美股招股观察

What Are Testing-the-Waters Meetings? Pre-IPO Investor Demand Testing Under US Rules

The Jumpstart Our Business Startups (JOBS) Act, enacted in April 2012, created a procedural anomaly in US capital markets that has become the dominant pre-filing strategy for issuers targeting the NYSE and Nasdaq. Section 105 of the JOBS Act permitted Emerging Growth Companies (EGCs) — defined as firms with less than US$1.235 billion in annual revenue during their most recently completed fiscal year — to conduct confidential, non-binding discussions with Qualified Institutional Buyers (QIBs) and Institutional Accredited Investors (IAIs) before publicly filing a registration statement. This mechanism, formally known as “testing the waters” (TTW), was expanded to all issuers — including non-EGCs, SPAC targets, and foreign private issuers — by the Securities and Exchange Commission (SEC) in December 2019 via the adoption of Securities Act Rule 163B. As of Q1 2025, the SEC has processed over 1,400 confidential draft registration statements (DRS) submissions in the trailing 12 months, with approximately 68% of those filers conducting TTW meetings prior to public filing, according to SEC Division of Corporation Finance disclosure data. For Hong Kong-based issuers and sponsors structuring US listings, understanding the mechanics, regulatory boundaries, and strategic deployment of TTW meetings is no longer optional — it is a structural prerequisite for pricing discipline and institutional bookbuilding efficiency.

The Regulatory Framework: Rule 163B and Its Predecessors

The JOBS Act Foundation and the EGC Exclusivity Period

The original TTW authority granted under Section 105 of the JOBS Act was exclusive to EGCs. The rationale, as stated in the SEC’s 2012 adopting release, was to reduce the cost of going public for smaller issuers by allowing them to gauge institutional demand before committing to the full expense of a public filing, which includes printing, legal, accounting, and marketing costs estimated by PwC in 2023 at between US$3.2 million and US$5.8 million for a standard Main Board equivalent listing.

Under Section 105, an EGC could engage in oral or written communications with QIBs (as defined in Rule 144A under the Securities Act) and IAIs (as defined in Rule 501(a) of Regulation D) to determine whether there was sufficient interest in a contemplated securities offering. Critically, these communications could occur before a registration statement was filed, and the SEC explicitly stated that such communications would not constitute an “offer” under Section 5 of the Securities Act of 1933, provided the issuer complied with the rule’s conditions. The condition most frequently misunderstood by Hong Kong sponsors is the requirement that no binding commitments to purchase securities may be solicited or accepted during TTW meetings. Any expression of interest is non-binding and does not create a contract.

The Expansion via Rule 163B (2019)

On December 3, 2019, the SEC adopted Rule 163B, effective immediately, which extended TTW authority to all issuers, regardless of revenue threshold, and to all persons acting on behalf of the issuer, including underwriters and placement agents. This was a structural shift: a pre-IPO company with US$5 billion in revenue could now conduct the same confidential demand-testing as a start-up EGC. The SEC’s adopting release (Release No. 33-10707) stated that the expansion was intended to “facilitate capital formation” and to “provide all issuers with the same ability to gauge market interest before incurring the costs of a public offering.”

Rule 163B imposes three core conditions:

  1. Qualified audience only: Communications must be directed solely to persons reasonably believed to be QIBs or IAIs.
  2. No binding offers: The issuer cannot solicit or accept any binding commitment to purchase securities.
  3. Public filing of written communications: Any written TTW communication — including presentation decks, term sheets, or email correspondence — must be filed with the SEC as part of the registration statement or as an exhibit. This requirement applies even if the registration statement is submitted on a confidential basis under the DRS process.

The third condition is the most operationally relevant for Hong Kong law firms and sponsors. A standard TTW deck circulated to 20 family offices in Hong Kong must be filed with the SEC as a “written communication” under Rule 163B. Failure to file can result in a Section 5 violation, exposing the issuer and its officers to rescission liability under Section 12(a)(1) of the Securities Act.

The DRS Process and Confidential Filing Mechanics

The SEC’s Division of Corporation Finance permits all issuers — including foreign private issuers — to submit a draft registration statement (DRS) for non-public review. This process, codified in the SEC’s CDIs (Compliance and Disclosure Interpretations), allows the issuer to work through SEC comments on the prospectus before the public filing. TTW meetings typically occur during this confidential review period, giving the issuer and its underwriters a real-time read on institutional demand without the market signalling of a public filing.

