Defining Issues | October 2019

SEC adopts a new rule to expand its test-the-waters accommodation to all companies

KPMG reports on the SEC’s new rule that permits all companies to communicate with potential investors prior to an offering. The proposal represents further expansion of the SEC’s modernization reform.


SEC Release No. 33-10699; File No. S7-01-19

  • Companies contemplating a registered securities offering, including investment companies.

Relevant dates

The final rule is effective December 3, 2019.

Key impacts

  • The new rule is intended to promote capital formation
  • Rule 163B permits an issuer to engage in written or oral communications – otherwise known as test-the-waters communications – with certain institutional investors to gauge market interest before filing a registration statement
  • The rule extends current accommodations that previously were only available to emerging growth companies
  • Issuers subject to other regulations would need to consider whether the communicated information would be affected by those regulations
  • The rule is nonexclusive so issuers may rely on other Securities Act rules or exemptions

Report Contents

  • Applicability
  • Background
  • Requirements
  • KPMG observation
  • Other investor safeguards
  • Nonexclusive election



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