Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 46,612
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46612 Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Rules and Regulations
meaning of Sections 2(a)(10) 101 and
5(c) 102 of the Securities Act when the
communications relate to an offering of
non-convertible investment grade
securities. Under current rules, these
communications include the following:
* Under Securities Act Rule 138, a
broker's or dealer's publication about
securities of a foreign private issuer that
meets F-3 eligibility requirements
(other than the reporting history
requirements) and is issuing non-
convertible investment grade securities;
* Under Securities Act Rule 139, a
broker's or dealer's publication or
distribution of a research report about
an issuer or its securities where the
issuer meets Form S-3 or F-3 registrant
requirements and is or will be offering
investment grade securities pursuant to
General Instruction I.B.2. of Form S-3 or
F-3, or where the issuer meets Form F-
3 eligibility requirements (other than the
reporting history requirements) and is
issuing non-convertible investment
grade securities; and
* Under Securities Act Rule 168, the
regular release and dissemination by or
on behalf of an issuer of
communications containing factual
business information or forward-looking
information where the issuer meets
Form F-3 eligibility requirements (other
than the reporting history requirements)
and is issuing non-convertible
investment grade securities.
In the 2011 Proposing Release, we
proposed to revise these rules to refer to
the new proposed instructions in
General Instruction I.B.2 of Form S-3 or
Form F-3, as appropriate. We received
little comment on these proposals. One
commentator did not believe
amendments to these rules were
required by the Dodd-Frank Act.103 The
commentator was concerned that the
amendments would be burdensome on
firms that publish research because they
would have to determine the issuer's
form eligibility each time they wanted
to publish research instead of relying on
a published credit rating.104
We do not believe that determining an
issuer's form eligibility will be unduly
burdensome for those seeking to publish
research. A review of the issuer's or its
parent company's publicly available
filings, such as Forms 10-K or
prospectuses, should indicate whether
the issuer satisfies the eligibility
requirements for Form S-3 or Form F-
3.105 We also believe that these
1ol 15 U.S.C. 77b(a)10.
102 15 U.S.C. 77e(c).
103 See letter from SIFMA.
10o Id.105 For example, for an issuer that is a subsidiary
of a WKSI, the parent's Form 10-K would note itsrevisions are appropriate both because
of the Dodd-Frank Act's goal to reduce
reliance on credit ratings and to
promote regulatory consistency. As a
result, we are adopting revisions to
Rules 138, 139, and 168 to be consistent
with the revisions we are adopting to
the eligibility requirements in Forms S-
3 and F-3.
3. Rule 134(a)(17)
Securities Act Rule 134(a)(17)106
permits the disclosure of security
ratings issued or expected to be issued
by NRSROs in certain communications
deemed not to be a prospectus or free
writing prospectus. We proposed in the
2011 Proposing Release to remove this
rule since we believe providing a safe
harbor that explicitly permits the
presence of a credit rating assigned by
an NRSRO is not consistent with the
purposes of Section 939A.
Commentators were opposed to this
proposal.107 Two commentators argued
that removing Rule 134(a)(17) is not
required by Section 939A of Dodd-
Frank.108 One commentator did not
believe that allowing the inclusion of
credit rating information encourages
reliance on ratings but instead merely
reflects the fact that ratings are relevant
to investors.109 Another commentator
believed we should expand the rule to
cover all credit ratings instead of those
issued by NRSROs.110 That
commentator believed removing Rule
134(a)(17) would result in less
information being available to investors.
One commentator believed the
amendment is not required by either the
letter or spirit of Section 939A and
WKSI status. For the amount of non-convertible
securities (other than common equity) outstanding
or issued, the amounts in financial statements could
be compared to prospectuses to determine that the
securities were sold in registered offerings.
106 17 CFR 230.134(a)(17). These disclosures
generally appear in "tombstone" ads or press
releases announcing offerings. A communication is
eligible for the safe harbor if the information
included is limited to such matters as, among
others, factual information about the identity and
business address of the issuer, title of the security
and amount being offered, the price or a bona fide
estimate of the price or price range, the names of
the underwriters participating in the offering and
the name of the exchange where such securities are
to be listed and the proposed ticker symbols.
10 See letters from SIFMA, Davis Polk, Cleary,
Roundtable, ASF and Debevoise.
1o8 See letters from SIFMA and Davis Polk.
109 See letter from SIFMA.
11o See letter from Davis Polk. A proposal to
expand Rule 134(a)(17) was included in the 2008
proposing Release. We received little comment on
the proposal at that time. As we noted in the 2011
Proposing Release, we do not believe it is
appropriate to expand the rule to cover all credit
ratings issued because we do not believe it would
be consistent with the otherwise limited disclosurescovered by the Rule 134 safe harbor.
would chill information available to
investors.111
Notwithstanding the comments we
received, we believe it is appropriate to
revise Rule 134 in order to remove the
safe harbor for disclosure of credit
ratings assigned by NRSROs. We believe
providing a safe harbor that explicitly
permits the presence of a credit rating
assigned by an NRSRO is not consistent
with the purposes of Section 939A to
reduce reliance on credit ratings. We
also do not believe this change will have
a material impact on the information
available to investors because issuers
will (as is common now) be able to
disclose a credit rating in a free writing
prospectus.112 In addition, as we noted
in the 2011 Proposing Release, removing
the safe harbor for this type of
information would not necessarily
result in a communication that included
this information being deemed to be a
prospectus or a free writing prospectus.
The revision results in there no longer
being a safe harbor for a communication
that included this information. Instead,
the determination as to whether such
information constitutes a prospectus
would be made in light of all of the
circumstances of the communication.
III. Paperwork Reduction Act
A. Background
Certain provisions of the rule
amendments contain a "collection of
information" within the meaning of the
Paperwork Reduction Act of 1995
(PRA).113 The Commission is submitting
these amendments and rules to the
Office of Management and Budget
(OMB) for review in accordance with
the PRA.114 An agency may not conduct
or sponsor, and a person is not required
to comply with, a collection of
information unless it displays a
currently valid control number. The
titles for the collections of information
are:115
111 See letter from Cleary. See also letters from
Roundtable, ASF and Debevoise.
112 One commentator pointed out that not all
companies and business development companies.
However, pursuant to Rule 134(g), those companies
currently cannot rely on the safe harbor in Rule 134,
so the amendment to Rule 134(a)(17) should not
affect those companies. In addition, we note that
the exclusion from the ability to use free writing
prospectuses for "ineligible issuers" does not
preclude such issuers (except for blank check
companies, penny stock companies and shell
companies) from using free writing prospectuses
that are "term sheets," which is a common way that
issuers disclose the credit rating for a particular
offering.
113 44 U.S.C. 3501 et seq.
11444 U.S.C. 3507(d) and 5 CFR 1320.11.115 Although we are adopting amendments to
Form S-4, Form F-4 and Schedule 14A, we do not
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United States. Office of the Federal Register. Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054, periodical, August 3, 2011; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc52326/m1/26/?rotate=270: accessed April 25, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.