JOBS Act Rulemaking; SEC FAQs on the Exchange Act Registration Threshold

News Brief

By Cydney Posner

The SEC has announced  that, as it did with some provisions of Dodd-Frank, it plans to solicit public comment on rules it is required to promulgate under the JOBS Act before it even proposes any new rules and amendments. To facilitate public comment, the SEC is providing a series of links on its website organized by titles of the JOBS Act.

In the meantime, the SEC has posted more FAQs regarding the JOBS Act.  This set provides guidance relating to the JOBS Act's changes in the threshold for Exchange Act registration. As you know, the JOBS Act amended Section 12(g)(1) of the Exchange Act to raise the threshold for the number of holders of record that will trigger Exchange Act registration to either 2,000 holders of record or 500 holders of record that are not accredited investors. In addition, the Exchange Act was amended to exclude persons from the definition of "held of record" if they hold only securities issued pursuant to exempt employee compensation plan transactions. The SEC is required to adopt rules implementing this change in the definition. Under the JOBS Act, banks and bank holding companies have different thresholds for registration and special provisions for deregistration and suspension of reporting obligations under the Exchange Act. (No changes were made to the provisions for "going dark" for companies that are not banks or bank holding companies -- banks and bank holding companies apparently had more persistent lobbyists.)

Only two of the FAQs relate to companies that are not banks or bank holding companies:

  • If the requirement to register under the Exchange Act was triggered for a company (not a bank or bank holding company) as of a fiscal year end prior to signing of the JOBS Act on April 5, but the requirement would not be triggered under the amended thresholds contained in the JOBS Act, then the company "is no longer subject to a Section 12(g) registration obligation with respect to that class. Therefore, if the issuer has not filed an Exchange Act registration statement, it is no longer required to do so." If a registration statement has been filed but is not yet effective, it can be withdrawn. However, if a class of equity security has already been registered under Section 12(g), the company would need to continue that registration unless it is eligible to deregister under Section 12(g) or current rules.
  • Under the JOBS Act, the SEC is required to adopt rules implementing the revised definition of "held of record, " including adopting a safe harbor companies may use to determine whether persons received the securities in exempt transactions pursuant to an employee compensation plan. The absence of the safe harbor does not preclude reliance on the amendment to the Exchange Act. Therefore, as of April 5, companies will be able to exclude persons who received securities in exempt employee compensation plan transactions. The exclusion will apply whether or not the person is a current employee of the issuer.
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