Release No. 33-8591

Release No. 34-52056

Release No. IC-26993

Financial Reporting Rel. No. 75

International Series Rel. No. 1294

70 Fed. Reg. _____ - ____

Table of Contents

Securities Offering Reform

VIII. Paperwork Reduction Act

A. Background

The rules contain “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (PRA).⁶¹⁴ We published a notice requesting comment on the collection of information requirements in the Proposing Release, and we submitted these requirements to the Office of Management and Budget (OMB) for review in accordance with the PRA.⁶¹⁵

We did not receive any comments on the PRA analysis contained in the Proposing Release. As discussed above, we have made several changes to the proposed rules in response to comments on the proposals. These changes are designed to avoid potential unintended consequences and reduce possible additional costs or burdens pointed out by commenters. After evaluating the comments and our responsive revisions to address them, we are not changing the initial PRA estimates described in the Proposing Release and submitted to OMB, other than to reflect the decreased number of free writing prospectuses that will be filed as a result of the changes to the treatment of electronic road shows, as discussed below. The titles for all the collections of information affected by these rules are:⁶¹⁶

(1) “Form 10” (OMB Control No. 3235-0064);

(2) “Form 20-F” (OMB Control No. 3235-0288);

(3) “Form 10-K” (OMB Control No. 3235-0063);

(4) “Form 10-Q” (OMB Control No. 3235-0070);

(5) “Regulation S-K” (OMB Control No. 3235-0071);

(6) “Regulation S-B” (OMB Control No. 3235-0417);

(7) “Regulation C” (OMB Control No. 3235-0074);

(8) “Form S-1” (OMB Control No. 3235-0065);

(9) “Form F-1” (OMB Control No. 3235-0258);

(10) “Form S-2” (OMB Control Number 3235-0072);

(11) “Form F-2” (OMB Control Number 3235-0257);

(12) “Form S-3” (OMB Control Number 3235-0073);

(13) “Form F-3” (OMB Control Number 3235-0256);

(14) “Form S-4” (OMB Control Number 3235-0324);

(15) “Form F-4” (OMB Control Number 3235-0325);

(16) “Form N-2” (OMB Control Number 3235-0026);

(17) “Rule 173” (OMB Control Number 3235-0618);

(18) “Rule 163” (OMB Control Number 3235-0619); and

(19) “Rule 433” (OMB Control Number 3235-0617).

We adopted all of the existing regulations and forms pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. They set forth the disclosure requirements for annual and quarterly reports, registration statements, and prospectuses that are prepared by issuers to ensure that investors have the information they need to make informed investment decisions in registered offerings and in secondary market transactions. We also are adopting new Securities Act Rules <a href="/sec_rules/Reg_Securities_Act/General_Rules/17cfr230_163.htm" title="Securities Act Rule 163" class="intralink">163</a>, 173, and 433 and eliminating Securities Act Rule 434 and Forms S-2 and F-2.

The amendments to existing forms and regulations and new rules will modify and advance the Commission’s regulatory system for offerings under the Securities Act, enhance communications between public issuers and investors, and promote investor protection. The rules involve three main areas:

• communications related to registered securities offerings;

• procedural restrictions in the offering and capital formation processes; and

• delivery of information to investors.

The hours and costs associated with preparing disclosure, filing forms, and retaining records constitute reporting and cost burdens imposed by the collections of information. The estimates of reporting and cost burdens provided in this PRA analysis address the time, effort, and financial resources necessary to provide the collections of information and are not intended to represent the full economic cost of complying with the rules. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.

The information collection requirements related to registration statements and periodic reports will be mandatory. For registration statements and periodic reports, there will be no mandatory retention period for the information disclosed, and the information gathered will be made publicly available. The information collection requirements related to the communications and prospectus delivery rules will apply only to issuers and other offering participants choosing to rely on them. There will be a mandatory record retention period with respect to the communications and prospectus delivery provisions. Moreover, free writing prospectuses that are prepared by or on behalf of or used or referred to by an issuer, and free writing prospectuses that are broadly disseminated by another offering participant, will have to be filed and will be publicly available on the EDGAR filing system, whereas other free writing prospectuses prepared by or on behalf of or used or referred to by offering participants, other than the issuer, will not have to be filed.

B. Summary of Information Collections

The rules will add the following disclosure requirements to Exchange Act periodic reports and registration statements:

• Risk factor disclosure;

• Disclosure by accelerated filers and well-known seasoned issuers, in their annual reports on Forms 10-K or 20-F, of any written staff comments regarding their Exchange Act reports issued more than 180 days before the end of the fiscal year covered by the annual report that the issuer believes to be material and that remain unresolved as of the date of the filing of the annual report; and

• “Check boxes” that will appear on the cover page of the report or registration statement to indicate whether the registrant is filing Exchange Act reports on a voluntary basis and whether the registration is a well-known seasoned issuer.⁶¹⁷

The rules will impose the following new disclosure requirements and filing or notification conditions in connection with registered offerings under the Securities Act:

• A brief notice to purchasers in a registered offering providing that the sale was made pursuant to a registration statement;⁶¹⁸

• A brief legend in “free writing prospectuses”⁶¹⁹ that refers investors to the statutory prospectus;

• “Check boxes” on registration statement cover pages indicating whether the registration statement is being used for “automatic shelf registration” or post-effective registration of additional securities or classes of securities;⁶²⁰

• Additional disclosure in the undertakings required to be included in a registration statement for securities to be offered pursuant to Rule 415;⁶²¹

• A filing condition in connection with the use of certain free writing
  prospectuses;⁶²² and

• Making a version of an electronic road show that is a written communication used in initial public offerings of common equity or convertible equity securities by non-reporting issuers broadly disseminated on an unrestricted basis.

The rules will decrease existing disclosure requirements by:

• Reducing the need to repeat previously disclosed information by permitting any reporting issuer that has filed at least one annual report and that is current in its reporting obligation to incorporate information by reference into its registration statement on Forms S-1 or F-1; and

• Reducing the number of registration statements filed because the automatic shelf registration rules likely will eliminate the need to file multiple registration statements.

C. Summary of Comment Letters on the PRA Analysis

We received no comments in response to our request for comment on the PRA analysis in the Proposing Release. We have made several changes and clarifications in response to comments on the proposals that are designed to avoid or reduce possible additional costs or burdens pointed out by commenters. For example, we are not requiring that an electronic road show be filed for most offerings, except if an electronic road show that is a written communication is used in an initial public offering of common equity or convertible equity securities by a non-reporting issuer. In that case, the electronic road show does not have to be filed if a bona fide electronic road show is made readily available electronically on an unrestricted basis In addition, we have revised the definition of graphic communication so that live, in real-time presentations to a live audience will not be considered written communications and therefore not free writing prospectuses. As a result of these modifications, we believe that fewer free writing prospectuses, including those that are electronic road shows, will be filed or otherwise made available electronically on an unrestricted basis, and we have therefore revised the estimates for the total burden imposed by Rule 433.

