Development of State Securities Online: NASAA's Electronic Filing Depository

The United States Securities and Exchange Commission (SEC) installed its electronic disclosure system, EDGAR, beginning with a pilot program in 1984, and culminating in a full phase-in by 1996. EDGAR accepts, stores, and disseminates federal securities filings in the form of discrete electronic files based on paper disclosure documents. State securities regulators have lagged behind the SEC for decades, relying on paper filings with no integrated method of electronically filing in multiple states simultaneously with a federal filing in EDGAR.

In December, 2014, the North American Securities Administrators Association (NASAA) announced the launch of the online Electronic Filing Depository (EFD) to enhance the efficiency of the regulatory filing process for certain exempt securities offerings. EFD is an online system that allows an issuer to submit a Form D for a Regulation D, Rule 506 exempt offering to state securities regulators and pay related fees. The EFD website also enables the public to search and view, free of charge, Form D filings made with state securities regulators through EFD.

Rule 506 of Regulation D is a “safe harbor” for the private offering exemption of Section 4(a)(2) of the Securities Act, and also provides an exemption for public offerings to verified accredited investors. Issuers relying on the Rule 506 exemption do not have to register their offerings of securities with the SEC or state securities regulators, but they must file what is known as a “Form D” with the SEC and state securities regulators. Form D contains limited information about the securities being offered and the issuer offering those securities.

The EFD system is available 24 hours a day, seven days a week, unless the website is undergoing maintenance. In addition to the filing fees required by the states, there is a one-time $150 system use fee for each offering making its filings through EFD. This one-time system fee covers initial, amendment and renewal filings made through EFD. The EFD system is initially limited to Form D filings for Regulation D, Rule 506 offerings, but NASAA expects the filing system will be expanded to include additional state securities registration and notice filing materials.

The EFD system is presently available for 43 out of a total of 53 states and territories (including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands). The 10 states not yet available are: Arizona, California, Connecticut, Florida, Louisiana, Massachusetts, Michigan, New York, North Carolina, and Oregon. Some states, such as New Jersey, now require such filings be made online through the EFD system and no longer accept paper filings. Other states that have additional filing requirements beyond the initial filing are making strides to allow for such additional requirements to be satisfied online, including New Hampshire, where a subsequent termination statement is required and can now be made online through the EFD system. The author of this article recently used the EFD system for a multi-state offering involving the District of Columbia, Maryland, New Hampshire, New Jersey, Pennsylvania, and Virginia, while the other states involved in the offering (Connecticut, New York, Massachusetts, and North Carolina still required the traditional paper filings.

The issuer must first file a Form ID electronically with the SEC in order to obtain a EDGAR Central Index Key (CIK). There is a trick in the Form ID process. Even though the Form ID is submitted electronically, the issuer must manually sign a PDF of the Form ID, and have the signature notizaried (the notary requirement does not appear in the instructions), and include the manually signed and notarized Form ID as an attachment to the electronic transmission.

The SEC will transmit the CIK via e-mail within a couple of business days after the Form ID is properly filed. Once the issuer receives the CIK, the issuer then can immediately generate access codes through the EDGAR website that are necessary to file the Form D with the SEC. The issuer then uses the access codes to log into the EDGAR Filing website. The issuer will complete Form D, and should make a PDF version of the Form D just before transmitting to the SEC. After the Form D is transmitted to the SEC, the SEC will acknowledge the filing by an e-mail which includes a link to the EFD system:

A first-time filer in the EFD system must register to create a login name and password. Once logged in the EFD system, the filer must search for the Form D as filed with the SEC using the CIK number. The filer can then create state notices for any of the 41 jurisdictions in the EFD system by simply checking a box.

The EFD system will calculate and summarize the applicable state filing fees and the EFD system use fee. In the author’s six-state example, the fees were as follows:

Currently, payments must be made by Automated Clearinghouse Payments (ACH), like an online check. NASAA is considering adding credit card functionality to the EFD system in the future. Once the ACH payment data is submitted, the filer can simultaneously transmit all selected state filings. The EFD system will acknowledge the filing by an e-mail and the EFD website will reflect all state filings made by the logged-in filer.

Tech friendly users will The EFD system is a welcome complement to EDGAR for Rule 506 Form D filings. The EFD system is intuitive and easy to use, and the $150 system fee is justified by efficiencies in a multistate offering. While some major states are not available in EFD, including California, Florida, and New York and it is currently limited to Rule 506 offerings, it is the author’s hope that NASAA may press forward to get all states in the EFD system, and expand the system to other state securities filings.