Securities, public utility holding companies, and investment companies: Electronic Signatures in Global and National Commerce Act; application to record retention requirements pertaining to issuers,

[Federal Register: June 21, 2001 (Volume 66, Number 120)]

[Rules and Regulations]

[Page 33175-33177]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21jn01-9]

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 231, 241, 251 and 271

[Release Nos. 33-7985, 34-44424; 35-27419; IC-25003]

RIN 3235-AI14

Application of the Electronic Signatures in Global and National Commerce Act To Record Retention Requirements Pertaining to Issuers Under the Securities Act of 1933, Securities Exchange Act of 1934 and Regulation S-T

AGENCY: Securities and Exchange Commission.

ACTION: Interpretation.

SUMMARY: We are publishing guidance on the obligations of issuers to maintain certain records under the Securities Act of 1933 (``Securities Act''), Securities Exchange Act of 1934 (``Exchange Act'') and Regulation S-T in light of the Electronic Signatures in Global and National Commerce Act (``E-SIGN'').

EFFECTIVE DATE: June 21, 2001.

FOR FURTHER INFORMATION CONTACT: Mark A. Borges, Division of Corporation Finance, at (202) 942-2910.

SUPPLEMENTARY INFORMATION: We are publishing guidance \1\ on the impact of E-SIGN \2\ on our rules promulgated under the Securities Act,\3\ Exchange Act \4\ and Regulation S-T \5\ that require issuers to retain signature authentication documents and certain other records for specified time periods.

\1\ Except for the discussion in this release about authentication documents, our views expressed today do not address record retention requirements for investment companies and public utility holding companies. Our views also do not address record retention requirements for investment advisers, transfer agents or broker-dealers. These matters are addressed in separate releases. See Investment Company Act Release No. 24991 (May 24, 2001) [66 FR 29224 (May 30, 2001)] (investment companies and investment advisers); Public Utility Holding Company Act Release No. 27404 (May 24, 2001) [66 FR 29471 (May 31, 2001)] (public utility holding companies); Exchange Act Release No. 44238 (May 1, 2001) [66 FR 22916 (May 7, 2001)] (broker-dealers); and Exchange Act Release No. 44227 (Apr. 27, 2001) [66 FR 21648 (May 1, 2001)] (transfer agents). This release does not in any way affect the record retention requirements discussed in those releases.

As we have previously noted (see Securities Act Release No. 7912 (Oct. 27, 2000) [65 FR 65736 (Nov. 2, 2000)]; Securities Act Release No. 7877 (July 27, 2000) [65 FR 47281 (Aug. 2, 2000)]), we are considering the broader implications of the Electronic Signatures in Global and National Commerce Act on securities transactions.

\2\ Pub. L. No. 106-229, 114 Stat. 464 (2000) (codified at 15 U.S.C. 7001-7006, 7021, 7031).

\3\ 15 U.S.C. 77a, et seq.

\4\ 15 U.S.C. 78a, et seq.

\5\ 17 CFR 232.10--232.601.

Discussion

1. Background

   E-SIGN seeks to promote electronic commerce by permitting and encouraging the use of electronic records and signatures in transactions in interstate or foreign commerce.\6\ Generally, E-SIGN provides that, with respect to any transaction \7\ within its scope, a signature, contract or other record relating to the transaction may not be denied legal effect, validity or enforceability solely because it is in electronic form.\8\ Similarly, E-SIGN provides that a contract relating to such transaction may not be denied legal effect, validity or enforceability solely because an electronic signature or electronic record was used in its formation.\9\

   \6\ E-SIGN preamble.

   \7\ E-SIGN section 106(13) [15 U.S.C. 7106(13)] defines the term ``transaction'' generally to mean ``an action or set of actions relating to the conduct of business, consumer or commercial affairs between two or more persons.''

   \8\ E-SIGN section 101(a)(1) [15 U.S.C. 7001(a)(1)]. Note, however, that section 101(e) of E-SIGN [15 U.S.C. 7001(e)] provides that legal effect, validity or enforceability may be denied to a contract or other record required to be in writing that is kept in electronic form if the electronic record is not in a form that is capable of being retained and accurately reproduced for later reference by all involved parties.

   \9\ E-SIGN section 101(a)(2) [15 U.S.C. 7001(a)(2)].