D. Paperwork Reduction Act Burden Estimates

For purposes of the PRA, we estimated the total annual incremental reduction in the paperwork burden for registrants to comply with the collection of information requirements to be approximately 40,393 hours of in-house issuer personnel time and the reduction in cost to be approximately $70,797,000 for the services of outside professionals.⁶²³ The changes in the PRA burden estimates for Rule 433 (OMB Control No. 3235-0617) have the effect of reducing the estimated paperwork burden for registrants by approximately 356 hours of in-house personnel time, for a new estimate of approximately 40,749 hours, and a reduction in cost of approximately $320,800, for a new estimate of approximately $71,117,800 for the services of outside professionals. For broker-dealers, we estimated the annual incremental paperwork burden to comply with the collection of information requirements to be approximately 3,874,133 hours of inhouse issuer personnel time, and we are not changing this estimate.⁶²⁴ Those estimates include the time and the cost of preparing and reviewing disclosure, filing documents or otherwise publicizing information, and retaining records.

As we noted in the Proposing Release, the estimates represent the average burden for all issuers, both large and small. We expect that the burdens and costs could be greater for larger issuers and lower for smaller issuers. For Exchange Act periodic reports, we estimated that 75% of the burden of preparation is carried by the issuer internally and that 25% of the burden is carried by outside professionals retained by the issuer at an average cost of $300 per hour.⁶²⁵ For Securities Act registration statements, Exchange Act registration statements, all filings by foreign private issuers, and the free writing prospectus rules, we estimated that 25% of the burden of preparation is carried by the issuer internally and that 75% of the burden is carried by outside professionals retained by the issuer at an average cost of $300 per hour. The portion of the burden carried by outside professionals is reflected as a cost, while the portion of the burden carried by the issuer internally is reflected in hours.

1. Exchange Act Periodic Reports and Registration Statements

For purposes of the PRA, we estimated the annual incremental paperwork burden for all issuers to prepare the disclosure required in Exchange Act periodic reports and registration statements under the rules to be approximately 43,245 hours of issuer personnel time and the cost to be approximately $4,477,000 for the services of outside professionals, as we explained more fully in the Proposing Release. Those estimates include the time and the cost of preparing and reviewing the required new disclosure. The estimates reflect our belief that, because the current disclosure requirements for Exchange Act reports (such as Management’s Discussion and Analysis of Financial Condition and Results of Operations)⁶²⁶ already require issuers to obtain information necessary to evaluate their material risks, and because disclosure by accelerated filers describing unresolved written staff comments on previous filings that the issuer believes to be material will be simply a summary of comments provided to the issuer by the staff of the Commission, the disclosure that issuers would have to make in their Exchange Act periodic reports and registration statements should not impose significant new burdens.

2. Communications and Prospectus Delivery

For purposes of the PRA, we estimate that the annual paperwork burden for issuers that choose to comply with the communications rules will be approximately 1,176 hours of issuer personnel time and a cost of approximately $1,058,288 for the services of outside professionals. These estimates reflect the burden hours and costs associated with the disclosure, filing, and record retention conditions. As noted above, we are revising the annual burden for the information collection requirements of Rule 433 as a result of the changes to the treatment of electronic road shows and we have decreased the annual paperwork burden accordingly. For the prospectus delivery rules, we estimated that the annual burden would be 3,874,133 hours total for all respondents to comply with Rule 173.

3. Securities Act Registration Statements

For purposes of the PRA, we estimated that the rules affecting the collection of information requirements related to Securities Act registration statements would reduce incrementally the annual paperwork burden by approximately 85,170 hours of issuer personnel time and by a cost of approximately $76,653,000 for the services of outside professionals, as we explained more fully in the Proposing Release. That estimate reflected changes to the number of filings that could result from the rules as well as the decrease in disclosure preparation time resulting from the expansion of incorporation by reference.

IX. Cost Benefit Analysis

A. Background

We are revising the registration, communications, and offering processes under the Securities Act. The rules involve three main areas:

• communications related to registered securities offerings;

• registration and other procedures in the offering and capital formation processes; and

• delivery of information to investors.

The overall goal of the reforms is to make the registration system more workable for issuers and underwriters and more effective for investors in today’s capital markets. We believe that the gun-jumping provisions of the Securities Act impose substantial and increasingly unworkable restrictions on useful communications that would be beneficial to investors and markets and consistent with investor protection. Today’s rules reflect our view that revisions to the Securities Act registration and offering processes are appropriate in light of significant developments in the offering and capital formation processes and can provide enhanced protection of investors under the statute. This view is based on our belief that today’s rules will:

• facilitate greater availability of information to investors and the market with regard to all issuers;

• eliminate barriers to open communications that have been made increasingly outmoded by technological advances;

• reflect the increased importance of electronic dissemination of information, including the use of the Internet;

• make the capital formation process more efficient; and

• define more clearly both the information and the timeliness of the availability of information against which a seller’s statements are evaluated for liability purposes.

B. Summary of Rules

The amount of flexibility granted to issuers under the revisions to the registration, communications, and offering processes is contingent on the characteristics of the issuer. We believe that the most far-reaching revisions of the communications rules and registration processes should be considered for issuers that have a reporting history under the Exchange Act and are presumptively the most widely followed in the marketplace. We believe that these issuers have an Exchange Act record, a broad following of their Exchange Act filings, and the contemplated attention directed to their Exchange Act reports by analysts and institutional investors, and the staff of the Division of Corporation Finance that will produce the greatest likelihood of Exchange Act reports that not only are reliable but also are broadly scrutinized by investors and the markets.

For purposes of the rules we are adopting today, we categorize issuers into tiers, consisting of non-reporting issuers, unseasoned issuers, seasoned issuers, and well-known seasoned issuers. The first three tiers of issuers are identified by pre-existing criteria under the existing federal securities laws. A non-reporting issuer is an issuer that is not required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act.⁶²⁷ An unseasoned issuer is an issuer that is required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act, but does not satisfy the requirements of Form S-3 or Form F3 for a primary offering of its securities. A seasoned issuer is an issuer that uses Form S-3 or Form F-3 to register primary offerings of securities. Our longstanding experience with these categories of issuers provides us with a basis for determining the amount of flexibility provided by the rules we are adopting today.

