Seligman, 1 Securities Regulation 1, 184-86, n.
41 (1994). While there are different versions of the ``efficient
market hypothesis,'' perhaps the most widely accepted version is the
``semi-strong'' variant, which posits that all publicly available
information is quickly disseminated into the marketplace and
reflected in the price of a company's stock. See Loss and Seligman,
supra at 185, note 41. The Commission has previously relied on such
a version of the ``efficient market hypothesis,'' for example, when
adopting Securities Act Rule 415 concerning shelf registration. See
Securities Act Release No. 6499.
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Where constructive delivery is being used, is there nevertheless a
minimum amount of basic offering information not typically contained in
a confirmation that the Commission should mandate be physically
delivered, such as in a newly developed short-form profile prospectus,
regardless of the nature of the offering or investor? If so, why?
Comment also is solicited regarding whether the same method of
delivery should be required for all purchasers in a single offering.
Should issuers be permitted to choose different methods of delivery for
different investors, without regard to the investor's level of
sophistication? 26 If different delivery methods are appropriate,
should the choice be dependent upon the nature of the purchaser, the
size of the offering, the type of security offered, or a combination of
such factors? If the nature of the purchaser is a determining factor,
would the ``accredited investor'' test, 27 the ``qualified
institutional buyer'' test 28 or another test serve as the best
criterion for determining whether constructive or physical delivery is
used? If the Commission were to require information to be delivered to
unsophisticated investors in a more costly manner, would issuers and
underwriters be less likely to permit such investors to participate in
an offering? Would it depend on the type of offering? Would additional
flexibility provided to issuers and underwriters to tailor disclosure
documents to unsophisticated investors encourage inclusion of such
investors by issuers and underwriters?
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\26\ See Advisory Committee Report at pp. 18-22.
\27\ ''Accredited investor'' is defined in Securities Act Rule
501(a), 17 CFR 230.501(a). See Advisory Committee Report at p. 21.
\28\ ''Qualified institutional buyer'' is defined in Securities
Act Rule 144A(a)(1), 17 CFR 230.144A(a)(1).
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Would constructive delivery be appropriate in every offering of a
particular type of securities (e.g. debt), or would the appropriateness
of constructive delivery be dependent as well on the size of the
offering or the identity of the purchasers? 29 Would investors
know in what manner information would be delivered if the issuer could
employ multiple delivery options? In the view of commenters, would this
information matter to investors?
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\29\ See Advisory Committee Report at pp. 19-22 and App. B, p.
16.
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b. Timing of delivery. One key element of the full disclosure
objective is ensuring that investors are given sufficient time to
consider material information in making investment decisions. Under
current rules, prospectus delivery is required prior to or at the same
time with the confirmation in primary offerings. In practice,
therefore, Section 10(a) prospectuses may be unlikely to be sent to
investors in advance of the decisions to purchase. In some cases,
preliminary prospectuses are delivered, but they generally are not
required to be delivered if the issuer is reporting under the Exchange
Act.30 For reporting issuers, material company information for the
most part will have been widely available at the time of any offering,
but information regarding the offering transaction and any information
that reflects material developments since the last Exchange Act report
was filed would not have been.31 Comment is requested with regard
to whether investors in primary offerings by reporting companies
receive transactional and material developments information in the
traditional physical form in sufficient time to make informed
investment decisions. If not, what Commission action would be
appropriate to ensure that result?
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\30\ Exchange Act Rule 15c2-8, 17 CFR 240.15c2-8.
\31\ For non-shelf offerings today, such information may be on
file with the Commission for some time prior to the offering,
although the amount of time is dependent upon many factors,
including whether the staff reviews that registration statement. To
the extent pre-transaction staff review for repeat issuers'
registration statements would be limited or eliminated in the
future, that time is likely to become shorter, and could become
materially shorter.
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To the extent that transaction-specific information is
constructively delivered through public filings rather than physically
delivered to individual offerees, does such an approach delay or aid
absorption of that information by investors in the primary offering or
by the market? If such information is filed just prior to sale, would
investors have more, less, or the same opportunity to make informed
decisions under constructive delivery as they have today under the
shelf registration system, where the transaction-specific information
is physically delivered with the confirmation sometime after the
investment decision is made?
c. Limitations on written communications other than the statutory
prospectuses. The drafters of the Securities Act intended that the
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statutory prospectus be the written selling document for securities.
