# Exemptive Relief and Simplification of Filing Requirements for Debt Securities To Be Listed on a National Securities Exchange > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A94-27445 ## Record - **Collection:** Federal Register - **Document type:** Uncategorized Document - **Published:** November 7, 1994 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 240 and 249 [Release No. 34-34922; File No. S7-16-94] RIN 3235-AG11 Exemptive Relief and Simplification of Filing Requirements for Debt Securities To Be Listed on a National Securities Exchange AGENCY: Securities and Exchange Commission. ACTION: Final rules. ----------------------------------------------------------------------- SUMMARY: The Securities and Exchange Commission (``Commission'') is adopting new Rule 3a12-11 under the Securities Exchange Act of 1934 (``Exchange Act'') and amending certain Exchange Act rules to reduce existing regulatory distinctions between debt securities listed on a national securities exchange and those traded in the over-the-counter market. The Commission also is simplifying registration procedures under the Exchange Act for listed debt securities. The new rule and amendments will: exempt listed debt securities from restrictions on borrowing and from most of the proxy and information statement rules; provide for the automatic effectiveness of Form 8-A registration statements for listed debt securities; and eliminate the filing fee associated with Form 8-A registration statements for listed debt securities. DATES: Effective Date: The rule and amendments are effective December 7, 1994. Compliance Date: However, any registrant or broker-dealer may choose to comply with the new rules at the time of publication in the Federal Register. Registrants with proxy statements or Forms 8-A pending with the Commission should see the transition provisions set forth in Section V. FOR FURTHER INFORMATION CONTACT: With regard to the exemption from restrictions on borrowing, Beth A. Stekler, at (202) 942-0190, Branch of Exchange Regulation, Division of Market Regulation; with regard to questions concerning the definition of debt securities, Office of Chief Counsel, Division of Corporation Finance, at (202) 942-2900; with regard to issues relating to the proxy rules or Form 8-A, Joseph P. Babits, at (202) 942-2910, Office of Disclosure Policy, Division of Corporation Finance; Securities and Exchange Commission (Mail Stops 5- 1, 3-3 and 3-12, respectively), 450 Fifth Street, N.W., Washington, D.C. 20549. SUPPLEMENTARY INFORMATION: Under the Exchange Act,\1\ the Commission is adopting new Rule 3a12-11\2\ and revisions to Rules 12b-7,\3\ 12d1- 2,\4\ and Form 8-A.\5\ --------------------------------------------------------------------------- \1\15 U.S.C. 78a et seq. \2\17 CFR 240.3a12-11. \3\17 CFR 240.12b-7. \4\17 CFR 240.12d1-2. \5\17 CFR 249.208a. --------------------------------------------------------------------------- I. Introduction In June 1994, the Commission published for comment proposed new Exchange Act Rule 3a12-11 and certain revisions to current Exchange Act rules (``Proposing Release'').\6\ The proposals were designed to reduce existing regulatory distinctions between debt securities listed on a national securities exchange and those traded in the over-the-counter (``OTC'') market by exempting listed debt securities from restrictions on borrowing\7\ and proxy and information statement regulation.\8\ The Commission also proposed to simplify registration procedures under the Exchange Act for listed debt securities. Finally, comment was solicited as to whether it would be advisable to extend reporting requirements to issuers of debt securities that are traded in the OTC market under certain circumstances where the issuer is not otherwise subject to periodic reporting requirements. --------------------------------------------------------------------------- \6\Release No. 34-34139 (June 1, 1994) [59 FR 29398]. \7\Section 8(a) of the Exchange Act [15 U.S.C. 78h(a)]. \8\Section 14(a), (b), and (c) of the Exchange Act [15 U.S.C. 78n(a), (b), and (c)]. --------------------------------------------------------------------------- The Commission received 27 letters of comment from a variety of professional associations, securities firms, corporations and self- regulatory organizations.\9\Most commenters supported the proposed exemptive relief and the simplified Exchange Act registration procedures. In addition, most commenters supported, or agreed that consideration should be given to, the extension of periodic reporting requirements to debt issuers in certain circumstances. The issue of extending periodic reporting is still under consideration by the Commission; the proposed rule and amendments are being adopted as proposed, except for minor changes as discussed below. --------------------------------------------------------------------------- \9\The comment letters as well as the comment summary prepared by the staff are available for inspection and copying at the Commission's Public Reference Room (see File No. S7-16-94). --------------------------------------------------------------------------- II. New Exchange Act Rule 3a12-11 and Amendments to Exchange Act Rules A. Background Section 12 of the Exchange Act\10\ requires all securities listed on a national securities exchange to be registered under the Exchange Act.\11\ Registration subjects the securities, whether debt or equity, to a number of regulatory provisions, including restrictions on borrowing,\12\ periodic reporting by the issuer,\13\ and proxy and information statement regulation.