Proposed Rule2026-10222
Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies
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Published
May 21, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") proposes amendments to streamline filer statuses for Securities Exchange Act of 1934 ("Exchange Act") reporting companies into two primary categories: large accelerated filers and non-accelerated filers. The Commission further proposes to raise the threshold and seasoning requirements for large accelerated filer status and extend certain existing accommodations and scaled disclosures, including those for smaller reporting companies and emerging growth companies, to all non-accelerated filers, while continuing to require compliance with non-scaled disclosure from large accelerated filers. The Commission also proposes to extend the deadlines to file periodic reports for the smallest non-accelerated filers, as measured by total assets. Finally, the Commission also proposes to update the rules that define which issuers are considered small entities for purposes of the Regulatory Flexibility Act ("RFA").
Full Text
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[Federal Register Volume 91, Number 98 (Thursday, May 21, 2026)]
[Proposed Rules]
[Pages 30086-30190]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-10222]
[[Page 30085]]
Vol. 91
Thursday,
No. 98
May 21, 2026
Part III
Securities and Exchange Commission
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17 CFR Parts 210, 229, 230, et al.
Enhancement of Emerging Growth Company Accommodations and
Simplification of Filer Status for Reporting Companies; Proposed Rule
Federal Register / Vol. 91, No. 98 / Thursday, May 21, 2026 /
Proposed Rules
[[Page 30086]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 229, 230, 232, 239, 240, and 249
[Release Nos. 33-11419; 34-105515; File No. S7-2026-18]
RIN 3235-AN40
Enhancement of Emerging Growth Company Accommodations and
Simplification of Filer Status for Reporting Companies
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'')
proposes amendments to streamline filer statuses for Securities
Exchange Act of 1934 (``Exchange Act'') reporting companies into two
primary categories: large accelerated filers and non-accelerated
filers. The Commission further proposes to raise the threshold and
seasoning requirements for large accelerated filer status and extend
certain existing accommodations and scaled disclosures, including those
for smaller reporting companies and emerging growth companies, to all
non-accelerated filers, while continuing to require compliance with
non-scaled disclosure from large accelerated filers. The Commission
also proposes to extend the deadlines to file periodic reports for the
smallest non-accelerated filers, as measured by total assets. Finally,
the Commission also proposes to update the rules that define which
issuers are considered small entities for purposes of the Regulatory
Flexibility Act (``RFA'').
DATES: Comments should be received on or before July 20, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
[cir] Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-status-reporting-companies">https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-status-reporting-companies</a>); or
[cir] Send an email to <a href="/cdn-cgi/l/email-protection#b7c5c2dbd29ad4d8dadad2d9c3f7c4d2d499d0d8c1"><span class="__cf_email__" data-cfemail="ed9f988188c08e828080888399ad9e888ec38a829b">[email protected]</span></a>. Please include File
Number S7-2026-18 on the subject line.
Paper Comments
[cir] Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-18. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-statusreporting-companies">https://www.sec.gov/comments/s7-2026-18/enhancement-emerging-growth-company-accommodations-simplification-filer-statusreporting-companies</a>). Do not include
personally identifiable information in submissions; you should submit
only information that you wish to make available publicly. The
Commission may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/05/s7-2026-18">https://www.sec.gov/rules-regulations/2026/05/s7-2026-18</a>).
FOR FURTHER INFORMATION CONTACT: Nabeel Cheema, Special Counsel, and
Stephanie Sullivan, Associate Chief Accountant, Division of Corporation
Finance, at (202) 551-3430, and Angela Mokodean, Senior Special
Counsel, Division of Investment Management, at (202) 551-6792, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to amend or add
the following rules and forms:
BILLING CODE 8011-01-P
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[GRAPHIC] [TIFF OMITTED] TP21MY26.008
BILLING CODE 8011-01-C
Table of Contents
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\1\ 17 CFR 210.1-01 through 210.15-01.
\2\ 17 CFR 229.10 through 229.1610.
\3\ 17 CFR 232.10 through 232.501.
\4\ 15 U.S.C. 77a et seq.
\5\ 15 U.S.C. 78a et seq.
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I. Introduction
A. Exchange Act Reporting Prior to 2002
B. Accelerated Filer Status; Sarbanes-Oxley Act
C. ICFR Requirements
D. Actions Related to Smaller Reporting and Emerging Growth
Companies
1. Establishment of SRC Status
2. The JOBS Act and EGC Status
3. Recent Amendments and Filer Status Complexity
II. Discussion of Proposed Rules
A. Large Accelerated Filer Status Amendments
1. Public Float Threshold
2. Public Float Determination
3. Seasoning
B. Non-Accelerated Filer Amendments
1. Non-Accelerated Filer Definition
2. ICFR and the Auditor Attestation Requirement
3. Extension of SRC and EGC Accommodations and Disclosure
Requirements
4. Application to Other Filer Types
5. Summary of Requirements for LAFs and NAFs Under the Proposal
C. Small Non-Accelerated Filers
D. Proposed Transition Period
E. Updating Small Entity Definitions
F. Other Amendments
III. Other Matters
IV. Economic Analysis
A. Baseline and Affected Parties
1. Regulatory Baseline
2. Affected Parties
3. Registrant Characteristics
B. Economic Benefits and Costs
1. General Economic Effects of the Proposed Amendments
2. Amendments to LAF Definition
3. Exemption From ICFR Auditor Attestation
4. The Expansion of the Subset of Registrants Eligible for
Extended Periodic Report Filing Deadlines
5. Extending SRC and Certain EGC Accommodations to All NAFs
6. Extending Filing Deadlines for the Smallest NAFs
7. Updating Small Entity Definition
8. Additional Considerations
9. Aggregate Monetized Benefits and Costs
C. Anticipated Effects on Efficiency, Competition, and Capital
Formation
D. Reasonable Alternatives
1. LAF Public Float Threshold
2. Seasoning Requirement
3. Regulatory Accommodations for NAFs
4. SNFs
E. Request for Comment
V. Paperwork Reduction Act
A. Summary of the Collections of Information
B. Estimated Paperwork Burden Effects of the Proposed Amendments
C. Incremental and Aggregate Burden and Cost Estimates
D. Request for Comment
VI. Congressional Review Act
VII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
Statutory Authority
I. Introduction
From their inception, the U.S. securities laws have sought to
require full and fair disclosure by companies seeking to raise capital
from investors and access the public markets.\6\ In enacting broad
investor protections and disclosure requirements under the securities
laws, Congress also recognized the need to take into account the
burdens of registration.\7\ A core function of the Exchange Act is to
extend disclosure-based investor protections that are provided for
public offerings of securities under the Securities Act to post-
distribution trading in the secondary markets. This is accomplished
primarily by sections 12,\8\ 13(a),\9\ and 15(d) \10\ of the Exchange
Act, which impose periodic and current reporting requirements on
companies:
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with exchange-listed securities (section 12(b)); with widely held
classes of equity securities (section 12(g)); or that have completed a
public offering registered under the Securities Act (section
15(d)).\11\ These registrants \12\ must file reports prescribed by the
Commission, which generally include annual reports on Form 10-K and
quarterly reports on Form 10-Q.\13\ With respect to investment
companies, business development companies (``BDCs'') and face-amount
certificate companies are also subject to these reporting
requirements.\14\
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\6\ See, e.g., the preamble of the Securities Act, which sets
forth the purpose of the Act: ``[t]o provide full and fair
disclosure of the character of securities sold in interstate and
foreign commerce and through the mails, and to prevent frauds in the
sale thereof, and for other purposes.'' The antifraud provisions of
the Securities Act necessitate application of a materiality standard
to disclosure. See Basic Inc. v. Levinson, 485 U.S. 224 (1988).
Information is material ``if there is a substantial likelihood its
disclosure would have been considered significant by a reasonable
investor.'' Id. (citing TSC Industries, Inc. v. Northway, Inc., 426
U.S. 438 (1976)).
\7\ See, e.g., Securities Act section 28, 15 U.S.C. 77z-3
(providing general exemptive authority to the extent that such
exemption is necessary or appropriate in the public interest);
Jumpstart Our Business Startups Act, Public Law 112-106, 126 Stat.
306 (2012) (easing the compliance burden for newly registered
companies).
\8\ 15 U.S.C. 78l.
\9\ 15 U.S.C. 78m(a).
\10\ 15 U.S.C. 78o(d).
\11\ In addition, any company that has voluntarily registered a
class of equity securities under section 12(g) of the Exchange Act
and any company that has succeeded to the obligation of another
reporting company (17 CFR 240.12g-3 and 240.15d-5) are subject to
the reporting requirements of the Exchange Act.
\12\ We use the terms ``public companies,'' ``registrants,'' and
``issuers'' interchangeably in this release. Unless explained in the
text, the use of different terms in different places is not meant to
connote a substantive difference.
\13\ The Exchange Act and related rules impose additional
requirements on registrants that are not foreign private issuers
(``FPIs''), including obligations to provide current reports (on
Form 8-K pursuant to section 13 or 15(d)) and certain proxy
information and soliciting materials in connection with a
shareholder meeting (on Schedule 14A or 14C pursuant to section 14).
The Commission has recently proposed to allow all registrants the
option to report semiannually rather than quarterly on Form 10-Q.
See Semiannual Reporting, Release No. 33-11414 (May 5, 2026) [91 FR
24968 (May 7, 2026)] (``Semiannual Proposing Release''). FPIs, by
contrast, already have more limited filing requirements, unless they
elect to file on domestic issuer forms. See Concept Release on
Foreign Private Issuer Eligibility, Release No. 33-11376 (June 4,
2025) [90 FR 24232 (June 9, 2025)]. FPIs are defined in 17 CFR
240.3b-4. While FPIs may file annual reports on Form 20-F or Form
40-F, FPIs are exempt from the proxy rules, and their obligation to
file current reports on Form 6-K is largely limited to circumstances
in which FPIs have already made a public filing or disclosure in
their home country jurisdiction.
\14\ BDCs are a type of closed-end investment company that is
not registered under the Investment Company Act of 1940
(``Investment Company Act''). Face-amount certificate companies are
a type of registered investment company that are engaged or propose
to engage in the business of issuing face-amount certificates of the
installment type, or that have been engaged in such business and
have any such certificate outstanding. In general, other registered
investment companies are subject to separate reporting requirements
under the Investment Company Act and are not affected by the filer
statuses or other provisions discussed in this release.
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Over time, the Commission and Congress have adopted various ``filer
statuses'' to establish tiers of registrants and offer certain
accommodations by tier, including as to the timing and content of this
periodic reporting. Current filer statuses include:
<bullet> Large accelerated filer (``LAF''), accelerated filer \15\
(``AF''), and non-accelerated filer (``NAF'').
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\15\ ``Accelerated filer'' and ``large accelerated filer'' are
defined in 17 CFR 240.12b-2.
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[cir] Filing deadlines for periodic reports depend on whether a
registrant is classified as an LAF, an AF, or neither of these, which
we refer to as an NAF.\16\
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\16\ While undefined currently in the rules, we generally refer
to registrants that are not AFs or LAFs as NAFs.
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[cir] Only LAFs and AFs are required to have the registered public
accounting firm that prepares or issues their financial statement audit
report attest to, and report on, management's assessment of the
effectiveness of internal control over financial reporting (``ICFR'')
(``ICFR auditor attestation'') under section 404(b) of the Sarbanes-
Oxley Act of 2002 (``Sarbanes-Oxley Act'').\17\
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\17\ 15 U.S.C. 7262(b) and (c).
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<bullet> Smaller reporting company <SUP>18</SUP> (``SRC'') is a
regulatory status that applies to smaller registrants permitting those
registrants to comply with a number of scaled disclosure requirements,
discussed in detail below,\19\ which notably include scaled financial
statement disclosure and scaled executive compensation disclosure,
among other accommodations.
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\18\ The term ``smaller reporting company'' is defined in 17 CFR
230.405 and 17 CFR 240.12b-2.
\19\ See section II.B below.
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<bullet> Emerging growth company (``EGC'') is a statutorily-defined
status that applies to registrants for the first five years after their
initial public offering so long as they do not become an LAF or surpass
revenue and debt issuance limitations.\20\ The EGC accommodations are
described more fully below \21\ and notably include scaled financial
statement disclosure in an EGC's initial public equity offering
registration statement, deferred adoption of certain new or revised
financial accounting standards, scaled executive compensation
disclosure, and an exemption from the ICFR auditor attestation
requirement.\22\
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\20\ Section 101(a) of the JOBS Act amended section 2(a) of the
Securities Act and section 3(a) of the Exchange Act to define an
``emerging growth company.'' The JOBS Act initially defined
``emerging growth company'' as an issuer with less than $1 billion
in total annual gross revenues, indexed to inflation. Pursuant to
the statutory requirements, the current threshold is $1,235,000,000.
See Inflation Adjustments Under Titles I and III of the JOBS Act,
Release No. 33-11098 (Sept. 9, 2022) [87 FR 57394 (Sept. 20, 2022)]
(adopting amendments to adjust the threshold to account for
inflation).
\21\ See discussion of EGCs in section I.D.2 below.
\22\ See 15 U.S.C. 7262(b).
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The table below lists the periodic reporting deadlines that
currently apply to LAFs, AFs, and NAFs.\23\
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\23\ See General Instruction A.2 of Form 10-K and General
Instruction A.1 of Form 10-Q for the filing deadlines.
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The filer status framework that has developed is layered and
complex.\24\ Under the current system, registrants must annually
reevaluate their filer status at the end of their fiscal year. To do
so, they consider both their public float \25\ as of the end of their
second fiscal quarter and their annual revenue, and compare those
figures to thresholds that vary based on whether a registrant is
entering or exiting a particular filer status. Additionally,
registrants qualifying as EGCs must evaluate whether they met any of
the disqualifying provisions of an EGC throughout the year. The table
below illustrates the combinations of filer statuses that are possible
today, highlights the overlap that can occur among filer statuses, and
provides the entry thresholds for each status and the proportion of
registrants in each permutation:\26\
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\24\ See, e.g., Fun in the Summer--Navigating the Filer Status
Maze, The Corporate Counsel (May-June 2021), at 1-10 (suggesting
that ``the SEC and Congress have created what is often a bewildering
maze of filer status tests that are used to determine when a company
files its reports with the SEC and the content of those reports'').
See also Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Apr. 10, 2025), at 139-49, <a href="https://www.sec.gov/files/2025-SBF-508-Transcript.pdf">https://www.sec.gov/files/2025-SBF-508-Transcript.pdf</a> (counsel panelist noting that
``when I have to sit there and explain to somebody how to navigate .
. . whether you're an emerging growth company or a smaller reporting
company or an [accelerated] filer, their eyes glaze over and they're
just like, `what are you talking about?' And I think that sort of
complexity just adds to the compliance costs, it adds to the
concern, and then sometimes I think it adds to the inability to
access the market and report and do things in a way that is most
effective for those companies'').
\25\ As used herein, ``public float'' is the aggregate worldwide
market value of the voting and non-voting common equity held by the
issuer's non-affiliates. 17 CFR 240.12b-2(i).
\26\ The data used in preparing this table is based on
registrants' self-reported filer statuses on the cover page of their
calendar year (``CY'') 2024 annual filings and excludes asset-backed
issuers and FPIs not filing on domestic forms. While current NAFs
may qualify as SRCs, registrants with no public float and annual
revenues of $100 million or more do not qualify as SRCs. The SRC
definition also excludes any registrant that is an investment
company, an asset-backed issuer, or a majority-owned subsidiary of a
parent that is not an SRC. See 17 CFR 229.10(f)(1).
[GRAPHIC] [TIFF OMITTED] TP21MY26.010
The table reflects the current thresholds for initially entering
into a particular status, but, under existing rules, the thresholds are
often different for determining when a registrant transitions out of
that status. Under current rules, LAFs transition to AF status when
their public float falls below $560 million, and AFs and LAFs
transition out of either such status when their public float falls
below $60 million or they determine that they are eligible to use the
requirements for SRCs under the revenue test in paragraph (2) or
(3)(iii)(B) of the smaller reporting company definitions in 17 CFR
230.405 and 17 CFR 240.12b-2. Similarly, once a registrant exits SRC
status, the registrant will only transition back into SRC status if its
public float falls below $200 million, or its public float falls
[[Page 30091]]
below $560 million and its revenues fall below $80 million.\27\ In
addition, because the definitions for the accelerated filer statuses
rely in part on SRC status, these transition thresholds also affect
accelerated filer status determinations.
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\27\ For an SRC whose prior annual revenues were less than $100
million, the SRC may transition as long as it meets the public float
requirement and its current annual revenues are less than $100
million. See 17 CFR 230.405 and 17 CFR 240.12b-2.
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In addition to the complexity of the current filer status
framework, we note that the number of Exchange Act reporting companies
filing on domestic forms fell from 6,996 in 2004 to 5,976 in 2024.\28\
Unsurprisingly, a similar time period (2009-2017) saw significant
growth in private markets, with private markets regularly outpacing
public markets in capital raised.\29\ Recent studies point to a variety
of conditions influencing companies that might previously have gone
public to remain private, with the regulatory burdens and costs of
being a public company consistently considered to be among the factors
that have led to this trend.\30\ The Commission's two most recent Small
Business Forums explored the obstacles facing smaller companies trying
to go public. In 2025, the issues discussed included having to produce
three years of audited financial statements, having to produce reports
on a quarterly basis, the volume of disclosure requirements, and the
complexity of the filer status framework.\31\ In 2026, many of the same
themes were explored, with notable discussion on the cost of compliance
with section 404(b) of the Sarbanes-Oxley Act, the impact on a
registrant's ability to plan for those costs in light of an AF public
float threshold that is based on a single measurement date, and the
limited personnel and resources small companies can devote to such
costs.\32\ Similar recommendations came out of prior years' forums and
other roundtables.\33\
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\28\ This number of registrants is estimated as the number of
unique registrants, identified by Central Index Key (``CIK''), that
filed a Form 10-K, or an amendment thereto, during each year. This
estimate excludes registrants that have not filed a Form 10-K and
FPIs filing on Forms 20-F and 40-F. The estimate also excludes
asset-backed issuers, because the disclosure and other
accommodations addressed in the proposed amendments do not apply to
these issuers.
\29\ See Scott Bauguess, Rachita Gullapalli & Vladimir Ivanov,
Capital Raising in the U.S.: An Analysis of the Market for
Unregistered Securities Offerings, 2009-2017, Division of Economic
and Risk Analysis, U.S. Securities and Exchange Commission (Aug.
2018), <a href="https://www.sec.gov/files/dera-white-paper_regulation-d_082018.pdf">https://www.sec.gov/files/dera-white-paper_regulation-d_082018.pdf</a>.
\30\ See Rongbing Huang & Donghang Zhang, Initial Public
Offerings: Motives, Mechanisms, and Pricing The Oxford Rsch.
