The SEC today slipped a new proposal in on us, without an open meeting or even so much as a press release. Could they perhaps have had a premonition that we might not be spellbound in reading it? The proposal is intended to modernize filing fee disclosure and payment methods, which are currently manual and labor-intensive. The proposal would amend almost everything—“most fee-bearing forms, schedules, statements, and related rules”—to require each fee table and accompanying explanatory notes (which would be expanded by the proposal) to include “all required information for fee calculation in a structured format.” You know what that means—more inline XBRL. The proposed amendments would add an option for fee payment using Automated Clearing House (“ACH”) and retain the current option for payment by wire transfer, but eliminate fee payment with paper checks and money orders. According to the proposing release, the proposed amendments “are intended to improve filing fee preparation and payment processing by facilitating both enhanced validation through fee structuring and lower-cost, easily routable payments through the ACH payment option.”
The proposing release includes a table identifying all the rules and forms the SEC is proposing to amend.
Filing fees can become very complex, especially when there are multiple transactions, fee offsets and carryforwards. Filers enter data manually, sometimes in more than one location in the filing, increasing the possibility of filer error. Currently, SEC staff manually review fee information for every filing and resolve discrepancies. By enabling the staff to use automated tools to help validate payment information, the amendments should make the fee payment validation process faster and more efficient. In addition, the proposed tagging of the fee table and accompanying information and pre-submission validation should give filers more certainty about the correctness of the fee paid. That’s because EDGAR would automatically compute the filing fee due using the structured data and validate the information submitted by the filer. In the event of validation failures caused by incorrect structured information, filers would receive a warning and the filing would be flagged for staff follow-up, but, in a change from current practice, the filing would not be suspended. Because the proposal would employ inline XBRL, no separate XBRL document would be required.
Currently, fee-related information is provided on the filing cover page and in a submission header, but disclosure of all the information necessary to calculate the fee is not required. For example, the fee for a business combination transaction can be based on the market value of the securities to be received, cash to be received and cash to be paid. However, Rule 457 and Form S-4 require disclosure of only the title of each class of securities to be registered, the amount to be registered, the proposed maximum offering price per unit, and the amount of the registration fee, although filers sometimes provide more information voluntarily. The SEC is proposing to require fee-bearing filings to include all of the information necessary to calculate the fee, and that information would be presented in inline XBRL.
Among other things, the proposal would add to the fee table:
- a “Reliance on Rule(s)” column to show (with checkboxes) whether the filer is using carryforwards, a combined prospectus, offsets or calculating a fee based on maximum aggregate offering price;
- a “fee rate” column (for certain forms, largely for business combinations);
- a requirement for basic fee calculation information (for certain forms); and
- various clarifying instructions.
The proposing release also describes a number of other proposed changes in some detail. To give you a flavor, set forth below are a couple of illustrations. For example, the SEC is proposing to revise the instructions to Forms S-3 and F-3 to provide that:
- “Information specified by the proposed term ‘General Interactive Data File’ [the machine-readable computer code that presents specified fee-related information in inline XBRL format], must appear in a prospectus filed under Rule 424(b) or post-effective amendment rather than a periodic report that is incorporated by reference into the registration statement; and
- “Each post-effective amendment or final prospectus filed pursuant to Rule 424(b) to provide required information about a specific transaction must include the maximum aggregate amount or maximum aggregate offering price of the securities to which the post-effective amendment or prospectus relates and each such prospectus must indicate that it is a final prospectus for the related offering to assist in calculation of the amount of securities sold.”
Similarly, the proposal would revise “the instructions to Forms S-4 and F-4 to provide that each post-effective amendment or, if permitted, final prospectus supplement filed under Rule 424(b) to provide required information about a specific transaction and particular company being acquired, must include the maximum aggregate amount or maximum aggregate offering price of the securities to which the post-effective amendment or prospectus relates and each such prospectus must indicate that it is a final prospectus for the related offering.” Many of the other changes would elicit more information in connection with the use of Rule 429, offsets and carryforwards and various other matters.
In addition, to clarify that offerings made under Form S-3 General Instruction I.B.6 (for offerings by companies with less than $75 million in public float) are eligible for universal shelf registration, the proposal would add references to I.B.6 to what are currently General Instructions II D and II F of Form S-3. The proposal would also permit filers to reallocate previously paid fees, on a pre-effective amendment, between two or more classes of securities included on a registration statement (where the filer has not relied on Rule 457(o) to calculate the required filing fee). This fee offset procedure could be used only to concurrently increase the amount of one class and decrease another, but not to decrease only or increase only the amount of any class of registered securities, or to add a class of securities to the registration statement. And there are a slew of other, even more mind-boggling technical amendments.
The proposal would phase in the inline XBRL structuring requirements but require compliance with the other proposed changes upon the requirements’ effectiveness. Compliance with the structuring requirements would apply to large accelerated filers for filings submitted on or after 18 months after the requirements’ effectiveness, to accelerated filers for filings submitted on or after 30 months after the requirements’ effectiveness, and to all other affected filers, for filings submitted on or after 42 months after the requirements’ effectiveness.