Rule to Provide That the Commission Will Not Accept Paper Filings That are Required To Be Filed Electronically

1 17 CFR Part 232.
2 15 U.S.C. 77a et seq.
SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 232 [Release No. 33–7472; 34–39269] Rule to Provide That the Commission Will Not Accept Paper Filings That are Required To Be Filed Electronically AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission is adding a rule to the series of rules governing the submission of filings and other documents through the Electronic Data Gathering, Analysis, and Retrieval system. The new rule provides that the Commission will not accept any paper filing that is required to be filed electronically, unless it satisfies the requirements for a temporary or continuing hardship exemption. EFFECTIVE DATE: The rule is effective on January 1, 1998. FOR FURTHER INFORMATION CONTACT:
Margaret R. Black, Division of Corporation Finance, (202) 942–2933, or Ruth Armfield Sanders, Division of Investment Management, (202) 942– 0633, U.S. Securities and Exchange Commission, Washington, D.C. 20549. SUPPLEMENTARY INFORMATION: The U.S. Securities and Exchange Commission (the ‘‘Commission’’) is adding new Rule 14 to Regulation S–T1 under the Securities Act of 1933 (‘‘Securities Act’’).2

58648 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 3Rules 101 and 102 of Regulation S–T [17 CFR
232.101 and 17 CFR 232.102].
4Rule 101(a) of Regulation S–T [17 CFR 232.101(a)] specifically excepts ‘‘foreign private issuers and foreign governments’’ from the persons and entities subject to mandated electronic filing. In the future, the Commission will consider whether such filings should be required to be made electronically. 5The other paper filings were filings from foreign private issuers or foreign governments, filings submitted in paper pursuant to a hardship exemption, and filings on forms not yet required to be filed electronically. 6The Commission staff screens all paper filings to determine if they should have been filed on EDGAR. If the submission should have been filed electronically, the staff calls or writes to the filer, and asks the filer to file an electronic copy of the document, or to apply for a hardship exemption if appropriate. 7Rule 201 of Regulation S–T (temporary hardship exemption) [17 CFR 232.201] and Rule 202 of Regulation S–T (continuing hardship exemption) [17 CFR 232.202]. 8Rule 201 requires paper filings relying on the temporary hardship exemption to be accompanied by a Form TH, Notification of Reliance on Temporary Hardship Exemption, and in the case of exhibits, Form SE, Form for Submission of Paper Format Exhibits by Electronic Filers. 9Rule 202(a) states that requests for a continuing hardship exemption must be submitted at least ten days in advance of filing. Requests must be submitted by either filers or their counsel, and the request may be submitted by fax to the Office of EDGAR Policy in the Division of Corporation Finance at (202) 942–9542. Questions about hardship exemptions should be directed to that Office at (202) 942–2940. Investment company filers should direct their requests and inquiries to the Investment Management EDGAR Branch at (202) 942–0591. 10See, e.g., Instruction I.H to Form S–2 [17 CFR 239.12]. Forms S–3 [17 CFR 239.13], S–8 [17 CFR 239.16b], F–2 [17 CFR 239.32] and F–3 [17 CFR 239.33] contain similar provisions. See also the note to Rule 101(a) of Regulation S–T [17 CFR 232.101(a)], Note 1 to Rule 201(b) of Regulation S– T [17 CFR 232.101(b)] and Note 3 to Rule 202(d) of Regulation S–T [17 CFR 232.101(d)]. 11Rule 303 of Regulation S–T [17 CFR 232.303]. 12Rule 13e–4(f)(12) [17 CFR 240.13e–4(f)(12)] and Rule 14e–1(e) [17 CFR 240.14e–1(e)]. 13Filers submitting paper filings in reliance on a hardship exemption must include on the first page of the filing the legend stating that the filer is relying on a hardship exemption. See Rule 201(a)(2) of Regulation S–T [17 CFR 232.201(a)(2)] and Rule 202(c) of Regulation S–T [17 CFR 232.202(c)].
