PRA SUPPORTING STATEMENT FOR FINAL RULE - July 19, 2018

SUPPORTING STATEMENT FOR FINAL RULE AMENDMENT
UNDER THE SECURITIES ACT OF 1933
A.

JUSTIFICATION

1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

On July18, 2018, the Securities and Exchange Commission (the “Commission”) adopted
a final rule amendment to Rule 701 under the Securities Act of 1933 (the “Securities Act”). The
amendment implements Section 507 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act1 (the “Act”), which became law on May 24, 2018. Section 507 of the Act directs
the Commission, not later than 60 days after the date of enactment, to revise Rule 701 to increase
from $5,000,000 to $10,000,000 the aggregate sales price or amount of securities sold during any
consecutive 12-month period in excess of which the issuer is required under such section to
deliver an additional disclosure to investors. A copy of Commission Release No. 33-10520,
which contains the final amendment, is attached.
The title for the affected collection of information is:
Rule 701 (OMB Control No. 3235-0522)
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The final amendment amends Rule 701 to implement the mandated increase from
$5,000,000 to $10,000,000 the aggregate sales price or amount of securities sold during any
consecutive 12-month period in excess of which the issuer is required under such section to
deliver additional disclosure to investors. This disclosure constitutes a collection of information.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The required information is provided to the investors in the compensatory plan and is
not provided to the Commission. The information may be electronically transmitted to investors.
4.

DUPLICATION OF INFORMATION
The amendment does not duplicate, overlap, or conflict with other federal rules.

5.

REDUCING THE BURDEN ON SMALL ENTITIES

The amendment may potentially affect any issuer that is not subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) (a “non-reporting company”), its parents, its majority-owned subsidiaries or majorityowned subsidiaries of its parent, that offer and sell securities under compensatory benefit plans
or written agreements relating to compensation. This group of issuers includes small entities.
1

Pub. L. No. 115-174, 132 Stat. 1296 (2018).

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The amendment will reduce the economic burden associated with Rule 701 for those issuers that
sell securities in compensatory benefit plans in the $5 million to $10 million range over a 12month period.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

Rule 701 was adopted under the Securities Act and sets forth the requirements for
non-reporting companies to conduct compensatory securities offerings on a basis that is exempt
from the registration requirements of the Securities Act. The legislative intent for collection of
this information requires that the information be available prior to the making of the investment
decision.
7.

SPECIAL CIRCUMSTANCES
Not applicable.

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission did not solicit comment on the amendment in implementing this
legislative mandate.
9.

PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

10.

CONFIDENTIALITY
Not applicable.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII). The agency has determined that a system of records notice
(SORN) and privacy impact assessment (PIA) are not required in connection with the collection
of information.

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12. and 13.

ESTIMATE OF HOUR AND COST BURDENS

The amendment will reduce the current burden estimates associated with Rule 701 for
those issuers that sell securities in compensatory benefit plans in the $5 million to $10 million
range over a 12-month period, especially for those issuers that do not otherwise prepare the same
types of disclosure in their normal course of business. We derive our burden hour estimate by
estimating the average amount of time it would take an issuer to prepare the disclosure. While
we estimate that there are 16,491 non-reporting companies conducting capital-raising offerings
of securities pursuant to other exemptions from Securities Act registration, some of these issuers
may currently be too small to offer securities in compensatory benefit plans in excess of $5
million over a 12-month period. For purposes of the Paperwork Reduction Act, we estimate that
approximately 10% of these issuers (1,600) currently provide disclosure under Rule 701, and that
the number of burden hours per respondent is two. We estimate that the amendment will impact
one-half of the issuers that currently provide information under Rule 701, or 800 issuers. We
therefore estimate the total annual decrease in the paperwork burden for all affected companies
to comply with the collection of information requirements of Rule 701, as amended, will be
approximately 1,600 hours (800 issuers x two burden hours), allocated 25% to company
personnel time and 75% to external costs.
The table below shows the total annual compliance burden, in hours and in costs, of the
collection of information resulting from the final amendment.2 The burden estimates were
calculated by multiplying the estimated number of responses by the estimated average amount of
time it would take a registrant issuer to prepare and review Rule 701 disclosure. For purposes of
the PRA, we estimate that 25% of the burden of preparation is carried by the issuer internally,
which is reflected in hours, and that 75% of the burden is attributed to outside costs, estimating
$400 per hour as the professional cost per burden hour .
Table 1.

Decrease in Paperwork Burden under the interim final amendment.
Estimated
number
of
affected
responses

Decrease
in
burden
hours per
response

(A)

(B)

Rule
701(e)
800
disclosure
14.

2

Total
25%
75%
Professional
decrease in
Company
Professional Costs
burden
hours
(E)=(C)*0.25 (E)=(C)*0.75 (F)=(E)*$400
(C)=(A)*(B)

(1,600)

(400)

(1,200)

($480,000)

COSTS TO FEDERAL GOVERNMENT
The estimated cost of preparing the final amendment was approximately $50,000.

2

For convenience, the estimated hour and cost burdens in the table have been rounded to the nearest whole number.

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15.

REASON FOR CHANGE IN BURDEN

The amendment will reduce the burdens for non-reporting issuers who rely on Rule 701
to make exempt compensatory offerings in the $5 million to $10 million range over a 12-month
period. Table 2 below illustrates the changes in hour burden estimates currently approved by
OMB. Column (A) represents the most recent burden estimate submitted to OMB. Column (B)
represents the new burden estimate under the amendment. Column (C) represents the program
change, which encompasses the change in the burden estimate attributable to the amendment.
Table 2.
Current Burden

Rule 701
16.

Burden
Hours
(A)
800

Change in Burden

Cost

Burden
Hours
(C)
(400)

(B)
$960,000

Costs
(D)
($480,000)

Program Change

Burden
Hours
(E)
400

Cost
(F)
$480,000

INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
Not applicable.

17.

APPROVAL TO OMIT OMB EXPIRATION DATE
The Commission is not seeking approval to omit the expiration date.

18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
Not applicable.

B.

STATISTICAL METHODS
Not applicable.

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