SEC Proposes Major Rewrite of Registered Offerings and Public-Company Reporting

The U.S. Securities and Exchange Commission on Tuesday proposed a broad rewrite of the rules governing registered stock offerings and public-company reporting, a package that would make it easier for many listed companies to raise capital and would sharply expand lighter disclosure and compliance treatment for smaller and midsize issuers.

The agency announced two proposals — “Registered Offering Reform” and “Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies” — in a May 19 release. Neither is final. The SEC set a 60-day public comment period for both after publication in the Federal Register.

On the capital-markets side, the SEC said the offering proposal is intended to increase efficiency, flexibility and cost savings while maintaining investor protections. It would expand eligibility to use Form S-3, a shorter registration form available to certain public companies, and broaden access to shelf registration, which lets companies register securities in advance and sell them when market conditions are favorable.

The proposal would also extend nearly all of the current advantages available to well-known seasoned issuers, or WKSIs, to domestic companies with a class of common stock listed on a securities exchange, regardless of size or how long they have been public, subject to ineligible-issuer safeguards. In addition, the SEC would modernize Form S-1 incorporation-by-reference rules, allow broader communications and advertising for certain products, and preempt state securities-law registration and qualification requirements for all registered offerings, a step the agency said would reduce the cost and complexity of multi-state deals. The SEC called the package “the most significant modernization of the registered offering framework in more than 20 years.”

The second proposal would substantially redraw the reporting side of the public-company rulebook by simplifying filer categories to two main groups: large accelerated filers and non-accelerated filers. Most notably, it would raise the public-float threshold for large accelerated filer status to $2 billion from $700 million, moving many companies out of the most demanding reporting category.

It would also create a longer IPO on-ramp. Under the proposal, a newly public company would not become a large accelerated filer for at least 60 months after its initial public offering, regardless of public float. That would extend, in broader form, the kind of transition period that Congress created for emerging growth companies in the 2012 JOBS Act.

The SEC also proposed to expand scaled disclosure accommodations now reserved for emerging growth companies and smaller reporting companies to many more issuers. All non-accelerated filers would be exempt from the requirement to obtain an outside auditor’s attestation on internal control over financial reporting under Section 404(b), a Sarbanes-Oxley provision that can add significant compliance costs. The agency would also create a new subcategory of “small non-accelerated filers” — roughly the smallest 18% of public companies by assets — that would receive an extra 30 days to file annual reports on Form 10-K and an extra five days for quarterly reports on Form 10-Q.

According to SEC Chair Paul S. Atkins’ statement, the filer-status proposal would extend scaled disclosures and other accommodations to about 81% of current public companies, while the remaining large accelerated filers would still account for about 93.5% of total public market float. The SEC presented those figures as evidence that the proposal could ease burdens on a broad swath of issuers while preserving more extensive requirements for the companies that make up most of the market’s value.

The package would mark the SEC’s biggest attempt to reshape public-company capital raising and reporting in years. The agency’s last major overhaul of the registered-offering framework came in 2005, when it created the WKSI category and automatic shelf access for large seasoned issuers. The new proposal is explicitly framed as the biggest update since then. On the reporting side, it would widen and extend accommodations first introduced by the JOBS Act, but for a much larger share of the public-company universe.

“Today, the Commission proposed two rulemakings that serve as the foundation for my agenda to Make IPOs Great Again,” Atkins said in the SEC statement. “These proposals build upon the legislative and regulatory concepts that have proven successful in the past and aim to extend that success to more companies – particularly small and mid-sized companies – and incentivize them to go and stay public.”