What is Shelf Registration
Shelf registration is a procedure, included in a regulation, that a corporation can evoke to comply with U.S. Securities and Exchange Commission (SEC) registration requirements for a new stock offering up to two years before doing the actual public offering. However, the corporation must still file the required annual and quarterly reports with the SEC. Shelf registration is formally known as SEC Rule 415.
BREAKING DOWN Shelf Registration
Shelf registration is a method for publicly traded companies to register new stock offerings without having to issue them immediately. Instead, the securities can be issued at any time within a two-year period, allowing a company to adjust the timing of the sales to take advantage of more favorable market conditions should they arise.
Sometimes current market conditions are not favorable for a specific firm to issue a public offering. For example, suppose the housing market is heading toward a dramatic decline. In this case, it may not be a good time for a home builder to come out with its second offering, as many investors will be pessimistic about companies in that sector. By using shelf registration, the firm can fulfill all registration-related procedures beforehand and go public quickly when conditions become more favorable.
Once shelf registration is complete, the only other SEC requirements revolve around standard reporting. The issuing company can adjust the release of the securities depending on variances in comparable market areas. If the market is expected to be unfavorable for a period of time, the issuer is not obligated to release the securities as long as time still exists within the two-year window.
The company maintains any unissued shares; the shares fall into the category of treasury shares. Since they are not seen as outstanding, they are not included in calculations used to determine statistics like earnings per share. Even though they are not issued, investor awareness of the existence of the pending shares can affect current market sentiment and activity.
If a company has a longer term new security issuing plan, the process of shelf registration allows it to address multiple issues of a particular security within a single registration statement. This can be simpler to create and manage, since multiple filings are not required, lowering administrative costs for the business as a whole. Further, no maintenance requirements exist beyond standard reporting, because shelf registrations do not create an additional burden while they are waiting for issue.
Company Use of Shelf Registrations
SafeStitch Medical Inc. (formerly TransEnterix), a manufacturer of robotic surgical technology, used shelf registration to prepare new offerings to correspond with launch plans of a new product. When shelf registrations were expanded pursuant to the release of a new product line, the market responded with a 10% increase in share value. Even though the risk of share dilution was present, the market responded to the favorable news regarding the pending technological advancement.