The Pre-Filing Period of Testing The Waters

The Pre-Filing Period of Testing The Waters- The pre-filing period is that time frame between the decision to proceed with a public offering and the actual filing of a registration statement with the SEC. A safe harbor has been established such that communications made more than 30 days prior to the filing of a registration statement will not result in Section 5 gun jumping violations.

The JOBS Act amended Section 2 of the Securities Act to eliminate restrictions on publishing analyst research and communications while IPOs are under way. Under prior law, research reports by analysts, especially those participating in an underwriting of securities of a company, could be deemed to be “offers” under the Securities Act and, as result, could not be issued prior to completion of an offering.

Section 2(a)(3) of the Securities Act as amended by Section 105(a) of the JOBS Act provides that publication or distribution by a broker or dealer of a research report about an EGC that is the subject of a proposed public offering of its securities does not constitute an offer of securities, even if the broker or dealer that publishes the research is participating or will participate as an underwriter in the offering.

Moreover, the term “research” is defined broadly as any information, opinion or recommendation about a company and includes oral as well as written and electronic communications. This research need not be accompanied by a full prospectus and need not provide information “reasonably sufficient upon which to base an investment decision.” The research need not even be consistent with the prospectus, if there is one. In other words, research providers are free to say just about anything they wish about an IPO candidate, limited only by the general anti-fraud rules.

Section 105(b) of the JOBS Act eliminated existing restrictions on publishing research following an IPO or around the time the IPO lockup period expires or is released with respect to EGC’s. Prior to the JOBS Act under SEC and FINRA rules, underwriters of an IPO could not publish research for 25 days after the offering or 40 days if they served as a manager or co-manager. This quiet period is 10 days for secondary offerings. Also managers or co-managers could not publish research within 15 days prior to or after the release or expiration of the IPO lockup agreements (so-called “booster shot” reports).

In 2015 FINRA further amended its rules related to broker dealer research surrounding an IPO reducing the 40 day and 25 day IPO quiet periods with respect to all other issuers to 10 days for an IPO and 3 days for a secondary offering. #LawCast

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