Encyclopedia of Econ. & Fin. (Feb. 5, 2022) (surveying prior
research on companies' decisions on whether and how to go public
citing conditions including: cash flow considerations and economies
of scope that favor mergers with larger companies, particularly in
globalized industries; the centrality of intellectual property to
many new companies, which attracts venture capital; alternative exit
strategies and private capital availability more generally; and
regulatory burden). See also Marshall Lux & Jack Pead, Hunting High
and Low; The Decline of the Small IPO and What to Do About It, (M-
RCBG Associate Working Paper Series No. 86), Mossavar-Rahmani Ctr.
for Bus. and Gov't (Apr. 2018) (exploring the factors causing the
decline in small company IPOs and finding motivating causes may
include: reduced sell-side coverage; the growth of institutional
investors on the buy-side; the shift from active to passive
investing; growth in private capital; and increased regulatory
pressures).
\31\ Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Apr. 10, 2025), at 129-49, <a href="https://www.sec.gov/files/2025-SBF-508-Transcript.pdf">https://www.sec.gov/files/2025-SBF-508-Transcript.pdf</a>. See U.S. Securities and Exchange
Commission, Report on the 44th Annual Small Business Forum (Apr.
2025), at 22, <a href="https://www.sec.gov/files/2025-oasb-annual-forum-report.pdf">https://www.sec.gov/files/2025-oasb-annual-forum-report.pdf</a> (recommendation that the Commission streamline the
registration process for smaller businesses).
\32\ Transcript, U.S. Securities and Exchange Commission, Small
Business Forum (Mar. 9, 2026), <a href="https://www.sec.gov/files/transcript-45th-sb-forum.pdf">https://www.sec.gov/files/transcript-45th-sb-forum.pdf</a>
\33\ See, e.g., U.S. Securities and Exchange Commission, Report
on the 43rd Annual Small Business Forum (Apr. 2024), at 27, <a href="https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf">https://www.sec.gov/files/2024-oasb-annual-forum-report.pdf</a> (recommendation
to increase AF public float threshold ``so that only larger filers
are required to provide an auditor attestation''); U.S. Securities
and Exchange Commission, Report on the 40th Annual Small Business
Forum (May 2021), at 25, <a href="https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf">https://www.sec.gov/files/2021_OASB_Annual_Forum_Report_FINAL_508.pdf</a> (recommendation to
increase SRC and AF public float thresholds); U.S. Securities and
Exchange Commission, Report on the 39th Annual Small Business Forum
(Jun 2020), at 30, <a href="https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf">https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf</a> (recommendation to align the SRC and NAF definitions);
U.S. Securities and Exchange Commission, Office of the Advocate for
Small Business Capital Formation, Small Cap Policy Roundtable:
Reassessing the Framework for Small Public Companies (July 2025), at
9-15, <a href="https://www.sec.gov/files/small-cap-policy-roundtable-transcript.pdf">https://www.sec.gov/files/small-cap-policy-roundtable-transcript.pdf</a> (discussion of the complexities of filer status
designations with one participant suggesting, among other things, to
increase the LAF threshold up to ``a $2 billion market cap'' and to
``eliminate the accelerated filer status completely''); U.S.
Securities and Exchange Commission, Office of the Advocate for Small
Business Capital Formation, IPO Policy Roundtable: Reexamining the
IPO On-Ramp (July 2025), at 42, <a href="https://www.sec.gov/files/ipo-roundtable-transcript.pdf">https://www.sec.gov/files/ipo-roundtable-transcript.pdf</a> (discussion about trying to ``keep the
costs of accessing public markets proportionate for smaller
companies''); U.S. Securities and Exchange Commission, Investor
Advisory Committee Meeting (Mar. 12, 2026), at 56:18-59:12, <a href="https://www.youtube.com/watch?v=y0ZrTZ-uUg0">https://www.youtube.com/watch?v=y0ZrTZ-uUg0</a> (discussion related to reforming
the categories of companies that are afforded the ability to provide
scaled disclosure). The Commission's Office of the Advocate for
Small Business Capital Formation has made similar observations and
recommended that the Commission ``consider ways to harmonize the
frameworks governing Smaller Reporting Company (SRC) and Accelerated
Filer definitions.'' See U.S. Securities and Exchange Commission,
Office of the Advocate for Small Business Capital Formation, Annual
Report Fiscal Year 2023 at 84, <a href="https://www.sec.gov/files/2023-oasb-annual-report.pdf">https://www.sec.gov/files/2023-oasb-annual-report.pdf</a>. Additionally, the Commission's Small Business
Capital Formation Advisory Committee has written that the Commission
should ``[e]nsure public company rules are mindful of the unique
circumstances of small public companies, so that these small
companies can attract capital, spur innovation, and create jobs.''
Letter from U.S. Securities and Exchange Commission, Small Business
Capital Formation Advisory Committee (Feb. 28, 2023), at 2, <a href="https://www.sec.gov/files/committee-perspectives-letter-022823.pdf">https://www.sec.gov/files/committee-perspectives-letter-022823.pdf</a>.
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We are also aware of continued concerns regarding the cost of
compliance with the ICFR auditor attestation requirement under section
404(b) of the Sarbanes-Oxley Act.\34\ Some comments on the 2019
Accelerated Filer Release stated that the ICFR auditor attestation
requirement is the most costly aspect of being an AF and indicated
that, in relative terms, it is particularly costly for low-revenue
registrants.\35\ In addition, a recent Government Accountability Office
(``GAO'') study found that Section 404(a) and (b) compliance costs are
more burdensome in relative terms for smaller companies.\36\ At the
same time, the ICFR auditor attestation requirement has benefits for
investors, including that it enhances the reliability of management's
disclosure related to ICFR and may help a registrant identify a
significant deficiency or identify and disclose a material weakness in
ICFR that had not been identified or properly characterized by
management.\37\
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\34\ See section I.C.
\35\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17183 (Mar. 26, 2020)]. See also comments on the SRC Proposing
Release described in the 2019 proposing release suggesting that
these costs can divert capital from core business needs. Amendments
to the Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-85814 (May 9, 2019) [84 FR 24876, 24880 (May 29,
2019)] (``2019 Accelerated Filer Release'').
\36\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), <a href="https://www.gao.gov/assets/gao-25-107500.pdf">https://www.gao.gov/assets/gao-25-107500.pdf</a>.
\37\ See infra notes 67, 170, and 175.
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While registration and entry into the public capital markets is not
always necessary or appropriate for smaller or emerging companies,\38\
a robust pipeline of companies joining the public markets benefits
investors by providing them with a more diverse set of investment
opportunities and greater transparency.
[[Page 30092]]
It also benefits companies in various ways, including by providing them
new sources of capital at a potentially lower cost. The Commission has
long considered the regulatory burdens of public company registration
and ongoing compliance with the regulations that apply to public
companies. Indeed, the Commission has previously taken steps with the
aim of increasing the viability of entry into the public markets to
more companies, by adopting simplified registration rules and processes
for issuers while carefully balancing investors' need for timely and
appropriate disclosure. For example, in a series of actions spanning
decades, the Commission has routinely simplified and tailored smaller
issuers' disclosure obligations.\39\ In 2005, the Commission reformed
the securities offering process by, among other actions, liberalizing
permitted offering communications, updating prospectus delivery
requirements, and modernizing the shelf registration provisions.\40\
Nonetheless, changes in the securities laws have resulted in an
increasingly complicated regulatory framework that warrants
reconsideration, including a reassessment of whether the disclosure
burdens faced by registrants are properly balanced with the
corresponding benefits to investors and markets.
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\38\ See, e.g., Facilitating Capital Formation and Expanding
Investment Opportunities by Improving Access to Capital in Private
Markets, Release No. 33-10763 (Mar. 4, 2020) [85 FR 17956, 17957
(Mar. 31, 2020)] (``In various circumstances, registration is not
necessary, nor is it the most effective means, to achieve the
objectives of the Securities Act or the Commission's mission more
broadly. In recognition of the fact that registration is not always
necessary or appropriate, the Securities Act contains a number of
exemptions from its registration requirement and the Commission is
authorized to adopt additional exemptions.'').
\39\ See, e.g., Simplified Registration and Reporting
Requirements for Small Issuers, Release No. 33-6049 (Apr. 3, 1979)
[44 FR 21562 (Apr. 10, 1979)]; Small Business Initiatives, Release
No. 33-6949 (July 30, 1992) [57 FR 36442 (Aug. 13, 1992)] (adopting
Regulation S-B); and Smaller Reporting Company Regulatory Relief and
Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan.
4, 2008)] (adopting the ``smaller reporting company'' definition)
(``SRC Adopting Release'').
\40\ Securities Offering Reform, Release No. 33-8591 (July 19,
2005) [70 FR 44722 (Aug. 3, 2005)] (``Offering Reform Adopting
Release''). See also Registered Offering Reform, Release No. 33-
11418 (May 19, 2026) (``Registered Offering Reform Proposal'').
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We are therefore proposing amendments to our regulations to
rationalize the existing Exchange Act filer status framework, which
will simplify reporting and disclosure requirements and reduce burdens
on most reporting companies, while continuing to seek full and fair
disclosure for investors. To provide context to our proposed
amendments, we briefly trace the evolution of the current filer status
framework below.
A. Exchange Act Reporting Prior to 2002
The Commission adopted the ``integrated disclosure system'' in 1982
following several years of analysis of the disclosure rules under the
Securities Act and the Exchange Act.\41\ Prior to the adoption of the
integrated disclosure system, separate disclosure regimes applied to
Securities Act registration statements and Exchange Act registration
and periodic reporting, which often resulted in overlapping and
duplicative requirements. At the time the integrated disclosure system
was adopted, the Commission stated that the ``goal of the Commission's
integrated disclosure program has been to revise or eliminate
overlapping or unnecessary disclosure and dissemination requirements
wherever possible, thereby reducing burdens on registrants while at the
same time ensuring that security holders, investors and the marketplace
have been provided with meaningful nonduplicative information upon
which to base investment decisions.'' \42\
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\41\ See Adoption of Integrated Disclosure System, Release No.
33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 1982)].
\42\ Id. at 11382.
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Under the integrated disclosure system, most registration and
reporting forms under the Securities Act and the Exchange Act refer to
common disclosure requirements codified in Regulation S-K and
Regulation S-X. In recognition of the difficulties that smaller issuers
were facing in accessing the capital markets, the Commission adopted
Regulation S-B in 1992, an integrated disclosure system tailored
specifically to a set of ``small business issuers,'' as defined by
revenues and public float, and provided specialized forms under the
Securities Act and Exchange Act that referenced simplified disclosure
requirements for these issuers.\43\
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\43\ See Small Business Initiatives, Release No. 33-6949 (July
30, 1992) [57 FR 36442 (Aug. 13, 1992)]. Note that in 2007 the
Commission adopted amendments that moved the scaled disclosure
requirements for smaller issuers from Regulation S-B into Regulation
S-K, as discussed below. See SRC Adopting Release.
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As a result of these accommodations, prior to 2002, there were
effectively two Exchange Act filer statuses: a ``default'' category of
issuers that filed periodic reports on Forms 10-K and 10-Q under
Regulation S-K, and a small business issuer category that filed
periodic reports on Forms 10-KSB and 10-QSB under Regulation S-B.
Commission rules applied uniform filing deadlines to all Exchange Act
reporting companies' periodic reports: 90 days after fiscal year end
for annual reports, and 45 days after quarter end for quarterly
reports.
B. Accelerated Filer Status; Sarbanes-Oxley Act
Following a series of corporate and accounting scandals in the
early 2000s that led to financial restatements and bankruptcies and
resulted in significant adverse effects on shareholders, the Commission
established ``accelerated filer'' status by adopting accelerated filing
deadlines for certain registrants. Congress subsequently enacted the
Sarbanes-Oxley Act,\44\ which included ICFR requirements intended to
improve the accuracy and reliability of corporate disclosures.
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\44\ Public Law 107-204, 116 Stat. 745 (2002).
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The Commission's adoption of AF status was motivated in part by
advances in communication technology and companies' growing practice of
releasing quarterly earnings well before the Form 10-Q deadline.\45\
The new ``accelerated filer'' status therefore accelerated the periodic
report filing deadlines for registrants with a public float of $75
million or more, who had been subject to Exchange Act reporting
requirements for at least 12 months, and had previously filed at least
one annual report.\46\ In acting to further categorize the filer
statuses in this way, the Commission sought to ``balance the market's
need for information with the time companies need to prepare that
information without undue burden.'' \47\
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\45\ See Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8089
(Apr. 12, 2002) [67 FR 19896, 19897 (Apr. 23, 2002)] (``[A]dvances
in communications and information technology have made it easier for
companies to process and disseminate information swiftly. Many large
seasoned reporting companies capture and evaluate information and
announce their quarterly and annual financial results well before
they file their formal reports with the Commission. These earnings
announcements are generally less complete in their disclosure than
quarterly or annual reports and can emphasize information that is
less prominent in quarterly or annual reports. Investors also
process, evaluate and react to information on a much shorter
timeframe. The delayed filing of reports, however, means investors
often make decisions without access to the more extensive disclosure
in the company's Exchange Act reports.'').
\46\ Acceleration of Periodic Report Filing Dates and Disclosure
Concerning website Access to Reports, Release No. 33-8128 (Sept. 5,
2002) [67 FR 58480 (Sept. 16, 2002)].
\47\ Id. The Commission did not propose to accelerate the filing
deadlines for newly public companies and smaller issuers,
recognizing that such companies need to develop experience with the
preparation and filing of periodic reports or may not have the
resources or infrastructure to prepare their reports on a shorter
timeframe without undue burden or expense.
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The Commission again amended the filer status rules in 2005 by
introducing the LAF status.\48\ The Commission sought to avoid applying
the shortest filing deadlines to registrants with less than $700
million in public float by further dividing filers into LAFs
[[Page 30093]]
(registrants with $700 million or more in public float) and AFs
(registrants with at least $75 million in public float but less than
$700 million). All remaining registrants with less than $75 million in
public float have become known as NAFs. While the Commission
acknowledged the incremental benefit of more timely accessibility to
periodic reports, it was concerned with the added burdens associated
with the increased acceleration of the deadlines.\49\ The Commission
determined to limit the shortest deadlines to the largest registrants,
reasoning that LAFs, ``are more likely than smaller companies to have a
well-developed infrastructure and financial reporting resources to
support further acceleration of the annual report deadline.'' \50\
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\48\ Revisions to Accelerated Filer Definition and Accelerated
Deadlines for Filing Periodic Reports, Release No. 33-8644 (Dec. 21,
2005) [70 FR 76626 (Dec. 27, 2005)] (``Accelerated Filer Revisions
Adopting Release'').
\49\ See Revisions to Accelerated Filer Definition and
Accelerated Deadlines for Filing Periodic Reports, Release No. 33-
8617 (Sept. 22, 2005) [70 FR 56862, 56865 (Sept. 29, 2005)].
\50\ Id. The Commission confirmed this view in the Accelerated
Filer Revisions Adopting Release. See supra note 48, at 76629.
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As a result of this and later developments,\51\ under the current
definition in Rule 12b-2, an LAF is a registrant that: (1) has a public
float of $700 million or more, as of the last business day of its most
recently completed second fiscal quarter, calculated using either the
closing price or the average of the bid and ask prices that day; (2)
has been subject to the requirements of Exchange Act section 13(a) or
15(d) for at least 12 calendar months; (3) has filed at least one
annual report pursuant to the Exchange Act; and (4) is not eligible to
be an SRC under the SRC revenue test. LAFs' periodic reporting
deadlines are 60 days for Form 10-K, and 40 days for Form 10-Q, while
AFs' deadlines are 75 and 40 days, respectively; and the deadlines for
NAFs remain at 90 and 45 days, respectively.\52\
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\51\ The LAF definition was amended in 2020 to exclude certain
low revenue registrants. Accelerated Filer and Large Accelerated
Filer Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178
(Mar. 26, 2020)]. See discussion infra notes 108,109, and 110 and
accompanying text.
\52\ See Accelerated Filer Revisions Adopting Release. Also in
2005, the Commission adopted a requirement that AFs (and well-known
seasoned issuers, as that term is defined in Securities Act Rule
405) disclose on Form 10-K or Form 20-F material outstanding staff
comments that were issued more than 180 days before the end of the
fiscal year covered by the report. See Offering Reform Adopting
Release. The Commission subsequently extended that disclosure
requirement to LAFs as well. See Accelerated Filer Revisions
Adopting Release.
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C. ICFR Requirements
In 2002, less than two months before the Commission adopted the
rules for AFs, Congress enacted the Sarbanes-Oxley Act.\53\ One aspect
of the Sarbanes-Oxley Act's reforms was the adoption of section 404.
Section 404(a) mandates Commission rules requiring Exchange Act
reporting companies to include in their annual reports an internal
control report that states the responsibility of management for
establishing and maintaining ICFR and that contains an assessment of
the effectiveness of the registrant's ICFR as of the end of each fiscal
year.\54\ Section 404(b) requires that each registered public
accounting firm that prepares or issues the registrant's financial
statement audit report attest to, and report on, management's
assessment of the effectiveness of the ICFR.\55\ As discussed below,
Congress took further action in the Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (``Dodd-Frank Act'') \56\ and the
Jumpstart Our Business Startups (``JOBS'') Act,\57\ to exempt from
section 404(b): (1) any registrant that is not an LAF or an AF and (2)
any registrant that is an EGC, respectively.
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\53\ Public Law 107-204, 116 Stat. 745 (2002).
\54\ 15 U.S.C. 7262(a).
\55\ 15 U.S.C. 7262(b).
\56\ Public Law 111-203, 124 Stat. 1376 (2010), sec. 989G(a).
Section 404(c), codified at 15 U.S.C. 7262(c), provides that section
404(b) does not apply with respect to an audit report prepared for
an issuer that is neither an LAF nor an AF as defined by the
Commission.
\57\ Public Law 112-106, 126 Stat. 306 (2012), sec. 103
(codified at 15 U.S.C. 7262(b)).
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As mandated by section 404, the Commission adopted rules in 2003
requiring registrants that are subject to Exchange Act reporting
requirements to include in their annual reports a report of management
on the registrant's ICFR and an attestation report by the registrant's
auditors on management's assessment of the internal controls.\58\
Although section 404 generally requires and directs the Commission to
adopt rules regarding ICFR that apply to every issuer that is required
to file reports pursuant to Exchange Act section 13(a) or 15(d),
registered investment companies (``RICs'') under section 8 of the
Investment Company Act \59\ are specifically exempted from section 404
by section 405.\60\ In addition, the Commission's rules implementing
section 404 exempted other types of issuers, such as asset-backed
issuers, from the ICFR obligations.\61\ The Commission also determined
that FPIs and Canadian multijurisdictional disclosure system (``MJDS'')
issuers must have their management assess and report annually on the
effectiveness of their ICFR as of the end of their fiscal year and
include an auditor attestation report on ICFR in their annual report
form if the FPI or MJDS issuer is an AF or LAF, other than an EGC.\62\
BDCs, however, are subject to the rules adopted by the Commission to
implement section 404.\63\
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\58\ 17 CFR 229.308. See also Management's Report on Internal
Control over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reporting, Release No. 33-8238 (June 5, 2003)
[68 FR 36636 (June 18, 2003)] (``ICFR Adopting Release'').
\59\ 15 U.S.C 80a-8.
