[Federal Register Volume 83, Number 132 (Tuesday, July 10, 2018)]
[Rules and Regulations]
[Pages 31992-32022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14306]



[[Page 31991]]

Vol. 83

Tuesday,

No. 132

July 10, 2018

Part II





Securities and Exchange Commission





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17 CFR Parts 210, 229, 230, et al.





Smaller Reporting Company Definition; Rules

  Federal Register / Vol. 83 , No. 132 / Tuesday, July 10, 2018 / Rules 
and Regulations  

[[Page 31992]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 210, 229, 230, 239, 240, and 249

[Release Nos. 33-10513; 34-83550; File No. S7-12-16]
RIN 3235-AL90


Smaller Reporting Company Definition

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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SUMMARY: We are adopting amendments to the definition of ``smaller 
reporting company'' as used in our rules and regulations. The 
amendments expand the number of registrants that qualify as smaller 
reporting companies and are intended to reduce compliance costs for 
these registrants and promote capital formation, while maintaining 
appropriate investor protections. We are amending the definition of 
``smaller reporting company'' to include registrants with a public 
float of less than $250 million, as well as registrants with annual 
revenues of less than $100 million for the previous year and either no 
public float or a public float of less than $700 million. We also are 
amending other rules and forms in light of the new definition of 
``smaller reporting company,'' including amendments to the definitions 
of ``accelerated filer'' and ``large accelerated filer'' to preserve 
the existing thresholds in those definitions. Qualifying as a ``smaller 
reporting company'' will no longer automatically make a registrant a 
non-accelerated filer. The Chairman, however, has directed the staff to 
formulate recommendations to the Commission for possible additional 
changes to the ``accelerated filer'' definition that, if adopted, would 
have the effect of reducing the number of registrants that qualify as 
accelerated filers.

DATES: The final rules are effective September 10, 2018.

FOR FURTHER INFORMATION CONTACT: Amy Reischauer or Jennifer Riegel, 
Office of Small Business Policy, Division of Corporation Finance, at 
(202) 551-3460, U.S. Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 230.405 
(``Rule 405'') and Forms S-1,\1\ S-3,\2\ S-4,\3\ S-8,\4\ and S-11 \5\ 
under the Securities Act of 1933 (``Securities Act''); \6\ 17 CFR 
240.12b-2 (``Rule 12b-2'') and Forms 10,\7\ 10-Q,\8\ and 10-K \9\ under 
the Securities Exchange Act of 1934 (``Exchange Act''); \10\ 17 CFR 
210.3-05 (``Rule 3-05'' of Regulation S-X); \11\ and 17 CFR 229.10(f) 
(``Item 10(f)'' of Regulation S-K).\12\
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    \1\ 17 CFR 239.11.
    \2\ 17 CFR.239.13.
    \3\ 17 CFR 239.25.
    \4\ 17 CFR 239.16b.
    \5\ 17 CFR 239.18.
    \6\ 15 U.S.C. 77a et seq.
    \7\ 17 CFR 249.210.
    \8\ 17 CFR 249.308a.
    \9\ 17 CFR 249.310.
    \10\ 15 U.S.C. 78a et seq.
    \11\ 17 CFR 210.1-01 through 210.12-29.
    \12\ 17 CFR 229.10 through 229.1208.
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Table of Contents

I. Introduction
II. Final Amendments
    A. Amendments to Smaller Reporting Company Definition
    1. Public Float Test
    2. Revenue Test
    B. Amendments to Rule 3-05(b)(2)(iv) of Regulation S-X
    C. Amendments to Accelerated Filer and Large Accelerated Filer 
Definitions
    1. Proposed Amendments
    2. Comments
    3. Final Amendments
III. Other Matters
IV. Economic Analysis
    A. Baseline
    B. Potential Economic Effects
    1. Introduction
    2. Impact on Eligibility for Smaller Reporting Company Status
    3. Estimation of Potential Costs and Benefits
    4. Affiliated Ownership and Adverse Selection
    5. Effects on Efficiency, Competition and Capital Formation
    C. Possible Alternatives
V. Paperwork Reduction Act
    A. Background
    B. Summary of the Final Amendments
    C. Summary of Comment Letters
    D. Revisions to Burden and Cost Estimates
    1. Form 10-K
    2. Form 10-Q
    3. Form 8-K
    4. Schedule 14A
    5. Schedule 14C
    6. Form 10
    7. Form S-1
    8. Form S-3
    9. Form S-4
    10. Form S-11
VI. Final Regulatory Flexibility Analysis
    A. Need for, and Objectives of, the Final Rules
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Rules
    D. Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Amendments and Text of Final Rules

I. Introduction

    On June 27, 2016, the Commission proposed amendments that would 
increase the financial thresholds in the ``smaller reporting company'' 
(``SRC'') definition and would have the effect of expanding the number 
of companies that benefit from the scaled disclosure accommodations 
available to SRCs.\13\ In developing final rules, we considered comment 
letters received in response to the Proposing Release,\14\ as well as 
recommendations made by the Securities and Exchange Commission Advisory 
Committee on Small and Emerging Companies (``ACSEC'') \15\ and the SEC 
Government-Business Forum on Small Business Capital Formation (``Small 
Business Forum'').\16\ The

[[Page 31993]]

Commission last revised the SRC definition in 2008.\17\ Our amendments 
reflect the need to solicit input and retrospectively review our rules 
in order to determine whether they are outdated or are not functioning 
as intended. Today, we are amending the SRC definition in an effort to 
promote capital formation and reduce compliance costs for specified 
registrants by expanding the number of registrants that are eligible to 
provide scaled disclosure while maintaining appropriate investor 
protections.
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    \13\ See Amendments to Smaller Reporting Company Definition, 
Release No. 33-10107 (Jun. 27, 2016) [81 FR 43130 (Jul. 1, 2016)] 
(``Proposing Release''). As the Commission noted in the Proposing 
Release, raising the financial thresholds in the SRC definition 
would be responsive to the Fixing America's Surface Transportation 
Act of 2015 (``FAST Act'') because it would reduce the burden on the 
specified registrants by increasing the number of registrants 
eligible for scaled disclosure. See Public Law 114-94, 129 Stat. 
1312 (2015).
    \14\ The comment letters received in response to the Proposing 
Release are available at https://www.sec.gov/comments/s7-12-16/s71216.htm.
    \15\ In September 2015 and March 2013, the ACSEC recommended 
revising the SRC definition to include registrants with a public 
float of up to $250 million. The recommendations made by ACSEC in 
March 2013 also included a recommendation to revise the SRC 
definition for registrants that are unable to calculate their public 
float to include registrants with less than $100 million in annual 
revenues. ACSEC Recommendations about Expanding Simplified 
Disclosure for Smaller Issuers (Sept. 23, 2015), available at 
https://www.sec.gov/info/smallbus/acsec/acsec-recommendations-expanding-simplified-disclosure-for-smaller-issuers.pdf and ACSEC 
Recommendations Regarding Disclosure and Other Requirements for 
Smaller Public Companies (Mar. 21, 2013), available at https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-032113-smaller-public-co-ltr.pdf. Both of these recommendations also included a 
recommendation that the Commission revise the ``accelerated filer'' 
definition to include registrants with a public float of $250 
million or more, but less than $700 million. The accelerated filer 
definition currently includes registrants with a public float of $75 
million or more, but less than $700 million. See Exchange Act Rule 
12b-2. See Section II.C for a discussion of the accelerated filer 
definition.
    \16\ The 2017 Small Business Forum recommended that the SRC 
definition be revised to include registrants with a public float of 
less than $250 million or registrants with annual revenues of less 
than $100 million, excluding large accelerated filers. See Final 
Report of the 2017 SEC Government Business Forum on Small Business 
Capital Formation (Mar. 2018), available at https://www.sec.gov/files/gbfor36.pdf. Registrants with a public float of $700 million 
or more generally qualify as large accelerated filers. See Exchange 
Act Rule 12b-2. Prior Small Business Forums made the same or similar 
recommendations. Final Small Business Forum reports are available at 
https://www.sec.gov/info/smallbus/sbforumreps.htm. Information about 
the Small Business Forum is available at http://www.sec.gov/info/smallbus/sbforum.shtml. These recommendations also included a 
recommendation that the Commission revise the ``accelerated filer'' 
definition consistent with the recommended changes to the SRC 
definition. See Section II.C for a discussion of the accelerated 
filer definition.
    \17\ See Smaller Reporting Company Regulatory Relief and 
Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan. 
4, 2008)] (``SRC Adopting Release'').
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    We are adopting the amendments generally as proposed with two 
changes. As proposed, we are amending the SRC definition to include 
registrants with a public float of less than $250 million, as well as 
registrants with annual revenues of less than $100 million for the 
previous year and no public float. In a change from the proposal, the 
SRC definition in the final rules also includes registrants with annual 
revenues of less than $100 million for the previous year and a public 
float of less than $700 million. Specifically, we are amending 
Securities Act Rule 405, Exchange Act Rule 12b-2, and Item 10(f) of 
Regulation S-K to effect these changes. In another change from the 
proposal, we are amending Rule 3-05(b)(2)(iv) of Regulation S-X to 
increase the revenue threshold under which certain acquirers may omit 
the earliest of the three fiscal years of audited financial statements 
of certain targets. Finally, we are adopting amendments to the 
``accelerated filer'' and ``large accelerated filer'' definitions in 
Exchange Act Rule 12b-2, as proposed, to preserve the application of 
the current public float thresholds in those definitions.\18\ The 
Chairman, however, has directed the staff to formulate recommendations 
to the Commission for possible additional changes to the ``accelerated 
filer'' definition that, if adopted, would have the effect of reducing 
the number of registrants that qualify as accelerated filers in order 
to promote capital formation by reducing compliance costs for certain 
registrants, while maintaining appropriate investor protections. As 
part of the staff's consideration of possible recommended amendments, 
the Chairman has directed the staff to consider, among other things, 
the historical and current relationship between the SRC and 
``accelerated filer'' definitions. The staff has begun work to prepare 
these recommendations.
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    \18\ The definitions of accelerated filer and large accelerated 
filer are based on public float, but currently contain a provision 
excluding registrants that are eligible to use the SRC requirements 
in Regulation S-K for their annual and quarterly reports. As a 
result, raising the SRC public float threshold without eliminating 
that provision effectively would raise the accelerated filer public 
float threshold. See Section II.C for a discussion of the amendments 
to the accelerated filer and large accelerated filer definitions.
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    Consistent with the proposal, we are not amending any of the scaled 
disclosure accommodations available to SRCs in Regulation S-K and 
Regulation S-X.\19\ SRCs may comply with the scaled disclosure 
requirements available to them on an item-by-item basis.\20\ The 
following table summarizes these scaled disclosure accommodations.\21\
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    \19\ Several of these scaled disclosure accommodations, such as 
the scaled executive compensation disclosures under Item 402(l) 
through (r) of Regulation S-K [17 CFR 229.402(l) through (r)], are 
similar to the disclosure accommodations available to an emerging 
growth company (``EGC''). See Securities Act Rule 405 [17 CFR 
230.405] and Exchange Act Rule 12b-2 [17 CFR 240.12b-2]. EGCs also 
are exempt from the Sarbanes-Oxley Act Section 404(b) auditor 
attestation of internal control over financial reporting. For a 
discussion of scaled disclosure accommodations available to EGCs, 
see Business and Financial Disclosure Required by Regulation S-K, 
Release No. 33-10064 (Apr. 13, 2016) [81 FR 23915 (April 22, 2016)] 
(``Regulation S-K Concept Release'').
    \20\ See SRC Adopting Release, 73 FR at 940. Where a disclosure 
requirement applicable to SRCs is more stringent than the 
corresponding requirement for non-SRCs, however, SRCs must comply 
with the more stringent standard. The SRC Adopting Release 
identified Item 404 of Regulation S-K [17 CFR 229.404] as the only 
instance in Regulation S-K in which the disclosure requirements 
applicable to SRCs could be more stringent.
    \21\ In addition to the accommodations itemized in the table, 
SRCs using Form S-1 may incorporate by reference information filed 
prior and subsequent to the effectiveness of the registration 
statement if they meet the eligibility requirements in General 
Instruction VII of Form S-1. See Item 12(b) of Form S-1; see also 
Simplification of Disclosure Requirements for Emerging Growth 
Companies and Forward Incorporation by Reference on Form S-1 for 
Smaller Reporting Companies, Release No. 33-10003 (Jan. 19, 2016) 
[81 FR 2743 (Jan. 19, 2016)].

------------------------------------------------------------------------
               Item                    Scaled disclosure accommodation
------------------------------------------------------------------------
                             Regulation S-K
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101--Description of Business......  May satisfy disclosure obligations
                                     by describing the development of
                                     the registrant's business during
                                     the last three years rather than
                                     five years. Business development
                                     description requirements are less
                                     detailed than disclosure
                                     requirements for non-SRCs.
201--Market Price of and Dividends  Stock performance graph not
 on the Registrant's Common Equity   required.
 and Related Stockholder Matters.
301--Selected Financial Data......  Not required.
302--Supplementary Financial        Not required.
 Information.
303--Management's Discussion and    Two-year MD&A comparison rather than
 Analysis of Financial Condition     three-year comparison.
 and Results of Operations          Two year discussion of impact of
 (``MD&A'').                         inflation and changes in prices
                                     rather than three years.
                                    Tabular disclosure of contractual
                                     obligations not required.
305--Quantitative and Qualitative   Not required.
 Disclosures About Market Risk.
402--Executive Compensation.......  Three named executive officers
                                     rather than five.
                                    Two years of summary compensation
                                     table information rather than
                                     three.
                                    Not required:
                                        Compensation discussion
                                        and analysis.
                                        Grants of plan-based
                                        awards table.
                                        Option exercises and
                                        stock vested table.
                                        Pension benefits table.
                                        Nonqualified deferred
                                        compensation table.
                                        Disclosure of
                                        compensation policies and
                                        practices related to risk
                                        management.
                                        Pay ratio disclosure.

[[Page 31994]]

 
404--Transactions With Related      Description of policies/procedures
 Persons, Promoters and Certain      for the review, approval or
 Control Persons 22.                 ratification of related party
                                     transactions not required.
407--Corporate Governance.........  Audit committee financial expert
                                     disclosure not required in first
                                     annual report.
                                    Compensation committee interlocks
                                     and insider participation
                                     disclosure not required.
                                    Compensation committee report not
                                     required.
503--Prospectus Summary, Risk       No ratio of earnings to fixed
 Factors and Ratio of Earnings to    charges disclosure required.
 Fixed Charges.                     No risk factors required in Exchange
                                     Act filings.
601--Exhibits.....................  Statements regarding computation of
                                     ratios not required.
------------------------------------------------------------------------
                             Regulation S-X
------------------------------------------------------------------------
               Rule                           Scaled disclosure
------------------------------------------------------------------------
8-02--Annual Financial Statements.  Two years of income statements
                                     rather than three years.
                                    Two years of cash flow statements
                                     rather than three years.
                                    Two years of changes in
                                     stockholders' equity statements
                                     rather than three years.
8-03--Interim Financial Statements  Permits certain historical financial
                                     data in lieu of separate historical
                                     financial statements of equity
                                     investees.
8-04--Financial Statements of       Maximum of two years of acquiree
 Businesses Acquired or to Be        financial statements rather than
 Acquired.                           three years.
8-05--Pro forma Financial           Fewer circumstances under which pro
 Information.                        forma financial statements are
                                     required.
8-06--Real Estate Operations        Maximum of two years of financial
 Acquired or to Be Acquired.         statements for acquisition of
                                     properties from related parties
                                     rather than three years.
8-08--Age of Financial Statements.  Less stringent age of financial
                                     statements requirements.
------------------------------------------------------------------------

II. Final Amendments

A. Amendments to Smaller Reporting Company Definition
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    \22\ Item 404 also contains the following expanded disclosure 
requirements applicable to SRCs: (1) Rather than a flat $120,000 
disclosure threshold, the threshold is the lesser of $120,000 or 1% 
of total assets, (2) disclosures are required about underwriting 
discounts and commissions where a related person is a principal 
underwriter or a controlling person or member of a firm that was or 
is going to be a principal underwriter, (3) disclosures are required 
about the issuer's parent(s) and their basis of control, and (4) an 
additional year of Item 404 disclosure is required in filings other 
than registration statements.
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    We are adopting amendments to the SRC definition to expand the 
number of registrants that qualify as SRCs and thereby benefit from 
scaled disclosure requirements. These amendments will enable a 
registrant to qualify as a SRC based on a public float test or a 
revenue test.\23\
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    \23\ See Item 10(f)(1)(i) and (ii) of Regulation S-K; Securities 
Act Rule 405; Exchange Act Rule 12b-2.
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    Under the final rules, SRCs generally \24\ are registrants with:
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    \24\ Consistent with the current definition, the SRC definition 
in the final rules specifically excludes investment companies, 
asset-backed issuers (as defined in Item 1101 of Regulation AB [17 
CFR 229.1101]) and majority-owned subsidiaries of a parent that is 
not a SRC. See Item 10(f)(1) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2. Lower public float and revenue 
thresholds apply to registrants that determined that they did not 
qualify as SRCs in the prior year, but are eligible to transition to 
SRC status. See Item 10(f)(2)(iii) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2. See also Section II.A for a 
discussion of the amendments to these thresholds.
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     A public float of less than $250 million; \25\ or
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    \25\ Consistent with the current definition, public float is 
computed under the final rules by multiplying the aggregate 
worldwide number of shares of a registrant's voting and non-voting 
common equity held by non-affiliates by the price at which the 
common equity was last sold, or the average of the bid and asked 
prices of common equity, in the principal market for the common 
equity. See Item 10(f)(1)(i) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2. The determination of public float is 
premised on the existence of a public trading market for the 
issuer's equity securities. Therefore, an entity with equity 
securities outstanding but not trading in any public trading market 
would not be able to qualify on the basis of a public float test. In 
contrast to public float, market capitalization reflects the value 
of a registrant's voting and non-voting common equity held by all 
holders, whether affiliates or non-affiliates.
    A reporting registrant calculates its public float as of the 
last business day of its most recently completed second fiscal 
quarter. See Item 10(f)(2)(i) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2. A registrant filing its initial 
registration statement under the Securities Act or Exchange Act 
calculates its public float as of a date within 30 days of the date 
the registration statement is filed by multiplying the aggregate 
worldwide number of shares of its voting and non-voting common 
equity held by non-affiliates before the registration plus, in the 
case of a Securities Act registration statement, the number of such 
shares included in the registration statement by the estimated 
public offering price of the shares. See Item 10(f)(2)(ii)(A) of 
Regulation S-K; Securities Act Rule 405; Exchange Act Rule 12b-2.
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     annual revenues of less than $100 million \26\ and either 
no public float \27\ or a public float of less than $700 million.\28\
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    \26\ Consistent with the current definition, annual revenues are 
as of the most recently completed fiscal year for which audited 
financial statements are available. Item 10(f)(2)(i)(B) and 
(f)(2)(ii)(B) of Regulation S-K; Securities Act Rule 405; Exchange 
Act Rule 12b-2.
    \27\ See Item 10(f)(1)(ii)(A) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2. A registrant may have no public 
float because it has no public common equity outstanding or no 
market price for its common equity exists. Based on data compiled by 
our Division of Economic and Risk Analysis (``DERA''), in calendar 
year 2016, approximately 21.5% of registrants that qualified as SRCs 
(and 7.7% of all registrants) had no public float. The estimated 
number of registrants with no public float here and elsewhere in 
this release may be over-inclusive due to the difficulty of 
ascertaining this status based on data extracted from registrants' 
filings. See note 141 for a discussion of the methodology used by 
the staff to obtain this data.
    \28\ See Item 10(f)(1)(ii)(B) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2.
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    As proposed, the final rules increase the threshold for determining 
SRC status based on public float from $75 million to $250 million. A 
registrant that qualifies as a SRC under the public float test would 
qualify regardless of its revenues.\29\ In a change from the proposal, 
the final rules will expand the SRC definition to include registrants 
with a public float of less than $700 million, if they also have annual 
revenues of less than $100 million.\30\ The following table summarizes 
the amendments to the SRC definition for a registrant making an initial 
determination under the amendments \31\

[[Page 31995]]

or a current SRC seeking to continue to qualify.
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    \29\ See Instruction to Paragraph (f) of Item 10 of Regulation 
S-K; Instruction to definition of ``smaller reporting company'' in 
Securities Act Rule 405; Instruction to definition of ``smaller 
reporting company'' in Exchange Act Rule 12b-2.
    \30\ See Item 10(f)(1)(ii)(B) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2.
    \31\ For purposes of the first fiscal year ending after 
effectiveness of the amendments, a registrant will qualify as a SRC 
if it meets one of the initial qualification thresholds in the 
revised definition as of the date it is required to measure its 
public float or revenues (the ``measurement date''), even if such 
registrant previously did not qualify as a SRC. See Item 10(f)(2)(i) 
and (ii) of Regulation S-K; Securities Act Rule 405; Exchange Act 
Rule 12b-2 for additional information about the measurement date. 
For example, a registrant with a September 30 fiscal year end that 
previously was not a SRC and that had a public float of $220 million 
as of March 30, 2018 (the last business day of its most recently 
completed second quarter) will qualify as a SRC for the fiscal year 
ending September 30, 2018.

------------------------------------------------------------------------
          Criteria             Current definition    Revised definition
------------------------------------------------------------------------
Public Float................  Public float of less  Public float of less
                               than $75 million.     than $250 million.
Revenues....................  Less than $50         Less than $100
                               million of annual     million of annual
                               revenues and no       revenues and
                               public float.         no public
                                                     float, or
                                                     public
                                                     float of less than
                                                     $700 million.
------------------------------------------------------------------------

    Consistent with the current definition, and as proposed, under the 
final rules, a registrant that determines that it does not qualify as a 
SRC under the initial qualification thresholds will remain unqualified 
unless and until it determines that it meets one or more lower 
qualification thresholds. The subsequent qualification thresholds, set 
forth in the table below, are set at 80% of the initial qualification 
thresholds.\32\
---------------------------------------------------------------------------

    \32\ See Item 10(f)(2)(iii) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2.

