October 7, 2013

If the SEC Shuts Down? Plan for Acceleration for Registration Statements Beforehand

As I blogged last week, the SEC found enough carryover funds from last year’s budget to stay fully operational even though the federal government has shut down – but only has funds to stay open a “few” weeks. Given that a week already has passed since the broader government shutdown began, the SEC posted this notice on Friday:

We understand that the ongoing uncertainty about possible changes in the SEC’s operating status in the event of a prolonged federal government shutdown is raising concerns for registrants that are planning to request acceleration of their registration statements in the near future. If a change in our operating status becomes imminent, we will provide as much advance notice as we can and will consider granting requests for acceleration of the effective date of those pending registration statements.

If the SEC does run out of funds, it has posted this shutdown plan, during which roughly 250 of the SEC’s 4000-plus staffers would keep on working. EDGAR would remain operational – but most core Corp Fin operations would stop including registration statement reviews. More to come as the shutdown grinds on…

Last week, the PCAOB posted an updated standard-setting agenda that outlines milestones on various standard-setting projects.

FINRA: Underwriting Review Procedures Enhanced

Here’s news from Suzanne Rothwell: Last week, FINRA implemented significant enhancements to its review procedures that expedite the issuance of a “no objections” letter in the case of offerings without issues requiring pre-offering staff review or that do not require substantial pre-offering staff review. The enhanced procedures are welcome as they will allow less problematic offerings to move more quickly through the FINRA underwriting review process.

Current Same Day Clearance Process for Shelf Offering: FINRA will continue to operate the Same Day Clearance Process for the review of shelf filings, including shelf filings by well-known seasoned issuers, which provides an automated issuance of a “no objections” letter the same day that a base registration statement and/or shelf takedown are filed with the Department. The Process is available for primary offerings, offerings that list selling security holders or that have equity lines of credit. The Same Day Clearance Process is only intended for filings where there is insufficient time for the full review process and such filings are reviewed by the staff on a post-offering basis.

Immediate Clearance Process: Effective September 30th, FINRA implemented an Immediate Clearance Process for shelf filings, including those of WKSI issuers, enhancing the Same Day Clearance Process. However, filers can still rely on the current Same Day Clearance Process for shelf offerings.

Under the Immediate Clearance Process, filers can receive an immediate “no objections” letter 24 hours a day, 7 days a week, which is issued automatically by FINRA’s Public Offering System once all required information and representations have been provided in the System. For the first time, there is no need for FINRA staff to check if information and representations have been completed in its Public Offering System because the System will not issue a “no objections” letter without the representations and complete information.

FINRA staff will conduct a post-offering review of the filing and representations submitted. In order to receive an immediate “no objections” letter, the filer must provide (in addition to the standard Same Day Clearance Process and WKSI filer representations):

– An undertaking that any information necessary to complete the filing (e.g., the due diligence on FINRA association affiliation of officers, directors and greater than 5% shareholders) will be provided no later than 3 business days following the initial submission; and
– The Fed Wire Number for the submission of the filing fee and the date of that Wire.

FINRA: Limited Review Process for Exchange-Listed Securities

Here’s more news from Suzanne Rothwell: FINRA also implemented a new Limited Review Process for SEC-filed initial and secondary offerings of securities that are or will be listed on a national securities exchange. The filer must request limited review and FINRA staff will determine whether to grant the request. The offering must meet the following requirements to qualify for limited review.

– Securities listed (or to be listed) on a national securities exchange (corporate or investment program).
– Firm commitment or straight best efforts distribution methods.
– Total underwriting compensation within allowable guidelines.
– Securities received as underwriting compensation would make the filing ineligible for the limited review procedure.
– Underwriting arrangements do not include prohibited terms as defined in FINRA Rule 5110(f)(2), such as indeterminate items of value.
– FINRA members are identified in the offering documents and filing system.
– Offering is filed with the SEC.
– Offering does not include a new or novel securities product or pose complex regulatory issues (e.g., an unlisted REIT).

The filing broker-dealer is required to represent at the time of the initial filing that:

– All documents required to be filed pursuant to FINRA Rule 5110, have been or will be submitted no later than 5 business days prior to the member’s participation. Documents required include but are not limited to underwriting or distribution related documents, any engagement letters, letters of intent or any other document entered into by any participating member(s) and the issuer during the 180-days preceding the initial filing with the SEC.
– All representations made at this time are accurate to the best of our knowledge. We undertake to notify the staff, no later than 5 business days prior to the member’s participation of any changes that may affect the staff’s No Objections Letter. We understand that this notification may require a review prior to the member’s participation. If a notification is not made, the information filed herein will be presumed to be accurate at the time of the member’s participation in the offering.

In addition, the filing broker/dealer must provide the four representations set forth below prior to issuance of a “no objections” letter, although these representations can be deferred at the time of initial filing of the offering with FINRA:

– The association or affiliation between any participating member(s) and any officer, director, or beneficial owner of 5% or more of any class of the issuer’s securities is indicated (if applicable) in the filing system.
– The terms and arrangements between the issuer and participating members do not include any prohibited arrangements.
– No participating member(s) has acquired unregistered securities that would be considered underwriting compensation during the 180 day period preceding the initial filing with the SEC through 90 days after the effective date of the filing.
– As applicable, the offering is in compliance with FINRA Rule 5121, including appropriate disclosure of any affiliation between the issuer and any participating member.

The limited review procedure would result in an expedited “no objections” letter once all representations are made to FINRA. However, if any of the four representations are deferred, the staff would issue a “limited review defer” letter. FINRA staff may also change the filing to be reviewed under the full review process if the staff determines that the offering is not eligible for limited review.

– Broc Romanek