Offering Statement
Electronic Filing and Delivery
The final rules preserve the current three-part structure of Form 1-A but make various revisions and updates to the form to streamline the information included in the form. Since most of this information is already contained in other offering materials, the additional reporting burden in Part I of the Form 1-A should not entail significantly higher costs in terms of time or out-of-pocket expenses.975
Under existing Regulation A, offering materials are submitted to the Commission
in paper form. The final rules require electronic submission of offering materials. Electronic submission is expected to offer benefits to issuers and investors. Paper documents are difficult to process both for the Commission and for investors. Electronic filing is therefore expected to reduce processing delays and costs associated with the current paper filing system, improve the overall efficiency of the filing process for
975 For the purposes of the Paperwork Reduction Act (“PRA”), we estimate that compliance with the requirements of amended Form 1-A will result in a burden of approximately 750 hours per response (compared to the current burden associated with Form 1-A of 608 hours per response). We estimate that compliance with the requirements of amended Form 1-A will result in an aggregate annual burden of 140,625 hours of in-house personnel time and an aggregate annual cost of $18,750,000 for the services of outside professionals. See Section IV below.
issuers, benefit investors by providing them with faster access to the offering statement, and allow offering materials to be more easily accessed and analyzed by regulators and analysts.
We anticipate that electronic access to offering materials may promote the informational efficiency of prices of Regulation A securities.976 Evidence, obtained from the adoption of EDGAR for 10-K filings by reporting companies, suggests that the use of EDGAR has favorably affected small investors.977 Moreover, the adoption of XML format for Part I of Form 1-A, which captures key information about the issuer and the offering, should allow more efficient access to information and more systematic tracking of offering details by investors, analysts, other market participants and regulators. The XML format for Part I will provide a convenient and efficient means of gathering information from issuers and transmitting it to EDGAR.978
At the same time, we recognize that an electronic filing requirement may impose compliance costs on issuers, particularly, issuers that have not previously used the EDGAR system, which include filing Form ID (the application form for access codes to
976 In the case of reporting companies, one study found that EDGAR e-filing was associated with an increase in the speed with which information was incorporated into share prices (thus, increased informational efficiency of prices) and presented evidence of a larger market reaction to 10-K and 10-Q filings in the EDGAR period relative to the pre-EDGAR period. See Griffin, P., 2003, Got information? Investor response to Form 10-K and Form 10-Q EDGAR filings, Review of Accounting Studies 8(4), pp. 433–460.
977 One study has examined the effect of the switch to EDGAR filing for annual reports on Form 10- K on small versus large investors. See Asthana, S., S. Balsam, and S. Sankaraguruswam, 2004, Differential response of small versus large investors to 10-K filings on EDGAR, Accounting Review 79(3), pp. 571–589.
978 See Part I (Notification) of Form 1-A. As discussed more fully in Section II.C.3.a., the cover page and Part I of current Form 1-A would be converted into, and form the basis of, the XML-based fillable form.
permit EDGAR filing)979and converting filings into EDGAR format. Some of these compliance burdens will be mitigated by the savings of printing and mailing costs.
Some commenters have expressed investor protection concerns in relation to the access equals delivery model (discussed in Section II.C.1) arising from the perceived challenge of finding these materials on EDGAR and not requiring delivery 48 hours in advance of sale in all circumstances.980 As discussed above, we do not believe that access to EDGAR generally has proven to be a challenge for investors in registered offerings since the adoption of Securities Offering Reform in 2005, nor do we believe that it will be a challenge for investors under Regulation A or raise investor protection concerns, particularly in light of our final delivery requirements (including, where applicable, the inclusion of hyperlinks to offering materials on EDGAR that must be
provided to investors by issuers and intermediaries). Additionally, given that the final offering circular delivery obligations generally affect investors only after they have made their investment decisions and that, taking into account advancements in technology and expanded use of the Internet, investors will have access to the final offering circular upon its filing, we believe that using a means other than physical delivery to satisfy the final offering circular delivery obligation will not have an adverse effect on investor protection. Overall, we believe that there will be benefits to issuers of streamlining delivery requirements for the final offering circular, consistent with similar updates to
979 For purposes of the PRA, Form ID is estimated to result in 0.15 burden hours per form, for an additional aggregate annual burden due to the rule amendments of 28.20 hours of in-house personnel time. See Section IV.
980 See Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
delivery requirements for registered offerings.981