------------------------------------------------------------------------
         Criteria 33           Current definition    Revised definition
------------------------------------------------------------------------
Public Float................  Public float of less  Public float of less
                               than $50 million.     than $200 million,
                                                     if it previously
                                                     had $250 million or
                                                     more of public
                                                     float.34
Revenues....................  Less than $40         Less than $80
                               million of annual     million of annual
                               revenues and no       revenues, if it
                               public float.         previously had $100
                                                     million or more of
                                                     annual revenues;
                                                     and
                                                    Less than $560
                                                     million of public
                                                     float, if it
                                                     previously had $700
                                                     million or more of
                                                     public float.
------------------------------------------------------------------------

1. Public Float Test
a. Proposed Amendments
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    \33\ A registrant that does not qualify as a SRC may 
subsequently seek to qualify under either test.
    \34\ A registrant that previously was not a SRC that 
subsequently qualifies based on a public float of less than $200 
million will qualify as a SRC regardless of its revenues. See 
Instruction to Paragraph (f) of Item 10 of Regulation S-K; 
Instruction to definition of ``smaller reporting company'' in 
Securities Act Rule 405; Instruction to definition of ``smaller 
reporting company'' in Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

    As proposed, a registrant with a public float of less than $250 
million would qualify as a SRC.\35\ Consistent with the current 
definition, the Commission proposed that once a registrant does not 
qualify as a SRC,\36\ it would remain unqualified until its public 
float falls below another, lower threshold. Specifically, the 
Commission proposed amending the rules to provide that a registrant 
that previously did not qualify as a SRC would qualify as a SRC if it 
has a public float of less than $200 million as of its most recently 
completed second fiscal quarter.\37\
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    \35\ See Proposed Item 10(f)(1)(i) and (ii) of Regulation S-K; 
Proposed Securities Act Rule 405; Proposed Exchange Act Rule 12b-2.
    \36\ This applies either upon an initial determination in the 
case of registrants filing an initial registration statement, or as 
of an annual determination in the case of reporting registrants.
    \37\ The proposed $200 million subsequent qualification 
threshold represents 80% of the proposed $250 million initial 
qualification threshold. Under the current definition, a registrant 
that previously determined that it did not qualify as a SRC because 
its public float exceeded the current $75 million threshold may 
qualify based on a subsequent determination if it has a public float 
of less than $50 million. That registrant would then remain a SRC 
until its public float again exceeded $75 million. Consistent with 
the current definition, under the proposed definition, a registrant 
that subsequently qualifies under the $200 million public float 
threshold would remain qualified until its public float exceeds $250 
million.
---------------------------------------------------------------------------

b. Comments
    Most commenters addressed the overall costs and benefits of 
expanding the pool of registrants eligible for SRC status. Many of 
these commenters expressed general support for the proposed amendments 
to the SRC definition.\38\ Several of these commenters stated that the 
proposed definition appropriately considers the objectives of capital 
formation and investor protection \39\ and promotes capital formation 
or liquidity for smaller registrants.\40\
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    \38\ See Letter from Acorda Therapeutics, Inc. et al., August 
23, 2016 (``Acorda, et al.''); Letter from Advanced Medical 
Technology Association, August 20, 2016 (``AMTA''); Letter from 
Biotechnology Innovation Organization, August 30, 2016 (``BIO''); 
Letter from BDO USA, LLP, August 29, 2016 (``BDO''); Letter from 
Center for Audit Quality and Counsel of Institutional Investors, 
August 30, 2016 (``CAQ/CII''); Letter from CONNECT, August 4, 2016 
(``CONNECT''); Letter from Corporate Governance Coalition for 
Investor Value, August 30, 2016 (``Coalition''); Letter from 
Independent Community Bankers of America, August 29, 2016 
(``ICBA''); Letter from MidSouth Bancorp, Inc., August 24, 2016 
(``MidSouth''); Letter from Nasdaq, August 30, 2016 (``Nasdaq''); 
Letter from NYSE Group, July 25, 2016 (``NYSE''); Letter from 
National Venture Capital Association, August 25, 2016 (``NVCA''); 
Letter from Seneca Foods Corporation, August 2, 2016 (``Seneca''); 
and Letter from The Small Business Financial and Regulatory Affairs 
Committee of the Institute of Management Accountants, August 24, 
2016 (``IMA'').
    \39\ See AMTA; BDO; BIO; Coalition; ICBA.
    \40\ See AMTA; BDO; BIO; Coalition; ICBA; NVCA; and NYSE. See 
also CONNECT (supporting the proposal to amend the SRC definition to 
encompass a wider range of emerging businesses for which regulatory 
costs present a significant burden to growth).
---------------------------------------------------------------------------

    On the other hand, three commenters generally opposed the proposed 
amendments to the SRC definition or generally opposed accommodations 
based on company size.\41\ One of these commenters stated that the 
accommodations for SRCs exist solely for the expedience of issuers and 
must be balanced against the cost to market participants who have less 
information from which to draw conclusions.\42\ Another of these 
commenters stated that it was concerned that the scaled disclosure 
regime for SRCs may prevent investors from receiving all of the 
material information needed to conduct a thorough analysis.\43\ This 
commenter

[[Page 31996]]

also noted that allowing different sized entities to use different 
disclosure regimes would signal to investors that the entities lack 
comparable quality.\44\ The third commenter recommended that the 
Commission consider adopting disclosure objectives that would mitigate 
the need to scale disclosure requirements based on the size or nature 
of a reporting entity.\45\
---------------------------------------------------------------------------

    \41\ See Letter from Cable Car Capital LLC, June 28, 2016 
(``Cable Car''); Letter from CFA Institute, August 30, 2016 (``CFA 
Institute''); Letter from Ernst & Young LLP, September 8, 2016 
(``EY'').
    \42\ See Cable Car.
    \43\ See CFA Institute (noting that ``the pension benefits table 
and a disclosure of compensation policies and practices related to 
risk management (both of which can be deleted under scaled 
disclosure) are more vital than certain other disclosures'').
    \44\ See CFA Institute.
    \45\ See EY (noting that it ``previously recommended that the 
Commission consider adopting disclosure objectives that would 
mitigate the need for scaling disclosure requirements based on the 
size or nature of a reporting entity'' and citing to its letter 
dated July 21, 2016 responding to the SEC's concept release on 
business and financial disclosures required by Regulation S-K 
(Release No. 33-10064; File No. S7-06-16)).
---------------------------------------------------------------------------

    Two commenters stated that the proposed amendments would 
potentially provide only marginal cost savings.\46\ One of these 
commenters did not support the proposal and instead encouraged the 
Commission to continue its review of scaled disclosure to determine 
which disclosures are repetitive and should be deleted and which should 
be retained.\47\ The other commenter stated that the proposed change 
and the resulting reduced disclosure requirements for additional 
registrants would have a minimal effect on its annual compliance 
costs.\48\
---------------------------------------------------------------------------

    \46\ See CFA Institute; and Seneca.
    \47\ See CFA Institute.
    \48\ See Seneca.
---------------------------------------------------------------------------

    Many commenters expressed support for the proposed increases in 
both the public float and revenue thresholds.\49\ One commenter 
supported the amendments and viewed them as an acknowledgement that the 
current public float threshold is overly restrictive.\50\ Another 
commenter specifically stated that it supported the proposed approach 
to adjusting the thresholds rather than simply relying on inflation 
adjustments.\51\
---------------------------------------------------------------------------

    \49\ See Acorda et al; AMTA; BDO; BIO; CAQ/CII; CONNECT; 
Coalition; ICBA; MidSouth; Nasdaq; NVCA; NYSE; Seneca; and IMA.
    \50\ See Letter from Council of State Bioscience Associations, 
August 26, 2016 (``CSBA'') (stating that the Commission should 
similarly reform the accelerated filer definition and institute an 
alternative revenue test for both the SRC and accelerated filer 
definitions).
    \51\ See NYSE.
---------------------------------------------------------------------------

    Two commenters recommended that the Commission review the SRC 
definition periodically to determine whether the thresholds being used 
remain appropriate.\52\ One of these commenters specifically 
recommended that the Commission revisit the thresholds after three 
years.\53\
---------------------------------------------------------------------------

    \52\ See CFA Institute; and Letter from Kermit Kubitz, August 
31, 2016 (``Kubitz'').
    \53\ See Kubitz.
---------------------------------------------------------------------------

c. Final Amendments
    After considering the comments received, as well as the 
recommendations made by the ACSEC \54\ and the Small Business 
Forum,\55\ consistent with the proposal, we are adopting amendments to 
the SRC definition that will permit registrants with a public float of 
less than $250 million to qualify as SRCs.\56\ As is the case with the 
current definition, once a registrant determines that it does not 
qualify as a SRC under the applicable thresholds,\57\ it will not 
subsequently qualify until its public float falls below another, lower 
threshold, set at 80% of the initial qualification threshold. While we 
did not receive any comments on the subsequent qualification 
thresholds, we continue to believe that these thresholds are necessary 
to avoid situations in which registrants frequently enter and exit SRC 
status due to small fluctuations in their public float and that the 
thresholds do not impose an undue burden on registrants seeking to 
qualify for SRC status. Accordingly, we are amending the rules to 
permit a registrant that previously did not qualify as a SRC because 
its public float was $250 million or more to qualify as a SRC if it has 
a public float of less than $200 million, regardless of its 
revenues.\58\
---------------------------------------------------------------------------

    \54\ See note 19.
    \55\ See note 20.
    \56\ See Item 10(f)(1)(i) of Regulation S-K; Securities Act Rule 
405; Exchange Act Rule 12b-2.
    \57\ This applies either upon an initial determination in the 
case of registrants filing an initial registration statement, or as 
of an annual determination in the case of reporting registrants.
    \58\ See Item 10(f)(2)(iii)(A) and Instruction to Paragraph (f) 
of Item 10 of Regulation S-K; Securities Act Rule 405 and 
Instruction to definition of ``smaller reporting company'' in 
Securities Act Rule 405; Exchange Act Rule 12b-2 and Instruction to 
definition of ``smaller reporting company'' in Exchange Act Rule 
12b-2. Consistent with the current definition, under the amended 
definition, a registrant that subsequently qualifies under the $200 
million public float threshold would remain qualified until its 
public float exceeds $250 million.
---------------------------------------------------------------------------

    We are not revising the method of calculating public float, as 
suggested by one commenter.\59\ The staff is not aware of significant 
incidence of manipulation or stock price volatility affecting 
qualification under the public float test. In addition, the method of 
calculating public float is consistent with the existing rules and with 
the method of determining eligibility to use Form S-3 or Form F-3 to 
register a primary offering.\60\ This consistency will avoid additional 
burdens or confusion for registrants and investors that may result if 
registrants were required to calculate their public float in one manner 
for determining SRC status and in another manner for Form S-3 or Form 
F-3 eligibility.
---------------------------------------------------------------------------

    \59\ See Letter from Paul W. Zeller, July 18, 2016 (``Zeller'') 
(suggesting that the Commission, in the calculation of public float, 
adopt a revenue test for thinly traded registrants to address price 
manipulation and volatility concerns).
    \60\ See Instructions I.B.1 and I.B.6 of Form S-3; Instructions 
I.B.1 and I.B.5 of Form F-3. Certain newly eligible SRCs under the 
new definition will continue to be eligible to rely on Instruction 
I.B.1 of Form S-3 and Form F-3 to register primary offerings.
---------------------------------------------------------------------------

    We believe that these amendments will promote capital formation 
through a modest reduction in compliance costs for newly eligible SRCs 
while maintaining appropriate investor protections.\61\ In 2016, 
approximately 28% of registrants had less than $75 million in public 
float,\62\ compared to approximately 42% of registrants when the SRC 
definition was established.\63\ Increasing the public float threshold 
to $250 million would have resulted in approximately 39% of registrants 
qualifying as SRCs in 2016 based on their public float.\64\
---------------------------------------------------------------------------

    \61\ See Section IV.B.
    \62\ Based on public float values disclosed by registrants in 
their Form 10-K filings, 2,072, or 28.0%, of the 7,395 registrants 
that filed a Form 10-K in 2016 reported having a public float of 
less than $75 million.
    \63\ Approximately 4,976, or 41.8%, of the 11,898 registrants 
that filed Exchange Act annual reports in 2006 had a public float of 
less than $75 million. See SRC Adopting Release. The release cites 
data from the Commission's EDGAR filing system and Thomson Financial 
(``Datastream''). The Datastream data included all registered public 
firms trading on the New York Stock Exchange, the American Stock 
Exchange, the Nasdaq, the Over-the-Counter Bulletin Board and the 
Pink Sheets and excluded closed end funds, exchange traded funds, 
American depositary receipts and direct foreign listings.
    \64\ Based on public float values disclosed by registrants in 
their Form 10-K filings, 2,851, or 38.6%, of the 7,395 registrants 
that filed a Form 10-K in 2016 reported having a public float of 
less than $250 million.
---------------------------------------------------------------------------

    We believe the existing scaled disclosure accommodations have 
reduced compliance costs for SRCs.\65\ These amendments will extend 
those benefits to a broader pool of registrants, consistent with the 
intent of the Commission when it adopted the SRC definition in 
2007.\66\ Although the amendments will permit a broader group of 
registrants to make scaled disclosure to their investors, we do not 
believe that this scaling of disclosure

[[Page 31997]]

will detract substantially from the investor protection objectives of 
our disclosure regime in light of the other protections available under 
current law and regulations. First, the additional registrants that 
will qualify for scaled disclosure, like all registrants, will remain 
liable for their disclosures \67\ and, in addition to the disclosure 
expressly required by the rules, will continue to be required to 
provide such further material information, if any, as may be necessary 
to make any required statements, in the light of the circumstances 
under which they are made, not misleading.\68\ Moreover, their 
disclosure also will continue to be subject to the Division of 
Corporation Finance's filing review process. These measures of investor 
protection will remain unchanged.
---------------------------------------------------------------------------

    \65\ See Section IV.B.3.a.
    \66\ See SRC Adopting Release, 73 FR at 934 and 942 (stating 
that the Commission was ``adopting amendments to its disclosure and 
reporting requirements . . . to expand the number of companies that 
qualify for its scaled disclosure requirements for smaller reporting 
companies;'' and ``[w]e believe this standard is appropriately 
scaled in that it reduces costs to smaller companies caused by 
unnecessary information requirements, consistent with investor 
protection.'').
    \67\ See, e.g., Sections 11, 12, and 17 of the Securities Act, 
Sections 10(b) and 18 of the Exchange Act, and Exchange Act Rule 
10b-5 [17 CFR 240.10b-5].
    \68\ See Securities Act Rule 408 [17 CFR 230.408] and Exchange 
Act Rule 12b-20 [17 CFR 240.12b-20].-
---------------------------------------------------------------------------

2. Revenue Test
a. Proposed Amendments
    As proposed, a registrant with no public float would qualify as a 
SRC if it had annual revenues of less than $100 million during its most 
recently completed fiscal year.\69\ Consistent with the current 
definition, the Commission proposed that once a registrant determines 
that it does not qualify as a SRC,\70\ it would not subsequently 
qualify until its revenues fall below another, lower threshold. 
Specifically the Commission proposed amending the rules to provide that 
a registrant with no public float that previously determined that it 
did not qualify as a SRC would qualify as a SRC if it had annual 
revenues of less than $80 million as of the relevant measurement 
date.\71\ The proposed $80 million subsequent qualification threshold 
would maintain the 80% ratio that exists between the $50 million 
initial qualification threshold and $40 million subsequent 
qualification threshold in the current SRC definition.
---------------------------------------------------------------------------

    \69\ See Proposed Item 10(f)(1)(ii)(A) of Regulation S-K; 
Proposed Securities Act Rule 405; Proposed Exchange Act Rule 12b-2.
    \70\ This applies either upon an initial determination in the 
case of registrants filing an initial registration statement, or as 
of an annual determination in the case of reporting registrants.
    \71\ Under the current definition, a registrant that previously 
determined that it did not qualify as a SRC because it had no public 
float and its revenues exceeded the current $50 million threshold 
may qualify based on a subsequent determination if it had annual 
revenues of less than $40 million. That registrant would then remain 
a SRC until its revenues exceeded $50 million. Consistent with the 
current definition, under the proposed definition, a registrant with 
no public float that subsequently qualifies under the $80 million 
revenue threshold would remain qualified until its revenue exceeds 
$100 million.
---------------------------------------------------------------------------

    The Proposing Release noted that the 2015 Small Business Forum 
recommended that the SRC definition be revised to include, in addition 
to registrants with a public float of less than $250 million, 
registrants with a public float of less than $700 million and annual 
revenues of less than $100 million.\72\ The Proposing Release also 
solicited comment on whether the Commission should revise the SRC 
definition to include an alternative revenue test.
---------------------------------------------------------------------------

    \72\ See Proposing Release at text accompanying note 22.
---------------------------------------------------------------------------

b. Comments
    Many commenters recommended that the Commission add a revenue test 
to the SRC definition for companies with a public float.\73\ Several 
commenters stated that businesses below $100 million in revenue are 
viewed by reasonable observers as ``small.'' \74\ One commenter 
believed that a revenue test would stimulate innovation and drive 
business growth.\75\ Another commenter stated that a revenue test would 
ensure that pre-revenue companies are not ``forced to divert investment 
funds . . . from science to compliance.'' \76\ Another commenter 
supported an alternative revenue test for highly valued pre-revenue 
companies ``to avoid stifling the advancement'' of these companies with 
costly compliance.\77\ Two commenters suggested that we adopt a revenue 
test without a limitation on the public float or market capitalization 
of the company.\78\ Another two commenters specifically recommended 
that the Commission adopt a definition based on revenues of less than 
$100 million and a public float of less than $700 million, as 
recommended by the Small Business Forum.\79\
---------------------------------------------------------------------------

    \73\ See Acorda, et al. (recommending a revenue test, stating 
that public float is largely a marker of future value but paints an 
inaccurate picture of small businesses in the present); AMTA; BIO 
(stating that the Commission should move away from its reliance on 
public float as the ultimate arbiter of company size); Letter from 
Calithera Biosciences, August 8, 2016 (``Calithera''); CONNECT; 
CSBA; Nasdaq (recommending a well-crafted revenue only threshold); 
NYSE (recommending a simple revenue test without a limitation on 
market capitalization); and Zeller (recommending a revenue test for 
any issuers that are thinly traded). See also Section II.A.1.b for a 
discussion of comments addressing the overall costs and benefits of 
expanding the pool of registrants eligible for SRC status, including 
the proposed revision to expand the revenue threshold for 
registrants with no public float.
    \74\ See Acorda, et al.; BIO; and Calithera.
    \75\ See BIO (stating that pre-revenue small businesses should 
remain focused on innovation and do not have the capital to pay for 
expensive compliance requirements, and therefore allowing them to 
qualify as SRCs until they generate revenue would stimulate 
innovation and drive business growth).
    \76\ See Acorda, et al.
    \77\ See AMTA.
    \78\ See NYSE; and Nasdaq.
    \79\ See BIO; and Calithera.
---------------------------------------------------------------------------

c. Final Amendments
    After considering the comments received as well as the 
recommendations made by the ACSEC \80\ and the Small Business 
Forum,\81\ we are adopting the proposed amendments to the revenue test 
of the SRC definition and expanding the revenue test to include certain 
registrants with a public float. The definition in the final rules will 
include, in addition to registrants with a public float of less than 
$250 million, registrants with annual revenues of less than $100 
million during their most recently completed fiscal year and either no 
public float (calculated as discussed in Section II.A.1) or a public 
float of less than $700 million.\82\ We are persuaded by commenters' 
suggestions that it is appropriate to provide a measure by which a 
registrant with a public float but limited revenues may qualify as a 
SRC.\83\ This amended revenue test expands the proposed revenue 
threshold for companies with no public float to permit registrants with 
a public float that is less than $700 million to qualify based on their 
revenues. The $700 million public float threshold included in this 
amended revenue test was recommended by two commenters \84\ and the 
Small Business Forum.\85\ This change from the proposal

[[Page 31998]]

permits some additional registrants to qualify as SRCs,\86\ and we 
believe that these low-revenue registrants would benefit from the cost 
savings of scaled disclosure accommodations and could redirect those 
savings into growing their businesses without significantly detracting 
from investor protections. For example, these registrants will remain 
liable for their disclosures, will continue to be required to provide 
all material information necessary to make any required statements not 
misleading, and will continue to be subject to the Division of 
Corporation Finance's filing review process.
---------------------------------------------------------------------------

    \80\ See note 19.
    \81\ See note 20.
    \82\ See Item 10(f)(1)(ii) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2. Under the public float test 
discussed in Section II.A.1., a registrant with public float of less 
than $250 million will qualify as a SRC regardless of its revenues. 
See Instruction to Paragraph (f) of Item 10 of Regulation S-K; 
Instruction to definition of ``smaller reporting company'' in 
Securities Act Rule 405; Instruction to definition of ``smaller 
reporting company'' in Exchange Act Rule 12b-2.
    \83\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; and 
CSBA.
    \84\ See BIO and Calithera.
    \85\ See note 20. In 2016 and 2017, the Small Business Forum 
recommended that the SRC definition be revised to include 
registrants with a public float of less than $250 million or 
registrants with annual revenues of less than $100 million, 
excluding large accelerated filers. Registrants with a public float 
of $700 million or more generally qualify as large accelerated 
filers. See Exchange Act Rule 12b-2. In prior years, the Small 
Business Forum recommended that the Commission revise the SRC 
definition to include registrants with a public float of less than 
$250 million or registrants with a public float of less than $700 
million and annual revenues of less than $100 million. See, e.g., 
Final Report of the 2015 SEC Government Business Forum on Small 
Business Capital Formation (Apr. 2016), available at https://www.sec.gov/info/smallbus/gbfor34.pdf.
    \86\ Excluding the 2,851 registrants that based on their 2016 
data would qualify under the public float test described in Section 
II.A.1 and the 594 registrants that would qualify under the proposed 
no public float and less than $100 million in annual revenues test, 
we estimate that this change would permit an additional 161 
registrants to qualify as a SRC.
---------------------------------------------------------------------------

    The amended revenue test that we are adopting is consistent with 
the position expressed by several commenters \87\ that it is not 
necessary to subject capital-intensive, low-revenue registrants with 
larger public floats or market capitalizations to the same reporting 
requirements as registrants with larger public floats and more well-
established, revenue-generating businesses. Although two commenters 
suggested that we adopt a revenue test without a limitation on the 
public float or market capitalization of the company,\88\ we believe 
that it is appropriate to include a public float limitation because, as 
a registrant's business and public float grows, investors should 
benefit from greater disclosure. The additional information provided by 
the registrant in these circumstances will assist a growing investor 
base in making informed investment decisions and also should lead to a 
lower cost of capital for the business as it grows. In this way, the 
amended revenue test in the final rules will enable some additional 
capital-intensive, low-revenue registrants to benefit from the cost-
savings of scaled reporting, while continuing to require larger 
registrants to comply with the disclosure requirements applicable to 
non-SRCs.
---------------------------------------------------------------------------

    \87\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; CSBA; 
NYSE; and Nasdaq.
    \88\ See NYSE; and Nasdaq.
---------------------------------------------------------------------------

    In 2016, approximately 7.7% of registrants qualified as SRCs by 
having no public float and less than $50 million in annual 
revenues.\89\ The number of registrants that would qualify as SRCs 
would have increased by 26, or 0.4%, under the new $100 million annual 
revenue threshold for registrants with no public float.\90\ Expanding 
the definition further to include registrants with annual revenues of 
less than $100 million and public float of less than $700 million would 
have increased the number of eligible registrants by an additional 161, 
or 2.2%.\91\
---------------------------------------------------------------------------

    \89\ Based on public float values and revenues disclosed by 
registrants in their Form 10-K filings in 2016, 568, or 7.7%, of the 
7,395 registrants that filed a Form 10-K in 2016 reported having no 
public float and less than $50 million in annual revenues.
    \90\ Based on public float values and revenues disclosed by 
registrants in their Form 10-K filings in 2016, 26, or 0.4%, of the 
7,395 registrants that filed a Form 10-K in 2016 had no public float 
and $50 million or more but less than $100 million in annual 
revenues.
    \91\ Based on public float values and revenues disclosed by 
registrants in their Form 10-K filings in 2016, 161, or 2.2%, of the 
7,395 registrants that filed a Form 10-K in 2016 had $250 million or 
more but less than $700 million of public float and less than $100 
million in annual revenues.
---------------------------------------------------------------------------

    Under the current definition, and as proposed, once a registrant 
with no public float determines that it does not qualify as a SRC,\92\ 
it cannot subsequently qualify based on revenues until its revenues 
fall below another, lower threshold. As discussed above with respect to 
the public float test, while we did not receive any comments on the 
subsequent qualification thresholds, we believe that a separate, lower 
revenue threshold for these registrants helps to avoid situations in 
which registrants enter and exit SRC status due to small fluctuations 
in their revenues and does not impose an undue burden on registrants 
seeking to qualify for SRC status. Therefore, consistent with the 
proposal, once an issuer with no public float determines that it does 
not qualify for SRC status because its annual revenues exceeded $100 
million, it will remain unqualified unless and until its annual 
revenues are less than $80 million as of the measurement date.\93\
---------------------------------------------------------------------------

    \92\ This applies either upon an initial determination in the 
case of registrants filing an initial registration statement, or as 
of an annual determination in the case of reporting registrants.
    \93\ See Item 10(f)(2)(iii)(B) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2. Consistent with the current 
definition, under the amended definition, a registrant with no 
public float that subsequently qualifies under the $80 million 
revenue threshold remains qualified until its revenue exceeds $100 
million.
---------------------------------------------------------------------------

    Consistent with the 80% ratio we are adopting for the other 
subsequent qualification thresholds, under the amended revenue test, 
once a registrant with public float determines that it does not qualify 
as a SRC because it exceeds either or both of the $100 million annual 
revenue and $700 million public float thresholds, it will remain 
unqualified unless and until it meets a lower threshold for the 
criteria on which it previously failed to qualify ($80 million of 
annual revenue and $560 million of public float) and continues to meet 
any threshold it previously satisfied ($100 million of annual revenue 
or $700 million of public float).\94\ By requiring that a registrant 
satisfy a lower threshold only with respect to a threshold it 
previously exceeded, we are attempting to strike a balance between 
avoiding situations in which registrants frequently enter and exit SRC 
status due to small fluctuations and not imposing an undue burden on 
registrants seeking to qualify for SRC status. A registrant that 
exceeded both the public float threshold and the revenue threshold, 
however, would not qualify unless and until it met both lower 
thresholds in order to avoid situations in which registrants enter and 
exit SRC status due to small fluctuations in either their revenues or 
public float. The table below sets forth the thresholds for 
qualification as of the respective measurement date under the amended 
revenue test after one or both thresholds have been exceeded:
---------------------------------------------------------------------------

    \94\ Id. Consistent with the current definition, under the 
amended definition, a registrant that subsequently qualifies under 
the $560 million public float threshold or $80 million revenue 
threshold remains qualified until its public float exceeds $700 
million or its revenue exceeds $100 million.

