SEC Eases Stock Offering 'Quiet Period' Rules
WASHINGTON (Reuters) - Companies selling stock to the public will be allowed to talk much more freely under a rule approved on Wednesday in a unanimous vote by the U.S. Securities and Exchange Commission.
Moving to overhaul 1930s-era rules against misleading hype in stock offerings, the SEC voted to largely drop the so-called "quiet period" preceding offerings for very large companies and to clarify what can be said about initial public offerings.
Under the old rules, last year's IPO by Internet search engine group Google Inc. was nearly delayed after its founders gave an interview to Playboy magazine. Earlier in 2004, Salesforce.com Inc. had to delay its IPO after its chief executive was featured in a newspaper article.
The new pre-offering rules will let large corporations with records of well-managed stock offerings discuss -- and in some circumstances even advertise -- new offerings, the SEC said.
Top-tier companies will also be allowed to make so-called "shelf registrations" of stock with less paperwork. Shelf stock, which companies register with the SEC before issuing, will also be able to be brought to market more easily.
"The changes to the offering process should substantially lower the cost of raising capital," said SEC Commissioner Roel Campos at an open meeting of the market-regulating commission.
Limits on companies in IPOs are eased under the new rules, with permissible communications spelled out more clearly.
The new rules ease restrictions on company communications with the press prior to offerings. "One of the purposes ... is to allow greater communications through the media," said Alan Beller, director of the SEC Division of Corporation Finance.
The SEC said the new rules are meant to reflect the greatly expanded volume and scrutiny now given stock offerings with the emergence of electronic communications and the wider involvement of Americans in the markets.
The new rules' freedoms are balanced by regulations holding companies liable for misstatements or omissions of key facts from interviews, ads or other communications outside traditional SEC filings for an offering, the commission said.
"This rulemaking represents the SEC's ability to deregulate, as well as regulate," said Commissioner Harvey Goldschmid.
The new offering rules create a class of "well-known seasoned issuers," or companies with market capitalization of about $700 million or more, or $1 billion in registered debt over the preceding three years. Penny-stock companies, shell companies and companies with legal trouble are generally excluded from the new class, the SEC said.
The SEC also voted unanimously to adopt rules to deter market abuse of shell companies, or incorporated entities with no operating business.
The new SEC rules are aimed at preventing fraudulent use of shells, often through "reverse acquisition" deals, to take private companies public without disclosing the information required in normal registered stock offerings.