``Free writing'' outside the statutory prospectus is not generally
permitted except in the post-effective period when the Section 10(a)
prospectus has been delivered to investors. Comment is solicited with
respect to whether more flexibility to inform investors by use of
written vehicles other than the traditional prospectus should be
permitted. For example, should simplified profile prospectuses be
permitted or required? With respect to offerings by seasoned issuers,
if significant ongoing information is and has been available to
investors with respect to such issuers, is the potential for harm from
allowing or encouraging non-prospectus information delivery minimized?
Would investor protection be likely to improve to the extent that
issuers are encouraged to provide written, rather than oral,
information about the basic terms of the transaction? Alternatively,
would more flexibility be likely to result in use of selling materials
driven by marketing needs that (in the distributed form) significantly
differ from the prospectus envisioned by the Securities Act? If so,
would investors' focus shift to the marketing language instead of the
mandated prospectus disclosure, particularly if the latter is
constructively rather than physically delivered? What standard of
liability should attach to such other selling materials?
Would a system allowing incorporation by reference of the required
prospectus disclosure from a registration statement previously filed
with the Commission facilitate the use of simplified term sheets or
other types of ``free writing?'' Would that system facilitate free
writing if such selling materials had to be filed and subject to
liability under Section 12(a)(2)? Would sufficient investor protection
exist where Section 12(a)(2) liability is applied?
To what extent would issuers be more inclined to provide selling
materials under that sort of system than under the current system?
Would the requirement to have a Section 10(a) prospectus (and the
selling materials) on file by the time of use of the selling materials
present any difficulty as a practical matter, even though statutory
disclosure may be wholly incorporated by reference rather than
delivered physically? 32
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\32\ The Section 10(a) prospectus would be required to be on
file subject to, if applicable, Rule 430A (17 CFR 230.430A) and Rule
424 (17 CFR 230.424).
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3. Timeliness of disclosure--informing the market. Under the
current shelf system, information concerning shelf takedowns (contained
in a prospectus supplement) is not required to be filed until the
second business day following the earlier of: the date of determination
of the offering price, or the date of first use in connection with the
offering. Some have expressed concern that the current structure of the
shelf registration system does not require timely disclosure to the
secondary markets of all material information that is being disclosed
to investors in the primary offering. 33
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\33\ See, e.g., Advisory Committee Report at pp. 5-6. See also
Securities Act Rule 424(b), 17 CFR 230.424(b).
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Does the post-takedown filing of prospectus supplements strike an
appropriate balance between quick access to capital and timely
disclosure to investors in the secondary markets for such securities?
Is this balance appropriate if the prospectus supplement is available
earlier? Are the secondary markets having difficulty assimilating such
information during the period before it is filed with the Commission
because of limited access to such information? What role do wire
services and others play in disseminating such information? If all this
information is already fully disseminated to the secondary markets at
the time investors make the decision to purchase in the primary
offering, is it necessary to require any filing or mandate any specific
form of information delivery for transactions? As procedures are
developed permitting issuers to access the capital markets more
quickly, what changes, if any, are likely to occur to the underwriting
process and investor participation?
If information that is not filed with the Commission is not being
fully assimilated prior to the making of investment decisions, comment
is requested with respect to whether, regardless of any other reforms,
the shelf registration system should be amended to require the filing
of complete offering disclosure (including the price and other terms of
the securities) at some point prior to the takedown in order to allow
time for the market to assimilate such information. 34 If so, how
long does it take for such information to be assimilated by the market?
Would the answers to these questions be dependent upon the nature of
the securities involved in the offering, the nature of the offering, or
the size of the issuer?
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\34\ See, e.g., Advisory Committee Report at p. 17.
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Does it matter if transaction-specific disclosure that does not
amount to a material development is not assimilated until some time
after the offering? Should a special requirement apply in cases where
the offering involves a type of security never before sold by the
issuer? Should there be certain events (e.g. a percentage of equity
being offered) that will always be deemed material developments?
In addition, comment is requested with regard to whether takedown
information should be filed in an Exchange Act report that is
incorporated by reference into the registration statement. Should all
Securities Act Rule 424(b) prospectus supplements be deemed to be a
part of the effective registration statement, as is the case with
prospectus supplements filed in connection with Rule 430A?