------------------------------------------------------------------------
                                          Prior public float
                             -------------------------------------------
    Prior annual revenues       None or less than
                                  $700 million      $700 million or more
------------------------------------------------------------------------
Less than $100 million......  Neither threshold     Public float--Less
                               exceeded.             than $560 million;
                                                     and
                                                    Revenues--Less than
                                                     $100 million.
$100 million or more........  Public float--None    Public float--Less
                               or less than $700     than $560 million;
                               million; and          and
                              Revenues--Less than   Revenues--Less than
                               $80 million.          $80 million.
------------------------------------------------------------------------


[[Page 31999]]

B. Amendments to Rule 3-05(b)(2)(iv) of Regulation S-X

    In the Proposing Release, the Commission asked whether, if the 
revenue threshold in the SRC definition is increased, the threshold in 
Rule 3-05 of Regulation S-X also should increase. Rule 3-05 of 
Regulation S-X provides the requirements for financial statements of 
businesses acquired or to be acquired in certain registration 
statements and current reports. Current paragraph (b)(2)(iv) allows 
certain registrants to omit such financial statements for the earliest 
of the three fiscal years required if the net revenues of the business 
to be acquired are less than $50 million.\95\ The $50 million threshold 
is based on the revenue threshold in the SRC definition.\96\
---------------------------------------------------------------------------

    \95\ Rule 3-05(b)(2) sets forth the requirements for financial 
statements of an acquired business or to be acquired business to be 
provided other than when registering securities to be offered to the 
security holders of the business to be acquired.
    \96\ In 1996, the Commission revised Rule 3-05 to streamline the 
requirements for financial statements of significant business 
acquisitions in filings made under the Securities Act and the 
Exchange Act, stating:
    ``The threshold at which audited financial statements of an 
acquired business are required for three years, as required for the 
issuer itself (except for small business issuers), has been raised 
from 40% to 50% in recognition of the significant burden imposed by 
the lower threshold. In addition, consistent with the criteria for 
small business issuers, financial statements for periods preceding 
the most recent two fiscal years would not be required for acquired 
businesses reporting revenues below $25 million.'' See Streamlining 
Disclosure Requirements Relating to Significant Business 
Acquisitions. Release No. 33-7355 (Oct. 10, 1996) [61 FR 54509 (Oct. 
18, 1996)] (``1996 Rule 3-05 Adopting Release'').
    When the Commission adopted the SRC definition (which replaced 
the small business issuer definition) in 2007, it noted:
    ``Several comment letters noted that in light of the $50 million 
in revenues threshold proposed for determining a company's 
qualification as a SRC if a company is unable to calculate public 
float, the Commission should consider revising [Rule 3-05(b)(2)(iv)] 
to raise to $50 million the $25 million threshold currently used to 
limit to two the periods required for audited financial statements 
of an acquired business. The $25 million threshold was based on the 
$25 million in revenues standard in Regulation S-B that we are 
rescinding. We are amending this standard to increase the threshold 
to $50 million in revenues, as suggested by the commenters.'' See 
SRC Adopting Release.
---------------------------------------------------------------------------

    Two commenters recommended amending Rule 3-05 to increase the 
revenue threshold in paragraph (b)(2)(iv) to $100 million to maintain 
the alignment between Rule 3-05 and the definition of a SRC.\97\ One 
commenter noted that this alignment should be retained to ``maintain 
the objective the Commission expressed when it adopted the 2007 S-X 
Rule 3-05 relief.'' \98\ The other commenter noted that this amendment 
would avoid having the financial statement requirements for a SRC-sized 
target company exceed those of a similarly sized registrant.\99\
---------------------------------------------------------------------------

    \97\ See EY; and BDO. No other commenters addressed whether to 
amend Rule 3-05 of Regulation S-X.
    \98\ See EY; see also SRC Adopting Release.
    \99\ See BDO.
---------------------------------------------------------------------------

    Consistent with these comments, we are amending Rule 3-05 to 
increase the net revenue threshold in Rule 3-05(b)(2)(iv) of Regulation 
S-X to $100 million.\100\ Given that the current $50 million revenue 
threshold in Rule 3-05(b)(2)(iv) was based on the revenue threshold in 
the SRC definition, and in light of our decision to increase the 
revenue threshold in the SRC definition from $50 million to $100 
million, we are raising the net revenue threshold in Rule 3-
05(b)(2)(iv) of Regulation S-X from $50 million to $100 million.
---------------------------------------------------------------------------

    \100\ See Rule 3-05(b)(2)(iv) of Regulation S-X.
---------------------------------------------------------------------------

C. Amendments to Accelerated Filer and Large Accelerated Filer 
Definitions

1. Proposed Amendments
    The Commission proposed amending the definitions of ``accelerated 
filer'' and ``large accelerated filer'' to remove the automatic 
exclusion from these definitions of any registrant that qualifies as an 
SRC \101\ and solicited comment on a number of questions related to 
this issue.\102\ Among other requirements,\103\ being an accelerated 
filer or a large accelerated filer triggers the requirement contained 
in Section 404(b) of the Sarbanes-Oxley Act \104\ to have the auditor 
provide an attestation report on internal control over financial 
reporting. Currently, the accelerated filer and large accelerated filer 
definitions include a provision that specifically excludes registrants 
that are eligible to use the SRC requirements under Regulation S-K for 
their annual and quarterly reports.\105\ As a result, the existing 
public float threshold in the accelerated filer definition aligns with 
the current public float threshold in the SRC definition.\106\
---------------------------------------------------------------------------

    \101\ See Proposing Release, 81 FR at 43136.
    \102\ See Proposing Release, 81 FR at 43137. As discussed in the 
Proposing Release, the ACSEC and the Small Business Forum have 
recommended increasing the thresholds in both the SRC and the 
accelerated filer definitions. See notes 19 and 20.
    \103\ Accelerated and large accelerated filers are subject to 
accelerated periodic report filing deadlines. In addition, they must 
provide their internet address and disclosure regarding the 
availability of their filings required by Items 101(e)(3) and (4) of 
Regulation S-K [17 CFR 229.101(e)(3) and (4)], as well as disclosure 
required by Item 1B of Form 10-K about unresolved staff comments on 
their periodic or current reports.
    \104\ Public Law 107-204, Sec. 404(b) 116 Stat. 745 (2002).
    \105\ Paragraphs (1)(iv) of the accelerated filer definition and 
(2)(iv) of the large accelerated filer definition in Exchange Act 
Rule 12b-2.
    \106\ The public float thresholds for exiting SRC status and 
entering accelerated filer status currently are both $75 million, 
and the determinations are both made as of the last business day of 
a registrant's most recently completed second fiscal quarter for 
purposes of the following fiscal year.
[GRAPHIC] [TIFF OMITTED] TR10JY18.000


[[Page 32000]]


    Increasing the SRC public float threshold to $250 million without 
eliminating the SRC provision from the accelerated filer definition 
would exclude from the definition of accelerated filer those 
registrants that are newly eligible to use the SRC disclosure 
requirements, keeping the thresholds for both definitions linked as 
they have been historically.
    The Commission proposed to eliminate the provision in the 
accelerated filer definition that excludes SRCs to maintain the current 
thresholds at which registrants are subject to the accelerated filer 
disclosure and filing requirements. As a result, as illustrated in 
Figure 2, some registrants would qualify as both SRCs and accelerated 
filers.
[GRAPHIC] [TIFF OMITTED] TR10JY18.001

    As discussed in the Proposing Release, the public float threshold 
for entering large accelerated filer status currently is $700 million, 
so newly eligible SRCs under the proposed increased public float 
threshold of $250 million would not include any registrants that 
currently qualify as large accelerated filers. Nevertheless, the 
Commission proposed to eliminate this provision because it currently 
does not capture any registrants, would not have captured any 
registrants under the proposed amendments, and could lead to confusion 
if retained.
2. Comments
    Some commenters responded to the Commission's solicitation of 
comment on this issue by supporting the elimination of the provisions 
in the accelerated filer and large accelerated filer definitions that 
specifically exclude registrants that are eligible to use the SRC 
disclosure requirements for their annual or quarterly reports.\107\ One 
commenter stated that it found no compelling argument to support what 
it sees as a weakening of investor protections, particularly in light 
of the 2011 Staff Section 404(b) Study \108\ finding that accelerated 
filers subject to Section 404(b) had a lower restatement rate compared 
to non-accelerated filers not subject to Section 404(b).\109\ Another 
commenter recommended that the Commission undertake a separate 
rulemaking before deciding whether to change the Section 404(b) 
requirements.\110\ A third commenter recommended that the Commission 
provide more time for registrants with a public float of less than $250 
million to file their periodic reports.\111\
---------------------------------------------------------------------------

    \107\ See BDO; CAQ/CII; CFA Institute; Letter from Deloitte, 
August 23, 2016 (``Deloitte''); and EY.
    \108\ Study and Recommendations on Section 404(b) of the 
Sarbanes-Oxley Act of 2002 For Issuers With Public Float Between $75 
and $250 Million (Apr. 2011), available at https://www.sec.gov/news/studies/2011/404bfloat-study.pdf.
    \109\ See CFA Institute, citing 2011 Staff Section 404(b) Study.
    \110\ See EY.
    \111\ See BDO.
---------------------------------------------------------------------------

    In contrast, many commenters responded to the Commission's 
solicitation of comment on this issue by recommending that the 
Commission increase the thresholds in the accelerated filer definition, 
consistent with the changes to the SRC definition.\112\ Commenters 
recommended increasing the public float threshold in the accelerated 
filer definition to reduce compliance costs \113\ and to maintain 
uniformity across our rules.\114\ Many of these commenters stated that 
Section 404(b) is particularly costly for SRCs and emerging businesses 
\115\ and that audit costs associated with Section 404(b) divert 
capital from core business needs.\116\
---------------------------------------------------------------------------

    \112\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; 
Coalition; CSBA; ICBA; Letter from The Dixie Group, Inc., July 11, 
2016 (``Dixie''); MidSouth; Nasdaq; NVCA; NYSE; and Seneca.
    \113\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; 
Coalition; CSBA; ICBA; Dixie; MidSouth; Nasdaq; NVCA; NYSE; and 
Seneca.
    \114\ See BIO (stating that uniformity alone is a sufficiently 
compelling argument to align the two definitions, that avoiding 
investor confusion is an important responsibility of the SEC, and 
that issuers and investors alike are used to having one standard for 
small company status); Coalition; Nasdaq; NVCA; and NYSE.
    \115\ See Acorda, et al.; AMTA; BIO; Calithera; Coalition; 
CONNECT; CSBA; and Seneca. See also Dixie.
    \116\ See Acorda, et al.; BIO; CSBA; ICBA; and NVCA.
---------------------------------------------------------------------------

    Several commenters addressed the costs associated with complying 
with the requirements of Section 404(b).\117\ A few commenters stated 
that, for many growing biotechnology companies, the Section 404(b) 
audit represents over $1 million of capital diversion.\118\ One 
commenter indicated that Section 404(b) compliance imposes a 
significant burden on emerging biotech companies, citing the 2011 Staff 
Section 404(b) Study that estimated that companies with a public float 
between $75 million and $250 million spend, on average, $840,276 to 
comply with Section 404(b).\119\ Another commenter estimated that it 
will spend more than $400,000 annually on compliance with Section 
404(b).\120\ One commenter that

[[Page 32001]]

stated that its public float was more than $75 million but less than 
$250 million estimated that relief from Section 404(b) would result in 
a 35% reduction in compliance costs whereas there would be no material 
change in such costs from the proposed amendments.\121\ Another 
commenter noted that, while most firms already take an integrated 
accounting approach to Section 404(b) requirements that includes a 
complete internal control review, if smaller companies were exempt from 
Section 404(b), they would avoid the added legal liability of the 
auditor attestation, providing a savings opportunity and lowering the 
cost of being public for those companies.\122\
---------------------------------------------------------------------------

    \117\ See Acorda, et al.; BIO; Calithera; CONNECT; CSBA (stating 
that ``accelerated filers spend, on average, more than $1 million 
complying with Section 404(b)''); Dixie; and Seneca.
    \118\ See Acorda, et al.; and CONNECT. See also CSBA.
    \119\ See BIO.
    \120\ See Calithera. This estimate is generally consistent with 
the estimate set forth by a presenter at a recent ACSEC meeting. The 
presenter stated that some biotechnology companies that anticipate 
losing their status as EGCs in the next few years ``believe they 
will incur somewhere between $150,000 to $350,000 in additional 
audit fees, $50,000 to $150,000 in other consulting costs and either 
$40,000 or as much as $200,000 for internal labor.'' See Transcript 
of Presentation by William Newell at September 13, 2017 ACSEC 
Meeting available at https://www.sec.gov/info/smallbus/acsec/acsec-transcript-091317.pdf (pages 49 to 54); see also Newell, William J., 
``Sarbanes-Oxley Section 404(b): Costs of Compliance and Proposed 
Reforms'', presentation at ACSEC meeting on Sept. 13, 2017 available 
at https://www.sec.gov/info/smallbus/acsec/william-newell-acsec-091317.pdf.
    \121\ See Seneca.
    \122\ See Dixie.
---------------------------------------------------------------------------

    A few commenters stated that the market does not value the audit of 
such internal control \123\ or that the costs of Section 404(b) 
outweigh the benefits.\124\ Another commenter stated that expanding 
relief from Section 404(b) to registrants with a public float of less 
than $250 million would encourage capital formation because reduced 
audit and disclosure requirements may encourage companies that have 
been hesitant to go public to do so.\125\
---------------------------------------------------------------------------

    \123\ See Acorda, et al. (stating that the market does not 
demand a Section 404(b) audit as a prerequisite for investing in 
emerging, innovative companies and that virtually no EGCs are 
voluntarily forgoing their exemption from Section 404(b)). See also 
Dixie.
    \124\ See MidSouth.
    \125\ See ICBA (citing a 2005 ICBA study that estimated that 
audit fees for publicly held bank holding companies would drop 
dramatically--some by as much as 50%--if they were exempted from 
Section 404(b)).
---------------------------------------------------------------------------

    A number of commenters recommended that the Commission allow a 
revenue test for the accelerated filer definition, similar to the 
amended revenue test being adopted by the Commission in the SRC 
definition.\126\
---------------------------------------------------------------------------

    \126\ See Acorda, et al.; AMTA; BIO; CONNECT; Calithera; CSBA; 
Nasdaq; and NYSE.
---------------------------------------------------------------------------

3. Final Amendments
    As proposed, we are adopting amendments to the ``accelerated 
filer'' and ``large accelerated filer'' definitions in Exchange Act 
Rule 12b-2 to preserve the application of the current thresholds 
contained in those definitions.\127\ Specifically, we are eliminating 
from the definitions of accelerated filer and large accelerated filer 
the exclusions for registrants that are eligible to use the SRC 
requirements under Regulation S-K for their annual and quarterly 
reports. After the amendments to the SRC definition become effective, 
some SRCs will exceed the public float thresholds for initial or 
subsequent qualification in the accelerated filer definition, and a few 
of these registrants also may exceed the public float threshold for 
subsequent qualification in the large accelerated filer 
definition.\128\
---------------------------------------------------------------------------

    \127\ See ``accelerated filer'' and ``large accelerated filer'' 
definitions in Exchange Act Rule 12b-2.
    \128\ The only registrants that would qualify as both SRCs and 
large accelerated filers would be those companies (1) that 
previously qualified as large accelerated filers because at one time 
their public float was $700 million or more, (2) whose revenues for 
the most recent fiscal year were less than $100 million, and (3) 
whose public float as of the end of the most recent second quarter 
was less than $560 million, such that they now qualify as SRCs, but 
not less than $500 million, such that they are not eligible to exit 
large accelerated filer status.
---------------------------------------------------------------------------

    Although we are not raising the accelerated filer public float 
threshold or modifying the Section 404(b) requirements for registrants 
with a public float between $75 million and $250 million in this 
release, as stated above, the Chairman has directed the staff to 
formulate recommendations to the Commission for possible changes to 
reduce the number of registrants that our rules define as accelerated 
filers. Eliminating the SRC provision in the accelerated filer and 
large accelerated filer definitions will maintain the current 
thresholds at which registrants are subject to the accelerated filer 
and large accelerated filer disclosure and filing requirements. In 
2007, the Commission noted that aligning the SRC public float threshold 
based on the levels established for non-accelerated filers \129\ was 
practical and avoided regulatory complexity.\130\ These amendments will 
change the current relationship between the SRC and ``accelerated 
filer'' definitions by allowing a registrant to qualify as both a SRC 
and an accelerated filer.\131\ We acknowledge the regulatory complexity 
created by this potential overlap between the SRC and ``accelerated 
filer'' definitions.\132\ As part of the staff's consideration of 
possible recommended amendments to the ``accelerated filer'' 
definition, the Chairman has directed the staff to consider, among 
other things, the historical and current relationship between the SRC 
and ``accelerated filer'' definitions.
---------------------------------------------------------------------------

    \129\ A non-accelerated filer is a filer that is not an 
``accelerated filer'' or a ``large accelerated filer.'' See subpart 
(3) of the accelerated filer and large accelerated filer definitions 
in Exchange Act Rule 12b-2 [17 CFR 240.12b-2].
    \130\ See SRC Adopting Release 73 FR at 942.
    \131\ In conjunction with these amendments, we also are adopting 
technical revisions to Securities Act Forms S-1, S-3, S-4, S-8, and 
S-11 and Exchange Act Forms 10, 10-Q and 10-K. These amendments 
modify the cover page of the specified forms to remove the 
parenthetical next to the ``non-accelerated filer'' definition that 
states ``(Do not check if a smaller reporting company).'' After 
these amendments, a registrant should check all applicable boxes on 
the cover page addressing, among other things, non-accelerated, 
accelerated, and large accelerated filer status, SRC status, and 
emerging growth company status.
    \132\ Several commenters specifically recommended increasing the 
public float threshold in the accelerated filer definition to, among 
other things, maintain uniformity across our rules. See BIO; 
Coalition; Nasdaq; NVCA; and NYSE.
---------------------------------------------------------------------------

III. Other Matters

    If any of the provisions of these amendments, or the application 
thereof to any person or circumstance, is held to be invalid, such 
invalidity shall not affect other provisions or application of such 
provisions to other persons or circumstances that can be given effect 
without the invalid provision or application.

IV. Economic Analysis

    As discussed above, we are adopting amendments to the definition of 
SRC as used in our rules and regulations. The amendments expand the 
number of registrants that are eligible to provide scaled disclosure to 
their investors and are intended to reduce compliance costs for these 
registrants and promote capital formation, while maintaining 
appropriate investor protections. Registrants with a public float of 
less than $250 million (an increase from the current $75 million 
threshold) will qualify as SRCs, as will registrants with no public 
float if their revenues are less than $100 million (an increase from 
the current $50 million threshold).\133\ In addition, registrants with 
a public float of less than $700 million will qualify as SRCs if their 
revenues are less than $100 million.\134\
---------------------------------------------------------------------------

    \133\ See note 29 and related text for a discussion of how and 
when public float is calculated and when revenues are measured.
    \134\ The Commission received a number of comments in support of 
expanding the definition of SRC to include a revenue test for 
registrants with a public float. See Section II.A.1.b.
---------------------------------------------------------------------------

    We also are making corresponding amendments to other rules in light 
of the new SRC definition. As proposed, we are adopting amendments to 
the ``accelerated filer'' and ``large accelerated filer'' definitions 
in Exchange Act Rule 12b-2 to preserve the application of the public 
float thresholds in those definitions. In addition, we are amending 
Rule 3-05(b)(2)(iv) of Regulation S-X to increase the revenue threshold 
under which certain registrants may omit the earliest of the three 
fiscal years of

[[Page 32002]]

audited financial statements of an acquired business or business to be 
acquired.
    We are mindful of the costs and benefits of the amendments. In this 
economic analysis, we examine the existing baseline, which consists of 
the current regulatory framework and market practices, and discuss the 
potential costs and benefits of the amendments, relative to this 
baseline, and their potential effects on efficiency, competition, and 
capital formation.\135\ We also consider the potential costs and 
benefits of reasonable alternatives to the amendments. Where 
practicable, we have attempted to quantify the economic effects of the 
amendments; however, in certain cases, we are unable to do so because 
either the necessary data are unavailable or the economic effects are 
not quantifiable. In these cases, we provide a qualitative assessment 
of the likely economic effects.
---------------------------------------------------------------------------

    \135\ Section 23(a)(2) of the Exchange Act requires us, when 
adopting rules, to consider the impact that any new rule would have 
on competition. In addition, Section 2(b) of the Securities Act and 
Section 3(f) of the Exchange Act direct us, when engaging in 
rulemaking that requires us to consider or determine whether an 
action is necessary or appropriate in the public interest, to 
consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

A. Baseline

    In calendar year 2016, 7,395 registrants filed a Form 10-K with the 
Commission. Excluding investment companies, business development 
companies, and ABS issuers, which are not eligible for SRC status, 
6,739 registrants filed a Form 10-K in calendar year 2016. Of these 
registrants, 2,592 (35.1% of all registrants) claimed SRC status by 
checking the box on the cover page of their Forms 10-K indicating that 
the registrant was a SRC. Under the current definition, a registrant 
with a public float may qualify as a SRC if its public float is less 
than $75 million or a registrant with no public float may qualify as a 
SRC if its annual revenues are less than $50 million. An additional 232 
filers in calendar year 2016 reported public float of less than $75 
million or no public float and revenues of less than $50 million, but 
did not check the box on the cover page of their Forms 10-K indicating 
that they were SRCs.\136\ Of the 2,592 registrants that claimed SRC 
status in 2016, 1,899 registrants (25.7% of all registrants) reported 
having a public float that was less than $75 million and 509 
registrants (6.9% of all registrants) reported having no public float 
and revenues of less than $50 million.\137\ Of the 2,592 SRCs, 833 
(11.3% of all registrants) also indicated in their filings that they 
were EGCs.\138\
---------------------------------------------------------------------------

    \136\ There are two potential explanations for why the number of 
registrants meeting the SRC thresholds exceeds the number of 
reported SRCs. First, the public float and revenue thresholds 
establish eligibility for SRC status, but do not require eligible 
registrants to take advantage of the scaled disclosure requirements. 
Thus, some registrants may be opting out of SRC status if they do 
not find the reduced compliance costs to be net beneficial. Second, 
some registrants that appear to be eligible may not be if they 
previously exceeded the SRC threshold and were required to meet the 
lower eligibility threshold (i.e., public float of less than $50 
million or revenues of less than $40 million) to subsequently 
qualify as a SRC.
    \137\ Based on analysis by DERA of available data. Staff 
obtained the SRC status and public float data from information 
extracted from exhibits to corporate financial reports filed with 
the Commission using eXtensible Business Reporting Language 
(``XBRL''), available at: http://www.sec.gov/dera/data/financial-statement-data-sets.html. Staff also extracted the SRC status and 
public float directly from Forms 10-K using a computer program. For 
robustness, staff compared the SRC status and public float 
information between the two sources and corrected discrepancies 
using data from Ives Group Audit Analytics. Staff extracted annual 
revenue data from the Compustat database and XBRL data in Form 10-K 
filings.
    \138\ Staff determined whether a registrant claimed EGC status 
by parsing several types of filings (for example, Forms S-1, S-1/A, 
10-K, 10-Q, 8-K, 20-F/40-F, and 6-K) filed by that registrant with 
supplemental data drawn from Ives Group Audit Analytics.
---------------------------------------------------------------------------

    Table 1 summarizes the number and percentage of registrants that 
claimed SRC status in each calendar year over the 2013-2016 period.

