On September 26, 2019, the SEC voted to adopt a new rule that extends a “test-the-waters” accommodation—currently a tool available only to emerging growth companies (EGCs)—to all issuers.  The rule will become effective 60 days after publication in the Federal Register.

The new rule and related amendments under the Securities Act of 1933 would enable all issuers (and its authorized representatives, including underwriters) to engage in test-the-waters communications with certain institutional investors regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering. These communications would be exempt from restrictions imposed by Section 5 of the Securities Act on written and oral offers prior to or after filing a registration statement and would be limited to qualified institutional buyers (QIBs) and institutional accredited investors (IAIs).

New Rule 163B

New Securities Act Rule 163B will permit any issuer, or any person authorized to act on its behalf, to engage in oral or written communications with potential investors that are, or are reasonably believed to be, QIBs or IAIs, either prior to or following the filing of a registration statement, to determine whether such investors might have an interest in a contemplated registered securities offering.  The rule is non-exclusive and an issuer may rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate about a contemplated securities offering.

Under the rule:

  • There are no filing or legending requirements.
  • The communications are deemed “offers” (so antifraud rules will continue to apply).
  • Issuers subject to Regulation FD will need to consider whether any information in a test-the-waters communication would trigger disclosure obligations under Regulation FD or whether an exemption under Regulation FD would apply.


For several years now, EGCs have had the ability to test-the-waters in connection with a contemplated public offering.  As a result, EGC issuers and their underwriters have been eager to use this accommodation to help gauge investor interest prior to launching an offering. By expanding the test-the-waters accommodation to all issuers, the SEC is encouraging more issuers to consider entering the public markets, as issuers are able to increase the likelihood of a successful offering.  Given the success of test-the-waters with EGCs, we expect that many larger issuers will start using this accommodation in connection with their contemplated offerings as soon as the rule goes into effect, likely in the fourth quarter.

If you have questions about this or other issues related to securities filings, please contact any member of our Corporate & Securities Practice for more information.

About Bass, Berry & Sims’ Corporate & Securities Practice

Public and private companies of all sizes across a variety of industries turn to Bass, Berry & Sims for counsel on a wide range of corporate matters, including mergers, acquisitions and dispositions; capital markets transactions; executive compensation issues; corporate governance; and shareholder activism. We serve as primary corporate and securities counsel to more than 35 public companies and have counseled on 150 deals ranging in size from $20 million to more than $15 billion over the past two years.