4. The role of ``gatekeepers'' in maintaining quality of
disclosure. The civil liability provisions of the Securities Act
registration system provide strong incentives for certain parties
independent of the issuer (such as underwriters, accounting
professionals, and others) to take steps to ensure the quality of
disclosure. 35 Given the interest of issuers in quick access to
the capital markets, some commenters and reports have argued that these
``gatekeepers'' may not currently be given the amount of time they wish
or need in which to perform their traditional ``due diligence'' role,
particularly in connection with delayed shelf offerings. 36
Comment and specific data are solicited with respect to the nature and
prevalence of such difficulties. Comment is requested on whether there
is tension between the traditional role of ``gatekeepers'' and the
issuer's desire to have quick access to the capital markets.
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\35\ See Securities Act Section 11, 15 U.S.C. 77k. See also
Securities Act Section 12, 15 U.S.C. Sec. 77l.
\36\ See, e.g., Committee on Federal Regulation of Securities,
``Report of Task Force on Sellers' Due Diligence and Similar
Defenses Under the Federal Securities Laws,'' 48 Bus. Law. 1185
(1993).
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Can the independent ``gatekeepers'' role be reconfigured in order
to facilitate the issuer's ability to access the capital markets
quickly while maintaining or enhancing investor protection? If not,
should reliance on such ``gatekeepers'' continue if a collateral effect
may be to slow down access to the capital markets? Is the increasing
ability of issuers to access the securities markets directly by
themselves affecting the role of underwriters as ``gatekeepers,''
particularly in light of advances in technology and communications? Has
there been a change in the role other parties play, such as analysts
and rating agencies, that should be considered in evaluating the role
of traditional ``gatekeepers?'' In what ways has the
[[Page 40049]]
``due diligence'' process changed to reflect these changes?
Are there mechanisms that could be adopted to allow such
``gatekeepers'' to operate effectively? Have advances in technology and
communications and the existence, in some cases, of auditors engaging
in interim reviews, and analysts and rating agencies made performance
of the ``gatekeeper'' function possible on a continuous basis, or with
little notice, due to the dissemination of information about issuers on
a continuing basis?
Would requiring a separate filing that is subject to Section 11
liability (such as an Exchange Act filing incorporated by reference
into the registration statement) focus the issuer and other parties on
the quality of disclosure and the need to undertake due diligence? If
so, should the timing thereof be dependent upon the type of security
involved and the size of the offering? Should there be a different or
supplemental mechanism (for example, a requirement that independent
``gatekeepers'' be notified of (or engaged for, as applicable) an
offering at least several days in advance, or a requirement that a
certificate be filed by independent ``gatekeepers'' prior to the
offering that they have performed due diligence)? Would these
mechanisms be consistent with today's demands for quick access to
capital?
Would a ``disclosure committee'' of an issuer's board of directors
operate as an effective ``gatekeeper?'' 37 Would such a
``disclosure committee'' likely improve the monitoring of disclosure by
directors or improve the accuracy of disclosure? Would it result in a
diminished oversight role for the rest of the board? What effect would
it have on the liability of the directors serving on the committee?
What effect would it have on the liability of the other directors on
the board? Would board members be willing to serve on such a committee
if there were no Commission guidance on liability? 38 How would it
operate differently from the audit committee?
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\37\ See the full description of this concept at pp. 31-34 of
the Advisory Committee Report. This concept is recommended by the
Advisory Committee, although it is not identified as an essential
element of company registration.
\38\ Although the Advisory Committee Report stops short of
recommending a particular change in the application of liability to
``gatekeepers,'' three members of the Advisory Committee, in a
separate statement, expressed doubt that practitioners would
recommend, or that corporations would adopt, some of the reforms
proposed by the Advisory Committee, and particularly the disclosure
committee concept, unless the Commission accompanied it with a
transition in liability rules. See ``Separate Statement of John C.
Coffee, Jr., Edward F. Greene, and Lawrence W. Sonsini'' in the
Advisory Committee Report at Section IV., p. 38.
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5. Staff review. The Advisory Committee Report states that the
uncertainty surrounding whether there will be staff review of
registration statement disclosure, in cases other than initial public
offerings and major restructurings, results in delays and uncertainties
that may not be justified in terms of public interest and investor
protection benefits.39 The Advisory Committee Report suggests
that, for those issuers in a company registration system, under certain
circumstances, staff review be eliminated with respect to pre-
transaction filings in favor of enhanced reviews of Exchange Act
filings that could provide a similar deterrent effect.