\14\ In contrast, debt securities traded in the OTC market are not required to be registered under the Exchange Act,\15\ and, therefore, such securities are not subject to the restrictions on borrowing or proxy and information statement regulation. These regulatory distinctions may have unnecessarily and unintentionally affected the structure and development of the debt markets. --------------------------------------------------------------------------- \10\15 U.S.C. 78l. \11\Section 12(a) of the Exchange Act [15 U.S.C. 78l(a)] prevents any member, broker or dealer from effecting any transaction in any security listed on a national securities exchange unless the security is registered pursuant to Section 12(b) of the Exchange Act [15 U.S.C. 78l(b)]. \12\Section 8(a) of the Exchange Act. \13\Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)]. \14\Sections 14 (a), (b) and (c) of the Exchange Act. \15\See Section 12(g) of the Exchange Act [15 U.S.C. 78l(g)], which only requires registration of equity securities. --------------------------------------------------------------------------- The New York Stock Exchange (``NYSE'') has advised the Commission that the additional regulatory requirements imposed on listed debt securities create significant disincentives for issuers to list their debt on the national securities exchanges and urged that exemptive action be taken to eliminate this disparity. To address this disparate regulatory treatment between listed and OTC-traded debt, the Commission is adopting new Exchange Act Rule 3a12-11 to exempt listed debt securities from the borrowing restrictions and most of the proxy and information statement rules. Listed debt securities, however, will remain subject to the registration and reporting requirements of the Exchange Act. The Commission also is amending current Exchange Act rules in order to simplify the Exchange Act registration process by providing for the immediate effectiveness of Form 8-A registration statements pertaining to the listing of debt securities on a national securities exchange and eliminating the filing fee associated with the form. B. Exemption from the Borrowing Restrictions of the Exchange Act Under Section 8(a), a broker-dealer can pledge a listed security, other than an exempted security, only to a limited group of lenders: a member bank of the Federal Reserve System; a non-member bank that has filed with the Board of Governors of the Federal Reserve System (``Federal Reserve Board'') an agreement to comply with those provisions of the federal securities and banking laws that apply to member banks;\16\ or another broker-dealer if such a loan is permissible under the rules and regulations of the Federal Reserve Board.\17\ There is, however, no comparable limitation on the available lenders for OTC securities. As a result, a broker-dealer can use bonds that are not listed on an exchange as collateral to secure financing from any lender. --------------------------------------------------------------------------- \16\Regulation U [12 CFR 221.1 et seq.] requires that a non- member bank file an agreement that conforms to the requirements of Section 8(a) prior to extending any credit secured by any nonexempt security registered on a national securities exchange to broker- dealers who are borrowing in the ordinary course of business. See 12 CFR 221.4(a). \17\For example, Regulation T [12 CFR 220.1 et seq.] authorizes a broker-dealer to clear or finance transactions for a specialist's market functions account. See 12 CFR 220.12(b). --------------------------------------------------------------------------- The Commission proposed Rule 3a12-11(a) in response to concerns voiced by various market participants that Section 8(a) is overly restrictive and competitively unfair.\18\ According to these participants, broker-dealers' discretion in financing their positions is unduly constrained once a debt security is traded on an exchange. In addition, at least one national securities exchange was informed by its members that they may advise an issuer against listing bonds due to the restrictions in Section 8(a).\19\ In the Proposing Release, the Commission questioned whether existing regulatory distinctions may have unnecessarily affected the structure and development of the corporate bond market, without any benefit to investors. --------------------------------------------------------------------------- \18\See, e.g., letter from Donald J. Solodar, Executive Vice President, Fixed Income, Options & Administration, NYSE, to Brandon Becker, Director, Division of Market Regulation, Securities and Exchange Commission, and Linda C. Quinn, Director, Division of Corporation Finance, Securities and Exchange Commission, dated July 19, 1993 (``NYSE letter''); letter from Marc E. Lackritz, President, Securities Industry Association (``SIA''), to William W. Wiles, Secretary, Federal Reserve Board, dated December 23, 1992 (``SIA letter''). \19\See NYSE letter, n. 18, above. --------------------------------------------------------------------------- After careful consideration of the issues raised in the Proposing Release and in the comment letters, the Commission has concluded that differential treatment of listed and OTC debt securities for loan purposes is no longer warranted, given developments in the OTC market since Congress amended the Exchange Act in the 1960s,\20\ the current structure of the bond market,\21\ and the nature of debt financing. The Commission believes that it is appropriate to eliminate this disparity by exempting listed debt securities from the borrowing restrictions of Section 8(a).