SEC Modernizes Filing Fee Rules

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On October 13, 2021, the U.S. Securities and Exchange Commission adopted final rules that amend several fee-bearing forms, schedules, statements and related rules to modernize filing fee disclosure and payment methods for securities transactions. The amendments, which will require each filing fee table and related disclosure to be filed as an exhibit in a structured format, will add options for fee payment via Automated Clearing House (ACH) and debit and credit cards, and eliminate fee payments by paper checks and money orders. The SEC first proposed the amendments on October 24, 2019. These amendments are effective on January 31, 2022, but will be phased in throughout transition periods as further discussed below.

Overview

The amendments will affect rules and forms under the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act) and the Investment Company Act of 1940 (Investment Company Act). In particular, the following rules and forms will be amended:

  • Securities Act
    • Rules 111, 415, 424, 456, 457, 473
    • Forms S-1, S-3, S-8, S-11, N-14, S-4, F-1, F-3, F-4, F-10, SF-1, SF-3
  • Exchange Act
    • Rules 0-9, 0-11, 13e-1
    • Schedules 13E-3, 13E-4F, 14A, 14C, TO, 14D-1F
  • Investment Company Act
    • Rule 0-8
    • Forms 24F-2 and N-2

The amendments will address some of the more manual aspects of the filing fee process by allowing the SEC’s staff to use automated tools to validate payment information. Reflected in the changes to the rules and forms noted above, the amendments will:

  • Move filing fee-related information to a separate exhibit document instead of the filing’s cover page.
  • Add columns to the basic filing fee table for registration forms (see Table 1 in the Appendix) to indicate:
    • the type of security being newly registered or carried forward;
    • the registration form type and file number;
    • the initial effective date of any previously filed registration statements associated with any unsold securities that a company is carrying forward;
    • fees paid in connection with amendments; and
    • entries for total offering amounts, the total amount of fee offsets and the total fee due net of fee offsets and any previously paid amounts net of fee offsets and any previously paid amounts.
  • Add new tables to disclose fee offsets under Rule 457(b) and (p) and Rule 0-11(a)(2) (see Table 2 in the Appendix), and reliance on Rule 429 to file a single prospectus relating to multiple registration statements (see Table 3 in the Appendix).
  • Add a “fee rate” column to the filing fee table of affected forms and schedules.
  • Revise filing fee tables in Schedules 13E-3 and TO and add filing fee tables to Schedules 13E-4F, 14A, 14C, and 14D-1F (including a separate table for claimed offsets).
  • Add or clarify instructions regarding fee table presentation, calculations and related disclosure for Rule 415(a)(6), Rule 429, Rule 457(a), (b), (f), (h), (o), (p) and (u), Rule 0-11(a)(2) and transaction valuation.
  • Add filing fee tables and calculation disclosure requirements to Rule 13e-1.
  • Revise Rule 424(g) so that the form of prospectus that reflects the amount of pay-as-you-go registration fee under Rule 456(b) or 456(c) also includes filing fee calculation information in a filing fee exhibit.
  • Revise the General Instructions to Forms S-3, F-3 and SF-3 to provide that information specified by each form’s filing fee exhibit requirements or Rule 424(g) must appear in a filing fee exhibit to a post-effective amendment or prospectus under Rule 424(b) or (h), as applicable, and must include the maximum aggregate amount or maximum aggregate offering price of the securities to which the post-effective amendment or prospectus relates and indicate that it is the final prospectus.
  • Revise the General Instructions to Form N-2 to provide for the filing fee exhibit and to require certain information in a filing fee exhibit to a post-effective amendment or prospectus filed under Rule 424(b) which must include the maximum aggregate amount or maximum aggregate offering price of the securities and that it is final prospectus.
  • Revise the General Instructions to Form N-14 to provide for the filing fee exhibit.
  • Revise the General Instructions to Forms S-4 and F-4 to provide that each post-effective amendment or final prospectus supplement filed under Rule 424(b) to provide required information about a specific transaction and acquired company to include a filing fee exhibit with the maximum aggregate amount or maximum aggregate offering price of the securities to which the post-effective amendment or prospectus relates and indicate that it is a final prospectus for the related offering.

Inline XBRL Format

The amendments require companies to structure all filing fee-related information in an exhibit to the relevant form using Inline eXtensible Business Reporting Language (Inline XBRL). Inline XBRL will enable automated access to and processing of information relevant to the filing fee calculation and eliminate the need to manually enter duplicate filing fee information in a form’s header. The structured information will include each filing fee table for the affected forms, schedules and statements and related disclosure. Many companies already structure their SEC filings using Inline XBRL. The SEC will provide companies with a tagging tool that will enable them to produce the required structured filing fee information within EDGAR (Electronic Data Gathering, Analysis and Retrieval system).