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\39\ See Advisory Committee Report at App. A, pp. 6-14.
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Only a small percentage of the Commission's current reviews of
Securities Act registration statements focus on issuers that are
neither making their initial public offering nor offering securities in
connection with major restructurings.40 Many of those reviews
involve issuers that are either financially troubled or are offering a
new type of security to the public. Comment is requested with respect
to whether the Commission staff should shift its review of repeat
issuers from Securities Act registration statements to the review of
Exchange Act reports. If so, under what circumstances? Should the
Commission instead consider: making public its criteria used to
determine whether to review repeat issuers' registration statements;
limiting its review of repeat issuers' registration statements to those
issuers that are financially troubled or are engaging in an
extraordinary transaction; or allowing repeat issuers to request review
of their Exchange Act reports well in advance of a public offering?
41
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\40\ The Commission staff does not currently review takedown
disclosure in a shelf registration statement prior to use, although
the staff selectively reviews shelf registration statements prior to
their effective date and selectively reviews other registration
statements of repeat issuers, as well as Exchange Act reports of
repeat issuers.
\41\ See the discussion of staff review in the Advisory
Committee Report at App. B, pp. 21-22.
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B. Request for Comment on Aspects of Specific Approaches
1. The Advisory Committee Report. a. Scope of the system. If the
Commission were to ultimately adopt a version of company registration,
should it be preceded by a temporary pilot program to test the system?
If ultimately adopted, should it apply to issuers on a voluntary or
mandatory basis? Should it be mandated for some issuers, and if so,
which ones? Would it be appropriate for smaller issuers without
significant additional investor protection mechanisms? Are the benefits
of the company registration system that do not exist in the current
shelf registration system likely to attract the participation of
issuers given the different requirements of company registration,
including the investor protection enhancements? If available only to
larger issuers on a voluntary basis, are such issuers likely to opt in?
The company registration system, in its recommended pilot stage, would
not be available to all issuers currently eligible to rely on shelf
registration for delayed offerings because, for example, it requires
two years of reporting history as opposed to one year. The Advisory
Committee believed that the extra ``seasoning'' from an additional year
could help ensure the quality of the Exchange Act reporting structure.
Is such an additional requirement appropriate?
If a voluntary company registration system were implemented,
eligible issuers could be operating under one of two separate
registration systems: the Form S-3 (allocated or universal shelf or
non-shelf) registration, or company registration (modified or full). If
such a system were to be implemented, should issuers electing to be
part of the system be required to rely on company registration for all
subsequent offerings of securities if they are to receive certain other
benefits,42 or should issuers be permitted to use a company
registration system except when they issue unregistered securities in
reliance upon statutory exemptions or Commission exemptive rules or
regulations? Should any period of ineligibility to choose a company
registration system be applied if an issuer changes its mind about
participation in the system? Are there offerings of certain exempt
securities and exempt transactions that an issuer should be permitted
to make on an unregistered basis while participating in company
registration? Should debt securities and equity securities be treated
differently with regard to mandatory inclusion?
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\42\ See Advisory Committee Report at App. B, pp. 34-39. Under
the Advisory Committee recommendations, issuers that choose full
company registration would be entitled to rely upon a narrower
application of the resale limitations for ``affiliates'' and a
narrower definition of who is an ``underwriter'' with respect to
their securities. See Advisory Committee Report at App. B, p. 34.
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The current Securities Act regulatory framework applies different
liability standards to registered offerings than
[[Page 40050]]
unregistered offerings.43 For example, strict liability under
Section 11 applies to registered offerings but does not apply to
unregistered offerings. Is this liability distinction likely to lead an
issuer to prefer to retain the option of making unregistered exempt or
offshore offerings? What would be the benefits to investors of a system
in which all offerings are registered (full company registration) as
opposed to the current system in which some offerings are registered
and some are unregistered? What would be the negative consequences? Are
the reasons that issuers choose unregistered private offerings (such as
the need to keep certain information confidential, the activities of
arbitrageurs or the identity of the purchasers) they addressed by the
company registration model? 44
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\43\ See Securities Act Sections 11, 12 and 17, 15 U.S.C.
