SEC Adopts Rule 163B to Allow All Issuers to “Test-the-Waters”

The SEC has just adopted Securities Act Rule 163B, which will allow all issuers to “gauge 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.” Previously, only emerging growth companies, or EGCs, were allowed this opportunity.

SEC Chairman Jay Clayton said “Investors and companies alike will benefit from test-the-waters communications, including increasing the likelihood of successful public securities offerings.”

Rule 163B stems from the 2012 JOBS Act. This legislation created Section 5(d) of the Securities Act, which permitted  “an emerging growth company (“EGC”) and any person acting on its behalf to engage in oral or written communications with potential investors that are QIBs and IAIs before or after filing a registration statement to gauge such investors’ interest in a contemplated securities offering.” Now, all issuers will be able to “test the waters” in this way. As the SEC states in its press release, Rule 163B will “enable all issuers to engage in test-the-waters communications with qualified institutional buyers (“QIBs”) and institutional accredited investors (“IAIs”) regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering.  These communications will be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement.  The expanded test-the-waters provision will provide all issuers with flexibility in determining whether to proceed with a registered public offering while maintaining appropriate investor protections.”

Rule 163B could help a lot of businesses with the process of going public by allowing them to test the potential success of their securities offering. If you want to learn more, feel free to contact our office at (561) 416-8956 or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group. This information should not be construed as, and does not constitute, legal advice on any specific matter.