Section 501 of the JOBS Act amended Section 12(g)(1) of the Exchange Act to provide that an issuer must register a class of equity securities under the Exchange Act within 120 days after its fiscal year end if on the last day of that fiscal year:

These statutory amendments were effective immediately on the JOBS Act's enactment. However, they did not amend the SEC's related rules dealing with the mechanics of registration, termination of registration and the suspension of reporting. The SEC rule proposal would amend Rule 12g-1 through 12g-3 and Rule 12h-3 to make them consistent with the amended statutory language and correct other outdated references in the rules.

Section 601 of the JOBS Act amended Section 12(g)(1) of the Exchange Act to add a new subsection (B). Under new Section 12(g)(1)(B), a bank holding company must register a class of equity securities under the Exchange Act within 120 days after its first fiscal year end after April 5, 2012 if, on the last day of that fiscal year:

In addition, Section 601 amended Section 12(g) to provide that a bank holding company may deregister a class of securities under Section 12(g) and suspend its Section 15(d) obligations relating to that class of securities if the number of record holders of the class of security falls below 1,200 persons (as opposed to the 300 person deregistration standard that previously applied to all issuers, and continues to apply to most issuers).

Despite the fact that Section 602 of the JOBS Act required the SEC to issue final rules implementing these statutory amendments, the SEC staff took the position that the reforms were generally immediately effective on the JOBS Act's enactment, and issued guidance to this effect (see Practice Note, JOBS Act: Exchange Act Registration Thresholds Summary: Deregistration Threshold). To bring its rules in line with the new thresholds, the SEC is now proposing to amend its rules to reflect the new bank holding company registration and deregistration thresholds.

Section 601 of the JOBS Act did not extend the reforms applicable to bank holding companies to S&L holding companies. The SEC's rule proposal would amend Rules 12g-1 through 12g-4 and Rule 12h-3 to allow S&L holding companies to be treated in the same manner as bank holding companies. The proposing release explains that this change is intended to avoid inconsistent treatment between these types of depositary institutions.

The proposal amends Rule 12g5-1 under the Exchange Act to provide that when determining whether it is required to register a class of equity securities under Section 12(g), an issuer may exclude securities held by persons who received them under an employee compensation plan in transactions that either:

(proposed Rule 12g5-1(a)(7)).

In addition, issuers may exclude securities held by persons eligible to receive the securities from the issuer under Securities Act Rule 701(c) who received them in transactions exempt from Securities Act registration in exchange for securities excludable under proposed Rule 12g5-1(a)(7). This provision is intended to accommodate issuers that conduct restructurings, business combinations and similar transactions exempt from Securities Act registration in which securities that would have been excludable under proposed Rule 12g5-1(a)(7) are surrendered for other securities serving the same compensatory purpose as the surrendered securities.

Notably, this exclusion would not "follow the securities." In other words, once a security was transferred by the recipient under the compensation plan (or certain permitted transferees, like family members receiving securities pursuant to a domestic relations order) the securities would need to be counted as held of record by the transferee.

In addition, the exclusion would not apply for purposes of determining whether an issuer may deregister a class of equity securities.

In the proposal, the SEC has declined to define the phrase "employee compensation plan." However, the proposal would create non-exclusive safe harbor under Rule 12g5-1(a)(7) under which a person will be considered to have received securities under an employee compensation plan if that person received the securities under an employee compensation plan in transactions meeting the requirements of Rule 701(c) under the Securities Act. By referring to Rule 701(c), the safe harbor effectively incorporates the definition of "compensatory benefit plan" under Rule 701(c)(2), which includes "any purchase, savings, option, bonus, stock appreciation, profit sharing, thrift, incentive, deferred compensation, pension or similar plan."

Generally, Rule 701(c) exempts offers and sales of securities under a written compensatory benefit plan (or written compensation contract) established by the issuer or certain affiliates for the participation of employees, directors, general partners, trustees (where the issuer is a business trust), officers, or consultants and advisors, and their family members who acquire such securities from such persons through gifts or domestic relations orders. For more information on Rule 701, see Practice Note, Employee Incentive Compensation and the Role of Rule 701.

There are a number of rules under the federal securities laws applicable to foreign issuers that require them to determine the number of US holders of their securities. The proposal addresses how the safe harbor in proposed Rule 12g5-1(a)(7) would interact with these rules.

Under the proposal, FPIs would be permitted to rely on the safe harbor when determining if they have met the 300 US resident holder standard under Exchange Act Rule 12g3-2(a). For more information on Rule 12g3-2(a), see Practice Note, Rule 12g3-2(b) Filing Exemption: Why and How to Qualify. However, an FPI would not be permitted to exclude securities held by employees in determining the percentage of the issuer's outstanding securities held by US residents for purposes of determining the issuer's FPI status under Rule 405 under the Securities Act and Rule 3b-4 under the Exchange Act. For more information on foreign private issuer status, see Which Non-US Companies Qualify as Foreign Private Issuers?

The SEC is accepting comments on the proposal until March 2, 2015.

For more information on Titles V and VI of the JOBS Act, see Practice Note, JOBS Act: Exchange Act Registration Thresholds Summary. This resource is currently being updated to reflect the issuance of the proposal.