# FAST Act Modernization and Simplification of Regulation S-K > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-22374 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** November 2, 2017 - **Citation:** 82 FR 50988 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 229, 230, 232, 239, 240, 249, 270, 274 and 275 [Release No. 33-10425; 34-81851; IA-4791; IC-32858; File No. S7-08-17] RIN 3235-AM02 FAST Act Modernization and Simplification of Regulation S-K AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: We are proposing amendments based on the recommendations made in the staff's Report on Modernization and Simplification of Regulation S-K, as required by Section 72003 of the Fixing America's Surface Transportation Act. The proposed amendments are intended to modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors. The amendments are also intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information. To provide for a consistent set of rules to govern incorporation by reference and hyperlinking, we are also proposing parallel amendments to several rules and forms applicable to investment companies and investment advisers, including proposed amendments that would require certain investment company filings to be submitted in HyperText Markup Language (“HTML”) format. DATES: Comments should be received by January 2, 2018. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment forms ( http://www.sec.gov/rules/proposed.shtml ); • Send an email to rule-comments@sec.gov. Please include File Number S7-08-17 on the subject line; or • Use the Federal Rulemaking Portal ( http://www.regulations.gov ). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number S7-08-17. This file number should be included in the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Web site ( http://www.sec.gov/rules/proposed.shtml ). Comments also are available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Room 1580, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. 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 Web site. To ensure direct electronic receipt of such notifications, sign up through the “Stay Connected” option at www.sec.gov to receive notifications by email. FOR FURTHER INFORMATION CONTACT: Shehzad Niazi, Daniel Morris, or Angie Kim, Office of Rulemaking, Division of Corporation Finance, at (202) 551-3430; Michael C. Pawluk or J. Matthew DeLesDernier, Investment Company Rulemaking Office, 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 Items 10, 102, 202, 303, 401, 405, 407, 501, 503, 512, 601, and 1100 of Regulation S-K under the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”); Rules 405, 411, and 491 of Regulation C under the Securities Act; Rules 11, 102, 105, 303, and 406 of Regulation S-T under the Securities Act and Exchange Act; Forms S-1, S-3, S-6, S-11, N-14, S-4, F-1, F-3, F-4, F-7, F-8, F-10, F-80, SF-1, and SF-3 under the Securities Act; Rules 12b-13, 12b-23, 14a-101 (Schedule 14A), and 16a-3 under the Exchange Act; Forms 3, 4, 5, 8-A, 10, 20-F, 40-F, 8-K, 10-Q, 10-K, and 10-D under the Exchange Act; Rule 0-4 under the Investment Company Act of 1940 (the “Investment Company Act”); Forms N-1A, N-2, N-3, N-4, N-5, and N-6 under the Investment Company Act and Securities Act; Form N-CSR under the Investment Company Act and Exchange Act; and Rule 0-6 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). The Commission is also proposing to add new Item 105 to Regulation S-K and to remove Rule 12b-32 under the Exchange Act and Rules 8b-23, 8b-24, and 8b-32 under the Investment Company Act. Table of Contents I. Introduction A. Background B. Overview of the Proposed Amendments II. Proposed Amendments A. Description of Property (Item 102) B. Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 303) 1. Year-to-Year Comparisons (Instruction 1 to Item 303(a)) 2. Application to Foreign Private Issuers C. Management, Security Holders and Corporate Governance 1. Directors, Executive Officers, Promoters, and Control Persons (Item 401) 2. Compliance With Section 16(a) of the Exchange Act (Item 405) 3. Corporate Governance (Item 407) D. Registration Statement and Prospectus Provisions 1. Outside Front Cover Page of the Prospectus (Item 501(b)) 2. Risk Factors (Item 503(c)) 3. Plan of Distribution (Item 508) 4. Undertakings (Item 512) E. Exhibits 1. Description of Registrant's Securities (Item 601(b)(4)) 2. Information Omitted From Exhibits (Item 601) 3. Material Contracts (Item 601(b)(10)(i)) 4. Subsidiaries of the Registrant and Entity Identifiers (Item 601(b)(21)(i)) 5. Application to Foreign Private Issuers F. Incorporation by Reference 1. Item 10(d) 2. Securities Act Rule 411, Exchange Act Rule 12b-23 and Rule 12b-32 and Related Rules Under the Investment Company Act and Investment Advisers Act 3. Forms G. Manner of Delivery 1. Tagging Cover Page Data 2. Exhibit Hyperlinks and HTML Format for Investment Companies H. General Request for Comment III. Economic Analysis A. Background 1. The Benefits of Information Disclosure 2. The Costs of Disclosure B. Baseline C. Economic Analysis of the Proposed Amendments: General Assessment, Including Impact on Efficiency, Competition, and Capital Formation D. Economic Analysis of the Specific Amendments: Proposals That Clarify and Update Existing Rules 1. Proposals That Clarify or Streamline a Rule's Requirements 2. Proposals To Update Rules To Account for Subsequent Developments E. Economic Analysis of the Specific Amendments: Proposals That Simplify the Disclosure Process or Eliminate Disclosures 1. Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 303) 2. Information Omitted From Exhibits (Item 601): Item 601(a)(5), Item 601(a)(6), and Item 601(b)(10)(iv) F. Economic Analysis of the Specific Amendments: Proposals That Require More Disclosure or the Incorporation of New Technology 1. Description of Registrant's Securities (Item 601(b)(4)) 2. Subsidiaries of the Registrant and Entity Identifiers (Item 601(b)(21)) 3. Tagging Cover Page Data 4. Proposals for Additional Disclosure With Minimal Additional Costs to Registrants G. Economic Analysis of HTML and Hyperlinking Requirements of Forms Under the Investment Company Act IV. Paperwork Reduction Act A. Background B. Summary of the Proposed Amendments' Impact on Collection of Information 1. Proposed Amendments Expected To Decrease Burdens 2. Proposed Amendments Expected To Increase Burdens 3. Proposed Amendments Not Expected to Meaningfully Affect Burdens C. Burden and Cost Estimates to the Proposed Amendments 1. Form 10-K and Form 10-Q; Schedule 14A and Schedule 14C 2. Form S-1, Form S-3, Form S-4, Form F-3, Form F-4, Form SF-1, Form SF-3, Form 10, and Form 20-F 3. Form 8-A, Form 10-D, Form 40-F, Form F-7, Form F-8, Form F-10, and Form F-80 4. Form S-6, Form N-1A, Form N-2, Form N-3, Form N-4, Form N-5, Form N-6, Form N-14, and Form N-CSR D. Request for Comment V. Small Business Regulatory Enforcement Fairness Act VI. Initial Regulatory Flexibility Act Analysis A. Reasons for, and Objectives of, the Proposed Action B. Legal Basis C. Small Entities Subject to the Proposed Rules D. Reporting, Recordkeeping, and Other Compliance Requirements E. Duplicative, Overlapping, or Conflicting Federal Rules F. Significant Alternatives G. Request for Comment VII. Statutory Authority and Text of Proposed Rule and Form Amendments I. Introduction A. Background We are proposing amendments to modernize and simplify certain disclosure requirements in Regulation S-K and related rules and forms to implement Section 72003 of the Fixing America's Surface Transportation Act (the “FAST Act”). 1 As required by Section 72003(c) of the FAST Act, the staff published its Report on Modernization and Simplification of Regulation S-K (the “FAST Act Report”) on November 23, 2016. 2 Consistent with Section 72003, the FAST Act Report provided “specific and detailed recommendations on modernizing and simplifying the requirements in Regulation S-K in a manner that reduces the costs and burdens on companies while still providing all material information” and “[recommendations] on ways to improve the readability and navigability of disclosure and to discourage repetition and the disclosure of immaterial information.” 3 Also consistent with Section 72003, the FAST Act Report reflected consultations with the Investor Advisory Committee (“IAC”) and the Advisory Committee on Small and Emerging Companies. 1 Public Law No. 114-94, Sec. 72003, 129 Stat. 1312 (2015). 2 Report on Modernization and Simplification of Regulation S-K (Nov. 23, 2016), available at https://www.sec.gov/reportspubs/sec-fast-act-report-2016.pdf. 3 See FAST Act § 72003(c). This release proposes amendments based on the recommendations in the FAST Act Report. The proposed amendments largely implement these recommendations, as required by Section 72003(d) of the FAST Act. However, in some cases, and as discussed in more detail below, we have chosen to alter or supplement the staff's previously recommended approach based on our consideration of the issues and the statutory mandate. 4 This release reflects perspectives developed during the staff's broader review of the Commission's disclosure regime. As part of that effort, the staff requested public input on how the disclosure system could be improved, 5 and the Commission issued a concept release on the business and financial disclosure requirements in Regulation S-K (the “Concept Release”). 6 4 The FAST Act Report presented recommendations for the Commission's consideration. The FAST Act Report also noted that many of the recommendations in the report were necessarily preliminary in nature and that ongoing outreach and study would be necessary in connection with any rulemaking to implement the recommendations. See FAST Act Report, supra note 2, at n.15. 5 Comment letters related to this request are available at https://www.sec.gov/spotlight/disclosure-effectiveness.shtml. We refer to these letters throughout as “Disclosure Effectiveness” letters. 6 See Business and Financial Disclosure Required by Regulation S-K, Release No. 33-10064 (Apr. 13, 2016) [81 FR 23916 (Apr. 22, 2016)]. In developing the proposed amendments, we considered the comment letters we received on the Concept Release; 7 the prior staff study of Regulation S-K (the “S-K Study”) mandated by the Jumpstart Our Business Startups Act (the “JOBS Act”); 8 the Commission's request for comment on the requirements relating to management, security holders, and corporate governance matters in Subpart 400 of Regulation S-K (the “Regulation S-K Subpart 400 Release”); 9 and the FAST Act Report. 10 Throughout this release, we discuss these comments as further context for the proposed amendments. 11 The proposed amendments also reflect the Commission's experience with Regulation S-K arising from the Division of Corporation Finance's disclosure review program. 7 Comment letters related to this request are available at https://www.sec.gov/comments/s7-06-16/s70616.htm. 8 Public Law No. 112-106, Sec. 108, 126 Stat. 306 (2012). See also Rule 12b-2 under the Exchange Act [17 CFR 240.12b-2] and Rule 405 under the Securities Act [17 CFR 230.405]. Section 108 of the JOBS Act required the Commission to comprehensively evaluate its disclosure requirements to determine how they could be updated to modernize and simplify the registration process and reduce the costs and other burdens associated with these requirements for emerging growth companies (“EGCs”). The resulting recommendations are in the staff's Report on Review of Disclosure Requirements in Regulation S-K, available at https://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf. In connection with the S-K Study, we received public comments on regulatory initiatives to be undertaken in response to the JOBS Act. See Comments on SEC Regulatory Initiatives Under the JOBS Act: Title I—Review of Regulation S-K, available at http://www.sec.gov/comments/jobs-title-i/reviewreg-sk/reviewreg-sk.shtml. 9 Request for Comment on Subpart 400 of Regulation S-K Disclosure Requirements Relating to Management, Certain Security Holders and Corporate Governance Matters, Release No. 33-10198 (Aug. 25, 2016) [81 FR 59927 (Aug. 31, 2016)]. Comment letters related to this request are available at https://www.sec.gov/comments/s7-18-16/s71816.htm. We refer to these letters throughout as “Subpart 400” letters. 10 Comment letters related to the FAST Act Report are available at https://www.sec.gov/comments/fast/fast.htm. After the FAST Act Report was published, the staff updated the IAC on the recommendations included in the report at its December 8, 2016 meeting. See Minutes of the IAC Meeting on December 8, 2016 available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/iac120816-minutes.htm. The staff did not discuss with the IAC or the ACSEC potential modifications to those recommendations as reflected in this release. 11 Unless otherwise indicated, comment letters cited in this release are to the Concept Release. In this release, we focus on amendments to implement Section 72003(d) of the FAST Act. Accordingly, we are not at this time proposing amendments that extend substantially beyond the staff's recommendations in the FAST Act Report. 12 We are continuing to consider potential additional changes to our disclosure regime in connection with recent proposing releases and requests for comment. 13 In addition, we are proposing parallel amendments to several rules and forms applicable to investment companies and investment advisers to provide for a consistent set of rules governing incorporation by reference and hyperlinking, including proposed amendments that would require certain investment company filings to be submitted in HTML format. 14 12 As discussed in relevant sections below, some of the proposed amendments in this release would apply to Form 20-F or Form 40-F. Form 20-F is the combined registration statement and annual report form for foreign private issuers under the Exchange Act. It also sets forth disclosure requirements for registration statements filed by foreign private issuers under the Securities Act. Form 40-F is the registration statement and annual report used by eligible Canadian issuers under the Multijurisdictional Disclosure System. While Section 72003 of the FAST Act is focused on Regulation S-K, we are proposing to make corresponding changes to the disclosure requirements applicable to foreign private issuers where Forms 20-F and 40-F include provisions that are substantially similar to those found in Regulation S-K. 13 See Request for Comment on Possible Changes to Industry Guide 3 (Statistical Disclosure by Bank Holding Companies), Release No. 33-10321 (Mar. 1, 2017) [82 FR 12757 (Mar. 7, 2017)]; Concept Release, supra note 6; Regulation S-K Subpart 400 Release, supra note 9; Disclosure Update and Simplification, Release No. 33-10110 (Jul. 13, 2016) [81 FR 51607 (Aug. 4, 2016)] (the “Disclosure Update and Simplification Proposing Release”); Amendments to Smaller Reporting Company Definition, Release No. 33-10107 (Jun. 27, 2016) [81 FR 43130 (Jul. 1, 2016)]; and Modernization of Property Disclosures for Mining Registrants, Release No. 33-10098 (Jun. 16, 2016) [81 FR 41651 (Jun. 27, 2016)] (the “Modernization for Mining Registrants Proposing Release”). 