The characteristics of the last tier of issuer, called well-known seasoned issuers in the rules, will be easily measurable and readily available so that issuers and market participants can determine eligibility easily. In response to comments, we are modifying the definition of well-known seasoned issuer to provide that the eligibility determination will be made as of the later of the time of filing of the issuer’s most recent registration statement on Form S-3 or Form F-3 for a primary offering, the time of filing its most recent amendment for purposes of complying with Section 10(a)(3) of the Securities Act, or an amendment to a shelf registration within 16 months. If the well-known seasoned issuer has not filed an automatic shelf registration statement, the eligibility is determined at the time of filing the issuer’s most recent annual report on Form 10-K or Form 20-F (or if such report has not been filed by its due date, such due date). In addition, we will require issuers to check a box on the cover of their Form 10-K or Form 20-F if they are a well-known seasoned issuer so that market participants may reasonably rely on the issuer’s determination. For issuers with publicly traded equity, we believe that market capitalization provides a sufficient proxy for determining whether or not an issuer is well followed. For issuers of fixed income securities, we believe that the amount of fixed income securities sold in registered offerings for cash in the past three years provides a sufficient proxy.⁶²⁸

Under the rules, a well-known seasoned issuer will have the greatest flexibility. The largest issuers are followed by sophisticated institutional and retail investors, members of the financial press, and numerous sell-side and buy-side analysts that actively seek new information on a continual basis. Unlike smaller or less mature issuers, large, seasoned public issuers tend to have a more regular dialogue with investors and market participants through the press and other media. The communications of these well-known seasoned issuers are subject to scrutiny by investors, the financial press, analysts, and others who evaluate disclosure when it is made.

1. Communications

We are adopting communications rules that recognize the value of ongoing communications as well as the importance of avoiding unnecessary restrictions on offers during a registered offering. The rules are designed to improve investors’ access to information, to promote communications between offering participants and investors, and to maintain adequate investor protection. The rules will operate in the following manner:

• There will be two separate safe harbors from the gun-jumping provisions for ongoing communications at any time:

{ a safe harbor for a reporting issuer’s continued publication or dissemination at any time of regularly released factual business and forward-looking information; and

{ a safe harbor for a non-reporting issuer’s continued publication or dissemination at any time of factual business information that is regularly released to persons other than investors or potential investors.

• There will be two separate exclusions from the gun-jumping provisions for communications not encompassed in the rules above that occur prior to the filing of a registration statement:

{ an exclusion from the definition of offer for purposes of Securities Act Section 5(c) for all issuers for all communications made by or on behalf of issuers 30 days prior to filing a registration statement; and

{ an exemption from the prohibition on offers for purposes of Securities Act Section 5(c) before the filing of a registration statement for offers made by or on behalf of eligible well-known seasoned issuers.

• Certain written offering related communications, such as communications about the schedule for an offering or communications about account-opening procedures, will be permitted in connection with an offering and will be excluded from the definition of “prospectus.”

• Issuers and other offering participants will be permitted to use free writing prospectuses after the filing of the registration statement, subject to enumerated conditions (including, in specified cases, filing with the Commission).

• The safe harbors for research reports will be expanded.

2. Securities Act Registration Rules

As part of the rules to modernize the regulatory regime for registered securities offerings, we are streamlining the registration process for most types of reporting issuers. The rules recognize the role that technology and improved Exchange Act reporting procedures have in informing the marketplace. The rules address the registration procedures for seasoned and unseasoned issuers. These rules include:

• modifications that clarify and expand how and when information can be included in registration statements;

• a clarification of the Securities Act liability treatment of information provided in a prospectus supplement and Exchange Act reports incorporated by reference;

• a more flexible automatic registration process for well-known seasoned issuers, including immediate effectiveness and pay-as-you-go registration fee payment; and

• rules related to non-shelf offerings of securities.

3. Prospectus Delivery

We are adopting an “access equals delivery” prospectus delivery model, where final prospectus delivery obligations for purposes of Securities Act Section 5(b)(2) will be satisfied if the issuer filed the final prospectus with the Commission within the required time frame. The rules will:

• eliminate the existing link between delivery of the final prospectus and the delivery of a written confirmation of sale;

• provide that the obligation to have a final prospectus precede or accompany a security for can be satisfied by filing a final prospectus with us within the relevant timeframe provided by Rule 424(b);

• permit written notices of allocations; and

• permit the prospectus delivery obligations in dealer transactions during any prospectus delivery period and broker or dealer transactions in registered resales of securities that are trading to be satisfied if the final prospectus has been or will be filed with us.

4. Exchange Act Reports

A public issuer’s Exchange Act record often provides the most detailed source of information to the market and to potential purchasers regarding the issuer, its business, its financial condition, and its prospects. We are adopting, substantially as proposed, several reforms to Exchange Act reporting requirements related to the reforms to the Securities Act offering process. As a result of the rules, we will:

• extend risk factor disclosure requirements to annual reports on Exchange Act Form 10-K and registration statements on Exchange Act Form 10;

• require updates for previously disclosed risk factors in quarterly reports on Exchange Act Form 10-Q;

• require accelerated filers and well-known seasoned issuers to disclose in their annual reports on Exchange Act Forms 10-K and 20-F any written staff comments on Exchange Act reports issued more than 180 days before the end of the fiscal year covered by the report that the issuer believes to be material and that remain unresolved as of the filing date of the report;

• include a box on the cover page of the Exchange Act Forms 10-K and 20-F for an issuer to check if it is a well-known seasoned issuer; and

• include a box on the cover page of Exchange Act Forms 10-K, 10-KSB, and 20-F for an issuer to check if it is filing reports voluntarily.

C. Comments on the Proposals

Commenters supported the proposals, with many commenters noting that the proposals struck the appropriate balance between improving the capital formation process and modernizing offering communications, while preserving investor protection and avoiding unnecessary impediments to the capital formation process. We did not receive any comments on the cost-benefit analysis, other than asking generally about cost savings by underwriters and broker-dealers. Some commenters noted potential costs that certain of the proposals might impose. We considered these comments carefully and believe that we have made responsive changes in order to minimize these potential costs.

For example, a number of commenters were concerned about the final prospectus filing condition in Rule 172, due to the potential liability if written confirmations were sent and the issuer failed to file the final prospectus within the required time frame. We have included a cure provision allowing an issuer that has made a good faith and reasonable effort to file within the required time frame to file the final prospectus as soon as practicable after discovery of the failure to file. Commenters also expressed concern about the distinctions between oral and written communications and the effects on offering participants to provide information. We have revised the definition of graphic and written communications to make clearer when a communication is written and when it is oral.

D. Benefits

As discussed, the overall goal of the reforms is to make the registration system more workable for issuers and underwriters and more effective for investors in today’s capital markets. We believe that the reforms will achieve this goal and consequently result in significant benefits in a number of areas, including by increasing the flow of information available to investors during a registered offering while maintaining investor protection against misleading or inaccurate disclosures. We also anticipate that the rules will improve access to the public capital markets and possibly lower the cost of capital by, among other things, modifying, and in some cases clarifying, the federal securities laws related to communications, liability, shelf registration, and the use of electronic media during a registered offering. Finally, we believe that the rules will provide cost-saving options to issuers and underwriters.