\22\ Accordingly, Rule 3a12-11(a) will enable a broker- dealer to pledge listed debt securities, like debt securities traded exclusively in the OTC market, to any lender. --------------------------------------------------------------------------- \20\See 1968 Amendments to the Securities Exchange Act of 1934, Pub. L. No. 90-437, 82 Stat. 452 (1968). \21\Most secondary trading in debt securities (including listed debt securities) currently takes place in the OTC market; exchange trading of corporate bonds accounts for a relatively small percentage of the daily trading volume in such securities and is often in ``odd-lot'' size. United States Securities and Exchange Commission, Division of Market Regulation, The Corporate Bond Markets: Structure, Pricing and Trading 1, 13 (January 1992). Although these circumstances may change as a result of Rule 3a12- 11(a), the Commission believes that, at this time, Section 8(a) places a competitive burden on exchange markets by subjecting them to more restrictive regulation than the primary market for the trading of debt securities, the OTC market. \22\Section 8(a) specifically excludes exempted securities from the restrictions on the sources of credit available to broker- dealers borrowing against listed securities. Under Section 3(a)(12) of the Exchange Act [15 U.S.C. 78c(a)(12)], the term ``exempted securities'' includes such securities as the Commission may exempt from the operation of any one or more provisions of the Exchange Act. --------------------------------------------------------------------------- All 15 commenters that address the restrictions on borrowing, including staff of the Federal Reserve Board, support an exemption for listed debt securities. Several commenters state that Rule 3a12-11(a) will provide broker-dealers with greater flexibility and help them to obtain inventory financing on the most favorable terms. For instance, one commenter predicts that the new exemption will result in lower financing rates due to an increase in competition among sources of credit, such as corporations, insurance companies and other currently ineligible lenders.\23\ Others note that broker-dealers will be able to enter into repurchase agreements and other arrangements with non-bank institutional investors.\24\ Commenters also believe that Rule 3a12- 11(a) will reduce the current disincentive for issuers to list their debt on a national securities exchange. For these reasons, commenters strongly support exempting listed debt securities from Section 8(a)'s restrictions on borrowing. Certain commenters, moreover, recommend that the potential benefits of the exemption be extended to all listed securities, including listed equity securities. --------------------------------------------------------------------------- \23\See letter from Laura L. Inman, Vice President and Senior Counsel, Debt Markets Group, Office of General Counsel, Merrill Lynch, to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 17, 1994. Merrill Lynch also states that the permissible counterparties under Section 8(a) are not viable lenders, because broker-dealers are reluctant to disclose their inventory positions to competitors and because banks have higher financing rates than other kinds of lenders. Id. \24\See, e.g., letter from Goldman Sachs to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 12, 1994. --------------------------------------------------------------------------- Finally, several commenters suggest that further action may be needed to eliminate the restriction in Regulation T that parallels the statutory restriction in Section 8(a).\25\ Commenters recommend that the Commission work with the Federal Reserve Board to clarify this matter, and suggest modifications to the text of the proposed rule to resolve the uncertainty.\26\ --------------------------------------------------------------------------- \25\Under Regulation T, a broker-dealer may not borrow in the ordinary course of business using as collateral any registered nonexempted security, except from a member bank of the Federal Reserve System; a non-member bank that has filed an agreement that conforms to the requirements of Section 8(a); or another broker- dealer if the loan is permissible under Regulation T. See 12 CFR 220.15(a). For purposes of Regulation T, ``nonexempted security'' means any security other than an exempted security as defined in Section 3(a)(12) of the Exchange Act. See 12 CFR 220.2(r). In addition, Regulation U requires that a non-member bank file an agreement conforming to the requirements of Section 8(a) before extending credit on any nonexempt security registered on an exchange. See 12 CFR 221.4(a). \26\In particular, commenters suggest that the Commission should expressly designate listed debt securities as ``exempted securities'' for purposes of Section 8(a) and any rules thereunder. See, e.g., letter from Anthony J. Leitner, Co-Chairman, Ad Hoc Committee on Regulation T, SIA, and Robert F. Price, Chairman, Federal Regulation Committee, SIA, to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 17, 1994. --------------------------------------------------------------------------- The Commission agrees with the commenters that exempting listed debt securities from the Exchange Act's borrowing restrictions will eliminate an unwarranted regulatory disparity, with possible benefits to the corporate bond market. First, the Commission believes that Rule 3a12-11(a) should provide broker-dealers with flexibility in financing their inventory positions. Specifically, the new rule will enable a broker-dealer borrowing against a listed debt security to choose among prospective lenders based solely upon the terms of the credit they offer. This should facilitate, among other things, repurchase agreements with non-bank institutional investors. As a result, adoption of Rule 3a12-11(a) may reduce the cost of dealer operations and may encourage broker-dealers to take positions in listed debt securities, thereby adding depth and liquidity to the corporate bond market. Second, the Commission finds that Rule 3a12-11(a) should eliminate one competitive barrier to the exchange-trading of debt securities. As noted in the comment letters, current Section 8(a), among other factors, may provide underwriters or investment bankers with an incentive to recommend that debt securities be traded in the OTC market, rather than listed on an exchange. The Commission believes that such an impact on the structure of the debt market is unwarranted. By equalizing the credit treatment of corporate bonds, adoption of Rule 3a12-11(a) may provide a greater opportunity for exchanges to compete with the OTC market for debt listings. The Commission has concluded that the modifications suggested by the commenters to conform Regulations T and U with Rule 3a12-11(a) are not necessary. In this regard, staff of the Federal Reserve Board has confirmed that the section of Regulation T discussed by the commenters\27\ and the section of Regulation U governing agreements by non-member banks\28\ were adopted pursuant to Section 8(a).