On Dec. 8, 2016, the SEC Division of Corporation Finance issued six new CDIs with respect to Rule 144A under the Securities Act of 1933, as amended. Rule 144A provides that a person complying with its provisions and participating in a distribution of securities to “qualified institutional buyers,” referred to as QIBs, will not be an “underwriter” of those securities for purposes of the Securities Act. Generally, a QIB is an entity that, in the aggregate, owns and invests on a discretionary basis at least $100 million in securities of issuers that are not affiliated with the entity. In its newly released guidance, the SEC has provided that, when determining whether an entity is a QIB:

  • securities held on margin by that entity, so long as they are not subject to a repurchase agreement, may be counted toward the $100 million threshold;
  • securities loaned out by that entity may be counted toward the $100 million threshold;
  • securities borrowed by that entity may not be counted toward the $100 million threshold;
  • the entity’s short positions in securities may not be counted toward the $100 million threshold; and
  • a non-registered investment company may not aggregate its holdings with other registered or non-registered investment companies that are part of the same “family” for purposes of meeting the $100 million threshold, as such aggregation may be used only by registered investment companies.

Additionally, Rule 144A provides that an entity will be deemed a QIB if all of its equity owners are qualified institutional buyers. The SEC has now clarified that, with respect to a limited partnership, only the limited partners are considered “equity owners,” eliminating the need to determine whether the general partner (unless it is also a limited partner) is a QIB.

https://www.sec.gov/divisions/corpfin/guidance/securitiesactrules-interps.htm (CDIs 138.05 through 138.10)