\60\ 15 U.S.C. 7263. RICs are subject to Sarbanes-Oxley Act
section 302, which requires management certifications, including
with respect to management's responsibility for establishing and
maintaining ICFR. See 17 CFR 270.30a-2 and 270.30a-3; see also ICFR
Adopting Release. RICs that are management companies, other than
small business investment companies, are also required to file a
copy of their independent public accountant's report on internal
controls. See Form N-CEN (17 CFR 274.101); see also Investment
Company Reporting Modernization, Release No. IC-32314 (Oct. 13,
2016) [81 FR 81870, n.879-81 and accompanying text (Nov. 18, 2016)].
\61\ See Asset-Backed Securities, Release No. 33-8518 (Dec. 22,
2004) [70 FR 1506, 1510 n. 41. (Jan. 7, 2005)] (``Regulation AB
Adopting Release''). See also 17 CFR 240.13a-15(a) and 17 CFR
240.15d-15(a) and General Instruction J to Form 10-K.
\62\ See Items 15(b) and (c) of Form 20-F and General
Instruction B(6)(c) and (d) of Form 40-F.
\63\ BDCs are not registered under the Investment Company Act
and, therefore, not within the exemption provided by Sarbanes-Oxley
Act section 405. See 17 CFR 230.405.
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Through a series of actions from 2003 through 2009, the Commission
delayed compliance with section 404 for NAFs, acknowledging that ``non-
accelerated filers, including smaller companies and foreign private
issuers, may have greater difficulty in preparing the management report
on internal control over financial reporting.'' \64\ Ultimately,
Congress
[[Page 30094]]
enacted section 989G of the Dodd-Frank Act, which added section 404(c)
to the Sarbanes-Oxley Act to exempt issuers that are neither LAFs nor
AFs, as defined by the Commission, from the ICFR auditor attestation
requirement of section 404(b).\65\ Section 404(c) also directed the
Commission to conduct a study to determine how the Commission could
reduce the burden of complying with the section 404(b) ICFR auditor
attestation requirement for companies with public float between $75
million and $250 million. Congress further extended relief from section
404(b) in the JOBS Act when it exempted EGCs from the requirement.\66\
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\64\ See ICFR Adopting Release. As initially adopted, AFs were
to comply with the requirements for their first fiscal year ending
on or after June 15, 2004, and issuers that were not AFs on or after
Apr. 15, 2005. Through a series of releases the Commission extended
compliance for accelerated and non-accelerated filers. See, e.g.,
Management's Report on Internal Control over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports,
Release No. 33- 8392 (Feb. 24, 2004) [69 FR 9722 (Mar. 1, 2004)]
(extending compliance dates for accelerated and non-accelerated
filers); Management's Report on Internal Control over Financial
Reporting and Certification of Disclosure in Exchange Act Periodic
Reports of Non-Accelerated Filers and Foreign Private Issuers;
Extension of Compliance Dates, Release No. 33-8545 (Mar. 2, 2005)
[70 FR 11528 (Mar. 8, 2005)]; Management's Report on Internal
Control Over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reports of Companies that Are Not Accelerated
Filers, Release No. 33-8618 (Sept. 22, 2005) [70 FR 56825 (Sept. 29,
2005)] (further postponing compliance dates for NAFs); Internal
Control over Financial Reporting in Exchange Act Periodic Reports of
Foreign Private Issuers that Are Accelerated Filers, Release No. 33-
8730A (Aug. 9, 2006) [71 FR 47056 (Aug. 15, 2006)] (postponing
compliance dates for FPIs and NAFs). See also Internal Control over
Financial Reporting in Exchange Act Reports of Non-Accelerated
Filers and Newly Public Companies, Release No. 33-8760 (Dec. 15,
2006) [71 FR 76580 (Dec. 21. 2006]; Internal Control over Financial
Reporting in Exchange Act Periodic Reports of Non-Accelerated
Filers, Release No. 33-8934 (June 26, 2008) [73 FR 38094 (July 2,
2008)]; and Internal Control over Financial Reporting in Exchange
Act Reports of Non-Accelerated Filers, Release No. 33-9072 (Oct. 13,
2009) [74 FR 53628 (Oct. 19, 2009)] (further postponing compliance
dates for NAFs).
\65\ 15 U.S.C. 7262(c).
\66\ See supra note 57.
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In April 2011, the Commission staff published the required study
and recommendations relating to section 404(b).\67\ The study found
that, while initial implementation of section 404 resulted in a steep
increase in audit fees, there was a statistically significant decrease
in compliance costs (including audit fees) for registrants subsequent
to the issuance of PCAOB Auditing Standard No. 5 \68\ and related
Commission guidance \69\ on management's report on ICFR. Based on the
study's findings, the staff did not recommend changing the scope of the
ICFR auditor attestation requirement at that time, but encouraged
activities to further improve the effectiveness and efficiency of
implementation of the ICFR requirements.\70\
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\67\ See Staff of the Office of the Chief Accountant, U.S.
Securities and Exchange Commission, Study and Recommendations on
Section 404(b) of the Sarbanes-Oxley Act of 2002 for Issuers with
Public Float Between $75 and $250 Million (Apr. 2011), <a href="https://www.sec.gov/news/studies/2011/404bfloat-study.pdf">https://www.sec.gov/news/studies/2011/404bfloat-study.pdf</a> (``Staff Study'').
\68\ See PCAOB Auditing Standard No. 5, An Audit of Internal
Control over Financial Reporting that Is Integrated with an Audit of
Financial Statements, <a href="https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-standards-interpretations/details/Auditing_Standard_5">https://pcaobus.org/oversight/standards/archived-standards/pre-reorganized-auditing-standards-interpretations/details/Auditing_Standard_5</a>.
\69\ See Commission Guidance Regarding Management`s Report on
Internal Control over Financial Reporting Under Section 13(a) and
15(d) of the Securities Exchange Act of 1934, Release No. 33-8810
(June 20, 2007) [72 FR 35324 (June 27, 2007)].
\70\ The staff noted that section 404(c) exempted approximately
60% of reporting issuers at that time and found strong evidence that
the auditor's role in auditing the effectiveness of ICFR improves
the reliability of internal control disclosures and financial
reporting overall and is useful to investors. See Staff Study.
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As discussed in more detail below, the Commission modified the
definition of AF in 2020 to exclude a registrant that is eligible to be
an SRC and has annual revenues of less than $100 million.\71\ In
excluding low-revenue SRCs from AF status, the Commission also exempted
those registrants from the ICFR auditor attestation requirement. In the
adopting release, the Commission found that the ICFR auditor
attestation requirement is disproportionately costly to small issuers,
noting that the fixed costs of compliance are not scalable for smaller
issuers and that low-revenue issuers have limited access to internally
generated capital such that the costs may more directly constrain their
ability to invest and hire.\72\ Commentators and registrants continue
to express concerns regarding the costs of implementation of section
404 and the disproportionate effect on smaller issuers.\73\
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\71\ Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)].
In expanding this exclusion, the Commission suggested, as a general
matter, there may be greater costs and relatively lower benefits in
including these issuers as accelerated filers, in part because these
issuers may, on average, be less susceptible to certain types of
restatements, such as those related to revenue recognition.
\72\ Id. at 17188. However, the release also acknowledged
concerns that eliminating the requirement for these registrants may
adversely affect the effectiveness of ICFR and the reliability of
the financial statements of the affected issuers with data showing
that, among low-revenue issuers, accelerated filers other than EGCs
(filers that are required to obtain an auditor's attestation of
ICFR) have fewer Item 4.02 restatements than non-accelerated filers
that are not required to comply with section 404(b).
\73\ See, e.g., Stephen M. Bainbridge, Sarbanes-Oxley Sec. 404
at Twenty, Law-Econ Research Paper No. 22-05, UCLA School of Law
(2022). See also Peter Iliev, The Effect of SOX Section 404: Costs,
Earnings Quality, and Stock Prices, 65 J. Fin. 1163 (2010) (seeking
to measure the costs, benefits, and overall value impact of
Sarbanes-Oxley Act requirements on small firms and finding the ICFR
auditor attestation requirement imposes significant costs for small
firms and suggesting that the costs associated with section 404
compliance outweigh the benefits for small firms). See also
Transcript, U.S. Securities and Exchange Commission, Small Business
Forum (Mar. 9, 2026), <a href="https://www.sec.gov/files/transcript-45th-sb-forum.pdf">https://www.sec.gov/files/transcript-45th-sb-forum.pdf</a>, at 141-143, 154 (participants identified section 404(b)
costs as an obstacle to companies going and staying public, and
observed that, in practice, the public float trigger for becoming
subject to the ICFR auditor attestation requirement can be
unpredictable).
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D. Actions Related to Smaller Reporting and Emerging Growth Companies
1. Establishment of SRC Status
Through the course of implementing the enhanced disclosure and
other requirements of the Sarbanes-Oxley Act, the Commission recognized
the increased regulatory burden faced by registrants.\74\ This
eventually led in 2007 to the Commission reworking its regulatory
framework for smaller registrants by establishing the ``smaller
reporting company'' filer status.\75\ As part of the revisions, the
Commission rescinded Regulation S-B and the ``small business issuer''
definition.\76\ Under the 2007 rules, all filers that were not AFs or
LAFs--i.e., those with less than $75 million in public float \77\--were
designated as SRCs, and granted most of the scaled disclosure
accommodations that had previously been provided to ``small business
issuers.'' \78\ The SRC definition excludes asset-backed issuers, RICs,
BDCs, and majority-owned subsidiaries of issuers that do not qualify as
an SRC. Additionally, FPIs are not eligible to use the requirements for
SRCs unless they use the forms and rules designated for domestic
issuers and provide financial statements prepared in accordance with
U.S. Generally Accepted Accounting Principles (``U.S. GAAP'').\79\
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\74\ See, e.g., Revisions to Accelerated Filer Definition and
Accelerated Deadlines for Filing Periodic Reports, Release No. 33-
8617 (Sept. 22, 2005) [70 FR 56862, 56863-64 (Sept. 29, 2005)]
(acknowledging the burdens registrants faced in complying with the
section 404 requirements and recounting the compliance postponements
the Commission instituted in response).
\75\ See SRC Adopting Release.
\76\ Id.
\77\ Registrants without a calculable public float were accorded
SRC status if their annual revenues were below $50 million.
\78\ See SRC Adopting Release.
\79\ The Commission has solicited comments on the definition of
FPIs and is considering whether the current FPI definition should be
revised so that it better represents the issuers that the Commission
intended to benefit from current FPI accommodations while continuing
to protect investors and promote capital formation. See Concept
Release on Foreign Private Issuer Eligibility, Release No. 33-11376
(June 4, 2025) [90 FR 24232 (June 9, 2025)] (``FPI Concept
Release''). Further, concurrently with the proposed amendments
outlined in this release, the Commission separately is proposing
amendments to revise, among other things, the eligibility
requirements for Forms S-3 and S-1. See Registration Offering Reform
Proposal. Pursuant to the ongoing evaluation of the issues raised in
the FPI Concept Release, the Commission is proposing to prohibit
FPIs from using Forms S-3 and S-1. See id.
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The revised streamlined regulatory framework moved all disclosure
requirements back into Regulation S-K and Regulation S-X, consolidated
smaller issuers and NAFs into the same filer status, and expanded the
number of registrants eligible to use scaled disclosure
requirements.\80\ The
[[Page 30095]]
amendments effectively established a three-tier filer status framework:
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\80\ Id. at 935. At the time of adoption, the Commission
estimated that approximately 42% of registrants would be eligible to
use the scaled disclosure requirements (4,976 out of 11,898
reporting companies). Id. The amendments also moved certain scaled
financial statement requirements from Regulation S-B into Regulation
S-X. Id.
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<bullet> LAFs having a public float of $700 million or more,
subject to the most accelerated filing deadlines and the most
comprehensive disclosure requirements;
<bullet> AFs having a public float of $75 million or more, but less
than $700 million, subject to less accelerated filing deadlines and the
most comprehensive disclosure requirements; and
<bullet> SRCs having a public float of less than $75 million (or,
if without a calculable public float, annual revenues below $50
million), subject to non-accelerated filing deadlines and scaled
disclosure requirements.
At the time of initial adoption of SRC status, LAFs and AFs were
generally subject to the same disclosure requirements as each other.
SRCs, however, were (and currently remain) permitted to avail
themselves of certain scaled disclosure accommodations, which currently
include:
<bullet> To provide two (instead of three) years of audited
financial statements, and prepare their financial statements in
accordance with Article 8 of Regulation S-X; \81\
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\81\ In conjunction with the two years of audited financial
statements registrants are also permitted to provide a two-year
(instead of three-year) comparison in their Management's Discussion
and Analysis of Financial Condition and Results of Operations
(``MD&A''). See 17 CFR 240.14a-3(b)(1), 17 CFR 210.8-01 et seq., and
17 CFR 229.303.
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<bullet> To provide two (instead of three) years of summary
compensation table information and tabular and other compensation
disclosure for three (instead of five) named executive officers;
<bullet> To omit the compensation discussion and analysis,
compensation policies and practices related to risk management, pay
ratio disclosure, grants of plan-based awards table, pension benefits
table, option exercises and stock vested table, and nonqualified
deferred compensation table; \82\
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\82\ See 17 CFR 229.402. In addition, SRCs are only required to
provide three (instead of five) years of pay versus performance
disclosure. See 17 CFR 229.402(v).
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<bullet> To provide scaled golden parachute and pay versus
performance disclosure; \83\
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\83\ SRCs are only required to provide golden parachute
disclosure generally for three executive officers (instead of five).
See 17 CFR 229.402(t). See also infra note 221 regarding golden
parachute votes. SRCs are only required to provide three (instead of
five) years of pay versus performance disclosure and are permitted
to omit peer group total shareholder return and company selected
measure disclosure. See 17 CFR 229.402(v).
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<bullet> To omit disclosure relating to risk factors in periodic
reports; \84\ a stock performance graph; \85\ quantitative and
qualitative disclosure about market risk; \86\ supplementary financial
information relating to the disclosure of material quarterly changes
and information about oil and gas activities; \87\ policies and
procedures for the review, approval, or ratification of related party
transactions; \88\ and certain payments made by resource extraction
issuers; \89\ and
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\84\ See Form 10-K, Item 1A; Form 10-Q, Item 1A.
\85\ See 17 CFR 229.201(e).
\86\ See 17 CFR 229.305.
\87\ See 17 CFR 229.302.
\88\ See 17 CFR 229.404(b)(1); 17 CFR 229.404(d).
\89\ See 17 CFR 240.13q-1.
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<bullet> To provide a simplified description of business.\90\
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\90\ See 17 CFR 229.101(h).
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By contrast, Item 404 of Regulation S-K, which addresses related-
party transaction disclosure, includes in Item 404(d) certain
requirements for SRCs that are more rigorous than those for other
filers,\91\ namely:
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\91\ See SRC Adopting Release at 941 (noting that one percent of
an SRC's total assets may not exceed $120,000 to justify the lower
threshold for SRCs).
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<bullet> Rather than a flat $120,000 threshold for the disclosure
of related-party transactions, the threshold is the lesser of $120,000
or one percent of total assets;
<bullet> Disclosures are required about underwriting discounts and
commissions where a related person is a principal underwriter or a
controlling person or member of a firm that was or is going to be a
principal underwriter;
<bullet> Disclosures are required about the issuer's parent(s) and
their basis of control; and
<bullet> An additional year of disclosures is required regarding
transactions with related persons.\92\
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\92\ 17 CFR 229.404(d).
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2. The JOBS Act and EGC Status
In 2012, Congress enacted the JOBS Act, which established a new
``emerging growth company,'' or EGC, filer status and provided
disclosure and other accommodations to EGCs.\93\ Currently, a company
qualifies as an EGC if it has total gross revenues of less than $1.235
billion during its most recently completed fiscal year and continues to
qualify as an EGC until the earliest of: (1) the last day of the fiscal
year of the issuer during which it has total annual gross revenues of
$1.235 billion or more; (2) the last day of its fiscal year following
the fifth anniversary of the first sale of its common equity securities
pursuant to an effective registration statement; (3) the date on which
the issuer has, during the previous three-year period, issued more than
$1 billion in nonconvertible debt; or (4) the date on which the issuer
is deemed to be an LAF (as defined in Exchange Act Rule 12b-2).\94\
Congress supplemented the JOBS Act by enacting the Fixing America's
Surface Transportation (``FAST'') Act,\95\ which provided for targeted
additional accommodations for EGCs and required the Commission ``to
further scale or eliminate requirements of Regulation S-K, in order to
reduce the burden on emerging growth companies, accelerated filers,
smaller reporting companies, and other smaller issuers, while still
providing all material information to investors.'' \96\
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\93\ Public Law 112-106, 126 Stat. 306 (2012). The EGC
provisions of the JOBS Act were informed by a report containing
recommendations made by the IPO Task Force to the U.S. Department of
the Treasury. See IPO Task Force, Rebuilding the IPO On-Ramp:
Putting Emerging Companies and the Job Market Back on the Road to
Growth (Oct. 20, 2011). The task force was formed after a 2011
Department of the Treasury conference on Access to Capital. The task
force members spanned the emerging growth company ecosystem,
including venture capitalists, executives, investors, securities
lawyers, accountants, academics, and investment bankers. Its purpose
was to examine the challenges facing emerging companies and develop
recommendations to improve their access to capital, with a goal of
generating jobs and growth.
\94\ See 15 U.S.C. 77b(a)(19) and 15 U.S.C. 78c(a)(80). Section
101(a) of the JOBS Act amended section 2(a) of the Securities Act
and section 3(a) of the Exchange Act to define an ``emerging growth
company.'' Section 101(a) initially defined ``emerging growth
company'' as an issuer with less than $1 billion in total annual
gross revenues. Pursuant to the statutory definition, the Commission
is required every five years to index to inflation the annual gross
revenue amount used to determine EGC status to reflect the change in
the Consumer Price Index for All Urban Consumers published by the
Bureau of Labor Statistics. In 2017, the Commission increased the
annual gross revenue amount from $1,000,000,000 to $1,070,000,000.
Inflation Adjustments and Other Technical Amendments Under Titles I
and III of the Jobs Act, Release No. 33-10332 (Mar. 31, 2017) [82 FR
17545 (Apr. 12, 2017)]. In 2022, the Commission increased it to
$1,235,000,000. Inflation Adjustments Under Titles I and III of the
JOBS Act, Release No. 33-11098 (Sept. 9, 2022) [87 FR 57394 (Sept.
20, 2022)].
\95\ Public Law 114-94, 129 Stat. 1312 (2015).
\96\ Id., secs. 72002 and 72003. The Commission adopted
amendments to modernize and simplify disclosure requirements in
Regulation S-K in 2019. FAST Act Modernization and Simplification of
Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674
(Apr. 2, 2019)].
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EGC status provides a registrant with accommodations that lower the
costs and burdens of registration and reporting and is generally seen
as an ``on-ramp'' for newly public companies to ease the burdens of
transitioning from a private to a public company.\97\ While there are
overlaps between the EGC and SRC populations and their respective
accommodations, EGCs are entitled to a similar but distinct set of
accommodations. EGCs are:
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\97\ See supra note 93.
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[[Page 30096]]
<bullet> Exempt from the ICFR auditor attestation requirement,\98\
the requirement to hold shareholder advisory votes on executive
compensation,\99\ pay ratio disclosure,\100\ and pay versus performance
disclosure; \101\
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\98\ See 15 U.S.C. 7262(b).
