SEC Adopts Final Amendments to Exchange Act Registration Thresholds

On May 3, 2016, the Securities and Exchange Commission (“SEC”) adopted final amendments to implement certain sections of the Jumpstart Our Business Startups Act (“JOBS Act”) and certain securities regulation provisions of the Fixing America’s Surface Transportation Act (“FAST Act”). The amendments were adopted substantially as proposed in December 2014 (summarized in our prior blog post, here). The amendments revise SEC rules to reflect the new, higher thresholds for registration, termination of registration and suspension of reporting that were included in the JOBS Act and the FAST Act. SEC Chair, Mary Jo White, announced in a press release that, “With the adoption of these amendments, the Commission has completed all of the rulemaking mandates under the JOBS Act.” 

The final rules amend Rules 12g-1 through 12g-4 to raise the threshold for the number of holders of record that trigger registration to either 2,000 holders of record or 500 holders of record that are not accredited investors, whichever occurs first. The rules further amend Rule 12g-1 to clarify that the definition of “accredited investor” found in Rule 501(a) promulgated under the Securities Act applies in the context of Exchange Act Section 12(g).

The final rules also amend Rule 12h-3 to allow banks and bank holding companies to terminate registration for a class of securities under Section 12(g) or suspend reporting under Section 15(d)(1) if that class was held of record by fewer than 1,200 persons. The final amendments added, in addition to banks and bank holding companies, savings and loan holdings companies to the new rule.

The final rules also revise the definition of “held of record” to exclude certain securities held by persons who received them pursuant to employee compensation plans and establish a non-exclusive safe harbor for determining whether securities are “held of record” for purposes of registration under Section 12(g). The definition of “held of record” under the final amendments provides that, when determining whether an issuer is required to register under Section 12(g)(1), the issuer may exclude securities (i) held by persons who received them under an employee compensation plan in transactions that were exempt from, or not subject to, the registration requirements of Section 5; and (ii) held by persons who received them in transactions exempt from, or not subject to, the registration requirements of Section 5 from the issuer, a predecessor of the issuer or an acquired company in substitution or exchange for excludable securities, so long as the persons were eligible to receive securities under Rule 701(c) at the time the excludable securities were originally issued to them. Subsection (ii) of the safe harbor is meant to be available to surviving entities after an M&A transaction if they have reasonable belief that at the time of issuance, the securities of the predecessor were issued in a transaction meeting the requirements of Rule 701(c).

The Takeaway:
An issuer that is not a bank, bank holding company or savings and loan holding company is not subject to the reporting obligations of the Exchange Act Section 12(g) until it has more than $10 million in assets and its securities are “held of record” by either 2,000 persons or 500 persons who are not accredited investors. An issuer who is a bank, bank holding company or savings and loan holding company need not report until it has more than $10 million in assets and the securities are “held of record” by 2,000 or more persons.

The amendments will become effective 30 days after publication in the Federal Register.

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