1. Increased Information Flow

The primary benefit that the rules seek to achieve is an increased flow of information to investors during a registered offering. While much of the Commission’s recent rulemaking is intended to encourage reporting issuers to provide materially accurate and complete information to the market on a more current basis, the Securities Act’s constraints on communications during an offering cause issuers to be concerned about the treatment of their ongoing communications and whether their customary disclosures will be considered an impermissible offer of securities. As a result of the multiplicity of means of communication, restricting written offers to a statutory prospectus inhibits desirable methods of timely communication of information. The rules regarding communications, registration, and liability will operate to increase the amount of valuable information that could be provided to investors before they make investment decisions. We believe that more information will be provided on a more timely basis because the rules will eliminate regulatory barriers to the dissemination of that information, and the markets may provide incentives for issuers, underwriters, and broker dealers to produce additional information.

Increased information flow will promote efficient capital markets because the market may be able to value securities more accurately. Under the rules, underwriters can communicate with potential investors during an offering to better gauge investor interest, thus facilitating greater discourse among investors and underwriters.

Another benefit of increasing the information flow is that investors may become better informed in making portfolio allocation decisions in accordance with their particular risk-return profiles. Moreover, the ability of offering participants to use free writing prospectuses in connection with offerings will impart a greater ability to provide information to investors about securities before they make investment decisions. For example, issuers and underwriters will be able to provide proprietary analytical material that is specifically tailored to address the particular asset allocation considerations of different investors. Today’s markets include a growing number of increasingly complex securities where written communications, such as detailed term sheets, will enhance significantly the offering process for the benefit of investors. In addition, we are adopting rules to permit research to be distributed about more issuers that are making registered offerings. Having access to these reports may facilitate additional security analysis among investors.

By reducing the restrictions on the contents of written communications, we anticipate that investors will demand more information and issuers, underwriters, and other offering participants will be more willing to provide it. Significant technological advances have increased both the market’s demand for more timely corporate disclosure and the ability of issuers to capture, process, and disseminate information. The rules will enable issuers and market participants to take greater advantage of the Internet and other electronic media to communicate and deliver information to investors. As discussed in greater detail below, reducing regulatory and liability uncertainty with respect to the treatment of written communications may make issuers more comfortable in supplying information without worrying about violating the gun-jumping provisions. Accordingly, investor demand for information can be satisfied through relatively inexpensive mass dissemination of the information through electronic means.

Finally, the rules we are adopting today that provide that an electronic road show presentation must either be filed or a bona fide version must be made readily available to an unrestricted audience for initial public offerings of a non-reporting issuer’s common equity or convertible equity securities provide for the availability of information in these offerings to all investors. We believe these changes will encourage more road shows and other information in these offerings to be provided to more investors.

2. Investor Protection

Another benefit of the rules is that they will maintain investor protection against misleading or inaccurate disclosures. Investor protection is of paramount importance in maintaining fair, orderly, and efficient capital markets. The rules regarding liability and disclosure in Exchange Act periodic reports, as well as the filing conditions and record retention conditions for unfiled free writing prospectuses, will maintain and enhance investor protection in connection with registered securities offerings.

A central premise underlying the liability rules is that communications to investors at the time of sale (including the time of the contract of sale) should not include material misstatements or fail to include material information that is necessary to make the communication not misleading in light of the circumstances in which the communication is made. We believe that the rules will provide issuers and underwriters with greater flexibility to communicate information in a manner that does not slow the offering process unduly. At the same time, investors should be in a better position to have accurate information at the time of the sale of the securities to them (including the time of the contract of sale). These measures should encourage the disclosure of accurate information about transactions.⁶²⁹

The free writing prospectus rules will promote investor protection by requiring issuers to file issuer prepared or used free writing prospectuses and issuer information in free writing prospectuses. We believe that conditioning the use of written issuer provided or used information on filing will improve investor protection. On the one hand, the filing requirement is designed to assure that written issuer provided or used information is publicly available. On the other hand, requiring underwriters to file their proprietary analysis may cause them competitive harm. Additionally, the free writing prospectus will be a Section 10(b) prospectus under the Securities Act and, as such, will be subject to liability under Section 12(a)(2) as well as the anti-fraud provisions of the federal securities laws. As a Section 10(b) prospectus, there will be continuing Commission oversight and enforcement authority over the contents and use of the free writing prospectus, including the ability to halt the use of any materially false or misleading free writing prospectus in accordance with Section 10(b).

The rules allowing automatic shelf registration statements to become effective immediately will allow the Commission to shift its resources more toward the review of issuers’ Exchange Act reports. Because we believe that an issuer’s Exchange Act record often provides the most detailed source of information to the market and to potential purchasers regarding the issuer, its business, its financial condition, and its prospects, we believe that investors will benefit from the staff’s ability to review Exchange Act reports more frequently.

The inclusion of additional disclosures in Exchange Act periodic reports also will promote investor protection. We believe that the disclosure by issuers meeting the definition of accelerated filers and well-known seasoned issuers of unresolved written staff comments that the issuer believes to be material will benefit investors because they will be able to ascertain the nature of the staff comments and take them into account in their investment decisions. We believe that the disclosure of risk factors in plain English will help investors in assessing the risks that an issuer currently faces or may face in the future. Many issuers currently provide this risk factor disclosure in their Exchange Act reports voluntarily. However, for other issuers, investors have access to this information only if the issuer has recently conducted a registered offering under the Securities Act, in which case the issuer will be subject to risk factor disclosure requirements in its Securities Act registration statement. The rules also require disclosure of voluntary filer status. We believe it is important that the staff and the market understand when issuers are filing Exchange Act reports voluntarily, since such issuers may cease filing these reports at any time.

3. Facilitating Capital Formation

We anticipate that the rules will facilitate capital formation, and possibly lower the cost of capital, by improving access to the public capital markets. The rules are designed to eliminate unnecessary regulatory impediments to capital formation and provide more flexibility to issuers to conduct registered securities offerings. The amount of flexibility accorded by the rules will depend on the characteristics of the issuer. The rules provide the most flexibility under the communications rules and the automatic shelf registration system to eligible well-known seasoned issuers. Other issuers also will benefit, albeit to a lesser degree, from the other revisions to the communications and registration process.

The rules may lower the cost of capital because they will provide significant flexibility to issuers and underwriters in marketing their securities. The communications rules will allow well-known seasoned issuers to communicate at any time regarding an offering and will allow other issuers more freedom in communicating after a registration statement is filed. For well-known seasoned issuers, automatic shelf registration will facilitate immediate market access and promote efficient capital formation, without diminishing investor protection. The automatic shelf registration process will allow eligible issuers to add additional classes of securities and eligible majority-owned subsidiaries as additional registrants after an automatic shelf registration statement is effective. The “pay-as-you-go” system will allow well-known seasoned issuers to pay at the time of each takedown off the shelf registration statement or in advance. The automatic shelf registration rules will provide these issuers with significant latitude in determining the types and amounts of their securities or those of their eligible subsidiaries that could be offered without any potential time delay or other obstacles imposed by the registration process. The rules will provide the flexibility to take advantage of market windows, to structure securities on a real-time basis to accommodate issuer needs or investor demand, and to determine or change the plan of distribution of securities as issuers elect in response to changing market conditions.