\29\ Federal Reserve Board staff agrees with the Commission that consequently Rule 3a12-11(a), as proposed and as adopted, will have the effect of exempting listed debt securities from those provisions of the Federal Reserve Board's rules.\30\ Federal Reserve Board staff supports the Commission granting such an exemption. Listed debt securities will continue to be nonexempted securities for all other purposes under Regulations T and U.\31\ --------------------------------------------------------------------------- \27\As noted above, Section 220.15 of Regulation T parallels Section 8(a)'s restrictions on the sources of credit available to broker-dealers borrowing against listed securities. See n. 25, above, and accompanying text. \28\Section 221.4 of Regulation U requires a non-member bank to file an agreement conforming to the requirements of Section 8(a). See, n. 16 and 25, above. \29\See letter from Scott Holz, Senior Attorney, Division of Banking Supervision and Regulation, Federal Reserve Board, to Beth Stekler, Attorney, Division of Market Regulation, Securities and Exchange Commission, dated September 19, 1994. \30\Id. \31\Specifically, listed debt securities will continue to be nonexempted securities for purposes of Regulation T's margin requirements. Accordingly, a broker-dealer who extends credit secured by such collateral must comply with the applicable rules and regulations of the Federal Reserve Board. --------------------------------------------------------------------------- Further, the Commission has considered the commenters' suggestion that the exemption from Section 8(a) apply to all listed securities, debt and equity. The new rules and amendments being adopted today, however, were designed to achieve competitive balance for the corporate bond market. Consistent with that goal, the Commission proposed and, at this time, has decided to adopt a rule that is limited to debt securities, rather than significantly change the exemptive rule by broadening it to cover equity securities. Nevertheless, the treatment of listed equity securities for loan purposes may warrant further exploration by the Commission and other appropriate regulatory organizations. With respect to the definition of the term ``debt security'' for purposes of new Rule 3a12-11, the Proposing Release solicited comment as to whether the term should include any security that is not an ``equity security'' as defined by the Exchange Act and the rules thereunder,\32\ or whether the term should be more specifically defined.\33\ Commenters supported the broader definition primarily because of the risk that certain innovative securities may not fit squarely within pre-conceived categories. Given this concern, as well as the desire of the Commission to simplify an issuer's determination as to whether a debt or equity security is at issue, new Rule 3a12-11 provides that the term ``debt security'' will include any security that is not an ``equity security'' as defined by the Exchange Act and the rules thereunder.\34\ --------------------------------------------------------------------------- \32\The term ``equity security'' is defined in Section 3(a)(11) [15 U.S.C. 78c(a)(11)] and Rule 3a11-1 [17 CFR 240.3a11-1] thereunder. Equity securities would include, among other items, stock or similar security, certificates of interest or participation in any profit sharing agreement, voting trust certificate or certificate of deposit for any equity security, limited partnership interest, any security that is convertible, with or without consideration, into an equity security or any warrant or right to subscribe or purchase an equity security. \33\The Proposing Release provided an example of a definition that enumerated specific characteristics of securities that would be considered ``debt securities'' under the proposed rule. \34\Exchange Act Rule 3a12-11(c). --------------------------------------------------------------------------- The Proposing Release also solicited comment as to whether hybrid debt securities should be considered as debt or equity securities for purposes of new Rule 3a12-11. The Commission received limited comment. After further consideration, the Commission believes that no further clarification regarding hybrid securities is necessary; if a security is not an equity security as defined by the Exchange Act and the rules thereunder, then the security will be considered a ``debt security'' for purposes of Rule 3a12-11.35 --------------------------------------------------------------------------- \3\5Specific questions regarding whether a security is a debt security for purposes of Rule 3a12-11 may be brought to the attention of the Division of Corporation Finance, Office of Chief Counsel at (202) 942-2900. --------------------------------------------------------------------------- C. Exemption from Compliance with the Proxy Rules As discussed above, debt securities listed on a national securities exchange are subject to proxy regulation while debt securities traded in the OTC market, the principal trading market for debt