SEC Proposes Sweeping Reforms to Registered Offering Process: Expanding Access to the Public Capital Markets for a Broader Range of Issuers

Overview

The Securities and Exchange Commission (the “SEC”) has proposed a sweeping package of rule and form amendments under the Securities Act of 1933 (the “Securities Act”) that, if adopted, would represent the most significant overhaul of the registered offering framework in nearly two decades. The proposal is aimed squarely at facilitating capital formation in the public securities markets by expanding issuer eligibility for key registration forms and offering tools, modernizing the rules governing how issuers communicate with investors, and eliminating duplicative regulatory burdens that currently drive issuers toward private markets.

The proposed amendments span seven broad categories: (1) expanded Form S-3 eligibility; (2) a new tiered framework replacing the well-known seasoned issuer (“WKSI”) designation for domestic issuers; (3) modernized Form S-1 incorporation by reference; (4) preemption of state “blue sky” registration requirements for all registered offerings; (5) expanded registration and communication benefits for business development companies and registered closed-end funds; (6) new advertising rules for registered non-variable annuities; and (7) a series of other modernizing amendments.

Comments on the proposal are due 60 days after publication in the Federal Register.

Expanded Eligibility for Form S-3: Opening Shelf Registration to Significantly More Issuers

Form S-3 is a short-form registration statement that eligible issuers can use to register offerings under the Securities Act. Its value to issuers is substantial: it permits forward incorporation by reference from filings under the Securities Exchange Act of 1934 (the “Exchange Act”) such as Form 10-Ks, 10-Qs and certain 8-Ks, thereby eliminating duplicative disclosure; allows shelf registration (enabling an issuer to register securities in advance and “take them off the shelf” as market conditions warrant); and facilitates at-the-market (“ATM”) offerings, which allow issuers to sell securities at prevailing market prices over time. Issuers that cannot use Form S-3 must instead register offerings on Form S-1, which is subject to SEC staff review, and does not permit shelf or delayed primary offerings.

Proposed Amendments to Form S-3

The proposed amendments would make the following key changes to Form S-3’s eligibility requirements:

• Elimination of the One-Year Seasoning Requirement. The proposal would eliminate the requirement that an issuer have been subject to Exchange Act reporting requirements for at least 12 calendar months prior to filing a Form S-3 registration statement. Instead, issuers would simply need to be current and timely in their Exchange Act reporting during the preceding 12 calendar months (or for such shorter period that they were required to report).
• Elimination of the $75 Million Public Float Requirement and All Other Transaction Requirements. The proposal would eliminate the current requirement that an issuer have a public float of at least $75 million to conduct unlimited primary offerings on Form S-3, as well as all other transaction requirements in Form S-3 (e.g., the one-third of public float limitation on primary offerings by certain smaller issuers that are sometimes referred to as the “baby shelf” rules). Any issuer meeting the proposed registrant requirements would be eligible to use Form S-3 for any primary or secondary offering, regardless of its public float.
• New Additions to Eligibility Requirements. The proposal would add a new prohibition barring “BSP issuers” — a newly defined term encompassing blank check companies, shell companies (other than business combination related shell companies), and penny stock issuers — from using Form S-3. Importantly, the proposal provides that an issuer would not be considered a shell company solely because during the past three years it or a predecessor was a special purpose acquisition company (SPAC), allowing post-de-SPAC entities to use Form S-3 if they are not shell companies at the time of filing. Additionally, issuers that have committed certain criminal violations or are subject to SEC enforcement actions would also be ineligible to use Form S-3.
• ATM Offerings Limited to Listed or Designated Trading Markets. To balance the expanded access to ATM offerings with investor protection concerns, the proposal would limit ATM offerings to securities listed on a national securities exchange or traded on a market designated by the SEC based on specified criteria.

New Framework to Replace the WKSI System: Eligible Listed Issuers (ELIs) and Seasoned Eligible Listed Issuers (SELIs)

Since 2005, a category of issuers known as “well-known seasoned issuers” (“WKSIs”) has enjoyed what the SEC calls “enhanced registration and communication benefits” — a suite of offering-process flexibilities, including the ability to file automatic shelf registration statements (effective immediately upon filing), to pay registration fees on a “pay-as-you-go” basis at the time of each offering, to engage in pre-filing and post-filing communications with flexibility not available to other issuers, and to add securities or classes to an effective registration statement by post-effective amendment.

To qualify as a WKSI, a domestic issuer currently must, among other things, have either a public float of at least $700 million or have issued at least $1 billion in non-convertible securities in primary registered offerings over the prior three years. These thresholds have not been revisited since the WKSI framework was adopted more than 20 years ago. According to the SEC proposal, as of 2024, only approximately 36 percent of Exchange Act reporting issuers qualified as WKSIs.

The Proposed New Framework: ELIs and SELIs

The SEC proposes to eliminate the WKSI designation for domestic issuers and replace it with two new categories of issuers:

• An “Eligible Listed Issuer” (“ELI”) would be an issuer that (i) meets the proposed Form S-3 registrant requirements (i.e., is current and timely in Exchange Act reporting and is not a BSP issuer) and (ii) has at least one class of common equity securities listed on a national securities exchange.
• A “Seasoned Eligible Listed Issuer” (“SELI”) would be an ELI that has additionally been subject to Exchange Act reporting requirements for at least 12 calendar months.

