Registered Offering Reform
The SEC’s proposed changes to Securities Act registration form eligibility, pre- and post-offering communications and other matters

The Securities and Exchange Commission (SEC) is proposing to make significant changes to the eligibility of issuers to utilize Securities Act registration Form S-3, with the result that a substantial majority of issuers will be able to utilize this form and qualify for shelf registration and continuous offering procedures.

The SEC would also substantially liberalize the qualification for automatic effectiveness of Form S-3. The SEC is proposing changes to incorporation by reference into Form S-1, although the changes there are unlikely to be of significant effect. Finally, the proposed rule changes would make all Form S-3 qualified issuers eligible for certain offering-related communications and provide an exemption from state securities regulation for all securities offerings registered with the SEC.¹ The comment period on the proposed rules expires on July 27, 2026.

Registration Form Eligibility

Background

Securities Act registration Form S-3 offers its users numerous advantages. Issuers can incorporate by reference information in their filings under the Securities Exchange Act—Forms 10-K, 10-Q and 8-K—backwards and forwards. The forward incorporation by reference is particularly advantageous. As the world turns and the circumstances of the issuer change (for example, new financial statements are filed), the issuer is not required to amend its registration statement and suspend use of the registration statement until the amendment is declared effective. Instead, the issuer simply relies on its Exchange Act filings to update the registration statement.

Form S-3 can be used for delayed offerings, most notably shelf registrations, whereby the issuer registers securities that may be issued over time and in some cases without even specifying at the time of registration the type or amounts of securities to be offered. Form S-3 may also be used for “at the market offerings,” wherein issuers sell securities directly into the trading market at then-current market prices. And for well-known seasoned issuers (WKSIs), the benefits are even greater. Registration statements on Form S-3 of a WKSI become effective automatically—no waiting for the SEC staff to declare the registration statement effective—and WKSIs can pay the registration fees as they go, meaning that with a shelf registration statement, they only pay the registration fees when and as they take down securities from the shelf and issue the securities.

However, there are qualifications that currently do not make these benefits available to many issuers for primary offerings of their securities.²

• To utilize Form S-3 without limitation, an issuer must have a public float—i.e., common equity not held by affiliates—of at least $75 million. Issuers not satisfying this criterion may use Form S-3 to issue securities in an amount of up to one-third of their public float in any 12-month period.
• The issuer must have been subject to the reporting requirements under the Exchange Act for at least 12 months.
• With certain exceptions for current reports on Form 8-K, the issuer must have timely filed all reports required under the Exchange Act within the past 12 months.
• Since the end of the last fiscal year, the issuer must not have defaulted on any preferred stock dividend, sinking fund payment, debt installment or rental payment on a long-term lease.

To claim the benefits of a WKSI, the issuer must have a public float of at least $700 million. Also, among other things, the issuer must not have declared bankruptcy within the past three years, unless it has filed an annual report with audited financial statements following its emergence from bankruptcy.

In circumstances where the use of Form S-3 is not available to an issuer, the issuer may utilize Form S-1 to register its securities. Form S-1 allows an issuer that has filed an annual report on Form 10-K for its most recently completed fiscal year to incorporate by reference information in documents that it has previously filed with the SEC (backward incorporation by reference).³ Other than smaller reporting companies,⁴ however, forward incorporation by reference is not currently permitted with Form S-1.

Proposed Changes

The proposed rules are grounded in the philosophy that what really matters for purposes of incorporation of information by reference into a registration statement are the currency and availability of information regarding the issuer. And because public company reports are readily available on EDGAR, qualifications to the use of Form S-3 that may have been appropriate in earlier years are no longer necessary.⁵

Under the new rules, there would be a hierarchy of:

• Form S-3 eligible issuers, as redefined and expanded;
• Eligible Listed Issuers (ELIs); and
• Seasoned Eligible Listed Issuers (SELIs).

Form S-3 Eligible Issuers.

