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SEC votes to expand ‘test-the-waters’ process for potential issuers

The Securities and Exchange Commission voted Tuesday to expand its "test-the-waters" rules to give more prospective stock-issuers time to engage with potential investors.

The idea is to give more issuers flexibility when it comes to communicating with institutional investors and evaluating market interest before pursuing an offering, the SEC said in a fact sheet.

Currently, only emerging growth companies enjoy that accommodation and companies with more than $1 billion in annual revenues do not qualify. In 2017, the SEC's division of corporation finance changed its policy to allow all issuers to initially submit certain filings in draft, non-public form.

"Extending the test-the-waters reform to a broader range of issuers is designed to enhance their ability to conduct successful public securities offerings and lower their cost of capital and ultimately to provide investors with more opportunities to invest in public companies," SEC Chairman Jay Clayton said in a statement. "I have seen firsthand how the modernization reforms of the JOBS Act have helped companies and investors. The proposed rules would allow companies to more effectively consult with investors and better identify information that is important to them in advance of a public offering."

The proposal will have a 60-day comment period once it is published in the Federal Register.