securities,36 are not. The disparate application of the proxy rules between listed debt securities and OTC-traded debt securities reflected the nature of the debt markets in the 1960s when Congress amended the Exchange Act;37 this difference in regulatory treatment is cited by some as a significant disincentive for corporate issuers to list their debt securities on a national securities exchange.38 --------------------------------------------------------------------------- \3\6The OTC market is the principal trading market for debt (see n. 21, above). Of the more than 13,000 publicly traded domestic corporate bond issues in 1989, fewer than 20% (2,135 on the NYSE and 280 on the American Stock Exchange (``AMEX'')) were listed on the NYSE and AMEX. See Colloton, ``Bondholder Communications--The Missing Link in High Yield Debt,'' Hill and Knowlton, Inc. at 17 (August 1990). \3\7In 1963, the Commission submitted a report to Congress that set forth its recommendations as to the scope of regulations needed for the OTC market. See, Report of Special Study of Securities Markets, (``1963 Special Study'') U.S. Securities and Exchange Commission, H.R. Doc. No. 95, 88th Cong., 1st Sess. pt. 3, 34 (1963). These recommendations led to the adoption of Section 12(g) in 1964. The Commission concluded that proxy regulation should not be required with respect to debt securities since Section 14 was designed to protect shareholders and the solicitation of proxies was ``rarely [a] problem[ ] related to debt securities and, then, most probably in insolvency cases where other protections are available.'' Id. See also Section I.C of Release No. 34-34139. \3\8See, e.g., letter from Jeffrey S. Werner, Senior Vice President, General Electric Capital Corporation to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 5, 1994 (``GE Capital letter''). --------------------------------------------------------------------------- To eliminate the disparity, the Commission proposed Rule 3a12-11(b) to exempt debt securities listed on a national securities exchange from proxy regulation, but solicited comment as to whether the antifraud proscriptions39 and the Exchange Act rules governing the transmission to beneficial owners of proxy and consent materials and information statements should be excluded from the proposed exemption.40 The majority of commenters favored the proposed rule. With respect to listed debt securities, the proxy rules largely cover solicitations to amend the terms of an indenture contract.41 Commenters who supported the exemption noted that debtholders often negotiate specific provisions governing the amendment of the indenture contract, and therefore, unlike shareholders, debtholders do not need the protection of the proxy rules.42 --------------------------------------------------------------------------- \3\9Exchange Act Rules 14a-9 [17 CFR 240.14a-9] and 14c-6 [17 CFR 240.14c-6]. \4\0Exchange Act Rules 14a-13, [17 CFR 240.14a-13], 14b-1 [17 CFR 240.14b-1], 14b-2 [17 CFR 240.14b-2] and 14c-7 [17 CFR 240.14c- 7]. All terms used in these rules have the same meanings as in the Exchange Act and Exchange Act Rules 14a-1 [17 CFR 240.14a-1] and 14c-1 [17 CFR 240.14c-1]. Additionally, the exemption afforded by Rule 14a-2(a) [17 CFR 240.14a-2(a)] will continue to be available. \4\1Solicitations of debtholders are infrequent. For example, between 1990 and 1993, 18 have occurred with respect to NYSE-listed issuers. See letter from Fred Siesel of NYSE to David Sirignano of the Division of Corporation Finance dated May 12, 1994. \4\2See letter from John F. Olson, Chair, Committee on Federal Regulation of Securities, American Bar Association (``ABA''); John J. Huber, Chair, Subcommittee on 1933 Act, ABA; and Richard E. Gutman, Chair, Subcommittee on Reporting Companies under the 1934 Act, ABA, to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 4, 1994 (``ABA letter''). See also letters from Karl R. Barnickol, Chairman of Securities Law Committee, American Society of Corporate Secretaries, Inc. to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated July 26, 1994; Earle Mauldin, Chief Financial Officer, BellSouth Corporation to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated August 4, 1994; GE Capital letter, n. 38, above. --------------------------------------------------------------------------- In addition to the protections supplied by the indenture contract and the Trust Indenture Act, debtholders will continue to be protected by the proxy rules' antifraud proscriptions and the Exchange Act rules that facilitate the transmission of materials to beneficial owners. The Commission has determined that any exemptive relief from the proxy rules should not encompass the antifraud proscriptions or the rules relating to the transmission of materials to beneficial owners. The antifraud proscriptions provide protection to investors without placing any undue burden upon the issuer. Further, the rules relating to the transmission of materials to beneficial owners not only provide protection to investors but also benefit the issuer by facilitating its ability to communicate directly with its debtholders. Accordingly, new Rule 3a12-11(b) will exempt exchange-listed debt securities43 from proxy regulation, except that the antifraud proscriptions and the rules adopted under the Exchange Act to facilitate the transmission of materials to beneficial owners will continue to apply. The foregoing provisions, coupled with the issuer's reporting obligation under the Exchange Act, should ensure that investors remain protected. --------------------------------------------------------------------------- \4\3The term ``debt securities'' will be defined in the same manner as in the exemption from the restrictions on borrowing. See Exchange Act Rule 3a12-11(c). --------------------------------------------------------------------------- The