14 The Commission has adopted requirements for exhibit hyperlinks and HTML format for operating companies. See Exhibit Hyperlinks and HTML Format, Release No. 33-10322 (Mar. 1, 2017) [82 FR 14130 (Mar. 17, 2017)] (“Exhibit Hyperlinks Adopting Release”) (adopting amendments to require registrants to hyperlink to each exhibit listed in the exhibit index and, to enable the inclusion of hyperlinks, requiring registrants to submit all such filings in HTML format). Non-accelerated filers and smaller reporting companies (“SRCs”) may continue to file in American Standard Code for Information Interchange (“ASCII”) until September 1, 2018 and are therefore not required to include exhibit hyperlinks until that date. B. Overview of the Proposed Amendments We are proposing amendments to several individual rules that would update, streamline, or otherwise improve our well-established and robust disclosure framework. These include proposed changes to: • Description of Property (Item 102); • Management's Discussion and Analysis (Item 303); • Directors, Executive Officers, Promoters, and Control Persons (Item 401); • Compliance with Section 16(a) of the Exchange Act 15 (Item 405); 15 15 U.S.C. 78a et seq. • Outside Front Cover Page of the Prospectus (Item 501(b)); 16 16 See proposed amendments to Item 501(b)(1), (b)(3) and (b)(4). • Risk Factors (Item 503(c)); • Plan of Distribution (Item 508); 17 17 Our proposals would amend Rule 405 and Rule 491. • Material Contracts (Item 601(b)(10)); and • Various rules related to incorporation by reference. Other proposed amendments would update some of our rules to account for developments since their adoption or last amendment. These include proposed changes to Corporate Governance (Item 407), Outside Front Cover Page of the Prospectus (Item 501(b)(10)), and Undertakings (Item 512). Some of the proposed amendments would simplify disclosure or the disclosure process. These include proposed changes to Management's Discussion and Analysis (Item 303(a)) that would allow for flexibility in discussing historical periods and the addition of new subparagraphs to Exhibits (Item 601) to permit omission of portions of exhibits that do not contain material information. Some of our proposed amendments would require additional disclosure or incorporation of new technology. These include proposed changes to: • Outside Front Cover Page of the Prospectus (Item 501(b)(4)); • Description of Registrant's Securities (Item 601(b)(4)); • Subsidiaries of the Registrant (Item 601(b)(21)(i)); and • Various regulations and forms to require all of the information on the cover pages of some Exchange Act forms to be tagged in Inline XBRL format. We discuss the proposed amendments generally in the order that each Item appears in Regulation S-K; however, we have consolidated the discussion of the rules and item requirements related to incorporation by reference. We have also consolidated our discussion of rules requiring the incorporation of new technology. II. Proposed Amendments A. Description of Property (Item 102) Item 102 requires disclosure of the location and general character of the principal plants, mines, and other materially important physical properties of the registrant and its subsidiaries. 18 Instruction 1 to Item 102 states that registrants must disclose such information as reasonably will inform investors as to the suitability, adequacy, productive capacity, and extent of utilization of the facilities by the registrant. 19 Instruction 2 provides that, in determining whether properties are material to an understanding of the registrant's business taken as a whole, registrants should take into account both quantitative and qualitative factors. 20 18 Item 102 of Regulation S-K [17 CFR 229.102]. 19 Detailed descriptions of the physical characteristics of individual properties or legal descriptions by metes and bounds are not required. See Instruction 1 to Item 102 of Regulation S-K. 20 Disclosure specific to the mining, oil and gas, and real estate industries is outside the scope of this release. Instructions 3, 5, and 7 apply to the mining industry. The Commission has separately proposed revisions to the property disclosure requirements for mining registrants. See Modernization for Mining Registrants Proposing Release, supra note 13. Instructions 4, 6, and 8 apply to the oil and gas industry. The Commission considered disclosure specific to the oil and gas industry in 2008. See Modernization of Oil and Gas Reporting, Release No. 33-8995 (Dec. 31, 2008) [74 FR 2158 (Jan. 14, 2009)]. Instruction 9 applies to the real estate industry. Currently, Item 102 specifies disclosure of “principal” plants, mines, and other “materially important” physical properties. The staff has observed, however, that the item may elicit disclosure that is not material. 21 For example, some registrants—such as those in the services or information technology industry—may not have material physical properties, and accordingly, these registrants tend to disclose information about their corporate headquarters, office space, and other facilities in response to this item. To address this concern, in the FAST Act Report, the staff recommended that the Commission consider revising Item 102 to require a description of property only to the extent that physical properties are material to the registrant's business. 22 21 See FAST Act Report, supra note 2, at Recommendation B.1. See also Concept Release, supra note 6, at Section IV.A.6.b and SEC Staff's Report of the Task Force on Disclosure Simplification (Mar. 5, 1996) available at https://www.sec.gov/news/studies/smpl.htm. 22 FAST Act Report, supra note 2, at Recommendation B.1. Similarly, several commenters stated that Item 102 is not relevant to all registrants or can result in immaterial disclosure. 23 Two of these commenters noted that, if material to a registrant's business, Item 303, Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), 24 would require a discussion of the importance of a property or facility and, in these instances, Item 102 may result in duplicative disclosure. 25 23 See, e.g., Letters from Ernst & Young (Sept. 11, 2012) [S-K Study letter] (“Ernst & Young 1”); U.S. Chamber of Commerce (July 29, 2014) [Disclosure Effectiveness letter] (“Chamber 1”); Society of Corporate Secretaries and Governance Professionals (Sept.10, 2014) [Disclosure Effectiveness letter] (“Society of Corporate Secretaries”); Shearman & Sterling LLP (Nov. 26, 2014) [Disclosure Effectiveness letter] (“Shearman 1”) (stating that disclosure of physical properties does not, in most cases, provide investors meaningful information, particularly for registrants not engaged in manufacturing); Allstate Insurance Company (July 1, 2016) (“Allstate”); Fenwick West LLP (Aug. 1, 2016) (“Fenwick”); U.S. Chamber of Commerce (July 20, 2016) (“Chamber 2”); Corporate Governance Coalition for Investor Value (July 20, 2016) (“CGCIV”); Securities Industry and Financial Markets Association (July 21, 2016) (“SIFMA”); Ernst & Young (July 21, 2016) (“Ernst &Young 3”); and Davis Polk & Wardwell LLP (July 22, 2016) (“Davis Polk 1”). 24 17 CFR 229.303. 25 See Letters from Chamber 1 and Society of Corporate Secretaries. A number of commenters also supported revising Item 102 to be more principles-based or require disclosure only when property is material. 26 One of these commenters asserted that the lack of a materiality overlay in Instruction 2 to Item 102 results in immaterial disclosure. 27 Another commenter noted different triggers for disclosure in Item 102, such as the item's reference to “materially important” physical properties and “major” encumbrance. 28 This commenter suggested harmonizing these and similarly varied formulations to lessen ambiguity in their application. 29 26 See, e.g., Letters from Allstate; National Association of Real Estate Investment Trusts (July 21, 2016); Fenwick; Davis Polk 1; FedEx Corporation (July 21, 2016) (“FedEx”); Chamber 2; and CGCIV (both the Chamber 2 and CGCIV letters recommended eliminating this disclosure requirement except to the extent property disclosure is material or is necessary to make other disclosures not misleading and stated that, if this disclosure requirement is retained, it should not be expanded and the Commission should clarify that for registrants who do not have material physical properties, disclosure about their corporate headquarters, office space, and other facilities is optional, not required). 27 See Letter from Fenwick. 28 See Letter from American Bar Association (Mar. 6, 2015) [Disclosure Effectiveness letter] (“ABA”). 29 Id. A few commenters, however, suggested retaining this item in its current form, 30 with one commenter noting the importance of this disclosure for mining companies. 31 Additionally, two commenters recommended expanding the item to include additional disclosure. 32 One of these commenters recommended disclosure of risks resulting from the potential lack of availability and rising cost of properties. 33 The other commenter recommended property disclosure specific to the manufacturing industry, including manufacturing locations that promote and retain jobs within the United States. This commenter stated that enhanced disclosures would inform investors about the benefits of manufacturing in the United States. 34 30 See, e.g., Letters from US SIF: The Forum for Sustainable and Responsible Investment (Sept., 18, 2014) [Disclosure Effectiveness letter] (“US SIF 1”); US SIF: The Forum for Sustainable and Responsible Investment (July 14, 2016) (“US SIF 2”); Elise J. Bean (July 6, 2016) (“E. Bean”); and CFA Institute (Oct. 6, 2016) (“CFA Institute”). 31 See Letter from US SIF 2. 32 See Letters from Stephen P. Percoco (July 24, 2016) (“S. Percoco”) and Sen. Feinstein, et al. (Feb. 27, 2017) (“Sen. Feinstein, et al.”). 33 See Letter from S. Percoco. 34 See Letter from Sen. Feinstein, et al. Consistent with several commenters' suggestions and the staff's recommendation in the FAST Act report, we are proposing to revise Item 102 to emphasize materiality. While the FAST Act Report recommended amending Item 102 to require disclosure only to the extent physical properties are material to the registrant's business, our proposals would require this disclosure to the extent material to the registrant. Our proposal is intended to encompass properties that are material to the registrant, which would include those properties that are material to the registrant's business. 35 We are also proposing to clarify that the disclosure required under Item 102 should focus on physical properties that are material to the registrant and may be provided on a collective basis, if appropriate. 35 We believe this approach is clearer and does not inadvertently omit disclosures that would be material to the registrant, but not its ongoing business, for example properties that had value that was material to the registrant but that were no longer important to its operations. As suggested by one commenter, we are also proposing to harmonize the various non-industry-specific triggers for disclosure in Item 102. 36 For example, we are proposing to replace the references to “major” encumbrances and “materially important” physical properties in Item 102 with references to a materiality threshold. By using a consistent materiality threshold, we intend to facilitate application of the proposed amendments. In light of the particular significance of this disclosure for registrants in the mining, real estate, and oil and gas industries, we are not proposing to modify any of the instructions of Item 102 specific to those industries in this release. 37 36 See Letter from ABA. 37 For example, Instruction 3 of Item 102 refers to “major significance” and is specific to the mining industry. The Modernization for Mining Registrants Proposing Release proposes to eliminate this instruction. See supra note 13. In the FAST Act Report, the staff also recommended that the Commission consider combining the description of material physical properties with the description of business in Item 101(c) of Regulation S-K. 38 A number of commenters on the Concept Release also recommended incorporating Item 102 into the broader description of business disclosure requirements in Item 101. 39 Several of these commenters recommended revising Item 101 to require broad disclosure of a registrant's resources or assets, whether physical or otherwise, that are critical to a registrant's business. 40 One of these commenters stated that the specific requirements of Item 102 are obsolete, but that a description of physical properties in Item 101 would remain relevant to certain types of registrants. 41 38 Item 101(c) of Regulation S-K [17 CFR 229.101(c)]. See FAST Act Report, supra note 2, at Recommendation B.1. 39 See, e.g., Letters from Ernst & Young 3; SIFMA; New York State Society of Certified Public Accountants (July 19, 2016) (“NYSSCPA”); Davis Polk 1; General Motors Company (Sept. 30, 2016) (“General Motors”); and Financial Executives International (Oct. 3, 2016) (“Financial Executives International”). 40 See Letters from Ernst & Young 3; Davis Polk 1; General Motors; and Financial Executives International. 41 See Letter from Davis Polk 1. We have considered the recommendations of the staff and commenters but are not proposing to combine Item 102 and Item 101. We believe that any effort to combine these items should follow a broader evaluation of how the disclosure should address material core assets, whether physical or otherwise, including material resources such as human capital or intellectual property. Such a broader inquiry was not included in the FAST Act Report and is therefore outside the scope of this release. Request for Comment 1. Should we revise Item 102 to clarify that a description of property is required only to the extent that physical properties are material to the registrant and may be provided on a collective basis, if appropriate, as proposed? Under what circumstances is the flexibility to provide property disclosure on a collective basis useful ( e.g., information about the percentage of material properties within and outside the United States)? 