I. Discussion
The Commission’s filing rules mandate electronic filing by registrants and certain others via the Commission’s Electronic Data Gathering and Retrieval (‘‘EDGAR’’) system.3 Most companies were phased into the electronic system in groups between 1993 and 1996; by May, 1997, when small business filers were completely phased into the electronic filing system, all domestic issuers were required to file most documents electronically.4 EDGAR filings are available on the Commission’s Internet web site within 24 to 48 hours of filing, and commercial databases provide the information even sooner. The electronic filing system has made filings more easily and more quickly available to the investing public. Most filers either regularly and promptly submit filings via the EDGAR system or apply for an exemption before the required filing date. The high level of compliance with the rules requiring electronic filing draws attention to the fact that some filers have continued to make their filings in paper without requesting a hardship exemption. In May 1997, for example, when approximately 23,750 filings were submitted electronically, the Commission received approximately 8,850 paper filings, of which approximately 500 should have been filed electronically.5 These paper filings create a gap in the EDGAR database because all paper filings, whether or not filed pursuant to an exemption, are currently accepted and treated as valid filings.6 The gap in the electronic database is detrimental to an investing public that relies on the prompt availability and dissemination of filed information. Those who rely primarily on the EDGAR database may not even be aware that the information is on file with the Commission. The Commission’s rules take into account the possibility that under certain circumstances electronic filing may be difficult or impossible by allowing filers relief from electronic filing through hardship exemptions. Filers may claim or request, as appropriate, hardship exemptions based on certain criteria, including, for example, technical difficulties in filing, and undue burden and expense of conversion to electronic format.7 A temporary hardship exemption, generally for unanticipated technical difficulties, is available automatically but must be followed, within six business days, by a confirming electronic copy so that the electronic database is complete.8 A continuing hardship exemption is also available, but must be granted by the staff. It may be granted for a specific period (after which a confirming electronic copy must be filed) or for an indefinite period.9 While the rules acknowledge the possible impediments to electronic filing, they also impose sanctions on issuers that do not comply with the electronic filing rules (and that fail to request an exemption, or fully comply with the requirements of the exemption). The sanctions include the inability to use certain short form registration statements,10 the inability to incorporate the paper filing by
reference into other filings,11 and the tolling of certain tender offer periods.12 Neither the availability of the hardship exemptions nor the sanctions provided by the rules have completely eliminated paper filings that are filed inappropriately without a hardship exemption. The Commission believes that there is a strong public interest in decreasing the number of non-compliant filings. First, electronic filing makes information available more quickly than paper filing. The electronic filing system is the most efficient and effective way of disseminating filed information to the public. Each filing in paper format that is not the subject of an exemption creates an information gap for a marketplace that has come to rely on EDGAR for immediate and complete access. Second, it appears unfair to those filers who comply with the filing rules to accept the filings of those who do not. Finally, paper filings are more costly to the Commission because they require more staff time to process, maintain, track and retrieve. Paper filings prevent the Commission’s staff from taking full advantage of the efficiencies of electronic filing for processing, tracking and staff review of filings. Paper filings also disrupt the continuity of preserving records permanently in an electronic format. The Commission has determined, therefore, that the EDGAR filing rules should be revised to provide that documents that are required to be filed electronically will not be accepted for filing in paper format in the absence of an available exemption. In reaching this decision, the Commission also considered that the phase-in period for electronic filing has been complete for over a year, giving filers ample time to become familiar with and to comply with the electronic filing requirements. The Commission believes that a specific rule providing for the rejection of non￾compliant filings will help to decrease the number of paper filings. The Office of Filings and Information Services will be instructed not to accept paper submissions that should have been filed electronically.13 Those brought by courier will be given back to the courier, and those sent by mail or other delivery service will be returned by mail. If a filing is required to be filed within a certain period (e.g., ninety days from the end of the fiscal year for annual reports on Form 10–K), the rejection of an improper paper filing would result in a filer failing to meet its disclosure obligations unless the document is

Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations 58649 14The only date the Commission will consider in determining compliance with the disclosure requirements will be the filing date of the electronically transmitted document. 15 5 U.S.C. 553(b). 16 5 U.S.C. 601–612. 17 44 U.S.C. 3501 et seq. 18 5 CFR 1320.5(g). 19 15 U.S.C. 78w(a)(2). 20 15 U.S.C. 78a et seq. 21 15 U.S.C. 77b. 22 15 U.S.C. 78c. 23Pub. L. No. 104–290, § 106, 110 Stat. 3416 (1996). 24 15 U.S.C. 79a et seq. 25 15 U.S.C. 77aaa et seq. 26 15 U.S.C. 80a–1 et seq. submitted electronically by the due date.14 The Commission is aware that the immediate result of returning a paper submission will be that access to the information will be delayed until the sender re-submits it in electronic format, because the filing will not be available even in paper format through the Commission’s public reference facilities. In order to minimize this delay, the staff will use its best efforts to notify senders of the problem promptly so they can take immediate steps to re-submit the documents. As filers become accustomed to this policy, improved compliance with the EDGAR rules can be expected. The result will be an improvement in the timeliness of information available to the public. The Commission also considered whether to revise the rules providing for sanctions. It has been argued that the current rules create an inference that the Commission will accept paper filings because the penalty is imposed in the event a filing is improperly submitted in paper format. The Commission believes that the creation of a general rule providing for the rejection of paper filings where the filing does not satisfy the requirements of a hardship exemption will clear up any possible misinterpretation of the rules. As with its other rules, the Commission will use any appropriate means, including its authority to bring legal actions, to enforce the electronic filing rules. In addition, keeping the current sanctions will provide a backup system of penalties that would apply to a paper filing that is accepted in error. The Commission therefore believes that a change to the rules imposing sanctions is not necessary or appropriate at this time.
