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New SEC Policy for Non-Public Registration Statements Under Clayton

Finance and Securities

The Securities and Exchange Commission (SEC) has passed its first major policy, under the new chairman Jay Clayton, to extend the Jumpstart Our Business Startups (JOBS) Act and improve capital formation. This development will create greater use of the JOBS Act, increase initial public offerings, and give investors a greater pool of companies to invest in. The Securities Act requires public companies to file registration statements, which include information about the company, the offering, and the securities it offers. This disclosure-based system, implemented in the aftermath of the Wall Street Crash in 1929, allows regulators to review the registration statement and ensure companies follow the regulatory framework to maintain a fair and efficient market.

In 2012 under President Obama, the JOBS Act was implemented to facilitate entrepreneurs and small businesses entering the market by permitting individuals to become investors and easing federal regulations. On June 29, 2017 the SEC announced that the Division of Corporation Finance will “permit all companies to submit draft registration statements relating to initial public offering for review on a non-public basis” starting July 10, 2017. Initial public offerings and spin-offs, in addition to issuers who do not fall within the ambit of Emerging Growth Companies (companies with annual gross revenues of $1 billion or less, pursuant to the JOBS Act and Section 6(e) of the Securities Act of 1933) will be able to submit confidential draft registration statements.

What are the requirements for eligibility and to submit the statements in relation to the Securities Act registration statements? The issuer must agree in a cover letter to publicly file the registration statement along with the confidential drafts at least 15 days prior to either any road show or the requested effective date of the registration statement (pursuant to the Securities Act in regards to IPOs or section 12(b) of the Securities and Exchange Act). The confidential review, however, is only permitted for original submissions. Issuers replying to staff comments will need to submit the registration statement for public filing. The new policy does not impact the confidential review available to Emerging Growth Companies who receive favorable treatment during the IPO review process or for Foreign Public Issuers who may follow this new procedure or the guidelines in the SEC’s May 30, 2012 statement.

Issuers will use the EDGAR access codes system and check on the form that they are submitting a draft registration for non-public review pursuant to JOBS Act §106. This system permits issuers to submit the draft registration and any additional documentation. The SEC has noted that there will not be a delay in the review process if the content of the draft registration does not include financial information that the issuer reasonably believes is not necessary when publicly filing the registration statement. The Commission will review requests under Rule 3-13 of Regulation S-X (filing of other financial statements in certain cases) on a circumstantial basis.

The benefit of the new policy is that companies will have greater flexibility when preparing their offering. All companies will be able to reap the benefits of Emerging Growth Companies who are able to submit their registration statements confidentially. The process of non-public review after the IPO ultimately protects shareholders from possible “market fluctuations”.

The SEC has provided FAQs to review the expanded procedures and requirements.


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