\99\ EGCs are exempt from the requirement to hold shareholder
advisory votes to approve executive compensation (``say-on-pay''),
frequency of say-on-pay voting, and ``golden parachute''
compensation arrangements. See 15 U.S.C. 78n-1(e); Jumpstart Our
Business Startups Act, Public Law 112-106, 126 Stat. 306 (2012),
sec. 102(a)(1). See infra notes 219-221 for a discussion of these
shareholder advisory votes.
\100\ Investor Protection and Securities Reform Act of 2010,
Public Law 111-203, 124 Stat. 1904, sec. 953(b)(1); Public Law 112-
106, 126 Stat. 306 (2012), sec. 102(a)(3).
\101\ See 15 U.S.C. 78n(i); Public Law 112-106, 126 Stat. 306
(2012), sec. 102(a)(2).
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<bullet> Permitted to provide two (instead of three) years of
audited financial statements in the registration statement for an
initial public offering of common equity securities, and to defer
compliance with new or revised financial accounting standards until a
company that is not an issuer is required to comply with such
standards, if such standard applies to private companies; \102\
---------------------------------------------------------------------------
\102\ See 15 U.S.C. 77g(a)(2); 15 U.S.C. 78m(a)(2).
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<bullet> Permitted to provide executive compensation disclosure to
match the information required from issuers with less than $75 million
in public float (the SRC threshold at the time of adoption of the JOBS
Act); \103\ and
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\103\ See section 102(c) of the JOBS Act and 17 CFR 229.402(m)
through (r).
---------------------------------------------------------------------------
<bullet> Permitted to submit certain draft registration statements
to the Commission on a confidential basis.\104\
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\104\ See infra notes 222 through 227 and accompanying text.
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3. Recent Amendments and Filer Status Complexity
While a registrant cannot be both an EGC and an LAF,\105\ as shown
in the table in section I above, a registrant can be both an EGC and an
SRC, or both an EGC and an AF. When the Commission updated the SRC, AF,
and LAF thresholds in 2018, the SRC public float threshold was raised
to $250 million, and the SRC revenue threshold was raised to $100
million.\106\ Along with the increase of these thresholds, the
Commission removed the automatic exclusion of SRCs from the definition
of AF and LAF. As a result of these changes, SRCs went from being
exclusively NAFs to a separate, additional status (like EGC status)
that could attach to either NAFs or AFs. Further, SRCs can also be
EGCs, and these statuses involve largely overlapping but distinct
obligations and accommodations.
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\105\ See 15 U.S.C. 77b(a)(19) and 15 U.S.C. 78c(a)(80).
\106\ Smaller Reporting Company Definition, Release No. 33-10513
(June 28, 2018) [83 FR 31992 (July 10, 2018)] (``2018 SRC Adopting
Release''). Additionally, qualification via the revenue test was
extended to registrants with a public float of less than $700
million, rather than only applying in the case of no public float.
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When adopting the 2018 amendments to the SRC definition, the
Commission acknowledged the ``regulatory complexity'' created by this
potential overlap between the SRC and AF definitions.\107\
Subsequently, in 2020, the Commission adopted amendments to the
definitions of AF and LAF seeking to tailor the types of issuers
included in those filer statuses.\108\ The rules, as amended, now
exclude low-revenue SRCs (those with under $100 million in annual
revenues and either no public float or a public float of less than $700
million) from the definitions of AF and LAF, increasing the number of
registrants that qualify as NAFs.\109\ As NAFs, these registrants,
among other things, are not required to obtain an ICFR auditor
attestation. The amendments were intended to thereby reduce compliance
costs for these registrants while maintaining investor protections by
more appropriately tailoring the types of registrants that are included
in the categories of AF and LAF.\110\
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\107\ Id. The adopting release noted that the Chairman had
directed the staff to consider, among other things, the historical
and current relationship between the SRC and AF definitions as part
of its consideration of possible changes to the AF definition.
\108\ Accelerated Filer and Large Accelerated Filer Definitions,
Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178 (Mar. 26, 2020)].
\109\ Id. The Commission also set the transition thresholds for
exiting LAF and AF status at $560 million and $60 million,
respectively (80% of the initial public float thresholds matching
the 80% exit threshold for SRC status), and added the SRC revenue
test to the LAF and AF transition thresholds.
\110\ Id. at 17193. In making its determination the Commission
noted that imposition of the ICFR auditor attestation requirement
has been associated with benefits to issuers and investors, such as
reduced rates of ineffective ICFR and more reliable financial
statements, but also acknowledged that the affected registrants may
find the costs of these requirements to be particularly burdensome
given certain fixed costs and limited access to internally-generated
capital. Although exempting low-revenue registrants may result in an
increased prevalence of ineffective ICFR and restatements, in
mitigation of these concerns the Commission noted the relatively low
rates of restatements for low-revenue registrants and provided
evidence that the market value of low-revenue registrants was not as
associated with contemporary financial statements as for higher-
revenue registrants (potentially implying that low-revenue
registrants' valuations are driven to a greater degree by future
prospects). Id. at 17193-94.
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While the amendments increased the number of SRCs that qualify as
NAFs, the Commission determined not to fully align the statuses.\111\
The Commission acknowledged that such alignment would promote greater
regulatory simplicity and reduce friction or confusion associated with
registrants' determination of their filer status or reporting
regime.\112\ It expressed concerns, however, that such alignment could
result in adverse effects on the reliability of the financial
statements and the ability of investors to make informed investment
decisions about those issuers.\113\ Thus, the amendments reduced the
overlap between AF status and SRC status by including low-revenue SRCs
as NAFs (i.e., those with a public float of $75 million or more but
less than $250 million, regardless of annual revenues, and those with
public float of less than $700 million and annual revenues of less than
$100 million), but added an additional determination for SRC status.
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\111\ Id.
\112\ Id.
\113\ Id. at 17189.
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We are proposing to revise the current rules to streamline and
further scale disclosure and reporting requirements. Among our
objectives is to reduce compliance costs and create a more attractive
on-ramp for newly public companies, thereby reducing regulatory
impediments that may be deterring companies from participating in the
public market and encouraging more companies to go and stay public,
while ensuring that investors have the information necessary to inform
their investment and voting decisions.
II. Discussion of Proposed Rules
As detailed above, the Commission's rules currently set forth five
filer statuses that correspond to varying levels of disclosure and
other requirements, which are sometimes overlapping and often complex
for issuers to determine.\114\ LAFs are subject to the most stringent
requirements, and NAFs that are also both SRCs and EGCs are afforded
the most accommodations. LAFs in 2024 accounted for 35.4 percent of
registrants and 98.8 percent of total market public float.\115\ In
contrast, in 2024, while NAFs, including NAFs that are also SRCs or
EGCs (or both), accounted for 51.9 percent of registrants, they
accounted for only 1.2 percent of total market public float.\116\
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\114\ Supra Table 2.
\115\ See infra note 339 on calculating total market public
float.
\116\ See section IV.A.2.
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We are proposing amendments with the goal of streamlining the
overlapping Exchange Act filer statuses and further
[[Page 30097]]
scaling disclosures and other accommodations while ensuring that
investors continue to receive timely and material information. To do
so, the proposed amendments seek to align disclosure and other
reporting requirements and reporting deadlines with registrants' public
float. As a result of the proposed amendments, companies that
collectively make up the majority of the U.S. equity market
capitalization would be subject to the most comprehensive requirements
and earliest filing deadlines, while all other issuers would be
afforded the proposed scaled disclosure and other accommodations. The
proposed amendments would provide for simplified compliance and reduced
costs for a majority of registrants. Additionally, we are proposing to
extend the filing deadlines for the smallest companies in order to
reduce the burden on these companies and further accommodate their
ability to efficiently comply with Exchange Act reporting. As described
in more detail below, the proposed amendments would:
<bullet> Revise the LAF filer status to:
[cir] Raise the threshold for becoming an LAF from the current $700
million to $2 billion in public float, which would represent 93.5
percent of the current total market public float; \117\
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\117\ See discussion in section II.A.1 below.
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[cir] Establish a new, more stable, public float calculation window
that provides for the determination of public float based on the
average price of the registrant's voting and non-voting common equity
held by non-affiliates over the last 10 trading days of the second
quarter of a registrant's fiscal year; \118\
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\118\ As noted above, the Commission has recently proposed to
allow registrants to report semiannually rather than quarterly on
Form 10-Q. See Semiannual Proposing Release. If that rule is
adopted, semiannual filers would determine public float over the
last 10 trading days of the first semiannual period. See also infra
note 296 and accompanying text.
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[cir] Establish that a registrant will only transition into or out
of a status after the registrant has been above or below the public
float threshold for two consecutive years; \119\ and
---------------------------------------------------------------------------
\119\ See section II.A.1.
---------------------------------------------------------------------------
[cir] Increase the seasoning threshold for becoming an LAF to 60
consecutive calendar months.\120\
---------------------------------------------------------------------------
\120\ See section II.A.2.
---------------------------------------------------------------------------
<bullet> Establish the NAF filer status and consolidate and extend
to NAFs currently available scaled disclosure and other accommodations
by:
[cir] Establishing an NAF definition that encompasses all
registrants that are not LAFs; \121\ and
---------------------------------------------------------------------------
\121\ See section II.B.1.
---------------------------------------------------------------------------
[cir] Applying to NAFs the current disclosure requirements
applicable to SRCs and EGCs, including not requiring an ICFR auditor
attestation.\122\
---------------------------------------------------------------------------
\122\ See sections II.B.2, 3 and 4. As discussed below, these
requirements would generally extend to all NAFs, with some
exceptions.
---------------------------------------------------------------------------
<bullet> Extend to NAFs the requirement currently applicable to
LAFs and AFs to disclose on Form 10-K or Form 20-F the substance of
material unresolved staff comments regarding the registrant's periodic
or current reports received at least 180 days before a registrant's
fiscal year end.\123\
---------------------------------------------------------------------------
\123\ See section II.B.3.a.i.
---------------------------------------------------------------------------
<bullet> Eliminate AF and SRC filer statuses as unnecessary in
light of the amendments described above.\124\
---------------------------------------------------------------------------
\124\ EGC filer status was created by the JOBS Act. As this is a
statutory status, the Commission is not proposing to eliminate the
EGC filer status. We are proposing to permit NAFs to apply the
disclosure requirements that currently apply to EGCs, which we
believe would practically make reliance on EGC status unnecessary in
most circumstances. We note, and discuss below, that we are not
proposing to extend to NAFs the accommodation available to EGCs to
exclude a nonpublic draft registration statements from being
produced in response to a Freedom of Information Act (``FOIA'')
request. See section II.B.3.b.
---------------------------------------------------------------------------
<bullet> Create a sub-category consisting of the smallest NAFs
(``SNFs''), comprising NAFs reporting total assets of $35 million or
less as of the end of an issuer's two most recent second fiscal
quarters, that would be eligible for extended deadlines for filing
their Form 10-K and Form 10-Q periodic reports.\125\
---------------------------------------------------------------------------
\125\ See section II.C.
---------------------------------------------------------------------------
Consistent with the Commission's history of considering how its
regulatory regime can serve investors while avoiding unnecessary
regulatory burdens to registrants, we believe the time is ripe to again
rebalance the disclosure and other requirements applicable to issuers
of given sizes. Evidence shows that regulatory changes over the last
two decades, which increased the costs of public company reporting,
have contributed to a decline in the number of public companies in the
United States.\126\ We believe the proposed amendments are a meaningful
step in making the public markets more attractive, which would
encourage more companies to go and stay public while ensuring that
investors remain equipped to make informed investment and voting
decisions, which would in turn improve investment opportunities and the
information available to investors in such companies.
---------------------------------------------------------------------------
\126\ See section IV.B.1.
---------------------------------------------------------------------------
In this regard, the proposed scaling and accommodations would in
many cases apply to disclosures, such as in the area of executive
compensation and corporate governance matters, where the associated
potential benefits may not be commensurate with their costs to
registrants. Further, we believe any loss of information and assurance
or increased costs to investors in registrants that would newly receive
certain accommodations would be justified by the expected reduction in
costs to those registrants, as well as by effects that may encourage
more companies to go and stay public, which ultimately would benefit
investors in those companies.\127\ Finally, to the extent that these
accommodations contribute to a company choosing to go or stay public,
we also believe that is ultimately a benefit to investors, including
through the resulting greater diversification and more efficient
capital allocation within investor portfolios.\128\
---------------------------------------------------------------------------
\127\ See sections IV.B.2.a.1 and B.3.
\128\ See section IV.C.
---------------------------------------------------------------------------
A. Large Accelerated Filer Status Amendments
We are proposing to revise the definition of LAF to mean an issuer
that as of the end of each of the issuer's two most recent second
fiscal quarters, had an aggregate worldwide market value of the voting
and non-voting common equity held by non-affiliates of $2 billion or
more. In addition, we are proposing to extend the seasoning requirement
for LAF status such that an issuer would be an NAF until it has been
subject to the requirements of section 13(a) or 15(d) of the Exchange
Act for a period of at least the preceding 60 consecutive calendar
months.\129\ Consistent with our current rules, an issuer would be
required to assess its filer status annually, as of the last day of its
fiscal year.\130\
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\129\ As part of these revisions, we are proposing to eliminate
the SRC filer status (see section II.B.1) and as a result are also
proposing to eliminate the provision in 17 CFR 240.12b-2 that
provides an exclusion from LAF status for a registrant that is
eligible to be an SRC under the SRC revenue test.
\130\ As proposed, a registrant's filer status would only change
on the date of assessment (i.e., the last day of its fiscal year),
regardless of when the registrant chooses to calculate its public
float. As discussed below, under the proposed rules, once a
registrant enters a status, it would remain in that status for at
least two years as meeting or not meeting the conditions of LAF. See
section II.A.2.
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These proposed amendments would apply the LAF requirements to only
the largest registrants, which comprise the vast majority of the equity
market capitalization in the U.S. public
[[Page 30098]]
markets, with those companies currently representing approximately 93.5
percent of total market public float.\131\ We believe that registrants
with the largest U.S. equity market capitalization have a heightened
investor demand for more comprehensive information sooner, and these
registrants are likewise the most capable of bearing the costs and
burdens of compliance with shorter disclosure deadlines and non-scaled
disclosure and other requirements. We estimate these proposed
conditions would result in 19.2 percent of existing Exchange Act
reporting companies being LAFs, as compared to 35.4 percent today.\132\
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\131\ See section IV.B.2.
\132\ See section IV.B.2. As proposed, registrants who no longer
meet the conditions for LAF status would be permitted to continue to
voluntarily comply with the reporting rules as they apply to LAFs.
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1. Public Float Threshold
We are proposing to raise the public float threshold for purposes
of determination of LAF status from $700 million to $2 billion. The
Commission has historically looked to public float as a proxy for
demonstrated market following \133\ and used public float in
determining filer status and appropriate disclosure requirements and
accommodations. When the Commission created the LAF filer status in
2005, it emphasized that ``companies with a public float of $700
million or more represent nearly 95 percent of the U.S. equity market
capitalization and are more closely followed by the markets and by
securities analysts than other issuers,'' and that ``larger issuers
generally have sufficient financial reporting resources and
sufficiently robust infrastructures to comply with the [accelerated
filing deadlines].'' \134\ We continue to believe that public float is
a reasonable indicator of which companies the markets follow most
closely.\135\ We further believe that it is most appropriate to subject
registrants with the higher public float to non-scaled disclosure
requirements. In addition, we believe that companies with a public
float of $2 billion or more should be sufficiently resourced to be able
to comply with the highest level of burden associated with registration
and the obligations of being a public company.
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\133\ See, e.g., Offering Reform Adopting Release at 44727
(``[T]he `public float[ ]' of a reporting issuer can be used as a
proxy for whether the issuer has a demonstrated market following'').
See also Small Business Initiatives, Release No. 33-6949 (July 30,
1992) [57 FR 36442 (Aug. 13, 1992)]; and SRC Adopting Release.
\134\ See Accelerated Filer Revisions Adopting Release at 76629-
30. See also Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480, 58482 (Sept. 16, 2002)] (``[A] public
float test serves as a reasonable measure of size and market
interest.'').
\135\ As noted in the Registered Offering Reform Proposal, our
proposed elimination in that release of the minimum public float
requirement in Form S-3 and with respect to eligibility for the
Enhanced Registration and Communication Benefits (as defined in that
release) is consistent with our proposed retention of public float
in this proposal. See supra note 40. Our proposed elimination of a
minimum public float requirement in the Registered Offering Reform
Proposal is based on our belief that that eligibility to use Form S-
3 and the Enhanced Registration and Communication Benefits should
not depend on the extent of an issuer's market following, including
analyst coverage (e.g., by reference to its public float or initial
Exchange Act seasoning). That proposal is not intended to suggest
that public float is an inappropriate indicator of an issuer's
market following. See id. at n. 230 (``We continue to believe that
public float is relevant for determining an issuer's filer status
and deadlines for filing Exchange Act reports. As we have previously
stated, public float can serve as a reasonable measure of a
company's size and market interest and, in turn, where investor
interest in accelerated filing is likely to be highest'' (citation
omitted)).
---------------------------------------------------------------------------
At the time the Commission adopted LAF filer status in 2005, it was
estimated that ``companies with a public float of over $700 million
represent approximately 18 percent of the total number of companies on
these markets and nearly 95 percent of the total public float on these
markets.'' \136\ We note that since the adoption of the LAF filer
status, the $700 million threshold has not been updated. Today, we
estimate that the current threshold captures 98.8 percent of total
market public float and 35.4 percent of registrants.\137\ We are
proposing to raise the threshold to continue to cover the largest
registrants and reestablish the relationship to the number of companies
covered and total market public float that existed when the filer
status was adopted.\138\ We therefore propose to reestablish a public
float requirement that would capture nearly 95 percent of total market
public float and estimate that setting the threshold at $2 billion
would capture approximately 93.5 percent of total market public float,
and cover approximately 20 percent of the total number of existing
registrants.
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\136\ See Accelerated Filer Revisions Adopting Release at 76636
(using data for companies listed on NYSE, Amex, NASDAQ, the Over-
the-Counter Bulletin Board, and Pink Sheets LLC).
\137\ See section IV.C.2. Over the period from the open of
trading on Jan. 3, 2006 to the close of trading on Jan. 2, 2026, the
S&P 500 Index increased from 1,248 to 6,858, an approximately 450%
increase. A proportionate increase to the $700 million threshold
would result in a $3.85 billion threshold. Alternatively, adjusting
for inflation would result in a $1.15 billion threshold. See CPI
Inflation Calculator, <a href="https://www.bls.gov/data/inflation_calculator.htm">https://www.bls.gov/data/inflation_calculator.htm</a> (measuring from Jan. 2006 to Jan. 2026,
retrieved Apr. 15, 2026).
\138\ When adopting the LAF filer status, the Commission
indicated that ``companies with a public float of $700 million or
more . . . are more closely followed by the markets and by
securities analysts than other issuers'' and that, ``[b]ased on our
experience with the accelerated filing deadlines, we continue to
believe that larger issuers generally have sufficient financial
reporting resources and sufficiently robust infrastructures to
comply with the 60-day deadlines . . . .'' See Accelerated Filer
Revisions Adopting Release at 76629-30.
