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

1The proposed rule would be codified at 17 CFR 230.146. 2 15 U.S.C. 77a et seq. 3 15 U.S.C. 77r. 4Public Law 104–290, 110 Stat. 3416 (1996). 5The term ‘‘covered security’’ is defined in new
section 18(b) [15 U.S.C. 77r(b)].
6The term ‘‘offering document’’ is defined in new
section 18(d)(1) [15 U.S.C. 77r(d)(1)], as follows:
(1) Offering Document.—The term ‘‘offering document’’— (A) has the meaning given the term ‘‘prospectus’’ in section 2(10), but without regard to the provisions of subparagraphs (A) and (B) of that
section; and
(B) includes a communication that is not deemed to offer a security pursuant to a rule of the Commission. 7New Section 18(d)(2) requires the Commission to adopt this definition not later than six months after the section’s enactment. SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 230 [Release No. 33–7388; File Number S7–6– 97] RIN 3235–AH14 Definition of ‘‘Prepared by or on Behalf of the Issuer’’ for Purposes of Determining if an Offering Document is Subject to State Regulation. AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The National Securities Markets Improvements Act of 1996 mandates that the Securities and Exchange Commission (‘‘Commission’’) adopt a definition of the phrase ‘‘prepared by or on behalf of the issuer’’ found in newly revised Section 18 of the Securities Act of 1933. Today, the Commission proposes such a definition. DATES: Comments should be received on or before March 20, 1997. ADDRESSES: Comments should be submitted in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. Comments also may be submitted electronically at the following E-mail address: rule￾comments@sec.gov. All comment letters should refer to File No. S7–6–96; this file number should be included in the subject line if E-mail is used. Comment letters will be available for inspection and copying in the Commission’s Public Reference Room, 450 Fifth Street, NW., Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission’s Internet Web Site (http://www.sec.gov). FOR FURTHER INFORMATION CONTACT:
James R. Budge, Division of Corporation Finance, at (202) 942–2950, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission proposes adding Rule 146 1 under the Securities Act of 1933 (‘‘Securities Act’’ or ‘‘the Act’’).2 The Rule would define the term ‘‘prepared by or on behalf of the issuer,’’ as that term is used in newly revised Section 18 of the Act.3
I. Background and Proposed Definition
On October 11, 1996, President Clinton signed into law the National Securities Markets Improvement Act of
1996.4 One significant goal of this
legislation, embodied in revised Section 18 of the Act, is to reduce duplicative and unnecessary regulatory requirements resulting from the dual system of federal and state securities regulation. The statute reallocates regulatory responsibility relating to securities offerings between the federal and state governments based on the nature of the security or offering. Among other things, it preempts state laws requiring or with respect to registration or qualification of ‘‘covered securities’’ as defined in the Act.5 It also prohibits states from directly or indirectly prohibiting, limiting or imposing any conditions on the use of any offering document for a covered security if the offering document is ‘‘prepared by or on behalf of the issuer.’’ 6 The statute requires the Commission to define by rule the phrase ‘‘prepared by or on behalf of the issuer,’’ as used in connection with the prohibition on state regulation of offering documents for covered securities.7 The Commission today proposes a definition of this term.

Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Proposed Rules 7187 8 In the case of a registered investment company, an agent of the issuer would generally include the company’s investment adviser or any other agent that performs administrative functions on behalf of the company. 9As provided by statute, the proposed definition would be applicable only to Section 18 of the Securities Act. The Commission believes that the phrase is intended to cover offering documents prepared with the issuer’s knowledge and consent. Thus, the proposed definition would cover offering documents authorized by the issuer and prepared by specified persons. Conversely, documents that are prepared and circulated without issuer authorization would not be covered. Specifically, as proposed, if the issuer authorizes the offering document’s production and the document is prepared by a director, officer, general partner, employee, affiliate, underwriter, attorney, accountant or agent of the issuer, it would be ‘‘prepared by or on behalf of the issuer.’’ 8 The proposed definition also would include authorized documents prepared by representatives or agents of these persons.9 Comment is requested as to whether the definition should be broadened or narrowed by adding persons to or eliminating persons from the list; specific justification for additions or deletions should be provided. Should the list include specific examples of persons, such as employees or attorneys as proposed, or is it sufficient to state simply that the person be an agent or representative of the issuer? The second approach would eliminate the need for paragraph (a) of the proposed definition. As proposed, the definition does not include offering documents prepared by persons who do not have some formal connection to the issuer. Should the definition be expanded to include offering documents approved by the issuer but prepared by a person who does not have a managerial, employment or other agency relationship with the issuer? The proposed definition also would encompass only those offering documents prepared with the authorization of the issuer. Should such authorization be implied if the document is prepared by certain individuals, such as underwriters? If implied authorization is believed appropriate for some persons, commenters are asked to identify the specific parties and explain why it would be appropriate to imply consent in those cases.
II. Submission of Comments
Interested persons should submit comment letters in triplicate to Jonathan G. Katz, Secretary, U.S. Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC, 20549. Comments also may be submitted electronically at the following E-mail address: rule-comments@sec.gov. All comment letters should refer to File Number S7–6–96. This file number should be included on the subject line if E-mail is used. Comments received will be available for inspection and copying in the Commission’s public reference room, 450 Fifth Street, NW., Washington, DC 20549. Electronically submitted comment letters will be posted on the Commission’s Internet web site (http://www.sec.gov).
III. Cost-Benefit Analysis
Commenters should address the costs and benefits of the proposed definition of ‘‘prepared by or on behalf of the issuer,’’ and to provide any available support for such views, in order to aid the Commission in its own evaluation of its costs and benefits. The Commission believes that issuers will not experience changes to their compliance costs as a result of this rulemaking. For purposes of 5 U.S.C. 804(2), the Commission also requests information regarding the potential impact of the proposed rule on the economy on an annual basis. Commenters should provide data supporting their views.
IV. Summary of Initial Regulatory
Flexibility Analysis
An initial regulatory flexibility analysis has been prepared in accordance with 5 U.S.C. 603 concerning the proposed definition. The analysis notes that the proposal relates to a Congressional mandate to define the term ‘‘prepared by or on behalf of the issuer’’ for purposes of Section 18 of the Act and describes the reasons for and purposes of the proposed definition. As discussed more fully in the analysis, the proposals may affect persons that are small entities, as defined by the Commission’s rules. It is not expected that significant changes to reporting, recordkeeping and compliance burdens would result from the proposal, inasmuch as the substantive effects of the changes to
Section 18 are controlled primarily by
the terms of the legislation, and not by the terms of this proposed definition. The purpose of the definition is to give guidance with regard to the meaning of a statutory term. There are no current federal rules that duplicate, overlap or conflict with the proposed definition. Several possible significant alternatives to the proposal were considered, including, among others, establishing different requirements for small entities or exempting them from all or part of the proposed definition. As discussed more fully in the analysis, this rulemaking does not lend itself to separate treatment for small businesses. The definition is purposefully crafted in broad terms to encompass small entities together with other issuers. No public interest would be served by a definition that would exclude small entities from enjoying the benefits of state preemption. Written comments are encouraged with respect to any aspect of the analysis. Such comments will be considered in the preparation of the Final Regulatory Flexibility Analysis if the proposed amendments are adopted. A copy of the analysis may be obtained by contacting James R. Budge, Division of Corporation Finance, Mail Stop 7–8, 450 Fifth Street, NW., Washington, DC 20549.
V. Statutory Basis
Rule 146 is being proposed pursuant to Sections 18 and 19 of the Securities Act. List of Subjects in M CFR Part 230 Reporting and recordkeeping requirements, Securities. Text of the Proposal In accordance with the foregoing, Title 17, chapter II of the Code of Federal Regulations is proposed to be amended as follows:
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for part 230
   is revised to read in part as follows:
   Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77r, 77s, 77sss, 78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 80a-37, unless otherwise noted.

---

2. By adding § 230.146, to read as
   follows:
   § 230.146 Definition of ‘‘prepared by or on behalf of the issuer’’ for purposes of
   Section 18 of the Act.
   Prepared by or on behalf of the issuer. An offering document (as defined in
   Section 18(d)(1) of the Act [15 U.S.C.
   77r(d)(1)]) shall be deemed ‘‘prepared by or on behalf of the issuer’’ for purposes of Section 18 of the Act, if the issuer authorizes its production and if it has been prepared by:
   (a) A director, officer, general partner, employee, affiliate, underwriter,

7188 Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Proposed Rules attorney, accountant or agent of the issuer; or (b) An agent or representative of any person specified in paragraph (a) of this
section.
Dated: February 11, 1997.
By the Commission.
Margaret H. McFarland, Deputy Secretary. [FR Doc. 97–3845 Filed 2–14–97; 8:45 am] BILLING CODE 8010–01–P