The other rules to the shelf registration procedures and expansion of incorporation by reference also will provide flexibility to issuers to enable them to access the capital markets at a lower cost. For example, removing the current restrictions on at-the-market offerings of equity securities will allow issuers eligible to use Form S-3 or Form F-3 for primary equity offerings to offer securities directly to the marketplace, without using the underwriting or syndication process. Under the rules to expand Form S-3 eligibility to cover additional majority-owned subsidiaries, issuers will have greater flexibility to structure offerings of guaranteed securities without losing the benefits of shelf registration. In addition, the rules to expand incorporation by reference to Form S-1 and Form F-1 will enable eligible issuers to use their Exchange Act filings to satisfy their disclosure requirements without having to incur costs to replicate information in the prospectus.

Providing flexibility for registered offerings may encourage issuers to raise capital through the registration process instead of through private placements. Typically, registered securities enjoy more liquid markets than unregistered securities. Therefore, registered securities are less likely to be subject to a liquidity discount. In addition, registered securities offerings provide a potentially larger investor base than that available to those who participate in private placements. Accordingly, issuers may incur lower transaction costs when raising capital because they will have access to a much deeper market for their securities and may have to expend fewer resources to locate investors.

The prospectus delivery rules are designed to facilitate effective access to information, while taking into account advancements in technology and the practicalities of the offering process. These changes are intended to alleviate timing difficulties that may arise under the current securities clearance and settlement system, and also to facilitate the successful delivery of, and payment for, securities in a registered offering. Given that the final prospectus delivery obligations generally affect investors only after they have made their investment decisions and that investors and the market have access to the final prospectus upon its filing, we believe that the obligation can be satisfied through a means other than physical delivery. Because the contract of sale will have already occurred by the time the final prospectus is filed, we also believe that delivery of a confirmation and the delivery of the final prospectus need not be linked. Receiving confirmations earlier in the settlement process will enable investors to review the confirmation and verify trade data closer to the time of the investment decision.

4. Reduced Regulatory Uncertainty

The rules modify the federal securities laws related to communications, liability, shelf registration, and the use of electronic media during a registered offering. The rules, by enhancing issuers’ certainty about the regulatory treatment of and liability provisions attached to the communication of information to the marketplace, could encourage issuers to increase the dissemination of readily available information useful to investors, such as management’s plans and objectives for future operations. The 30-day bright-line exclusion and the exemption from the prohibition on offers prior to filing for well-known seasoned issuers will provide these issuers with the ability to communicate information prior to filing a registration statement without risk of violating the gun-jumping provisions.

The safe harbors for regularly released factual business information and forward-looking information will allow issuers to continue ordinary communications without fear of violating the gun-jumping provisions. At the same time, these communications could benefit all investors because there will be more current information and analysis available upon which to make investment decisions. We also are clarifying the treatment of information located on or hyperlinked to an issuer’s website around the time of a registered offering, to allow for the continued availability of historical information that may be useful to investors.

The rules affecting the shelf registration procedures will codify in a single location permissible omissions from shelf registration statements and the permissible methods to include the omitted information. This will promote efficiency by providing certainty about the content of base prospectuses in shelf registration statements and the methods by which required information may be included, thereby reducing divergent practices and eliminating possible inadvertent mistakes. In addition, we believe the rules will address the disparate treatment of underwriters from a liability standpoint by establishing a new effective date for liability purposes for issuers and persons who are underwriters at that time in connection with takedowns off shelf registration statements, as reflected in prospectus supplements filed for such takedowns. On the other hand, the new rules regarding prospectus supplement filings will not trigger a new effective date for officers or directors of the issuer or for experts, including accountants.

5. Lower Costs

The prospectus delivery rules and the rules related to the registered securities offering process will provide cost-saving options to issuers, underwriters, and dealers. We believe that allowing reporting issuers to incorporate by reference their previously filed Exchange Act reports and other materials into a Form S-1 or Form F-1 provides them a more cost-effective way to raise capital without the cost of duplicating the information contained in their filed reports and other materials. The rules affecting final prospectus delivery should also result in lower costs to issuers because of reduced printing costs for a smaller number of final prospectuses.

For purposes of the PRA analysis, we have estimated that the rules to the registered securities offering processes will reduce the total current annual compliance costs by approximately $87,664,000.⁶³⁰ In addition, we believe that issuers and underwriters will benefit from not having to print and deliver final prospectuses. We estimate that the cost savings per prospectus will be approximately $0.75 per prospectus. For purposes of the PRA, we have estimated 232.45 million instances in which broker dealers will be able to rely on the “access equals delivery” provisions. Investors may request the final prospectus, and we estimate that they will do so 25% of the time. Therefore, we estimate the total annual cost savings will be approximately $130,753,000.

E. Costs

While the overall goal of the reforms is to make the registration system more workable for issuers and underwriters and more effective for investors in today’s capital markets, we do believe that there will be costs to the rules. These include costs for compliance with the rules, potential behavioral changes resulting from the liability rules, and certain other costs.

1. Compliance Costs

One potential cost of the rules is that issuers may incur increased filing costs associated with issuer free writing prospectuses or making a version of an electronic road show publicly available.⁶³¹ These costs should be mitigated somewhat by the fact that free writing prospectuses are not required to be filed as part of the registration statement and therefore will not have to be conformed to meet all the requirements for an amendment to the registration statement. In addition, because oral communications are not written and, therefore, not free writing prospectuses, the rules should not result in significant incremental costs from existing regulations. We also are conditioning the use of free writing prospectuses on the inclusion of a legend that notifies investors that they can receive a copy of the prospectus by calling a toll-free number. Accordingly, there may be some costs for issuers and offering participants associated with establishing a toll-free number for investors, although the toll-free number does not have to be issuer specific.

Another potential compliance cost is the additional expenditures that issuers and offering participants may incur in storing and archiving information to satisfy the record retention conditions.⁶³² Parties will need to implement appropriate mechanisms to ensure that they retain for three years adequate records of any free writing prospectuses used and not filed. We have revised the proposed record retention condition so that it encompasses only free writing prospectuses that have not been filed on EDGAR, so this should ease the burden for issuers and offering participants.