                                        Table 1--SRCs in 2013-2016 Period
----------------------------------------------------------------------------------------------------------------
                                                                                                     Qualified
                                                                                     Qualified      based on no
                                    Total # of                                       based on      public float
           Filing year              registrants      # of SRCs      % of total     public float     and revenue
                                                                                   <$75 million    <$50 million
                                                                                   (% of Total)    (% of Total)
----------------------------------------------------------------------------------------------------------------
2013............................           7,624           3,380            44.3            33.5            10.8
2014............................           7,642           3,179            41.6            32.7             8.9
2015............................           7,557           2,900            38.4            29.7             8.7
2016............................           7,395           2,592            35.1            25.7             6.9
----------------------------------------------------------------------------------------------------------------

    Table 2 shows that, while registrants claiming SRC status with 
available data account for a substantial percentage of the total number 
of registrants in calendar year 2016, they account for less than one 
percent of the entire public float, market value and revenue of all 
registrants.\139\
---------------------------------------------------------------------------

    \139\ Compustat data on market value is obtained for calendar 
year 2016 filings. Staff obtained revenue data either from XBRL data 
in Form 10-K filings or directly from the filing itself. The summary 
statistics presented in Table 2 represent those registrants for 
which information on public float and revenue is concurrently 
available. Market value, as used throughout this Economic Analysis, 
is equivalent to market capitalization and presented for registrants 
with available data (described in footnote 25).

                                     Table 2--Size Proxies for SRCs in 2016
----------------------------------------------------------------------------------------------------------------
                                             Public float             Market value               Revenue
----------------------------------------------------------------------------------------------------------------
Mean.................................  $14.7 million..........  $57.2 million..........  $42.8 million.
Median...............................  4.3 million............  14.1 million...........  1.9 million.
Aggregate size.......................  40.1 billion...........  98.7 billion...........  96.2 billion.
% of the aggregate size of all         0.15%..................  0.34%..................  0.66%.
 registrants.
----------------------------------------------------------------------------------------------------------------


[[Page 32003]]

    Table 3 shows the distribution of registrants that were eligible 
for SRC status based on available data in calendar year 2016 using the 
Fama-French 49-industry classification.\140\ The ``Business Services'' 
industry accounts for 10.6% of all SRCs, followed by ``Financial 
Trading'' (9.8%), ``Pharmaceutical Products'' (8.5%), ``Banking'' 
(7.1%), ``Petroleum and Natural Gas'' (5.6%), and ``Computer Software'' 
(5.2%).\141\ We note that industries with a larger fixed component of 
operating costs, such as shipping, defense, and aircraft, tend to have 
fewer SRCs.
---------------------------------------------------------------------------

    \140\ The standard Fama-French classification sorts Standard 
Industry Classification codes into 49 main industrial categories; 
available at: http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_49_ind_port.html.
    \141\ In 2016, SRCs accounted for 57% of all Form 10-K filers in 
``Business Services,'' 37% in ``Financial Trading,'' 20% in 
``Banking,'' 39% in ``Pharmaceutical Products,'' 50% in ``Petroleum 
and Natural Gas'' and 47% in ``Computer Software,'' suggesting that 
these industries all have a fairly high concentration of small 
registrants.

                                                     Table 3--Industry Distribution of SRCs in 2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
           Industry ID                 Industry          # of SRCs     % of all SRCs    Industry ID        Industry          # of SRCs     % of all SRCs
--------------------------------------------------------------------------------------------------------------------------------------------------------
1...............................  Agriculture.......              26             1.0              26  Defense...........               2             0.1
2...............................  Food Products.....              35             1.3              27  Precious Metals...              38             1.4
3...............................  Candy & Soda......               3             0.1              28  Non-Metallic and                76             2.9
                                                                                                       Industrial Metal
                                                                                                       Mining.
4...............................  Beer & Liquor.....              18             0.7              29  Coal..............               3             0.1
5...............................  Tobacco Products..               9             0.3              30  Petroleum and                  149             5.6
                                                                                                       Natural Gas.
6...............................  Recreation........              23             0.8              31  Utilities.........              15             0.6
7...............................  Entertainment.....              55             2.0              32  Communication.....              45             1.7
8...............................  Printing and                     8             0.3              33  Personal Services.              37             1.4
                                   Publishing.
9...............................  Consumer Goods....              40             1.6              34  Business Services.             281            10.7
10..............................  Apparel...........              17             0.6              35  Computers.........              22             0.8
11..............................  Healthcare........              37             1.4              36  Computer Software.             136             5.2
12..............................  Medical Equipment.             116             4.4              37  Electronic                     102             3.9
                                                                                                       Equipment.
13..............................  Pharmaceutical                 225             8.5              38  Measuring and                   41             1.6
                                   Products.                                                           Control Equipment.
14..............................  Chemicals.........              54             2.1              39  Business Supplies.               6             0.2
15..............................  Rubber and Plastic              20             0.8              40  Shipping                         2             0.1
                                   Products.                                                           Containers.
16..............................  Textiles..........               4             0.2              41  Transportation....              24             0.9
17..............................  Construction                    29             1.1              42  Wholesale.........              78             3.0
                                   Materials.
18..............................  Construction......              22             0.8              43  Retail............              82             3.1
19..............................  Steel Works.......               9             0.3              44  Restaurants,                    28             1.1
                                                                                                       Hotels, Motels.
20..............................  Fabricated                       5             0.2              45  Banking...........             187             7.1
                                   Products.
21..............................  Machinery.........              54             2.0              46  Insurance.........              20             0.8
22..............................  Electrical                      39             1.5              47  Real Estate.......              96             3.6
                                   Equipment.
23..............................  Automobiles and                 21             0.8              48  Financial Trading.             258             9.8
                                   Trucks.
24..............................  Aircraft..........               8             0.3  ..............  Other and Unknown.              30             1.1
25..............................  Shipbuilding,                    3             0.1  ..............  ..................  ..............  ..............
                                   Railroad
                                   Equipment.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As discussed above, we are amending Rule 3-05(b)(2)(iv) of 
Regulation S-X to increase the revenue threshold under which certain 
registrants may omit the earliest of the three fiscal years of audited 
financial statements of an acquired business or business to be 
acquired. Rule 3-05 applies to registrants that are not SRCs.\142\ Rule 
3-05(b)(2)(iv) provides that, if the acquired business is large enough 
relative to the registrant (i.e., any of the significant subsidiary 
tests for the acquired business exceed 50%), the registrant must file 
three years of historical financial statements of the acquired business 
unless the acquired business has revenues of less than $50 million, in 
which case only two years of the acquired business's most recent 
financial statements need to be filed. Given the difficulty in 
accurately identifying registrants that have acquisitions (1) that meet 
any of the significant subsidiary tests at the 50% level and (2) where 
the acquired business has revenues of less than $50 million, we are 
unable to estimate the number of registrants that were affected by the 
$50 million revenue threshold in

[[Page 32004]]

Rule 3-05(b)(2)(iv) in 2016. We do not believe the disclosure 
accommodation in Rule 3-05(b)(2)(iv) is frequently used because the 
acquired business not only would need to meet one of the significant 
subsidiary thresholds at the 50% level compared to the non-SRC 
acquirer, but also would need to have less than $50 million of revenues 
in its most recent fiscal year.
---------------------------------------------------------------------------

    \142\ Rule 8-04 of Regulation S-X [17 CFR 210.8-04] applies to 
financial statements of business acquired or to be acquired by SRCs.
---------------------------------------------------------------------------

B. Potential Economic Effects

1. Introduction
    The primary benefit stemming from the amendments is a reduction in 
compliance costs for the registrants that will newly qualify for SRC 
status. To the extent that the reduced compliance costs have a fixed 
cost component,\143\ which typically burdens smaller registrants 
disproportionately, the cost savings may be particularly helpful for 
those registrants.
---------------------------------------------------------------------------

    \143\ See, e.g., William A. Brock & David S. Evans, The 
Economics of Small Businesses: Their Role and Regulation in the U.S. 
Economy 65 at 70 (1986); C. Steven Bradford, Does Size Matter? An 
Economic Analysis of Small Business Exemptions from Regulation, 
College of Law, Faculty Publications. 72 (2004). See also Cindy R. 
Alexander et al., Economic Effects of SOX Section 404 Compliance: A 
Corporate Insider Perspective, 56 J. Account. & Econ. 267-290 at 285 
(2013) (noting, among other things, that they found ``evidence of 
fixed costs that weigh disproportionately on smaller firms'').
---------------------------------------------------------------------------

    As a secondary effect of the amendments, a lower disclosure burden 
could spur growth in the registrants that will newly qualify for SRC 
status to the extent that the compliance cost savings and other 
resources (e.g., managerial effort) otherwise devoted to disclosure and 
compliance are productively deployed in alternative ways. It also could 
encourage capital formation because companies that may have been 
hesitant to go public may choose to do so if they face reduced 
disclosure requirements.
    With respect to costs, we expect that the amendments to the SRC 
definition will result in a modest change in some indicators of the 
overall quality of the information environment. Generally, a decrease 
in the amount of direct disclosure could increase the information 
asymmetry between investors and company insiders, leading to lower 
liquidity and higher costs of capital for the affected registrants. For 
example, one study found that, during the three-month period following 
the establishment of the SRC definition, registrants with public floats 
of $25 million or more and less than $75 million that claimed SRC 
status experienced a significant reduction in liquidity relative to 
comparable registrants.\144\ In addition, one of the sources of 
information asymmetry under the amendments will be that the newly 
eligible SRCs will not be required to provide certain executive 
compensation disclosures, potentially lowering corporate governance 
transparency of these registrants.\145\ Furthermore, by introducing 
overlap between the SRC and the accelerated filer definitions, the 
amendments we are adopting would increase regulatory complexity.\146\
---------------------------------------------------------------------------

    \144\ See Lin Cheng, Scott Liao, and Haiwen Zhang, Commitment 
Effect versus Information Effect of Disclosure: Evidence from 
Smaller Reporting Companies, 88 Account. Rev. 1239 (Jul. 2013).
    \145\ For a review of the effects of executive compensation 
disclosures on compensation practices, see Kevin J. Murphy, 
``Executive compensation: Where we are, and how we got there,'' 
Handbook of the Economics of Finance, Vol. 2. Elsevier (2013) 211-
356. See also Benjamin E. Hermalin and Michael S. Weisbach, 
Information Disclosure and Corporate Governance, 67 J. Fin. 195 
(2012), and Anya Kleymenova and Irem A. Tuna, Regulation of 
Compensation (June 21, 2017), Chicago Booth Research Paper No. 16-
07, available at SSRN: https://ssrn.com/abstract=2755621.
    \146\ See SRC Adopting Release 73 FR at 942.
---------------------------------------------------------------------------

    The number of affected registrants that will make scaled 
disclosures will ultimately depend on the choices of those registrants. 
That is, the SRC definition establishes eligibility for, but does not 
mandate reliance on, any of the scaled disclosure accommodations.\147\ 
We identified 232 registrants in 2016 that met either the $75 million 
public float threshold or the $50 million revenue threshold for SRC 
status but did not claim SRC status. While some of these registrants 
may not have been eligible (for example, a registrant that previously 
did not qualify as a SRC because it exceeded the thresholds and is now 
subject to a lower threshold), it is possible that some elected not to 
avail themselves of the scaled disclosure requirements.\148\
---------------------------------------------------------------------------

    \147\ If a disclosure requirement applicable to SRCs is more 
stringent than for non-SRCs, however, SRCs must comply with the more 
stringent standard. Item 404 is the only Regulation S-K disclosure 
requirement that could be more stringent.
    \148\ Data from 2008 show that registrants do not always take 
advantage of scaled disclosure. In a sample of 283 registrants that 
were newly eligible for scaled disclosure in 2008, the evidence from 
Form 10-K and proxy filings by those registrants shows that 109 of 
the registrants chose to maintain their disclosure level for all ten 
eligible items, while 174 of the registrants reduced the disclosure 
level for at least one eligible item. See Lin Cheng, Scott Liao, and 
Haiwen Zhang, Commitment Effect versus Information Effect of 
Disclosure: Evidence from Smaller Reporting Companies, 88 Account. 
Rev. 1239 (Jul. 2013) at 1247.
---------------------------------------------------------------------------

    Under the amendments, we expect registrants will weigh their own 
costs and benefits of scaled disclosure and decide whether to take 
advantage of any of the scaled disclosure accommodations for which they 
are newly eligible. Some registrants may determine that the costs of 
potentially reduced liquidity for their securities and higher cost of 
capital exceed the benefits of the lower compliance costs. Those 
registrants may elect not to rely on the scaled disclosure 
accommodations available to them. On the other hand, expanding SRC 
eligibility could provide opportunities for adverse selection in a 
greater number of registrants. For example, registrants whose outside 
investors would have benefited from more disclosure might choose the 
less burdensome disclosure requirement once becoming eligible. The net 
benefit or cost for each newly eligible registrant and its investors 
will ultimately depend on the specific facts and circumstances.
    Expanding the pool of registrants eligible for SRC status to 
include registrants with revenues of less than $100 million and a 
public float of $250 million or more and less than $700 million will 
increase the cost savings, information asymmetries, and other effects 
of scaled disclosure in proportion to the increase in the number of 
registrants that become newly eligible at those higher thresholds and 
choose to avail themselves of the scaled disclosure accommodation. This 
number is likely to be small, as indicated by the evidence that 161 
(2.2%) of the registrants that filed a Form 10-K in 2016 would have met 
the thresholds in the amended revenue test for registrants with public 
float.
    The effects of scaled disclosure for registrants with a public 
float of $250 million or more and less than $700 million and revenues 
of less than $100 million may be different from the effects of scaled 
disclosure for registrants with public float nearer to the current 
threshold of $75 million. This is because the characteristics of 
registrants eligible for SRC status under the final rules may be 
different from those of registrants close to the current threshold. For 
example, differences in the relationships between management and 
outside investors in registrants with higher public float could affect 
the level of information asymmetries between those registrants and 
investors. This may cause those registrants to make different decisions 
about how much information they choose to disclose and whether to rely 
on the scaled disclosure accommodations, leading to differences in the 
observed use of scaled disclosure by different registrants of the same 
size. The 161 additional registrants had an average public float of 
$396 million, while those that qualify under the current definition had 
an average public float of $15 million, and those that would have 
qualified under the proposed rules had an average public

[[Page 32005]]

float of $55 million. These differences can affect whether a registrant 
decides to rely on scaled disclosure and how that decision affects the 
registrant's investors. We do not have sufficient information about the 
experiences of registrants at the higher public float levels with lower 
revenues implementing scaled disclosure to estimate the frequency with 
which these registrants will implement scaled disclosure, if available.
    Similarly, increasing the revenue threshold below which registrants 
are eligible to provide two rather than three years of certain acquired 
businesses' historical financial statements under Rule 3-05(b)(2)(iv) 
from $50 million to $100 million will increase the cost savings, 
information asymmetries, and other effects of the reduced historical 
financial statement disclosure that investors receive at or around the 
time of the acquisition in proportion to the increase in the number of 
registrants that acquire businesses with revenues below the higher 
threshold and choose to avail themselves of this disclosure 
accommodation.
    Overall, we expect the effect of raising the revenue threshold in 
Rule 3-05(b)(2)(iv) of Regulation S-X from $50 million to $100 million 
on information disclosed by registrants and its consequences for 
registrants and investors to be modest. This reflects our appraisal 
that few registrants are eligible to provide two rather than three 
years of an acquired business's historical financial statements under 
Rule 3-05(b)(2)(iv), because the acquired business not only would need 
to meet one of the significant subsidiary thresholds at the 50% level 
compared to the non-SRC acquirer, but the acquired business also would 
need to have less than the $50 million of revenues in its most recent 
fiscal year.\149\ The amendments we are adopting will have two 
potentially countervailing effects on the number of registrants that 
are eligible for the disclosure accommodation in Rule 3-05(b)(2)(iv). 
First, they will increase the number of registrants that are eligible 
to provide two rather than three years of an acquired business's 
historical financial statements under Rule 3-05(b)(2)(iv) by raising 
the revenue threshold for eligibility. Second, they will reduce the 
number of registrants that are required to comply with Rule 3-05, 
because Rule 3-05 is only applicable to registrants that are not SRCs, 
and our final rules are likely to increase the number of SRCs. Thus, 
the net effect may be to increase the number of registrants eligible to 
provide two rather than three years of an acquired business's 
historical financial statements under Rule 3-05(b)(2)(iv), but we do 
not expect the net increase to be significant.
---------------------------------------------------------------------------

    \149\ See text accompanying note 146.
---------------------------------------------------------------------------

2. Impact on Eligibility for Smaller Reporting Company Status
    By increasing the public float threshold from $75 million to $250 
million, increasing the annual revenue threshold for registrants with 
no public float from $50 million to $100 million, and expanding the 
revenue test to include registrants with a public float of less than 
$700 million and revenues of less than $100 million in the SRC 
definition, the amendments will permit more registrants to qualify as 
SRCs. To estimate the number of additional registrants that are likely 
to be affected by the amendments, we use public float data and revenue 
data from Form 10-K filings.\150\ Our estimate of the number of 
registrants likely to be eligible in the first year under the new 
definition that would not have qualified under the current definition 
is the number that would have been eligible had the rule been in 
effect. We use evidence on the composition of those registrants from 
the 2016 data to estimate the likely composition of the registrants 
that would be eligible in the first year under the new definition.
---------------------------------------------------------------------------

    \150\ Float and revenue values are from data in Form 10-K 
filings filed in calendar year 2016 and extracted from XBRL 
exhibits.
---------------------------------------------------------------------------

    We estimate that 966 additional registrants will be eligible for 
SRC status in the first year under the new definition. These 
registrants estimated to be eligible in the first year comprise 779 
registrants with a public float of $75 million or more and less than 
$250 million, 26 registrants with no public float and revenues of $50 
million or more and less than $100 million, and 161 registrants with a 
public float of $250 million or more and less than $700 million and 
revenues of less than $100 million.
    The 966 registrants that we estimate will be newly eligible for SRC 
status are characterized by an average public float of $191 million 
(median $162 million), an average market value of $279 million (median 
$201 million), and average revenues of $196 million (median $68 
million). Of these registrants, 365 currently are EGCs and are eligible 
for certain scaled disclosure under Title I of the JOBS Act, including 
the scaled executive compensation disclosures available to SRCs under 
Item 402 of Regulation S-K. The newly eligible registrants with 
available data in 2016 were concentrated in the following industries: 
``Pharmaceutical Products'' (17.3%), ``Banking'' (15.2%), ``Financial 
Trading'' (11.8%), ``Business Services'' (5.2%), and ``Electronic 
Equipment'' (3.7%). If the distribution of eligible registrants does 
not change over time, and if all of them claim SRC status, the 
amendments will lead to a noticeable increase in the presence of 
``Pharmaceutical Products'' and ``Banking'' registrants in the pool of 
SRCs.
    Registrants eligible for SRC status with available data using the 
public float threshold of less than $250 million represent 
approximately 38.6% of all registrants, while only 28.0% of all 
registrants qualify under the existing public float threshold of less 
than $75 million. The 38.6% of all registrants that will qualify under 
the public float threshold would be more in line with the 42% of 
registrants that qualified under the public float threshold when the 
Commission first established the definition of SRC.\151\ An additional 
8.0% of registrants will qualify based on having no public float and 
revenues of less than $100 million, while currently 7.7% of registrants 
reported having no public float and less than $50 million in 
revenues.\152\ Finally, based on the 2016 data, 2.2% of registrants had 
a public float of $250 million or more and less than $700 million and 
revenues of less than $100 million.
---------------------------------------------------------------------------

    \151\ These percentages reflect the estimated number of 
registrants that qualify under the respective public float tests and 
do not include any registrants that are estimated to qualify under 
the respective revenue tests.
    \152\ Using 2016 data, we estimate that, of the 7,395 total 
registrants that filed Forms 10-K with available data, 3,606 
registrants will meet one of the SRC thresholds under the 
amendments. In particular, we estimate that 2,851 registrants 
reported public float below $250 million and greater than zero in 
2016, resulting in a percentage of 38.6% (2,851/7,395) of 
registrants potentially qualifying as SRCs under the amended public 
float threshold, and 2,072 registrants reported a public float below 
$75 million in 2016, resulting in a percentage of 28.0% (2,072/
7,395). Also, we estimate that 594 registrants reported no public 
float and annual revenues below $100 million in 2016, resulting in a 
percentage of 8.0% (594/7,395) of registrants potentially qualifying 
as SRCs under the amended revenue threshold, and 568 registrants 
reported no public float and annual revenues below $50 million in 
2016, resulting in a percentage of 7.7% (568/7,395). Finally, we 
estimate that 161 registrants reported public float of $250 million 
or more and less than $700 million and annual revenues below $100 
million in 2016, resulting in an additional 2.2% (161/7,395) of 
registrants potentially qualifying as SRCs.
---------------------------------------------------------------------------

    Increasing the percentage of registrants that will qualify under 
the public float threshold to align more closely with the 2007 level is 
consistent with the rise in market capitalization of public companies 
that has occurred

[[Page 32006]]

since that time.\153\ We do not have sufficient data to be able to 
compare the percentage of registrants qualifying under the revenue 
threshold when the Commission first established the definition of SRC 
to the estimated 8.0% that will qualify using a revenue threshold of 
$100 million. Table 4 summarizes the size of the potential SRCs in 
terms of public float, market value, and annual revenue under the 
amendments.
---------------------------------------------------------------------------

    \153\ For example, the S&P 500 index grew by more than 80 
percent over the decade ending with the fourth quarter of 2017. 
Source: CRSP and St. Louis Fed (https://fred.stlouisfed.org/series/GDPDEF).