Secs. 77k, 77l, and 77q. See also Gustafson v. Alloyd Co. Inc., 115
S. Ct. 1061 (1995).
\44\ See Advisory Committee Report at App. A, pp. 18-19, 36-38
and at App. B, p. 45.
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b. Disclosure enhancements. The Advisory Committee Report suggests
that a number of ``disclosure enhancements'' be a part of the company
registration system, largely as methods to ensure the quality and
currency of Exchange Act disclosure.45 Comment is requested with
respect to the effect of each of those enhancements and whether any
resulting benefit would justify any additional cost of complying. For
example, would a benefit be provided by the management certification
(which is not filed but subject to penalty) that is not currently
provided by the signature requirements? Would management be more likely
to read the disclosure document or would it provide the certification,
much in the same way some management reportedly execute signature
pages, without reading the disclosure document?
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\45\ See Advisory Committee Report at pp. 26-28. Those
enhancements include: a certification that is sent with the filing
of each mandatory periodic report that two of four senior officers
have reviewed the issuer's Exchange Act reports and that, to the
best of their knowledge, they do not contain any material false or
misleading information; a one-time management report to the audit
committee or to the board of directors, if there is no audit
committee, describing the procedures followed to ensure integrity of
reports and to avoid insider trading (updated only if materially
changed); an alteration of the due dates for Forms 8-K to 5 business
days after the occurrence of the event where such reports currently
allow 15 calendar days; an expansion of the events that require per
se a filing of a Form 8-K; a new requirement that risk factors
disclosure be included in the Form 10-K (amplified by a discussion
of the benefits of ownership at the issuer's option); a review of
interim financial information under SAS 71 by independent
accountants at the time of filing (a voluntary enhancement); and a
``disclosure committee'' of the board of directors (a voluntary
enhancement).
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The recommended mandatory enhancements focus on internal issuer
action to improve disclosure, rather than seeking enhancement of
Exchange Act reports through persons independent of the issuer. Comment
is requested with respect to the relative costs and benefits of
focusing on internal issuer action as compared to greater participation
of independent ``gatekeepers.'' Should any voluntary enhancement
involving independent parties (e.g. the review of interim financial
results under SAS 71) 46 be mandated? Should any of the mandatory
enhancements be voluntary? Are there additional or alternative
enhancements that would provide investor protection at reasonable cost?
For example, should other communications from the auditors to the
issuer be reported in the Form 8-K filings (e.g. internal control
weaknesses)? Should sales be prohibited during the days following the
occurrence of any event (or certain specified events) triggering a Form
8-K before the report has been filed? As recommended by the Advisory
Committee, should sales be prohibited until the market assimilates the
information after such filing?
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\46\ See AICPA Statement on Auditing Standards No. 71 (May
1992).
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Could aspects of any of the proposed enhancements be modified to
provide greater investor protection without disproportionately
increasing the costs? For example, are there events currently reported
on Form 10-Q that should be subject to an accelerated reporting
schedule on Form 8-K? 47 Would any of the enhancements operate
instead to reduce investor protection? Would any of these enhancements
suggest that fewer persons take responsibility for the disclosure? If
enhancements are beneficial, should they be mandated for some or all
issuers reporting under the Exchange Act, regardless of participation
in company registration?
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\47\ See, e.g., the recommendations regarding acceleration of
reporting of certain events in the Advisory Committee Report at p.
27.
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2. Task Force Report Recommendations. The Task Force Report sets
forth a list of recommended reforms for the regulatory system. The main
focus of those recommendations was on revising the existing shelf
registration system to provide more flexibility and accessibility.
Those recommendations included:
Allowing smaller issuers that have been reporting for a year
to make delayed offerings (without altering the disclosure requirements
or permitting forward incorporation by reference);
Eliminating ``at the market'' offering restrictions;
Allowing universal shelf registration for secondary offerings;
Allowing issuers and majority-owned subsidiaries to be named
as possible issuers on a shelf registration (without designating the
issuer until takedown);
Allowing reallocation of securities on a shelf registration
statement by post-effective amendment;
Allowing registration by seasoned issuers without any
specification of the classes registered; and
Allowing seasoned issuers to pay registration fees at the time
of takedown.48
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\48\ See the Task Force Report at pp. 36-40. The Task Force also
recommended allowing smaller issuers that are not eligible for Form
S-3 but have been reporting for a year to deliver their Exchange Act
reports with their prospectuses (rather than reiterating that
information in the prospectuses). All but the first and fourth of
these recommendations noted above are recommendations of the
Advisory Committee. See Task Force Report at pp. 36-40 and the
Advisory Committee Report at p. 35, n. 40 and accompanying text.
