SEC Expands Confidential Review Process for Draft Registration Statements

As part of its ongoing efforts to facilitate capital formation, on June 29, 2017, the SEC's Division of Corporation Finance (Division) announced that effective July 10, 2017, it will permit all issuers to submit certain draft registration statements for review on a confidential basis, similar to the procedure currently available to Emerging Growth Companies (EGCs) and foreign private issuers. This process will be available for an initial Securities Act registration statement and related revisions, an initial registration statement for a class of securities under Exchange Act Section 12(b) and related revisions, as well as most Securities Act offerings made in the first year after an issuer has entered the public reporting system (Follow-On Offerings). With respect to Follow-On Offerings, however, nonpublic review will be limited to the initial submission; an issuer responding to staff comments on such a draft registration statement should do so with a public filing, not with a revised draft registration statement. Any issuer choosing to take advantage of this accommodation should follow the process EGCs use to submit draft registration statements.¹

Confidential review of Exchange Act Section 12(b) registration statements should be of interest to companies considering spin-off transactions.

The issuer's registration statement, as well as the initial nonpublic draft registration statement and all draft amendments thereto, must be publicly filed at least 15 days prior to any road show or, in the absence of a road show, at least 15 days prior to the effective date of the registration statement (in the case of a Follow-On Offering, the issuer's registration statement and its nonpublic draft registration statement must be publicly filed at least 48 hours prior to any requested effective date and time). The issuer should confirm the foregoing, as well as its agreement to the Division's other public filing guidelines, in its cover letter accompanying the draft submission.

Foreign private issuers may use these new procedures, those available to EGCs (if the issuer so qualifies), or the procedures for non-public submissions by foreign private issuers set forth in the SEC's May 2012 statement.

The Division will accept and process a draft submission that is substantially complete except for financial information the issuer reasonably believes will not be required at the time the registration statement is publicly filed. However, an issuer that is not an EGC may not omit from its publicly filed registration statement financial information that it reasonably believes will not be required to be included in the registration statement at the time of the contemplated offering (this relief, provided by Section 71003 of the Fixing America's Surface Transportation Act, is only available to EGCs).

The SEC intends to monitor practices under the expanded processing procedures and may make modifications to limit or terminate these procedures.

In connection with these expanded procedures, the Division has issued a series of FAQs, some of which are discussed above, and the remainder of which are summarized below:

• As is the case for all filed registration statements, the first publicly filed registration statement should be complete, including signatures, signed audit reports, consents, exhibits and accompanied by any required filing fees. As a draft submission is not treated as the "filing" of a registration statement, these items are not required for such submissions (and upon public filing, the previous nonpublic submissions are not required to be signed or include consents). Consistent with such treatment; (i) the submission of the draft registration statement does not constitute a filing for purposes of the prohibition in Securities Act Section 5(c) against making offers of a security in advance of filing a registration statement; (ii) issuers that are not EGCs may not use test-the-waters communications with QIBs and institutional accredited investors pursuant to Securities Act Section 5(d); and (iii) if an issuer submits a draft registration statement for nonpublic review, it may not make a public communication about its offering in reliance on the Securities Act Rule 134 safe harbor until it files a registration statement that satisfies the requirements of the rule.
• An issuer that is not able to rely on Securities Act Section 6(e)(2) (which relates to draft registration statements of EGCs) should submit its draft registration statement for nonpublic review using EDGAR submission type DRS. Detailed instructions are set forth in Volume II of the EDGAR Filer Manual. Pending updates to the Filer Manual, all issuers should follow these instructions.
• The confidentiality provisions of Securities Act Section 6(e)(2) are limited to certain EGC draft registration statements. An issuer relying on the Division's policy should consider requesting confidential treatment for its draft registration statement and associated correspondence under Rule 83 when seeking nonpublic review. Issuers seeking confidential treatment may make their request electronically using submission type DRSLTR. In such case, it is not necessary to also send paper copies of the request and the materials to the Division or to the SEC's Freedom of Information Act Office. Issuers should include a legend at the top of each page of the electronically submitted draft registration statement indicating that it has requested confidential treatment for the draft registration statement pursuant to Rule 83. In response letters to the SEC, an issuer should identify information for which it intends to seek confidential treatment upon public filing to ensure that the staff does not include that information in its comment letters.
• There is no legal significance to issuers without EDGAR access codes who check the JOBS Act §106 box on Form ID when applying for the necessary codes. Checking the box will merely help preserve the nonpublic status of an issuer's drafts until they are publicly filed.
• The staff will publicly release its comment letters and issuer responses on EDGAR no earlier than 20 business days following the effective date of a registration statement.
• Canadian issuers filing under the Multi-Jurisdictional Disclosure System may take advantage of these accommodations.
• Asset-backed securities issuers may not take advantage of these accommodations.
• Issuers may not use the draft submission process to submit draft post-effective amendments to effective registration statements.
• If an issuer submits a draft registration statement for nonpublic review, it may make a public communication about its offering in reliance on Securities Act Rule 135, but a public statement about its offering may affect whether the SEC can withhold the draft registration statement in response to a request under the Freedom of Information Act.

© 2017 Arnold & Porter Kaye Scholer LLP. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.