Here’s an excerpt from this Cooley Alert penned by Rich Segal, Chad Mills, Julia Boesch, Reid Hooper, Liz Dunshee, Luci Altman, Victoria Peluso, Katherine Denby and Christine Turner:
“The proposal, if adopted, would restructure the registered offering framework. The significance of the changes will depend on where an issuer sits in the capital markets landscape. For large-cap, exchange-listed issuers that are WKSIs under the current rules, current practices will be largely unaffected by the transition to the ELI/SELI framework. For mid-cap and small-cap exchange-listed issuers that do not currently qualify as WKSIs, the changes could be more significant. See Appendix A for a tabular comparison of the current and proposed frameworks – and our predictions for the real-world impact. Below, we highlight several key takeaways for our client base:
- Expanded access to shelf registration benefits for exchange-listed issuers. All domestic issuers would be Form S-3 eligible immediately after completing their IPO. Moreover, the proposed replacement of the WKSI framework with the ELI/SELI structure means that any exchange-listed Form S-3 eligible issuer would, as an ELI, gain access to pay-as-you-go registration fees, pre-filing communication flexibility, the ability register additional securities or additional classes of securities by filing a post-effective amendment to a nonautomatic shelf registration statement before the issuer satisfies the 12-month Exchange Act reporting requirement to be a SELI, and the ability to omit information as to whether an offering is a primary offering or secondary offering and pricing and deal-specific terms from the shelf registration statement at the time of effectiveness. These are capabilities currently reserved for WKSIs.
Newly eligible issuers should begin assessing their readiness to take advantage of the proposed framework, including evaluating Exchange Act reporting history, potential ineligible issuer disqualifications, and the cost and timing differences between registered and exempt offering pathways. For many smaller issuers, the combination of Form S-3 eligibility, pay-as-you-go registration fees and full blue-sky preemption could shift the economics of capital raising away from exempt structures such as structured private investments in public equity (PIPEs), toward registered offerings.
That said, practitioners should note that many of the communication flexibility benefits – in particular, the ability to conduct pre-filing investor outreach – are already available to non-WKSIs through the testing-the-waters provisions of Section 5(d) of the Securities Act and Rule 163B, which permit communications with qualified institutional buyers (QIBs) and institutional accredited investors regardless of WKSI or ELI status. The incremental benefit on the communications side is therefore most significant for mid-market issuers not currently taking advantage of those exemptions. - Significant expansion of automatic shelf registration eligibility. For issuers that meet the SELI threshold – ELI status plus 12 months of Exchange Act reporting – the principal additional benefit is automatic shelf registration. For most exchange-listed companies that have been public for more than a year, SELI status will be the default, and this benefit should be built into capital formation playbooks accordingly.
- DeSPAC companies would not be automatically barred from Form S-3. This change would make the deSPAC pathway more attractive from a capital markets perspective and is consistent with the SEC’s previously stated objective of aligning disclosure and regulatory requirements for deSPAC companies with those applicable to companies completing traditional IPOs.
However, a deSPAC company would not be permitted to count the Exchange Act reporting history of the former SPAC toward the 12-month seasoning requirement for SELI status and automatic shelf registration eligibility. Additionally, because FPIs are separately prohibited from using Form S-3 under the proposal, the SPAC predecessor carve-out would effectively benefit only domestic issuers.
In addition, while the proposal does not address Rule 144(i) or Rule 145 under the Securities Act, meaning that shareholders of deSPAC companies would still be subject to the rolling 12-month current public information requirement if seeking to rely on the Rule 144 safe harbor for resales of securities issued by a deSPAC company, in addition to the statutory underwriter provision under Rule 145, the proposed amendments would mitigate these downsides because of the expanded availability of Form S-3. For private resales, unless and until Rule 144(i) and Rule 145 are addressed through separate rulemakings, deSPAC companies and their shareholders would still have to consider the risks imposed by these rules in connection with resales of securities. - A potentially less favorable regime for former FPIs. The proposal does not extend to FPIs, which would continue to use Form F-3. Form F-3 retains its existing 12-month seasoning and $75 million public float requirements. The SEC has deferred FPI-related changes pending its separate review of the FPI definition and various issues that it identified in its June 2025 Concept Release.
