U.S. watchdog proposes ‘testing waters’ before public offerings

February 19, 2019

By Katanga Johnson

WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission (SEC) proposed on Tuesday to expand a rule that allows companies to sound prospective investors out privately before going public.

The move forms part of a broader push by SEC chairman Jay Clayton to make it easier for companies to go public by relaxing rules, amid worries that a 50 percent decline in U.S. listings over the past two decades is hurting investors.

The so-called “testing-the-waters” proposal, currently restricted to smaller firms preparing to go public, would be extended to all prospective issuers hoping to gauge broader market interest before filing registration statements for initial public offerings (IPOs), the SEC said.

Clayton said in a statement that the proposal, which is subject to consultation and a final vote by the agency’s commissioners, would allow companies to better identify information that is important to investors in advance of a public offering.

Clayton has floated other proposed changes to make life easier for public companies, including overhauling rules governing shareholder voting.

Tuesday’s proposal would expand a provision first introduced by the 2012 Jumpstart Our Business Startups Act (JOBS Act) that currently applies only to small growth companies.

“This will benefit issuers as it provides a realistic window into the level of investor interest in an IPO as well as more accurately priced IPOs. Currently, the process is somewhat opaque,” said Dina Ellis Rochkind, a lawyer with Paul Hastings LLP who helped draft the JOBS Act when she worked on Capitol Hill.

“Expanding these provisions to all potential issuers is another step in the right direction.”

(This story has been refiled to add missing word “all” to headline)

(Reporting by Katanga Johnson; Editing by Michelle Price and Susan Thomas)

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