                          Table 4--Size Proxies for SRCs Eligible Under the Amendments
----------------------------------------------------------------------------------------------------------------
                                             Public float             Market value               Revenue
----------------------------------------------------------------------------------------------------------------
Mean.................................  $59.9 million..........  $480.1 million.........  $317.7 million.
Median...............................  $12.1 million..........  $40.9 million..........  $10.3 million.
Aggregate size.......................  $202.6 billion.........  $1,220.5 billion.......  $1,074.0 billion.
% of the aggregate size of all         0.9%...................  4.8%...................  8.7%.
 registrants.
----------------------------------------------------------------------------------------------------------------

    As discussed above, we are amending Rule 3-05(b)(2)(iv) of 
Regulation S-X to increase the revenue threshold under which certain 
registrants may omit the earliest of the three fiscal years of audited 
financial statements of an acquired business or business to be 
acquired. Similar to the baseline discussion of Rule 3-05, given the 
difficulty in accurately identifying registrants that have acquisitions 
(1) that meet any of the significant subsidiary tests at the 50% level 
and (2) where the acquired business has revenues of less than $100 
million, we are unable to estimate the number of registrants that will 
be affected by raising the revenue threshold in Rule 3-05(b)(2)(iv) 
from $50 million to $100 million. The amendments we are adopting today 
increase the number of registrants that qualify as SRCs (which will 
likely decrease the application of Rule 3-05) but also increase the 
revenue threshold in Rule 3-05(b)(2)(iv) (which may offset the 
decreased number of companies affected by Rule 3-05). Therefore, we do 
not expect that the amendments will significantly alter the number of 
registrants that will be eligible to omit the earliest of three years 
of financial statements of an acquired business pursuant to Rule 3-
05(b)(2)(iv).
3. Estimation of Potential Costs and Benefits
    In this section, we estimate the incremental costs and benefits 
associated with SRC-related scaled disclosures, using a multivariate 
empirical analysis. We cannot isolate the costs and benefits associated 
with scaled disclosures using available data from SRCs, because we 
cannot with the data isolate the effects of scaled disclosures from the 
effects of some other accommodations, such as the exemption from 
Section 404(b) that is currently available to all SRCs through their 
status as non-accelerated filers.\154\ Under the final rules, some 
newly eligible SRCs will be able to provide scaled disclosures but will 
continue to be subject to Section 404(b) as accelerated filers.
---------------------------------------------------------------------------

    \154\ Although there is a clear threshold for eligibility, we 
cannot use the well-known empirical method of Regression 
Discontinuity Design to assess the treatment effect of scaled 
disclosures for SRCs. This method requires that the assignment of 
the treatment among registrants be ``as good as random'' around the 
threshold. Under this assumption, the registrants that receive the 
treatment of scaled disclosure (i.e., SRCs) should be comparable to 
those registrants that do not receive the treatment because their 
public float is just above the $75 million threshold. Given the 
exemption from Section 404(b) available to current SRCs with public 
float below $75 million, this assumption does not hold.
---------------------------------------------------------------------------

    It is possible, however, to isolate the effects of scaled 
disclosures on registrants with public float slightly below or above 
the current $75 million public float threshold using 2006-2009 data. 
This is because, as a result of the rules that established the SRC 
definition in 2007, registrants with public float of $25 million or 
more and less than $75 million experienced no change in the Section 
404(b) exemption (that is, they remained exempt from the requirement), 
but became eligible for the SRC scaled disclosures. Our empirical 
method is a difference-in-difference estimation between a treatment 
group and a control group that is the basis for comparison.\155\ In 
particular, the treatment group (``Treatment Group'') consists of 
registrants with public float of $25 million or more and less than $75 
million that claimed SRC status in 2008. Two natural control groups 
exist. The first (``Control Group 1'') consists of registrants that did 
not qualify for SRC status because they had public float at or just 
above $75 million ($75 million or more and less than $125 
million).\156\ The second (``Control Group 2'') consists of registrants 
with public float and revenues below $25 million that were already 
eligible for scaled disclosures at that time and thus not affected by 
the Commission's 2007 rules.\157\
---------------------------------------------------------------------------

    \155\ Difference-in-difference is a technique used to calculate 
the effect of a variable on a treatment group versus a control 
group. In particular, in the analysis below, the average change over 
time in the outcome of a variable for the treatment group is 
compared to the average change over time in the outcome of that 
variable for the control group.
    \156\ This would allow for a $50 million bandwidth similar to 
that used in the Commission's 2007 rules, which raised the threshold 
for relief from $25 million to $75 million.
    \157\ The comparison groups help control for confounding factors 
that may also independently affect the economic effects associated 
with scaled disclosures. While we determine Treatment Group and 
Control Group 1 based on public float alone, we use both public 
float and revenues to determine Control Group 2, because, prior to 
the Commission's 2007 rules, registrants with public float below $25 
million were not eligible for scaled disclosures if their revenues 
exceeded $25 million.
---------------------------------------------------------------------------

    To analyze the economic effects of eligibility for scaled 
disclosures resulting from the Commission's 2007 rules by this method, 
we compare the Treatment Group with Control Group 1 and Control Group 2 
in the following areas: Cost savings, information environment, 
liquidity, and growth. We then use the analysis to extrapolate the 
likely effects of the expansion of eligibility for SRC status under the 
final rules. In extrapolating the likely effects, we place particular 
emphasis on the comparison between the Treatment Group and Control 
Group 1, which represents a closer group in size to the newly eligible 
SRCs under the final rules.
    We believe that the evidence from analysis of changes in the 
information environments of registrants around the 2007 amendments is a 
suitable basis for evaluating the effects of the current amendments on 
registrants with public floats at the low end of the range that are 
newly eligible for scaled disclosure. We included a similar analysis in 
the Proposing Release and solicited comments on this analysis, 
including ways to better quantify the effects of scaled disclosure on 
SRCs, but did not receive any comments in response.

[[Page 32007]]

    While the 2007 amendments resulted in changes that are similar to 
what we expect will occur under the current amendments, our analysis is 
subject to a number of assumptions and limitations. The evidence from 
the 2007 amendments may be less suitable as a basis for evaluating the 
effects of the current amendments on registrants with relatively higher 
levels of public float than for evaluating potential effects of the 
current amendments on registrants with public float around the $75 
million threshold.\158\ It is thus more challenging to quantify the 
likely effects of the current amendments on newly eligible SRCs with 
public float levels that are farther from the $75 million level, such 
as those closer to the $250 million and $700 million levels.\159\ We 
believe those challenges may be less pronounced for registrants that 
have other characteristics, such as revenue, similar to those of the 
registrants that were affected by the prior rules.
---------------------------------------------------------------------------

    \158\ The 2007 rule amendments affected the reporting practices 
of registrants with public floats near the $75 million threshold 
(i.e., $25 million or more and less than $75 million) and, 
accordingly, may indicate the effects of increasing the public float 
threshold on registrants with public float of $75 million or 
slightly more than $75 million.
    \159\ One limitation of difference-in-difference and regression 
discontinuity design studies of the effects of changes in regulatory 
rules is that their results are more applicable in evaluating the 
effects of the changes on the registrants whose characteristics most 
closely resemble those who were affected by the event under the 
analysis than in evaluating effects on other registrants. See, e.g., 
Leuz and Wysocki (2016).
---------------------------------------------------------------------------

a. Potential Cost Savings: Estimates Based on Changes in Audit Fees
    The cost savings from scaled disclosures could include savings of 
resources that are likely to be used for the relevant parts of 
disclosures, for example, managerial and employee time, other internal 
resources, and audit fees related to certain disclosures. Among these 
potential savings, changes in audit fees are readily quantifiable. To 
the extent that the scaled disclosure accommodations affect information 
that must be audited, scaled disclosures of the audited portions of the 
filings should lead to a reduction in audit expenses. Because many of 
the scaled disclosures available to SRCs relate to governance and 
executive compensation disclosures that are not subject to audit, a 
reduction in audit fees is likely a small part of the total cost 
savings associated with scaled disclosures. However, quantifying the 
change in audit fees can potentially help us estimate the entire cost 
savings.
    To estimate the cost savings from the amendments, we first examine 
changes in the audit fees of registrants that were newly eligible to 
use scaled disclosures as a result of the 2007 amendments relative to 
those in the control, or comparison, groups between the pre-amendment 
2006-2007 period and the post-amendment 2008-2009 period. Audit fee 
data come from the Ives Group Audit Analytics database. We include only 
registrants that had both pre-amendment and post-amendment audit fee 
data in the analysis. Table 5 reflects the general results.

           Table 5--Pre- and Post-Commission's 2007 Amendments Audit Fees for SRCs and Control Groups
----------------------------------------------------------------------------------------------------------------
                                                                                                Control Group 2
                                                          Treatment Group    Control Group 1     (SRCs w/public
                      Fiscal year                          (SRCs w/public      (Non-SRCs w/        float and
                                                          float $25m-$75m)  public float $75m-   revenues below
                                                                                  $125m)             $25m)
----------------------------------------------------------------------------------------------------------------
Avg. 2006-2007.........................................           $311,105           $676,194           $113,757
Avg. 2008-2009.........................................           $267,252           $654,463           $101,854
Number of Observations.................................              1,315                694                962
----------------------------------------------------------------------------------------------------------------

    For SRCs with public floats of $25 million or more and less than 
$75 million, in 2008-2009, average audit fees declined by $43,853. In 
contrast, both Control Group 1, which just missed eligibility for SRC 
status, and Control Group 2, which already was eligible for scaled 
disclosures, experienced smaller declines in average audit fees after 
the adoption of the 2007 amendments: $21,731 and $11,903, respectively. 
Thus, the difference-in-difference estimate of the savings in audit 
fees associated with scaled disclosures is between $22,122 and $31,950 
per SRC with public float around the $75 million threshold. Although 
two different control groups are used to control for other factors that 
may have caused the changes in audit fees noted in Table 5 during the 
2006-2009 period,\160\ the effect of the 2008 financial crisis may not 
be completely ruled out and could make the estimated savings in audit 
fees appear larger than they actually were.
---------------------------------------------------------------------------

    \160\ For example, among other factors, we note that the 
Commission approved Public Company Accounting Oversight Board 
Auditing Standard No. 5 regarding Audits of Internal Control over 
Financial Reporting (AS 5). Among other things, AS 5 was intended to 
reduce unnecessary costs by making the audit scalable to fit the 
size and complexity of a company. AS 5 became effective in November 
2007, and registrants with fiscal years ending between July and 
November were allowed to avail themselves of the provision earlier. 
The adoption and implementation of AS 5 in 2007 could have had an 
impact on the audit fees of all registrants subject to Section 
404(b). Given that in our analysis both Treatment Group and Control 
Group 1 were affected by AS 5, however, the difference-in-difference 
methodology should control for the potential effects of AS 5 on 
audit fees. In addition, based on registrants' fiscal year end, we 
have no reason to believe that early adopters were more or less 
concentrated in Treatment Group than Control Group 1. See also 
Commission Guidance Regarding Management's Report on Internal 
Control Over Financial Reporting Under Section 13(a) or 15(d) of the 
Securities Exchange Act of 1934, Release No. 33-8810 (Jun. 20, 2007) 
[72 FR 35324 (Jun. 27, 2007)].
---------------------------------------------------------------------------

    We also estimate the savings in audit fees in terms of a percentage 
reduction, instead of a dollar value.\161\ The audit fees for the 
Treatment Group declined by 14.1% in the 2008-2009 period relative to 
the 2006-2007 period, but only by 3.2% for Control Group 1 and 10.5% 
for Control Group 2. Thus, the difference-in-difference estimate of the 
treatment effect in terms of a percentage reduction is a 3.6% to 10.9% 
reduction in the audit fees.
---------------------------------------------------------------------------

    \161\ If there is a fixed (dollar value) component in audit 
expenses that apply to registrants of all sizes, then the estimates 
under this alternative approach can be viewed as the upper bound of 
the potential audit fee savings.
---------------------------------------------------------------------------

    For the 966 newly eligible registrants that we estimate would be 
potentially affected by the amendments, the average audit fees were 
$658,735 in fiscal year 2016. Thus, if we use the dollar value 
estimates of the audit fee savings, the estimated reduction in audit 
fees would be between $28,490 and $41,147 for this group, which are the 
inflation-adjusted values of the audit fee savings estimates in 2008 
and 2009.\162\ This estimate of savings on audit fees for the newly 
eligible registrants is approximately

[[Page 32008]]

4.3% ($28,491/$658,735) to 6.2% ($41,148/$658,735) of the audit fees.
---------------------------------------------------------------------------

    \162\ The inflation adjustment was performed using the CPI 
calculator of the Bureau of Labor Statistics (http://data.bls.gov/cgi-bin/cpicalc.pl).
---------------------------------------------------------------------------

    We recognize that this analysis of the audit fee data is subject to 
a number of assumptions, some of which may not be fully applicable when 
estimating the potential change in audit expenses as a result of the 
amendments.\163\ As a result, there are limitations to our ability to 
draw conclusions from the analysis. For example, we recognize that 
audit expenses are only one component of costs for registrants and that 
changes in audit fees do not capture the full range of potential cost 
savings stemming from scaled disclosures. There are cost savings apart 
from the audit, such as cost savings resulting from a SRC not being 
required to prepare a compensation discussion and analysis and from 
other scaled disclosures in Item 402 of Regulation S-K. These cost 
savings likely will include both internal cost savings (such as 
employee and managerial time and resources) and external cost savings 
from fees for other outside professionals such as attorneys. Given the 
nature of scaled disclosures available to SRCs, we expect these other 
cost savings to be much larger than the cost savings in audit fees. In 
the Proposing Release, we assumed that 25% of the total cost savings 
from scaled disclosure comes from savings in audit fees and 75% of the 
savings comes from reduction in other expenses. We solicited comments 
on this assumption and on whether we should use a different assumption 
but did not receive any comments in response. Accordingly, we use the 
same assumption here.
---------------------------------------------------------------------------

    \163\ Estimates based on data from 2006 to 2009 may not be 
directly applicable to the estimation of audit fees for the newly 
eligible registrants under the rule amendments. On the one hand, 
because auditors may charge larger registrants more for auditing the 
same disclosure items, our estimate could be viewed as a 
conservative estimate on the potential savings of audit fees for the 
newly eligible SRCs. On the other hand, if there were any increased 
competition in the auditing industry since 2009, then it could have 
led to lower audit expenses for the same disclosure items. Thus, our 
estimate could be higher or lower than the actual savings on audit 
fees for SRCs in 2008 and 2009.
---------------------------------------------------------------------------

    Given this assumption, we estimate total annual cost savings per 
newly eligible registrant with a public float around the $75 million 
threshold to be between $98,439 ($24,610 x 4) and $298,052 ($74,513 x 
4). The savings to registrants that become newly eligible with public 
floats closer to the $250 million and $700 million thresholds, will 
vary from this estimate by amounts that are difficult to quantify, 
because these registrants are less comparable to the Control Groups, 
and will depend on the facts and circumstances of the newly eligible 
registrant. For example, the audit cost for some of these registrants 
may be higher as a result of greater complexity in their business 
operations, increasing the cost savings associated with SRC status.
b. Information Environment, Liquidity, and Growth
    A registrant's information environment can be measured by the 
amount of useful information available to investors and the quality of 
that information. To gauge the potential effects on the degree of 
external information production about the registrant that could benefit 
investors, we determine a registrant's percentage of institutional 
ownership, total 5% block institutional ownership, and analyst coverage 
(i.e., whether a registrant is covered by at least one analyst and the 
number of analysts).
    To measure disclosure quality, we use four discretionary accrual 
measures commonly used in the accounting literature as proxies for 
earnings management and the incidence of material restatements (based 
on the first year of financial statements restated and the filing 
year). Scaled disclosure may contribute to lowering the overall quality 
of the information environment, which is proxied in this analysis by 
the propensity for earnings management and the incidence of material 
restatements.\164\ The data on restatements are from the Ives Group 
Audit Analytics database. A material restatement is defined as a 
restatement that is reported under Item 4.02 of Form 8-K.
---------------------------------------------------------------------------

    \164\ In using these proxies, we do not mean to suggest that 
scaled disclosure would be expected to directly cause an increase in 
earnings management or an increased incidence of material 
restatements, as there is little direct connection between the types 
of disclosure governed by our scaled disclosure requirements and the 
disclosure affected by a restatement.
---------------------------------------------------------------------------

    To examine the potential effects on liquidity, we focus on the 
share turnover ratio, which is calculated by dividing the total number 
of shares traded over a period by the number of shares outstanding. To 
assess the effects of scaled disclosures on growth, we examine a 
registrant's capital investment, which is measured by the capital 
expenditures to assets ratio, as a proxy for real growth. Because there 
is a high concentration of SRCs in industries for which research and 
development (``R&D'') investment is important (e.g., pharmaceutical 
products and electronic equipment), we also examine a registrant's 
investment in R&D. Finally, we examine asset growth, which is the 
growth rate in book assets, which could capture a registrant's growth 
through both capital investment and acquisition.
    Table 6 reports the estimated treatment effect. The number in the 
Treatment Group vs. Control Group 1 column reflects the difference 
between: (1) The average change in the metric for the Treatment Group, 
from the 2006-2007 period, when it was not eligible for scaled 
disclosure, to the 2008-2009 period, when it was eligible for scaled 
disclosure, and (2) the average change in the metric between the same 
periods for Control Group 1, which was never eligible for scaled 
disclosure. Similarly, the number in the Treatment Group vs. Control 
Group 2 column reflects the difference between: (1) The average change 
in the metric for the Treatment Group from the 2006-2007 period, when 
it was not eligible for scaled disclosure, to the 2008-2009 period, 
when it was eligible for scaled disclosure and (2) the average change 
in the metric between the same periods for Control Group 2, which had 
been eligible for scaled disclosure for both periods.\165\
---------------------------------------------------------------------------

    \165\ Specifically, for each number reported in Table 6, we 
estimate the following equation:
    y = a + b * SRC + c * After + d * [SRC * After]
    where the single-letter terms ``a'' to ``d'' are coefficients to 
be estimated; ``SRC'' equals one for the treatment group and zero 
for the comparison group; and ``After'' equals one for fiscal years 
2008 and 2009 and zero for fiscal years 2006 and 2007. The treatment 
effect is reflected in the coefficient estimate d, which is the 
differential value of the variable y for treated firms following the 
start of the treatment. A statistically negative estimate of d is 
consistent with a reduction in the value of the dependent variable y 
(Institutional Ownership, Institutional Block Ownership, etc.) for 
treated firms.

 Table 6--Scaled Disclosures and the Information Environment, Liquidity,
                             and Growth 166
------------------------------------------------------------------------
                                     Treatment Group    Treatment Group
                                    vs. Control Group  vs. Control Group
                                            1                  2
------------------------------------------------------------------------
Information Environment:

[[Page 32009]]

 
    External Information
     Production:
        Institutional Ownership...         *** -0.052         *** -0.022
        Institutional Block                 ** -0.016             -0.002
         Ownership................
        Number of Analysts........             -0.179             -0.068
        Analyst Coverage Dummy....         *** -0.099          *** 0.087
Information Environment:
    Disclosure Quality:
        Earnings Mgmt. 1..........              0.025              0.015
        Earnings Mgmt. 2..........              0.024              0.013
        Earnings Mgmt. 3..........              0.020              0.024
        Earnings Mgmt. 4..........              0.018              0.023
        Material Restatement                    0.018              0.015
         (Filing Year)............
        Material Restatement                 ** 0.036              0.016
         (First Year Restated)....
    Liquidity:
        Share Turnover Ratio                   -0.063             -0.052
    Growth:
        Capital Investment........              0.005             -0.005
        R&D Investment............             -0.035             -0.002
        Asset Growth Rate.........             -0.005         *** -0.282
------------------------------------------------------------------------

    The results in Table 6 suggest that the scaled disclosures had a 
negative effect on institutional ownership. The Treatment Group, which 
became eligible for scaled disclosures, experienced a 5.2% greater 
decrease in average institutional ownership from period to period than 
the registrants in Control Group 1, which remained ineligible for 
scaled disclosures, and a 2.2% greater decrease in average 
institutional ownership from period to period than the registrants in 
Control Group 2, which were eligible for scaled disclosures throughout 
both periods.
---------------------------------------------------------------------------

    \166\ This table shows changes in the information environment, 
liquidity, and growth upon the introduction of scaled disclosure for 
SRCs. Treatment Group consists of SRCs with public float of $25 
million or more and less than $75 million in fiscal year 2008. 
Control Group 1 consists of non-SRCs with public float of $75 
million or more and less than $125 million. Control Group 2 consists 
of small business issuers with public float and revenues below $25 
million. Institutional Ownership is total percentage institutional 
ownership. Block Institutional Ownership is total block (5%) 
institutional ownership. Number of Analysts is the number of 
analysts following a registrant. Analyst Coverage Dummy is a dummy 
variable indicating the existence of analyst following. Earnings 
Mgmt. 1-4 are four different discretionary accruals measures. 
Earnings Mgmt. 1 follows Kothari, Leone, and Wasley (2005), and 
Earnings Mgmt. 2-4 follows Dechow, Sloan, and Sweeney (1995).1 
Material Restatement (Filing Year) is a dummy variable that equals 
one if a registrant discloses restatement under Item 4.02 of Form 8-
K in that year, and zero otherwise. Material Restatement (First Year 
Restated) is a dummy variable that equals one if the material reason 
for the restatement under Item 4.02 of Form 8-K originated in that 
year, and zero otherwise. Share Turnover is the ratio of shares 
traded over shares outstanding. Capital Investment is capital 
expenditures over book assets. R&D investment is R&D expenditures 
over revenue. Asset Growth is the annual growth rate of book assets. 
***, **, and * indicate significance at 1%, 5%, and 10% confidence 
levels, respectively.
---------------------------------------------------------------------------

    The results reflect a positive effect on material restatements in 
SRCs based on the first year restated, while the effect on analyst 
coverage is inconclusive. SRCs tend to lose analyst coverage relative 
to comparable registrants that just missed eligibility, but they gain 
coverage relative to even smaller registrants that already were 
eligible for scaled disclosures. There is no statistically significant 
effect on earnings quality as captured by discretionary accruals 
measures or the incidence of material restatement based on when the 
restatement was filed. Overall, the evidence suggests a modest, but 
statistically significant, negative effect of scaled disclosure on 
SRCs' overall information environment.
    The effect of scaled disclosures on share turnover ratio is 
negative but statistically insignificant, suggesting no significant 
effect of scaled disclosures on SRCs' liquidity.\167\ Because the newly 
eligible registrants are larger in market value and have more 
institutional ownership and analyst coverage than the current SRCs, to 
the extent those registrants rely on the accommodations, we do not 
expect a significant negative impact on their liquidity.
---------------------------------------------------------------------------

    \167\ In contrast, Chang et al. (2013) did find a negative and 
significant effect of the Commission's 2007 amendments on SRCs' 
liquidity. The difference in the results could stem from the use of 
a different empirical methodology, sample, and sample period. Chang 
et al. (2013) excluded financial companies. While the authors 
examined a pre-amendment period of April to June 2007, we included 
the entire 2006 and 2007 periods. Also, while the authors examined a 
post-amendment period of February to August 2008, we included the 
entire 2008 and 2009 periods. In addition, the authors focus on a 
set of illiquidity measures, while we focus on the share turnover 
ratio, a commonly used liquidity measure.
---------------------------------------------------------------------------

    The results in Table 6 indicate no clear difference between SRCs 
and registrants in Control Group 1 and Control Group 2 in terms of 
changes in capital investment and R&D investment. The effect on asset 
growth rate is mixed. There is no significant difference between the 
Treatment Group and Control Group 1, but compared to Control Group 2, 
the Treatment Group had deterioration in asset growth rate after the 
2007 rules. Overall, our empirical analysis suggests that scaled 
disclosures have only a minimal effect on growth in current SRCs 
relative to the Control Groups. Thus, we do not expect the use of 
scaled disclosures to have a significant effect on the growth of the 
newly eligible registrants under the final rules.
c. Rule 3-05
    Similar to our discussion of the amendments to the SRC definition, 
we generally expect a modest reduction in compliance costs for 
registrants that are eligible to provide two rather than three years of 
historical financial statements of certain acquired businesses under 
Rule 3-05(b)(2)(iv), with corresponding potential modest increases in 
information asymmetries. We expect the magnitude of the effects of the 
change in the revenue threshold in Rule 3-05(b)(2)(iv) to be smaller 
for those registrants that acquire relevant businesses and their 
investors, as compared to the change in the SRC definition for newly 
eligible registrants and their investors. The reason for this 
expectation is that the revenue

[[Page 32010]]

threshold in Rule 3-05(b)(2)(iv) only affects the historical financial 
statements of the acquired businesses (by limiting them to two years 
rather than three years), whereas a registrant that qualifies as a SRC 
will be able to comply with a number of scaled disclosure 
accommodations, including providing two years of financial statements 
and scaled executive compensation disclosures.\168\
---------------------------------------------------------------------------

    \168\ See Section I for a discussion of the scaled disclosure 
accommodations available to SRCs.
---------------------------------------------------------------------------

d. Conclusion
    Taken together, our empirical analysis suggests that, for most of 
the newly eligible SRCs under the final rules, scaled disclosures may 
generate a modest, but statistically significant, amount of cost 
savings in terms of the reduction in compliance costs, a modest, but 
statistically significant, deterioration in some of the proxies used to 
assess the overall quality of information environment, and a muted 
effect on the growth of the registrant's capital investments, 
investments in R&D, and assets. We expect the effects on registrants 
that are newly eligible for reduced disclosure under Rule 3-
05(b)(2)(iv) to be lesser in magnitude but qualitatively similar.
4. Affiliated Ownership and Adverse Selection
    In general, holding market value constant, the use of public float 
to define eligibility favors registrants with more affiliated 
ownership. If we consider two registrants with the same market value 
but different affiliated ownership, the one with greater affiliated 
ownership will have a lower public float, which is the value of non-
affiliated ownership, and thus will be more likely to qualify for SRC 
status based on the public float threshold. This could be problematic 
if the adverse selection problem creates a conflict of interest between 
affiliated owners--who are often the decision makers--and non-
affiliated owners--who are often the uninformed minority shareholders 
on whom reduced disclosure may have a greater impact. We examine 
whether the effects of scaled disclosure on registrants' information 
environment, liquidity, and growth depend on the percentage of 
affiliated ownership, which is the market value of affiliated equity 
shares divided by the registrant's total market value of equity. The 
average affiliated ownership is 43% for SRCs in the treatment group in 
years 2008 and 2009 (median 42%). Specifically, we examine whether and 
to what extent the effects of scaled disclosure on information 
environment, liquidity, and growth differ for SRCs with high, or above-
average, affiliated ownership as compared to low, or below-average, 
affiliated ownership.
    The results are reflected in Table 7. The number in the Treatment 
Group vs. Control Group 1 column reflects the difference between: (1) 
The difference between the average metric of registrants in the 
Treatment Group with affiliated ownership that is higher than the group 
median and that of the registrants in the Treatment Group with 
affiliated ownership that is lower than the group median and (2) the 
difference between the average metric of registrants in Control Group 1 
with affiliated ownership that is higher than the group median and that 
of the registrants in Control Group 1 with affiliated ownership that is 
lower than the group median. Similarly, the number in the Treatment 
Group vs. Control Group 2 column reflects the difference between: (1) 
The difference between the average metric for the higher-than-median 
affiliated ownership registrants and that of the lower-than-median 
affiliated ownership registrants in the Treatment Group and (2) the 
difference between the average metrics for the same sectors of Control 
Group 2.\169\
---------------------------------------------------------------------------

    \169\ Specifically, for each number reported in Table 7, we 
estimate the following equation:
    y = a + b * SRC + c * After + d * HighAff + e * [SRC * After] + 
f * [SRC * HighAff] + g * [After * HighAff] + h * [SRC * HighAff * 
After]
    where the single-letter terms ``a'' to ``h'' are coefficients to 
be estimated. ``After'' and ``SRC'' are defined in note 169. 
``HighAff'' is a dummy variable equal to one if the firm's 
affiliated ownership is greater than the sample median of 0.42; 
otherwise, ``HighAff'' is equal to zero. The treatment effect of 
interest is measured by the coefficient h, which is the differential 
value of the variable y for treated firms with high affiliated 
ownership, following the start of the treatment. See also note 169.

