SEC Expands Use of Confidential Submissions of Draft Registration Statements

The U.S. Securities and Exchange Commission (SEC) recently announced that, beginning on July 10, 2017, the Division of Corporation Finance (the Division) will permit all companies to submit draft registration statements, on a nonpublic basis, for initial public offerings and most offerings made in the first year after a company has entered the public reporting system. This expands the confidential submission process that was limited to emerging growth companies (EGCs) under the Jumpstart Our Business Startups Act (JOBS Act).¹ As the SEC explained in its press release announcing the new policy, this change will provide companies more flexibility to plan their offerings and “makes it easier for more companies to enter and participate in [the] public company disclosure-based system.”

As a part of the SEC’s efforts to facilitate capital formation, the confidential submission process is available for the initial draft of a company’s first registration statement filed under the Securities Act and subsequent revised drafts or for the initial draft of a company’s first registration statement relating to a class of securities filed under Section 12(b) of the Exchange Act, including spin-off transactions, and subsequent revised drafts. To utilize the confidential submission process for registration statements under the Securities Act, an issuer must confirm in a cover letter it will publicly file its registration statement and all nonpublic draft submissions at least 15 days prior to any road show or, in the absence of a road show, at least 15 days prior to the requested effective date of the registration statement. To utilize the confidential submission process for registration statements under Section 12(b) of the Exchange Act, an issuer must confirm in a cover letter it will publicly file its registration statement and all nonpublic draft submissions at least 15 days prior to the anticipated effective date of the registration statement.

In addition to a company’s IPO or its initial Section 12(b) Exchange Act registration, the confidential submission process will also be available for draft registration statements filed within 12 months following the IPO or Section 12(b) Exchange Act registration, provided the issuer confirms that it will make publicly available on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system its registration statement and nonpublic draft submission at least 48 hours prior to any requested effective time and date. For these follow-on registrations, confidential review will be limited to the initial submission of a draft registration statement and will not extend to any revised draft. Hence, the next submission will need to be a public filing.

Also, the Division will not delay processing a draft registration statement that omits financial information if an issuer reasonably believes the omitted financial information will not be required at the time the registration statement is publicly filed. The Division will also consider an issuer’s specific facts and circumstances in connection with any request made under Rule 3-13 of Regulation S-X. Rule 3-13 permits the omission of financial information requirements “where consistent with the protection of investors.” The express mention of this rule raises the possibility that the Division will be more accommodating when companies argue that certain financial information is not necessary for investor protection. In addition, the Division will consider any reasonable requests to expedite processing of draft and filed registration statements and will encourage issuers and their advisors to review their transaction timing with the staff assigned to the filing review.

The Division emphasized that this policy change does not limit the confidential submission process for EGCs provided in the JOBS Act nor prevent foreign private issuers from utilizing procedures available to EGCs, if applicable, or following SEC guidance from its statement on May 30, 2012.

The Division also provided additional guidance in a Question & Answer format addressing different issues related to the expanded confidential procedures. The FAQs include the following highlights:

• A draft registration statement is not required to be signed by the registrant or by any of its officers or directors, nor is it required to include the consent of auditors and other experts because it is not filed with the Commission.
• The Securities Act registration filing fee for a draft registration statement submitted for confidential review is due when the registration statement is first filed publicly on EDGAR. The voluntary submission of a draft registration statement is not a filing of a registration statement, so the filing fee is not due at that time.
• The staff will publicly release its comment letters and issuer responses to staff comment letters on nonpublic draft submissions on EDGAR no earlier than 20 business days following the effective date of a registration statement.
• Non-EGC issuers may not use test-the-waters communications with qualified institutional buyers or institutional accredited investors pursuant to Securities Act Section 5(d).

This policy change is part of what is expected to be a number of reforms designed to facilitate capital formation and encourage more companies to consider going public under SEC Chairman Jay Clayton. Though time will reveal the effectiveness of these changes, companies that no longer qualify as EGCs should become familiar with the increased flexibility to maintain confidentiality as they plan their public offerings.

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¹An EGC is defined as an issuer that had total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year. See SEC Rule 12b-2.

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Benjamin F. Rikkers
Partner
414.319.7348
[email protected]  

Koh Tanimoto
Associate
414.319.7204
[email protected]