SEC Extends EGC Rule, Modernizes ETF Rules

September 26, 2019 | Latest News, News, Regulations

New Rules Extend “Test the Waters” Rule, Increases ETF Innovation

The SEC announced Wednesday it had adopted new rules that extend the “test-the-waters” accommodation. Previously, the tool was only available to “emerging growth companies” or “EGCs.” Now, all issuers may take part. The accommodation is part of several actions by the SEC to expand the JOBS Act provisions and allow firms to obtain capital on U.S. markets. It will go into effect in 6daysay after the publication in the Federal Registrar.

The new rule allows issuers to test market interest in registered securities like IPS with certain institutional investors. They may do so before or after they file a registration statement.

“The final rule benefits from the staff’s experience with the test-the-waters accommodation that has been available to EGCs since the Jumpstart Our Business Startups Act (JOBS Act),” SEC Chairman Jay Clayton said in a statement.  “Investors and companies alike will benefit from test-the-waters communications, including increasing the likelihood of successful public securities offerings.”

The new rule is one of several SEC initiatives. The agency wants to build on the JOBS Act provisions that encourage companies to access our public markets.

SEC Expands ETF Rules

On the same day, the SEC also adopted a new rule to modernize ETF regulations. The agency has adopted “a clear and consistent framework for the vast majority of ETFs operating today,” it said.

The SEC expects that the new rules will promote greater innovation and competition in the ETF industry.

“Since ETFs were first developed over 27 years ago, they have provided investors with several benefits, including access to a wide array of investment strategies, in many cases at a low cost,” said Clayton. “As the ETF industry continues to grow in size and importance, particularly to Main Street investors, it is important to have a consistent, transparent, and efficient regulatory framework that eliminates regulatory hurdles while maintaining appropriate investor protections.”

Finally, the rules will expedite the time-to-market for ETF products and improve relief practices.

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