The Commission seeks comment with respect to each of the Task
Force's recommendations relating to reforming shelf registration. In
addition, the Commission requests comment specifically on the following
aspects of the Task Force's suggested reforms.
1. Many Task Force shelf registration revisions are similar to the
streamlining aspects of the company registration system. If a company
registration approach is implemented, would any of the Task Force
recommendations to revise the shelf system provide an added benefit to
ineligible (or eligible) issuers without loss of investor protection?
2. Would the Task Force reforms eliminate any remaining concern of
issuers regarding market overhang effects when equity securities may be
issued from a universal shelf?
3. Would reform of the shelf registration process as suggested in
the Task Force Report be appropriate only if investor protection
enhancements also were added? If so, what enhancements would be needed?
Would the shelf registration reforms minimize or exacerbate concerns
about ensuring current information for the secondary markets?
3. Liberalizing the resale of unregistered securities. One approach
to reforming the registration system involves the expansion of Rule
144A under the Securities Act.49 Rule 144A has facilitated the
creation of a private, relatively liquid, limited institutional market
made up of qualified
[[Page 40051]]
institutional buyers (``QIBs''). Suggestions have been made that easing
the restrictions on the types of securities and buyers that may
participate in the Rule 144A market would reduce the cost of capital
formation without a corresponding loss of investor protection.50
Should the Commission consider expanding the use of Rule 144A as an
alternative to, or in combination with, aspects of company
registration? For example, should the fungibility restriction of Rule
144A 51 be revised and, if so, should it be eliminated or simply
eased for a particular class of issuers or securities? Comment also is
requested regarding whether the group of institutions eligible to be
QIBs should be expanded and, if so, in what manner.52 Would the
expansion of this separate institutional market lessen investor
protection in any way or harm the public interest?
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\49\ 17 CFR 230.144A.
\50\ See, e.g., J. Coffee, Jr., ``Re-Engineering Corporate
Disclosure: The Coming Debate Over Company Registration,'' 52 Wash.
& Lee L. Rev. 1143, 1177-79 (1995).
\51\ Under current Rule 144A, securities that are fungible when
issued with those traded on a national securities exchange or quoted
in a U.S. automated inter-dealer quotation system may not be sold in
the 144A market. See Rule 144A(d)(3), 17 CFR 230.144A(d)(3).
\52\ Under Rule 144A, securities may only be offered or sold to
QIBs. To be eligible to be a QIB, an institution must own and invest
on a discretionary basis at least $100 million in securities of
unaffiliated entities, or, if a registered dealer (acting for its
own accounts or on behalf of other QIBs), at least $10 million in
securities of unaffiliated entities. Banks, savings associations and
equivalent foreign institutions must also have a net worth of at
least $25 million to be eligible.
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If the Commission were to expand the use of Rule 144A, revise Rule
152,53 and address further the problematic practices under
Regulation S,54 would enough of the complexity of the ``restricted
versus unrestricted securities'' and ``private versus public offering''
dichotomies be eliminated, or would such actions move the line of
demarcation but otherwise retain all the distinctions? 55 Would
the complexity be eliminated if, in addition, the Commission shortened
the holding period in Rule 144 or would this change move the line of
demarcation? 56 Rule 144 is commonly viewed as setting the
restrictions on resale of most unregistered securities (including sale
of Rule 144A securities outside the QIB market). As such, would
reducing the Rule 144 holding period have the effect of making the
alternative of not registering securities more attractive to issuers
and purchasers and, therefore, tend to minimize the need for further
reform of the registration process? Would rule changes that encourage
more offerings to be unregistered impact investor protection?
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\53\ See infra Section II.B.6.
\54\ Securities Act Release No. 7190 (June 27, 1995) [60 FR
35663].
\55\ Perceived difficulties arising from these distinctions
include: prohibitions on combining a private offer and a public
sale; Section 5 ``gun-jumping'' issues arising from converting a
private offering to a public offering; and general solicitation and
integration concerns arising when converting an offering begun after
filing a registration statement to a private offering. See S.
