Offshore Securities Offerings: Regulation S
Sometimes companies wish to issue securities outside of the U.S. and have no intention of distributing them within the U.S. These issuers do not need to register their securities with the SEC, because they are eligible for a Regulation S exemption. Regulation S can be used by either U.S. or foreign companies to issue securities that will only be bought and sold in offshore transactions (which does not mean literally offshore but only outside the U.S.; that is, such sales may occur in Canada and Mexico).
A Regulation S offering may be structured either as a public or private offering in non-U.S. jurisdictions. No offers of these securities can be made to people living in the United States. This is true even if the people are citizens of another country but living in the U.S. The law states that there can be no “directed selling efforts” in the U.S.
Securities fall under Regulation S if an offer is not made to a person in the United States and at least one of the following is true:
- • At the time the buy order is originated, the buyer is outside the U.S., or the seller and any agent of the seller reasonably believe the buyer to be outside the U.S.
- • In an issuer sale (defined in Rule 903), the transaction is executed in an established foreign securities exchange located outside the U.S.
- • In a resale (defined in Rule 904), the sale is executed in a “designated offshore securities market,” which is defined to include a host of recognized foreign stock exchanges.
A Regulation S offering can be combined with a Rule 144A offering and sold inside the U.S. to QIBs. An issuer can sell Regulation S securities immediately on a foreign exchange, but there are restrictions on when they can be sold to U.S. residents.
Rule 903 applies to offshore offers and sales of securities by issuers, distributors, and their affiliates or anyone acting on their