         Table 7--Affiliated Ownership and Adverse Selection 170
------------------------------------------------------------------------
                                     Treatment Group    Treatment Group
                                    vs. Control Group  vs. Control Group
                                            1                  2
------------------------------------------------------------------------
Information Environment:
    External Information
     Production:
        Institutional Ownership...         *** -0.127           * -0.110
        Institutional Block                 ** -0.079           * -0.126
         Ownership................
        Number of Analysts........          ** -0.742           ** 1.277
        Analyst Coverage Dummy....             -0.052           ** 0.500
Information Environment:
    Disclosure Quality:
        Earnings Mgmt. 1..........              0.010              0.286
        Material Restatement                    0.038             -0.040
         (Filing Year)............
        Material Restatement                 ** 0.084              0.001
         (Beginning Year).........
    Liquidity:
        Share Turnover Ratio......              0.052              0.059
    Growth:
        Capital Investment........           ** 0.029              0.049
        R&D Investment............              0.014             -0.756
        Asset Growth Rate.........              0.136             -1.485
------------------------------------------------------------------------

    Our analysis  suggests that affiliated ownership may exacerbate the 
potential

[[Page 32011]]

negative effects of scaled disclosure on external information 
production by professionals such as institutional investors. There is 
also some evidence that larger affiliated ownership may exacerbate the 
adverse effect of scaled disclosure on material restatements based on 
when such restatement was triggered in SRCs (relative to Control Group 
1). At the same time, scaled disclosures tend to have a more positive 
effect on SRCs' capital investment when affiliated ownership is higher. 
Overall, there is inconclusive evidence that affiliated ownership is 
associated with adverse selection in current SRCs.
---------------------------------------------------------------------------

    \170\ This table shows the differences in the changes between 
registrants with high affiliated ownership and those with low 
affiliated ownership upon the introduction of scaled disclosure for 
SRCs. Affiliated ownership is the percentage of a registrant's 
market value of equity that is owned by affiliated parties (i.e., 
corporate insiders and 10% block owners). Registrants with high 
(low) affiliated ownership include registrants with affiliated 
ownership above (below) the sample median. A negative and 
significant estimate means that scaled disclosures have a more 
negative effect on SRCs with high affiliated ownership than on those 
with low affiliated ownership. ***, **, and * indicate significance 
at 1%, 5%, and 10% confidence levels, respectively.
---------------------------------------------------------------------------

5. Effects on Efficiency, Competition and Capital Formation
    The final rules may have competitive effects. On one hand, the 
amendments may reduce the compliance-related costs of newly eligible 
registrants relative to current SRCs. The amendments may also increase 
the competitive advantage of the newly eligible registrants relative to 
non-eligible registrants that compete with them in the product market. 
However, because there is no clear evidence that scaled disclosures 
have a significant effect on the growth of current SRCs, we expect 
these potentially positive competitive effects to be modest. On the 
other hand, setting any eligibility threshold may create a competitive 
disadvantage for those registrants that miss eligibility because their 
public float or revenue is just above the specified threshold, relative 
to the newly eligible registrants. However, our economic analysis 
suggests that this potentially negative effect also is likely to be 
modest.
    As discussed above, our empirical analysis suggests that scaled 
disclosures are unlikely to have a significant negative effect on the 
overall information environment of SRCs. Thus, we do not expect the 
amendments to have a significant negative effect on the information 
efficiency of affected parties. Finally, it is difficult to quantify 
the effect of scaled disclosures on capital formation. The Commission's 
2007 amendments coincided with the 2008 financial crisis and its 
aftermath, which contributed to extremely thin public capital market 
activities. The potential cost savings and the potential negative 
consequences of scaled disclosure for reporting companies discussed in 
Tables 5 and 6 (based on data encompassing the period during the 
financial crisis) are modest. These figures do not include potential 
cost savings from newly-eligible companies that may contemplate going 
public.\171\
---------------------------------------------------------------------------

    \171\ See Section IV.B.1.
---------------------------------------------------------------------------

C. Possible Alternatives

    In this section, we present several alternatives to the final rules 
and discuss their relative costs and benefits.
    As a first alternative, we could have used a different registrant 
size metric in the SRC definition. While public float has the advantage 
of capturing the value held by non-affiliated investors who may be more 
affected by informational asymmetries, the disadvantage of public float 
is twofold. First, reported public float numbers are not easily 
verifiable. Second, using public float to define eligibility may 
increase adverse selection due to conflicts of interest between 
affiliated and non-affiliated owners. We considered equity market value 
as an alternative size metric to public float. Equity market value is 
in many instances more accessible and more easily verifiable than 
public float. It does not as effectively differentiate registrants 
based on the degree of informational asymmetry concerns, but it also 
does not favor registrants with more affiliated ownership. If we define 
registrants as SRCs when they have (1) less than $250 million in equity 
market value, (2) no equity market value and revenue below $100 
million, or (3) less than $700 million in equity market value and 
revenue below $100 million, the number of registrants estimated to 
become eligible for scaled disclosure declines by five percent, 
relative to the number that are estimated to be eligible under the rule 
amendments with available 2016 data on public float, revenue and market 
value. Thus, this alternative would lead to a slightly smaller pool of 
registrants eligible for SRC status than under the amendments.
    As a second alternative, we could have used different thresholds. 
Neither public float nor revenue data show a natural breakpoint for 
different thresholds. For example, we could take inflation since 2007 
into account, raising the public float threshold from $75 million to 
$86.2 million and the revenue threshold from $50 million to $57.5 
million. An inflation adjustment of the current thresholds would expand 
the pool of eligible SRCs by 83 registrants, 78 of which reported 
public float of between $75 million and $86.2 million in their 2016 
Form 10-Ks, and five of which had no public float and revenue of 
between $50 million and $57.5 million.\172\ Alternatively, instead of 
the $250 million public float threshold for all registrants and the 
$700 million public float threshold for registrants with revenue below 
$100 million, we could have allowed the $700 million public float 
threshold to apply to all registrants, regardless of revenue. A test 
capturing all registrants with less than $700 million in public float, 
regardless of revenue, would have expanded the pool of eligible SRCs 
with available data by 1,029 registrants. Because the $700 million is 
the threshold in the ``large accelerated filer'' definition, the effect 
of this alternative would be to permit all accelerated filers to 
provide the SRC scaled disclosures.
---------------------------------------------------------------------------

    \172\ The inflation adjustment was performed using the CPI 
calculator of the Bureau of Labor Statistics (http://data.bls.gov/cgi-bin/cpicalc.pl).
---------------------------------------------------------------------------

    For registrants with no public float or public float of less than 
$700 million, instead of the $100 million revenue threshold, we could 
have used a revenue threshold of $1 billion. A $1 billion revenue 
threshold would make scaled disclosure accommodations for SRCs and EGCs 
generally more consistent for the subset of SRCs that have no public 
float or public float of less than $700 million.\173\ Using 2016 data, 
we estimate that if we were to increase the revenue threshold from $100 
million to $1 billion in addition to the accommodations being adopted, 
there would be 879 newly eligible registrants based on revenues, in 
addition to the 966 newly eligible registrants under the final rules. 
Expanding the pool of registrants eligible for SRC status using this 
alternative revenue threshold would further reduce overall compliance 
costs for registrants but also potentially increase the informational 
asymmetries and other adverse effects associated with scaled 
disclosures. Relative to the current SRCs or the newly eligible SRCs 
under the final rules, these additional qualifying registrants also may 
have different characteristics that could affect the appropriateness of 
scaled disclosure. For example, the 879 additional registrants under 
this alternative are much larger, implying that any cost savings from 
scaled disclosures would generate a much smaller impact on the 
registrants' market value, and may not

[[Page 32012]]

justify the potential loss of informational transparency.
---------------------------------------------------------------------------

    \173\ An EGC is defined as an issuer that had total annual gross 
revenues of less than $1.07 million during its most recently 
completed fiscal year. Public Law 112-106, Sec. 101, 126 Stat. 306 
(2012); 15 U.S.C. 77b(a)(19); 15 U.S.C. 78c(a)(80). Inflation 
Adjustments and Other Technical Amendments under Titles I and II of 
the JOBS Act, Release No. 33-10332 (Mar. 31, 2017) [82 FR 17545 
(Apr. 12, 2017)].
---------------------------------------------------------------------------

    As a third alternative, we could have considered reducing the 
number of registrants that our rules define as accelerated filers, 
which would expand the number of registrants eligible for the Sarbanes-
Oxley Act Section 404(b) exemption. The newly eligible SRCs under the 
final rules will remain accelerated filers and must comply with Section 
404(b). This creates two tiers among SRCs. Registrants with public 
floats below $75 million are eligible for the scaled disclosures and, 
as non-accelerated filers, are exempt from Section 404(b). Registrants 
with either (1) public floats of $75 million or more and less than $250 
million or (2) public floats of $75 million or more and less than $700 
million and less than $100 million in revenues will be eligible only 
for the scaled disclosures and, as accelerated filers, must comply with 
Section 404(b). In evaluating the costs and benefits of this 
alternative, we considered the comments that the Commission received in 
response to the Proposing Release. In light of these comments, as 
stated above, the Chairman has directed the staff to formulate 
recommendations to the Commission for possible changes to reduce the 
number of registrants that our rules define as accelerated filers.

V. Paperwork Reduction Act

A. Background

    The final rules will affect existing rules, regulations and forms 
that contain ``collection of information'' requirements within the 
meaning of the Paperwork Reduction Act of 1995 (``PRA'').\174\ We are 
submitting the proposals to the Office of Management and Budget 
(``OMB'') for review in accordance with the PRA and its implementing 
regulations.\175\ We also requested comment on the changes to these 
``collection of information'' requirements in the Proposing Release.
---------------------------------------------------------------------------

    \174\ 44 U.S.C. 3501 et seq.
    \175\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The titles of the collections of information are: \176\
---------------------------------------------------------------------------

    \176\ The paperwork burdens from Regulation S-X, Regulation S-K, 
Regulation C, and Regulation 12B are imposed through the forms that 
are subject to the requirements in those regulations and are 
reflected in the analysis of those forms. To avoid a PRA inventory 
reflecting duplicative burdens and for administrative convenience, 
we assign a one-hour burden to each of Regulation S-X, Regulation S-
K, Regulation C, and Regulation 12B.

    (1) ``Regulation S-X'' (OMB Control No. 3235-0009);
    (2) ``Regulation S-K'' (OMB Control No. 3235-0071);
    (3) ``Regulation C'' (OMB Control No. 3235-0074);
    (4) ``Regulation 12B'' (OMB Control No. 3235-0062);
    (5) ``Form 10-K'' (OMB Control No. 3235-0063);
    (6) ``Form 10-Q'' (OMB Control No. 3235-0070);
    (7) ``Form 8-K'' (OMB Control No. 3235-0060);
    (8) ``Regulation 14A and Schedule 14A'' (OMB Control No. 3235-
0059);
    (9) ``Regulation 14C and Schedule 14C'' (OMB Control No. 3235-
0057);
    (10) ``Form 10'' (OMB Control No. 3235-0064);
    (11) ``Form S-1'' (OMB Control No. 3235-0065);
    (12) ``Form S-3'' (OMB Control No. 3235-0073);
    (13) ``Form S-4'' (OMB Control No. 3235-0324); and
    (14) ``Form S-11'' (OMB Control No. 3235-0067).

    We adopted the existing rules, regulations, and forms pursuant to 
the Securities Act and the Exchange Act. These rules, regulations, and 
forms set forth the disclosure requirements for annual and quarterly 
reports, proxy and information statements, current reports, and 
registration statements that are prepared by registrants to provide 
investors information to make informed investment and voting decisions.
    The hours and costs associated with preparing disclosure, filing 
information required by forms, and retaining records constitute 
reporting and cost burdens imposed by collection of information 
requirements. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information requirement unless 
it displays a currently valid control number. Compliance with the 
information collections listed above is mandatory to the extent 
applicable to each registrant.\177\ Responses to the information 
collections are not kept confidential and there is no mandatory 
retention period for the information disclosed.
---------------------------------------------------------------------------

    \177\ As noted above, registrants claiming SRC status have the 
option to comply with the scaled disclosures available to them on an 
item-by-item basis.
---------------------------------------------------------------------------

B. Summary of the Final Amendments

    As described in more detail above, we are adopting final rules to 
amend the definition of SRC to encompass a greater number of 
registrants and to revise Rule 3-05(b)(2)(iv) of Regulation S-X to 
align the revenue threshold in that rule with the new revenue threshold 
in the definition of SRC. The final rules make scaled disclosure 
accommodations available to a larger number of registrants. As a 
result, the final rules should decrease the disclosure requirements for 
registrants that fall within the expanded thresholds of the SRC 
definition and should decrease the disclosure burden for registrants 
acquiring other companies by increasing the number of acquired 
companies for which Rule 3-05(b)(2)(iv) of Regulation S-X permits one 
less year of financial information to be disclosed.
    In the Proposing Release, we proposed to amend the SRC definition 
to include registrants with a public float of less than $250 million, 
as well as registrants with annual revenues of less than $100 million 
for the previous year and no public float. We are adopting the 
amendments generally as proposed with two changes. In a change from the 
proposal, the SRC definition in the final rules also will include 
registrants with annual revenues of less than $100 million for the 
previous year and a public float of less than $700 million. As detailed 
below, the burden estimates for the respective forms and schedules have 
been revised to reflect that the SRC scaled disclosure accommodations 
also will be available to the additional registrants that come within 
these revised thresholds.
    In another change from the proposal, we are amending Rule 3-
05(b)(2)(iv) of Regulation S-X to increase the revenue threshold under 
which certain registrants may omit from certain registration statements 
or current reports the earliest of the three fiscal years of audited 
financial statements of an acquired business or business to be 
acquired.\178\ Accordingly, we have added two new titles, ``Regulation 
S-X'' (OMB Control No. 3235-0009) and ``Form 8-K'' (OMB Control No. 
3235-0060), to the collections of information affected by the final 
rules. The impact of the amendment to Rule 3-05(b)(2)(iv) is reflected 
in the burden estimates for the applicable forms.\179\ However, as 
discussed below, while we estimate that the amendment to Rule 3-05 may 
decrease the existing paperwork burden for some issuers, we do not 
believe it will change the total burden estimates for the relevant 
registration statements and current reports.
---------------------------------------------------------------------------

    \178\ See note 99.
    \179\ See note 180.
---------------------------------------------------------------------------

    The final rules do not change the amount of information required to 
be included in Exchange Act reports by any registrant because of its 
status as an accelerated filer or a large accelerated filer.

C. Summary of Comment Letters

    One commenter addressed the specific PRA-related comment requests 
in the Proposing Release.\180\ This

[[Page 32013]]

commenter stated that the proposed adjustment to the SRC definition is 
fair and that the details provided as the basis for the cost reduction 
estimates appear to be thorough and specific.\181\ As to the ways to 
enhance the information collected, the commenter stated that the burden 
of preparing information remained with the respective registrant and 
that registrants may be required to provide additional disclosure if 
they are entering into capital transactions.\182\ As to ways to 
minimize the burden of the collection of information, the commenter 
stated that XBRL may facilitate the evaluation of data.\183\ Lastly, 
the commenter stated that the list of collections of information 
appeared to be complete and that it was not aware of any collection of 
information that would be negatively affected.\184\
---------------------------------------------------------------------------

    \180\ See IMA.
    \181\ Id.
    \182\ Id.
    \183\ Id.
    \184\ Id.
---------------------------------------------------------------------------

D. Revisions to Burden and Cost Estimates

    For purposes of the PRA, the final rules decrease the burden hour 
and costs estimates for Form 10-K, Form 10-Q, Schedule 14A, Schedule 
14C, Form 10, Form S-1, Form S-3, Form S-4, and Form S-11 by 
approximately 493,016 burden hours and decrease external costs by 
approximately $66,242,345.\185\
---------------------------------------------------------------------------

    \185\ These estimates reflect the difference between (1) our 
estimates of the burden hours and costs for each affected collection 
of information under the final rules and (2) the current estimates 
for each affected collection of information prior to effectiveness 
of the final rules. The current estimates for some of the affected 
collections of information have changed since the Proposing Release 
due to changes in our rules that are unrelated to the amendments we 
are adopting. As a result, our estimated changes in the burden hours 
and costs for each affected collection of information in this 
release may differ from our estimates for the same collection of 
information in the Proposing Release.
---------------------------------------------------------------------------

    Our burden hour and cost estimates below reflect the average 
burdens for all registrants that may benefit from the expanded 
accommodations. In deriving our estimates, we recognize that the 
burdens likely will vary among individual registrants based on a number 
of factors, including the size and complexity of their business. We 
believe that some registrants will experience costs in excess of this 
average and some registrants will experience less than the average 
costs.
    For quarterly and annual reports and for proxy and information 
statements, we estimate that 75% of the burden of preparation is 
carried by the registrant internally and that 25% of the burden is 
carried by outside professionals retained by the registrant at an 
average cost of $400 per hour.\186\ For registration statements, we 
estimate that 25% of the burden of preparation is carried by the 
registrant internally and that 75% of the burden is carried by outside 
professionals retained by the registrant at an average cost of $400 per 
hour. While we cannot predict with certainty the number of newly 
eligible SRCs that will begin to use the scaled disclosure provisions, 
for purposes of our PRA calculations, we estimate that 80% of them will 
do so.\187\
---------------------------------------------------------------------------

    \186\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs will average $400 per hour. This is the rate we typically 
estimate for outside legal services used in connection with public 
company reporting. See Section VI.D below for a discussion of the 
professional skills needed to comply with the amendments.
    \187\ This estimated realization rate reflects the percentage of 
registrants eligible to claim SRC status in 2016 that claimed such 
status. Based on data collected by DERA, 2,408, or approximately 
91.2%, of an estimated 2,640 eligible registrants claimed SRC 
status.
    In addition, this estimated realization rate is further reduced 
to reflect that a portion of newly eligible SRCs may already qualify 
as EGCs, which are eligible to rely on certain scaled disclosure 
requirements for a limited period, including some of the scaled 
requirements available to SRCs. Based on data collected by DERA, 
365, or approximately 37.8%, of the 966 registrants in 2016 that 
would have been newly eligible for scaled disclosure under the final 
rules were EGCs and therefore already benefitting from a portion of 
these estimated savings.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that over a three-year 
period,\188\ the annual aggregate decreased burden \189\ resulting from 
the amendments in the final rules will average:
---------------------------------------------------------------------------

    \188\ We calculated an annual average over a three-year period 
because OMB approval of PRA submissions covers a three-year period.
    \189\ Our decreased burden estimates take into account, and are 
net of, any increased burden that may result from SRCs providing 
expanded disclosures under disclosure requirements that are more 
stringent for SRCs than for non-SRCs, such as Item 404 of Regulation 
S-K.
---------------------------------------------------------------------------

     403,250 hours and $53,883,321 of external costs for Form 
10-K;
     88,864 hours and $11,851,661 of external costs for Form 
10-Q;
     481 hours and $64,160 of external costs for Schedule 14A;
     11 hours and $1,440 of external costs for Schedule 14C;
     nine hours and $11,163 of external costs for Form 10;
     145 hours and $174,000 of external costs for Form S-1;
     38 hours and $45,600 of external costs for Form S-3;
     203 hours and $243,600 of external costs for Form S-4; and
     15 hours and $17,400 of external costs for Form S-11.
1. Form 10-K
    We estimate that approximately 966 additional registrants will 
satisfy the revised definition of a SRC and become eligible to use 
scaled disclosure in their annual reports on Form 10-K. These 
registrants could experience burden and cost savings under the final 
rules.\190\ We estimate that, if all of these registrants used all of 
the scaled disclosure requirements, they would save an estimated 
504,063 burden hours and an aggregate cost of $67,291,651.\191\
---------------------------------------------------------------------------

    \190\ We estimate that 966 additional registrants will be 
eligible under the final rules to use the scaled disclosure 
requirements available to SRCs for their annual and quarterly 
reports in the first year. We base this estimate on the number of 
additional registrants that would have been eligible to use scaled 
disclosure for their annual and quarterly reports in 2016, based on 
data collected by DERA from annual reports on Form 10-K filed in 
2016. The data show that 779 registrants had a public float of $75 
million or more but less than $250 million, 26 registrants had no 
public float and annual revenues of $50 million or more but less 
than $100 million, and 161 registrants had a public float of $250 
million or more but less than $700 million and annual revenues of 
less than $100 million.
    \191\ Consistent with our analysis in the SRC Adopting Release 
and the Proposing Release, we estimate the compliance burden for a 
Form 10-K for a SRC using all scaled disclosure available to be the 
same as the last available PRA inventory for completing a Form 10-
KSB, which was 1,272 burden hours and a cost of $169,600 (424 
professional hours x $400/hour) per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Form 10-K by up to 504,062.65 hours (1,793.80 
internal hours per filing using standard Regulation S-K and 
Regulation S-X disclosure minus 1,272.00 internal hours per filing 
using scaled disclosure = 521.80 internal hours saved per filing x 
966 filings) and decrease the cost by up to $67,291,651.41 (598.15 
professional hours per filing using standard Regulation S-K and 
Regulation S-X disclosure minus 424.00 professional hours per filing 
using scaled disclosure = 174.15 external hours saved per filing x 
$400 per hour = $69,660.09 external cost savings per filing x 966 
filings).
---------------------------------------------------------------------------

    Based on our assumption that 80% of newly eligible registrants will 
begin to use scaled disclosure, we estimate an aggregate decrease of 
403,250 internal burden hours and costs of $53,833,321 for Form 10-
K.\192\
---------------------------------------------------------------------------

    \192\ This estimated decrease in the compliance burden for Form 
10-K is based on 80% x 504,062.65 internal hours saved = 403,250.12 
internal hours saved and 80% x $67,291,651.41 external cost savings 
= $53,833,312.13 external cost savings.
---------------------------------------------------------------------------

2. Form 10-Q
    We assume that the same approximately 966 registrants will become 
newly eligible to use scaled disclosure for purposes of their quarterly 
reports. We estimate that if all of these registrants used all of the 
scaled SRC requirements, they would save

[[Page 32014]]

111,080 burden hours and an aggregate cost of $14,814,576.\193\
---------------------------------------------------------------------------