2. Should we harmonize non-industry-specific disclosure thresholds by replacing them with a materiality threshold as proposed? 3. The S-K Study recommended that, for businesses that have material properties, disclosure requirements could be refocused on material facts about those properties that would inform investors about the significance of the property to the business, including uncertainties in connection with these properties. 42 Should Item 102 require additional disclosure about material properties, including uncertainties such as information about properties that are located near designated areas where natural disasters are more likely to occur? If so, what should be required and why? Would this elicit more meaningful disclosure or would this duplicate disclosure in MD&A? 42 See S-K Study at pp. 99-100 (recommending that “[f]or businesses that do have properties that are material, disclosure requirements could be refocused on material facts about those properties that would inform investors about the significance of the property to the business and any trends or uncertainties in connection with that property, rather than requiring a list of locations, capacity and ownership. Changes in the way that businesses operate may also make other disclosures relevant that are not expressly addressed under current requirements. For example, requirements could be more specific as to additional disclosure that would be necessary where a business relies heavily on intellectual property owned by a third party or relies on service agreements with third parties to perform necessary business functions.”). B. Management's Discussion and Analysis of Financial Condition and Results of Operations (Item 303) 43 43 After consideration of the staff's recommendation C.2. in the FAST Act Report, we are not, proposing to eliminate or revise the table of contractual obligations. See FAST Act Report, supra note 2, at n.15. See also letter from Jack Ciesielski (Dec. 12, 2016) [FAST Act Letter] (opposing the staff's recommendation to delete or revise the table of contractual obligations). 1. Year-to-Year Comparisons (Instruction 1 to Item 303(a)) Item 303(a) requires registrants to discuss their financial condition, changes in financial condition, and results of operations. 44 Instruction 1 to Item 303(a) states that the discussion and analysis shall be of the financial statements and other statistical data that the registrant believes will enhance a reader's understanding of its financial condition, changes in financial condition, and results of operations. This instruction also provides that, generally, the discussion shall cover the three-year period covered by the financial statements and either use year-to-year comparisons or any other formats that in the registrant's judgment would enhance a reader's understanding. The instruction states that reference to the five-year selected financial data may be necessary where trend information is relevant. 44 Item 303(a) of Regulation S-K [17 CFR 229.303(a)]. In the FAST Act Report, the staff recommended that we consider revising Item 303(a) to clarify that a registrant need only provide a period-to-period comparison for the two most recent fiscal years covered by the financial statements and may hyperlink to the prior year's annual report for the earlier of the year-to-year comparisons. 45 Many commenters on the Concept Release recommended modifying Item 303 to reduce duplicative disclosure, although these commenters recommended simply eliminating the earlier of the year-to-year comparisons. 46 A number of these commenters stated that this discussion is readily available in a registrant's prior year annual report on EDGAR. 47 Two of these commenters stated that repetition of the earlier of the year-to-year comparisons could distract investors from new, material information and result in confusion. 48 A few of these commenters recommended requiring the earlier of the year-to-year comparisons only if there is a significant trend that is discernible through a multiple year-to-year comparison 49 or if prior results have been restated. 50 45 See FAST Act Report, supra note 2, at Recommendation C.1. 46 See, e.g., Letters from Ernst & Young 1 (stating that the existing requirements in Item 303 should be sufficient to result in a comprehensive discussion of a three-year trend without a year-to-year comparison); Chamber 1; Society of Corporate Secretaries (also stating that the existing requirements in Item 303 are sufficient to elicit a discussion of trends over the relevant three-year period, if such a trend exists and is material); IBM Corporation (Aug. 7, 2014) [Disclosure Effectiveness letter]; Arthur J. Radin (May 29, 2015) [Disclosure Effectiveness letter] (“A. Radin 1”); Arthur J. Radin (July 5, 2016) (“A. Radin 2”); UnitedHealth Group Inc. (July 21, 2016) (“United Health”); SIFMA; Ernst & Young (Nov. 20, 2015) [Disclosure Effectiveness letter] (“Ernst &Young 2”); Ernst & Young 3; PNC Financial Services Group (July 21, 2016) (“PNC”); Investment Program Association (July 21, 2016) (“Investment Program Association”); Prologis Inc. (July 21, 2016) (“Prologis”); Allstate; Davis Polk 1; S. Percoco; Fenwick; NYSSCPA; Institute of Management Accountants; Chamber 2; FedEx; CGCIV; Northrop Grumman Corporation (Sept. 27, 2016); General Motors; and Financial Executives International. 47 See, e.g., Letters from A. Radin 1 and A. Radin 2; Ernst &Young 3; PNC; Prologis; Allstate; Fenwick; NYSSCPA; Chamber 2; FedEx; CGCIV; Investment Program Association; General Motors; and Financial Executives International. 48 See Letters from Chamber 1; Chamber 2; and CGCIV. 49 See Letters from SIFMA and PNC. 50 See Letter from S. Percoco. Some of the commenters who suggested eliminating the earlier of the year-to-year comparisons recommended allowing registrants to hyperlink to the filing with the earlier of the year-to-year comparisons. 51 One commenter opposed a requirement to hyperlink to the prior filing, stating that EDGAR is sufficiently user-friendly for investors to readily obtain the relevant report. 52 Another commenter, however, disagreed with eliminating the requirement to include the earlier of the year-to-year comparisons stating that this would require investors to look for the information elsewhere. 53 51 See, e.g., Letters from United Health; Investment Program Association; Allstate; and General Motors. 52 See Letter from Fenwick. 53 See Letters from CFA Institute (Nov. 12, 2014 [Disclosure Effectiveness letter] and Oct. 6, 2016). We are proposing to amend Item 303 to eliminate discussion of the earliest year in some situations. 54 Under the amendments we propose today, when financial statements included in a filing cover three years, discussion about the earliest year would not be required if (i) that discussion is not material to an understanding of the registrant's financial condition, changes in financial condition, and results of operations, and (ii) the registrant has filed its prior year Form 10-K 55 on EDGAR containing MD&A of the earliest of the three years included in the financial statements of the current filing. By allowing registrants to eliminate MD&A disclosure about the earliest year in these situations, our proposals are intended to discourage repetition of disclosure that is no longer material, which we believe would further our mandate under the FAST Act to modernize and simplify Regulation S-K in a manner that reduces costs and burdens on companies while still providing all material information. 54 Our proposed amendments to Item 303(a)(3) would not affect SRCs, as SRCs may limit their disclosure to the two-year period covered by their financial statements. See Instruction 1 to Item 303(a) of Regulation S-K. See also Rule 12b-2 under the Exchange Act and Rule 405 under the Securities Act. Similarly, our proposed amendments would not affect EGCs that provide two years of audited financial statements. EGCs are only required to provide two years of audited financial statements in an initial public offering of common equity securities and may limit their MD&A to only those audited periods presented in the financial statements. Public Law 112-106, Sec. 102(b)-(c), 126 Stat. 306 (2012). See also Instruction 1 to Item 303(a) of Regulation S-K. 55 17 CFR 249.310. Our proposed amendments to Item 303(a) are consistent with our existing interpretive guidance on MD&A. In the 2003 MD&A Interpretive Release, the Commission stated that, in preparing MD&A, companies should evaluate issues presented in previous periods and consider reducing or omitting discussion of those that may no longer be material or helpful, or revise discussions where a revision would make the continuing relevance of an issue more apparent. 56 The Commission also encouraged companies and management to take a “fresh look” at MD&A with a view to enhancing its quality. 57 The Commission observed that the effectiveness of MD&A decreases with the accumulation of unnecessary detail or duplicative or uninformative disclosure that obscures material information. 58 In furtherance of this prior interpretive guidance, our proposals are intended to encourage companies to re-evaluate disclosures in their prior year MD&A and take a “fresh look” to determine whether such disclosure remains material. 56 See Commission Guidance Regarding Management's Discussion and Analysis of Financial Condition and Results of Operation, Release No. 33-8350 (Dec. 19, 2003) [68 FR 75056 (Dec. 29, 2003)] (“2003 MD&A Interpretive Release”). 57 Id. 58 Id. See also Basic, Inc., v. Levinson, 485 U.S. 224 (1998) at 231 quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976) at 448-449. To this end, we are not proposing the staff's recommendation in the FAST Act Report to hyperlink to the prior year's annual report for the earlier of the year-to-year comparison. We believe that encouraging companies to take a “fresh look” at their prior year MD&A to determine whether it remains material and eliminating disclosure of the earliest of the three years when specified conditions are met, rather than hyperlinking to disclosure that may no longer be material, would more effectively achieve our FAST Act mandate to reduce the costs and burdens on companies while continuing to provide all material information. 59 59 We also are mindful that a number of registrants with segments or different lines of business may present their MD&A by segment or line of business. In these instances, numerous hyperlinks in MD&A may fragment readability. Our proposals would also eliminate the reference to five-year selected financial data in Instruction 1 to Item 303(a). Instruction 1 provides that, where trend information is relevant, reference to the five-year selected financial data in Item 301 may be necessary. Because disclosure requirements for liquidity, capital resources, and results of operations already require trend disclosure, 60 we are proposing to simplify Instruction 1 by eliminating the reference to trend information. This proposed amendment is intended to eliminate duplication and is not intended to discourage registrants from providing trend disclosure in MD&A. 60 See Item 303(a)(1), 303(a)(2)(ii) and 303(a)(3)(ii) of Regulation S-K [17 CFR 229.303(a)(1), (a)(2)(ii), (a)(3)(ii)]. We are also proposing to simplify Instruction 1 to Item 303(a) to emphasize that registrants may use any presentation that, in the registrant's judgment, would enhance a reader's understanding. Instruction 1 currently specifies that the discussion cover the three-year period covered by the financial statements and use year-to-year comparisons or any other format that, in the registrant's judgment, would enhance a reader's understanding. Although the staff has observed that almost all registrants provide year-to-year comparisons, 61 we believe that registrants may, in some cases, determine that a narrative discussion for some or all of the years in the three-year period is a more appropriate format. For instance, in a situation where some information about the earliest year in a three-year period is needed because it remains material to an understanding of the registrant's financial condition, a registrant may decide that narrative disclosure about the earliest year and a year-to-year comparison for the two most recent years in the three-year period is appropriate. The proposed amendments underscore our intent to allow registrants to tailor the presentation of their disclosure to reflect their varying circumstances, provided that registrants continue to disclose the information required by Item 303. 62 61 See Concept Release, supra note 6, at n.350 and accompanying text. 62 See 2003 MD&A Interpretive Release, supra note 53. Request for Comment 4. Should we revise Item 303 as proposed? 5. Should we expand the proposal, with similar conditions, to other forms such as Form S-1 63 or Form 8-K? 64 63 17 CFR 239.11. 64 17 CFR 249.308. 6. Instead of allowing registrants to eliminate the earliest of the three years of MD&A in some situations, should we retain the earliest year requirement and instead amend Item 303 to allow registrants to hyperlink to the prior year's annual report for that disclosure in lieu of repeating the disclosure in the current year's report? 7. Should we include additional conditions on allowing registrants to exclude the earliest of the three years or provide guidance on when a discussion of the earliest of the three years would be material to an understanding of the registrant's financial condition, changes in financial condition, and results of operations? For example, should we not allow registrants to exclude discussion of the earliest year if there has been a material change to either of the two earlier years due to a restatement or a retrospective adoption of a new accounting principle? 8. Should we revise Instruction 1 to Item 303(a) as proposed to eliminate the reference to year-to-year comparisons? Would eliminating that reference encourage registrants to use a different presentation? Alternatively, should we retain the references to year-to-year comparisons and revise the instruction to identify specific alternatives to year-to-year comparisons? If so, what alternatives should we include? 