Under the proposal, approximately 74 percent of Exchange Act reporting issuers would qualify as SELIs, representing a dramatic increase from the current 36 percent that qualify as WKSIs. This represents an increase of over 200 percent in the number of issuers eligible for all the “enhanced registration and communication benefits.”

The following table summarizes the key benefits and who would receive them under the proposed framework, as compared to current rules:

The WKSI definition would be retained only for foreign private issuers (“FPIs”), which would continue to qualify under the existing criteria.

Modernization of Form S-1: Expanded Incorporation by Reference

Form S-1 is the default registration statement available to any domestic issuer not eligible for another form. Currently, Form S-1 permits issuers to “backward incorporate” — i.e., incorporate previously filed Exchange Act reports into the registration statement by reference — but only if the issuer has filed a Form 10-K for its most recently completed fiscal year. Form S-1 currently permits “forward incorporation” — automatic updating of the registration statement via future Exchange Act filings — only for smaller reporting companies (“SRCs”).

The proposed amendments to Form S-1 would make two important changes:

• Elimination of the Annual Report Requirement for Backward Incorporation. The proposal would eliminate the requirement that an issuer must have filed a Form 10-K for its most recently completed fiscal year in order to use incorporation by reference on Form S-1. This would benefit, for example, issuers in their first year as Exchange Act reporting companies who have not yet filed an annual report, allowing them to incorporate by reference their initial Securities Act or Exchange Act filing that contains “Form 10 information.”
• Extension of Forward Incorporation by Reference to All Eligible Issuers. The proposal would amend Form S-1 to permit any issuer that meets the eligibility requirements for backward incorporation to also forward incorporate — not just SRCs. The SEC notes that the current limitation to SRCs is “anomalous” and creates unnecessary compliance costs for larger issuers by requiring them to file post-effective amendments and prospectus supplement updates instead.

The SEC estimates that these changes could result in an increase of up to 106 percent in the number of issuers eligible to forward incorporate on Form S-1.

Federal Preemption of State “Blue Sky” Registration and Qualification Requirements for All Registered Offerings

In what may be one of the most far-reaching proposals in the release, the SEC proposes to preempt state securities law registration and qualification requirements for all registered offerings under the Securities Act.

Section 18(b) of the Securities Act provides that certain “covered securities” are exempt from state securities law registration and qualification requirements. Currently, registered offerings of exchange-listed securities are covered securities and therefore exempt from state “blue sky” requirements. However, registered offerings of unlisted securities—including those by non-traded BDCs, non-traded REITs, and other issuers whose securities are not listed on a national securities exchange—are not currently covered securities, requiring issuers to comply with registration and qualification requirements in each state where they offer and sell securities.

Section 18(b)(3) of the Securities Act authorizes the SEC to define “qualified purchasers,” with the effect that securities sold to such purchasers become covered securities exempt from state requirements. 

The Proposed Amendment

The SEC proposes to add a definition of “qualified purchaser” to Securities Act Rule 146, providing that any person to whom securities are offered or sold pursuant to a registered offering is a “qualified purchaser” within the meaning of Section 18(b)(3). This definition would render such securities “covered securities,” fully preempting state registration and qualification requirements for all registered offerings, regardless of whether the securities are exchange-listed.

The SEC notes that the robust investor protections available in registered offerings — including registration statement disclosure requirements, Section 11 and Section 12(a)(2) liability for material misstatements and omissions, potential SEC staff review of registration statements, and ongoing Exchange Act reporting obligations—adequately protect investors and address any concerns about eliminating state oversight for these offerings. States would retain authority to investigate and bring enforcement actions for fraud, and to require notice filings for fee purposes.

Expanded Benefits for Business Development Companies and Registered Closed-End Funds

The proposal would extend the expanded eligibility framework described above to business development companies (“BDCs”) and registered closed-end investment companies (“registered CEFs”) (collectively, “Affected Funds”) that register securities on Form N-2.

Specifically, the SEC proposes to:

• Extend short-form N-2 availability (which functions like Form S-3 for operating companies) to all Affected Funds that qualify as ELIs or SELIs under the proposed amendments, eliminating the current $75 million public float requirement for Form N-2 eligibility.
• Extend automatic shelf registration to SELI-qualifying Affected Funds (currently limited to WKSIs) and extend the other enhanced registration and communication benefits to ELI-qualifying Affected Funds.
• Amend Securities Act Rule 139b (the research report exemption for covered investment funds) to remove the minimum public float requirement, making the safe harbor available to all covered investment funds, including unlisted Affected Funds.

Unlisted Affected Funds — including interval funds and certain non-traded BDCs — would not be able to use Form N-2. Instead, these funds would continue to rely on the existing Rule 486 registration and offering framework, which already provides many similar efficiencies (including automatically effective post-effective amendments).