Companies will be able to file filing fee information using the Inline XBRL format prior to the compliance date once the EDGAR system is able to accept such information, which the SEC anticipates will be approximately six months before the earliest compliance date (discussed below). The SEC will notify filers of EDGAR’s readiness to accept filing fee information in Inline XBRL in the same way it provides notices of taxonomy and EDGAR Filer Manual updates.

The SEC believes that having companies structure filing fee data will allow them and the SEC’s staff to identify and correct errors more quickly because companies using EDGAR to construct filing fee information will receive validation and error notification before they submit test and live filings. Those companies that structure their filing fee data outside of EDGAR would be notified of any errors after they submit test and live filings.

Companies would be warned of validation failures caused by incorrect or incomplete filing fee information, although EDGAR would still accept such filings until approximately three months after all filers must comply with the structured data requirement, after which time the SEC would suspend such filings.

Transition Period

The amendments provide for a transition period for compliance with the structuring requirements based on a company’s filing status. Large accelerated filers will have 30 months after the effective date (July 31, 2024) and all other filers, including accelerated filers and investment companies filing on forms N-2 and N-14, will have 42 months after the effective date (July 31, 2025) to comply with the structuring requirements.

Filing Fee Payment Options

The amendments eliminate the option to pay filing fees via paper check and money orders. Instead, companies may pay filing fees using wire transfer, ACH or debit or credit cards. The option to pay by paper check or money order will cease on May 31, 2022, the effective date for the payment option amendments. The U.S. Treasury’s Pay.gov service will process ACH and credit and debit card payments. Debit and credit cards must be issued by a U.S. financial institution. In addition, credit cards will be subject to a daily and per filing fee limit of $25,000.

Reallocation under Rule 457

Currently, Rule 457(a) of the Securities Act requires a company registering securities to pay an additional fee with any pre-effective amendment in which it seeks to increase the amount of any class securities or add an additional class of securities and prohibits refunds. However, Rule 457(b) provides that required fees may be reduced in an amount equal to fees already paid in connection with an offering.

The amendments will provide for form instructions clarifying that a company that has previously paid a filing fee for a registration statement can use such fee to offset any new fees resulting from an increase in the amount of one or more classes of securities or the addition of one or more classes concurrently with a decrease of one or more classes of securities in the same registration statement. The amendments would allow a company to calculate the total filing fee due based on the latest expected offering amounts, prices and filing fees, relying on Rule 457(b) to use the previously paid filing fee to offset the total filing fee due. As described in the Adopting Release, this instruction would be limited to companies that have not previously calculated their required filing fee in reliance on Rule 457(o).

Takeaways

The amendments will offer many companies a potentially more efficient and accurate process for paying filing fees, while also providing flexibility regarding the method of payment. Although companies will not have to comply with the structuring requirements for at least a couple of years, companies may still take steps now to prepare for these changes. In particular, companies should consider:

  • Complying early with the structuring requirements. Although large accelerated filers and all other filers will have 30 months and 42 months, respectively, to comply, companies will be able to file their filing fee information in Inline XBRL prior to their compliance date, once the SEC makes modifications to the EDGAR system. Where possible, companies may want to comply early in order to identify and resolve any problems with their filing vendors in advance.
  • Establishing controls and procedures for alternative methods of payment. Companies may continue to wire filing fee payments, but if they wish to pay using ACH or debit or credit cards, they should make sure that they have corporate policies and procedures in place that would allow for the use of those methods. They may also have to consider whether the necessary controls exist to identify, permit and validate filing fee payments using those methods and make modifications to existing controls or adopt new controls as appropriate.
  • Becoming familiar with Inline XBRL. Although many companies already use Inline XBRL for tagging the financial statements for certain SEC periodic reports such as the Forms 10-K and 10-Q, companies that are not already familiar with structuring information using Inline XBRL will need to become educated on its requirements. This may include working with a filing vendor to determine how to prepare the information and integrate it with reporting systems.
  • Planning to structure filing fee data through EDGAR. The Adopting Release indicates that the SEC will provide a tool that will include features such as “prompts, explanations, and automated calculations and produce a filing fee exhibit in submission-ready format.” Using such a tool will allow companies to identify errors prior to filings. Companies may choose to re-examine how they prepare their filing fee calculations and may now consider doing so through EDGAR.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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