A reminder that the new equity research rules, contained in FINRA Rule 2241, became fully effective on December 24, 2015.  The equity research rules, among other things, revise the quiet periods applicable to member firms during which member firms may not publish or distribute equity research reports.  As a reminder, the new quiet periods (which were effective as of September) are now:

  • 10 days following an IPO for participating member firms;
  • 3 days following a follow-on offering for member firms that act as managers or co-managers; and
  • No quiet period in relation to the expiration, waiver or termination of a lock-up agreement entered into in connection with a public offering.

The quiet periods do not apply to research related to IPOs or follow-on offerings for EGCs.  Also, member firms may publish research concerning a company the securities of which are actively traded in compliance with the Rule 139 safe harbor.

Last week, the New York Stock Exchange (NYSE) Group announced that it had raised $136 billion from 397 transactions, including IPOs and follow-on financings, in 2015.  59 of these transactions were IPOs, raising $19.1 billion, including 2015’s largest IPO which raised $2.56 billion.  The tech industry remained a dominant sector, with 15 tech IPOs listed on the NYSE raising $6 billion.  8 of the top 10 tech IPOs by market cap and proceeds were listed on the NYSE.  In addition, more than $8.9 billion was raised from NYSE IPOs using the JOBS Act.  For more details about NYSE’s 2015 results, click here.

IPO market activity has recently returned to levels not seen since before the financial crisis. With 70 IPOs in the first quarter and 114 IPOs year-to-date, 2014 is off to the fastest start since 2000 and is on pace to finish with nearly 300 IPOs, which would be the highest annual total in 14 years. An important trend is that the average offering size has decreased in recent years. Thus far in 2014, the average IPO size is approximately $181.7 million, which is the lowest average in the past seven years. Contrast this to an average IPO size of approximately $542 million in 2008, approximately $388 million in 2009, approximately $310 million in 2012 ($197.7 million without the Facebook IPO) and approximately $237 million in 2013.

Thus far in 2014, only three IPOs have exceeded $1 billion in aggregate proceeds and only eight IPOs have exceeded $500 million in aggregate proceeds (compared to 25 IPOs in 2013). In addition, thus far in 2014, nearly 40% of IPOs have fallen within the $50 million to $100 million range, which is an increase from 2013 when approximately 29% of IPOs fell within the $50 million to $100 million range (approximately 32.1% of IPOs in 2013 fell within the $100 million to $250 million range). On the low end of the scale, thus far in 2014, approximately 17.5% of IPOs (20 IPOs) raised between $10 million and $50 million in aggregate proceeds, compared to 12% (29 IPOs) in 2013 (five IPOs in 2013 raised $10 million or less in aggregate proceeds, but no IPOs have fallen within that range thus far in 2014). (Source: IPO Vital Signs, May 27, 2014)

Recently, the Committee on Capital Markets Regulation published information regarding the competitiveness of our US capital markets. See the Committee’s site (http://capmktsreg.org/2014/05/continuing-competitive-weakness-in-u-s-capital-markets-4/) for detailed statistics that seem to focus principally on whether foreign issuers are looking to the United States for their IPOs. The report notes that “While the overall U.S. IPO market did see renewed signs of strength in the first quarter, increasing 41% in volume over the first quarter of 2013 ($11 billion versus $7.8 billion), foreign issuers accounted for relatively little of that activity. In fact, a number of key measures of market competitiveness showed dramatic declines over previous years, including: U.S. share of global IPOs by foreign companies decreased to 5.4%, the lowest level since 2008 and a substantial decline from the 11.4% recorded in 2012. This measure remains far below the historical average of 26.8% (1996-2007).”

Broker-dealers selling interests in IPOs need to have adequate supervisory systems to ensure that registered representatives do not make actual sales before the securities are registered, according to a settlement of a formal disciplinary proceeding announced by FINRA yesterday. In this particular case, FINRA found that for a little  more than a year, a firm had failed to adequately supervise the pre-registration solicitation of retail interest in IPOs because the firm had not distinguished between “indications of interest” and “conditional offers” in its policies and procedures.

Read the rest of this post here on the BD/IA Regulator, our sister blog.

In the two years since the adoption of the JOBS Act, fundamental changes have developed in the IPO market and perhaps even more significant changes have resulted in the private or exempt offering market.  During our session, which will take place at the Michelangelo Hotel in New York on May 8 from 8:30 – 10:00am,  we will review:

  • The status of JOBS Act implementation;
  • IPO practices;
  • Up-Cs, two share class deals, and other innovations;
  • General solicitation—what is it? And why isn’t there more of it?
  • Verifying investor status;
  • Ongoing reporting versus Exchange Act reporting; and
  • Proposed legislation.