    \193\ Similar to our approach to estimating the reduced 
compliance burden for a Form 10-K using scaled disclosure, we base 
our estimates of the reduced compliance burden for SRCs using all 
scaled disclosure available for certain other filings on the last 
available PRA inventory for completing the most comparable form 
under Regulation SB. We estimate the compliance burden for a Form 
10-Q for a SRC using all scaled disclosure available to be the same 
as the last available PRA inventory for completing a Form 10-QSB, 
which was 102.24 burden hours and a cost of $13,362 (34.08 
professional hours x $400/hour) per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Form 10-Q by up to 111,080.34 hours (140.57 
internal hours per filing using standard Regulation S-K disclosure 
minus 102.24 internal hours per filing using scaled disclosure = 
38.33 internal hours saved per filing x 966 registrants x 3 filings 
per year) and decrease the cost by up to $14,814,576.00 (46.86 
professional hours per filing using standard Regulation S-K 
disclosure minus 34.08 professional hours per filing using scaled 
disclosure = 12.78 external hours saved per filing x $400 per hour = 
$5,112 external cost savings per filing x 966 registrants x 3 
filings per year).
---------------------------------------------------------------------------

    Assuming that 80% of newly eligible registrants will begin to use 
scaled disclosure, we estimate an aggregate decrease of 88,864 internal 
burden hours and costs of $11,851,661 for Form 10-Q.\194\
---------------------------------------------------------------------------

    \194\ This estimated decrease in the compliance burden for Form 
10-Q is based on 80% x 111,080.34 internal hours saved = 88,864.27 
internal hours saved and 80% x $14,814,576.00 external cost savings 
= $11,851,660.80 external cost savings.
---------------------------------------------------------------------------

3. Form 8-K
    We estimate that the amendments to Rule 3-05 may decrease the 
existing paperwork burden for some registrants but not change the total 
burden estimates for Form 8-K. This reflects our appraisal that few 
registrants are eligible to rely on the $50 million threshold in Rule 
3-05(b)(2)(iv) and our expectation that the amendments will not 
significantly change the number of registrants that are eligible to 
rely on Rule 3-05(b)(2)(iv).\195\ This also is consistent with the 
Commission's estimate of the impact on the compliance burden for Form 
8-K when it revised Rule 3-05 of Regulation S-X in 2007 to increase the 
threshold in Rule 3-05(b)(iv) from $25 million to $50 million.\196\
---------------------------------------------------------------------------

    \195\ See Section IV.B.1.
    \196\ See SRC Adopting Release.
---------------------------------------------------------------------------

4. Schedule 14A
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately 802 definitive proxy statements on 
Schedule 14A per year.\197\ We estimate that if all of these 
registrants used all of the scaled SRC requirements, they would save 
602 burden hours and an aggregate cost of $80,200.\198\
---------------------------------------------------------------------------

    \197\ We base this estimate on the number of definitive proxy 
statements on Schedule 14A filed in 2016 by registrants that would 
have been newly eligible to use scaled disclosure under the final 
rules. Based on data collected by DERA, registrants with a public 
float of $75 million or more but less than $250 million filed 652 
definitive proxy statements on Schedule 14A, registrants with no 
public float and annual revenues of $50 million or more but less 
than $100 million filed 17 definitive proxy statements on Schedule 
14A, and registrants with a public float of $250 million or more but 
less than $700 million and annual revenues of less than $100 million 
filed 133 definitive proxy statements on Schedule 14A.
    \198\ We base our estimate of the reduced compliance burden for 
Schedule 14A for a SRC using all scaled disclosure available on our 
estimate of the compliance burden for Item 407(d)(5) and (e)(4) and 
(5) of Regulation S-K [17 CFR 229.407(d)(5) and (e)(4) and (5)], 
with which SRCs are not required to comply. We estimate this burden 
to be 0.75 burden hours and a cost of $100 (0.25 professional hours 
x $400/hour) per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Schedule 14A by up to 601.57 hours (0.75 
internal hours saved per filing x 802 filings) and decrease the cost 
by up to $80,200.00 (0.25 professional hours saved per filing x $400 
per hour = $100 external cost savings per filing x 802 filings).
---------------------------------------------------------------------------

    Assuming that 80% of newly eligible registrants will begin to use 
scaled disclosure, we estimate an aggregate decrease of 481 internal 
burden hours and costs of $64,160 for Schedule 14A.\199\
---------------------------------------------------------------------------

    \199\ This estimated decrease in the compliance burden for 
Schedule 14A is based on 80% x 601.57 internal hours saved = 481.25 
internal hours saved and 80% x $80,200.00 external cost savings = 
$64,160.00 external cost savings.
---------------------------------------------------------------------------

5. Schedule 14C
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately 18 definitive information statements 
on Schedule 14C per year.\200\ We estimate that if all of these 
registrants used all of the scaled SRC requirements, they would save 14 
burden hours and an aggregate cost of $1,800.\201\
---------------------------------------------------------------------------

    \200\ We base this estimate on the number of definitive 
information statements on Schedule 14C filed in 2016 by registrants 
that would have been newly eligible to use scaled disclosure under 
the final rules. Based on data collected by DERA, registrants with a 
public float of $75 million or more but less than $250 million filed 
nine definitive information statements on Schedule 14C, registrants 
with no public float and annual revenues of $50 million or more but 
less than $100 million filed no definitive information statements on 
Schedule 14C, and registrants with a public float of $250 million or 
more but less than $700 million and annual revenues of less than 
$100 million filed nine definitive information statements on 
Schedule 14C.
    \201\ Similar to Schedule 14A, we base our estimate of the 
decrease in the compliance burden for Schedule 14C for a SRC using 
all scaled disclosure available on our estimate of the compliance 
burden for Item 407(d)(5) and (e)(4) and (5) of Regulation S-K, 
which is 0.75 burden hours and a cost of $100 (0.25 professional 
hours x $400/hour) per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Schedule 14C by up to 13.48 hours (0.75 
internal hours saved per filing x 18 filings) and decrease the cost 
by up to $1,800.00 (0.25 professional hours saved per filing x $400 
per hour = $100 external cost savings per filing x 18 filings).
---------------------------------------------------------------------------

    Assuming that 80% of newly eligible registrants will begin to use 
scaled disclosure, we estimate an aggregate decrease in burden of 11 
internal burden hours and costs of $1,440 for Schedule 14C.\202\
---------------------------------------------------------------------------

    \202\ This estimated decrease in the compliance burden for 
Schedule 14C is based on 80% x 13.48 internal hours saved = 10.79 
internal hours saved and 80% x $1,800 external cost savings = $1,440 
external cost savings.
---------------------------------------------------------------------------

6. Form 10
    We estimate that registrants newly eligible to use scaled 
disclosure will file one registration statements on Form 10 per 
year.\203\ Assuming that this registrant uses all of the scaled SRC 
requirements, we estimate an aggregate decrease of nine internal burden 
hours and cost of $11,163 for Form 10.\204\ Due to the low number of 
Form 10 filers and rounding considerations, we assume that all newly 
eligible registrants filing Form 10 will begin to use scaled disclosure 
and therefore realize the full extent of burden and cost savings.
---------------------------------------------------------------------------

    \203\ We generally base our estimated number of each type of 
registration statement filed on the average number of that type of 
registration statement filed in each of the calendar years 2014 
through 2016 by registrants that would have been newly eligible to 
use scaled disclosure under the final rules.
    Based on data collected by DERA, registrants that would have 
been newly eligible to use scaled disclosure under the final rules 
filed an average of less than one registration statement on Form 10 
per year during the period 2014 through 2016. However, we believe an 
estimate of one Form 10 is more reasonable because, as reflected in 
the Proposing Release, such registrants have filed more than one 
Form 10 in prior years.
    \204\ We estimate the compliance burden for a Form 10 for a SRC 
using all scaled disclosure available to be the same as the last 
available PRA inventory for completing a Form 10-SB, which was 44.50 
burden hours and a cost of $53,400 (133.50 professional hours x 
$400/hour) per report.
    Accordingly, if all eligible registrants used all available 
scaled disclosure, we estimate that the final rules will decrease 
the compliance burden of Form 10 by up to 9.30 hours (53.80 internal 
hours per filing using standard Regulation S-K and Regulation S-X 
disclosure minus 44.50 internal hours per filing using scaled 
disclosure = 9.30 internal hours saved per filing x one filing) and 
decrease the cost by up to $11,163.20 (161.41 professional hours per 
filing using standard Regulation S-K and Regulation S-X disclosure 
minus 133.50 professional hours per filing using scaled disclosure = 
27.91 external hours saved per filing x $400 per hour = $11,163.20 
external cost savings per filing x one filing).
---------------------------------------------------------------------------

7. Form S-1
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately 25 registration statements on Form 
S-1 per year.\205\ We

[[Page 32015]]

estimate that if all of these registrants use all of the scaled SRC 
requirements, they would save 181 burden hours and an aggregate cost of 
$217,500.\206\
---------------------------------------------------------------------------

    \205\ Based on data collected by DERA, during 2014 through 2016, 
registrants with a public float of $75 million or more but less than 
$250 million filed an average of approximately 17 registration 
statements on Form S-1 each year, registrants with no public float 
and annual revenues of $50 million or more but less than $100 
million filed an average of approximately two registration 
statements on Form S-1 each year, and registrants with a public 
float of $250 million or more but less than $700 million and annual 
revenues of less than $100 million filed an average of six 
registration statements on Form S-1 each year.
    \206\ We estimate the compliance burden for a Form S-1 for a SRC 
using all scaled disclosure available to be the same as the last 
available PRA inventory for completing a Form SB-2, which was 159.50 
burden hours and a cost of $191,400 (478.50 professional hours x 
$400/hour) per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Form S-1 by up to 181.25 hours (166.75 internal 
hours per filing using standard Regulation S-K and Regulation S-X 
disclosure minus 159.50 internal hours per filing using scaled 
disclosure = 7.25 internal hours saved per filing x 25 filings) and 
decrease the cost by up to $217,500.00 (500.25 professional hours 
per filing using standard Regulation S-K and Regulation S-X 
disclosure minus 478.50 professional hours per filing using scaled 
disclosure = 21.75 external hours saved per filing x $400 per hour = 
$8,700 external cost savings per filing x 25 filings).
---------------------------------------------------------------------------

    Assuming that 80% of these newly eligible registrants will begin to 
use scaled disclosure, we estimate an aggregate decrease of 145 
internal burden hours and costs of $174,000 for Form S-1.\207\
---------------------------------------------------------------------------

    \207\ This estimated decrease in the compliance burden for Form 
S-1 is based on 80% x 181.25 internal hours saved = 145.00 internal 
hours saved and 80% x $217,500.00 external cost savings = 
$174,000.00 external cost savings.
---------------------------------------------------------------------------

8. Form S-3
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately 190 registration statements on Form 
S-3 per year.\208\ We estimate that if all of these registrants use all 
of the scaled SRC requirements, they would save 48 burden hours and an 
aggregate cost of $57,000.\209\
---------------------------------------------------------------------------

    \208\ Based on data collected by DERA, during 2014 through 2016, 
registrants with a public float of $75 million or more but less than 
$250 million filed an average of approximately 148 registration 
statements on Form S-3 each year, registrants with no public float 
and annual revenues of $50 million or more but less than $100 
million filed an average of two registration statements on Form S-3 
each year, and registrants with a public float of $250 million or 
more but less than $700 million and annual revenues of less than 
$100 million filed an average of 40 registration statements on Form 
S-3 each year.
    \209\ We base our estimate of the reduced compliance burden for 
Form S-3 for a SRC using all scaled disclosure available on our 
estimate of the average compliance burden for Items 503(d) and 504 
of Regulation S-K [17 CFR 229.503(d) and 229.504], which 
requirements are scaled for SRCs. We estimate the decrease in 
compliance burden for a registration statement on Form S-3 for a SRC 
using all scaled disclosure available to be 0.25 burden hours and a 
cost of $300 (0.75 professional hours x $400/hour) per filing.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules would decrease the 
compliance burden of Form S-3 by up to 47.50 hours (0.25 internal 
hours saved per filing x 190 filings) and decrease the cost by up to 
$57,000.00 ($300 external cost savings per filing x 190 filings).
---------------------------------------------------------------------------

    Assuming that 80% of the newly eligible registrants will begin to 
use scaled disclosure, we estimate an aggregate decrease of 38 internal 
burden hours and costs of $ 45,600 for Form S-3.\210\
---------------------------------------------------------------------------

    \210\ This estimated decrease in the compliance burden for Form 
S-3 is based on 80% x 47.50 internal hours saved = 38.00 internal 
hours saved and 80% x $57,000.00 external cost savings = $45,600.00 
external cost savings.
---------------------------------------------------------------------------

9. Form S-4
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately 35 registration statements on Form 
S-4 per year.\211\ We estimate that if all of these registrants use all 
of the scaled SRC requirements, they would save 254 burden hours and an 
aggregate cost of $304,500.\212\
---------------------------------------------------------------------------

    \211\ Based on data collected by DERA, during 2014 through 2016, 
registrants with a public float of $75 million or more but less than 
$250 million filed an average of approximately 30 registration 
statements on Form S-4 each year, registrants with no public float 
and revenues of $50 million or more but less than $100 million filed 
an average of approximately one registration statement on Form S-4 
each year, and registrants with a public float of $250 million or 
more but less than $700 million and annual revenues of less than 
$100 million filed an average of four registration statements on 
Form S-4 each year.
    \212\ We estimate the reduction in the compliance burden for 
Form S-4 for a SRC using all scaled disclosure available to be the 
same as the reduction in the compliance burden for a Form S-1 for a 
SRC using all scaled disclosure available as compared to standard 
Regulation S-K and Regulation S-X disclosure, which was 7.25 burden 
hours and a cost of $8,700 (21.75 professional hours x $400/hour) 
per report.
    Accordingly, we estimate that, if all eligible registrants used 
all available scaled disclosure, the final rules will decrease the 
compliance burden of Form S-4 by up to 253.75 hours (7.25 internal 
hours saved per filing x 35 filings) and decrease the annual cost by 
up to $304,500.00 ($8,700 external cost savings per filing x 35 
filings).
---------------------------------------------------------------------------

    Assuming that 80% of newly eligible registrants will begin to use 
scaled disclosure, we estimate an aggregate decrease of 203 internal 
burden hours and costs of $243,600 for Form S-4.\213\
---------------------------------------------------------------------------

    \213\ This estimated decrease in the compliance burden for Form 
S-4 is based on 80% x 253.75 internal hours saved = 203.00 internal 
hours saved and 80% x $304,500.00 external cost savings = 
$243,600.00 external cost savings.
---------------------------------------------------------------------------

10. Form S-11
    We estimate that registrants newly eligible to use scaled 
disclosure will file approximately two registration statements on Form 
S-11 per year.\214\ Assuming that both of these registrants use all of 
the scaled SRC requirements, we estimate an aggregate decrease of 15 
burden hours and cost of $17,400 for Form S-11.\215\
---------------------------------------------------------------------------

    \214\ Based on data collected by DERA, during 2014 through 2016, 
registrants with a public float of $75 million or more but less than 
$250 million filed an average of approximately one registration 
statement on Form S-11 each year, registrants with no public float 
and revenues of $50 million or more but less than $100 million filed 
an average of less than one registration statement on Form S-11 each 
year, and registrants with a public float of $250 million or more 
but less than $700 million and annual revenues of less than $100 
million filed an average of one registration statement on Form S-11 
each year.
    \215\ We estimate the reduction in the compliance burden for 
Form S-11 for a SRC using all scaled disclosure available to be the 
same as reduction in the compliance burden for Form S-1 for a SRC 
using all scaled disclosure available as compared to standard 
Regulation S-K disclosure and Regulation S-X, which was 7.25 burden 
hours and a cost of $8,700 (21.75 professional hours x $400/hour) 
per report.
    Accordingly, we estimate that, if both eligible registrants used 
all available scaled disclosure, the final rules will decrease the 
compliance burden of Form S-11 by up to 14.50 hours (7.25 internal 
hours saved per filing x two filings) and decrease the annual cost 
by up to $17,400.00 ($8,700 external cost savings per filing x two 
filings).
---------------------------------------------------------------------------

    Due to the low number of Form S-11 filers and rounding 
considerations, we assume that both of the newly eligible registrants 
filing Form S-11 will begin to use scaled disclosure and realize the 
full extent of burden and cost savings.

VI. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') \216\ requires us, in 
promulgating rules under Section 553 of the Administrative Procedure 
Act,\217\ to consider the impact of those rules on small entities. We 
have prepared this Final Regulatory Flexibility Analysis (``FRFA'') in 
accordance with Section 604 of the RFA.\218\ This FRFA relates to 
amendments to the SRC definition as used in our rules and Rule 3-05 of 
Regulation S-X. An Initial Regulatory Flexibility Analysis (``IRFA'') 
was prepared in accordance with the RFA and was included in the 
Proposing Release.
---------------------------------------------------------------------------

    \216\ 5 U.S.C. 601 et seq.
    \217\ 5 U.S.C. 553.
    \218\ 5 U.S.C. 604.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Rules

    The amendments to the SRC definition in the final rules are 
intended to promote capital formation through a modest reduction in 
compliance costs and disclosure burdens for these registrants by 
expanding the number of registrants that qualify as SRCs and are 
eligible to provide scaled disclosure, while maintaining appropriate 
investor protections. These amendments will

[[Page 32016]]

enable a registrant to qualify as a SRC based on a public float test or 
a revenue test that includes registrants both with and without a public 
float.\219\ We believe that the amendments will permit a broader group 
of registrants to make scaled disclosure to their investors without 
significantly detracting from investor protections.
---------------------------------------------------------------------------

    \219\ See Item 10(f)(1)(i) and (ii) of Regulation S-K; 
Securities Act Rule 405; Exchange Act Rule 12b-2.
---------------------------------------------------------------------------

    The amendments to Rule 3-05(b)(2)(iv) of Regulation S-X will 
maintain the consistency of the revenue thresholds in Rule 3-05 and the 
definition of a SRC. The current revenue threshold in Rule 3-
05(b)(2)(iv) was based on the revenue threshold in the SRC definition, 
and the final rules maintain this consistency by increasing the revenue 
threshold in Rule 3-05(b)(2)(iv) to $100 million. This amendment will 
enable more registrants to omit the earliest of the three fiscal years 
of audited financial statements of an acquired business or business to 
be acquired in certain registration statements and current reports.
    The amendments to the accelerated filer and large accelerated filer 
definitions in Exchange Act Rule 12b-2 maintain the current thresholds 
at which registrants are subject to accelerated and large accelerated 
filer disclosure and filing requirements. At this time, we are not 
raising the accelerated filer public float threshold or modifying the 
Section 404(b) requirements for registrants.
    The need for, and objectives of, the final rules are discussed in 
more detail in Sections II and IV above.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on all aspects of 
the IRFA, including the number of small entities that would be affected 
by the proposed amendments, the existence or nature of the potential 
impact of the proposals on small entities discussed in the analysis, 
and how to quantify the impact of the proposed amendments. We did not 
receive any comments specifically addressing the IRFA. We did, however, 
receive comments from members of the public on matters that could 
potentially impact small entities. These comments are discussed at 
length by topic in the corresponding subsections of Section II above.
    While many commenters expressed support for the proposed amendments 
to the SRC definition,\220\ commenters also recommended making changes 
to the proposed rules that would further expand the number of 
registrants that would qualify as SRCs and would be eligible to rely on 
the scaled disclosure requirements. For example, many commenters 
recommended that the Commission allow a revenue test for companies with 
a public float.\221\ Commenters stated that a revenue test would 
``stimulat[e] innovation and drive business growth,'' \222\ ``ensure 
that pre-revenue companies are not forced to divert investment funds . 
. . from science to compliance,'' \223\ and help ``avoid stifling the 
advancement of [these] companies that face costly compliance burdens.'' 
\224\ Two commenters specifically recommended that the Commission adopt 
a test based on revenues of less than $100 million and a public float 
of less than $700 million, as recommended by the Small Business 
Forum.\225\ In response to commenters \226\ and recommendations from 
the Small Business Forum,\227\ the definition in the final rules will 
include, in addition to registrants with a public float of less than 
$250 million, registrants with annual revenues of less than $100 
million during their most recently completed fiscal year and either no 
public float or a public float of less than $700 million.\228\ As 
described above, we believe that it is appropriate to provide a measure 
by which a registrant with public float but with limited revenues may 
qualify as a SRC.\229\
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    \220\ See Acorda et al; AMTA; BDO; BIO; CAQ/CII; CONNECT; 
Coalition; ICBA; MidSouth; Nasdaq; NVCA; NYSE; Seneca; and IMA.
    \221\ See Acorda, et al; AMTA; BIO; Calithera; CONNECT; CSBA; 
Nasdaq; NYSE; and Zeller.
    \222\ BIO.
    \223\ Acorda, et al.
    \224\ AMTA.
    \225\ See BIO; and Calithera.
    \226\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; and 
CSBA.
    \227\ See notes 20 and 89 for a discussion of the Small Business 
Forum recommendations.
    \228\ See Item 10(f)(1)(ii) of Regulation S-K; Securities Act 
Rule 405; Exchange Act Rule 12b-2.
    \229\ See Section II.A.2.
---------------------------------------------------------------------------

    We are not, however, adopting a revenue test without a limitation 
on the public float or market capitalization of the company, as 
specifically suggested by two commenters.\230\ We believe the amended 
revenue test in the final rules is consistent with the position 
expressed by these commenters and others \231\ that it is not necessary 
to subject capital-intensive, low-revenue registrants with larger 
public floats or market capitalizations to the same reporting 
requirements as registrants with larger public floats and more well-
established, revenue-generating businesses. The amended revenue test in 
the final rules will enable these registrants to benefit from the cost-
savings of scaled reporting, while recognizing that as a registrant's 
business and public float grows, investors should benefit from greater 
disclosure. The additional information provided by the registrant in 
these circumstances will assist a growing investor base in making 
informed investment decisions and should also lead to a lower cost of 
capital for the business as it grows.
---------------------------------------------------------------------------

    \230\ See NYSE; and Nasdaq.
    \231\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; CSBA; 
NYSE; and Nasdaq.
---------------------------------------------------------------------------

    Two commenters recommended amending Rule 3-05 to increase the 
revenue threshold in paragraph (b)(2)(iv) to $100 million to maintain 
the alignment between Rule 3-05 and the definition of a SRC.\232\ Given 
that the current revenue threshold in Rule 3-05(b)(2)(iv) was based on 
the revenue threshold in the SRC definition \233\ and that the final 
rules, among other things, increase the revenue threshold in the SRC 
definition from $50 million to $100 million, we believe it is 
appropriate to raise the net revenue threshold in Rule 3-05(b)(2)(iv) 
of Regulation S-X from $50 million to $100 million.
---------------------------------------------------------------------------

    \232\ See EY; and BDO.
    \233\ See 1996 Rule 3-05 Adopting Release and SRC Adopting 
Release.
---------------------------------------------------------------------------

    While some commenters supported eliminating the provision in the 
accelerated filer and large accelerated filer definitions that 
specifically excludes registrants that are eligible to use the SRC 
disclosure requirements for their annual or quarterly reports,\234\ 
many other commenters recommended that the Commission increase the 
thresholds in the accelerated filer definition, consistent with the 
changes to the SRC definition.\235\ Commenters recommended increasing 
the public float threshold in the accelerated filer definition to 
reduce compliance costs \236\ and to maintain consistency in the 
rules.\237\
---------------------------------------------------------------------------

    \234\ See BDO; CAQ/CII; CFA Institute; Deloitte; and EY.
    \235\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; 
Coalition; CSBA; ICBA; Dixie; MidSouth; Nasdaq; NVCA; NYSE; and 
Seneca.
    \236\ See Acorda, et al.; AMTA; BIO; Calithera; CONNECT; 
Coalition; CSBA; ICBA; Dixie; MidSouth; Nasdaq; NVCA; NYSE; and 
Seneca.
    \237\ See BIO; Coalition; Nasdaq; NVCA; and NYSE.
---------------------------------------------------------------------------

    The final rules include amendments to the accelerated filer and 
large accelerated filer definitions in Exchange Act Rule 12b-2 to 
maintain the current thresholds at which registrants are subject to 
accelerated and large accelerated filer disclosure and filing 
requirements. These amendments will change the current relationship 
between

[[Page 32017]]

the SRC and ``accelerated filer'' definitions by allowing a registrant 
to qualify as both a SRC and an accelerated filer.\238\ As stated 
above, the Chairman has directed the staff to formulate recommendations 
to the Commission for possible changes to reduce the number of 
registrants that our rules define as accelerated filers. As part of the 
staff's consideration of possible recommended amendments, the Chairman 
has directed the staff to consider, among other things, the historical 
and current relationship between the SRC and ``accelerated filer'' 
definitions.
---------------------------------------------------------------------------

    \238\ In conjunction with these amendments, we also are adopting 
technical revisions to Securities Act Forms S-1, S-3, S-4, S-8, and 
S-11 and Exchange Act Forms 10, 10-Q and 10-K. These amendments 
modify the cover page of the specified forms to remove the 
parenthetical next to the ``non-accelerated filer'' definition that 
states ``(Do not check if a smaller reporting company).'' After 
these amendments, a registrant should check all applicable boxes on 
the cover page addressing, among other things, non-accelerated, 
accelerated, and large accelerated filer status, SRC status, and 
emerging growth company status.
---------------------------------------------------------------------------

    We believe that the final rules will reduce disclosure burdens by 
expanding the number of registrants that will qualify as SRCs and that 
are eligible to provide scaled disclosure, while maintaining 
appropriate investor protections.

