To reinvigorate capital markets, the SEC must update a rule sidelining billions

Public companies rely on follow-on offerings to raise capital quickly and efficiently to fund expansion, invest in new projects, strengthen their balance sheets, and create jobs. In 2025 alone, American companies raised roughly $175 billion through more than 1,000 follow-on offerings. These offerings affected companies across the U.S. and in every major sector of the economy, including manufacturing, healthcare, energy, and hospitality.

Unfortunately, an outdated SEC rule is making it harder for companies to access that capital.

The cost to capital formation and economic growth

The current unnecessary requirement reduces capital available to companies. A survey of MFA investment manager members shows that the rule prevented funds from deploying more than $38 billion into over 3,700 follow-on offerings between 2021 and 2025. These estimates are conservative as they are based on a small subset of investment managers. The true cost is likely much higher. When the rule excludes otherwise willing investors from an offering, issuers face a smaller pool of potential buyers and less competition for shares. That reduced demand can force companies to offer larger discounts to get the deal done.

Academic research confirms this finding, showing that the current limits have reduced competition in overnight offerings. One study found that the average discount on overnight offerings increased from 3.62% to 6.24% following the 2007 amendments. For a typical $200 million offering, that translates to roughly $3.3 million in added cost borne by the company and its shareholders.¹ Multiplied across hundreds of deals per year, the drag on American capital formation is substantial.

The easy fix

The current rule was written for a market where offerings unfolded over days. Today's follow-on offerings are completed overnight.

Manipulation is illegal whether it occurs before or after an offering is announced, as it always has been under existing securities laws, and proposed changes here would not alter that. MFA and other trade associations have asked the SEC to make a targeted change: begin the restricted period when an offering is publicly announced rather than five trading days before pricing. If an investor had no knowledge that an offering was coming, prior trading activity could not have been intended to manipulate that offering.

This reform would not weaken the rule's core protections. Any trading once an offering is publicly announced would remain fully subject to the rule, while ensuring that ordinary investment currently ensnared in the rule, made with no knowledge of a coming offering, is no longer swept in. The SEC should update the rule so it continues to target actual market manipulation without preventing eager investors from providing capital to American companies.

MFA submitted letters to the SEC on May 28, 2026 requesting exemptive relief and modernization of Rule 105 of Regulation M.

Further reading

• Securities and Exchange Commission - https://www.sec.gov/data-research/statistics-data-visualizations/follow-registered-offerings-fros
• Managed Funds Association - https://www.mfaalts.org/letter/mfa-sends-letter-to-sec-with-request-for-relief-for-restricted-period-in-rule-105-of-reg-m/

References:

1. Autore, D. M., & Gehy, D. (2013). Changing the rules again: Short selling in connection with public equity offers. Journal of Banking & Finance, 37(6), 1974-1985. https://doi.org/10.1016/j.jbankfin.2013.01.014.

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