Definition of ``Prepared by or on Behalf of the Issuer'' for Purposes of Determining if an Offering Document is Subject to State Regulation.

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 230

[Release No. 33-7388; File Number S7-6-97]

RIN 3235-AH14

Definition of ``Prepared by or on Behalf of the Issuer'' for

Purposes of Determining if an Offering Document is Subject to State

Regulation.

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The National Securities Markets Improvements Act of 1996

mandates that the Securities and Exchange Commission (``Commission'')

adopt a definition of the phrase ``prepared by or on behalf of the

issuer'' found in newly revised Section 18 of the Securities Act of

1933. Today, the Commission proposes such a definition.

DATES: Comments should be received on or before March 20, 1997.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549. Comments also may be submitted

electronically at the following E-mail address: [email protected].

All comment letters should refer to File No. S7-6-96; this file number

should be included in the subject line if E-mail is used. Comment

letters will be available for inspection and copying in the

Commission's Public Reference Room, 450 Fifth Street, NW., Washington,

DC 20549. Electronically submitted comment letters will be posted on

the Commission's Internet Web Site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: James R. Budge, Division of

Corporation Finance, at (202) 942-2950, Securities and Exchange

Commission, 450 Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission proposes adding Rule 146

1 under the Securities Act of 1933 (``Securities Act'' or ``the

Act'').2 The Rule would define the term ``prepared by or on behalf

of the issuer,'' as that term is used in newly revised Section 18 of

the Act.3

---------------------------------------------------------------------------

0 Fifth Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission proposes adding Rule 146

1 under the Securities Act of 1933 (``Securities Act'' or ``the

Act'').2 The Rule would define the term ``prepared by or on behalf

of the issuer,'' as that term is used in newly revised Section 18 of

the Act.3

---------------------------------------------------------------------------

\1\ The proposed rule would be codified at 17 CFR 230.146.

\2\ 15 U.S.C. 77a et seq.

\3\ 15 U.S.C. 77r.

---------------------------------------------------------------------------

I. Background and Proposed Definition

On October 11, 1996, President Clinton signed into law the National

Securities Markets Improvement Act of 1996.4 One significant goal

of this legislation, embodied in revised Section 18 of the Act, is to

reduce duplicative and unnecessary regulatory requirements resulting

from the dual system of federal and state securities regulation. The

statute reallocates regulatory responsibility relating to securities

offerings between the federal and state governments based on the nature

of the security or offering. Among other things, it preempts state laws

requiring or with respect to registration or qualification of ``covered

securities'' as defined in the Act.5 It also prohibits states from

directly or indirectly prohibiting, limiting or imposing any conditions

on the use of any offering document for a covered security if the

offering document is ``prepared by or on behalf of the issuer.'' 6

---------------------------------------------------------------------------

\4\ Public Law 104-290, 110 Stat. 3416 (1996).

\5\ The term ``covered security'' is defined in new section

18(b) [15 U.S.C. 77r(b)].

\6\ The term ``offering document'' is defined in new section

18(d)(1) [15 U.S.C. 77r(d)(1)], as follows:

urity if the

offering document is ``prepared by or on behalf of the issuer.'' 6

---------------------------------------------------------------------------

\4\ Public Law 104-290, 110 Stat. 3416 (1996).

\5\ The term ``covered security'' is defined in new section

18(b) [15 U.S.C. 77r(b)].

\6\ The term ``offering document'' is defined in new section

18(d)(1) [15 U.S.C. 77r(d)(1)], as follows:

(1) Offering Document.--The term ``offering document''--

(A) has the meaning given the term ``prospectus'' in section

2(10), but without regard to the provisions of subparagraphs (A) and

(B) of that section; and

(B) includes a communication that is not deemed to offer a

security pursuant to a rule of the Commission.

---------------------------------------------------------------------------

The statute requires the Commission to define by rule the phrase

``prepared by or on behalf of the issuer,'' as used in connection with

the prohibition on state regulation of offering documents for covered

securities.7 The Commission today proposes a definition of this

term.

---------------------------------------------------------------------------

\7\ New Section 18(d)(2) requires the Commission to adopt this

definition not later than six months after the section's enactment.

---------------------------------------------------------------------------

The Commission believes that the phrase is intended to cover

offering documents prepared with the issuer's knowledge and consent.

Thus, the proposed definition would cover offering documents authorized

by the issuer and prepared by specified persons. Conversely, documents

that are prepared and circulated without issuer authorization would not

be covered

-------------------------------------

The Commission believes that the phrase is intended to cover

offering documents prepared with the issuer's knowledge and consent.

Thus, the proposed definition would cover offering documents authorized

by the issuer and prepared by specified persons. Conversely, documents

that are prepared and circulated without issuer authorization would not

be covered.

