Faculty of law blogs / UNIVERSITY OF OXFORD

SEC Issues Interpretations Relating to Rule 144A and Regulation S


Freshfields Bruckhaus Deringer


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2 Minutes

The Division of Corporation Finance of the SEC recently issued interpretations of the definition of a qualified institutional buyer (‘QIB’) under Rule 144A and addressed certain questions relating to Regulation S offerings.  

Rule 144A

Rule 144A provides a safe harbor from the registration requirements of the Securities Act for resales of securities not fungible with securities listed on a US securities exchange to QIBs. QIB status is available to, among others, corporations and partnerships that own and invest on a discretionary basis at least $100m in securities of unaffiliated issuers.

The staff interpretations provide the following guidance with respect to determination of QIB status.

  • Securities that an entity owns but has loaned out to borrowers may be included in calculating the $100m threshold for determining the entity’s QIB status. By contrast, borrowed securities should not be taken into account in calculating whether the threshold is met.
  • An entity may include securities that it purchased and continues to hold on margin in determining whether the $100m threshold is met, as long as such securities are not subject to a repurchase agreement.
  • Short positions should not be included in calculating whether the $100m threshold is met.
  • An entity will be deemed a QIB if all of its equity owners are QIBs. In determining their QIB status under this rule, limited partnerships should look at the status of their limited partners, who are considered equity owners of a partnership. Unless the general partner is also a limited partner, its status need not be taken into consideration.   

Regulation S

Regulation S provides a safe harbor from the registration requirements of the Securities Act for offerings made outside the United States if certain conditions are satisfied.

Certain offerings qualify as a Category 1 offering under Regulation S if the securities are directed to the residents of ‘a single country’ other than the United States and the offering is made in accordance with the local laws, customary practices and documentation of such country. The staff has clarified that this requirement will be satisfied if an offering is directed into more than one country that is part of the European Union. Given the integration of the capital markets within the European Union as a result of the application of EU-wide laws and regulations, an offering will constitute a Category 1 offering to the extent the local laws and customary practices and documentation are those of the European Union (as opposed to those of a single EU member state).

This post comes to us from Freshfields Bruckhaus Deringer and has first appeared here.


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