On September 26th, the SEC voted to adopt a new rule that extends a “test-the-waters” accommodation to all issuers. This is a popular tool that was previously only available to emerging growth companies (EGCs). With the new rule, all issuers will be allowed to measure market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement. This new rule is one of numerous SEC initiatives that build on Jumpstart Our Business Startups Act (the “JOBS Act”) provisions, which are intended to encourage companies to access public markets.
Issuers will now be able to engage in these “test-the-waters” communications with qualified institutional buyers (QIBs) and institutional accredited investors (IAIs) regarding a possible registered securities offering prior to or following the filing of a registration statement for such an offering. Under the new rule, the communications will be exempt by the restrictions of Section 5 of the Securities Act pertaining to oral and written offers prior to or after filing a registration statement. The expansion of the provision and these exceptions to other rules maintain investor protection while allowing all issuers the flexibility to determine whether to proceed with an registered public offering.
Specifically, Securities Act Rule 163B will allow any issuer, or any person authorized to act on behalf of the issuer, to conduct oral or written communications with potential investors that are QIBs or IAIs to explore whether such investors might have an interest in a possible or upcoming registered securities offering. The rule is non-exclusive, and an issuer may also rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate about a contemplated securities offering.
Under Securities Act Rule 163B:
- there are no filing or legending requirements
- the communications are deemed “offers”
- issuers subject to Regulation FD will need to consider whether any information in a “test-the-waters” communication would be subject to disclosure obligations under Regulation FD or whether an exemption under Regulation FD would apply.
The rule will become effective 60 days after publication in the Federal Register.
Sources:
SEC Adopts New Rule to Allow All Issuers to “Test-the-Waters” (www.sec.gov)
Solicitations of Interest Prior to a Registered Public Offering (www.sec.gov)