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Other than the proposed single public float threshold, we are not
proposing additional or alternative LAF status determination
thresholds, as we believe doing so could complicate the regulatory
framework without commensurate benefits.
2. Public Float Determination
We are proposing amendments to the way a registrant determines its
public float for purposes of the LAF definition. Under the current
rules, a registrant assesses whether it meets LAF status as of the end
of each fiscal year based on its public float as of the last business
day of an issuer's most recently completed second fiscal quarter, using
either the closing price or the average of the bid and ask prices on
that day. As a result, a registrant may become an LAF at the end of its
fiscal year based on a single day of volatility, even if the
registrant's overall public float may quickly stabilize below the
threshold. While we recognize that the circumstances in which such
swings can cause a shift in filer status may be limited or relatively
rare, to the extent they do occur, the consequences can be significant
in terms of regulatory burden on affected registrants. To minimize the
impact of swings in share price in a limited period or on a single day,
the proposed amendments would require that, before a registrant would
transition either into or out of LAF status as of the end of its fiscal
year, the registrant's public float, calculated based on the average of
the registrant's stock price over the last 10 trading days of each of
the second quarter of such fiscal year and the immediately prior fiscal
year, multiplied respectively by the aggregate worldwide number of
shares of the issuer's voting and non-voting common equity held by non-
affiliates as of the last day of the issuer's second fiscal quarter of
such fiscal year, remain either at or above, or below, the public float
threshold.
By requiring that the public float threshold be met (or not met)
for two consecutive years, a registrant would change filer status as of
the end of its fiscal year only if its public float has been relatively
stable consistently either above or below the threshold. This would
mean that a registrant, and investors, would always have at least one
year of visibility regarding the
[[Page 30099]]
possibility of a status transition before any transition could occur.
The proposed rules also clarify that meeting or not meeting the
conditions of LAF status for a single year would not suffice to change
filer status from NAF to LAF or vice versa. Thus, once a registrant
enters a status, it would remain in that status for at least two years.
The proposed rules also base the calculation each year on the
average of the closing prices over the last 10 trading days of the
second quarter of the registrant's fiscal year (or, if there is no
closing price on a day, the average of the bid and ask prices that
day), using the number of shares on the last day of the second quarter
of the registrant's fiscal year, in order to address the risk that a
single day's market volatility could result in unexpected changes to
filer status. An average over 10 trading days would provide at least
two calendar weeks of data, which we believe would mitigate the impact
of short-term volatility, including spikes and drops in stock price
that may be temporary, such as those based on short-term news and
events. We are proposing that the number of shares be based on a single
date in an effort to simplify the calculation.
Additionally, we believe the proposed transition criteria, by
accounting for the potential for volatility, would eliminate the need
for distinct criteria for transitioning out of a particular filer
status as provided for in the current rules. As the Commission stated
when adopting separate transition thresholds for exiting AF or LAF
status, the purpose of the transition thresholds ``is to avoid
situations in which an issuer frequently enters and exits accelerated
and large accelerated filer status due to small fluctuations in public
float'' which could cause confusion for issuers and investors as to the
issuer's status.\139\ While we agree that addressing volatility in
setting a market price-based threshold should remain an important
consideration, the Commission's existing separate thresholds for
exiting a filer status have contributed to the complexity of the
current rules. Accordingly, we are also proposing to eliminate the
separate, lower threshold for exiting LAF status in favor of a
definition with a single public float criterion and a two-year lookback
determination (i.e., public float of $2 billion or more for two
consecutive fiscal years). While the lower exit threshold was intended
to maintain stability in status so that registrants with public floats
near the entry threshold do not frequently move in and out of a filer
status, we believe requiring the threshold be met in two consecutive
years based in each year on a longer calculation window would more
meaningfully address these concerns while being easier for registrants
to implement and providing earlier notice of a possible change in filer
status.
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\139\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178,
17191 (Mar. 26, 2020)]. The Commission set the threshold for AFs and
LAFs becoming NAFs at $60 million, and the threshold for exiting LAF
status at $560 million. Id.
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A potential drawback of the two-year lookback is that some
registrants that would become LAFs would have to provide non-scaled
disclosure even if their public float falls below the LAF threshold for
a year. Conversely, a potential drawback for investors is that they
would not receive the benefits of non-scaled disclosure following an
NAF's single-year increase in public float, as they would with a one-
year lookback. However, a registrant remaining ``in status'' for at
least two years before potentially changing to a new filer status could
provide more consistency to the disclosure regime and more comparable
period-to-period information, to the benefit of both registrants and
investors.
To demonstrate how these proposed changes would work in practice,
consider a hypothetical NAF that is assessing its annual filer status
as of the last day of its fiscal year, or December 31, 2026, for a
calendar-year end registrant. Assuming the proposed rules were in
effect, if an NAF's public float, as determined by the average stock
price over the last 10 trading days of the second quarter of each
fiscal year being measured (i.e., the 10 trading days ending on or
before June 30), for fiscal year 2025 was $1.9 billion and for fiscal
year 2026 is $2.3 billion, the registrant would remain an NAF for
purposes of its December 31, 2026 Form 10-K (filed in 2027) because it
crossed the LAF threshold in only one year of the two-year lookback
period. That is, when performing the test as of the last day of its
fiscal year, the registrant looks back to the last 10 trading days of
the second quarter of the fiscal year for each of fiscal year 2026 and
2025, and in the example, it only exceeded the threshold in fiscal
2026. If the registrant then determines that its public float as of the
measurement period of the second quarter for fiscal year 2027 is $1.9
billion (dropping back below the LAF threshold), the registrant would
remain an NAF as of the end of fiscal 2027. The earliest it could
become an LAF would be at the end of its fiscal year 2029 (assuming its
public float crosses the LAF threshold for the relevant measurement
period of the second quarter for both fiscal years 2028 and 2029), and
if so it would be required to comply with the requirements of LAF
status beginning with its Form 10-K for fiscal year 2029 filed in 2030.
On the other hand, if that registrant determines its public float
for fiscal year 2027 is $2.5 billion (while the fiscal year 2026 public
float remains at $2.3 billion as in the example above), it would become
an LAF as of the last day of its fiscal year 2027, and would be
required to comply with the requirements of LAF status beginning with
its Form 10-K for fiscal year 2027 (filed in 2028). If the registrant's
public float falls to $1.9 billion as of the relevant measurement
period in the second quarter of fiscal year 2028, the registrant would
remain an LAF for purposes of its Form 10-K for fiscal year 2028
because its public float will have been below the LAF threshold for
only one fiscal year. The earliest it could become an NAF would be as
of the end of its fiscal year 2029 (assuming its public float is below
the LAF threshold in the relevant measurement period in the second
quarters of both fiscal years 2028 and 2029), and if so would be able
to transition to NAF status beginning with its Form 10-K for fiscal
year 2029, filed in 2030.
As proposed, once a registrant qualifies for a change in filer
status, the requirements and any applicable accommodations of the new
filer status would apply beginning with the filing of its annual report
on Form 10-K for the fiscal year in which the filer status was
determined. As a result, the possibility of both entering LAF status
and transitioning to NAF status are foreseeable further in advance than
is the case currently, allowing companies to more predictably plan
their disclosure controls and procedures and associated costs.
Similarly, the first time an LAF's public float falls below the LAF
threshold (or an NAF's public float rises above the threshold) as of
one of its second fiscal quarter ends, investors would know that, even
if that trend were to continue, the registrant would be required to
file at least one more Form 10-K subject to the LAF disclosure
requirements and deadlines (or subject to the NAF disclosure
requirements and deadlines, as the case may be).
3. Seasoning
We are proposing to expand the seasoning period for LAFs--i.e., the
requisite period after which registrants could potentially qualify as
LAFs--to 60 consecutive calendar months from when the registrant became
subject to the Exchange Act reporting requirements,
[[Page 30100]]
with the assessment made as of the last day of its fiscal year.\140\
Under current rules, a registrant must be an Exchange Act reporting
company for at least 12 calendar months before it can be classified as
an LAF.\141\ In adopting the current 12-calendar month seasoning
period, the Commission noted that, along with the public float
requirement, the seasoning period was ``designed to include the
companies that are least likely to find [accelerated deadlines] overly
burdensome and where investor interest in accelerated filing is likely
to be highest.'' \142\ When the Commission adopted the 12-calendar
month seasoning period, it was focused on existing registrants that
would become subject to accelerated filing deadlines and recognized
that there would be an increased burden for these issuers. Since the
adoption of the acceleration of periodic reporting in 2002, Congress
and the Commission have expanded the disclosure requirements for
registrants, especially for LAFs. Given the additional requirements
that apply to LAFs, we believe that a longer seasoning period would be
appropriate before a registrant should be required to comply with non-
scaled ongoing disclosure and timing requirements.
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\140\ The proposed 60-calendar month seasoning period means 60
full, consecutive calendar months and any portion of a month
immediately preceding the relevant measurement date. For example, a
registrant that became subject to the Exchange Act's reporting
requirements on July 19, 2025 would satisfy the seasoning
requirement for purposes of assessing whether it is an LAF on Aug.
1, 2030.
\141\ 17 CFR 240.12b-2. In connection with these proposed
changes, we are also proposing to eliminate paragraph (iii) of the
``large accelerated filer'' definition, which requires that the
issuer have filed at least one annual report pursuant to section
13(a) or 15(d) of the Exchange Act, as unnecessary because a
registrant would have filed several annual reports before becoming
an LAF under the proposed 60 consecutive month seasoning
requirement.
\142\ Acceleration of Periodic Report Filing Dates and
Disclosure Concerning website Access to Reports, Release No. 33-8128
(Sept. 5, 2002) [67 FR 58480, 58487 (Sept. 16, 2002)].
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This change would effectively create a minimum five-year on-ramp
for every new registrant, regardless of public float. While we
recognize that this five-year on-ramp would, for a small subset of
registrants,\143\ delay compliance with respect to non-scaled
disclosure requirements, accelerated reporting deadlines, and ICFR
auditor attestation as compared to the current rules, we believe
allowing all newer registrants ample time to adjust to the disclosure
and filing requirements of a public company may encourage more
companies to go public and stay public, which may ultimately improve
overall market transparency and provide investors with more investment
opportunities with the greater transparency afforded by Exchange Act
reporting. In addition, even if a particular requirement does not apply
to a registrant, that registrant may elect to voluntarily comply, such
as by obtaining an ICFR auditor attestation, if the registrant believes
it would benefit the registrant to do so, such as if doing so were
viewed favorably by investors.
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\143\ As noted in section IV below, absent the proposed five-
year on-ramp, the percentage of current registrants continuing on as
LAFs under the proposal would increase from 19.2% to 20.7%.
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When Congress enacted the JOBS Act, in order to encourage more
companies to go and stay public, it created an on-ramp of up to five
years in EGC status, reducing registrants' compliance burdens in their
early years as public companies. In our experience, this on-ramp has
been a meaningful accommodation to newer public companies and generally
has not resulted in investor protection concerns.\144\ A similar on-
ramp before a registrant would potentially enter LAF status would be
consistent with and effectively expand the benefits of EGC status, and
would provide all newer registrants ample time to, among other things,
prepare for the increased costs and reporting burdens on company staff
and enlist third party advisors or service providers needed to satisfy
the non-scaled disclosure requirements and accelerated reporting
timelines. Finally, providing a sixty calendar month on-ramp
complements Congress' intent with its establishment of EGC status and
would help to simplify filer status determinations by ensuring that all
registrants that meet the statutory definition of EGCs will necessarily
qualify as NAFs when making their filer status determinations.\145\
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\144\ For evidence of the favorable effects of EGC
accommodations on IPOs, see, e.g., Michael Dambra, Laura Casares
Field & Matthew T. Gustafson, The JOBS Act and IPO Volume: Evidence
that Disclosure Costs Affect the IPO Decision, 116 J. Fin. Econ. 121
(2015) (``Dambra et al. (2015)'').
\145\ Under the proposed rules, an EGC that has lost its EGC
status in less than five years would continue to be considered an
NAF until the proposed LAF 60 consecutive calendar month on-ramp
ends for that registrant.
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Request for Comment
(1) Does public float continue to be a reasonable indicator of
which companies the markets follow most closely? Does public float
continue to be a good indicator of the most significant need for more
extensive public disclosure? Why or why not? As an alternative, in view
of the increasing prevalence of dual class share structures, should
non-publicly traded common equity securities held by non-affiliates
through dual class share or other multi-class share structures be
included in determining whether the threshold is met? If so, how should
registrants determine the value of those securities for purposes of the
determination?
(2) Does public float provide a reasonable indicator of a
registrant's ability to sustain the burdens associated with LAF status
under the proposed rules, including non-scaled disclosure requirements,
accelerated reporting timelines, and compliance with the ICFR auditor
attestation requirement in section 404(b)? If not, are alternative
thresholds or other measures more appropriate to evaluate a
registrant's ability to sustain the burdens of being an LAF?
(3) Is the proposed LAF threshold of $2 billion in public float,
which would capture approximately 93.5 percent of the total market
public float and would result in approximately 20 percent of existing
public companies being classified as LAFs, appropriate? If not, what
other threshold should the Commission consider and why? For example,
should the Commission update the threshold to $3.85 billion to mirror
the increase in the S&P 500 Index? Do the proposed changes to the LAF
status public float threshold and calculation methodology appropriately
balance the goals of capital formation and investor protection? Should
the Commission instead adopt a different threshold, and if so, what?
Would the proposed approach result in any impacts to investors and the
public market, including benefits or burdens that might result from the
proposed scaling of disclosure associated with the revisions to the
filer status categories? Would the proposed approach impact investors'
ability to make informed investment and voting decisions?
(4) We have proposed to adjust the public float threshold not based
on inflation, but rather to cover the registrants that comprise the
vast majority of the total market public float and that are most able
to comply with the highest level of burden associated with
registration. Should the Commission instead update the current
threshold for inflation? Alternatively, should the Commission establish
a mechanism to update the proposed $2 billion public float threshold
for inflation? For example, the JOBS Act requires that the revenue
threshold in definition of EGC be indexed to inflation at five-year
intervals. Should the proposed public float threshold be similarly
indexed to inflation? Are there alternative methodologies for updating
the threshold that would be preferable?
[[Page 30101]]
(5) Would the proposed average public float calculation period
(consisting of the registrant's stock price over the last 10 trading
days of the second quarter of each relevant fiscal year) and the
proposed use of the number of shares held by non-affiliates as of the
last day of the second fiscal quarter achieve the intended goal of
avoiding a result where a company's public float determination is
anomalous due to short-term volatility? Why or why not? Should it be
more or fewer than 10 trading days? Should the number of shares be
based on the average number of shares during the same 10 trading day
period instead of at the last day of the second fiscal quarter or
should the number of shares be based on the number of shares as of a
date selected by the registrant within a given period (such as any date
within the last 10 trading days of the second fiscal quarter)? Why or
why not? Are there costs or benefits associated with extending the
public float calculation methodology to 10 trading days?
(6) We considered multiple calculation windows for the public float
calculation, including: retaining the existing calculation date of the
last trading day of the second fiscal quarter; allowing a registrant to
choose a date within a given period (such as any date within the last
10 trading days of the second fiscal quarter); or reducing the number
of days comprising the average to, for example, the last five trading
days of the second fiscal quarter. Are any of these or other
alternatives preferable to the proposed 10-day average methodology, and
if so, why?
(7) Is the proposed LAF threshold effective for all types of
issuers, or should the threshold differ for certain types of issuers?
For example, should LAF status for investment companies (i.e., BDCs and
face-amount certificate companies) use a different public float
threshold, a different seasoning period, or a different approach
altogether (e.g., a threshold based on assets or annual investment
income)? If so, what threshold would be appropriate for investment
companies?
(8) Is a 60-calendar month on-ramp (seasoning period) before LAF
status can attach to a registrant appropriate? Would this create a
beneficial on-ramp for newer public companies before they could be
subject to LAF status? Would a shorter period, such as 24 calendar
months, or no seasoning period at all, be more appropriate considering
that public companies that meet the proposed public float threshold to
be an LAF likely have the resources to comply with the more extensive
requirements? Do the very largest new registrants need a 60-calendar
month seasoning period, or should certain registrants be required to
comply with LAF requirements sooner? If a seasoning period is adopted,
should the largest new registrants nevertheless be required to comply
sooner with certain of the LAF requirements, such as auditor
attestation on ICFR? If so, what would be an appropriate time period
for such registrants? Are the proposed mechanics around assessment of
the seasoning period sufficiently clear, or would any modification to
the proposed amendments or any clarifying guidance be needed?
(9) In order to minimize variation in disclosure obligations and
ensure a level of predictability, the proposal contemplates a two-year
period after transitioning into or out of LAF status during which a
registrant's filer status cannot change. Should we adopt this two-year
minimum period, as proposed? Would this have the intended effect of
providing registrants and investors with some consistency and
predictability as to the disclosure and other requirements a registrant
is subject to? Is comparability with respect to a registrant's
disclosure over a two-year (or longer) period an important
consideration for investors? Would another period be more appropriate?
Alternatively, should we consider other ways of addressing these
concerns? For example, under the current rules a registrant must fall
below a separate, lower threshold to exit AF status than to enter that
status; should we retain this approach? If so, why and what lower
threshold would be appropriate for exiting LAF status?
(10) Are there any other issues relating to filer status
transitioning that the Commission should clarify or address in any
final rules? For example, if a registrant deregisters its securities
and later re-enters the reporting system, should that registrant be
considered a new registrant for purposes of the 60-calendar month
seasoning period?
(11) When an issuer qualifies for a new filer status, which under
the proposal would only happen at the end of a fiscal year, should the
requirements and/or accommodations of that new status apply to the
issuer beginning with the annual report for the fiscal year in which
the change in filer status occurred, as proposed? Should issuers have
the option to apply a change in filer status earlier than as proposed?
B. Non-Accelerated Filer Amendments
We are proposing to define ``non-accelerated filer'' to mean an
issuer \146\ that is not an LAF. As proposed, every registrant would be
an NAF beginning at the time of its initial public offering or
registration and for at least five years following, as a result of the
proposed 60 consecutive calendar months on-ramp requirement before a
registrant could become an LAF. An issuer would then remain an NAF
unless and until it had an aggregate worldwide market value of the
voting and non-voting common equity held by its non-affiliates, or
public float, of at least $2 billion for two consecutive years. After
an NAF qualifies as an LAF and thereby loses its NAF status, it could
regain its NAF status if its public float is less than $2 billion for
two consecutive years.
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\146\ As proposed, asset-backed issuers would be excluded from
the filer status definitions. See section II.B.4 for further
discussion of the applicability of the proposal to asset-backed
issuers.
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We also propose to extend to NAFs the disclosure requirements and
other accommodations currently applicable to SRCs and EGCs.\147\ While
we estimate that the proposed NAF filer status would account for
approximately 81 percent of reporting companies currently, they would
account for only 6.5 percent of total market public float. We therefore
believe it is appropriate and in the public interest to leverage the
accommodations and requirements that have been effective for
registrants that are currently SRCs and/or EGCs, which compose over 52
percent of current registrants, in resetting our disclosure framework
to be better tailored to market following. We anticipate that this
change will help rebalance the costs and benefits associated with
public company status with the intention of facilitating more companies
going and staying public, which will ultimately increase transparency
in the market to the benefit of investors, while still maintaining
investor protections. We further anticipate that reducing the burdens
of periodic disclosure may enable management teams to better focus on
business operations.\148\
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\147\ But see section II.B.3.b. In addition, we note that the
current rules applicable to SRCs and EGCs are not applicable to
asset-backed issuers. Further, as discussed below, we are proposing
to extend a limited set of these accommodations to NAFs that are
BDCs or face-amount certificate companies, to recognize differences
in the activities and characteristics of these investment companies
relative to other NAF issuers.