9. Should we eliminate the reference to five-year selected financial data in Instruction 1 to Item 303(a) as proposed? Would there be a significant impact on the total mix of information available? Would eliminating this reference discourage registrants from providing trend disclosure in their MD&A? 2. Application to Foreign Private Issuers The disclosure requirements for Item 5 of Form 20-F 65 (Operating and Financial Review and Prospects) are substantively comparable to the MD&A requirements under Item 303 of Regulation S-K. 66 To maintain a consistent approach to MD&A for domestic registrants and foreign private issuers, we are proposing changes to Form 20-F that conform to our proposed amendments to Instruction 1 to Item 303(a). Accordingly, our proposals would amend the instructions to Item 5 of Form 20-F to provide that, when financial statements included in a filing cover three years, discussion about the earliest year would not be required if (i) that discussion is not material to an understanding of the registrant's financial condition, changes in financial condition, and results of operations and (ii) the registrant has filed its prior year Form 20-F on EDGAR containing Item 5 disclosure of the earliest of the three years included in the financial statements of the current filing. Similar to our proposals for Item 303, we are proposing to amend the instructions to Item 5 of Form 20-F to emphasize that registrants may use any presentation that, in the registrant's judgment, would enhance a reader's understanding. 65 17 CFR 249.220f. 66 When the Commission revised the wording of Item 5 of Form 20-F in 1999, the adopting release noted that the requirements correspond with Item 303 of Regulation S-K. See International Disclosure Standards, Release No. 33-7745 (Sept. 28, 1999) [64 FR 53900 (Oct. 5, 1999)], at 53904. We are not proposing similar changes to Form 40-F. 67 Form 40-F generally permits Canadian issuers to use Canadian disclosure documents to satisfy the Commission's registration and disclosure requirements. As a result, the MD&A contained in Form 40-F is largely prepared in accordance with Canadian disclosure standards. 67 17 CFR 249.240f. Request for Comment 10. Should we make corresponding changes to the instructions to Item 5 in Form 20-F as proposed? Why or why not? Are there any unique considerations with respect to foreign private issuers in this context? 11. Should we include additional conditions on allowing registrants to exclude the earliest of the three years or provide guidance on when a discussion of the earliest of the three years would be material to an understanding of the registrant's financial condition, changes in financial condition, and results of operations when providing Item 5 disclosure on Form 20-F? For example, should we not allow registrants to exclude discussion of the earliest year if there has been a material change to either of the two earlier years due to a restatement or a retrospective adoption of a new accounting principle? 12. Should we make corresponding changes to Form 40-F? Why or why not? 13. Would the proposed amendments conflict with home-country requirements in some jurisdictions? If so, please explain. C. Management, Security Holders and Corporate Governance 1. Directors, Executive Officers, Promoters, and Control Persons (Item 401) Item 401 68 requires disclosure of identifying and background information about a registrant's directors, executive officers, and significant employees. 69 The information required by Item 401 must be included in several of the Commission's disclosure forms, including Part III of an annual report on Form 10-K. General Instruction G of Form 10-K allows Part III disclosure to be incorporated into the Form 10-K by reference to the registrant's definitive proxy or information statement. 70 68 17 CFR 229.401. 69 Item 401 of Regulation S-K [17 CFR 229.401] was adopted in 1982 as part of the Commission's integrated disclosure initiative, although similar requirements can be traced back to Schedule A of the Securities Act. See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16, 1982)] (the “Integrated Disclosure System Adopting Release”). See also Securities Act, Schedule A, Paragraph 4 [15 U.S.C. 77aa(4)]. 70 General Instruction G.3 allows the information required by Item 401, along with other items required by Part III of Form 10-K, to be incorporated by reference from the registrant's proxy statement if it is filed with the Commission within 120 days after the end of the fiscal year covered by the Form 10-K. As an alternative to incorporating all of the Part III disclosure by reference to a definitive proxy or information statement, Instruction 3 to Item 401(b) allows disclosure of information about executive officers required under Item 401 to be included in Part I of Form 10-K. If a registrant elects to follow this instruction, it is not required to repeat that information in its definitive proxy or information statement. This instruction was introduced in 1978, when the executive officer and director disclosure requirements were moved from separate parts of Form 10-K into what was then Item 3 of Regulation S-K. 71 The instruction was intended to allow registrants to continue the practice of disclosing information about their executives in Form 10-K while incorporating disclosure about directors and other matters by reference to their definitive proxy or information statement. 72 71 See Uniform and Integrated Reporting Requirements, Release No. 33-5949 (July 28, 1978) [43 FR 34402 (Aug. 3, 1978)]. 72 Id. At the time, Part I of Form 10-K required disclosure regarding executive officers of the registrant and Part II required disclosure about directors. Registrants could exclude the Part II information if it would be included in the registrant's proxy statement. As the staff observed in the FAST Act Report, the instruction's location may cause confusion because it is included under paragraph (b), despite the fact that other paragraphs of Item 401 also require disclosure about executive officers. 73 Although Instruction 3 refers to “this Item” (rather than to paragraph (b) narrowly), the staff issued interpretive guidance stating that disclosure of the business experience of executive officers pursuant to Item 401(e) need not be duplicated in proxy statements if it is already presented in Part I of Form 10-K. 74 73 FAST Act Report, supra note 2, at Recommendation D.1. 74 See Regulation S-K Compliance and Disclosure Interpretation 116.02, available at https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp.htm (last updated July 26, 2016). General Instruction G to Form 10-K also refers generally to the “information regarding executive officers required by Item 401” when discussing the accommodation provided in Instruction 3 to Item 401(b). To eliminate any confusion arising from the current location of the instruction, we are proposing to clarify the instruction by moving it from Item 401(b) and making it a general instruction to Item 401. The amended instruction is intended to clarify its application to any disclosure about executive officers required by Item 401. We are also proposing to revise the required caption for the disclosure if it is included in Part I of Form 10-K to reflect a “plain English” approach. The required caption would be “Information about our Executive Officers” instead of “Executive officers of the registrant.” Request for Comment 14. Should we amend Instruction 3 to Item 401(b) as proposed? 15. The proposed instruction would apply to all of the disclosure about executive officers required by Item 401. Should we limit this instruction to only certain paragraphs of Item 401, such as paragraphs (b) and (e) but exclude paragraph (f)? 75 75 Item 401(b) (Identification of executive officers); Item 401(e) (Business experience) and Item 401(f) (Involvement in certain legal proceedings). 16. Where a registrant relies on General Instruction G to forward incorporate by reference to its definitive proxy or information statement, is there other Part III disclosure about executive officers that we should specify need not be duplicated in the proxy or information statement if it is already presented in Part I of Form 10-K? For example, should we specify that disclosure about transactions with executive officers pursuant to Item 404 does not need to be duplicated in the proxy or information statement if it is already disclosed in Part I of Form 10-K? 17. Instead of clarifying how Instruction 3 to Item 401(b) applies, should we require disclosure about executive officers to be included in a registrant's Form 10-K filing, so that it is easier to locate? 76 Alternatively, should we require all Item 401 disclosure to be included in a registrant's proxy or information statement instead of its Form 10-K if the registrant is required to file a proxy or information statement? 77 76 See Letter from Davis Polk (Oct. 31, 2016) [Subpart 400 letter] (“Davis Polk 2”) (stating that requiring disclosure about executive officers in Form 10-K would make it easier to find and would be more appropriate because shareholders “are not generally asked to vote on matters related to a registrant's executive officers other than with respect to executive compensation, and that information is provided in the proxy statement”). 77 See Letter from Ernst & Young LLP (Nov. 30, 2016) [Subpart 400 letter] (recommending that all Item 401 disclosure be required in a registrant's proxy or information statement because splitting that disclosure is “not conducive to investors assessing the diversity and complementary mix of experience of the board in conjunction with that of executive officers”). 2. Compliance With Section 16(a) of the Exchange Act (Item 405) Section 16(a) of the Exchange Act requires officers, directors, and specified types of security holders to report their beneficial ownership of a registrant's equity securities using forms prescribed by the Commission. 78 Item 405 79 requires registrants to disclose each reporting person 80 who failed to file on a timely basis Section 16 reports during the most recent fiscal year or prior fiscal years. 81 The disclosure is required under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Rule 16a-3(e) requires reporting persons to furnish a duplicate of those Section 16 reports to the registrant. 82 Item 405(a) states that registrants shall provide the required disclosure based solely on a review of such furnished reports and any written representation provided by such persons that no Form 5 is required. 83 78 See Form 3, Form 4, and Form 5. 79 17 CFR 229.405. 80 Item 405(a)(1) of Regulation S-K [17 CFR 229.405(a)(1)] defines a “reporting person” as “each person who, at any time during the fiscal year, was a director, officer, beneficial owner of more than ten percent of any class of equity securities of the registrant registered pursuant to Section 12 of the Exchange Act, or any other person subject to Section 16 of the Exchange Act with respect to the registrant because of the requirements of Section 30 of the Investment Company Act.” 81 Item 405 was initially proposed in 1988 in an attempt to reduce the high delinquency rate for Section 16 reports. See Ownership Reports and Trading by Officers, Directors and Principal Stockholders, Release No. 34-26333 (Dec. 2, 1988) [53 FR 49997 (Dec. 13, 1988)] and Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release No. 34-27148 (Aug. 18, 1989) [54 FR 35667 (Aug. 29, 1989)] (re-proposing Item 405 in response to comments on the 1988 proposing release). 82 See 17 CFR 240.16a-3(e). 83 See 17 CFR 229.405(a) and (b)(1). In the FAST Act Report, the staff recommended that we consider eliminating the delivery requirement in Rule 16a-3(e) and revising Item 405 to permit registrants to rely only on (i) a review of Section 16 reports submitted on EDGAR and (ii) any written representation that no Form 5 is required, when determining whether there are any Section 16 delinquencies that must be disclosed pursuant to Item 405. 84 Reporting persons have been required to file their Section 16 reports electronically on EDGAR since 2003. 85 The Commission has stated that “[b]y reviewing Section 16 reports posted on EDGAR, an issuer is readily able to evaluate their timeliness” 86 and “issuers also may consult EDGAR to obtain notice of new filings.” 87 84 FAST Act Report, supra note 2, at Recommendation D.2. 85 See Mandated Electronic Filing and Web Site Posting for Forms 3, 4 and 5, Release No. 33-8230 (May 7, 2003) [68 FR 25788 (May 13, 2003)] (the “Section 16 Mandatory Electronic Filing Release”). In addition, all registrants who maintain a corporate website are required to post any Section 16 reports relating to the equity securities of the registrant on such website pursuant to Rule 16a-3(k) of the Exchange Act [17 CFR 240.16a-3(k)], and many registrants satisfy this requirement by providing hyperlinks directly to the electronic filings once they are made on EDGAR. The Commission has noted that any concerns a registrant may have about obtaining an electronic copy of the filing from a Section 16 reporting person in order to satisfy the web posting requirement “would not arise for issuers that rely on a hyperlink (for example, to EDGAR) instead of, or in addition to, direct website posting.” Id. at 25790. 86 See Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release 33-8600 (Aug. 3, 2005) [70 FR 46080 (Aug. 9, 2005)], at 46086. 87 Section 16 Mandatory Electronic Filing Release, supra note 85, at 25790. Consistent with the staff's recommendations, we are proposing to amend Item 405 to focus on a review of Section 16 reports available on EDGAR rather than reports furnished to the registrant. We are also proposing to eliminate the requirement in Rule 16a-3(e) that reporting persons furnish Section 16 reports to the registrant. We believe that a shift to reliance on electronically filed Section 16 reports, while retaining the written representation in Item 405(b)(1), would modernize and simplify compliance with Item 405 while still providing all material information. In the FAST Act Report, the staff recommended that the Commission consider adding an instruction that permits a registrant to rely on the information in the Section 16 reports submitted on EDGAR unless it knows, or has reason to believe, that the information is not complete or accurate or that a report or an amendment should have been filed but was not. 88 While there is a similar instruction in Item 403 of Regulation S-K with respect to the contents of Section 13(d) and 13(g) statements filed with the Commission, 89 we have concerns that, if implemented, this recommendation could lead to uncertainty about when a registrant has a reporting obligation because of the difficulty ascertaining when a registrant may have knowledge of delinquencies or a reason to believe that delinquencies have occurred. Therefore, at this time, we are not proposing to expand reporting under Item 405 in this manner. 