SEC Expands Confidential Submission Programme

The Securities and Exchange Commission (SEC) will allow all issuers to confidentially submit draft registration statements with the SEC in connection with their initial public offerings (IPOs). The programme represents the first major policy change under chairman Jay Clayton in an attempt to reverse the trend of fewer companies going public. For example, according to Pitch Book, during the first six months of 2017, only 30 venture-backed companies went public, significantly fewer than the 202 venture-backed companies that went public in 2014.

Before the SEC's new policy took effect on 10 July, only certain foreign issuers and companies that qualified as emerging growth companies (EGCs) pursuant to the Jumpstart Our Business Startups (JOBS) Act could confidentially submit a registration statement for an IPO. The JOBS Act allowed EGCs - generally companies with revenues less than $1.07bn for the year prior to their IPO - to submit a draft registration statement to the SEC for non-public review in lieu of a public filing. No public disclosures are required until 15 days before the company begins promoting its shares at roadshows. Since the JOBS Act was enacted in 2012, nearly all EGCs conducting an IPO, including high-profile venture-backed companies such as Snap, Blue Apron and Twitter, have chosen to confidentially submit draft registration statements.

New policy

Under the new policy, all issuers may now take advantage of the confidential submission programme for IPOs, providing numerous benefits to prospective issuers and their affiliates.

Before the new policy, most companies that did not qualify as EGCs were required to file public registration statements long in advance of the actual roadshow and subsequent pricing, resulting in a months-long waiting period that exposed them to potentially negative market and other forces outside of their control. This process often required companies to publicly disclose operating performance, business strategies and other potentially sensitive information (such as executive officer compensation) - and to publicly revise such disclosure in response to comments from the SEC staff - well in advance of being in a position to assess the viability of completing an IPO at the desired valuation (or at all). Even the fact that a company is pursuing an IPO can constitute competitively sensitive information that some prospective issuers are reluctant to reveal.

Moreover, if, over the course of the IPO process...