The SEC has voted to propose a new rule, Rule 163B, that would expand the JOBS Act’s “test-the-waters” reform beyond emerging growth companies to apply to all issuers. If expanded as proposed, the new rule would allow a company (and its authorized representatives, including underwriters) to engage in oral or written communications, either prior to or following the filing of a registration statement, with potential investors that are, or are reasonably believed to be, qualified institutional buyers (QIBs) or institutional accredited investors (IAIs) to determine whether they might be interested in the contemplated registered offering. The proposed new rule is designed to allow the company to gauge market interest in the deal before committing to the time-consuming prospectus drafting and SEC review process or incurring many of the costs associated with an offering. According to the press release, SEC Chair Jay Clayton views the extension of this reform as a way to enhance the ability of companies “to conduct successful public securities offerings and lower their cost of capital, and ultimately to provide investors with more opportunities to invest in public companies…. [Clayton has] seen first-hand how the modernization reforms of the JOBS Act have helped companies and investors. The proposed rules would allow companies to more effectively consult with investors and better identify information that is important to them in advance of a public offering.”
The proposal is so uncontroversial that the SEC did not even hold an open meeting to vote on it. I’d don’t think I’d be going out on too much of a limb if I predicted that, although there may be tweaks to it, the proposed new rule is just about a done deal. The proposal will have a 60-day public comment period following its publication in the Federal Register.