The SEC is proposing to considerably expand eligibility for use of Form S-3. Subject to certain ineligibility criteria, the form could be used by all issuers that are subject to and compliant with the reporting requirements of the Exchange Act. To achieve reporting status, an issuer would either have previously conducted a public offering of its securities registered under the Securities Act or have registered its securities under the Exchange Act on Form 10. Specifically, the proposed rules would:

• Eliminate the public float requirement;
• Eliminate the requirement that the issuer has been subject to the reporting requirements of the Exchange Act for at least 12 months, and permit issuers that have not yet filed an annual report on Form 10-K to incorporate by reference to their IPO registration statement or their Form 10; and
• Eliminate the requirement that the issuer has not defaulted on preferred stock, sinking fund, debt or long-term lease payments.

The proposed rules would retain the requirement that the issuer has timely filed its Exchange Act reports in the past 12 months, but would provide a seven-calendar-day grace period during which reporting delinquencies could be remedied, available once during the lookback period.

Ineligible issuers. Under the proposed rules, blank check companies, shell companies and an issuer in an offering of penny stock would be ineligible to use Form S-3,⁶ as would issuers found guilty of certain criminal offenses or subject to certain securities-related judicial or administrative orders.⁷ These are referred to as “ineligible issuers.”⁸

Free writing prospectus. In addition to the expanded eligibility for use of the form itself, the rule changes would increase the number of issuers who could use a free writing prospectus on a standalone basis. A free writing prospectus is a written communication used in connection with an offering of securities whose content is not dictated by the disclosure requirements of the Securities Act and its rules. A free writing prospectus may be used once a registration statement has been filed. However, under the current rules, issuers that are not eligible to use Form S-3, or do not satisfy the minimum $75 million public float requirement, must precede or accompany the free writing prospectus with a prospectus that satisfies the requirements of Section 10 of the Securities Act. Under the proposed rules, any Form S-3 eligible issuer could deliver a free writing prospectus without its being accompanied or preceded by a Section 10 prospectus. (See Securities Act Rule 433.)⁹

ELIs and SELIs.

The proposed rules would eliminate the current distinction between WKSIs and non-WKSIs. Instead, there would be two new categories of issuers: Eligible Listed Issuers and Seasoned Eligible Listed Issuers, defined as follows:

• Eligible Listed Issuers (ELIs) would be issuers that (i) meet the eligibility requirements of Form S‑3 and (ii) have at least one class of common equity securities listed on a national securities exchange.
• Seasoned Eligible Listed Issuers (SELIs) would be ELIs that have been subject to the reporting requirements of the Exchange Act for at least 12 months.

The Benefits of Being an ELI.

By virtue of being an ELI, i.e., being listed on a national securities exchange, an issuer would enjoy these registration-related benefits:

• All ELIs would be able to register additional securities on a registration statement that is already in effect through the use of a post-effective amendment, although the post-effective amendment would not be automatically effective. (Currently available only to WKSIs; see Securities Act Rule 413.)
• All ELIs would be able to omit from the prospectus filed as part of the registration statement (i) whether the offering is primary or secondary; (ii) the plan of distribution of the registered securities; (iii) a description of the securities being registered (other than identification of the names or classes of securities to be offered); and (iv) the identification of other issuers, which is to say, guarantors of debt securities to be issued. (Currently available only to WKSIs; see Securities Act Rule 430B(a).) As a consequence, any listed issuer could file a universal shelf on Form S-3, leaving the specific type and amount of securities to be offered to be described in a prospectus supplement at the time of issuance.
• All ELIs would be eligible for the “pay-as-you-go” option of payment of registration fees for securities registered on a shelf registration statement. (Currently available only to WKSIs; see Securities Act Rule 456(b)(1).) This option allows issuers to pay registration fees as securities are issued under a shelf, rather than paying the entire fee at the time the registration statement is filed with the SEC.

The Added Benefit of Being an SELI: Automatic Effectiveness of Form S-3.

Automatic effectiveness of Form S-3 is the one area in which the SEC proposes to retain a 12-month seasoning requirement. Only SELIs would be eligible for automatic effectiveness of Forms S-3 that they file and any post-effective amendments to Form S-3 increasing the amount of securities that are registered. However, the requirement for a $700 million minimum public float, which characterizes a WKSI under the current rules, would be eliminated. (See Securities Act Rule 462.)

Form S-1.