Keller, ``Basic Securities Act Concepts Revisited,'' INSIGHTS, vol.
9 at pp.5-12 (May 1995) and Advisory Committee Report, App. A at pp.
22-32.
\56\ See Securities Act Release No. 7187 (June 27, 1995) [60 FR
35645]. Rule 144 provides a safe harbor for sales under Securities
Act Section 4(1), 15 U.S.C. 77d(1), for persons selling unregistered
restricted securities and for affiliates of the issuer selling any
issuer securities. The participation of brokers and dealers acting
as intermediaries in such resales is exempt under Securities Act
Section 4(3) or 4(4), 15 U.S.C. 77d(3) or 77d(4).
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4. The four-part approach. Another recently articulated approach to
modernizing the regulatory framework governing the offering process
consisted of: (i) focusing on the nature of purchasers as one of the
factors considered in defining the regulation of registered offerings;
(ii) exempting offers from registration; (iii) allowing communications
other than the statutory prospectus during the offering period, subject
to Section 12(a)(2) (but not Section 11) liability; and (iv) allowing
prospectus delivery by incorporation by reference of the full
prospectus, where appropriate, and pre-confirmation physical delivery
of prospectuses in all other cases. 57 Some of these ideas, such
as use of constructive delivery and allowing non-statutory prospectus
communications, are discussed above.
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\57\ These suggestions were made in a 1995 speech to the
Committee on Federal Regulation of Securities of the American Bar
Association by Linda C. Quinn, then Director of the Division of
Corporation Finance. See L. Quinn, ``Reforming the Securities Act of
1933--A Conceptual Framework,'' INSIGHTS, vol. 10, pp. 25-29 (1995).
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Comment is solicited with respect to whether the implementation of
these reforms would suffice to achieve full disclosure in the modern
offering process. If not, what other actions would be needed? Would the
deregulation of offers resolve some of the complexities resulting from
the statutory distinction between private and public offerings?
Would there be any loss of investor protection as a result of the
deregulation of offers due to the fact that no document need be filed
until the time of sales, especially with respect to issuers that do not
file under the Exchange Act? Conversely, would there be an increase in
information without the diminution of investor protection if the
deregulation resulted in the freedom to provide written, profile
disclosure not conforming to the traditional prospectus? Are there
classes of registered offerings regarding which the capital markets
have no need for advance notice of the issuers' intentions to offer
securities? Should this approach be considered only for certain classes
of issuers and, if so, which ones?
5. ``Pink herring'' concept. Another recent suggestion is that
offers be permitted to be made by any issuer after filing a ``pink
herring'' registration statement consisting of limited information
regarding the price, the type of security, the method of distribution
and financial results. 58 An initial nominal fee would be paid
with the pink herring filing. Thereafter, public offers and general
solicitations could be made. Although all offers would be registered
under this approach, whether public or private, unregistered sales to
qualified non-retail investors could be made thereafter in compliance
with, for example, Regulation D. 59
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\58\ This approach is described in more detail in the Task Force
Report at p. 31.
\59\ 17 CFR 230.501 through 230.508 and Preliminary Notes
thereto.
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Comment is solicited with respect to whether this proposal would
resolve much of the strain resulting from the erosion of distinctions
between private and public offerings. Would there be a loss of investor
protection due to the fact that only limited disclosure need be filed
until the time of sales? Would there be increased investor protection
from this proposal in comparison to a system where offers are not
regulated at all and no filing is made with the Commission until the
time of sale? Would a benefit result from the potential involvement of
some ``gatekeepers?'' Would there be a benefit from requiring a filing
with the Commission that could be reviewed by offerees or used by the
Commission in the event of fraudulent offers? Should this approach be
considered only for certain classes of issuers, such as non-reporting
issuers, and, if so, for which ones? Should a pink herring filing
include limited company information as well as limited transaction-
specific information?
6. Private and public offerings--revisiting rule 152. Issuers that
undertake a private offering may later decide to make a public offering
instead. The safe harbor provided by Securities Act Rule 152 60
deems the Section 4(2) exemption to continue to apply to the private
transaction in those circumstances if the private offering has been
terminated prior to the
[[Page 40052]]
commencement of the public offering. In the absence of the safe harbor,
the exemption for the private offering may be in doubt, as it could be
integrated with the public offering. The Task Force Report recommended
that Rule 152 be revisited with a view towards permitting a company to
switch from a private offering to a public offering without an
intervening termination of the private offering. 61 Comment is
solicited with respect to whether this proposal would resolve much of
the strain resulting from the erosion of distinctions between private
and public offerings. Would this enhance an issuer's ability to access
the capital markets more efficiently? Would there be a loss of investor
protection from such a change? If Rule 152 is expanded, should its
availability be limited to offerings other than those that may give
rise to disclosure abuses (e.g. blind pools, blank check companies or
penny stocks)?