C. Small Entities Subject to the Final Rules

    For purposes of the RFA, under 17 CFR 230.157 (Securities Act Rule 
157), an issuer, other than an investment company, is a ``small 
business'' or ``small organization'' if it had total assets of $5 
million or less on the last day of its most recent fiscal year and is 
engaged or proposing to engage in an offering of securities not 
exceeding $5 million. Under 17 CFR 240.0-10(a) (Exchange Act Rule 0-
10(a)), an issuer, other than an investment company, is a ``small 
business'' or ``small organization'' if it had total assets of $5 
million or less on the last day of its most recent fiscal year.
    We estimate that there are currently 1,181 entities that qualify as 
``small'' under the definitions set forth above.\239\ We believe it is 
likely that virtually all small businesses or small organizations, as 
defined in our rules described above, are already encompassed within 
the current SRC definition and the current revenue threshold in Rule 3-
05(b)(2)(iv) of Regulation S-X and will continue to be encompassed 
within the revised thresholds contained in the final rules. To the 
extent any small business or small organization, as defined for RFA 
purposes, is not already encompassed within the current SRC definition 
and the current revenue threshold in Rule 3-05(b)(2)(iv) of Regulation 
S-X, we believe it is likely that the revised thresholds contained in 
the final rules will capture those entities.
---------------------------------------------------------------------------

    \239\ This estimate is based on staff analysis of XBRL data 
submitted by filers, excluding co-registrants, with EDGAR filings of 
Forms 10-K filed during the calendar year of January 1, 2016 to 
December 31, 2016.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The amendments to the SRC definition in the final rules increase 
the number of registrants eligible to provide scaled disclosures in 
response to Regulation S-K and Regulation S-X disclosure requirements. 
These amendments do not revise the scaled disclosure requirements 
themselves, but could modestly decrease the disclosures required for 
registrants that will qualify as SRCs under the expanded thresholds.
    Consistent with the amendments to the revenue threshold in the SRC 
definition, the amendment to Rule 3-05 of Regulation S-X raises the net 
revenue threshold in Rule 3-05(b)(2)(iv) of Regulation S-X from $50 
million to $100 million. Current Rule 3-05(b)(2)(iv) allows certain 
registrants to omit financial statements of businesses acquired or to 
be acquired in certain registration statements and current reports for 
the earliest of the three fiscal years required if the net revenues of 
the business to be acquired are less than $50 million. With the 
amendment, those registrants will become eligible to omit the relevant 
financial statements for acquired businesses with net annual revenues 
of $50 million or more but less than $100 million in the most recent 
fiscal year. In this way, the amendment to Rule 3-05 could moderately 
decrease the existing disclosure requirements for some registrants; 
however, we do not expect that the number of registrants affected by 
the amendments will be significant.
    Both (i) the amendments to the SRC definition, which expand the 
number of registrants that qualify for the scaled disclosure based on 
revenue and public float measures, and (ii) the amendment to Rule 3-05 
of Regulation S-X, which expands the pool of acquired companies for 
which registrants are required to provide only two years of financials, 
reduce disclosure already required to be prepared under our rules. 
Accordingly, there are no particular professional skills needed to 
comply with the amendments themselves. Consistent with the current 
rules, however, a registrant will need to monitor the applicable 
thresholds for disclosure and to comply with the underlying existing 
disclosure requirements, which may require the use of professional 
skills, including information technology, accounting, and legal skills.
    The amendments are discussed in detail in Section II above. We 
discuss the economic impact, including the estimated compliance costs 
and burdens, of the final rules in Section IV (Economic Analysis) and 
Section V (Paperwork Reduction Act) above.

E. Agency Action To Minimize Effect on Small Entities

    The RFA directs us to consider significant alternatives that would 
accomplish the stated objectives of the amendments, while minimizing 
any significant adverse impact on small entities. Accordingly, we 
considered the following alternatives:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     clarifying, consolidating or simplifying compliance and 
reporting requirements for small entities under our rules as revised by 
the amendments;
     using performance rather than design standards; and
     exempting small entities from coverage of all or part of 
the amendments.
    The amendments generally do not create any new compliance or 
reporting requirements. Instead, the amendments expand the number of 
companies eligible for the different compliance and reporting 
requirements available to SRCs and increase the revenue threshold to 
qualify for the disclosure accommodation in Rule 3-05(b)(2)(iv) of 
Regulation S-X.\240\ As a result, we do not believe it is necessary or 
appropriate to exempt small entities in connection with this 
rulemaking. The amendments are intended to increase the number of 
registrants eligible to provide scaled disclosures under Regulation S-K 
and Regulation S-X. To the extent any small entity is not already 
encompassed within the current SRC definition or the current revenue 
threshold in Rule 3-05(b)(2)(iv) of Regulation S-X, we believe it is 
likely that the revised thresholds contained in the final rules will 
capture those entities, thereby enabling them to provide scaled 
disclosures. Therefore, we believe that the amendments will simplify 
compliance and reporting requirements for small entities. Small 
entities may avail themselves of the amendments upon their effective 
date. This timetable

[[Page 32018]]

will provide newly-eligible small entities with the ability to take 
advantage of the scaled disclosure requirements at the earliest 
possible date. In this regard, we do not believe that it is necessary 
to establish a different timetable for small entities. With respect to 
the use of performance rather than design standards, because the 
amendments are not expected to have any significant adverse effect on 
small entities (and are, in fact, expected to relieve burdens for some 
such entities), we do not believe it is necessary to use performance 
standards in connection with this rulemaking.
---------------------------------------------------------------------------

    \240\ As discussed in note 20, Item 404 is the only disclosure 
item in Regulation S-K that may require more extensive information 
for SRCs than for non-SRCs. See also note 22.
---------------------------------------------------------------------------

    In Section IV, above, we discuss additional alternatives that we 
have considered and their economic impact.\241\ We note that those 
alternatives, such as using a different threshold or different standard 
for determining SRC status, would be unlikely to have a significant 
effect on smaller entities because, as noted above, we believe 
virtually all small entities are already eligible for SRC status. 
Similarly, with respect to the alternative of not amending the 
accelerated and large accelerated filer definitions, we believe there 
are very few small entities that will be considered accelerated filers 
under the definitions in the final rules, and, therefore, this 
alternative would not significantly affect small entities.\242\
---------------------------------------------------------------------------

    \241\ See Section IV.C. (alternatives include (i) using a 
different registrant size metric in the SRC definition, (ii) 
revising the SRC definition using different thresholds, and (iii) 
reducing the number of registrants that our rules define as 
accelerated filers, which would expand the number of registrants 
eligible for the Sarbanes-Oxley Act Section 404(b) exemption).
    \242\ See Section IV.B.
---------------------------------------------------------------------------

VII. Statutory Amendments and Text of Final Rules

    The rule amendments described in this release are being adopted 
pursuant to Sections 7, 10 and 19 of the Securities Act (15 U.S.C. 77a 
et seq.), as amended, Sections 3(b), 12, 13, 15(d) and 23(a) of the 
Exchange Act (15 U.S.C. 78a et seq.), as amended, and Section 72002 of 
the FAST Act.

List of Subjects in 17 CFR Parts 210, 229, 230, 239, 240, and 249

    Reporting and recordkeeping requirements, Securities.

    For the reasons set out in the preamble, the Commission is amending 
title 17, chapter II of the Code of Federal Regulations as follows:

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL 
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 
1934, INVESTMENT COMPANY ACT OF 1940, INVESTMENT ADVISERS ACT OF 
1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975

0
1. The authority citation for part 210 continues to read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 
78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 
80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), 
Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.


0
2. Amend Sec.  210.3-05 by revising paragraph (b)(2)(iv) to read as 
follows:


Sec.  210.3-05  Financial statements of businesses acquired or to be 
acquired.

* * * * *
    (b) * * *
    (2) * * *
    (iv) If any of the conditions exceed 50 percent, the full financial 
statements specified in Sec. Sec.  210.3-01 and 210.3-02 shall be 
furnished. However, financial statements for the earliest of the three 
fiscal years required may be omitted if net revenues reported by the 
acquired business in its most recent fiscal year are less than $100 
million.
* * * * *

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934, AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
3. The authority citation for part 229 continues to read as follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 
80a-37, 80a-38(a), 80a-39, 80b-11, and 7201 et seq., and 18 U.S.C. 
1350; sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).


0
4. Amend Sec.  229.10 by revising paragraphs (f)(1) and (2) to read as 
follows:


Sec.  229.10   (Item 10) General.

* * * * *
    (f) * * *
    (1) Definition of smaller reporting company. As used in this part, 
the term smaller reporting company means an issuer that is not an 
investment company, an asset-backed issuer (as defined in Sec.  
229.1101), or a majority-owned subsidiary of a parent that is not a 
smaller reporting company and that:
    (i) Had a public float of less than $250 million; or
    (ii) Had annual revenues of less than $100 million and either:
    (A) No public float; or
    (B) A public float of less than $700 million.
    (2) Determination. Whether an issuer is a smaller reporting company 
is determined on an annual basis.
    (i) For issuers that are required to file reports under section 
13(a) or 15(d) of the Exchange Act:
    (A) Public float is measured as of the last business day of the 
issuer's most recently completed second fiscal quarter and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates by the price at which 
the common equity was last sold, or the average of the bid and asked 
prices of common equity, in the principal market for the common equity;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) An issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in its quarterly 
report on Form 10-Q for the first fiscal quarter of the next year, 
indicating on the cover page of that filing, and in subsequent filings 
for that fiscal year, whether it is a smaller reporting company, except 
that, if a determination based on public float indicates that the 
issuer is newly eligible to be a smaller reporting company, the issuer 
may choose to reflect this determination beginning with its first 
quarterly report on Form 10-Q following the determination, rather than 
waiting until the first fiscal quarter of the next year.
    (ii) For determinations based on an initial registration statement 
under the Securities Act or Exchange Act for shares of its common 
equity:
    (A) Public float is measured as of a date within 30 days of the 
date of the filing of the registration statement and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates before the registration 
plus, in the case of a Securities Act registration statement, the 
number of shares of its voting and non-voting common equity included in 
the registration statement by the estimated public offering price of 
the shares;
    (B) Annual revenues are as of the most recently completed fiscal 
year for

[[Page 32019]]

which audited financial statements are available; and
    (C) The issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in the registration 
statement and must appropriately indicate on the cover page of the 
filing, and subsequent filings for the fiscal year in which the filing 
is made, whether it is a smaller reporting company. The issuer must re-
determine its status at the end of its second fiscal quarter and then 
reflect any change in status as provided in paragraph (f)(2)(i)(C) of 
this section. In the case of a determination based on an initial 
Securities Act registration statement, an issuer that was not 
determined to be a smaller reporting company has the option to re-
determine its status at the conclusion of the offering covered by the 
registration statement based on the actual offering price and number of 
shares sold.
    (iii) Once an issuer determines that it does not qualify for 
smaller reporting company status because it exceeded one or more of the 
current thresholds, it will remain unqualified unless when making its 
annual determination either:
    (A) It determines that its public float was less than $200 million; 
or
    (B) It determines that its public float and its annual revenues 
meet the requirements for subsequent qualification included in the 
following chart:

------------------------------------------------------------------------
                                          Prior public float
                             -------------------------------------------
    Prior annual revenues       None or less than
                                  $700 million      $700 million or more
------------------------------------------------------------------------
Less than $100 million......  Neither threshold     Public float--Less
                               exceeded.             than $560 million;
                                                     and
                                                    Revenues--Less than
                                                     $100 million.
$100 million or more........  Public float--None    Public float--Less
                               or less than $700     than $560 million;
                               million; and.         and
                              Revenues--Less than   Revenues--Less than
                               $80 million.          $80 million.
------------------------------------------------------------------------

    Instruction 1 to paragraph (f): A registrant that qualifies as a 
smaller reporting company under the public float thresholds 
identified in paragraphs (f)(1)(i) and (f)(2)(iii)(A) of this 
section will qualify as a smaller reporting company regardless of 
its revenues.

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

0
5. The authority citation for part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *


0
6. Amend Sec.  230.405 by revising the definition of ``smaller 
reporting company'' to read as follows:


Sec.  230.405  Definitions of terms.

* * * * *
    Smaller reporting company. As used in this part, the term smaller 
reporting company means an issuer that is not an investment company, an 
asset-backed issuer (as defined in Sec.  229.1101 of this chapter), or 
a majority-owned subsidiary of a parent that is not a smaller reporting 
company and that:
    (1) Had a public float of less than $250 million; or
    (2) Had annual revenues of less than $100 million and either:
    (i) No public float; or
    (ii) A public float of less than $700 million.
    (3) Whether an issuer is a smaller reporting company is determined 
on an annual basis.
    (i) For issuers that are required to file reports under section 
13(a) or 15(d) of the Exchange Act:
    (A) Public float is measured as of the last business day of the 
issuer's most recently completed second fiscal quarter and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates by the price at which 
the common equity was last sold, or the average of the bid and asked 
prices of common equity, in the principal market for the common equity;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) An issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in its quarterly 
report on Form 10-Q for the first fiscal quarter of the next year, 
indicating on the cover page of that filing, and in subsequent filings 
for that fiscal year, whether it is a smaller reporting company, except 
that, if a determination based on public float indicates that the 
issuer is newly eligible to be a smaller reporting company, the issuer 
may choose to reflect this determination beginning with its first 
quarterly report on Form 10-Q following the determination, rather than 
waiting until the first fiscal quarter of the next year.
    (ii) For determinations based on an initial registration statement 
under the Securities Act or Exchange Act for shares of its common 
equity:
    (A) Public float is measured as of a date within 30 days of the 
date of the filing of the registration statement and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates before the registration 
plus, in the case of a Securities Act registration statement, the 
number of shares of its voting and non-voting common equity included in 
the registration statement by the estimated public offering price of 
the shares;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) The issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in the registration 
statement and must appropriately indicate on the cover page of the 
filing, and subsequent filings for the fiscal year in which the filing 
is made, whether it is a smaller reporting company. The issuer must re-
determine its status at the end of its second fiscal quarter and then 
reflect any change in status as provided in paragraph (3)(i)(C) of this 
definition. In the case of a determination based on an initial 
Securities Act registration statement, an issuer that was not 
determined to be a smaller reporting company has the option to re-
determine its status at the conclusion of the offering covered by the 
registration statement based on the actual offering price and number of 
shares sold.
    (iii) Once an issuer determines that it does not qualify for 
smaller reporting company status because it exceeded one or more of the 
current thresholds, it will remain unqualified unless when making its 
annual determination either:
    (A) It determines that its public float was less than $200 million; 
or

[[Page 32020]]

    (B) It determines that its public float and its annual revenues 
meet the requirements for subsequent qualification included in the 
following chart:

------------------------------------------------------------------------
                                          Prior public float
                             -------------------------------------------
    Prior annual revenues       None or less than
                                  $700 million      $700 million or more
------------------------------------------------------------------------
Less than $100 million......  Neither threshold     Public float--Less
                               exceeded.             than $560 million;
                                                     and
                                                    Revenues--Less than
                                                     $100 million.
$100 million or more........  Public float--None    Public float--Less
                               or less than $700     than $560 million;
                               million; and.         and
                              Revenues--Less than   Revenues--Less than
                               $80 million.          $80 million.
------------------------------------------------------------------------

    Instruction 1 to definition of ``smaller reporting company'': A 
registrant that qualifies as a smaller reporting company under the 
public float thresholds identified in paragraphs (1) and (3)(iii)(A) 
of this definition will qualify as a smaller reporting company 
regardless of its revenues.
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
7. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 
80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 
312, unless otherwise noted.
* * * * *


0
8. Amend Form S-1 (referenced in Sec.  239.11) by revising the text and 
check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 7(a)(2)(B) of the Securities Act.'' The revisions read as 
follows:

    Note: The text of Form S-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form S-1
Registration Statement Under the Securities Act of 1933
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [squ]
Accelerated filer [squ]
Non-accelerated filer [squ]
Smaller reporting company [squ]
Emerging growth company [squ]
* * * * *

0
9. Amend Form S-3 (referenced in Sec.  239.13) by revising the text and 
check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 7(a)(2)(B) of the Securities Act.'' The revisions read as 
follows:

    Note: The text of Form S-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form S-3
Registration Statement Under the Securities Act of 1933
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [squ]
Accelerated filer [squ]
Non-accelerated filer [squ]
Smaller reporting company [squ]
Emerging growth company [squ]
* * * * *

0
10. Amend Form S-8 (referenced in Sec.  239.16b) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 7(a)(2)(B) of the Securities Act.'' The revisions read as 
follows:

    Note:  The text of Form S-8 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form S-8
Registration Statement Under the Securities Act of 1933
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

0
11. Amend Form S-11 (referenced in Sec.  239.18) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 7(a)(2)(B) of the Securities Act.'' The revisions read as 
follows:

    Note:  The text of Form S-11 does not, and this amendment will 
not, appear in the Code of Federal Regulations.


[[Page 32021]]



United States Securities and Exchange Commission

Washington, DC 20549

Form S-11
Registration Statement Under the Securities Act of 1933
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

0
12. Amend Form S-4 (referenced in Sec.  239.25) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 7(a)(2)(B) of the Securities Act.'' The revisions read as 
follows:

    Note:  The text of Form S-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form S-4
Registration Statement Under the Securities Act of 1933
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.
Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
13. The authority citation for part 240 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and 
Pub. L. 111-203, 939A, 124 Stat. 1887 (2010); and secs. 503 and 602, 
Pub. L. 112-106, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
14. Amend Sec.  240.12b-2 by:
0
a. In the definition of ``accelerated filer and large accelerated 
filer'':
0
i. Adding the word ``and'' at the end of paragraph (1)(ii);
0
ii. Removing ``; and'' at the end of paragraph (1)(iii) and in its 
place adding a period;
0
iii. Removing paragraph (1)(iv);
0
iv. Adding the word ``and'' at the end of paragraph (2)(ii);
0
v. Removing ``; and'' at the end of paragraph (2)(iii) and in its place 
adding a period; and
0
vi. Removing paragraph (2)(iv).
0
b. Revising the definition of ``smaller reporting company''.
    The addition and revision reads as follows:


Sec.  240.12b-2  Definitions.

* * * * *
    Smaller reporting company. As used in this part, the term smaller 
reporting company means an issuer that is not an investment company, an 
asset-backed issuer (as defined in Sec.  229.1101 of this chapter), or 
a majority-owned subsidiary of a parent that is not a smaller reporting 
company and that:
    (1) Had a public float of less than $250 million; or
    (2) Had annual revenues of less than $100 million and either:
    (i) No public float; or
    (ii) A public float of less than $700 million.
    (3) Whether an issuer is a smaller reporting company is determined 
on an annual basis.
    (i) For issuers that are required to file reports under section 
13(a) or 15(d) of the Exchange Act:
    (A) Public float is measured as of the last business day of the 
issuer's most recently completed second fiscal quarter and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates by the price at which 
the common equity was last sold, or the average of the bid and asked 
prices of common equity, in the principal market for the common equity;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) An issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in its quarterly 
report on Form 10-Q for the first fiscal quarter of the next year, 
indicating on the cover page of that filing, and in subsequent filings 
for that fiscal year, whether it is a smaller reporting company, except 
that, if a determination based on public float indicates that the 
issuer is newly eligible to be a smaller reporting company, the issuer 
may choose to reflect this determination beginning with its first 
quarterly report on Form 10-Q following the determination, rather than 
waiting until the first fiscal quarter of the next year.
    (ii) For determinations based on an initial registration statement 
under the Securities Act or Exchange Act for shares of its common 
equity:
    (A) Public float is measured as of a date within 30 days of the 
date of the filing of the registration statement and computed by 
multiplying the aggregate worldwide number of shares of its voting and 
non-voting common equity held by non-affiliates before the registration 
plus, in the case of a Securities Act registration statement, the 
number of shares of its voting and non-voting common equity included in 
the registration statement by the estimated public offering price of 
the shares;
    (B) Annual revenues are as of the most recently completed fiscal 
year for which audited financial statements are available; and
    (C) The issuer must reflect the determination of whether it came 
within the definition of smaller reporting company in the registration 
statement and must appropriately indicate on the cover page of the 
filing, and subsequent filings for the fiscal year in which the filing 
is made, whether it is a smaller reporting company. The issuer must re-
determine its status at the end of its second fiscal quarter and then 
reflect any change in status as provided in paragraph (3)(i)(C) of this 
definition. In the case of a determination based on an initial 
Securities Act registration statement, an issuer that was not 
determined to be a smaller reporting company has the option to re-
determine its status at the conclusion of the offering covered by the 
registration

[[Page 32022]]

statement based on the actual offering price and number of shares sold.
    (iii) Once an issuer determines that it does not qualify for 
smaller reporting company status because it exceeded one or more of the 
current thresholds, it will remain unqualified unless when making its 
annual determination either:
    (A) It determines that its public float was less than $200 million; 
or
    (B) It determines that its public float and its annual revenues 
meet the requirements for subsequent qualification included in the 
following chart:

------------------------------------------------------------------------
                                          Prior public float
                             -------------------------------------------
    Prior annual revenues       None or less than
                                  $700 million      $700 million or more
------------------------------------------------------------------------
Less than $100 million......  Neither threshold     Public float--Less
                               exceeded.             than $560 million;
                                                     and
                                                    Revenues--Less than
                                                     $100 million.
$100 million or more........  Public float--None    Public float--Less
                               or less than $700     than $560 million;
                               million; and.         and
                              Revenues--Less than   Revenues--Less than
                               $80 million.          $80 million.
------------------------------------------------------------------------


    Instruction 1 to definition of ``smaller reporting company'': A 
registrant that qualifies as a smaller reporting company under the 
public float thresholds identified in paragraphs (1) and (3)(iii)(A) 
of this definition will qualify as a smaller reporting company 
regardless of its revenues.

* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
15. The authority citation for part 249 continues to read in part as 
follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *

0
16. Amend Form 10 (referenced in Sec.  249.210) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 13(a) of the Exchange Act.'' The revisions read as follows:

    Note:  The text of Form 10 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form 10
General Form for Registration of Securities
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

0
17. Amend Form 10-Q (referenced in Sec.  249.308a) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 13(a) of the Exchange Act.'' The revisions read as follows:

    Note:  The text of Form 10-Q does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form 10-Q
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

0
18. Amend Form 10-K (referenced in Sec.  249.310) by revising the text 
and check boxes on the cover page immediately before the text ``If an 
emerging growth company, indicate by check mark if the registrant has 
elected not to use the extended transition period for complying with 
any new or revised financial accounting standards provided pursuant to 
Section 13(a) of the Exchange Act.'' The revisions read as follows:

    Note:  The text of Form 10-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

United States Securities and Exchange Commission

Washington, DC 20549

Form 10-K
* * * * *
    Indicate by check mark whether the registrant is a large 
accelerated filer, an accelerated filer, a non-accelerated filer, a 
smaller reporting company, or an emerging growth company. See the 
definitions of ``large accelerated filer,'' ``accelerated filer,'' 
``smaller reporting company,'' and ``emerging growth company'' in Rule 
12b-2 of the Exchange Act.

Large accelerated filer [ballot]
Accelerated filer [ballot]
Non-accelerated filer [ballot]
Smaller reporting company [ballot]
Emerging growth company [ballot]
* * * * *

    By the Commission.

    Dated: June 28, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-14306 Filed 7-9-18; 8:45 am]
 BILLING CODE 8011-01-P