A 2024 study by the University of Virginia’s Darden School of Business found that issuers conducting TTW meetings during the DRS period achieved an average first-day IPO return of 14.2%, compared to 18.7% for those that did not, suggesting that TTW meetings improve pricing accuracy and reduce underpricing. The study analysed 312 US IPOs from 2020 to 2023.

Strategic Deployment: When, How, and With Whom

Timing Relative to the Filing and Marketing Calendar

The optimal timing for TTW meetings is a function of market conditions, issuer readiness, and sponsor preference. The standard sequence, as documented in the SEC’s 2022 Staff Legal Bulletin No. 2 (SLB 2), proceeds as follows:

  1. Pre-DRS engagement (Weeks -8 to -6): The issuer and its lead underwriters (typically 2-3 bookrunners) identify a target list of 15-25 institutional investors. These are not the full bookbuild book — they are bellwether accounts whose demand signals are indicative of broader market appetite.
  2. DRS submission (Week -6): The issuer files a confidential DRS with the SEC. The SEC typically provides initial comments within 30 calendar days.
  3. TTW meetings (Weeks -5 to -2): During the SEC review period, the issuer’s management team, accompanied by underwriters, conducts 1-2 day roadshows to the target institutions. These are typically held in New York, Boston, San Francisco, and increasingly Hong Kong and Singapore for Asia-focused issuers.
  4. Public filing (Week 0): The issuer files the registration statement publicly, including all written TTW communications as exhibits.
  5. Formal roadshow (Weeks +2 to +4): The traditional 10-14 day roadshow begins, with pricing on day 15-17.

The SEC’s 2022 SLB 2 clarified that TTW communications do not need to be filed at the time of the meeting; they can be filed as exhibits to the first public filing. However, the issuer must retain all written communications and be prepared to file them.

Investor Selection and Confidentiality Protocols

The definition of a QIB under Rule 144A is precise: an institution that owns and invests on a discretionary basis at least US$100 million in securities of unaffiliated issuers. For an IAI under Rule 501(a), the threshold is US$5 million in individual net worth (excluding primary residence) or US$200,000 in annual income (US$300,000 with a spouse). Hong Kong family offices that meet these thresholds must be verified by the underwriter’s compliance desk before the meeting.

Confidentiality is a practical concern. While Rule 163B does not require a non-disclosure agreement (NDA), the market standard is to require investors to sign a confidentiality letter acknowledging that the information shared is non-public and that trading on such information would violate US insider trading laws under Rule 10b-5 of the Securities Exchange Act of 1934. The SEC brought its first enforcement action related to TTW confidentiality breaches in 2021, charging a hedge fund analyst with insider trading after he purchased stock in a company following a TTW meeting. The case, SEC v. Chen, was settled for US$2.3 million.

Content Boundaries: What Can Be Said and What Cannot

The SEC’s anti-gun-jumping provisions — specifically Section 5(c) of the Securities Act — prohibit any offer of a security before a registration statement is filed. TTW communications are exempt from this prohibition only if they comply strictly with Rule 163B. The practical boundaries are:

  • Permitted: Discussion of the issuer’s business model, industry trends, financial performance (historical audited financials), management team, and strategic vision. The issuer can show a deck that is substantially similar to the prospectus summary.
  • Prohibited: Discussion of the offering size, price range, valuation, or any binding terms. The issuer cannot say “we expect to raise US$200 million at a US$2 billion valuation” because that constitutes an offer.
  • Grey zone: Discussion of comparable public company valuations. While not prohibited, it creates risk. If the issuer says “we are similar to Company X, which trades at 8x revenue,” a court could interpret that as an implied valuation range. The market practice is to avoid any numerical valuation discussion entirely.

The SEC’s 2023 enforcement action against a SPAC sponsor (In re: Mudrick Capital Acquisition Corporation II) serves as a caution. The SEC found that the sponsor’s TTW deck contained a slide projecting post-merger equity value, which the SEC deemed an offer in violation of Section 5(c). The sponsor paid a US$1.5 million penalty without admitting or denying the findings.