Proposing Release solicited comment as to whether the application of the proxy rules was part of the expectations of the parties negotiating the indenture contract, or of investors purchasing a listed debt security, and if so, whether the proxy rule exemption should be applied prospectively. Only one commenter addressed the issue.44 That commenter believed that there is no need for a prospective application of the exemption since debtholders do not normally expect the proxy rules to apply. Since the Commission desires to eliminate unnecessary regulatory disparity as expeditiously as possible and given the other protections afforded debtholders as discussed above, the proxy rule exemption is not limited to issues of debt offered subsequent to the adoption of the exemption. --------------------------------------------------------------------------- \4\4See ABA letter, n. 42, above. --------------------------------------------------------------------------- D. Automatic Effectiveness of Form 8-A and Elimination of Filing Fee The Commission also is adopting amendments to Rule 12d1-2 and Form 8-A to reduce or eliminate some of the procedural costs of listing debt on a national securities exchange.45 Commenters unanimously supported the proposed automatic effectiveness of Forms 8-A and the elimination of the associated filing fee.46 --------------------------------------------------------------------------- \4\5On June 1, 1994, the Commission also made practical modifications to filing procedures. See Section I.D of Release No. 34-34139. The Division of Corporation Finance will accept requests from national securities exchanges that wish to file a combined Form 8-A/Listing Application with the Commission on behalf of an issuer listing debt securities on their exchange. Any national securities exchange that is interested in filing a combined Form 8-A/Listing Application should have its representative contact Joseph P. Babits at (202) 942-2910. A national securities exchange using such a procedure may wish to make Form 8-A filings with the Commission in paper, whether or not the registrant is subject to mandated electronic filing via the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR). Accordingly, the Division of Corporation Finance will consider requests for a continuing hardship exemption pursuant to Rule 202 of Regulation S-T [17 CFR 232.202] from any national securities exchange filing Forms 8-A on behalf of electronic filers. Continuing hardship exemptions will be available only through December 31, 1996. National securities exchanges that intend to use a combined Form 8-A/Listing Application that will become effective upon filing must confirm that the combined Form has been in fact filed with the Commission prior to the commencement of trading in the class of securities. The issuer, however, may choose to file the Form 8-A itself. Regardless of whether the issuer or the national securities exchange files the Form 8-A/Listing Application, the issuer is solely responsible for the filing and its contents. \4\6Several commenters, while supporting these proposals, stated that the Commission should go further and not require Section 12 registration for issuers of debt securities subject to the reporting requirement of Section 13(a) of the Exchange Act. See, e.g., letter from Richard T. Chase, Senior Vice President, Chief Counsel, Lehman Brothers to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated September 8, 1994. --------------------------------------------------------------------------- All Forms 8-A, including amendments, pertaining to the registration of a class of debt securities to be listed on a national securities exchange will be automatically effective if certification by the national securities exchange has been received by the Commission on or before the filing of the form.47 However, where a Form 8-A is registering a class of debt securities and securities from that class are being concurrently registered under the Securities Act, the Form 8- A will not automatically become effective upon filing, so that the debt securities will not become subject to any obligations under the Exchange Act prior to the related Securities Act registration statement being declared effective. Instead, as proposed, where there is a concurrent Securities Act registration statement pending, the Form 8-A will become effective simultaneously with the effectiveness of the Securities Act registration statement. Acceleration requests no longer will be needed for either of these categories of Form 8-A.48 --------------------------------------------------------------------------- \4\7If an issuer elects to file the Form 8-A (or Form 8-A/ Listing Application) itself, it must ensure that the Commission has received certification from the exchange on or before the date of filing the Form if automatic effectiveness is requested, or, if concurrent effectiveness is requested, on or before the date the Securities Act registration statement has been declared effective. An issuer may contact the Office of Quality Control at (202) 942- 8970 (ext. 4475) to verify that certification has been received by the Commission. If multiple debt issues are being registered on a single Form 8- A, certification for each issue must be received by the Commission prior to effectiveness. Where a Form 8-A relates to debt securities to be listed on multiple national securities exchanges (e.g., the NYSE and the Boston Stock Exchange), then certifications must be received by the Commission from each exchange prior to effectiveness. Forms 8-A that register both debt and equity securities are not encompassed by the amendments. \4\8Similarly, no effectiveness orders will be issued for Forms 8-A, as is the case with other registration statements that are effective automatically (e.g., Form S-8 [17 CFR 239.16b]). --------------------------------------------------------------------------- In addition, the Commission is amending Rule 12b-7 to eliminate the $250 filing fee for registering a class of debt securities on Form 8- A.49 Form 8-A has been revised to add two new boxes, one of which the issuer would check to signify it is a debt registration requiring no fee and that the Form 8-A: (1) Is to be effective automatically upon filing, as no debt securities of the class being registered on the form are being registered concurrently under the Securities Act; or (2) is to be effective simultaneously with the effectiveness of a related Securities Act registration statement. In order to receive automatic or concurrent effectiveness, the appropriate box must be checked.50 --------------------------------------------------------------------------- \4\9Given the de minimis nature of the filing fee, it is of little significance in an issuer's decision to list securities. However, its elimination is consistent with the Commission's goal of eliminating regulatory disparity between listed and unlisted debt securities where not necessary for the protection of investors. The NYSE requires a listing fee for debt securities of $50 per million and minimum of $2,500 for new issues and $25 per million and minimum of $1,250 for issue outstanding one year or more. The fee does not apply if the company or its affiliate already has a class of equity securities listed on the NYSE. \5\0Registrants that are mandated electronic filers registering debt securities on Form 8-A should file in paper format until the necessary form types are available through the EDGAR system. The necessary form types are expected to be available with the release of the EDGARLink software version 4.10 in January 1995. Notice will be provided in the SEC Digest and the Federal Register and on the EDGAR Bulletin Board when the new EDGAR form types for Form 8-A are available. When available, registrants will use one of three new EDGAR form types: 8A12BEF (Form 8-A and amendments to Form 8-A registering debt securities that will be automatically effective upon filing), 8A12BT (Form 8-A registering debt securities that will be effective contemporaneously with the effectiveness of an associated Securities Act registration statement), or 8A12BT/A (amendment to Form 8-A registering debt securities that will be effective contemporaneously with the effectiveness of an associated Securities Act registration statement). --------------------------------------------------------------------------- III. Cost-Benefit Analysis No empirical data was submitted in response to the Commission's invitation to provide information on the costs and benefits of the proposed new Exchange Act rule and Exchange Act rule revisions. The rule and amendments should decrease the net costs to investors associated with listing debt securities on a national securities exchange, without materially diminishing the benefits to investors. Currently, an issuer is not required to register debt securities under the Exchange Act in order for those securities to be traded in the OTC market. Consequently, OTC-traded debt securities are not subject to either the restrictions on borrowing or proxy regulation. New Rule 3a12-11 is designed to eliminate the disparity between exchange-listed debt securities and OTC-traded debt securities by exempting listed debt securities from the restrictions on borrowing and proxy regulation. The amendments to the Exchange Act rules are expected to reduce or eliminate some of the procedural costs of listing debt on a national securities exchange. It is anticipated that the costs to investors associated with this new rule and amendments will be minimal. IV. Summary of Final Regulatory Flexibility Analysis A Final Regulatory Flexibility Analysis has been prepared in accordance with 5 U.S.C. 604 for Rule 3a12-11 and amendments to Rule 12b-7, 12d1-2, and Form 8-A. The analysis notes that the rule and amendments are expected to reduce regulatory costs for small entities. As discussed more fully in the analysis, the new rule and amendments will affect persons that are small entities, as defined by the Commission's rules. The exemptions provided by Rule 3a12-11 and revisions to Rules 12b-7, 12d1-2, and Form 8-A are expected to decrease the compliance burdens of small entities. A copy of the analysis may be obtained by contacting Joseph P. Babits, Office of Disclosure Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street NW., Washington, D.C. 20549. V. Effective Date and Transition Provisions The rule and amendments are effective 30 days after publication in the Federal Register, in accordance with the Administrative Procedures Act; however, any registrant or broker-dealer may choose to comply with the new rules at any time after publication in the Federal Register. To provide for a smooth transition for use of the new rule and amendments, the following transition provisions will be permitted. First, registrants that have proxy statements relating to a solicitation of debtholders pending with the Commission should contact the registrant's Branch Chief in the Division of Corporation Finance if they intend to rely on the proxy exemption afforded by the rule, so that the staff may stop processing the filing. Second, issuers that have Form 8-A registration statements for listed debt securities pending with the Commission should continue to follow the current procedures regarding acceleration of effectiveness of Forms 8-A. As is currently the case, those issuers or the national securities exchange on which the debt securities are to be listed must provide the staff with an acceleration request prior to the desired effective date of the Form 8-A. The staff will then notify the issuer and the national securities