What’s Regulation S all about?
Whether you are a business owner who wants to offer securities to the public and private individuals or an investor who’s interested in buying shares from companies outside the United States, knowing what Regulation S is all about will help you decide better.
Author:James PierceReviewer:Alberto ThompsonMay 24, 2021388 Shares388.2K Views
Whether you are a business owner who wants to offer securities to the public and private individuals or an investor who’s interested in buying shares from companies outside the United States, knowing what Regulation S is all about will help you decide better.
This term or regulation may sound new to your ears, but it’s definitely worth it to know something about this rule. You’ll never know. Maybe you are one of the people who can benefit from this regulation.
Let's get started with the most frequently asked questions about Regulation S.
What Is Regulation S?
Regulation S exempts offers made outside the United States by all domestic and international issuers from Section 5 registration provisions of the Securities Act of 1933. A stock offering created by an issuer from outside the United States in reliance on Regulation S does not require a Securities Act license, whether private or public.
The Regulation S protected harbors are non-exclusive, which means that an issuer that tries to conform with Regulation S can still argue that another relevant exemption from registration is accessible. Regulation S is applicable to all stock and debt securities offers.
Two Conditions Under Reg S
Only "offers and purchases of" are covered by Regulation S. These are securities created in good conscience outside of the United States, not just a way to avoid the registration requirements of the Securities Act.The accessibility of the protected harbors for issuers (Rule 903) and resale (Rule 904) is subject to the following two conditions:
- The bid or sale must be made in the context of an international transaction; and
- The issuer, a broker, either of their respective affiliates, or someone working on their behalf are not permitted to engage in "guided sale efforts."
Who Is This For?
You might be wondering, who is Regulation S for? Well, the guidelines of the country have set a list of people who can rely on this regulation.
US Issuers
The Rule 901 general declaration or the Rule 903 issuer safe harbor can be used by US issuers, both reporting and non-reporting.
International Issuers
The Rule 901 general declaration or the Rule 903 issuer safe harbor can be used by international issuers, both reporting and non-reporting.
Distributors
Distributors (underwriters and broker-dealers) – all domestic and international financial intermediaries may use the Rule 901 general declaration or the Rule 903 issuer safe harbor.
Affiliates
Affiliates of the lender, both domestic and international;
Representatives
Those working on behalf of the above individuals;
Non-Americans
To pass securities purchased in a Regulation S offering, resident purchasers (including dealers) who are not offering participants can depend on the Rule 901 general declaration or the Rule 904 resale safe harbor.
In connection with transactions of securities on the trading floor of an existing international securities exchange located outside the United States or via the facilities of a specified offshore securities market, U.S. citizens (including dealers) who are not selling participants may depend on the Rule 901 general declaration or the Rule 904 resale safe harbors.
Who’s Disqualified Under Reg S?
The offer and selling of securities provided by open-end investment units, unit investment trusts registered or authorized to be licensed under the Investment Company Act of 1940 (the "1940 Act"), and closed-end investment companies needed to be registered but not registered under the 1940 Act are not permitted under Regulation S.
Types Of Transactions Under This Regulation
Regulation S offers may be made by issuers in the United States and elsewhere, including
- A standalone Regulation S sale is one in which the issuer sells debt or equity securities exclusively in one or more non-US jurisdictions.
- A combined Regulation S and Rule 144A offering outside of the United States; and a combined Regulation S and Rule 144A offering inside the United States.
- Regulation S continuous offering services for debt instruments, including different forms of medium-term note programs (these continuous offering programs can be paired with an issuance of securities to QIBs in the United States under Rule 144A).
On top of these transactions, Regulation S also allows for two other categories of offers:
- offerings produced under some circumstances pursuant to an employee benefit package developed and administered in compliance with the laws of a nation other than the United States, as well as that country's practices and documentation; and
- offerings of foreign government securities.
The section of any offering that allows offering participants to comply with Regulation S in order to profit from the safe harbor is referred to as the Regulation S portion of the offering. The offering itself may therefore meet the criteria of the relevant non-U.S. jurisdiction as well as every international securities exchange or other listing authority's criteria.
A Regulation S-compliant product may be organized as a public or private offering in one or more non-U.S. jurisdictions, as well as as a licensed public offering or an offering excluded from registration in the United States.
Why Impose Such A Regulation?
Over the last century, government control of the US economy has exploded, sparking industry concerns that it stifles productivity and production. Interventionists argue that it is important to minimize the negative effects of unregulated trade, which includes everything from environmental damage to labour violations. Any programs seek to assist the private sector by supplying companies with specific guidance, loans, and advice.
So, Why The Need To Implement Such A Regulation?
Regulations are essential for markets and cultures to work properly. People, businesses, governments, and civic society all have to play by the same laws. They support competition, defend residents' rights and protection, and ensure that public products and services are delivered.
Although the importance of regulations is taken in general--to help the country and businesses control what they can control, Regulation S is never an exception. It’s a regulatory policy that allows the country to treat companies outside its harbor differently. For sure, there’s something good about it and the government can earn from the rights it gives to outside issuers.
James Pierce
Author
James Pierce, a Finance and Crypto expert, brings over 15 years of experience to his writing. With a Master's degree in Finance from Harvard University, James's insightful articles and research papers have earned him recognition in the industry.
His expertise spans financial markets and digital currencies, making him a trusted source for analysis and commentary. James seamlessly integrates his passion for travel into his work, providing readers with a unique perspective on global finance and the digital economy.
Outside of writing, James enjoys photography, hiking, and exploring local cuisines during his travels.
Alberto Thompson
Reviewer
Alberto Thompson is an acclaimed journalist, sports enthusiast, and economics aficionado renowned for his expertise and trustworthiness. Holding a Bachelor's degree in Journalism and Economics from Columbia University, Alberto brings over 15 years of media experience to his work, delivering insights that are both deep and accurate.
Outside of his professional pursuits, Alberto enjoys exploring the outdoors, indulging in sports, and immersing himself in literature. His dedication to providing informed perspectives and fostering meaningful discourse underscores his passion for journalism, sports, and economics. Alberto Thompson continues to make a significant impact in these fields, leaving an indelible mark through his commitment and expertise.
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