II. Effective Date
The new rule is effective on January 1, 1998, and applies to filings made after that date, including amendments to filings made earlier.
III. Certain Findings
Since the new rule relates solely to agency organization, procedure, or practice, publication for notice and comment is not required under the Administrative Procedure Act.15 It follows that the requirements of the Regulatory Flexibility Act 16 do not apply. The new rule does not come within the scope of the Paperwork Reduction Act of 1995 17 because the new rule is not a substantive or material change to a collection of information.18 Under 5 U.S.C. 804, this rule is exempt from the definition of the term ‘‘rule’’ for purposes of Chapter 8, entitled ‘‘Congressional Review of Agency Rulemaking,’’ since the rule is a rule of agency organization, procedure, or practice that does not substantially affect the rights or obligations of non-agency parties.
Section 23(a)(2) 19 of the Securities
Exchange Act of 1934 (the ‘‘Exchange Act’’) 20 requires the Commission to consider the anti-competitive effects of any rules it adopts thereunder, if any, and the reasons for its determination that any burden on competition imposed by such rules is necessary or appropriate to further the purposes of the Exchange Act. Because the new rule does not effect any substantive change, it will not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act.
IV. Cost-Benefit Analysis
The benefits of this new procedural rule clearly exceed the costs. The amendment should benefit the investing public by increasing the number of documents filed electronically and therefore the public’s knowledge of and timely access to the information in the documents. Based on filings made in May of 1997, the rule could result in an additional 500 filings per month being made electronically rather than on paper. This assumes that all paper filings made without a hardship exemption would have been filed electronically if the new rules had been in effect. Of course, it is possible that one result of the rule will be that more filers will request and receive hardship exemptions. However, any burden resulting from an increase in applications for hardship exemptions is likely to be minimal and only constitutes the costs of complying with an existing standard. Furthermore, Section 2 of the Securities Act 21 and Section 3 of the Exchange Act,22 as amended by the recently enacted National Securities Markets Improvement Act of 1996,23 provide that whenever the Commission is engaged in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, the Commission also shall consider, in addition to the protection of investors, whether the act will promote efficiency, competition, and capital formation. Because the amendments will increase the amount of information available on a timely basis to the investing public, the new rule is in the public interest and will promote the efficient dissemination of such information. The new rule will not affect efficiency, competition or capital formation because it does not result in a material change in capital raising or regulatory compliance costs.
V. Statutory Basis
The rule is proposed pursuant to Sections 6, 7, 8, 10 and 19(a) of the Securities Act, Sections 3, 12, 13, 14, 15(a), 23(a) and 35A of the Exchange Act, Sections 3, 5, 6, 7, 10, 12, 13, 14, 17 and 20 of the Public Utility Holding Company Act of 1935,24 Section 319 of the Trust Indenture Act of 1939,25 and Sections 8, 30, 31 and 38 of the Investment Company Act of 1940.26 List of Subjects in 17 CFR Parts 232 Administrative practice and procedure, Reporting and recordkeeping requirements, Securities. Text of the Amendments In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:
PART 232—REGULATION S–T—
GENERAL RULES AND REGULATIONS FOR ELECTRONIC FILINGS The authority citation for Part 232 continues to read as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a–8, 80a–29, 80a–30 and 80a–37.
2. By adding § 232.14 to read as
follows:
§ 232.14 Paper filings not accepted without exemption. The Commission will not accept in paper format any filing required to be submitted electronically under Rules 100 and 101 of Regulation S–T (§§ 232.100 and 232.101 respectively), unless the filing satisfies the requirements for a temporary or continuing hardship exemption under

58650 Federal Register / Vol. 62, No. 210 / Thursday, October 30, 1997 / Rules and Regulations Rule 201 or 202 of Regulation S–T (§§ 232.201 or 232.202 respectively). By the Commission. Dated: October 24, 1997. Margaret H. McFarland, Deputy Secretary. [FR Doc. 97–28704 Filed 10–29–97; 8:45 am] BILLING CODE 8010–01–P