The US Congress has added a new provision to the US Securities Act exempting certain resales to accredited investors from registration.

Although it is always helpful to have a statutory exemption, we expect that this new exemption will have limited utility in the international markets where there is a well established practice for shareholder sell downs to be marketed on a book built basis to QIBs based on publicly available company disclosure. We do not think this practice, which relies on the so-called section 4(11/2) exemption, needs to change in response to the new exemption.

While offering some benefits (eg broader category of investors, no need to be concerned about issuer publicity), the new exemption contains an underwriter prohibition — the transaction cannot be with respect to a security that constitutes the whole or part of an unsold allotment to, or a subscription or participation by, a broker or dealer as an underwriter of the security. This will limit its value in markets where the typical shareholder sell down is by way of an accelerated book build.

The legislation in which the new exemption is included, referred to as the Fixing America’s Surface Transportation Act or FAST Act, also included some other unrelated amendments to the US securities laws. These are described in our more detailed client briefing on the FAST Act on our website.