The U.S. Securities and Exchange Commission announced comprehensive reform proposals on Tuesday targeting share registration and company reporting requirements. According to reports from Reuters, these proposals aim to boost corporate participation on stock markets while maintaining investor protections. The reforms are designed to promote the Trump administration's efforts to encourage initial public offerings while building upon successful regulatory concepts from the past. As reported by SEC.gov, these proposals represent the most significant modernization of the registered offering framework in more than 20 years. SEC Chair Paul Atkins stated that these proposals build upon legislative and regulatory concepts that have proven successful in the past and aim to extend that success to more companies. As with much of the Trump administration's financial regulatory agenda, the proposals drew cheers from industry groups but warnings from public interest advocates, with Better Markets calling the SEC needlessly increasing the risk of corporate misconduct. The American Securities Association, among others, hailed the announcement while Better Markets, which calls for tougher Wall Street oversight, said the SEC was needlessly increasing the risk of corporate misconduct.
The first rulemaking proposal would significantly expand eligibility for streamlined registration forms by lifting the threshold at which companies become known as "large accelerated filers" from $700 million to $2 billion in the total value of shares that are available for sale and trading by the public. Such large firms are deemed mature public companies, facing stricter scrutiny and tighter deadlines for annual and quarterly reports and must get independent auditors to vouch for the quality of their internal financial record keeping. Under the proposal announced Tuesday, all companies would avoid this category for five years after making their Wall Street debuts and would also avoid certain disclosure requirements on executive compensation tied to shareholder advisory votes. An SEC official speaking on condition of anonymity told reporters that these changes would mean that about one in five current publicly traded companies would still qualify as large accelerated filers meeting the stricter requirements but those companies would still account for 90% of market capitalization. The SEC on Tuesday also proposed expanding the number of companies able to issue so-called "shelf offerings," as reported by Reuters.
The first rulemaking proposal, "Registered Offering Reform," would significantly expand eligibility for streamlined registration forms. As reported by SEC.gov, the proposal would eliminate both the current 12-month Exchange Act reporting requirement and the $75 million public float threshold for unlimited primary offerings. Instead, an issuer would become eligible to use Form S-3 as soon as it becomes subject to Exchange Act reporting, provided it is current and timely in its filings and is not otherwise an "ineligible issuer." The SEC estimates this could result in an over 200% increase in the number of eligible issuers for registration and communication benefits such as automatic shelf registration and free writing prospectus use. Additionally, the proposal would define "qualified purchaser" under Securities Act Section 18(b)(3) in order to preempt state registration and qualification requirements for all registered offerings, including those involving unlisted securities that currently lack federal preemption. The proposals will be subject to public notice and comment for 60 days and may be changed before the SEC decides on whether to finalize them, as reported by Reuters.
The proposed amendments would introduce two new issuer categories: "Eligible Listed Issuers" (ELIs) and "Seasoned Eligible Listed Issuers" (SELIs). ELIs would generally be Form S-3 eligible issuers with exchange-listed common equity, while SELIs would be the subset of ELIs with at least 12 months of Exchange Act reporting history. SELIs would be permitted to use automatic shelf registration statements, effectively replacing the existing WKSI automatic shelf regime. Both ELIs and SELIs would gain access to several accommodations currently available only to WKSIs, including expanded flexibility for pre-filing and post-filing offering communications, broader use of free writing prospectuses, "pay-as-you-go" filing fee treatment, the ability to omit additional information from base prospectuses at effectiveness, and increased flexibility to add securities and eligible subsidiaries through post-effective amendments. The proposal would also eliminate the existing "baby shelf" regime, including the one-third public float limitation applicable to smaller issuers.
The SEC also proposed expanding the number of companies able to issue so-called "shelf offerings" by eliminating current requirements. Under existing regulations, companies are allowed to pre-register securities with the SEC and later sell them when market conditions are favorable, but are currently required to have at least $75 million in shares publicly available for sale and trading and must have been subject to SEC reporting requirements for a year. Tuesday's proposal would eliminate these requirements for eligible issuers. However, another SEC official speaking on condition of anonymity told reporters that the proposed changes would not apply to so-called foreign private issuers, which offer less investor transparency and are the subject of other possible rule changes, so-called blank-check companies, penny stock firms and shell companies. The nature of shelf-registrations can mean investors do not get a complete picture at the outset, and in recent years regulators have worked to address such concerns. As reported by Reuters, if adopted, the changes would greatly expand the number of companies able to issue shares more quickly and less expensively and avail themselves of looser requirements for public disclosure until they reach a higher valuation threshold.
The proposed changes will undergo a period of public notice and comment prior to any decision on finalizing them, with the public comment period remaining open for 60 days following publication of the proposing releases in the Federal Register. As reported by SEC.gov, these reforms represent important steps toward incentivizing companies to go and stay public, particularly small and mid-sized companies. The first of two proposals announced Tuesday would, among other changes, ease the path by which companies conduct so-called shelf offerings of shares, in which companies register securities in advance and sell them to investors later. If adopted, the proposed amendments would represent one of the most significant changes to the registered offering framework since the SEC's 2005 Securities Offering Reform initiative, with potentially meaningful implications for capital raising by smaller and newly public companies. The American Securities Association hailed the announcement while Better Markets warned that public offerings are down because the SEC has expanded private markets so much that companies can raise as much money as they need without accessing the public markets. Public offerings are down because the SEC has expanded private markets so much that companies "can raise as much money as they need without accessing the public markets," Better Markets' Ben Schiffrin said in a statement.