exchange once effectiveness has been granted. VI. Statutory Basis for Rules New Rule 3a12-11 and amendments are being made pursuant to Exchange Act Sections 3(a)(12),51 9,52 10,53 12,54 14,55 and 23,56 as amended. --------------------------------------------------------------------------- \5\115 U.S.C. 78c(a)(12). \5\215 U.S.C. 78i. \5\315 U.S.C. 78j. \5\415 U.S.C. 78l. \5\515 U.S.C. 78n. \5\615 U.S.C. 78w. --------------------------------------------------------------------------- List of Subjects in 17 CFR Parts 240 and 249 Reporting and record keeping requirements, Securities. Text of the Amendments In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows: PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 1. The authority citation for Part 240 continues to read in part as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a- 37, 80b-3, 80b-4 and 80b-11, unless otherwise noted. * * * * * 2. By adding Sec. 240.3a12-11 to read as follows: Sec. 240.3a12-11 Exemption from Sections 8(a), 14(a), 14(b), and 14(c) for debt securities listed on a national securities exchange. (a) Debt securities that are listed for trading on a national securities exchange shall be exempt from the restrictions on borrowing of Section 8(a) of the Act (15 U.S.C. 78h(a)). (b) Debt securities registered pursuant to the provisions of Section 12(b) of the Act (15 U.S.C. 78l(b)) shall be exempt from Sections 14(a), 14(b), and 14(c) of the Act (15 U.S.C. 78n(a), (b), and (c)), except that Secs. 240.14a-1, 240.14a-2(a), 240.14a-9, 240.14a-13, 240.14b-1, 240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-7 shall continue to apply. (c) For purposes of this section, debt securities is defined to mean any securities that are not ``equity securities'' as defined in Section 3(a)(11) of the Act (15 U.S.C. 78c(a)(11)) and Sec. 240.3a11-1 thereunder. 3. By adding a sentence to the end of Sec. 240.12b-7 to read as follows: Sec. 240.12b-7 Filing fee. * * * No fee, however, shall be paid to the Commission for the registration of debt securities, as defined in Sec. 240.3a12-11(c), on Form 8-A (17 CFR 249.208a) pursuant to Section 12(b) of the Act (15 U.S.C. 78l(b)). 4. By revising the section heading, designating the existing text as paragraph (a), and adding paragraph (b) to Sec. 240.12d1-2 to read as follows: Sec. 240.12d1-2 Effectiveness of registration. (a) * * * (b) A registration statement on Form 8-A (17 CFR 249.208a) that only pertains to the listing of a class or classes of debt securities, as defined in Sec. 240.3a12-11(c), on a national securities exchange for which certification has been received by the Commission shall become effective upon filing with the Commission, in the case of a class of debt securities not concurrently being registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (``Securities Act''); and otherwise, upon the effectiveness of a concurrent Securities Act registration statement to which the debt securities relate. PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934 5. The authority citation for Part 249 continues to read in part as follows: Authority: 15 U.S.C 78a, et seq., unless otherwise noted; * * * * * 6. By amending Sec. 249.208a by adding paragraph (c) to read as follows: Sec. 249.208a Form 8-A, for registration of certain classes of securities pursuant to section 12 (b) or (g) of the Securities Exchange Act of 1934. * * * * * (c) If this form is used only for the registration of a class of debt securities as defined in Sec. 240.3a12-11(c) of this chapter and certification from the national securities exchange has been received by the Commission, it shall become effective either: (1) Upon filing with the Commission, in the case of a class of debt securities not concurrently being registered under the Securities Act of 1933 (15 U.S.C. 77a et seq.) (``Securities Act''); or (2) Upon the effectiveness of a concurrent Securities Act registration statement to which the debt securities relate. 7. By amending Form 8-A (referenced in Sec. 249.208a) by adding two check boxes to the cover page immediately before ``Securities to be registered pursuant to Section 12(g) of the Act,'' and by adding paragraph (c) to General Instruction A to read as follows: Note: The text of Form 8-A does not and the amendments will not appear in the Code of Federal Regulations. Form 8-A--For Registration of Certain Classes of Securities Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934. * * * * * If this Form relates to the registration of a class of debt securities and is effective upon filing pursuant to General Instruction A.(c)(1), please check the following box. [ ] If this Form relates to the registration of a class of debt securities and is to become effective simultaneously with the effectiveness of a concurrent registration statement under the Securities Act of 1933 pursuant to General Instruction A.(c)(2), please check the following box. [ ] * * * * * GENERAL INSTRUCTIONS A. Rule as to Use of Form 8-A * * * * * (c) If this form is used only for the registration of a class of debt securities as defined in Rule 3a12-11(c) (17 CFR 240.3a12- 11(c)) and certification from the national securities exchange has been received by the Commission, it shall become effective: (1) upon filing with the Commission, in the case of a class of debt securities not concurrently being registered under the Securities Act of 1933 (15 U.S.C. 78a et seq.) (``Securities Act''); or (2) simultaneously with the effectiveness of a concurrent Securities Act registration statement to which the debt securities relate. See Rule 12d1-2(b) (17 CFR 240.12d1-2(b)). By the Commission. Dated: November 1, 1994. Margaret H. McFarland, Deputy Secretary. [FR Doc. 94-27445 Filed 11-4-94; 8:45 am] BILLING CODE 8010-01-P --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-27445. Public record. Not legal advice.