The proposed rules would make two changes to incorporation by reference in Form S-1. First, the requirement that an issuer must have already filed an annual report on Form 10-K would be eliminated, allowing backward incorporation by reference to a registration statement filed under the Securities Act or to a Form 10 registration statement filed under the Exchange Act. Second, the proposed rules would allow all issuers, and not just smaller reporting companies, to incorporate, by reference on a forward-looking basis, information contained in their reports filed under the Exchange Act, similar to forward incorporation by reference available to Form S-3 filers.

Blank check companies, shell companies and issuers in an offering of penny stock (BSP issuers) would remain ineligible for incorporation by reference in Form S-1.

The class of issuers that would be ineligible for the use of Form S-3 but could utilize incorporation by reference in Form S-1 would be exceedingly narrow. As proposed, all ineligible issuers would be disqualified from using Form S-3, but only the subset of BSP issuers would be disqualified from incorporation by reference in Form S-1.¹⁰ The changes to Form S-1 are therefore unlikely to have a significant impact on the registration process.

Communications

The proposed rules would also relax restrictions on communications made at the time of or in connection with a securities offering. These include, among certain others:

Research Reports. Securities Act Rule 139 permits broker-dealers to publish or distribute a research report on an issuer, without the report being deemed an offer of securities, even if the broker-dealer is participating in an offering of the issuer’s securities. The rule is currently available only for WKSIs or other issuers eligible to use Form S-3 satisfying the $75 million minimum public float requirement of the form. As proposed, Rule 139 would be extended to all issuers that, under the new rules, would be eligible to use Form S-3.

Pre-filing Offers. Securities Act Rule 163 permits an issuer to make an offer to sell its securities before a registration statement for the sale of the securities is filed, subject to certain conditions, including the requirement of a legend stating that a registration statement and prospectus to which the offering relates may be filed with the SEC. Currently, Rule 163 is only available to WKSIs. The proposed rules would enable all ELIs to avail themselves of the rule.

State Securities Law Exemption

The National Securities Markets Improvement Act of 1996 (NSMIA), codified in Section 18 of the Securities Act, sharply curtailed the jurisdiction of state securities (“blue sky”) regulators to qualify the offering of securities in the United States. Notably, NSMIA precludes the state regulators from requiring registration of the offering of securities of issuers whose securities are listed or authorized for listing on a national securities exchange.¹¹

Under the proposed rules, the NSMIA exemption would be extended to any securities issued pursuant to an offering registered under the Securities Act, irrespective of whether it is being listed. This would be accomplished by authority of the SEC under Section 18(b)(3) of the statute to define a “qualified purchaser” to include any purchaser in a registered offering.

The change is unlikely to have any significant effect on capital-raising in the U.S. Issuers that IPO their equity will invariably list the stock being offered on an exchange. The SEC’s only example of securities that would benefit from the rule change are securities of a non-traded business development company issued in a registered offering.

Conclusion

The rule changes proposed by the SEC for the registration process address the short Form S-3 registration statement, the long Form S-1 registration statement, certain shareholder communications and “blue sky” qualification. By far, however, the most significant of these changes relate to Form S-3.

The rule changes for eligibility to use Form S-3 would materially simplify access to the public markets by smaller domestic public companies. In today’s markets, issuers with a public float of $75 million, the threshold for utilizing Form S-3 for unlimited primary offerings, and even a public float of $700 million, the WKSI threshold, are decidedly small caps. Nonetheless, many public issuers are in these lower tiers and either cannot use Form S-3 at all or are unable to qualify for automatic acceleration of effectiveness of their registration statements. Issuers unable to utilize Form S-3 cannot benefit from the flexibility of shelf registration of their securities, which allows public companies to take timely advantage of rapidly evolving market opportunities. Issuers that are not eligible for automatic effectiveness of their registration statements may likewise be prevented from striking the markets while the iron is hot, if they do not already have an up-and-running shelf.

The financial markets and the availability to investors of information on public companies have evolved over the past twenty years or so since the time that the SEC’s rules on the use of Form S-3 were last revisited. The SEC believes it can now loosen up significantly on the availability of Form S-3 and access to automatic effectiveness without compromising the informational integrity of the U.S. public markets. As the SEC’s proposal is unlikely to engender material resistance, these are changes whose time has come.