The SEC adopted a final rule to extend "test-the-waters" accommodations that allow certain communications in a contemplated initial public offering to all issuers, rather than solely to emerging growth companies.
The final rule will allow all issuers to communicate with qualified institutional buyers and institutional accredited investors regarding a contemplated registered offering prior to, or following, the filing of a registration statement related to such an offering.
According to SEC Chair Jay Clayton, the final rule should encourage issuers to enter the public equities markets.
The SEC highlighted that:
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neither filing nor legending requirements apply to these communications;
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the communications are deemed to be "offers" within the meaning of Securities Act Section 2(a)(3);
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the communications are subject to Section 12(a)(2) liability (as well as general antifraud liability); and
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disclosure requirements under Regulation FD may be triggered depending on the content of the communications.
The final rule will become effective 60 days after its publication in the Federal Register.
Commentary
The new rule is consistent with the SEC's permitting general selling efforts in private placements, provided that the buyers are all determined to be accredited investors. By this action, the SEC is focusing less on process and more on the end result; ultimately, the test will be whether the disclosure is good.
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