\148\ See section IV.B.5.
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We recognize that this approach will result in the loss of some
information, loss of auditor attestation of ICFR, and longer reporting
deadlines for certain registrants that currently qualify as
[[Page 30102]]
LAFs or AFs but would qualify as NAFs under the proposed rules.
However, we believe that the material information necessary for
investors to make sound investment and voting decisions will continue
to be required from and provided by NAFs under the proposed rules. NAFs
would also continue to be subject to annual, other periodic and current
reporting requirements, including required disclosure of audited
financial statements as well as MD&A of the registrant's financial
condition and results of operations, and management's assessment of and
report on the effectiveness of the registrant's ICFR, which would
continue to provide transparency to investors and assist them in making
informed investment and voting decisions.
1. Non-Accelerated Filer Definition
Under the current rules, the term ``non-accelerated filer'' is not
defined. The term is used informally and widely to refer to a
registrant that is neither an LAF nor an AF, which typically means a
registrant with under $75 million in public float.\149\ Currently, an
NAF can also be an SRC, an EGC, or both. We are proposing to define a
new regulatory category termed ``non-accelerated filer,'' which we
propose to define in Securities Act Rule 405 and Exchange Act Rule 12b-
2 as ``an issuer that is not a large accelerated filer.'' As a result,
the default status for any Exchange Act reporting company (other than
asset-backed issuers, pursuant to an exception we are proposing in Rule
405 and Rule 12b-2) would be an NAF; until a company meets the proposed
new conditions for becoming an LAF, it would remain an NAF.\150\ In
addition, under the proposed rules, NAFs would be subject to
essentially the same requirements and accommodations that are
applicable to SRCs and EGCs under the current rules.\151\ By expanding
NAF filer status under the proposed amendments, more registrants would
qualify as NAFs and therefore would not be required to comply with the
ICFR auditor attestation requirement.\152\
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\149\ Under the current rules, an NAF can have more than $75
million in public float if it qualifies as an SRC with annual
revenues less than $100 million and public float less than $700
million. See 17 CFR 240.12b-2.
\150\ The proposed amendments would not include any changes to
the filing deadlines for NAFs, which under the current rules require
such registrants to file their quarterly reports 45 days after
fiscal quarter end, and their annual reports 90 days after fiscal
year end. But see section II.C regarding small NAFs.
\151\ But see section II.B.3.b. and supra note 147. To ensure
that the NAF accommodations apply to Securities Act registration
statements, we are proposing to define ``large accelerated filer,''
``non-accelerated filer,'' and ``small non-accelerated filer'' in
Securities Act Rule 405.
\152\ 15 U.S.C. 7262(c).
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With these amendments, we further propose to eliminate the
``accelerated filer'' \153\ and ``smaller reporting company'' \154\
categories, and the corresponding definitions in Item 10 of Regulation
S-K,\155\ Rule 405,\156\ and Rule 12b-2,\157\ since they will no longer
be necessary given the expansion of NAF status.\158\ Because the
proposed amendments would extend to NAFs the disclosure accommodations
currently available to EGCs, the proposed amendments would generally
make separate reliance on those JOBS Act provisions \159\ for EGCs
unnecessary.\160\
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\153\ In proposing to eliminate the use of the term
``accelerated filer'', we are proposing to revise the definitions in
Exchange Act Rule 12b-2 to remove ``accelerated filer'' and to
revise Forms S-1, S-3, S-4, S-8, S-11, 10, 10-K, 10-Q, and 20-F to
refer to NAF instead. We are also proposing to similarly revise 17
CFR 210.2-02, 17 CFR 210.3-01, 17 CFR 210.3-09, 17 CFR 210.3-12, 17
CFR 229.101, 17 CFR 229.308, 17 CFR 232.405, and 17 CFR 240.13a-10
to refer to NAF instead of ``accelerated filer''.
\154\ In proposing to eliminate the use of the term ``smaller
reporting company,'' we are proposing to revise the definitions in
Exchange Act Rule 12b-2 and Securities Act Rule 405 to remove
``smaller reporting company.'' We are similarly proposing to revise
Forms S-1, S-3, S-4, S-8, S-11, 10, 10-K, 10-Q, 8-K, 20-F, and Form
1-A to refer to NAF instead of SRC. We are also proposing to
similarly revise Articles 8 and 15 of Regulation S-X, Regulation S-
K, Exchange Act Rules 10C-1 13a-13, 13q-1, 14a-3, 14a-21, and 15d-13
to refer to NAF instead of ``smaller reporting company.'' We are
also proposing a technical amendment to remove 17 CFR 240.15d-13(e)
because paragraph (e) of Rule 15d-13 essentially repeats the
language in current Rule 15d-13(d) for purposes of alternative
financial reports for public utilities in a historical provision of
Rule 15d-13. See Adoption of Amendments of Certain Forms and Related
Rules, Release No. 34-13156 (Jan. 13, 1977) [42 FR 4424, 4429 (Jan.
25, 1977)].
\155\ 17 CFR 229.10(f) currently provides a definition of
``smaller reporting company'' and describes the requirements of
Regulation S-K that apply to SRCs. Because we are proposing to
eliminate the SRC category, we are proposing to remove Item 10(f) in
its entirety. In addition, we are proposing to make a technical
correction to Item 10(b). When the Commission adopted rule revisions
to Item 10(b)(2) in 2024, Item 10(b)(3) was inadvertently deleted.
See Special Purpose Acquisition Companies, Shell Companies, and
Projections, Release No. 33-11265 (Jan. 24, 2024) [89 FR 14158 (Feb.
26, 2024)]. We are proposing to add back the inadvertently deleted
Item 10(b)(3).
\156\ 17 CFR 230.405 currently provides a definition of
``smaller reporting company.'' Because we are proposing to eliminate
the ``smaller reporting company'' category, we are proposing to
remove the definition in Rule 405.
\157\ 17 CFR 240.12b-2 currently provides definitions of
``accelerated filer'' and ``smaller reporting company.'' Because we
are proposing to eliminate these, we are proposing to remove the
definitions in Rule 12b-2.
\158\ In order to apply the NAF accommodations under the
Securities Act rules we are proposing to add the definitions of
``large accelerated filer,'' ``non-accelerated filer,'' and ``small
non-accelerated filer'' to Rule 405. In conjunction with these
changes, we are proposing amendments to Forms S-1, S-3, S-4, S-8, S-
11, on the cover page, and elsewhere as appropriate, to refer to the
proposed categories of issuers. We are also proposing to update
check box disclosures on the cover page of certain registration
statements and periodic reports under which, currently, a registrant
is required to identify itself as an LAF, AF, NAF, SRC, and/or EGC
by replacing this with language under which a registrant would be
required to identify itself as an LAF, NAF, SNF, and/or EGC. As is
currently the case, a registrant would check each box that applies.
For example, a registrant that is an EGC, NAF, and SNF would check
all three boxes.
\159\ See supra Section I.D.2. for a discussion of the JOBS Act
accommodations for EGCs.
\160\ We are proposing to remove references to EGCs and refer
instead to NAFs in Rules 2-02 and 3-02 of Regulation S-X; Items 303,
308, 402, 407, and 1011 of Regulation S-K. In their place, we
propose to replace Item 10(f) Smaller reporting companies with a
revised Item 10(f) Emerging growth companies that enumerates the
statutory exemptions and accommodations provided to EGCs.
Additionally we propose to retain the definition of ``emerging
growth company'' in Exchange Act Rule 12b-2 and Securities Act Rule
405 and to continue to require the check boxes for EGC status in
certain periodic reports and registration statements because that
information may continue to be useful to investors as registrants
would statutorily remain EGCs.
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The proposed changes would establish a clearly demarcated on-ramp
for registrants to grow and gain experience as reporting companies
before becoming subject to the more detailed and expansive disclosure
obligations applicable to LAFs. As noted above, the Commission has long
considered how best to apply a disclosure regulation framework to
companies that vary widely in size and resources to comply with complex
securities laws and rules. During its history, the Commission has
established various categories, such as ``small business issuers,''
``smaller reporting companies,'' and ``accelerated filers,'' in
tailoring disclosure and reporting requirements based on the needs of
investors with an awareness of the potential burdens associated with
registrants' ability to comply with those requirements. In the JOBS
Act, Congress similarly sought to address some of these concerns for
newly public companies by establishing the EGC filer status and
reaffirmed the need for the Commission to consider ways to further
streamline the requirements for the benefit of new and smaller
companies in the FAST Act.\161\ Accordingly, we believe that the
consolidation of SRC and EGC accommodations into a single regulatory
filer status and the elimination of the AF status as a standalone
status is in the public interest and consistent with the protection of
investors.
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\161\ See section I.D.2.
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The proposed amendments would transform what is currently a layered
and complex set of filer statuses into a more streamlined structure,
with the
[[Page 30103]]
intent of simplifying the regulatory scheme. Registrants would no
longer need to assess each year multiple filer status entry and exit
thresholds, many of which are overlapping and often have inconsistent
lines distinguishing one set of requirements from the next.
In addition, the expanded category of NAFs would be subject to
fewer of the costly requirements that currently apply to LAFs and AFs.
As discussed in more detail in the sections that follow, for example,
NAFs would be permitted to rely on Article 8 of Regulation S-X for
scaled financial disclosure and provide only two (instead of three)
years of audited financial statements in their annual reports and
registration statements, would be permitted to comply with scaled
executive compensation disclosure requirements, and would not be
subject to the ICFR auditor attestation requirement.\162\ As a result,
we expect that NAFs would have reduced costs of compliance compared to
LAFs and would have ample notice to prepare for accelerated filing,
additional disclosure, and required auditor attestation of ICFR should
they transition to LAF status.
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\162\ As discussed below, BDCs and face-amount certificate
companies that are NAFs would not be permitted to rely on Article 8
of Regulation S-X, but we propose to provide certain of the
accommodations in Article 8 to these entities by separate rule.
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We recognize that the proposed expansion of NAF status and
application of EGC and SRC disclosure requirements would result in
reduced disclosure for many registrants and their investors. While that
reduction in disclosure may result in costs to investors, both
investors and registrants may also benefit from more companies choosing
to register their securities or to continue as public companies. This
would provide more public market investment opportunities that would be
subject to robust disclosure requirements, which provide greater
transparency as compared to private markets. In addition, and as
discussed in more detail in sections IV and V below, we believe
investors and registrants would benefit from a more easily
understandable filer status framework that imposes fewer compliance
costs, the ultimate burdens of which are borne by a registrant's
shareholders. Moreover, as discussed in more detail in section IV
below, we estimate that the proposed changes would apply to registrants
representing approximately 6.5 percent of total market public float,
while registrants representing approximately 93.5 percent of total
market public float would remain subject to LAF reporting requirements.
We believe this focus on ensuring that the registrants that represent
the vast majority of the market continue to comply with the most
extensive requirements mitigates investor protection concerns with the
proposed amendments.
2. ICFR and the Auditor Attestation Requirement
One significant effect of the proposed amendments would be a
decrease in the number of registrants required to obtain an auditor
attestation of management's assessment of the effectiveness of the
company's ICFR. Sarbanes-Oxley Act section 404(b) requires the auditor
that prepares or issues the issuer's audit report (other than for EGCs)
to attest and report on management's assessment of the effectiveness of
ICFR; however section 404(c) exempts registrants that are not LAFs or
AFs from the ICFR auditor attestation requirement. By increasing the
upper bound of NAF status from less than $75 million (or less than $700
million if revenues are less than $100 million) to less than $2
billion, the proposed amendments would expand by 26.7 percent the
number of current registrants that would qualify as NAFs and would
therefore not be subject to an ICFR auditor attestation
requirement.\163\ Additionally, with respect to newly public companies,
the proposed minimum five-year on-ramp (60 calendar months) before
entering LAF status would allow these companies additional time to
adjust to being a public company before potentially being exposed to
ICFR auditor attestation costs. This in turn may incentivize some
companies to go public sooner, which could open to investors additional
opportunities for investments that might otherwise have stayed in the
private market or which some investors may not have otherwise been able
to access.
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\163\ See section IV.B.1.
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As noted, under the proposal, NAFs would remain subject to the
Commission's rules under section 404(a), which require management to
establish, state its responsibility to establish and maintain, and
provide its assessment of, the registrant's ICFR.\164\ NAFs would also
continue to be required to obtain a financial statement audit by a
registered public accounting firm \165\ in which the auditor is
required to obtain an understanding of ICFR as part of its risk
assessment procedures.\166\ Obtaining an understanding of ICFR includes
evaluating the design of controls that are relevant to the financial
statement audit and determining whether the controls have been
implemented.\167\ Additionally, the auditor may test the operating
effectiveness of certain internal controls in connection with the
financial statement audit.\168\ These procedures to obtain an
understanding of ICFR and test the operating effectiveness of controls
in connection with the financial statement audit may identify
deficiencies in the registrant's ICFR. Moreover, the auditor may
identify such deficiencies when performing substantive procedures in a
financial statement audit. The auditor is required to communicate in
writing to management and the audit committee all significant
deficiencies and material weaknesses identified during the financial
statement audit,\169\ which may in turn require consideration by
management in connection with management's assessment of ICFR under
section 404(a).
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\164\ See 17 CFR 229.308. A registrant is not required to
provide a report of management on the registrant's ICFR until it has
either been required to file an annual report pursuant to section
13(a) or 15(d) of the Exchange Act for the prior fiscal year or has
filed an annual report with the Commission for the prior fiscal
year.
\165\ See Rule 2-02.
\166\ See PCAOB AS 2110, Identifying and Assessing Risks of
Material Misstatement, paragraph 18, <a href="https://pcaobus.org/oversight/standards/auditing-standards/details/AS2110">https://pcaobus.org/oversight/standards/auditing-standards/details/AS2110</a>. Pursuant to AS 2110,
the auditor is required to obtain a sufficient understanding of each
component of internal control over financial reporting to (a)
identify the types of potential misstatements, (b) assess the
factors that affect the risk of material misstatement, and (c)
design further audit procedures.
\167\ See id., paragraph 20. This evaluation is not for the
purpose of expressing an opinion on the effectiveness of the
company's ICFR.
\168\ See PCAOB AS 2301, The Auditor's Responses to the Risks of
Material Misstatement, paragraph 16, <a href="https://pcaobus.org/oversight/standards/auditing-standards/details/AS2301">https://pcaobus.org/oversight/standards/auditing-standards/details/AS2301</a>. Also, tests of controls
must be performed in the audit of financial statements for each
relevant assertion for which substantive procedures alone cannot
provide sufficient appropriate audit evidence and when necessary to
support the auditor's reliance on the accuracy and completeness of
financial information used in performing other audit procedures. See
id., paragraph 17.
\169\ See PCAOB AS 1305, Communications About Control
Deficiencies in an Audit of Financial Statements, paragraph 4,
<a href="https://pcaobus.org/oversight/standards/auditing-standards/details/AS1305">https://pcaobus.org/oversight/standards/auditing-standards/details/AS1305</a>.
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The Commission has recognized the benefits of ICFR auditor
attestation in enhancing the reliability of management's assessment of
ICFR and the registrant's financial statements.\170\
[[Page 30104]]
The auditor's attestation can help registrants identify and disclose,
on a timely basis, material weaknesses in ICFR, maintain their focus on
effective internal controls, and, ultimately, mitigate the need for
subsequent restatements of financial statements due to misstatements
that were not prevented or detected, on a timely basis, by the
registrant's internal controls.\171\ Any resulting increase in the
effectiveness of ICFR enhances the quality of the registrant's
financial statements which investors rely upon to make informed
investment and voting decisions. The Commission has also remained
cognizant of the significant costs and burdens that are associated with
section 404(b) compliance.\172\ Some commenters on the 2019 Accelerated
Filer Release stated to the Commission that the ICFR auditor
attestation is the most costly aspect of being an AF.\173\ Supporting
these assertions, in a June 2025 report to Congress the GAO found that
section 404 compliance costs are more burdensome in relative terms for
smaller companies.\174\
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\170\ See, e.g., Study of the Sarbanes-Oxley Act of 2002 Section
404 Internal Control over Financial Reporting Requirements, Office
of Economic Analysis, U.S. Securities and Exchange Commission (Sept.
2009), at 56-67 (detailing a survey of financial executives of
publicly traded companies finding benefits to section 404
compliance, but also finding that net benefits were negative); Staff
Study at 112 (``There is strong evidence that the auditor's role in
auditing the effectiveness of ICFR improves the reliability of
internal control disclosures and financial reporting overall and is
useful to investors.'').
\171\ See Staff Study at 85-87 (identifying benefits to the
auditor's attestation including the disclosure of internal control
deficiencies that were not previously disclosed by management and
citing studies indicating that issuers that are required to comply
with section 404(a) and (b) are less likely to issue materially
misstated financial statements than issuers not subject to these
requirements).
\172\ See supra notes 64, 67, and 69.
\173\ See supra note 35.
\174\ U.S. Gov't Accountability Off., Sarbanes-Oxley Act:
Compliance Costs Are Higher for Larger Companies but More Burdensome
for Smaller Ones (June 2025), <a href="https://www.gao.gov/assets/gao-25-107500.pdf">https://www.gao.gov/assets/gao-25-107500.pdf</a>.
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In proposing to increase the LAF public float threshold, we
recognize that many issuers would no longer be subject to the ICFR
auditor attestation requirement of section 404(b) and that this would
likely result in a loss of the benefits of auditor attestation in
enhancing the reliability of management's assessment of ICFR and
improving the reliability of financial statements. For example, a
number of commenters to the 2019 Accelerated Filer Release indicated
that ICFR auditor attestation requirement promotes effective ICFR and
more accurate disclosures related to ICFR.\175\ Additionally, investors
may factor in whether a company voluntarily obtains ICFR auditor
attestation in weighing their investment and voting decisions with
respect to individual companies.
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\175\ See Accelerated Filer and Large Accelerated Filer
Definitions, Release No. 34-88365 (Mar. 12, 2020) [85 FR 17178, n.
88 (Mar. 26, 2020)]. Commenters also indicated that effective ICFR,
generally, and the ICFR auditor attestation requirement, more
specifically, enhances transparency; increases the quality and
reliability of issuers' financial statements, corporate governance,
audits, and analyst forecasts; and reduces the number of issuers'
restatements, misstatements, the instances of fraud, and occurrences
of insider trading. Id. at notes 90 through 97 and accompanying
text.
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On balance, we believe increasing the LAF threshold and the
resulting change in the number of companies subject to the ICFR auditor
attestation requirement are appropriate given the significant relative
cost burden of this requirement, particularly to smaller registrants.
The expected reduction in costs to those registrants, as well as
related effects of the proposal that may encourage more companies to go
and stay public, ultimately would benefit investors in those companies.
