Wednesday, December 07, 2011

Senator Hutchinson Introduces Legislation Raising 500-Shareholder Threshold to 2000, But Without Mandated SEC Study

Bi-partisan legislation introduced by Senator Kay Bailey Hutchison (R-TX) would raise the 500-shareholder threshold for SEC reporting from the current 500 holders to 2000 for banks and bank holding companies. The bill, S 1941, is co-sponsored by Senator Mark Pryor (D-AK). The legislation would also raise the SEC decertification of registration threshold from 300 shareholders to 1200 for banks and bank holding companies. The legislation is similar to an earlier bill introduced by Senator Hutchinson, S 556 , raising the threshold, with the major difference being that S 1941 deletes the S 556 requirement that the SEC’s Chief Economist and Corporation Finance Director jointly conduct a study of the shareholder registration threshold and submit a report to Congress.

Under Section 12(g) of the Exchange Act, companies with more than $10 million in assets whose securities are held by more than 500 owners must file annual and other periodic reports with the SEC, which reports are then available to the public through the SEC's EDGAR database. While the $10 million threshold has been incrementally increased over the years from the $1 million level initially set in 1964, the 500 shareholder of record requirement has never been updated.

In a 2008 letter to then SEC Corporation Finance Director John White, the American Bankers Association explained that, for the banking industry, the shareholder number is the only meaningful Section 12(g) measure since 99 percent of all banks have assets in excess of $10 million. The ABA noted that retaining the outdated shareholder threshold makes it difficult for banks to raise capital in their local communities for fear that they will trigger the 500 shareholder threshold.