The disclosures may increase the cost to issuers of preparing their Exchange Act reports. We do not expect the costs to accelerated filers and well-known seasoned issuers of including disclosure of certain unresolved staff comments to be significant because the information will be readily available to the issuer.⁶³³

Including risk factor disclosure may impact issuers who do not already include this disclosure in their Exchange Act reports for other reasons.⁶³⁴ Because issuers already are required to prepare financial statements and other information about their business, financial condition, and prospects in their annual and quarterly reports, some of which will include these risk factors, we believe that issuers will have already analyzed the issues that might be addressed in the risk factor disclosure. In addition, issuers may already include risk factor disclosure in their Exchange Act reports for varying reasons, including to take advantage of the safe harbor for forward-looking statements in Securities Act Section 27A of the Securities Act ⁶³⁵ and the “bespeaks caution” defense developed through case law. We recognize, however, that issuers will incur costs in preparing, reviewing, filing, printing, and disseminating this information. In particular, in addition to involving in-house preparers, in-house legal and accounting staff, and senior management, issuers may consult with outside legal counsel in preparing this disclosure. We believe, however, that the potential compliance costs for the risk factor disclosure should be considered in light of the fact that requiring risk factor disclosure in Exchange Act registration statements and annual reports will enhance the ability of reporting issuers to incorporate risk factor disclosure from Exchange Act reports into Securities Act registration statements to satisfy the risk factor disclosure requirements.

Parties also may incur additional costs due to the requirement to notify investors that they have purchased in a registered offering. In addition, these same parties will incur costs to establish procedures for receiving and complying with requests for final prospectuses. We believe that providing the notice to investors will not impose a significant incremental cost because the notice can consist of a pre-printed message that is automatically delivered with or as part of the confirmation required by Exchange Act Rule 10b-10. Accordingly, we estimate that the cost for complying with Rule 173 will be approximately $0.05 per notice. We estimate the annual cost of providing the notifications will be approximately $11,622,500.⁶³⁶ The cost savings resulting from the elimination of the requirement to supply a final prospectus to each investor will offset the costs incurred, however.

2. Potential for Increased Liability

The rules to deem prospectus supplements to be part of and included in effective registration statements, and to modify, for liability purposes for the issuer and underwriters only, the effective date of shelf registration statements to link them to individual offerings or takedowns off the shelf registration statement may cause issuers to evaluate more carefully the information contained in prospectuses and the information conveyed to investors. We have sought to minimize the potential costs by limiting the rule so that it affects the issuer and underwriters only, and therefore have not changed the effective date for liability purposes for officers, directors, and experts, other than when new expertized information is included in the prospectus.

In response to commenters’ concerns about cross-liability for free writing prospectuses, the rules provide greater clarity for when an offering participant would be liable for a free writing prospectus.

With respect to the risk factor disclosure, a potential cost might be that issuers may be concerned about increased liability for a material misstatement or omission in their disclosure. In view of existing liability for information in registration statements and Exchange Act reports, as well as existing safe-harbors for forward-looking information, in drafting the current rules, however, we were sensitive to potential additional costs that the disclosure requirement might impose. For example, for liability purposes, we are not treating risk factor disclosure any differently than other disclosures in Exchange Act reports that may be incorporated by reference into Securities Act registration statements. We also note that the safe harbor for forward-looking statements contained in Securities Act Section 27A and Exchange Act Section 21E may apply to this disclosure for eligible issuers. In addition, the risk factor disclosure is based on an evaluation of the material risks facing an issuer. Issuers currently disclose significant information about themselves in their Exchange Act reports, including in management’s discussion and analysis of financial condition and results of operations and, as a result, already analyze their business and operations. Moreover, we note that issuers already are subject to disclosure requirements regarding this information in Securities Act registration statements.

3. Other Potential Costs

We are allowing registration statements by well-known seasoned issuers to become effective automatically, rather than being subject to review by the staff of the Division of Corporation Finance. As a result, registrants may not have the same incentive to remedy deficient disclosure in Exchange Act reports or in the registration statement itself than they would if their registration statements were subject to pre-effective staff review. We have sought to minimize this possibility by requiring accelerated filers and well-known seasoned issuers to disclose, on an annual basis, written staff comments on their periodic report disclosures, that were issued more than 180 days prior to the fiscal year end covered by the report, that the issuer believes to be material, and that remain unresolved at the time of the filing of the annual report.

The rules also may impose certain costs on underwriters. For example, removing the restrictions on at-the-market equity offerings by unseasoned issuers on Form S-3 or Form F-3 may affect underwriters adversely because issuers may decide not to hire an underwriter to conduct an at-the-market equity offering.

The rules permit reporting issuers with the ability to incorporate by reference historical filings into Form S-1 or Form F-1, provided that the issuer post its Exchange Act reports on a web site maintained by or for the issuer and containing issuer information. Issuers wishing to take advantage of this ability to incorporate by reference will have to make these reports readily available on a web site maintained by or for the issuer in addition to availability on EDGAR. Because most companies today maintain web sites for their businesses and other entities maintain web sites for companies, we do not believe that this cost will be significant.

We also recognize that relaxing restrictions on communications may impose a burden on investors. For example, today, for some offerings, such as those on Form S-1, much of the relevant information regarding an offering is required to be contained in one document comprising the registration statement. Under the rules, some offerings will require an investor to assemble and assimilate information from various free writing prospectuses, Exchange Act reports, and the Securities Act registration statement in order to get the relevant information regarding an offering. Investors will have to compile the information integrated into the registration statement or delivered by means outside of the prospectus. We note, however, that Securities Act Forms S-3 and F-3 have long permitted incorporation by reference from the issuer’s Exchange Act reports and investors have not complained they are unduly burdened when investing in offerings registered on these Forms.

X. Consideration of Burden on Competition and Promotion of Efficiency, Competition and Capital Formation

Exchange Act Section 23(a)(2)⁶³⁷ requires us, when adopting rules under the Exchange Act, to consider the impact that any new rule would have on competition. In addition, Section 23(a)(2) prohibits us from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. Furthermore, Securities Act Section 2(b),⁶³⁸ Exchange Act Section 3(f),⁶³⁹ and Investment Company Act Section 2(c)⁶⁴⁰ require us, when engaging in rulemaking where we are required 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.

The rules are intended to modify and advance the Commission’s regulatory system for offerings under the Securities Act, enhance communications between public issuers and investors, and promote investor protection. We anticipate these rules will improve investors’ ability to make informed investment decisions and, therefore, lead to increased efficiency and competitiveness of the U.S. capital markets. We anticipate that this increased market efficiency and investor confidence also may encourage more efficient capital formation. Specifically, we believe that the rules will:

• facilitate greater availability of information to investors and the market with regard to all issuers;

• eliminate barriers to open communications that have been made increasingly outmoded by technological advances;

• reflect the increased importance of electronic dissemination of information, including the use of the Internet;

• make the capital formation process more efficient; and

• define more clearly both the information and the timeliness of the availability of information against which a seller’s statements are evaluated for liability purposes.

To the extent that some of these reforms will be available to well-known seasoned issuers, smaller issuers may not be able to use all of the reforms. In addition, it is possible that investors will favor issuers that are able to take advantage of the reforms. We believe, however, that these potential unequal effects are justified in order to ensure that investors have appropriate access to required information about all issuers.