Specifically, as proposed, if the issuer authorizes the offering

document's production and the document is prepared by a director,

officer, general partner, employee, affiliate, underwriter, attorney,

accountant or agent of the issuer, it would be ``prepared by or on

behalf of the issuer.'' 8 The proposed definition also would

include authorized documents prepared by representatives or agents of

these persons.9

---------------------------------------------------------------------------

\8\ In the case of a registered investment company, an agent of

the issuer would generally include the company's investment adviser

or any other agent that performs administrative functions on behalf

of the company.

\9\ As provided by statute, the proposed definition would be

applicable only to Section 18 of the Securities Act.

---------------------------------------------------------------------------

Comment is requested as to whether the definition should be

broadened or narrowed by adding persons to or eliminating persons from

the list; specific justification for additions or deletions should be

provided. Should the list include specific examples of persons, such as

employees or attorneys as proposed, or is it sufficient to state simply

that the person be an agent or representative of the issuer? The second

approach would eliminate the need for paragraph (a) of the proposed

definition. As proposed, the definition does not include offering

documents prepared by persons who do not have some formal connection to

the issuer

ific examples of persons, such as

employees or attorneys as proposed, or is it sufficient to state simply

that the person be an agent or representative of the issuer? The second

approach would eliminate the need for paragraph (a) of the proposed

definition. As proposed, the definition does not include offering

documents prepared by persons who do not have some formal connection to

the issuer. Should the definition be expanded to include offering

documents approved by the issuer but prepared by a person who does not

have a managerial, employment or other agency relationship with the

issuer? The proposed definition also would encompass only those

offering documents prepared with the authorization of the issuer.

Should such authorization be implied if the document is prepared by

certain individuals, such as underwriters? If implied authorization is

believed appropriate for some persons, commenters are asked to identify

the specific parties and explain why it would be appropriate to imply

consent in those cases.

II. Submission of Comments

Interested persons should submit comment letters in triplicate to

Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC, 20549. Comments also may be

submitted electronically at the following E-mail address: rule-

[email protected]. All comment letters should refer to File Number S7-6-

96. This file number should be included on the subject line if E-mail

is used. Comments received will be available for inspection and copying

in the Commission's public reference room, 450 Fifth Street, NW.,

Washington, DC 20549. Electronically submitted comment letters will be

posted on the Commission's Internet web site (http://www.sec.gov).

III. Cost-Benefit Analysis

t is not expected that significant changes to reporting, recordkeeping

and compliance burdens would result from the proposal, inasmuch as the

substantive effects of the changes to Section 18 are controlled

primarily by the terms of the legislation, and not by the terms of this

proposed definition. The purpose of the definition is to give guidance

with regard to the meaning of a statutory term.

There are no current federal rules that duplicate, overlap or

conflict with the proposed definition.

Several possible significant alternatives to the proposal were

considered, including, among others, establishing different

requirements for small entities or exempting them from all or part of

the proposed definition. As discussed more fully in the analysis, this

rulemaking does not lend itself to separate treatment for small

businesses. The definition is purposefully crafted in broad terms to

encompass small entities together with other issuers. No public

interest would be served by a definition that would exclude small

entities from enjoying the benefits of state preemption.

Written comments are encouraged with respect to any aspect of the

analysis. Such comments will be considered in the preparation of the

Final Regulatory Flexibility Analysis if the proposed amendments are

adopted. A copy of the analysis may be obtained by contacting James R.

Budge, Division of Corporation Finance, Mail Stop 7-8, 450 Fifth

Street, NW., Washington, DC 20549.

V. Statutory Basis

Rule 146 is being proposed pursuant to Sections 18 and 19 of the

Securities Act.

List of Subjects in M CFR Part 230

Reporting and recordkeeping requirements, Securities.

Text of the Proposal

In accordance with the foregoing, Title 17, chapter II of the Code

of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for part 230 is revised to read in part

as follows:

ties Act.

List of Subjects in M CFR Part 230

Reporting and recordkeeping requirements, Securities.

Text of the Proposal

In accordance with the foregoing, Title 17, chapter II of the Code

of Federal Regulations is proposed to be amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for part 230 is revised to read in part

as follows:

Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss,

78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-

30, and 80a-37, unless otherwise noted.

* * * * *

2. By adding Sec. 230.146, to read as follows:

Sec. 230.146 Definition of ``prepared by or on behalf of the issuer''

for purposes of Section 18 of the Act.

Prepared by or on behalf of the issuer. An offering document (as

defined in Section 18(d)(1) of the Act [15 U.S.C. 77r(d)(1)]) shall be

deemed ``prepared by or on behalf of the issuer'' for purposes of

Section 18 of the Act, if the issuer authorizes its production and if

it has been prepared by:

(a) A director, officer, general partner, employee, affiliate,

underwriter,

attorney, accountant or agent of the issuer; or

(b) An agent or representative of any person specified in paragraph

(a) of this section.

Dated: February 11, 1997.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97-3845 Filed 2-14-97; 8:45 am]

BILLING CODE 8010-01-P