Distribution Compliance Period
A Distribution Compliance Period is the Regulation S period during which specified securities remain subject to additional offshore-offering restrictions designed to prevent unregistered flowback into the United States.
How it works
Rule 902(f) defines when the period begins, while Rule 903 specifies the applicable duration by offering category and security type. Category 2 transactions generally use a 40-day period. Category 3 debt also generally uses 40 days, while Category 3 equity generally uses one year for nonreporting issuers and six months for reporting issuers. Continuous offerings, identifiable debt tranches and warrant offerings have special commencement provisions.
The period does not always begin on first marketing
Rule 902(f) generally starts the period on the later of first offers to persons other than distributors or closing, with special rules for continuous offerings.
Category 2 generally uses 40 days
Reporting foreign equity and specified debt offerings can fall into the Category 2 framework.
Category 3 debt generally uses 40 days
Additional temporary-global-security and certification mechanics can apply during that period.
Category 3 equity can use six months or one year
Reporting issuers generally use six months; nonreporting issuers generally use one year.
Worked example: reporting vs. nonreporting equity
Two domestic issuers sell Category 3 equity offshore. The reporting issuer generally faces six months, while the nonreporting issuer generally faces one year.
Why the period matters for resale
Legends, purchaser certifications, hedging restrictions and transfer-registration controls can remain important until the relevant period expires.
Common mistakes
Assuming every Regulation S security uses 40 days; starting the clock on the wrong date; ignoring reporting status for equity; and assuming expiration makes every security freely transferable.
Example
A reporting domestic issuer sells equity securities under Category 3 of Regulation S. The applicable Distribution Compliance Period is generally six months, during which purchaser certifications, transfer restrictions, legends and other Rule 903 conditions can apply.
Example
A reporting domestic issuer sells equity securities under Category 3 of Regulation S. The applicable Distribution Compliance Period is generally six months, during which purchaser certifications, transfer restrictions, legends and other Rule 903 conditions can apply.
Professional note
Do not use “40 days” as a universal Regulation S answer. Security type, issuer reporting status and offering category determine both the period and the restrictions that operate during it.
Related terms
- Restricted Securities
Restricted securities are securities acquired in specified unregistered transactions that cannot be freely resold into the public market unless the resale is registered or an exemption is available.
- Offshore Transaction
An Offshore Transaction is a Regulation S offer or sale that satisfies the rule’s location conditions, including that the offer is not made to a person in the United States and the buyer-location or offshore-market test is met.
- Directed Selling Efforts
Directed Selling Efforts are activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the U.S. market for securities offered in reliance on Regulation S.
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