SEC Proposes Rule Amendments to Facilitate Access to Capital Markets
The Securities and Exchange Commission recently announced that it has proposed amendments to Rule 163 under the Securities Act to further facilitate the ability of certain large companies to communicate with broader groups of potential investors and gauge the level of interest in the market for their securities offerings.
The proposed amendments would apply to companies that are "well-known seasoned issuers" (WKSIs) and would allow them to authorize an underwriter or dealer to communicate with potential investors on their behalf about potential securities offerings prior to filing registration statements for such offerings. Under the current Rule 163, only WKSIs are permitted to communicate directly with potential investors before filing a registration statement.
A WKSI is an issuer that is current and timely in its Exchange Act reports for at least one year and has either $700 million of publicly-held shares or has issued $1 billion of non-convertible securities, other than common equity, in registered offerings for cash in the preceding three years.
As proposed, an underwriter or dealer could act as an agent or representative of a WKSI if the following conditions are satisfied:
- The underwriter or dealer receives written authorization from the WKSI to act as its agent or representative before making any communication on its behalf.
- The WKSI authorizes or approves any written or oral communication before it is made by an authorized underwriter or dealer.
- Any authorized underwriter or dealer that has made any authorized communication on behalf of the issuer in reliance on Rule 163 is identified in any prospectus contained in the registration statement that is filed for the offering to which the communication relates.
We think this is a positive change as underwriters and dealers are directly in touch with the marketplace and are in a position to gauge demand for a particular issuers’ shares.
All other current requirements of Rule 163 would continue to apply, including that all communications made by or on behalf of the WKSI in reliance on the rule would be subject to Regulation FD (Fair Disclosure).