88 FAST Act Report, supra note 2, at n.55. 89 See Instruction 3 to Item 403 [17 CFR 229.403]. We are, however, proposing to change the language of Item 405 to clarify that registrants may rely on Section 16 reports filed on EDGAR but are not required to limit their inquiry to those filings. Item 405 currently states that the registrant “shall” make its disclosure “based solely upon” the Section 16 reports that are furnished to it pursuant to Rule 16a-3(e) and any written representation from a reporting person that no Form 5 is required. This language could be read to suggest that registrants may not rely on information outside of the Section 16 reports furnished to the registrant pursuant to Rule 16a-3(e). As proposed, Item 405(b) would state that registrants “may” rely only on the Section 16 reports and the written representation. Therefore, if a registrant was aware that information in a Section 16 report submitted on EDGAR was not complete or accurate, or that a reporting person failed to file a required report, it could provide appropriate disclosure pursuant to Item 405. We are also soliciting comment on the benefits and challenges of the proposed approach and how it may affect compliance with Section 16(a) reporting obligations. The staff's final recommendation for revising Item 405 was to eliminate the use of the “Section 16(a) Beneficial Ownership Reporting Compliance” heading when the registrant does not have Section 16(a) delinquencies to report. 90 The staff has observed that some registrants have included this heading to disclose that they have nothing to report pursuant to Item 405. 91 To reduce unnecessary disclosure and improve the ability to search a registrant's filings for disclosure of Section 16(a) reporting delinquencies, we are proposing to add an instruction to Item 405 that encourages registrants to exclude the heading if they have no delinquencies to report. We are also proposing to change the heading to “Delinquent Section 16(a) Reports” to more precisely describe the required disclosure and to further encourage registrants to exclude the heading if they do not have delinquencies to report. 90 See FAST Act Report, supra note 2, at Recommendation D.3. 91 Rule 12b-13 [17 CFR 240.12b-13] states that, unless expressly provided otherwise, if any item is inapplicable or the answer thereto is negative, an appropriate statement to that effect shall be made. Item 405, however, only requires the use of this heading when responsive disclosure is included. See Item 405(a)(1). We are also proposing to eliminate the checkbox on the cover page of Form 10-K relating to Item 405 disclosures and the related instruction in Item 10 of Form 10-K. 92 Currently, registrants are required to check a box on the cover page of Form 10-K to indicate that disclosure pursuant to Item 405 is not contained in the Form 10-K and will not be contained, to the best of the registrant's knowledge, in any definitive proxy or information statement that is incorporated by reference. 93 This checkbox was included in Form 10-K to assist the Commission and security holders in identifying registrants that were disclosing delinquent filings by insiders. 94 The related instruction in Item 10 of Form 10-K is also intended to facilitate the Form's processing and review. 95 We believe that the proposed amendments would lessen the need for this checkbox by reducing the unnecessary use of the heading and thereby facilitating document searches. Moreover, the checkbox may have limited use, because most registrants defer their Item 405 disclosure to their definitive proxy or information statement pursuant to General Instruction G of Form 10-K. 96 92 17 CFR 229.10. 93 See 17 CFR 249.310. 94 See Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release No. 34-28869 [56 FR 7242 (Feb. 21, 1991)] (“Ownership Reports and Trading Release”), at Section VI.B. 95 The Instruction to Item 10 specifies that checking the box on the cover page to indicate that Item 405 disclosure of delinquent Form 3, 4, or 5 filers is not contained is intended to facilitate Form processing and review. The instruction also states that failure to provide such indication will not create liability for violation of the federal securities laws and that the space should be checked only if there is no disclosure in the Form of reporting person delinquencies in response to Item 405 and if the registrant, at the time of filing the Form 10-K, has reviewed the information necessary to ascertain, and has determined that, Item 405 disclosure is not expected to be contained in Part III of the Form 10-K or incorporated by reference. 96 See Ownership Reports and Trading Release at 7260 (“If at the time of filing the Form 10-K the registrant does not yet know whether such disclosure will be contained in the proxy or information statement or the Form 10-K amendment containing the Part III information, the box should not be checked. If the box is not checked, this will not be taken as a statement that there will be Item 405 disclosure of delinquent filers, but rather that the registrant may not have the requisite knowledge at the time the Form 10-K is filed.”). The proposed approach would also have the advantage of allowing for this disclosure to be located with a simple text search whether it is included in the registrant's annual report or its definitive proxy or information statement. Request for Comment 18. Would allowing registrants to rely on Section 16 reports filed on EDGAR instead of reports furnished to them reduce the burden of complying with Item 405 while preserving their ability to disclose delinquencies? What effect, if any, would the proposed approach have on compliance with the Section 16(a) reporting requirements? Should we continue to require Section 16 reporting persons to furnish reports to registrants, or should we require them to provide notice to the registrant when the reporting person files a report on EDGAR? 19. Should we, instead of permitting, require a registrant to disclose delinquencies under Item 405 if it knows, or has reason to believe, that there is a delinquency that is not reflected on EDGAR? Why or why not? 20. Should we revise the “Section 16(a) Beneficial Ownership Reporting Compliance” heading as proposed? Is there an alternative heading that would be more appropriate? 21. Should we continue to include a checkbox on Form 10-K, or include a checkbox on Schedule 14A 97 or Schedule 14C, to indicate when the disclosure required by Item 405 is included in a filing? If so, what benefits would it provide compared to our proposed approach of encouraging registrants to exclude the proposed “Delinquent Section 16(a) Reports” heading if they do not have delinquencies to report? 97 17 CFR 240.14a-101. 3. Corporate Governance (Item 407) Several disclosure requirements related to corporate governance are consolidated in Item 407. 98 In the FAST Act Report, the staff recommended updating a reference to an outdated auditing standard in Item 407(d)(3)(i)(B) and revising Item 407(e)(5) to clarify that EGCs are not required to provide a compensation committee report. 99 We are proposing amendments to implement both of these recommendations. 98 17 CFR 229.407. Item 407 was adopted in 2006 to consolidate various corporate governance requirements under a single disclosure item. See Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158 (Sept. 8, 2006)]. 99 See FAST Act Report, supra note 2, at Recommendations D.4 and D.5. a. Audit Committee Discussions With Independent Auditor (Item 407(d)(3)(i)(B)) Under existing Item 407(d)(3)(i)(B), when a registrant files a proxy or information statement relating to an annual or special meeting of security holders at which directors are elected or written consents are provided in lieu of a meeting, a registrant's audit committee must state whether it has discussed with the independent auditor the matters required by AU section 380, Communication with Audit Committees (“AU sec. 380”). 100 AU sec. 380 was part of the interim standards previously adopted by the Public Company Accounting Oversight Board (“PCAOB”) on April 16, 2003. 101 As noted in the Commission's concept release on audit committee disclosures (the “Audit Committee Concept Release”), the reference to AU sec. 380 is outdated, because it was superseded by PCAOB Auditing Standard No. 16, Communications with Audit Committees (“AS 16”). 102 Furthermore, on March 31, 2015, the PCAOB formally reorganized its auditing standards resulting in the codification of AS 16 as Auditing Standard No. 1301, Communications with Audit Committees (“AS 1301”). 103 100 See Instruction 3 to Item 407(d) of Regulation S-K. 101 See PCAOB Release No. 2003-006 (Apr. 16, 2003). AU sec. 380 required an auditor to discuss various matters related to the conduct of an audit with those who have responsibility for oversight of the financial reporting process. 102 See Possible Revisions to Audit Committee Disclosures, Release No. 33-9862 (July 1, 2015) [80 FR 38995 (July 8, 2015)], at 39003. 103 See PCAOB Release No. 2015-02 (Mar. 31, 2015). The PCAOB completed a reorganization of its auditing standards into a topical structure and a single, integrated numbering system (the “Reorganization”). The Commission approved the Reorganization on September 17, 2015. See Order Granting Approval of Proposed Rules to Implement the Reorganization of PCAOB Auditing Standards and Related Changes to PCAOB Rules and Attestation, Quality Control, and Ethics and Independence Standards, Release No. 34-75935 (Sept. 17, 2015) [80 FR 57263 (Sept. 22, 2015)]. Commenters on the Audit Committee Concept Release that addressed this issue generally supported updating the AU sec. 380 reference. 104 Commenters differed on how best to update this reference, as AS 1301 is not the only requirement addressing communications between an auditor and the audit committee. Specifically, both the Commission and PCAOB have other rules and standards that require matters to be communicated to a company's audit committee. 105 Accordingly, several commenters suggested aligning the disclosure requirements with the communication requirements specific to the standards and rules of the PCAOB, 106 while others suggested a more encompassing requirement that would refer to all audit committee communications with the independent auditors required by not only the PCAOB but also the Commission. 107 104 Comments on the Audit Committee Concept Release are available at https://www.sec.gov/comments/s7-13-15/s71315.shtml. We refer to these letters throughout as “Audit Committee” letters. 105 See, e.g., Appendix B to AS 1301; Section 10A(k) of the Exchange Act [15 U.S.C. § 78j-1(k)]; Rule 2-07 of Regulation S-X [17 CFR 210.2-07]; and Rule 10A-3 [17 CFR 240.10A-3]. 106 See, e.g., Letters from AngloGold Ashanti Limited (Sept. 7, 2015) [Audit Committee letter]; Deloitte & Touche LLP (Sept. 2, 2015) [Audit Committee letter]; National Association of State Boards of Accountancy (Sept. 3, 2015) [Audit Committee letter]; and James H. Edwards (Sept. 8, 2015) [Audit Committee letter]. 107 See, e.g., Letters from AT&T Inc. (Sept. 8, 2015) [Audit Committee letter]; Federal Regulation of Securities, Law and Accounting, and Corporate Governance Committees of the American Bar Association (Feb. 9, 2016) [Audit Committee letter]; and The Home Depot, Inc. (Sept. 17, 2015) [Audit Committee letter]. One commenter on the Regulation S-K Subpart 400 Release also recommended updating Item 407(d) to refer to AS 16. See Letter from Davis Polk 2. After consideration of the comments we have received and the recommendation of the staff in the FAST Act Report, we are proposing to update the reference to AU sec. 380 by referring more broadly to the applicable requirements of the PCAOB and the Commission. We believe such an approach would accommodate future changes to audit committee communication requirements. Request for Comment 22. Should we amend Item 407(d)(3)(i)(B) to refer to the “applicable requirements of the PCAOB and the Commission rules” as proposed? Is there a better reference or additional guidance that we should provide to facilitate audit committee compliance and investor understanding of this requirement? b. Compensation Committee Report (Item 407(e)(5)) Item 407(e)(5) requires a registrant's compensation committee to state whether it has reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) required by Item 402(b). 108 Based on this review and discussion, Item 407(e)(5) requires that the compensation committee state whether it recommended to the board of directors that the CD&A be included in the registrant's annual report, proxy statement or information statement. As recommended by the staff, we are proposing to amend Item 407 to explicitly exclude EGCs from the Item 407(e)(5) requirement, because they are not subject to a requirement to include a CD&A in their public disclosures. 109 Specifically, we are proposing to add a reference to EGCs in Item 407(g) instead of amending Item 407(e)(5). Item 407(g) currently excludes SRCs from Item 407(e)(5), among other provisions of Item 407. 108 17 CFR 229.402(b). 109 See Item 402(l) of Regulation S-K. Request for Comment 23. Instead of amending Item 407(g) as proposed, should we amend Item 407(e)(5)? D. Registration Statement and Prospectus Provisions 1. Outside Front Cover Page of the Prospectus (Item 501(b)) Item 501 110 includes disclosure requirements related to the forepart of the registration statement and the outside front cover page of the prospectus. In the FAST Act Report, the staff made several recommendations to streamline the requirements and to provide registrants with greater flexibility in designing a cover page tailored to their business and the particular offering. 111 The proposed amendments discussed below would implement these recommendations. 110 17 CFR 229.501. 111 FAST Act Report, supra note 2, at Recommendations E.1-5. a. Name (Item 501(b)(1)) Item 501(b)(1) requires disclosure of a registrant's name, including an English translation of the name of foreign registrants. The instruction to Item 501(b)(1) states that if a registrant's name is the same as that of a “well known” company, or if the name leads to a misleading inference about the registrant's line of business, the registrant must include information to eliminate any possible confusion with the other company. If disclosure is insufficient to eliminate the confusion, the registrant may be required to change its name. An exception, however, is available when the registrant is an “established company,” the character of the registrant's business has changed, and the “investing public is generally aware of the change and the character of [the registrant's] current business.” The policy reflected in Item 501(b)(1) with regards to misleading company names was first articulated in 1969 in response to an increase in the number of registrants using names that the staff considered to be misleading. 