However, the proposed amendments would also allow registrants
flexibility to decide to obtain and disclose the results of such
auditor attestation, even if not required, for example if the
registrant believes the benefits it would derive from such auditor
attestation would justify its costs. We believe that the ICFR auditor
attestation requirement change, along with the other changes we are
proposing, would incentivize companies to access the public markets,
register their securities offerings, and continue as public companies,
which in turn would expand investment opportunities benefiting
investors and the public markets.\176\ Accordingly, we believe these
factors weigh in favor of the proposed amendments, which we find to be
in the public interest and consistent with the protection of investors.
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\176\ See section IV.B.
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3. Extension of SRC and EGC Accommodations and Disclosure Requirements
a. Application of SRC Accommodations
The Commission has long been cognizant of the burdens of
registration and reporting under the securities laws, particularly as
those burdens apply to smaller registrants. In the 1990s, the
Commission developed an integrated disclosure system tailored
specifically to smaller issuers,\177\ and in the 2000s, the Commission
replaced that system with a series of accommodations for SRCs.\178\ As
part of our effort to simplify and further rationalize disclosure
responsibilities for registrants, we are proposing to permit
registrants that meet the proposed NAF status to comply with the
disclosure requirements and accommodations currently applicable to
SRCs.\179\ The current SRC-level disclosures would become the default
disclosure requirements for most registrants.
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\177\ See the discussion relating to ``small business issuers''
in section I.A.
\178\ See the discussion relating to ``SRC'' in section I.D. The
SRC filer status was initially linked to NAF status, but
subsequently the public float threshold was increased to $250
million.
\179\ For NAFs that are BDCs or face-amount certificate
companies, we are proposing to extend most of the disclosure
requirements and accommodations currently applicable to SRCs, with
the exception of some financial statement provisions and performance
graph disclosure.
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While we are proposing to increase the number of registrants
permitted to provide SRC scaled disclosure from approximately 44
percent of registrants to approximately 81 percent,\180\ the proportion
of total market public float represented by this population of
registrants would remain relatively small (approximately 6.5 percent).
The proposal would reduce the compliance burdens of regulation for all
of these small- to mid-capitalization registrants. This would benefit
those registrants and their investors by lowering expenses and thereby
freeing up capital that could be used to invest in the registrant's
business. Further, the lower expenses associated with registration may
further encourage such registrants to seek access to the public markets
and remain public, which also benefits investors by providing more
investment opportunities with the greater transparency afforded by
Exchange Act reporting.
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\180\ As proposed NAF status would include registrants currently
designated as SRCs and EGCs and all registrants that meet the new,
higher threshold for NAF status, which would include many
registrants that are currently are AFs or LAFs.
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i. Scaled Disclosures Under Regulation S-K and Other Accommodations
Under the proposal, registrants that qualify as NAFs would be
permitted to follow the current SRC disclosure requirements, which is
scaled disclosure compared to that required of LAFs, to include: \181\
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\181\ This list does not include accommodations discussed in
section II.B.3.b.
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<bullet> More limited description of business; \182\
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\182\ As proposed, Item 101 would be revised and renumbered.
Proposed Item 101(a) would include all of the requirements generally
applicable to registrants, reflecting all of the requirements of
current 17 CFR 229.101(h) (``Item 101(h) of Regulation S-K'') that
currently apply to SRCs, and proposed Item 101(b) would provide the
further requirements specific to LAFs. The proposed changes would
remove any references to ``smaller reporting companies'' and move
other disclosure requirements and renumber paragraphs in Item 101 as
appropriate.
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[[Page 30105]]
<bullet> Two (instead of three) years of MD&A pursuant to 17 CFR
229.303 (``Item 303 of Regulation S-K''); \183\
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\183\ Specifically, we are proposing to revise Instruction 1 of
the Instructions to paragraph (b) of Item 303 of Regulation S-K to
remove references to SRCs and EGCs and simply instruct registrants
to include a discussion that covers the period covered by the
financial statements included in the filing. We are additionally
proposing to add a reference to Article 8 of Regulation S-X in
paragraph (c) of Item 303 of Regulation S-K.
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<bullet> Two (instead of three) years of summary compensation table
information pursuant to 17 CFR 229.402 (``Item 402 of Regulation S-
K''); and
<bullet> Executive compensation disclosure regarding three (instead
of five) named executive officers pursuant to Item 402 of Regulation S-
K.\184\
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\184\ SRCs and EGCs are permitted to provide disclosure related
to the grant of certain equity awards close in time to the release
of material nonpublic information for three, instead of five, NEOs
pursuant to 17 CFR 229.402(x). With respect to pay versus
performance disclosure required by 17 CFR 229.402(v), among other
accommodations, an SRC is permitted to provide three (instead of
five) years of pay versus performance disclosure. As described
below, an EGC is exempt from pay versus performance disclosure and
we are proposing to exempt NAFs from pay versus performance
disclosure.
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Registrants that qualify as NAFs would also be permitted to forgo
the following disclosures that are not currently applicable to SRCs:
<bullet> Risk factor disclosure in Forms 10-K and 10-Q pursuant to
Item 1A of Form 10-K and Item 1A of Form 10-Q;
<bullet> Performance graph disclosure pursuant to 17 CFR 229.201(e)
(``Item 201(e) of Regulation S-K''), except in the case of NAFs that
are investment companies; \185\
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\185\ Specifically, we are proposing to revise Item 201(e) of
Regulation S-K by explicitly applying the rule only to LAFs and
investment companies and removing Instruction 6 of Instructions to
Item 201(e) that exempts SRCs. We are not proposing to permit
investment companies that are NAFs to forgo the performance graph
disclosure pursuant to Item 201(e) of Regulation S-K to maintain
parity with other RICs, which are subject to similar performance
graph requirements. See Instruction 4.g to Item 24 of Form N-2; Item
27A(d)(2) of Form N-1A. Because BDCs and RICs share similar
characteristics, we believe it is beneficial to investors to
maintain the existing parity in performance graph disclosure
requirements. In addition, we are proposing to add a reference in
Item 201(a)(1)(iii) of Regulation S-K to Article 8 of Regulation S-X
because as proposed Article 3 would not necessarily apply to NAFs.
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<bullet> Supplementary financial information pursuant to 17 CFR
229.302(a) (``Item 302(a) of Regulation S-K''); \186\
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\186\ Specifically, we are proposing to simplify Item 302 of
Regulation S-K by revising Item 302(a) to refer only to LAFs, while
retaining the requirements relating to FPIs. We are also proposing
to remove Item 302(b). See section II.E below.
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<bullet> Quantitative and qualitative disclosures about market risk
pursuant to 17 CFR 229.305 (``Item 305 of Regulation S-K''); \187\
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\187\ We are proposing to amend Item 305 of Regulation S-K to
only apply to LAFs by adding a reference to LAFs in proposed revised
Item 305(a) and 305(b) introductory text.
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<bullet> Compensation discussion and analysis, compensation
policies and practices related to risk management,\188\ pay ratio
disclosure,\189\ and specified executive compensation disclosure
tables, including grants of plan-based awards table, pension benefits
table, option exercises and stock vested table, and nonqualified
deferred compensation table pursuant to Item 402 of Regulation S-K;
\190\
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\188\ 17 CFR 229.402(s).
\189\ 17 CFR 229.402(u), 17 CFR 229.402(l), and Instruction 8 to
17 CFR 229.402(u).
\190\ We are proposing to amend Item 402 of Regulation S-K to
replace the references to SRC with references to NAF, to remove
references to EGCs, and to add a new Item 402(a)(7) in place of Item
402(l) to provide guidance relating to NAFs.
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<bullet> Policies and procedures for the review, approval, or
ratification of related party transactions pursuant to 17 CFR
229.404(b) (``Item 404(b) of Regulation S-K''); \191\
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\191\ 17 CFR 229.404(d) currently provides that SRCs are not
required to provide Item 404(b) disclosure. We are proposing to
limit Item 404(b) disclosure to LAFs. We are additionally proposing
to make non-substantive changes to Item 404 to renumber and
incorporate the Instructions to Item 404(a) into Item 404(a) and to
revise Item 404 to remove use of the term ``shall''.
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<bullet> Compensation Committee Interlocks and Insider
Participation disclosure, and Compensation Committee Report disclosure
pursuant to 17 CFR 229.407(e)(4) and (e)(5); \192\
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\192\ SRCs and EGCs are currently permitted to forgo these
disclosures pursuant to 17 CFR 229.407(g)(1)(ii) and (g)(2).
Consistent with this, we are proposing to revise these rules to
limit their application solely to LAFs.
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<bullet> Audit committee financial expert disclosure in a
registrant's first annual report; \193\ and
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\193\ 17 CFR 229.407(d)(5) and 17 CFR 229.407(g)(1)(i).
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<bullet> Certain payments made by resource extraction issuers
pursuant to 17 CFR 240.13q-1.
By contrast, while current Item 404 includes an accommodation
permitting SRCs to exclude disclosure relating to the review, approval,
or ratification of related party transactions in accordance with Item
404(b) as noted above, it also includes several requirements that are
more rigorous for SRCs. Among other things, Item 404(d) provides a
different, more rigorous threshold for disclosure by SRCs of the lesser
of $120,000 or one percent of the average total assets at year-end for
the last two fiscal years when determining reportable transactions with
related persons under Item 404(a). Non-SRC registrants are only
required to look to whether the amount of the transaction exceeds
$120,000. In addition, SRCs are required to disclose a list of all
parent companies showing the basis of control and as to each parent,
the percentage of voting securities owned or other basis of control by
its immediate parent pursuant to Item 404(d)(3). Rather than apply such
requirements to NAFs, we are proposing to remove Item 404(d) and would
not apply the additional requirements that currently apply to SRCs to
all NAFs.
We are proposing to require disclosure of material unresolved staff
comments by all issuers. Currently, if a registrant that is an AF, LAF,
or well-known seasoned issuer has received written comments from the
Commission staff regarding its periodic or current reports and these
comments remain unresolved, the registrant is required to disclose the
substance of any material unresolved comments on Form 10-K or Form 20-
F.\194\ Staff review and comment could serve an important investor
protection function. As a result, we believe it is appropriate to
require NAFs to also provide this disclosure to investors.
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\194\ See Item 1B of Form 10-K and Item 4A of Form 20-F.
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Additionally, as noted above, in conjunction with this release, the
Commission is proposing reforms to the securities offering process to
make Form S-3 and the ability to conduct shelf offerings, including
automatic shelf offerings, available to significantly more
issuers.\195\ Because these offerings, which often incorporate by
reference information from a registrant's current and periodic reports,
would be available to more issuers, including NAFs, we believe that
investors in those issuers should be made aware of the substance of any
material unresolved comments. Accordingly, we are proposing to amend
Item 1B. of Form 10-K and Item 4A of Form 20-F \196\ to require all
registrants to disclose material unresolved comments received at least
180 days before a registrant's fiscal year end.\197\ Under the
proposal, in any Form 10-K or 20-F filing, if a registrant has
[[Page 30106]]
received written comments from the Commission staff regarding its
periodic or current reports under the Exchange Act (e.g., Form 10-K,
10-Q, or 8-K for domestic filers, or Form 20-F or 6-K for FPIs) not
less than 180 days before the end of its fiscal year to which the Form
10-K or 20-F relates, and the comments remain unresolved, the
registrant would be required to disclose the substance of any
unresolved comments that the registrant believes are material and may
provide other information including the position of the registrant with
respect to any unresolved comment.
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\195\ See Registered Offering Reform Proposal.
\196\ We are proposing that all registrants be required to
disclose material unresolved comments. We are not proposing to
provide an accommodation to FPIs that would differ from what is
available to registrants that file on domestic forms. While we
recognize that FPIs are not eligible for the accommodations relating
to shelf offerings, we believe that disclosure of material
unresolved matters is important information for investors.
\197\ We are not proposing comparable changes to Item 4A of Form
20-F at this time in light of the Commission's ongoing evaluation of
the definition of FPI. See further discussion of this issue in
section II.B.4.
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ii. Scaled Financial Statement Requirements Under Regulation S-X
Under the current rules, Article 8 provides the form and content
requirements of financial statements of SRCs. We propose to provide
that NAFs may prepare their financial statements in accordance with
Article 8 of Regulation S-X,\198\ except for NAFs that are BDCs or
face-amount certificate companies, which would receive certain of the
same accommodations under proposed Rule 3-19 of Regulation S-X. NAFs
that are not investment companies would be permitted to:
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\198\ Specifically, we propose to revise 17 CFR 240.14a-3(b)(1)
to permit NAFs to prepare their financial statements in accordance
with Article 8 and to amend Article 8 to specify that the Article
may be applied to financial statements of NAFs.
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<bullet> Apply the form and content requirements of Article 8, with
a few limited exceptions as specified in Rule 8-01,\199\ permitting
registrants to not comply with certain form and presentation
requirements related to the financial statements,\200\ and to not
disclose certain financial statement schedules and certain general
notes to the financial statements, and to not provide separate
financial statements of majority-owned subsidiaries not consolidated
and 50 percent or less owned persons accounted for by the equity method
of accounting otherwise required by Regulation S-X; \201\
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\199\ Rule 8-01(b) allows SRCs to comply with the form and
content required by Article 8 and not the other form and content
requirements in Regulation S-X, with the exception of the following:
(1) the report and qualifications of the independent accountant
requirements in 17 CFR 210.2-01 through 210.2-07; (2) the
description of accounting policies in 17 CFR 210.4-08(n); and (3)
the financial accounting and reporting standards specified in 17 CFR
210.4-10 with respect to oil and gas producing activities.
Additionally, there are other rules in Article 8 that direct SRCs to
other requirements in Regulation S-X that must be complied with,
including: Rule 8-01(c) (the requirements of 17 CFR 210.3-10, for
periods required by Rule 8-02, are applicable to financial
statements for a subsidiary of an SRC that issues securities
guaranteed by the SRC or guarantees securities issued by the SRC,
and disclosures about guarantors and issuers of guaranteed
securities registered or being registered must be presented as
required by 17 CFR 210.13-01); Rule 8-01(d) (the requirements of 17
CFR.210.3-16, for periods required by Rule 8-02, or 17 CFR 210.13-02
are applicable if an SRC's securities registered or being registered
are collateralized by the securities of the SRC's affiliates,
relying on 17 CFR 210.13-02 unless 17 CFR 210.3-16 applies.); Rule
8-01(f) (specifying that 17 CFR 210.3-06 applies to the preparation
of financial statements of SRCs); Rule 8-03(b)(5) (requires the
information required by 17 CFR 210.3-04 related to changes in
stockholders' equity and noncontrolling interests to be presented
for the current and comparative year-to-date periods, with subtotals
for each interim period); Rule 8-04 (requires SRCs to apply 17 CFR
210.3-05 related to financial statements of businesses acquired or
to be acquired, substituting Rule 8-02 and Rule 8-03 for Rule 3-01
and Rule 3-02); Rule 8-05 (requires SRCs to provide pro forma
financial information complying with 17 CFR 210.11-01 through 17 CFR
210.11-03 when any conditions in 17 CFR 210.11-01 exist, except it
may be condensed pursuant to Rule 8-03(a)); Rule 8-06 (requires SRCs
to apply 17 CFR 210.3-14 related to real estate operations acquired
or to be acquired, substituting Rule 8-02 and Rule 8-03, for Rule 3-
01 and Rule 3-02).
\200\ NAFs would not be required to comply with: (1) 17 CFR
210.5-01 through 210.5-07 (Article 6) applicable to financial
statements of commercial and industrial companies; (2) 17 CFR 210.7-
01 through 210.7-05 (Article 7) applicable to financial statements
of insurance companies; and (3) 17 CFR 9-01 through 210.9-07
(Article 9) applicable to financial statements of bank holding
companies, savings and loan holding companies, and banks and savings
and loan associations.
\201\ There is no equivalent to Rule 3-09 in Article 8 requiring
separate financial statements of significant majority-owned
subsidiaries not consolidated and 50% or less owned persons
accounted for by the equity method of accounting. Such separate
financial statements, however, should be provided if they are
material to investors.
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<bullet> Provide two rather than three years of audited statements
of comprehensive income, cash flows, and changes in stockholders'
equity pursuant to Rule 8-02;
<bullet> Provide a slightly more condensed format for interim
financial statements, financial statements for businesses and real
estate operations acquired or to be acquired, and pro forma financial
statements pursuant to Rules 8-02 through 8-06; and
<bullet> Apply less stringent age of financial statements
requirements pursuant to Rule 8-08.
We are proposing the following additional changes to Article 8 in
connection with these amendments in order to clarify or streamline
certain of the requirements.\202\ First, we are proposing to revise
Rule 8-01(b) to require NAFs to comply with 17 CFR 210.4-01(a), which,
among other things, requires that a registrant provide ``such further
material information as is necessary to make the required statements,
in light of the circumstances under which they are made, not
misleading.'' We believe this proposal is necessary as we recognize
that every NAF's circumstance is unique and therefore there may be
certain aspects of an NAF's business that are material, but are not
addressed by a disclosure requirement explicitly contemplated by
Article 8, and this proposal would require that disclosure.
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\202\ In addition to these substantive changes, we are proposing
some additional non-substantive revisions to Article 8, including
moving unnumbered text in 17 CFR 210.8-01 into Rule 8-01 and
renumbering Rule 8-01(a). Further, where our rules reference SRCs in
relation to Article 8, we are proposing to replace such references
with a reference to NAFs. See, e.g., Instruction 6 of Instructions
to Item 504 (where we additionally make non-substantive revisions to
remove the use of ``shall'').
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We are also proposing to revise Article 8 to clarify the
applicability of requirements for NAFs to disclose summarized financial
information of subsidiaries not consolidated and 50 percent or less
owned persons accounted for by the equity method of accounting, which
we refer to as ``equity investees.'' \203\ Currently, Rule 8-03(b)(3)
requires disclosure of summarized statement of comprehensive income
information in an SRC's interim financial statements for equity
investees that constitute 20 percent or more of a registrant's
consolidated assets, equity, or income from continuing operations
attributable to the registrant. Article 8 does not explicitly include a
requirement for SRCs to disclose summarized information on an annual
basis, while 17 CFR 210.4-08(g) (``Rule 4-08(g)'') does require annual
period summarized financial information to be disclosed for equity
investees of registrants other than SRCs. Commission staff have
historically analogized to Rule 8-03(b)(3) and requested disclosure of
annual summarized information from SRCs if it is not otherwise
included. We are proposing to clarify the applicability of the annual
period disclosure requirement by revising Rule 8-01 to require that
NAFs provide summarized financial information required by Rule 4-08(g).
As proposed, an NAF would be required to disclose, in the notes to
audited annual financial statements, summarized balance sheet and
statement of comprehensive income information of equity investees.\204\
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\203\ Each of Rule 3-09 and 4-08(g) refers to ``50% or less-
owned persons'', which Commission staff have interpreted as
referring to an investment accounted for using the equity method,
even if voting ownership exceeds 50%.
