The US Securities and Exchange Commission (SEC) announced that it will now accept draft submissions of all IPO registration statements and amendments on a confidential basis from all domestic and foreign issuers. Previously this had been permitted only to smaller companies with less than $1.07bn of revenue in its last fiscal year and to certain foreign issuers. The SEC will also accept confidential submissions of the first filing of a registration statement during the first year following the IPO.
These changes are designed to encourage IPO filings in the United States, as companies will be able submit their information confidentially, clear comments with the SEC, but wait for the most advantageous market before having to make the company’s financial and other sensitive information publicly available. The policy change will become effective on July 10, 2017.
Confidential submission of initial registration statements
Under the new policy, the SEC will review draft initial registration statements and amendments under the US Securities Act of 1933 (the Securities Act) on a nonpublic basis, for all domestic US companies and foreign issuers.
The issuer will need to publicly file the registration statement and amendments 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, consistent with the current provision applicable to emerging growth companies (companies who had under $1.07bn of revenue in their last fiscal year and meet several other criteria).1
Offerings within one year of initial registration
The SEC will also accept draft confidential submissions of registration statements submitted within one year of the effective date of the issuer’s initial Securities Act registration statement or initial Exchange Act registration statement related to a listing. In this case, the issuer will need to publicly file the registration statement and nonpublic draft submission at least 48 hours prior to any requested effective time and date.
The nonpublic review will be limited in this case to the initial submission. An issuer responding to SEC staff comments on such draft registration statement will need to do so with a public filing, not with a revised draft registration statement, and any further review will be conducted on a public basis.
Contents and processing of registration statement
The SEC policy includes the following additional provisions:
Substantially Complete. Issuers should take all steps to ensure that the registration statement is substantially complete at the time of the initial submission.
Omission of Financial Information Not Required at Effectiveness. Consistent with its procedure for emerging growth companies, the SEC will not delay processing if an issuer reasonably believes that omitted financial information will not be required at the time the registration statement is publicly filed. For example, if a registration statement at the time it is filed requires audited financial statements for 2013, but at the time of effectiveness the registration statement would only need audited financial statements for 2014, 2015 and 2016, then the initial filing can omit the audited financial statements for 2013.
Requests to Omit Required Financial Statements. The SEC will consider an issuer’s specific facts and circumstances if an issuer wishes to make a written request, pursuant to SEC Rule 3-13 of Regulation S-X, to permit the omission of one or more financial statements required or the filing of other statements of comparable character in lieu thereof.
Public Disclosure of SEC Comments. Consistent with current policy, SEC comments and company responses to SEC comments will be released by the SEC for public availability no less than 20 business days after the registration statement becomes effective.
SEC Filing Fee. Consistent with current policy, the SEC filing fee is not due with the confidential draft submissions, but must be paid upon the actual first filing of the registration statement.
Signatures and Consents. Consistent with current policy, the confidential draft submissions do not need to be signed by the issuer, directors or officers, and do not need to include auditor and other expert consents. However, the first publicly filed registration statement should be complete, including director and officer signatures, signed audit reports, and auditor and other expert consents, and be accompanied by any required filing fees. When the issuer eventually files the prior confidentially submitted drafts, these drafts do not need to be signed or contain consents.
Announcements Regarding the Offering. Companies cannot use Rule 134 to make public disclosures about their initial submission because Rule 134 only applies following an initial filing. Companies can use Rule 135 to make a very limited public announcement about the initial submission, but the SEC says that any such announcement could affect how it would respond to Freedom of Information Act requests regarding the filing.
Confidential Treatment Requests. If a company intends to seek confidential treatment of information included in response letters to SEC comments, then in the response letter the company should appropriately identify information for which it intends to seek confidential treatment upon public filing to ensure that the staff does not include that information in its comment letters. (Companies can also seek confidential treatment for the draft registration statement pursuant to SEC Rule 83 by making this request electronically when submitting the draft registration statement and including a legend at the top of each page of the electronically submitted draft indicating that it has requested this confidential treatment pursuant to Rule 83.)
Post-Effective Amendments. Companies cannot use the confidential submission procedure to file a confidential post-effective amendment to an already effective registration statement.
Requests for Expedited Processing. The SEC will consider reasonable requests to expedite processing of draft and filed registration statements. Issuers are encouraged to review the transaction timing with the SEC staff assigned to the filing review.
Monitoring the New Procedures. The SEC staff will monitor practices under the expanded processing procedures and may make modifications to limit or terminate these new procedures.
Foreign private issuers
The new SEC policy will apply to foreign private issuers as well as US domestic companies. Therefore, foreign private issuers can elect to proceed using one of three sets of procedures:
- New Policy. Foreign private issuers, of any size, can comply with the new procedures, submit their draft registration statements and amendments confidentially, and file the drafts at least 15 days prior to a road show or, if none, prior to the effective date of the registration statement.
- Emerging Growth Company. Foreign private issuers with revenue under $1.07bn in their last fiscal year can qualify as an “Emerging Growth Company” (subject to meeting a few additional criteria). These companies can also submit their Securities Act registration statements on a confidential basis, subject to the same 15 days period prior to a road show or effectiveness. However, these companies also benefit from other SEC exemptions available to emerging growth companies, such as certain reduced disclosures (including two years of audited financials rather than three, and two years of selected financial data rather than five) and an ability to make test-the-waters communications prior to an offering.
- Foreign Issuer Policy. Foreign private issuers can choose to submit their registration statements under the Securities Act or the Exchange Act consistent with prior rules available to foreign private issuers. Under the SEC’s existing policy, the SEC will review draft registration statements and amendments under the Securities Act or the Exchange Act on a confidential basis where the issuer is (1) a foreign government registering its debt securities, (2) a foreign private issuer that is listed or is concurrently listing its securities on a non-US securities exchange, (3) a foreign private issuer that is being privatized by a foreign government, or (4) a foreign private issuer that can demonstrate that the public filing of an initial registration statement would conflict with the law of an applicable foreign jurisdiction. Under this policy, foreign private issuers must file the draft registration statement and amendments at the time they make the initial filing of their actual registration statements, similar to the policy for domestic US companies, but there is no requirement that the foreign private issuer make these submissions 15 days prior to its road show or effectiveness of the registration statement. The historic SEC policy for foreign issuers also states that the SEC staff may in its discretion request that a registration statement confidentially submitted be publicly filed – for example, upon the launch of a competing public bid or following publicity about a proposed public offering or listing.