112 Although we continue to believe that a registrant's name could mislead investors, the staff's experience administering this provision suggests that these situations can typically be addressed with clarifying disclosure. The Commission and the staff may be able to address situations in which the registrant's name is either confusingly similar or misleading in connection with any public interest finding necessary to declare the filing effective. 113 Accordingly, we are proposing to streamline the instruction to Item 501(b)(1) by eliminating the portion that discusses when a name change may be required and the exception to that requirement. 112 At the time, the Commission noted that registrants were using words such as “nuclear,” “missile,” “space,” “nucleonics,” and “electronics” in their names when they were not engaged in activity normally associated with those words, or were engaged to a limited extent. See Guide for Preparation and Filing of Registration Statements; Misleading Names of Registrants, Release No. 33-4959 (Apr. 16, 1969) [34 FR 6575 (Apr. 17, 1969)]. This policy was contained in Guide 53 of the Commission's Guides for Preparation and Filing of Registration Statements before being moved into Item 501 in 1982. See Integrated Disclosure System Adopting Release, supra note 69; Rescission of Guides and Redesignation of Industry Guides, Release No. 33-6384 (Mar. 3, 1982) [47 FR 11476 (Mar. 16, 1982)]. 113 15 U.S.C. 77h. Request for Comment 24. Should we eliminate the language about a registrant's being required to change its name in the instruction to Item 501(b)(1) as proposed, or should we retain the current version of the instruction? Are there situations where disclosure would not be sufficient to eliminate misleading inferences about the company or its line of business? b. Offering Price of the Securities (Item 501(b)(3)) Item 501(b)(3) requires disclosure of the price of the securities being offered, the underwriter's discounts and commissions, and the net proceeds that the registrant and any selling security holders will receive. 114 The disclosure must be provided on an aggregate and per share basis, but registrants may present the required information in any format that fits the design of the cover page and is clear, easily read, and not misleading. 114 17 CFR 229.501(b)(3). Item 501(b)(3) also includes specific disclosure requirements for offerings being made on a minimum/maximum basis. Although in many cases the disclosure required by Item 501(b)(3) will be straightforward, Instruction 2 states that “[i]f it is impracticable to state the price to the public, explain the method by which the price is to be determined.” 115 In the FAST Act Report, the staff recommended providing registrants with greater flexibility in explaining the method by which the price is to be determined when it is impracticable to state the price on the cover page. 116 115 The instruction also provides that if the securities are to be offered at the market price, or if the offering price is to be determined by a formula relating to the market price, indicate the market and market price of the securities as of the latest practicable date. We are not proposing any change to this portion of the instruction. 116 See FAST Act Report, supra note 2, at Recommendation E.2. We are proposing to amend Instruction 2 to explicitly allow registrants to include a clear statement that the offering price will be determined by a particular method or formula that is more fully explained in the prospectus. Under the proposed instruction, registrants would be required to accompany that statement with a cross-reference to the offering price method or formula disclosure, including a page number that is highlighted by prominent type or in another manner. 117 117 This cross-reference would be similar to the cross-reference that is required for risk factor disclosure pursuant to Item 501(b)(5) of Regulation S-K [17 CFR 229.501(b)(5)]. In the FAST Act Report, the staff recommended the Commission consider amending Instruction 2 to Item 501(b)(3) to require the cross-reference to the offering price method or formula to be accompanied by a hyperlink. Because the cross-reference to risk factors required under Item 501(b)(5) does not currently require a hyperlink, we are not proposing to require a hyperlink for the disclosure called for by Item 501(b)(3). Request for Comment 25. As proposed, Item 501(b)(3) would allow registrants to choose to include a cross-reference to the explanation of the method in which the offering price will be determined when it is impracticable to state the price method or formula to the public on the cover page. Should we instead retain the requirement to present the explanation on the prospectus cover page? Why or why not? 26. Should we amend Instruction 2 to Item 501(b)(3) to require the cross-reference to be accompanied by a hyperlink? Item 501(b)(5) currently requires on the prospectus cover page a cross-reference to the risk factors section. Should we similarly amend Item 501(b)(5) to also require a hyperlink? c. Market for the Securities (Item 501(b)(4)) Item 501(b)(4) requires a registrant to name the national securities exchanges that list the securities being offered and to disclose the trading symbols for those securities. A “national securities exchange” is a securities exchange that has registered with the Commission under Section 6 of the Exchange Act. 118 Under Item 501(b)(4), registrants are not required to name markets that are not a “national securities exchange.” 118 See Section 6 of the Securities Exchange Act of 1934 [15 U.S.C. 78f]. Consistent with the staff's recommendation in the FAST Act Report, 119 we believe that information about markets that are not a “national securities exchange” could be important to investors and should be disclosed on the prospectus cover page. Accordingly, we are proposing to amend Item 501(b)(4) to require disclosure of the principal United States market or markets for the securities being offered and the corresponding trading symbols. 120 119 See FAST Act Report, supra note 2, at Recommendation E.3. 120 Our proposed changes to Item 501(b)(4) align with our proposals to amend Item 201(a) [17 CFR 229.201(a)] in the Disclosure Update and Simplification Proposing Release. See Disclosure Update and Simplification Proposing Release supra note 13, at 51688. Also consistent with the staff's recommendation, 121 we are limiting disclosure of markets that are not national securities exchanges to those principal United States markets where the registrant, through the engagement of a registered broker-dealer, has actively sought and achieved quotation. We agree with the staff that a registrant cannot always control whether its securities are quoted on an over-the-counter market and should not be burdened with making that determination. 121 See FAST Act Report, supra note 2, at Recommendation E.3. Request for Comment 27. Should we expand the disclosure required by Item 501(b)(4) to include markets other than national securities exchanges as proposed? Would expanding the disclosure requirement make it difficult for registrants to determine which United States markets to disclose? 28. Should we limit the disclosure requirement to those principal United States markets where the registrant has actively sought and achieved quotation through the engagement of a registered broker-dealer as proposed? Should there be any other limitations on the markets the registrant would be required to disclose? 29. Should a domestic or foreign registrant be required to identify principal foreign markets where the registrant, through the engagement of a registered broker-dealer, has actively sought and achieved quotation for the class of security being offered? 30. If a registrant discloses another trading market elsewhere in its registration statement, should Item 501(b)(4) require disclosure of that market on the cover page, even if it is not a national securities exchange and even if the registrant did not actively seek quotation through the engagement of a registered broker-dealer? For example, Item 201(a) of Regulation S-K 122 requires disclosure of the principal United States market or markets in which each class of the registrant's common equity is traded. 122 Item 201(a) of Regulation S-K. 31. Should we provide additional guidance on when a market other than a national securities exchange must be disclosed or when a registrant would be considered to have actively sought quotation through the engagement of a registered broker-dealer? d. Prospectus “Subject to Completion” Legend (Item 501(b)(10)) Item 501(b)(10) requires a registrant that is using a preliminary prospectus to include a legend advising readers that the information will be amended or completed. The legend also must include a statement that the prospectus is not an offer to sell or a solicitation of an offer to buy securities in any state where the offer or sale is not permitted. The latter statement was introduced in 1958 to harmonize the legend with what was required by state securities administrators at the time. 123 123 See Amendment of Rules 134 and 433, Release No. 33-3885 (Jan. 7, 1958) [23 FR 184 (Jan. 10, 1958)]. This requirement was originally in Rule 433, a predecessor to the current requirement. The legend requirement has remained mostly unchanged since 1958, even after the National Securities Markets Improvement Act (“NSMIA”) allowed for preemption of state blue sky laws in many offerings. 124 Consistent with the staff's recommendations in the FAST Act Report, 125 we are proposing to amend Item 501(b)(10) to permit registrants to exclude from the prospectus the portion of the legend relating to state law for offerings that are not prohibited by state blue sky law. This change would allow for a more tailored prospectus cover page in recognition of the changes to securities law brought by NSMIA. 124 Public Law No. 104-290, 110 Stat. 3416 (1996). 125 See FAST Act Report, supra note 2, at Recommendation E.4. Also consistent with the staff's recommendations, 126 we are proposing to streamline Item 501(b) by combining paragraphs (b)(10) and (11) without substantive change. Thus, our proposed amendments to paragraph (b)(10) would also require the “subject to completion” legend to be included if a registrant relies on Rule 430A 127 to omit pricing information and the prospectus is used after the effectiveness of the registration statement but before the public offering price is determined. Correspondingly, we are proposing to delete paragraph (b)(11). 126 See id., at Recommendation E.5. 127 17 CFR 230.430A. Request for Comment 32. Should we allow registrants the discretion to exclude the portion of the legend required by Item 501(b)(10) that relates to state law prohibitions on offers or sales when it would not apply, as proposed? 2. Risk Factors (Item 503(c)) Item 503(c) requires disclosure of the most significant factors that make the offering speculative or risky. 128 The item specifies that the discussion should be concise and organized logically. Although the requirement is principles-based, it includes the following specific examples as factors that may make an offering speculative or risky: 128 17 CFR 229.503(c). • A registrant's lack of an operating history, • a registrant's lack of profitable operations in recent periods, • a registrant's financial position, • a registrant's business or proposed business, or • the lack of a market for a registrant's common equity securities or securities convertible into or exercisable for common equity securities. 129 129 These factors were derived from previous stop order proceedings under Section 8(d) of the Securities Act where the Commission suspended the effectiveness of previously filed registration statements due, in part, to inadequate disclosure about speculative aspects of the registrant's business. See Guides for Preparation and Filing of Registration Statements, Release No. 33-4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 17, 1968)] (citing In the Matter of Doman Helicopters, Inc., 41 S.E.C. 431 (Mar. 27, 1963); In the Matter of Universal Camera Corp., 19 S.E.C. 648 (June 28, 1945)). The item directs registrants to explain how each risk affects the issuer or the securities being offered. Additionally, the item discourages disclosure of risks that could apply to any issuer or offering. Risk factor disclosure was initially called for only in the offering context. 130 Accordingly, when Item 503(c) was adopted in 1982 as part of the integrated disclosure system, it was included with other offering-related disclosure requirements in Subpart 500 of Regulation S-K. 131 In 2005, risk factor disclosure requirements were extended to periodic reports and registration statements on Form 10. 132 130 See Guides for Preparation and Filing of Registration Statements, Release No. 33-4666 (Feb. 7, 1964) [29 FR 2490 (Feb. 15, 1964)] and Guides for Preparation and Filing of Registration Statements, Release No. 33-4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 17, 1968)]. 131 See Integrated Disclosure System Adopting Release, supra note 69. 132 See Securities Offering Reform, Release No. 33-8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)] (“Securities Offering Reform Adopting Release”). As recommended by the staff in the FAST Act Report, we are proposing to relocate Item 503(c) from Subpart 500 to Subpart 100 to reflect the application of risk factor disclosure requirements to registration statements on Form 10 133 and periodic reports. 134 Subpart 100 covers a broad category of business information and is not limited to offering-related disclosure. Accordingly, our proposed amendments would move Item 503(c)'s requirement for risk factor disclosure to new Item 105. 135 133 17 CFR 249.210. 134 See FAST Act Report, supra note 2, at Recommendation E.6. Additionally, the proposed amendments would use the term “registrant” instead of “issuer.” Use of and reference to “registrant” instead of “issuer” is intended to better reflect the application of risk factor disclosure outside of the offering context. The term “registrant” is defined under both the Exchange Act and Securities Act. See Rule 12b-2 [17 CFR 240.12b-2] and Rule 405 [17 CFR 230.405]. 