\204\ See 17 CFR 210.1-02(bb) (``Rule 1-02(bb)''). Currently,
under the Commission staff's view analogizing Rule 8-03(b)(3) to
annual periods, an SRC would quantify the equity investees'
revenues, gross profit, income from continuing operations, and net
income, whereas non-SRCs complying with Rule 4-08(g) would disclose
the summarized balance sheet and income statement items specified in
Rule 1-02(bb). U.S. Securities and Exchange Commission, Division of
Corporation Finance, Financial Reporting Manual (``FRM''), at
Sec. Sec. 2400.3, 2420.9. The statements in the FRM and any other
staff statements or guidance referenced in this release represent
the views of Commission staff. Any such staff statements are not a
rule, regulation, or statement of the Commission. Further, the
Commission has neither approved nor disapproved their content. These
statements, like all staff statements, have no legal force or
effect; they do not alter or amend applicable law, and they create
no new or additional obligations for any person. As proposed, an NAF
that is currently an SRC would be required to disclose certain items
specified in Rule 1-02(bb) that are not currently required for
annual periods. We do not believe the proposed change would add a
significant burden because SRC registrants may already have been
disclosing some of this information, such as select balance sheet
information, pursuant to existing disclosure requirements of U.S.
GAAP (e.g., FASB ASC 323-10-50-3(c)).
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[[Page 30107]]
We are also proposing to align the tests and thresholds used to
determine when disclosure would be required by NAFs to reflect current
practice and staff guidance for SRCs. Currently, disclosure is required
when the conditions (i.e., significance tests) specified in the
investment, income, and asset tests in the definition of ``significant
subsidiary'' in 17 CFR 210.1-02(w) (``Rule 1-02(w)'') are met for any
individual equity investee or combination of equity investees,\205\
using the higher 20 percent threshold currently required under Article
8.\206\ We believe revising Rule 8-01 to provide that NAFs are required
to provide summarized financial information in annual periods in
accordance with Rule 4-08(g), but applying the existing 20 percent
threshold in Article 8, would provide for appropriate disclosure from
NAFs, codify certain existing SRC practice and staff guidance for
registrants that rely on Article 8, and help to clarify the disclosure
requirements.\207\ Further, we do not believe these proposed revisions
would represent a significant change in practice from that currently
applied by SRCs.
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\205\ Rule 8-03(b)(3) states that significance should be
determined based on a registrant's consolidated assets, equity or
income from continuing operations. Comparing an SRC's investment to
its equity, rather than its total assets as required in Rule 4-08(g)
and 17 CFR 210.10-01(b)(1) for non-SRCs, would likely have the
unintended consequence of requiring an SRC to disclose summarized
information more often than a registrant that is not an SRC. As
such, Commission staff have historically taken the view that it
would be appropriate for SRCs to determine whether disclosure of
summarized information under Rule 8-03(b)(3) is required by
performing the significance tests consistent with Rule 1-02(w),
substituting 20% for 10%. We are proposing to codify the practice of
performing the significance tests consistent with Rule 1-02(w) for
NAFs.
\206\ Currently, under the Commission staff's view analogizing
Rule 8-03(b)(3) to annual periods, disclosure by SRCs of summarized
information for annual periods would be made at a 20% threshold,
whereas disclosure by non-SRCs of summarized financial information
required by Rule 4-08(g) would be made at a 10% threshold. FRM, at
Sec. 2420.9. Statements in the FRM represent the views of
Commission staff only; see supra note 204.We are proposing to apply
a 20% disclosure threshold to NAFs, consistent with Commission
staff's interpretation of Rule 8-03(b)(3). As proposed, an NAF that
was not previously an SRC would only be required to provide
disclosure of summarized financial information under Rule 8-01 at
the 20% level as opposed to the 10% level, potentially decreasing
the instances when disclosure of summarized financial information is
required as compared to current requirements. Disclosure obligations
related to summarized financial information will remain unchanged
for current SRCs.
\207\ Rule 8-03(b)(3) refers to significant equity investees, in
contrast to other similar Commission rules, such as Rules 3-09 and
4-08(g), which require separate statements or summarized financial
information for subsidiaries not consolidated and 50% or less owned
persons accounted for by the equity method. We are proposing for
consistency to revise each of Rule 8-01 and Rule 8-03(b)(3) to refer
to subsidiaries not consolidated and 50% or less owned persons
accounted for by the equity method, which are the types of entities
to which the Commission expects the disclosure requirements to
apply.
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We are further proposing to revise Rule 8-03(b)(3) to align the
significance tests used to determine when disclosure of summarized
statement of comprehensive income information by NAFs is required in
interim periods with those used by LAFs under 17 CFR 210.10-01(b)(1)
(``Rule 10-01(b)(1)''). Currently, three significance tests are used to
determine whether disclosure of summarized information regarding a 50
percent or less owned person accounted for by the equity method of
accounting is required in an interim period by an SRC under Rule 8-
03(b)(3) as compared to only two tests applicable to a non-SRC under
Rule 10-01(b)(1).\208\ As a result disclosure is more likely to be
required under Rule 8-03(b)(3) for SRCs than under Rule 10-01(b)(1) for
non-SRCs. We do not believe NAFs should be required to disclose such
summarized information in more instances than LAFs and are proposing to
treat NAFs and LAFs consistently.\209\
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\208\ Rule 10-01(b)(1) requires disclosure of interim summarized
information separately as to each subsidiary not consolidated or 50%
or less owned persons or as to each group of such subsidiaries or
50% or less owned persons for which separate individual or group
statements would otherwise be required for annual periods. In this
regard, disclosure is required for subsidiaries not consolidated if
any of the tests in Rule 1-02(w) are met, and for a 50% or less
owned person accounted for by the equity method if either the
investment test in Rule 1-02(w)(1)(i) or income test in Rule 1-
02(w)(1)(iii) is met. We are proposing to revise Rule 8-03(b)(3) to
require disclosure of interim summarized information in a manner
consistent with 17 CFR 210.10-01(b)(1).
\209\ The Commission is also proposing other changes to Rule 8-
03(b)(3) to clarify certain requirements applicable to NAFs and to
align other requirements with those applicable to LAFs. As proposed,
the summarized statement of comprehensive income information that
would be required includes, at a minimum, the items specified in
Rule 1-02(bb)(1)(ii), rather than separately stating the minimum
items of financial information as currently specified in Rule 8-
03(b)(3), aligning with requirements applicable to LAFs.
Additionally, as proposed, the requirements would clarify that the
interim summarized information could be presented on an individual
or group basis for each subsidiary not consolidated or 50% or less
owned persons, consistent with current Rule 10-01(b)(1). Finally,
under current rules, disclosure of interim summarized information
under Rule 10-01(b)(1) need not be provided if the investee would
not be required to file quarterly financial information with the
Commission if it were a registrant. We are proposing to make a
conforming change to Rule 8-03(b)(3).
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Finally, we are proposing to remove and reserve 17 CFR 210.8-07
(``Rule 8-07'') relating to Limited Partnerships. This disclosure is
not required by LAFs and does not appear to be necessary for NAFs. We
do not believe that the disclosure requirements for NAFs should be more
rigorous than those for registrants that are not NAFs, unless there is
specific need for the material disclosure to be provided to investors.
The disclosure required by Rule 8-07 has been required for over 30
years by different rules, but we do not believe that a dedicated
disclosure requirement for NAFs continues to be necessary because the
currently applicable disclosure requirements for all registrants result
in sufficient disclosure about limited partnerships to investors.\210\
Furthermore, to the extent considered necessary or appropriate for the
protection of investors, the Commission could require the filing of
other financial statements, including the audited balance sheet of the
general partner.\211\
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\210\ We note that these disclosures were required in Form S-18
and brought forward when adopting the SRC rules in 2007. However,
disclosure pursuant to the requirement is rarely elicited.
\211\ See Rule 8-01(e).
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In proposing to apply the SRC disclosure requirements to NAFs, we
considered the current use and efficacy of the SRC disclosure
requirements and the overall impact of expanding the use of such
disclosure requirements to more registrants. Currently, SRCs compose a
significant portion of the number of all Exchange Act filers, 48.6
percent in calendar year 2024.\212\ Since adoption of the SRC rules in
2007, and expansion of the SRC public float threshold to $250 million
in 2018 and revising the revenue test to include issuers with annual
revenues of less than $100 million and public float of less than $700
million, we are not aware of any significant concerns regarding the
scaled disclosure requirements or that the disclosure made by SRCs
falls short of the informational needs of investors. We also note that
while SRCs are only required to provide two years of financial
statements in their periodic reports and registration statements, for
[[Page 30108]]
any registrant that has been providing disclosure for more than one
year, historical financial information concerning prior years is
readily available on the Commission's Electronic Data Gathering,
Analysis, and Retrieval system (``EDGAR'').
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\212\ See section IV.A.2.
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We are not proposing to permit investment companies that are NAFs
to rely on Article 8. Investment companies historically have been
excluded from the SRC definition and, therefore, Article 8 has not been
available to them. For financial reporting purposes, investment
companies are subject to the rules set forth in Articles 6 and 12 that
are specifically designed for RICs and BDCs and that recognize
differences between investment company registrants and non-investment
company registrants. For example, investment companies invest in
securities principally for returns from capital appreciation and/or
investment income. Investment companies also are required to value
their portfolio investments, with changes in value recognized in the
statement of operations for each reporting period. The Commission has
previously taken steps to tailor financial reporting for investment
companies, including BDCs.\213\
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\213\ See, e.g., Amendments to Financial Disclosures About
Acquired and Disposed Businesses, Release No. 33-10786 (May 20,
2020) [85 FR 54002 (Aug. 31, 2020)].
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Permitting BDCs and face-amount certificate companies that are NAFs
to prepare their financial statements in accordance with the same
Article 8 provisions that apply to other NAFs would reduce the
availability of information that is important for understanding these
investment companies' activities and investments, such as the schedules
of investments that they currently prepare under Article 12 of
Regulation S-X. This approach would also create disparities between
financial reporting by BDCs and face-amount certificate companies and
financial reporting by other similarly-situated RICs. For these
reasons, we are not proposing to permit BDCs and face-amount
certificate companies that are NAFs to rely on Article 8, which
includes provisions allowing more condensed financial statements
without financial statement schedules (e.g., the schedule of
investments) or certain general notes to the financial statements.
We are, however, proposing to allow BDCs and face-amount
certificate companies that are NAFs to have certain of the same
accommodations included in Article 8 under proposed Rule 3-19. This
proposed rule would allow BDCs and face-amount certificate companies
that are NAFs to elect to provide, for their annual financial
statements, two rather than three years of statements of operations and
cash flows similar to provisions available to other NAFs under proposed
Rule 8-02. Extending this provision to BDCs and face-amount certificate
companies that are NAFs would not create disparities with reporting by
other RICs, as other RICs similarly are not required to provide
financial statements covering a three-year period. In addition, as
discussed below, the proposed rule would allow BDCs and face-amount
certificate companies that are NAFs to defer adoption of certain new or
revised financial accounting standards to the same extent as other
NAFs. This option to defer compliance is currently available to BDCs
that are EGCs, so this proposed change would extend the accommodation
to defer compliance to additional BDCs and to face-amount certificate
companies.\214\ Finally, proposed Rule 3-19 would extend certain time
periods in Article 3 for BDCs and face-amount certificate companies
that are SNFs to account for the additional time that SNFs would have
to file periodic reports, consistent with similar provisions under
Article 8 for SNFs. Overall, proposed Rule 3-19 for BDCs and face-
amount certificate companies that are NAFs is designed to mitigate
regulatory burden for BDCs and face-amount certificate companies that
qualify as NAFs under the proposal, while recognizing differences in
the operations and structures of these investment companies in
comparison to other NAF issuers.
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\214\ We recognize that, unlike our proposal to extend the
ability to provide financial statements for a two-year period to
BDCs and face-amount certificate companies that are NAFs, the
proposal to extend the ability to defer compliance with certain new
or revised financial accounting standards to all BDCs and face-
amount certificate companies that are NAFs would increase disparity
with other RICs, which are not permitted to elect this deferral.
However, because BDCs that are EGCs currently can elect to defer
compliance, in our view, the more appropriate point of comparison
for assessing regulatory parity in this case is between BDCs that
are EGCs and BDCs that are NAFs.
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b. Application of Certain EGC Accommodations
While the Commission has reevaluated its regulatory regime and
adopted rules in the past to address the burdens of registration and
reporting on smaller registrants, Congress has also acted to direct the
Commission to further consider and address regulatory burdens, as
discussed in more detail in section I above. In 2012, the JOBS Act
established ``emerging growth companies'' as a filer category entitled
to substantial regulatory relief. In establishing EGC conditions
permitting eligibility for that status for up to the first five years
after the registrant completes an initial public offering of common
equity securities, until the registrant reaches $1 billion in total
annual gross revenues (indexed for inflation), issues $1 billion in
non-convertible debt over a three-year period, or becomes an LAF,\215\
Congress significantly raised the company size at which disclosure and
other accommodations are provided to smaller and emerging registrants.
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\215\ See supra note 94 and accompanying text.
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While there are overlaps between the EGC and SRC accommodations,
EGCs are entitled to a similar but distinct set of accommodations as
compared to SRCs. Under existing rules, EGCs are exempt from the ICFR
auditor attestation requirement, and are permitted to provide executive
compensation disclosure using the rules applicable to SRCs and to
provide two (instead of three) years of financial statement disclosure
in an initial public equity offering. An EGC that also qualifies for
SRC status \216\ would therefore receive certain incremental additional
benefits from its EGC status.
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\216\ See supra Table 2.
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As part of our effort to simplify and further rationalize
disclosure responsibilities for registrants, we are proposing to permit
NAFs to apply the disclosure requirements and accommodations currently
applicable to EGCs (except as described below with regard to section
6(e)(2) of the Securities Act), in addition to those currently
applicable to SRCs. Under the proposed rules registrants that qualify
as NAFs would receive the incremental accommodation of being permitted
to forgo the following disclosures and other requirements currently
available to EGCs:
<bullet> Provision of a registered public accounting firm's
attestation report on the registrant's ICFR (``Item 308(b) of
Regulation S-K''); \217\
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\217\ 17 CFR 229.308(b).We are proposing to amend Item 308(b) of
Regulation S-K to clarify that only LAFs would be required to
provide an attestation report of a registered public accounting
firm. We are additionally proposing to remove references to
``accelerated filer'' from the rule and to revise Instruction 1 to
the Instructions to Item 308 to remove the reference to paragraph
(b), because all registrants would be NAFs in their first annual
report under the proposal, making reference to paragraph (b)
unnecessary.
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<bullet> Pay versus performance disclosure pursuant to 17 CFR
229.402(v); and
[[Page 30109]]
<bullet> Shareholder advisory votes \218\ on executive compensation
(``say-on-pay''),\219\ the frequency of say-on-pay votes,\220\ and
golden parachute compensation in connection with mergers and
acquisitions and related disclosure.\221\
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\218\ In proposing to limit the shareholder advisory votes
required by 15 U.S.C. 78n-1 to LAFs, we considered the specific
exemption for EGCs provided in 15 U.S.C. 78n-1(e)(2), the exemptive
authority provided in 15 U.S.C. 78n-1(e), and the further admonition
in 15 U.S.C. 78n-1(e)(1) that the Commission consider whether the
requirements disproportionately burden small issuers. We are
proposing to exempt NAFs from these requirements to reduce the
burden of compliance on these issuers pursuant to our exemptive
authority.
\219\ Say-on-pay is a non-binding shareholder vote on executive
compensation in proxy and information statements at least once every
three years. See 17 CFR 240.14a-21(a) and 15 U.S.C. 78n-1(a) and
(c). In addition to proposing to exempt NAFs in proposed Rule 14a-
21(d) and remove references to SRC, we are proposing revisions to
Rule 14a-21(a) to simplify the requirement and remove the transition
provisions.
\220\ Say-on-pay frequency is a non-binding shareholder vote on
the frequency of the say-on-pay vote at least once every six years.
See 17 CFR 240.14a-21(b) and 15 U.S.C. 78n-1(a) and (c). In addition
to proposing to exempt NAFs in proposed Rule 14a-21(d) and remove
references to SRC, we are proposing revisions to Rule 14a-21(b) to
simplify the requirement and remove the transition provisions.
\221\ The golden parachute vote refers to the requirement for
issuers to include a separate resolution, subject to non-binding
shareholder vote, to approve certain golden parachute arrangements
in connection with certain merger or related change-in-control
transactions. See 17 CFR 240.14a-21(c). In addition to proposing to
exempt NAFs in proposed Rule 14a-21(d) and remove references to SRC,
we are proposing revisions to Rule 14a-21(c) to simplify the
requirement and remove the transition provisions. In addition, we
are proposing to revise Instructions 3 and 4 to Instructions to
Sec. 240.14a-21 because those instructions relate specifically to
SRC and EGC accommodations. We are proposing to replace those
instructions with a new Instruction 3 providing that a registrant
must include the say-on-pay and say-on-pay frequency resolutions in
connection with the first solicitation after becoming an LAF. A
registrant is required to provide certain disclosure on the golden
parachute arrangements in accordance with 17 CFR 229.402(t). In
addition, Item 1011 of Regulation S-K expressly permits EGCs to
exclude Item 402(t) disclosure from Regulation M-A disclosure. We
are proposing to revise Item 1011 to provide that exclusion to NAFs.
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In addition to these disclosure and other accommodations, the JOBS
Act amended the Securities Act by adding section 6(e) \222\ to provide
EGCs with: (1) the ability to submit to the Commission a draft
registration statement (``DRS'') for confidential review prior to an
EGC's initial public offering; \223\ and (2) confidentiality regarding
an EGC's nonpublic DRSs submitted prior to its initial public offering
date from being produced by the Commission in response to a FOIA
request.\224\
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\222\ See Public Law 112-106, 126 Stat. 306 (2012), sec. 106(a).
\223\ 15 U.S.C. 77f(e)(1).
\224\ 15 U.S.C. 77f(e)(2).
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The staff of the Division of Corporation Finance have accepted
draft registration statements for non-public review for all issuers
since 2017 \225\ and subsequently further expanded the availability of
the non-public review process.\226\ We are not proposing to codify this
process but we request comment on whether doing so would provide
additional clarity and certainty. With respect to the provision of
confidentiality under section 6(e)(2) of the Securities Act, the
Commission lacks the authority to extend this confidentiality to non-
EGC companies and therefore only statutory EGCs will remain eligible
for this accommodation. Non-EGC registrants would continue to be able
to use the Commission's confidential treatment procedures regarding
FOIA requests pursuant to 17 CFR 200.83 (``Rule 83''), when submitting
draft registration statements for nonpublic review. The Commission's
Rule 83 confidential treatment procedures allow Commission staff to
determine whether, in response to a FOIA request, nonpublic draft
registration statements and related correspondence are subject to a
FOIA exemption and consequently would not be disclosed in response to a
FOIA request.\227\
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\225\ See U.S. Securities and Exchange Commission, Division of
Corporation Finance, Voluntary Submission of Draft Registration
Statements--FAQs (June 29, 2017) available at <a href="https://www.sec.gov/about/divisions-offices/division-corporation-finance/voluntary-submission-draft-registration-statements-faqs">https://www.sec.gov/about/divisions-offices/division-corporation-finance/voluntary-submission-draft-registration-statements-faqs</a>.
\226\ See U.S. Securities and Exchange Commission, Division of
Corporati
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