The Securities and Exchange Commission took the long-awaited step of proposing rules for comment that would extend the ability to test the waters beyond emerging growth companies, or EGCs. This topic, of extending the test the waters communications, had been the subject of proposed legislation in the last session of Congress and had made its way into the package of legislative reforms that were referred to as “JOBS Act 3.0.”
As proposed, test the waters would be available to all prospective issuers, not just EGCs. Proposed Securities Act Rule 163B would permit any issuer, or any person authorized to act on its behalf, to engage in oral or written communications with potential investors that are, or are reasonably believed to be, QIBs or IAIs, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering. The proposed rule would be non-exclusive and an issuer could rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate related to a contemplated securities offering. Under the proposed rule, there would be no filing or legending requirements; test-the-waters communications may not conflict with material information in the related registration statement; and issuers subject to Regulation FD would need to consider whether any information in a test the waters communication would trigger disclosure obligations under Regulation FD or whether an exemption under Regulation FD would apply.
The proposal will have a 60-day public comment period following its publication in the Federal Register. A Mayer Brown Legal Update will follow shortly.