135 See proposed Item 105. Consistent with this change, we are also proposing amendments to several Commission forms that require risk factor disclosure and reference Item 503(c). These proposed amendments would revise references to Item 503 to specify new Item 105. A number of forms that require risk factor disclosure do not reference Item 503(c). Our proposed amendments do not include revisions to these forms. For example, Forms 10-Q and 20-F require risk factor disclosure but do not reference Item 503(c). Additionally, our proposed amendments would eliminate the risk factor examples that are currently enumerated in Item 503(c). Although not addressed in the FAST Act Report, we solicited comment in the Concept Release on whether we should retain or eliminate the examples and whether we should revise our requirements to include additional or different examples. A number of commenters recommended retaining and revising the examples in Item 503(c). 136 Several of these commenters supported a revision to specify examples of risk factors that are generic and therefore should not be disclosed. 137 For example, one of these commenters recommended that the Commission prohibit disclosure of generalized risks that affect all registrants or all registrants in a particular industry, the risk of stock volatility, organizational structure risks, and summaries of applicable regulation. 138 Two commenters recommended revising the examples to include risk factors applicable to well-established Exchange Act registrants, 139 while another two supported expanding the list of examples. 140 One of the commenters that recommended expanding the list of examples pointed to guidelines produced by the investor community as a source of additional examples. 141 136 See, e.g., Letters from Center for Audit Quality (July 21, 2016) (“CAQ”); California Public Employees' Retirement System (July 21, 2016) (“CalPERS”); PricewaterhouseCoopers LLP (July 21, 2016) (“PWC”); Edison Electric Institute and American Gas Association (July 21, 2016) (“Edison Electric and AGA”); Investment Program Association; Davis Polk 1; National Investor Relations Institute (Aug. 4, 2016) (“NIRI”); Shearman & Sterling (Aug. 31, 2016) (“Shearman 2”); NYSSCPA. 137 See, e.g., Letters from Edison Electric and AGA; Investment Program Association; Davis Polk 1; NIRI; and Shearman 2. 138 See Letter from Investment Program Association. 139 See Letters from CAQ and PWC. 140 See Letters from CalPERS and NYSSCPA. 141 See Letter from CalPERS (referring to several sets of guidelines such as the Principles for Responsible Investment and those issued by the International Corporate Governance Network, among others). A few commenters recommended eliminating the examples in Item 503(c). 142 One of these commenters supported eliminating the examples so as to emphasize the principles-based nature of the disclosure requirement and to focus registrants on their own risk identification process. 143 Another of these commenters expressed a view that the examples were outdated and only helpful when the requirement to disclose risk factors was first introduced. 144 142 See Letters from Chris Barnard (June 23, 2016) (“Barnard”); Fenwick; and SIFMA (stating that the five examples are not “cutting edge” and “could be eliminated,” but that most registrants recognize that Item 503(c) is focused on principles-based disclosure of the most significant factors that make the offering speculative or risky). 143 See Letter from Barnard. 144 See Letter from Fenwick. As part of our mandate under the FAST Act to modernize and simplify our disclosure requirements while still providing all material information, we are proposing to eliminate these examples. These examples may not apply to all registrants and may not correspond to the material risks of any particular registrant. In addition, the inclusion of these examples could suggest that a registrant must address each one in its risk factor disclosures, regardless of the significance to its business. Finally, several commenters suggested expanding the list of examples or revising them to specify examples of generic risks that should not be disclosed. We are concerned that inclusion of examples could anchor or skew the registrant's risk analysis in the direction of the examples. 145 We believe that eliminating the examples would encourage registrants to focus on their own risk identification processes. 145 See infra note 349 and accompanying text. Request for Comment 33. Should we move the requirement to provide risk factor disclosure in Item 503(c) to a new Item 105 as proposed? Why or why not? 34. Should we relocate Item 503(c)'s requirements to another subsection of Regulation S-K? If so, which subsection and why? 35. Should we eliminate the risk factor examples as proposed, or do they provide useful guidance to registrants? Instead of eliminating the examples, should we provide different or additional examples that would be more helpful to registrants? If so, what examples would be most helpful? 3. Plan of Distribution (Item 508) Item 508 requires disclosure about the plan of distribution for securities in an offering, including information about underwriters. 146 Paragraph (a) requires disclosure about the principal underwriters and underwriters that have a material relationship with the registrant, while paragraph (h) requires disclosure of the discounts and commissions to be allowed or paid to dealers. If a dealer is paid any additional discounts or commissions for acting as a “sub-underwriter,” paragraph (h) allows the registrant to include a general statement to that effect without giving the additional amounts to be sold. 146 17 CFR 229.508. “Sub-underwriter” is not a defined term, and its application may be unclear. “Principal underwriter,” however, is defined in Regulation C as “an underwriter in privity of contract with the issuer of the securities as to which he is an underwriter.” 147 Consistent with the staff's recommendation in the FAST Act Report, 148 and in light of the definition of “principal underwriter” and the disclosure required by Item 508(a), we are proposing to amend Rule 405 149 to define the term “sub-underwriter” as a dealer that is participating as an underwriter in an offering by committing to purchase securities from a principal underwriter for the securities but is not itself in privity of contract with the issuer of the securities. 150 147 17 CFR 230.405. 148 See FAST Act Report, supra note 2, at Recommendation E.7. 149 17 CFR 230.405. 150 The only other use of the term “sub-underwriter” or “subunderwriter” in Regulation S-K, the Securities Act rules, or the Exchange Act rules is in Rule 491 [17 CFR 230.491]. We are proposing to amend Rule 491 to reference “sub-underwriter,” consistent with our proposed amendments here. The proposed definition of sub-underwriter would not change the meaning of that term in Rule 491 and appears to be consistent with its use in that context. Request for Comment 36. Should we amend Rule 405 to define “sub-underwriter” as proposed? Should we define the term differently? For example, is the concept of “privity of contract” sufficiently clear? 4. Undertakings (Item 512) Item 512 151 provides undertakings that a registrant must include in Part II of its registration statement, depending on the type of offering. In the FAST Act Report, the staff recommended that the Commission consider eliminating undertakings that are duplicative of other rules or that have become unnecessary due to developments since their adoption. We are proposing the following amendments to implement the staff's recommendations. 151 17 CFR 229.512. Item 512(c) sets forth undertakings that a registrant must include if it registers a warrant or rights offering to existing security holders and the securities not purchased by those security holders will be reoffered to the public. 152 The undertaking requires a registrant, after the expiration of the subscription period, to supplement the prospectus to disclose the results of the subscription offer and the terms of any subsequent reoffer to the public. If any public reoffer is made on terms different from the offer to existing security holders, then the registrant must undertake to file a post-effective amendment to disclose the terms of that offering. We are proposing to eliminate this undertaking because it is no longer necessary. A registrant conducting the type of offering described in Item 512(c) would already have been required to register and disclose the offering to existing security holders as well as the reoffering to the public. Furthermore, Item 512(a)(1) requires registrants to undertake to file a post-effective amendment to disclose fundamental changes in the information set forth in the registration statement and material information with respect to the plan of distribution or changes in the plan of distribution. 153 Thus, disclosure of material changes in the terms of the reoffering would also be required as part of the Item 512(a)(1) undertaking, thus obviating the need for the Item 512(c) undertaking. 152 17 CFR 229.512(c). The Item 512(c) undertaking was included in the Securities Act forms and guides, prior to the enactment of the integrated disclosure system in 1982. See, e.g., Notice of Proposed Revision of Form S-4, Release No. 33-3667 (July 31, 1956) [21 FR 6025 (Aug. 11, 1956)] and Notice of Proposed Form S-11 for Registration of Securities of Certain Real Estate Companies, Release No. 33-4347 (Apr. 10, 1961) [26 FR 3280 (Apr. 18, 1961)]. 153 17 CFR 229.512(a)(1). Consistent with the recommendations made in the FAST Act Report, we are also proposing to eliminate the Item 512(d), Item 512(e), and Item 512(f) undertakings, because they are obsolete. 154 Item 512(d) requires a registrant to include undertakings if the securities it registers are to be offered at competitive bidding. 155 The undertaking requires a registrant to use its best efforts to distribute a Section 10(a) prospectus to prospective bidders, underwriters, and dealers and to file a post-effective amendment reflecting the results of the bidding and any related terms. This undertaking arises from former Rule 50 under the Public Utility Holding Company Act of 1935 (“PUHCA”), which formerly required public utility company securities to be sold through competitive bids. 156 We propose eliminating this undertaking because the Commission rescinded Rule 50 in 1994, 157 and because Congress repealed PUHCA in 2005. 158 Furthermore, this undertaking was put into place prior to the adoption of Rule 430A, which permits the omission of pricing and underwriter related terms from the effective registration statement if the issuer includes that information in a prospectus or post-effective amendment after the effective date. 159 To the extent that competitive bidding is still used, registrants may file prospectuses that contain the pricing and underwriter disclosure pursuant to Rule 430A and those documents will be subject to the liability imposed by that rule. 160 154 See FAST Act Report, supra note 2, at Recommendation E.9. 155 17 CFR 229.512(d). 156 See Notice of Proposal to Adopt Rule 415 Relating to Competitive Bidding Registration Statements, to Amend Rules 424, 455, 471 and 472 and to Rescind Rule 460, Release No. 33-3491-Z (Nov. 10, 1953) [18 FR 7300 (Nov. 18, 1953)]; Adoption of Rule 415 Relating to Competitive Bidding Registration Statements, Amendment of Rules 424, 427, 455, 471 and 472 and Rescission of Rule 460, Release No. 33-3494 (Jan. 13, 1954) [19 FR 399 (Jan. 22, 1954)]; and Phase One Recommendations of Task Force on Disclosure Simplification, Release No. 33-7300 (May 31, 1996) [61 FR 30397 (June 14, 1996)] (“1996 Disclosure Simplification Recommendations”). 157 See 1996 Disclosure Simplification Recommendations (citing Public Utility Holding Company Act Rules, Release No. 35-26031 (Apr. 20, 1994) [59 FR 21922 (Apr. 28, 1994)]). 158 See Energy Policy Act of 2005, Public Law No. 109-58, 119 Stat. 594 (2005). 159 17 CFR 230.430A. 160 We understand that registration statements filed in connection with securities to be offered through competitive bidding are rarely used. See Louis Loss, Joel Seligman, & Troy Paredes, Securities Regulation (5th ed. 2016) (“Loss et al.”) § 2.A.4. Competitive Bidding. According to Loss et al., competitive bidding is now used by “municipalities and public instrumentalities.” Rule 430A provides that information omitted in reliance on that rule is deemed part of the registration statement as of the time it was declared effective, thus subjecting those disclosures to liability under Section 11 of the Securities Act. Item 512(e) provides that, if a registrant's prospectus directly incorporates by reference the registrant's annual report to security holders meeting the requirements of Rule 14a-4 161 or Rule 14c-3, 162 the registrant must undertake to deliver the latest annual report with the prospectus. 163 If interim information is required but is not included in the prospectus, the registrant must undertake to deliver the latest quarterly report that is incorporated by reference in the prospectus. The purpose of this undertaking is to ensure that the registrant delivers incorporated annual and quarterly reports with the prospectus, as required by former Form S-2. 164 The disclosure and delivery requirements of former Form S-2 were intended to minimize duplicative reporting while still requiring delivery of incorporated information. 165 The Commission rescinded Form S-2 as part of Securities Offering Reform, since its underlying purpose was outdated because of EDGAR, other technological developments, and the rapid dissemination of information in the market. 166 Similarly, we are now proposing to eliminate the related undertaking, since any material information in a registrant's annual or quarterly reports to security holders should be publicly available. 161 17 CFR 240.14a-4. 162 17 CFR 240.14c-3. 163 17 CFR 229.512(e). 164 See Proposed Comprehensive Revision to System for Registration of Securities Offerings, Release No. 33-6235 (Sept. 2, 1980) [45 FR 63693 (Sept. 25, 1980)]. 165 See Securities Offering Reform Adopting Release, supra note 132. 166 See id. Finally, the undertaking in Item 512(f) applies to registrants that prior to the offering had no obligation to file reports with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act. 167 If such a registrant conducts an underwritten equity offering, it must undertake to provide the securities certificates required by the underwriter at closing to permit prompt delivery to each purchaser. The purpose of this undertaking is to ensure that the registrant delivers sufficient certificates to the underwriter at closing to permit aftermarket trading in new issues. 