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What is Regulation S?

Apr 26, 2023 | Securities

Regulation S gives U.S. and non-U.S. companies a way to raise capital for an overseas company while remaining compliant with United States securities law. This regulation is a safe harbor provision that exempts international securities from having to register under Section 5 of the Securities Act of 1933. It can be used both for equity and debt securities — and since the safe harbors are not exclusive, an issuer may also rely on another applicable registration exemption. 

How Does Regulation S Work for International Securities?

Regulation S is only available when it comes to “offers and sales of securities outside the United States that are made in good faith.” It cannot be used as a means to circumvent the Securities and Exchange Commission registration requirements. Generally, an offering may qualify for non-registration under Regulation S if it meets two criteria:

  • The offer or sale is made in an offshore transaction
  • There are no directed selling efforts made by the issuer or any person acting on their behalf  

Several different types of Regulation S offerings may be conducted by U.S. or foreign issuers. These include standalone Regulation S offerings, where the issuer conducts an offering only in one or more countries outside of the U.S., as well as combined Regulation S offerings which involve offerings outside the U.S. and Rule 144A offerings inside the U.S. Regulation S continuous offering programs for debt securities are also allowed transactions. 

Regulation S allows offerings of foreign government securities and offerings made under certain conditions under an employee benefit plan administered under the laws of another country.  

What Qualifies as an “Offshore Transaction?”      

A sale of securities is considered an “offshore transaction” if the offer is not made to a person in the United States and the buyer is outside the U.S. — or the transaction is executed on the trading floor of a foreign exchange. A market participant may also establish that they had the “reasonable belief” the buyer was located outside the U.S. for the purposes of Regulation S.    

Offers and sales of securities targeted at certain identifiable groups of U.S. citizens living abroad are not deemed offshore transactions — such as those involving members of the armed forces serving overseas. However, offers of securities to those excluded from being classified as a “U.S. person” because they are international organizations are considered made in offshore transactions.     

Who Can Rely on Regulation S?

Reporting and non-reporting U.S. and foreign issuers can rely on Regulation S, including the Rule 901 general statement and the safe harbor of Rule 903. Distributors, affiliates of issuers, and any person acting on behalf of an issuer, distributor, or affiliate may use the exemption. Regulation S is also available to non-U.S. resident purchasers and U.S. residents not offering participants.    

Regulation S is not available for securities offered and sold by open-end investment companies, and unit investment trusts registered or required to be registered under the Investment Company Act of 1940. It also cannot be used by closed-ended investment companies required to be registered under the 1940 Act but are not. 

Contact an Experienced International Securities Attorney

It’s crucial for companies who will be raising capital to be aware of the complexities of Regulation S. Brinen & Associates is committed to providing knowledgeable representation for a variety of securities matters, including those involving Regulation S. Call (212) 330-8151 or send us a message to learn how our international securities attorneys can help.


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