A separate Ropes & Gray Alert focused on the proposal’s potential impact on Affected Funds is forthcoming.

Broad-Based Advertising for Registered Non-Variable Annuities

The SEC proposes to amend Securities Act Rule 482 to permit insurance companies to engage in broad-based advertising for registered non-variable annuities — a category that includes Registered Index-Linked Annuities (“RILAs”) and registered market value adjustment annuities — in a manner consistent with the existing framework for variable annuities.

In 2024, the SEC required insurance companies to register offerings of non-variable annuities on Form N-4, the same form used to register variable annuities. However, at that time, the SEC declined to extend Rule 482 (which permits registered investment companies to advertise without satisfying prospectus delivery requirements) to registered non-variable annuities, leaving them to rely instead on the free writing prospectus provisions of Securities Act Rule 433 — but only if the issuer was eligible to file on Form S-3. This created an inconsistency: variable annuities and registered non-variable annuities use the same form and provide investors with similar information, yet they were subject to different advertising frameworks based on whether the insurance company happened to file Exchange Act reports.

Proposed Amendments

The proposed amendments would:

• Amend Rule 482 to apply to registered non-variable annuity advertisements, permitting broad-based advertising (including television commercials, print advertisements, and similar media) without satisfying prospectus delivery requirements or Form S-3 eligibility.
• For RILA advertisements specifically, prohibit the inclusion of performance data of the RILA itself, given that the complex features of RILAs (including variable upside and downside rates that change frequently) make past performance potentially misleading. Historical index performance may nonetheless be included, but only in the manner prescribed by the RILA prospectus disclosure requirements and accompanied by a mandatory legend.

• Require any advertisement that includes fee or expense figures (or states that there are no fees or expenses) to include specified disclosures, including the maximum amount of any sales load, the potential for contract adjustments, and — for RILAs specifically — a statement alerting investors that the insurance company limits their upside in exchange for downside protection.

• Require registered non-variable annuity advertisements to be filed with either the SEC or FINRA, consistent with variable annuity advertising practice.

Other Modernizing Amendments

Beyond the major proposals described above, the SEC also proposes a number of other, more targeted amendments:

• Delaying Amendments (Securities Act Rule 473). Under current practice, issuers include a “delaying amendment” legend on the face of a registration statement to prevent it from going effective automatically on the 20th day after filing. Under the proposal, the delaying mechanism would operate automatically—without requiring the inclusion of a specific legend.

• Age of Financial Statements (Regulation S-X). The SEC proposes to eliminate income-related conditions in Rules 3-01(c) and 8-08(b) of Regulation S-X that currently extend the time period during which financial statements may be used in Securities Act registration statements for SRCs under certain circumstances. The SEC believes these conditions are no longer necessary given the SEC’s existing disclosure requirements.
• Conforming and Technical Amendments. The release also includes a broad array of conforming and technical amendments to update cross-references, remove obsolete provisions (such as the Form S-2 and F-2 references, which were rescinded in 2005), correct typographical errors, and simplify various rules and forms.

Key Takeaways and Implications for Issuers and Market Participants

The proposed registered offering reform, if adopted, would have broad and significant implications:

• Dramatically Expanded Access to Shelf Registration. Smaller and newer issuers would gain access to Form S-3 and shelf registration, enabling faster, more flexible, and lower-cost capital-raising in the public markets and reducing their reliance on more expensive exempt offerings or dilutive instruments such as convertibles.

• Access to Enhanced Registration and Communication Benefits for Exchange-Listed Issuers. Exchange-listed issuers of all sizes would gain access to the enhanced registration and communication benefits currently available only to WKSIs, significantly expanding their offering-process flexibility. Under the proposal, approximately 74 percent of all Exchange Act reporting issuers would qualify as SELIs—as compared to the current 36 percent that qualify as WKSIs—allowing the vast majority of listed companies to file automatically effective shelf registration statements.

• Simplified Form S-1 practice. Extending forward incorporation by reference to all Form S-1 issuers will simplify ongoing offering programs for a wide range of companies that currently bear the burden of post-effective amendments and prospectus supplement updates.
• BDCs and Closed-End Funds. BDCs and closed-end funds would enjoy expanded access to shelf offerings, automatic shelf registration (for SELIs), and the other enhanced registration and communication benefits, making it easier to respond to market opportunities in a timely and flexible manner.
• Insurance Companies. Insurance companies issuing registered non-variable annuities would be able to engage in broad-based advertising — including television commercials — without being required to deliver a prospectus, subject to specified disclosure conditions.

• Major Implications for Unlisted Issuers. Non-traded REITs, non-traded BDCs, and other issuers of unlisted securities would benefit from the complete preemption of state blue sky registration and qualification requirements, reducing transactional costs, eliminating the need for multi-state blue sky counsel in connection with offers and sales of unlisted securities, and potentially speeding up the registered offering process.
• Important Investor Protection Carve-outs Remain. Notably, the proposal does not extend its benefits to blank check companies, shell companies, penny stock issuers, or issuers with recent securities law violations, reflecting the SEC’s effort to balance expanded access with targeted investor protection safeguards.