The Securities and Exchange Commission (SEC) made some rule changes today, and one of them will impact Regulation A (Reg A), a securities exemption utilized for online capital formation.
Reg A requires an offering to be qualified by the SEC before commencing a funding round. This can be a slow process, taking months, which obviously delays the sale of securities. Once an offering is qualified, it is good to go, but it appears that in the past, the SEC could change its mind and hit the brakes on the offering. This false start clearly impacts an issuer and its offering, but today, the Commission decided to alter this scenario.
Once an offering is qualified, the SEC will consider any changes to the offering on a case-by-case basis to remove a degree of uncertainty. Commissioner Hester Peirce described the setup for the rule change as follows:
“Every day, Commission staff, by delegated authority, take effective registration statements and qualify offering statements. Were a registration to be stayed after effectiveness, a company would experience a cavalcade of horribles: impaired access to capital; less favorable financial terms; and a legal morass as the company tries to untangle what it means to have sold securities pursuant to an effective but subsequently stayed registration statement. Instead, the Commission is adopting a tailored approach that allows us to consider on a case-by-case basis whether a stay is justified while removing unnecessary risk from the IPO process.
Where the SEC can remove needless uncertainty from an offering process, it should. I am glad to see the Commission address the sluggish IPO market from all possible angles.”
While perhaps a small change, it is a step in the right direction. Commissioner Peirce leaves us with a question, though, asking SEC staff, “under what circumstances might a registration statement be stayed after it goes effective?”