We requested comment on whether the rules would promote efficiency, competition, and capital formation or have an impact or burden on competition. We received no comments on this subject directly, but some comments touched on these issues. Commenters expressed strong support for the proposals to streamline the registration process by providing well-known seasoned issuers the ability to use automatic shelf registration statements.⁶⁴¹ They generally believed that the streamlined registration process will aid issuers in capital formation by providing them with quick access to the capital markets. In addition, one commenter believed the proposals have the potential to draw more offerings from 144A and other unregistered markets into public market, improve efficiency of U.S. public market, and possibly enhance global competitiveness of U.S. public capital markets.⁶⁴²

Two commenters believed that the proposed rules, which created an exception to the conditions to the free writing prospectus rules for publications by unaffiliated media would create a competitive disadvantage for issuers who are in the media business.⁶⁴³We have addressed these concerns by providing an exclusion for media companies and their affiliates if certain conditions are met, including that the company or its affiliate is a bona fide media publisher or broadcaster.⁶⁴⁴

XI. Final Regulatory Flexibility Act Analysis

This Final Regulatory Flexibility Act Analysis has been prepared in accordance with 5 U.S.C. 603. It relates to revisions to the rules and forms under the Securities Act and the Exchange Act that will (1) alter shelf registration procedures; (2) allow more communications between offering participants than currently permitted; and (3) enable offering participants to satisfy their prospectus delivery obligations through means other than actual physical delivery. These rules are intended to modify and advance the Commission’s regulatory system for offerings under the Securities Act, enhance communications between public issuers and investors, and promote investor protection.

A. Reasons for and Objectives of the Rules and Amendments

On November 3, 2004, we issued proposed rule and form changes under the Securities Act and the Exchange Act that would modernize the securities offering and communication processes while maintaining protection of investors under the Securities Act.⁶⁴⁵We are revising the registration, communications, and offering processes under the Securities Act that we believe, while limited in scope, properly address the areas that are in need of modernization. The rules involve three main areas:

• communications related to registered securities offerings;

• procedural restrictions in the offering and capital formation processes; and

• delivery of information to investors.

The overall objective of the reforms is to make the registration system more workable for issuers and underwriters and more effective for investors in today’s capital markets. The rules reflect our view that revisions to the Securities Act registration and offering processes are not only appropriate in light of significant developments in the offering and capital formation processes, but also are necessary for the proper protection of investors under the statute. This view is based on our belief that today’s rules will:

• facilitate greater availability of information to investors and the market with regard to all issuers;

• eliminate barriers to open communications that have been made increasingly outmoded by technological advances;

• reflect the increased importance of electronic dissemination of information, including the use of the Internet;

• make the capital formation process more efficient; and

• define more clearly both the information and the timeliness of the availability of information against which a seller’s statements are evaluated for liability purposes.

B. Significant Issues Raised by Public Comment

The Initial Regulatory Flexibility Analysis, or IRFA, appeared in the Proposing Release.⁶⁴⁶ We requested comment on any aspect of the IRFA, including the number of small entities that would be affected by the rules, the nature of the impact, how to quantify the number of small entities that would be affected and how to quantify the impact of the proposals. We received no comment letters responding to that request.

C. Small Entities Subject to the Rules

The rules will affect issuers that are small entities. Securities Act Rule 157⁶⁴⁷ and Exchange Act Rule 0-10(a)⁶⁴⁸ define an issuer, other than an investment company, to be a “small business” or “small organization” for purposes of the Regulatory Flexibility Act if it had total assets of $5 million or less on the last day of its most recent fiscal year.⁶⁴⁹ We estimate that there were approximately 2,500 public issuers, other than investment companies, that may be considered small entities as of the end of fiscal year 2004.⁶⁵⁰

In addition to small issuers, small broker-dealers may be affected by the rules. Paragraph (c)(1) of Rule 0-10⁶⁵¹ states that the term “small business” or “small organization,” when referring to a broker-dealer, means a broker or dealer that had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to §240.17a-5(d); and is not affiliated with any person (other than a natural person) that is not a small business or small organization. As of 2003, we estimated that there were approximately 900 broker-dealers that qualified as small entities as defined above. To the extent a small broker-dealer participates in a securities offering or prepares research reports, it may be affected by the rules. Generally, we believe larger broker-dealers engage in these activities. We requested comment on whether and how these rules will affect small broker-dealers and did not receive any responses.

For purposes of the rules, we categorize issuers into tiers, consisting of non-reporting issuers, unseasoned issuers, seasoned issuers, and well-known seasoned issuers. The first three tiers of issuers are identified by pre-existing criteria under the existing federal securities laws. A non-reporting issuer is an issuer that is not required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act.⁶⁵² An unseasoned issuer is an issuer that is required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act, but does not satisfy the requirements of Form S-3 or Form F-3 for a primary offering of its securities. A seasoned issuer is an issuer that uses Form S-3 or Form F-3 to register offerings of securities.

Under the rules, a well-known seasoned issuer will have the greatest flexibility. The largest issuers are followed by sophisticated institutional and retail investors, members of the financial press, and numerous sell-side and buy-side analysts that actively seek new information on a continual basis. Unlike smaller or less mature issuers, large, seasoned public issuers tend to have a more regular dialogue with investors and market participants through the press and other media. The communications of these well-known seasoned issuers are subject to scrutiny by investors, the financial press, analysts, and others who evaluate disclosure when it is made.

To the extent that some of these reforms are designed for well-known seasoned issuers, smaller issuers may not benefit from all of the reforms to the registration process. We believe, however, that these potential unequal effects are justified in order to ensure that investors have access to required information about all issuers. Therefore, allowing smaller entities to take advantage of all of the reforms to the registration process may not address issues of investor protection. The reforms are not available to offerings by a blank check company, offerings by a shell company, and offerings of penny stock by an issuer. These offerings are more likely to be made by issuers that are small issuers. We have excluded these offerings from the reforms because they pose the greatest risk of abuse of the reforms.

To the extent the rules are not available to smaller issuers, the establishment of any differing compliance or reporting requirements or timetables or any exemptions for small business issuers may not be in keeping with the objectives of the rules. We believe that the rules are a cost-effective initial approach to address specific concerns related to small entities.

D. Reporting, Record Keeping, and Other Compliance Requirements

The rules are expected to impact all issuers raising capital and selling security holder transactions that are registered under the Securities Act, as well as all issuers that file annual reports on Exchange Act Form 10-K or Form 20-F.

For smaller issuers, we are not imposing any new restrictions on communications. In fact, small issuers will be able to take advantage of the new bright-line rule permitting communications more than 30 days before filing a registration statement and the clarification that they can continue to make factual business communications and, if they are reporting companies, communications of forward-looking information. Small issuers, like larger issuers, will have to file any free writing prospectus they use. We requested comment on whether issuers that file on Form 10-KSB, who tend to be smaller issuers, should be required to disclose risk factors in their annual reports, and have decided not to extend this requirement to these issuers. Unlike larger companies that are “accelerated filers,” smaller issuers will not be required to disclose outstanding staff comments in their annual reports.

