Vedder Price

Vedder Thinking | Articles SEC Adopts New "Test the Waters" Rule


Reader View

On September 25, 2019, the SEC adopted Rule 163B under the Securities Act of 1933, which will permit issuers to “test the waters” prior to a registered public offering by engaging in oral or written communications with potential investors that are, or are reasonably believed to be, qualified institutional buyers (QIBs) or institutional accredited investors (IAIs), in order to gauge investor interest in the contemplated offering. Under Rule 163B, these communications may be made either before or after filing a registration statement for the offering without violating the “gun jumping” restrictions of the Securities Act. The relief that Rule 163B will provide to all issuers was previously available only to an issuer that qualifies as an “emerging growth company” under the Securities Act.
Of note for investment companies, Rule 163B will not provide an exemption from the requirement that a fund register as an investment company under the Investment Company Act of 1940 before offering its shares. As a result, Rule 163B will be of limited use for most funds because funds generally file their initial Securities Act and 1940 Act registration statements simultaneously on the same form. For funds that engage in preliminary offerings that are exempt from the registration requirements of the Securities Act and the 1940 Act, such as certain closed-end funds and BDCs, Rule 163B would provide a useful way to test the waters if the issuer is considering a subsequent registered offering. Reliance on Rule 163B would not preclude reliance on other available communications rules or exemptions under the Securities Act.

The SEC adopted Rule 163B substantially as proposed. Minor revisions to the proposed rule include the elimination of certain ambiguous “anti-evasion” language and clarification that communications under the rule are not free writing prospectuses that must be filed.

Rule 163B will become effective 60 days after publication in the Federal Register.

The SEC’s adopting release is available here .


Jacob C. Tiedt


John S. Marten


Nathaniel Segal