SEC Proposes Expansion of 'Test-the-Waters' Reform .

SEC rule would allow all companies to discuss their IPO plans privately with investors before deciding to go public.

SEC Proposes Expansion of 'Test-the-Waters' Reform

By Nelson Griggs / President, Nasdaq Stock Exchange

Test the waters

This week, the Securities and Exchange Commission (SEC) voted to propose an expansion of the "test-the-waters" accommodation that will allow private companies more flexibility in consulting with investors to evaluate market interest for an initial public offering (IPO).

Currently, the rule applies to emerging growth companies (EGCs). The SEC’s proposal to extend the rule to all potential issuers, including investment company issuers, would enable all companies to discuss IPO plans privately with potential investors in advance of announcing an IPO.  Expanding “test-the-waters” reform to a wide range of issuers provides a cost-effective way for companies considering an IPO to evaluate market interest and access the public markets. In turn, the rule expansion can ultimately open up a greater diversity of investment options for investors.

The SEC proposal will have a 60-day public comment period following its publication in the Federal Register.


The “test-the-waters” proposal builds on a similar provision of the 2012 Jumpstart Our Business Startups Act (JOBS Act).

In July 2017, the SEC adopted a policy change that extended another EGC reform to all issuers: allowing all companies the ability to initially submit certain filings in draft, non-public form for initial public offerings.

Nasdaq commends the SEC’s updates. Efforts like these will help to provide more flexibility to companies planning an initial public offering. We have long been a supporter of The JOBS Act and have called for expansion of its provisions, including those that allow confidential filings and “testing-the-waters”.  We advocated for these updates most recently in our blueprint to revitalize the U.S. capital markets, as well as in our 2017 and 2016 testimonies before subcommittees of the Financial Services Committee of the U.S. House of Representatives.

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