   E-SIGN also encourages the electronic storage of records relating to business, consumer and commercial transactions.\10\ Further, E-SIGN authorizes federal and state regulatory agencies to set standards and formats for the retention of these electronic records.\11\

   \10\ E-SIGN section 101(d)(1) [15 U.S.C. 7001(d)(1)]. With respect to record retention requirements imposed by a federal statute or agency rule, E-SIGN became effective on March 1, 2001 unless a federal regulatory agency had announced, proposed or initiated rulemaking to establish performance standards to assure accuracy, record integrity and accessibility of electronic records on or before that date. Where a federal regulatory agency announced, proposed or initiated a rulemaking project on or before March 1, 2001, the effective date of E-SIGN was postponed until June 1, 2001 with respect to those record retention requirements. See E-SIGN section 107(b)(1) [15 U.S.C. 7007(b)(1)]. On February 28, 2001, we published notice of our intention to engage in rulemaking in order to provide interpretive guidance and, where appropriate, propose or adopt electronic performance standards consistent with E-SIGN. See Securities Act Release No. 7955 (Feb. 28, 2001) [66 FR 13273 (Mar. 5, 2001)]. Accordingly, to the extent that E-SIGN affects any record retention requirements under the federal securities laws, E-SIGN took effect on June 1, 2001, instead of March 1, 2001.

   \11\ E-SIGN section 104(b)(3) [15 U.S.C. 7004(b)(3)].

2. E-SIGN's Record Retention Provision

   Under E-SIGN, if a statute, regulation or other rule of law requires that a contract or other record relating to a transaction be retained, that requirement is met by retaining an electronic record of the information in the contract or other record if the electronic record

   Accurately reflects the information set forth in the contract or other record; and

   Remains accessible to all persons who are entitled to access by statute, regulation or rule of law, for the period required by such statute, regulation or rule of law, in a form that is capable of being accurately reproduced for later reference.\12\

   \12\ E-SIGN section 101(d)(1) [15 U.S.C. 7001(d)(1)]. E-SIGN preserves our authority to interpret this provision. E-SIGN section 104(b)(1) [15 U.S.C. 7004(b)(1)].

   E-SIGN generally supersedes pre-existing regulatory agency requirements that a record be kept on paper if that record is generated in a business, consumer or commercial transaction.\13\ If, however, the record is generated

   [[Page 33176]]

   principally for governmental purposes, it is not subject to E-SIGN.\14\

   \13\ See Office of Management and Budget, Memorandum for the Heads of Departments and Agencies from Jacob J. Lew, No. M-00-15, OMB Guidance on Implementing the Electronic Signatures in Global and National Commerce Act (Sept. 25, 2000), Part III, B.1 (``OMB Guidance'').

   \14\ Id. at Part I, B and Part III, B.1. The OMB Guidance provides two examples that illustrate this point. In the first example, E-SIGN applies to a governmental agency's requirement that a seller retain a copy of the contract of sale for a regulated substance for future audit or law enforcement purposes because the contract is generated as part of a commercial transaction. In the second example, E-SIGN does not apply to a governmental agency's requirement that a seller retain a copy of an audit of its consumption of the regulated substance because retention is not ``related to'' a commercial transaction, but occurs to comply with a governmental requirement. See also 146 Cong. Rec. H4357 (daily ed. Jun. 14, 2000) (statement of Rep. Dingell).

   Records generated to comply with governmental requirements are subject to the Government Paperwork Elimination Act [Pub. L. No. 105-277, Title XVII, Secs. 1701--1710 (1998) (codified at 44 U.S.C. 3504)], which is effective October 21, 2003.

3. Record Retention Requirements Imposed on Issuers Under the Securities Act, Exchange Act and Regulation S-T

   Several of our disclosure rules require issuers to retain records related to the documents filedwith us or distributed to investors. Of principal concern to us is the provision in Regulation S-T that requires issuers to retain manually-signed signature pages or other documents that signatories must execute (``authentication documents'') to authenticate, acknowledge or otherwise adopt their signatures that appear in typed form within electronically fileddocuments.\15\ These authentication documents must be executed before or at the time an issuer makes an electronic filing. The filer must retain each authentication document for a period of five years and furnish it to us upon request. Comparable requirements exist under the Securities Act and the Exchange Act where typed, duplicated or facsimile signatures appear on a document that we permit issuers to file with us in paper form.\16\

   \15\ See Item 302(b) of Regulation S-T [17 CFR 232.302(b)]. Since 1993, we have required most documents filedor otherwise submitted to us to be transmitted electronically to our Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system. Regulation S-T, in conjunction with the EDGAR Filer Manual and the electronic filing provisions of applicable rules, regulations and forms, governs the electronic submission of documents filedor otherwise submitted to us via EDGAR. See Item 10(a) of Regulation S-T [17 CFR 232.10(a)].

   \16\ See Securities Act Rule 402(e) [17 CFR 230.402(e)]; Securities Act Rule 471(b) [17 CFR 230.471(b)]; Exchange Act Rule 12b-11(d) [17 CFR 240.12b-11(d)]; and Exchange Act Rule 14d-1(h) [17 CFR 240.14d-1(h)]. A similar requirement is applicable to beneficial owners of more than ten percent of any class of equity securities registered under Section 12 of the Exchange Act [15 U.S.C. 78l], and the officers and directors of the issuer of such security who are subject to Section 16(a) of the Exchange Act [15 U.S.C. 78p(a)]. See Exchange Act Rule 16a-3(i) [17 CFR 240.16a-3(i)] (retention of manually-signed signature page for any Section 16(a) statement filed with a typed, duplicated or facsimile signature).