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\60\ 17 CFR 230.152.
\61\ See Task Force Report at pp. 29-30.
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Similarly, should the Commission modify its view that the act of
filing a registration statement in connection with a non-shelf offering
is deemed to commence a public offering in all cases? Should the
Commission create a safe harbor for private offerings that are
undertaken while the issuer has ``quietly'' filed a registration
statement? 62
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\62\ An issuer ``quietly'' files a registration statement when
the filing of such document with the Commission is not accompanied
by a marketing effort for the securities, including the circulation
of a preliminary prospectus.
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7. General solicitation. Effective June 10, 1996, the Commission
adopted Rule 1001,63 which exempts from registration under the
Securities Act certain small offerings that are exempt from state law
registration under the California Corporations Code.64 The
California law provides an exemption for offerings by California-
related issuers to ``qualified purchasers'' (which are similar to
accredited investors as defined in Securities Act Regulation D). Under
the California law, a general announcement with limited contents may be
widely published and circulated, much like that under the Commission's
Regulation A ``test the waters'' process. Comment is solicited with
respect to whether the Commission should extend the approach in Rule
1001 to offerings on a nationwide basis so that a general solicitation
could precede an exempt sale to qualified purchasers.
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\63\ 17 CFR 230.1001 (Regulation CE).
\64\ Securities Act Release No. 7285 (May 1, 1996) [61 FR
21356].
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Comment also is requested with respect to a broader relaxation of
general solicitation prohibitions on offerings made under Regulation D
Rules 505 and 506.65 Is the inability to reach out broadly to find
qualified investors for such Regulation D offerings unnecessarily
hampering the utility of the regulation and raising costs to issuers?
Would relaxation of such prohibition be appropriate? 66
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\65\ 17 CFR 230.505 and 230.506.
\66\ See the discussion and solicitation of comment contained in
Securities Act Release No. 7185 (June 27, 1995) [60 FR 35638].
Comment letters have been received in response to that solicitation
of comments and are available in the Commission's Public Reference
Room File No. S7-15-95. Such letters will be considered in
connection with this release and need not be resubmitted.
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8. Other Questions. Would modification of the existing shelf
registration system provide the equivalent benefits to issuers and
other participants in the markets, and investors, in both the primary
and secondary markets, as the new company registration system may
provide?
Would modifications to the existing regulatory system (including
shelf registration) provide equivalent benefits to eliminating the need
for regulatory distinctions (such as ``private versus public,''
``domestic versus offshore,'' and other similar issues) as would the
new company registration system if companies opted into full company
registration?
Would it be better to have a pilot program for company
registration, while maintaining the current system, or should instead
the current system be modified?
III. Conclusion
The Commission is soliciting public comment on a variety of issues
relating to the Securities Act offering process, including the effect
of any changes in the regulatory scheme on the operation of both the
primary and secondary markets. In addition to responding to the
questions presented in this release, the Commission encourages
commenters to provide any information to supplement the information and
assumptions contained herein regarding the functioning of the capital-
raising process, the roles of market participants, the advantages and
disadvantages of suggested reforms, the expectations of investors, and
the other matters discussed. The Commission also invites commenters to
provide views and data as to the costs and benefits associated with
possible changes discussed above in comparison to the costs and
benefits of the existing regulatory framework. The Commission also
seeks comment concerning whether, given the passage of time and the
evolution of the capital markets since adoption of the registration
system, legislative reform is needed. In order for the Commission to
assess the impact of changes to the Securities Act regulatory scheme on
capital formation and the protection of investors, comment is solicited
from the point of view of investors, issuers, underwriters, broker-
dealers, analysts, and other interested parties, including accountants
and attorneys involved in the registration process.
By the Commission.
Dated: July 25, 1996.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-19461 Filed 7-30-96; 8:45 am]
BILLING CODE 8010-01-P