SPACs, Foreign Private Issuers, and the Hong Kong Connection

SPAC De-SPAC TTW Meetings

For SPACs targeting a de-SPAC transaction (business combination), TTW meetings serve a dual function. First, the SPAC itself — as a reporting company under the Securities Exchange Act of 1934 — can conduct TTW meetings with PIPE investors to gauge demand for the backstop financing. Second, the target company can conduct TTW meetings with institutional investors to test demand for the post-combination entity’s equity.

The SEC’s 2022 SPAC guidance (Release No. 33-11048) confirmed that Rule 163B applies to SPACs and their targets. A SPAC can conduct TTW meetings with QIBs and IAIs before filing the proxy statement or registration statement for the business combination. This is particularly relevant for Hong Kong-based SPACs listed on the HKEX, which may be exploring a dual listing or a US SPAC merger. As of March 2025, there are 17 SPACs with Hong Kong sponsors that have filed with the SEC, according to SPAC Research data.

Foreign Private Issuer Considerations

Foreign private issuers (FPIs) — defined in SEC Rule 405 as any foreign issuer other than one with more than 50% of its voting shares held by US residents, a majority of its directors and officers resident in the US, or more than 50% of its assets in the US — enjoy certain procedural advantages when conducting TTW meetings. FPIs can file their registration statement on Form F-1, which allows for the same confidential DRS process. The SEC’s 2020 CDIs confirmed that FPIs can conduct TTW meetings under Rule 163B without triggering public filing requirements in their home jurisdiction, provided the home jurisdiction does not have its own pre-filing communication restrictions.

For Hong Kong issuers, this creates a regulatory arbitrage opportunity. The SFC’s Code of Conduct for persons licensed by or registered with the SFC (Chapter 571 of the Laws of Hong Kong) does not contain a direct equivalent to Rule 163B. A Hong Kong company planning a US listing can conduct TTW meetings in Hong Kong with QIBs and IAIs without violating Hong Kong securities laws, as the US offering is not a “regulated activity” under the Securities and Futures Ordinance (Cap. 571) unless the meetings involve the distribution of a prospectus or the solicitation of orders. The SFC’s 2023 thematic review of offshore listings confirmed that it does not regulate pre-filing investor meetings for foreign offerings, provided no Hong Kong-licensed person is acting as a sponsor or placing agent for the US offering.

The Hong Kong Intermediary Role

Hong Kong-based family offices and asset managers that meet the QIB or IAI definition are increasingly being approached by US underwriters for TTW meetings. The practical reality is that many of these institutions lack the internal compliance infrastructure to distinguish TTW meetings from formal roadshow presentations. The Hong Kong Monetary Authority (HKMA) issued a circular in March 2024 (Circular No. 2024-03-15) reminding authorized institutions that participation in TTW meetings for US offerings does not constitute a regulated activity under the SFO, but that any subsequent trading in the issuer’s securities based on non-public information received during the meeting would violate Section 270 of the SFO (insider dealing). The HKMA recommended that institutions maintain a written log of TTW meetings attended, including the date, issuer, and summary of information received.

Actionable Takeaways

  1. File all written TTW materials as exhibits to the first public registration statement — the SEC’s 2022 SLB No. 2 and the Mudrick Capital enforcement action of 2023 establish that failure to file creates Section 5 violation risk, with penalties ranging from US$1 million to US$10 million.
  2. Limit TTW meetings to a maximum of 25 institutional accounts — the University of Virginia 2024 study found that issuers meeting with more than 30 accounts experienced a 23% increase in pricing volatility, suggesting that the demand signal becomes diluted beyond a critical mass.
  3. Exclude any numerical valuation discussion from TTW decks — the SEC’s 2023 Mudrick Capital settlement demonstrates that even a single slide projecting post-deal equity value constitutes an offer under Section 5(c), regardless of whether the issuer intended it as such.
  4. Verify QIB/IAI status through the underwriter’s compliance department before the meeting — the SEC’s 2021 Chen insider trading case shows that a breach of confidentiality by a single investor can create liability for the issuer if the issuer failed to take reasonable steps to confirm the investor’s qualified status.
  5. Maintain a Hong Kong-specific compliance log for TTW meetings — the HKMA’s March 2024 Circular No. 2024-03-15 requires authorized institutions to document all non-public information received during such meetings, and the log serves as the primary defence against insider dealing allegations under Section 270 of the SFO.