Dive Brief:
- The Securities and Exchange Commission on Tuesday proposed raising the thresholds that determine which public companies qualify as “large accelerated filers,” a status that carries stringent reporting and internal-control audit requirements.
- The proposal is part of a broader package aimed at revamping rules governing public-company disclosures and registered securities offerings, which the SEC said would reduce compliance burdens and make it easier for companies to raise capital in public markets.
- “Incentivizing more companies to go and stay public ultimately serves to protect and benefit investors,” SEC Chairman Paul Atkins said in a statement. “Yet, the current public company regulatory framework is in dire need of a comprehensive overhaul.”
Dive Insight:
The move comes as the SEC is also advancing a separate proposal that would allow public companies to report earnings on a semiannual basis instead of quarterly, if they choose to do so, as part of its larger effort to reduce regulatory requirements.
Tuesday’s announcement included a proposed expansion of access to “shelf registrations,” allowing more public companies to pre-register stock offerings and quickly sell shares when they want to raise capital. The agency also proposed broadening eligibility for Form S-3, a streamlined securities registration form that allows issuers to access public markets more quickly.
The SEC also proposed raising the bar for companies to qualify as “large accelerated filers” by increasing the so-called public float threshold from $700 million to $2 billion. The agency said the threshold would be calculated using the average stock price over the final 10 trading days of a company’s second fiscal quarter.
Companies would need to meet the public float threshold for two consecutive years before qualifying as large accelerated filers, and would be required to have at least 60 consecutive months of public reporting history.
The proposal would eliminate the categories of “accelerated filer” and “smaller reporting company filer,” meaning all companies that are not large accelerated filers would become non-accelerated filers exempt from auditor attestation requirements for internal controls over financial reporting.
The SEC also proposed a new sub-category of “small non-accelerated filers” for companies with total assets of $35 million or less for the two most recent years. Such filers would have an additional 30 days to file Form 10-K annual reports and an additional five days to file Form 10-Q quarterly reports.
Altogether, the changes would result in “significant practical consequences across the spectrum of public companies,” according to an analysis by global law firm Ropes & Gray.
“The proposed amendments represent the most comprehensive simplification of the SEC’s filer status framework in over two decades and, if adopted, would significantly reduce compliance costs and reporting burdens for the large majority of public companies while preserving full disclosure requirements for the largest issuers,” the firm said.
If the proposal is adopted, the SEC estimates that 19.2% of public companies would qualify as large accelerated filers, down from 35.4% under current rules. The remaining 80.8% would be non-accelerated filers.
The agency framed the push as part of a wider effort to encourage participation in U.S. public markets at a time when many companies have remained private longer and cited regulatory costs as a deterrent to public listings.
“These proposals build upon the legislative and regulatory concepts that have proven successful in the past and aim to extend that success to more companies — particularly small and mid-sized companies — and incentivize them to go and stay public,” Atkins said.