   We believe that these requirements to retain authentication documents are not subject to E-SIGN because authentication documents are records generated principally for governmental purposes rather than in connection with a business, consumer or commercial transaction.\17\ Moreover, these authentication documents arise in the context of a governmental filing. Governmental filings are expressly excluded from E-SIGN.\18\ Accordingly, issuers subject to these retention requirements should continue to retain the paper original of all authentication documents.\19\

   \17\ As explained in the adopting release for Regulation S-T, generally the authentication document retention requirement was established to provide a satisfactory means by which signatories could authenticate and adopt their typed signatures appearing on fileddocuments for evidentiary purposes. See Securities Act Release No. 6977, Section III.F.2 (Feb. 23, 1993) [58 FR 14628 (Mar. 18, 1993)]. Subsequently, comparable changes were made to the signature requirements for paper filings under the Securities Act and Exchange Act. See Securities Act Release No. 7300, Section IV (May 31, 1996)

   [61 FR 30397 (June 14, 1996)] .

   \18\ E-SIGN section 104(a) [15 U.S.C. 7004(a)].

   \19\ Similarly, officers, directors and greater than ten percent beneficial owners who are subject to Section 16(a) of the Exchange Act should continue to retain the paper original of their authentication documents. See Exchange Act Rule 16a-3(i) [17 CFR 240.16a-3(i)].

   Other rules under the Securities Act, Exchange Act and Regulation S-T that require issuers to retain records \20\ do not expressly require that the records be retained in paper form.\21\ Accordingly, issuers may elect to keep these records in electronic form as long as the storage method selected offers the same assurances of accuracy and accessibility as are provided by paper retention.

   \20\ See, for example, Securities Act Rule 428(a)(2) [17 CFR 230.428(a)(2)] (issuers filing registration statements on Form S-8

   [17 CFR 239.16b] required to retain documents comprising the Form S- 8 prospectus for a period of five years after last use) and Item 405(b)(2)(ii) of Regulation S-K [17 CFR 229.405(b)(2)(ii)] (issuers that maintain for a period of two years the written representation of any reporting person under Section 16(a) of the Exchange Act [15 U.S.C. 78p(a)] that they were not required to file an annual statement of beneficial ownership of securities on Form 5 [17 CFR 249.105] for the issuer's most recently completed fiscal year not required to identify reporting person as having failed to file a Form 5 for that year).

   \21\ We note, however, that Item 304(c) of Regulation S-T [17 CFR 232.304(c)] requires electronic filers to retain for a period of five years a copy of each publicly distributed document, in the format used, that contains graphic, image, audio or video material where such material is not included in the filedversion of the document. Therefore, if graphic or image material is distributed to investors in paper, an issuer would have to retain the information in paper under the rule. We will not object, however, if issuers elect to keep graphic or image information in electronic form, so long as it is a form that replicates the appearance of the distributed document.

   At this time, we do not believe that the specification of any additional standards \22\ for the electronic retention of issuer records subject to E-SIGN is needed to protect investors. If questions arise about the accuracy, integrity or accessibility of electronic records in the future, we may exercise our authority to impose appropriate standards for electronic retention.

   \22\ E-SIGN permits us to establish performance standards to assure the accuracy, record integrity and accessibility of records that are required to be retained. See E-SIGN section 104(b)(3)(A)

   [15 U.S.C. 7004(b)(3)(A)] .

   List of Subjects

   17 CFR Parts 231 and 241

   Securities.

   17 CFR Part 251

   Holding companies; Securities.

   17 CFR Part 271

   Investment companies; Securities.

   Amendments to the Code of Federal Regulations

   For the reasons set forth in the preamble, Title 17, Chapter II of the Code of Federal Regulations is amended as set forth below:

   PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

   1. Part 231 is amended by adding Release No. 33-7985 and the release date of June 14, 2001, to the list of interpretive releases.

      PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

   2. Part 241 is amended by adding Release No. 34-44424 and the release date of June 14, 2001, to the list of interpretive releases.

      PART 251--INTERPRETATIVE RELEASES RELATING TO THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 AND GENERAL RULES AND REGULATIONS THEREUNDER

   3. Part 251 is amended by adding Release No. 35-27419 and the release date of June 14, 2001, to the list of interpretive releases.

      [[Page 33177]]

      PART 271--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

   4. Part 271 is amended by adding Release No. IC-25003 and the release date of June 14, 2001, to the list of interpretive releases.

      Dated: June 14, 2001.

      By the Commission. Margaret H. McFarland, Deputy Secretary.

      [FR Doc. 01-15455Filed6-20-01; 8:45 am]

      BILLING CODE 8010-01-P