Morrison & Foerster is offering participants 1.5 New York CLE credits for attendance.

To register for the event, please email Alexa Powers at alexapowers@mofo.com.

The Jumpstart Our Business Startups Act (the “JOBS Act”), designed to stimulate IPO activity in the U.S. is celebrating its second anniversary this month at a time when U.S. IPO activity is at a high since 2000. While adoption of several of the JOBS Act accommodations are increasing, confidential submissions of IPO registration statements has had the most significant impact on how IPOs are being conducted, and perhaps even on the number of IPOs.

For more, see http://www.mofo.com/files/Uploads/Images/140422-A-Look-at-the-JOBS-Act-at-Its-Second-Anniversary.pdf

Despite a recent upsurge in U.S. IPO activity, including the high-profile Facebook and Twitter public offerings, IPO activity has been on the decline over the past decade. In fact, between 2001 and 2011 fewer than 100 companies went public each year, compared to an average of 311 annual IPOs between 1980 and 2000.

To read the rest of this post, please visit the Milkin Institute’s blog, Currency of Ideas.

Practical Law recently published a round-up of 2013 IPOs, which includes useful statistics on the use of various JOBS Act accommodations, industry trends, selling stockholder participation, and exchange listing.

In summary, 81.4% of issuers filed as EGCs and 69.4% submitted their registration statements confidentially.  As PLC notes, only 22 or 14.8% of EGC issuers chose not to avail themselves of the confidential submission process.  To view the full report, click here.

An issuer that is considering or that has commenced an initial public offering (“IPO”) should take special care to familiarize itself with the communications rules applicable to offerings.

First, an issuer should keep in mind that communications may be viewed as impermissible “gun jumping” activities designed to condition the market for the issuer’s securities.  Second, the issuer should bear in mind that it remains liable for oral communications, and the Commission may require that certain information included in interviews, for example, be incorporated into an issuer’s prospectus.  Communications should therefore be closely controlled and vetted by counsel.

Title I of the JOBS Act expands permissible communications during a securities offering by amending the Securities Act to permit an Emerging Growth Company (“EGC”), or any person authorized to act on behalf of an EGC to “test-the-waters” by engaging in oral or written communications with potential investors that are QIBs or institutions that are accredited investors to determine whether such investors might have an interest in a contemplated securities offering.


Test the waters communications may take place before an EGC makes a confidential submission of its IPO registration statement, while the confidential submission is being reviewed, once an issuer has publicly filed, or at any other point in the offering cycle.


The objective of this provision was to enable EGCs to gauge investor interest earlier in the process, and, thereby, determine whether to move forward with their offerings.  As a result, test the waters communications are not considered “offers” and would not be viewed as “gun jumping.”


An issuer and its underwriters have considerable latitude in structuring their discussions.  For companies in certain sectors, like biotech, where there are complex technologies, a regulatory pathway, etc., a bank may want to set up meetings early in the process so investors can become familiar with the company’s “story.”  In other sectors, it may be preferable to wait until the issuer has gone through at least one or two rounds of comments from the Commission before meetings with investors are scheduled.

What materials are used?

Depending on the stage at which discussions are held, written materials may or may not be used.  If written materials are used, the issuer and its counsel and the underwriter and its counsel must review the materials and approve their use.  The materials must be consistent with the registration statement disclosure and may consist of a slide deck or the draft registration statement.  Written materials should not be left behind.  Materials should not contain information beyond what is provided in the registration statement (i.e., no projections).

The Commission will ask whether test the waters materials were used and will request copies of the materials.  The issuer is liable for statements made in such materials.

If no written materials are used, the working group should agree on a script.

Can orders be obtained?

The underwriter cannot solicit orders during such meetings.  It can only gauge interest and obtain nonbinding indications of interest.

Private versus public

It is important to remember that during such meetings, an investor may manifest interest in investing in the company.  If the issuer intends to complete a private offering prior to completion of the IPO or concurrently with the IPO, the issuer and financial intermediary should be clear with investors as to the type of offering in which they are being asked to participate.  A number of considerations will need to be taken into account—for example, pricing of the securities sold in the private placement; class of securities; “cheap” stock type issues; etc.

Implications for dual-track transactions

In the past, when an issuer was contemplating a dual track IPO/M&A process, the applicable restrictions on communications (pre-filing, and while in registration), made it difficult for the issuer to pursue actively M&A opportunities, because the issuer had to wait until fairly late in the offering process to pursue such conversations.  The additional flexibility for communications during the pre-filing and registration phase will facilitate dual-track discussions.