Former FPIs that have converted to domestic issuer status, a transition that can occur automatically based on changes in shareholder composition or other factors, may find themselves in a worse position under the proposed framework, at least temporarily. Under the proposal, Form S-3 would be unavailable to any issuer that has been an FPI at any point during the preceding three years, while Form F-3 would remain unavailable to issuers that no longer qualify as FPIs. During that period, the issuer’s only registered offering option would be Form S-1. This creates a gap that does not exist under the current framework, where a former FPI that was eligible to use Form F-3 could seamlessly transition to using Form S-3 (assuming it meets the other eligibility criteria).
For this reason, the proposal may accelerate a trend toward domestic issuer status at the time of IPO for foreign companies that are on the margin of FPI eligibility. Electing domestic issuer status at IPO could avoid the three-year Form S-3 eligibility lag if it is likely that the issuer will eventually lose FPI status down the road. Moreover, the proposed rule may make the domestic election more favorable, since domestic issuers will gain substantially expanded shelf access.
Historically, FPI status has been attractive because it carries meaningful accommodations, including reduced executive compensation disclosure, exemption from complying with the proxy rules, and the ability to report on a semi-annual rather than quarterly basis, with relatively limited downside from a capital markets perspective, given that FPIs have generally had access to Form F-3 on terms largely comparable to those available to domestic issuers under Form S-3.
Under the proposed framework, however, domestic issuers would gain substantially expanded access to shelf registration, automatic effectiveness, pay-as-you-go filing fees, and enhanced communication flexibility – benefits that would not be extended to FPIs. Additionally, the SEC previously proposed rules which, if adopted, would permit domestic issuers to elect semi-annual reporting – a benefit that is currently available only to FPIs. - Form S-1 modernization. The proposed changes to Form S-1 would simplify ongoing offering programs and reduce the burden of post-effective amendments and prospectus supplement updates for issuers that rely on the long-form registration statement, by expanding the ability to incorporate by reference. The structural advantages of Form S-3 – including the takedown mechanics, automatic effectiveness and pay-as-you-go fee structure – remain exclusive to Form S-3 eligible issuers.
- Elimination of income-related conditions for financial statements grace period. This change to Regulation S-X, to extend to loss-generating issuers the grace period for updated audited financial statements in connection with filing a registration statement or conducting certain proxy solicitations, would facilitate these issuers – who may have a greater need for capital than higher-income registrants – in raising capital or completing strategic transactions without the need to expedite the preparation of audited annual financial statements for the most recently completed fiscal year before they would otherwise be required in an annual report on Form 10-K.
- ATM offering implications. Although the proposed “existing trading market” requirement would introduce a new constraint on ATM offerings, its practical significance may be modest given the SEC’s indication that the OTCQX Best Market and OTCQB Venture Market tiers would likely qualify for designation. Overall, the proposal intends to expand access to ATM offerings for issuers while balancing investor protections.
- Blue-sky preemption extended to warrant coverage in registered offerings. Under current law, when an issuer conducts a registered offering of listed common stock concurrently with non-prefunded warrants (a structure that is common in certain industries, including life sciences), the common stock is already exempt from state blue-sky requirements by virtue of its exchange listing. The warrants, however, are not exchange-listed and therefore do not benefit from that exemption.
As a result, practitioners must currently conduct a jurisdiction-by-jurisdiction blue-sky analysis for the warrants – an additional procedural step that must be tracked and completed for each such transaction. If the proposal is adopted, this friction would be eliminated because all securities offered and sold in a registered offering would constitute “covered securities” under the proposed definition of “qualified purchaser.” The warrants would be preempted from state registration and qualification requirements on the same basis as the listed common stock.”
Authored by
Broc Romanek