168 We are proposing to eliminate this undertaking because the need to deliver certificates to underwriters has decreased dramatically since this undertaking was adopted in the early 1970s. Today, equity securities trades in the United States are typically cleared and settled using the depository and book-entry services of the Depository Trust and Clearing Corporation's clearing agency subsidiaries. 169 167 17 CFR 229.512(f). 168 See Hot Issues, Release No. 33-5274 (July 26, 1972) [37 FR 16005 (Aug. 9, 1972)] (“Hot Issues Release”); Notice of Adoption of Amendments to Registration Forms S-1 and S-2 under the Securities Act of 1933 and to Forms 10, 10-K and 10-Q and Rules 13a-13 and 15d-13 under the Securities Exchange Act of 1934, Release No. 33-5395 (June 1, 1973) [38 FR 17202 (June 29, 1973)]. In 1972, the Commission conducted public hearings on the matter of hot issues securities markets, which revealed that “one of the imperfections affecting aftermarket trading in new issues is the occasional failure of issuers to furnish securities in such denominations and registered in such manner as to permit adequate and prompt delivery to each purchaser. Accordingly, one of the proposals is that non-reporting registrants formally undertake in registration statements filed on Forms S-1 and S-2 that they will deliver the certificates to the underwriter at the closing for prompt delivery to customers.” See Hot Issues Release, supra at 16007. 169 See Loss et al. § 7.E.2. Current Law (“Virtually all equities securities trades in the United States are cleared and settled through the National Securities Clearing Corporation (NSCC) and the Depository Trust Company (DTC), clearing agency subsidiaries of the Depository Trust and Clearing Corporation (DTCC).”); Depository Trust & Clearing Corporation, FAQs: How Issuers Work With DTC available at http://www.dtcc.com/matching-settlement-and-asset-services/issuer-services/how-issuers-work-with-dtc (last visited Feb. 22, 2017) (“DTC provides (i) settlement services for virtually all equity, corporate and municipal debt trades and Money Market Instruments in the U.S.”). Request for Comment 37. Should we retain or modify any of the undertakings that we have proposed eliminating? If so, please explain why. 38. In what instances are physical securities certificates still delivered today? Should we retain the undertaking for those situations? 39. Are there other undertakings that we have not addressed in this release that are duplicative, no longer necessary or that should be eliminated for other reasons? 40. Are there undertakings we should consider requiring to modernize and address developments for novel securities offerings? E. Exhibits 1. Description of Registrant's Securities (Item 601(b)(4)) Item 202 requires registrants to provide a brief description of their registered capital stock, debt securities, warrants, rights, American Depositary Receipts, and other securities. 170 Registrants provide Item 202 disclosure about registered securities in their registration statements 171 but are not required to provide this disclosure in their Form 10-K or Form 10-Q. 172 170 Items 202(a)-(d) and (f) [17 CFR 229.202(a)-(d) and (f)]. Item 202(e), “Market information for securities other than common equity,” is outside the scope of this release; it requires that if securities other than common stock are to be registered and there is an established trading market for such securities, registrants are required to provide market information for such securities comparable to that required by Item 201(a) of Regulation S-K. 171 Item 202 disclosure is often incorporated by reference into a registration statement on Form 8-A from a prior registration statement on Form S-1. See Concept Release, supra note 6, at Section IV.D.2. Registrants are not currently required to include Item 202 disclosure as an exhibit to any filings with the Commission. 172 17 CFR 249.308a. Registrants are required to file complete copies of their articles and bylaws as exhibits to Form 10-K, but they are not required to provide the descriptions called for by Item 202. See Item 601(b)(3) [17 CFR 229.601(b)(3)]. Also, under Accounting Standards Codification (“ASC”) Topic 505-10-50-3, registrants are required to summarize the “pertinent rights and privileges of the various securities outstanding” in the notes to their financial statements. ASC Topic 470-10-50-5 requires the same information for debt securities. While the date of sale is not required, registrants usually include it in their discussions of the rights and privileges of securities sold. Consistent with the staff's recommendation in the FAST Act Report, 173 we are proposing to amend Item 601(b)(4) 174 to require registrants to provide the information required by Item 202(a)-(d) and (f) as an exhibit to Form 10-K, rather than limiting this disclosure to registration statements. 175 Proposed Item 601(b)(4)(vi) would require Item 202 disclosure only for securities that are registered under Section 12 of the Exchange Act. 176 Because Item 202(e) requires Item 201(a) market information for securities other than common equity where there is an established trading market for those securities, proposed Item 601(b)(4)(vi) does not include Item 202(e). The proposed requirement is intended to increase investors' ease of access to information about the rights and obligations of each class of securities registered. 173 See FAST Act Report, supra note 2, at Recommendation F.1. 174 17 CFR 229.601(b)(4). 175 To the extent that a registrant has previously filed an exhibit containing Item 202 disclosure, it could incorporate that exhibit by reference and hyperlink to the previously-filed exhibit in future Form 10-K filings, assuming that the information contained therein remains unchanged. See Exhibit Hyperlinks Adopting Release supra note 15. 176 The proposed amendment includes an instruction requiring disclosure for those classes of a registrant's securities that have not been retired by the end of the period covered by the report. We are also proposing to amend Item 202 to specify that Section 305(a)(2) of the Trust Indenture Act of 1939, 15 U.S.C. 77aa et seq., as amended, would not affect a registrant's disclosure obligations under proposed Item 601(b)(4)(vi). The proposed amendments would not change existing disclosure obligations under Form 8-K and Schedule 14A, which currently require registrants to disclose certain modifications to the rights of their security holders and amendments to their articles of incorporation or bylaws. 177 As proposed, any modifications and amendments during a fiscal year would now also be reflected in the Item 202 disclosure provided in an exhibit to the registrant's next annual report. 178 The proposed amendments would be in addition to the current requirement to file a complete copy of the amended articles of incorporation or bylaws under Item 601(b)(3). 179 177 Item 3.03 of Form 8-K requires disclosure of material modifications to rights of security holders while Item 5.03 requires disclosure of amendments to the articles of incorporation or bylaws for amendments not disclosed in a proxy or information statement. Item 5.03 of Form 8-K also requires disclosure of changes in fiscal year other than by means of a submission to a vote of security holders through the solicitation of proxies (or otherwise) or an amendment to the articles of incorporation or bylaws [17 CFR 249.308]. Item 12 of Schedule 14A requires disclosure if action is to be taken regarding the modification of any class of securities of the registrant, or the issuance or authorization for issuance of securities of the registrant in exchange for outstanding securities. Section (b) of Item 12 requires disclosure of any material differences between the outstanding securities and the modified or new securities in respect of any of the matters concerning which information would be required in the description of the securities in Item 202 of Regulation S-K. Item 19 of Schedule 14A requires disclosure of amendments to the registrant's charter, bylaws, or other documents. 178 Over the course of a given fiscal year, it is possible that a registrant may make various non-material changes to the rights and privileges of its securities that do not require separate disclosure on Form 8-K. However, if any changes are made, whether material or non-material, the proposed amendments would require a registrant to update the description of securities in the exhibit filed with its Form 10-K. 179 See Item 601(b)(3) of Regulation S-K [17 CFR 229.601(b)(3)]. The proposal would amend Item 601(b)(4) instead of Item 601(b)(3) because (b)(4) is consistent with Item 202's requirement to provide a description of capital stock that is registered while (b)(3) is specific to the articles of incorporation and bylaws. We recognize that some commenters opposed requiring Item 202 disclosure in periodic reports, stating that this information can easily be found in registration statements, 180 while other commenters noted that the information overlaps with disclosure required under U.S. GAAP. 181 Requiring Item 202 disclosure as an exhibit to annual reports could improve the ability of investors to gain access to information about their rights as security holders. The proposed Item 601(b)(4)(vi) would allow investors to easily locate an updated description of their rights as security holders in the most recent annual report rather than require investors to search through prior filings to find this disclosure. Where a registrant has previously filed the Item 202 information as an exhibit, and so long as there has not been any change to the information called for by Item 202, the registrant may incorporate the information by reference and provide a hyperlink to the previously filed exhibit. Therefore, we believe that any additional compliance cost associated with the proposed amendment should not be unduly burdensome. 180 See, e.g., Letters from Fenwick; CGCIV; Chamber 2; and FedEx. See also Davis Polk 1. 181 See Letters from CAQ and KPMG LLP (July 21, 2016) (“KPMG”). Both commenters referenced Item 202 in the context of broader recommendations to the Commission to work with the FASB and the PCAOB to eliminate redundancies. Request for Comment 41. Should the proposed amendments include a requirement to file Item 202 disclosure for each class of securities registered under Section 12 of the Exchange Act as an exhibit to the annual report? Why or why not? Should registrants also be required to include descriptions of securities that are not registered under Section 12 of the Exchange Act? For example, should issuers reporting only under Section 15(d) of the Exchange Act ( e.g., asset-backed issuers) be required to file Item 202 disclosure as a Form 10-K exhibit? 42. Do the requirements for Item 202, and our proposal to require that the Item 202 information be provided as an exhibit to the annual report, provide sufficient disclosure about debt securities or other classes of stock with different or preferential voting rights? 43. Would the new requirements result in significantly higher compliance costs? Would the new requirements provide benefits to investors and facilitate informed investment decisions? Would the proposed amendments require disclosure that is adequately provided elsewhere in the annual report or on EDGAR? 182 182 See supra notes 172 and 181 and accompanying text. 44. Would compliance with the proposed amendment be problematic for issuers with multiples classes of registered securities ( e.g., well-known seasoned issuers or asset-backed issuers)? If so, how should we revise the proposed amendments to avoid unnecessary burdens that may be imposed on these issuers? 2. Information Omitted From Exhibits (Item 601) Item 601 of Regulation S-K generally requires registrants to file complete copies of exhibits. 183 Securities Act Rule 406 184 and Exchange Act Rule 24b-2 185 permit registrants to request confidential treatment of information included in an exhibit to a filing or any other document required to be filed under either the Securities Act or the Exchange Act. Item 601(b)(2) states that registrants shall not file schedules or similar attachments to material plans of acquisition, reorganization, arrangement, liquidation, or succession unless they contain information material to an investment decision and unless that information is not otherwise disclosed in the agreement or the disclosure document. 186 The Commission staff generally has not objected where a registrant omits personally identifiable information from exhibits without submitting a confidential treatment request. 183 Item 601 of Regulation S-K [17 CFR 229.601]. 184 17 CFR 230.406. 185 17 CFR 240.24b-2. 186 17 CFR 229.601(b)(2). To modernize and simplify the disclosure requirements under Item 601, we are proposing to add new paragraphs (a)(5) and (a)(6) to expand the existing accommodation in Item 601(b)(2) to include all exhibits filed under Item 601 and permit the omission of personally identifiable information. We also propose to add paragraph (b)(10)(iv) to Item 601 to reduce significantly the need for registrants to submit applications for confidential treatment of information in material contract exhibits required by that item. 187 The proposals to add paragraphs (a)(6) and (b)(10)(iv) are broader than the staff's recommendations in the FAST Act Report. As explained more fully below, we believe that they are consistent with our mandate under the FAST Act to modernize and simplify our disclosure requirements while still providing all material information. 188 187 Certain domestic forms include their exhibits requirements in the form and/or do not separately reference Item 601 of Regulation S-K ( e.g., Schedule 13E-3 and Schedule 13D). As such, we are considering whether the rationale for the proposed amendments to Item 601 of Regulation S-K is also applicable to the exhibit requirements in these forms. For example, Schedule 13E-3 and Schedule 13D require registrants to file as exhibits certain material agreements that may be deemed analogous to the exhibits required under Item 601 of Regulation S-K. We are requesting further comment to assist in our evaluation of this issue. 188 See FAST Act Report, supra note 2, at Recommendation F.2 (recommending only that the Commission permit registrants to omit attachments and schedules filed with exhibits un [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-22374. Public record. Not legal advice.