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SEC relaxes restrictions on companies' pre-IPO communications with investors

All companies will soon be able to gauge investor interest in a possible initial public offering before filing any paperwork with U.S. regulators.

On Sept. 26, the SEC unanimously approved an expansion of its "test-the-waters" program to all current and prospective issuers, marking the agency's latest push to draw more companies into the public markets.

Under the program, companies can discuss potential IPOs and registered securities offerings with institutional investors before or after filing a registration statement with the regulator. That ability is currently limited to only emerging growth companies, which are usually defined as having less than $1 billion in gross revenues.

"This benefits all investors," SEC Chairman Jay Clayton said in a statement. "As a result of these communications, issuers can better identify information that is important to investors and enhance the ability to conduct a successful registered offering, ultimately providing both Main Street and institutional investors with more opportunities to invest in public companies that, in turn, provide ongoing disclosures to their investors."

The expansion comes amid a broader push from the SEC and Clayton to ease regulations around the IPO process.

Much of corporate America has complained for years that the IPO process can be too expensive and cumbersome, especially considering the abundance of private capital now available in the U.S. That has led many companies to stay private for longer. The median age of a company conducting an IPO in 2018 was 10 years, according to data published by University of Florida finance professor Jay Ritter. By comparison, the median age of a company hitting the public markets in 2000 was 6 years.

To address those concerns and create more opportunities in the public markets for mom-and-pop investors, the SEC has taken several steps to provide issuers with a clearer path to the public markets during Clayton's tenure.

The regulator began allowing all companies to confidentially file draft IPO registration statements in 2017, for instance. It has also started gathering industry feedback on whether changes need to be made to the quarterly earnings reporting framework that has dominated corporate governance in the U.S. for decades.

Clayton has also started to consider measures that would open up the private markets to more investors, rather than just the high-net-worth individuals and institutional investors deemed to be accredited investors. Most recently, Clayton floated the prospect of a fund product that would provide everyday investors with access to companies that have not yet hit the public markets.

"It's a wonderful thing about our public markets: Ordinary people are right alongside the very sophisticated institutions," Clayton recently said at a CNBC conference.