Test-the-Waters Communications | Practical Law

Test-the-Waters Communications | Practical Law

Test-the-Waters Communications

Test-the-Waters Communications

Practical Law Glossary Item 5-537-2827 (Approx. 4 pages)

Glossary

Test-the-Waters Communications

Also known as test the waters communications, testing the waters communications and testing-the-waters communications. Commonly referred to in short form as TTW. Rule 163B has been amended in connection with the amendments to Rule 501(a) of Regulation D of the Securities Act. These amendments became effective on December 8, 2020.
In the context of SEC-registered offerings, Rule 163B under the Securities Act allows all prospective issuers to gauge market interest in a possible initial public offering (IPO) or other proposed registered securities offering by permitting discussions with certain investors prior to or after the filing of a registration statement. Issuers and persons authorized to act on their behalf (such as underwriters) are permitted to engage in oral or written communications with qualified institutional buyers, as defined in Rule 144A, or institutional accredited investors (as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), (a)(8), (a)(9), (a)(12) and (a)(13))to determine whether those investors might be interested in a contemplated securities offering while maintaining appropriate investor protections. Rule 163B exempts these communications from the gun-jumping provisions of Section 5:
  • Section 5(c), which prohibits any written or oral offers prior to the filing of a registration statement.
  • Section 5(b)(1), which, once an issuer has filed a registration statement, limits written offers to a statutory prospectus that conforms to the information requirements of Section 10 of the Securities Act.
Under Rule 163B:
  • The rule is non-exclusive, and an issuer can rely on other Securities Act communications rules or exemptions when determining how, when, and what to communicate related to a contemplated securities offering.
  • TTW communications that comply with Rule 163B do not need to be filed with the SEC, nor are they required to include any specified legends.
  • The communications are deemed "offers" under Section 2(a)(3) of the Securities Act.
  • Issuers subject to Regulation FD need to consider whether any information in a TTW communication would trigger any disclosure obligations under Regulation FD, or whether an exemption under Regulation FD would apply.
Note that Rule 163B is available to a number of issuers that were not eligible to engage in TTW communications under Section 5(d) of the Securities Act which was limited to emerging growth companies.
For more information on rules governing communication during the SEC-registered offering process, see Practice Note, Registration Process: Publicity and Summary of SEC Communication Rules for Public Companies: Chart.
In the context of Regulation A offerings, subject to certain conditions, issuers may communicate with potential investors to determine their interest in a contemplated securities offering in reliance on Regulation A. These communications are also informally referred to as test-the-waters communications. For more information on Regulation A, including the provisions allowing test-the-waters communications, see Practice Note, Regulation "A+" Offerings Under Amended Regulation A.