The rules also will affect broker-dealers participating in a registered offering, as they will no longer be required to deliver a final prospectus, but will be able to send a notice of allocation and notice of prospectus availability. They also will be permitted to prepare and use free writing prospectuses. If a free writing is not required to be filed publicly, the broker-dealer will have to retain copies of the free writing prospectus for three years. (Such retention requirements may already exist in most cases). Finally, the broker-dealer will be permitted to issue research reports with respect to a broader class of issuers and securities than currently permitted.

E. Agency Action to Minimize Effect on Small Entities

The Regulatory Flexibility Act directs us to consider significant alternatives that would accomplish the stated objectives, while minimizing any significant adverse impact on small entities. In connection with the rules, we considered the following alternatives:

1. Establishing different compliance or reporting requirements that take into account the resources available to small entities;

2. Clarifying, consolidating, or simplifying compliance and reporting obligations for small entities;

3. Using performance standards rather than design standards; and

4. Including smaller entities in some of the reforms.

We have considered a variety of reforms to achieve our regulatory objectives and, where possible, have taken steps to minimize the effects of the rules and amendments on small entities. For example, we are not requiring small business issuers to include disclosure of risk factors or unresolved staff comments in their Exchange Act periodic reports. We are liberalizing generally the restrictions regarding communications around the time of a Securities Act registered offering of securities. As discussed above, the flexibility will be greatest for larger, more seasoned issuers; however, the rules will provide greater flexibility for all issuers, including small entities. As we implement these changes, we will consider the available information to determine whether greater flexibility is warranted, consistent with investor protections. In this regard, we have established an Advisory Committee on Smaller Public Companies to examine these and other related issues.

⁶¹⁴ 44 U.S.C. 3501 et seq.

⁶¹⁵ 44 U.S.C. 3507(d) and 5 CFR 1320.11.

⁶¹⁶ The paperwork burden from Regulations S-K, S-B, and C are imposed through the forms that are subject to the requirements in those Regulations and reflected in the analysis of those forms. To avoid a Paperwork Reduction Act inventory reflecting duplicative burdens, for administrative convenience we estimate the burdens imposed by Regulations S-K, S-B, and C to be a total of one hour.

⁶¹⁷ We believe that the burden associated with checking a box on the cover page of an Exchange Act report or registration statement is so minimal that we are unable to quantify the burden.

⁶¹⁸ Under Securities Act Rule 173, this notification will be imposed, which may be satisfied through inclusion of the notification on a confirmation of sale already required to be provided in sales involving broker dealers, while Securities Act Rule 172 will eliminate the more burdensome requirement of delivery of a final prospectus.

⁶¹⁹ “Free writing prospectuses” are written communications (other than statutory prospectuses) that constitute offers to sell or solicitations of offers to buy securities.

⁶²⁰ In this regard, see note 617 regarding the burden associated with checking a box on the cover page.

⁶²¹ We also are requiring similar undertaking language in Form N-2, the registration statement form for closed-end management investment companies.

⁶²² See the discussion in Section III above under “Permissible Use of Free Writing Prospectuses” under “Filing Conditions.”

⁶²³ For administrative convenience, the presentation of the totals related to the paperwork burden hours have been rounded to the nearest whole number and the cost totals have been rounded to the nearest thousand.

⁶²⁴ We assume that brokers and dealers will not use outside professionals to comply with the new collection of information requirements.

⁶²⁵ In connection with other recent rulemakings, we have had discussions with several private law firms to estimate an hourly rate of $300 as the average cost of outside professionals that assist issuers in preparing disclosures and conducting registered offerings.

⁶²⁶ Item 303 of Regulation S-K [17 CFR 229.303].

⁶²⁷ Under the rules, an issuer that is filing Exchange Act reports voluntarily, but is not required to do so, will be a non-reporting issuer for purposes of the communications and procedural rules.

⁶²⁸For further discussion of the characteristics of well-known seasoned issuers, see Section II above.

⁶²⁹ Recent research has examined the effect of securities laws on stock market development in 49 countries and found strong evidence that laws facilitating private enforcement through disclosure and liability rules are positively correlated with more developed stock markets. See, La Porta, Lopez de Silanes, and Shleifer, “What Works in Securities Laws?” Forthcoming in Journal of Finance.

⁶³⁰ For purposes of monetizing the cost of issuer personnel time, we estimate the average hourly cost of issuer personnel time to be $125.

⁶³¹ For example, for purposes of the PRA analysis, we estimate that the aggregate total annual paperwork burden for issuers arising from the preparation, review, and filing of free writing prospectuses or making a version of an electronic road show available under the new communications rules will be approximately $301,993.

⁶³² For example, as we discussed in the Proposing Release, for purposes of the PRA analysis, we estimated that the aggregate total annual paperwork burden of complying with the record retention conditions for free writing prospectuses used in reliance on Rule 433 will be approximately $948,900.

⁶³³ For example, as we discussed in the Proposing Release, for purposes of the PRA analysis, we estimated that the aggregate total annual paperwork burden of preparing, reviewing and filing the disclosure of unresolved comments in Exchange Act reports will be approximately $138,713.

⁶³⁴ For example, as we discussed in the Proposing Release, for purposes of the PRA analysis, we estimated that the aggregate total annual paperwork burden of preparing, reviewing and filing the disclosure of risk factors in Exchange Act reports will be approximately $9,743,417.

⁶³⁵ 17 U.S.C. 77z-2.

⁶³⁶ ($0.05 per notice) multiplied by (232.45 million confirmations) = $11,622,500.

⁶³⁷ 15 U.S.C. 78w(a)(2).

⁶³⁸ 15 U.S.C. 77b(b).

⁶³⁹ 15 U.S.C. 78c(f).

⁶⁴⁰ 15 U.S.C. 80a-2(c).

⁶⁴¹See note 509, above.

⁶⁴² See letter from SIA.

⁶⁴³ See letters from Davis Polk and NYSBA.

⁶⁴⁴ See the discussion in Section III.D.3 above under “Issuers in the Media Business.”

⁶⁴⁵ Securities Offering Reform, Release No. 33-8501 (Nov. 3, 2004)[69 FR 67392] (“Proposing Release”).

⁶⁴⁶ See the Proposing Release at Section VII.

⁶⁴⁷ 17 CFR 230.157.

⁶⁴⁸ 17 CFR 240.0-10(a).

⁶⁴⁹ An investment company is a small entity if it, together with other investment companies in the same group of related investment companies, has net assets of $50 million or less as of the end of its most recent fiscal year. 17 CFR 270.0-10.

⁶⁵⁰ We estimate that there are approximately 233 investment companies that may be considered small entities. We believe the impact on these investment companies will be minimal because they generally are not covered by the new rules.

⁶⁵¹ 17 CFR 240.0-10(c)(1).

⁶⁵² Under the rules, an issuer that is voluntarily filing Exchange Act reports, but is not required to do so, will be an unseasoned issuer for purposes of the communications and procedural rules and rule rules.