SEC Expands “Test-the-Waters” Communications to All Issuers

Capital Markets Client Alerts

On September 26, 2019, the Securities and Exchange Commission, or the SEC, adopted a new rule, known as Rule 163B, to expand the “test-the-waters” communication accommodation to all issuers. Questions and answers regarding the new rule are below:

What is meant by “test the waters?” 

“Test-the-waters” refers to an accommodation found in Section 5(d) of the Securities Act of 1933. As originally enacted in 2012 as part of the Jumpstart Our Business Startups Act, or the JOBS Act, the test-the-waters accommodation allowed only issuers that qualified as “emerging growth companies” to engage with potential investors that were “qualified institutional buyers” or “institutional accredited investors” before the filing of a registration statement with the SEC. 

What changed? 

Prior to the rule change, only issuers that qualified as emerging growth companies could engage in test-the-waters communications. The new rule expands the test-the-waters accommodation to all issuers, not just emerging growth companies. The potential investors contacted must still be qualified institutional buyers or institutional accredited investors. 

Why would my company use this?

Test-the-waters communications can help issuers and their advisers determine potential investors’ level of interest in a securities offering before anything is filed with the SEC. If the initial feedback is poor, the issuer may wish to postpone the offering before documents are prepared and filed, which saves legal and filing fees. 

Are test-the-waters communications required to be filed with the SEC?

As long as they comply with Rule 163B, test-the-waters communications do not need to be filed and do not need to include any specific legend or disclaimer. However, issuers subject to Regulation FD should consider whether information in the test-the-waters materials would trigger a Regulation FD disclosure obligation or whether an exemption would apply. Regulation FD provides that when an issuer selectively discloses material nonpublic information to individuals or entities, the issuer must make public disclosure of that information, subject to certain exceptions. 

When is the new rule effective? 

The new rule will become effective on December 3, 2019 (sixty days after its publication in the Federal Register).

The full text of the new rule may be found at


Donald R. Reynolds, Jonathan A. Greene, and Lorna A. Knick are members of the Capital Markets practice group of Wyrick Robbins, which represents clients across a broad range of industries in connection with their significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.