On March 19, 2026, the Division of Corporation Finance of the SEC issued a new Corporate Finance Interpretation (CFI) 116.26, (formerly known as Compliance and Disclosure Interpretations), providing meaningful relief for companies conducting at-the-market (ATM) offerings that fall below the $75 million public float threshold required for full shelf eligibility subsequent to the launch of their ATM program. This CFI has important implications for companies contemplating an ATM program, particularly those experiencing volatility in their stock price.
Under General Instruction I.B.6 of Form S-3, or “baby shelf” rule, a company with a public float (calculated based on the market value of the voting and non-voting common equity held by non-affiliates) below $75 million may use Form S-3 for primary offerings if certain conditions are met. One such condition is that the company may not offer and sell more than one-third of its public float in any rolling 12-month period.
Whether or not a company is subject to the baby shelf rule is determined at the time it initially files the shelf registration statement and is re-evaluated each time the company files an amendment or updates the shelf registration statement in accordance with Section 10(a)(3) of the Securities Act. The information contained in the registration statement must not be more than 16 months old, which the company typically accomplishes by filing its Form 10-K. This concept is highly relevant for ATM programs, which are structured as continuous offerings and intended to raise capital incrementally over an extended period of time. Prior to CFI 116.26, a company that originally filed its shelf registration statement when it had a public float at or above $75 million and filed a prospectus supplement to launch an ATM program for a specified offering amount prior to filing its Form 10-K would become subject to the baby shelf rule if its public float were below $75 million at the time it filed its Form 10-K. The company could potentially be forced to curtail or abandon its ATM program before the originally contemplated amount had sold.
CFI 116.26 directly addresses this situation and mitigates the potential whipsaw in a company’s capital raising strategy with each Form 10-K filing. If a company has (1) entered into a sales agreement (sometimes referred to as an equity distribution agreement) with a designated selling agent, (2) filed a prospectus supplement while it is not subject to the baby shelf rule, and (3) registered an ATM program for an amount that the company reasonably expected to offer and sell, the company can continue to sell the fully disclosed amount of the ATM program even if the company’s public float falls below the $75 million threshold at the time of its Section 10(a)(3) update. The prospectus supplement filed before the Section 10(a)(3) update effectively “locks in” the offering capacity for the ATM program, even if the company’s eligibility status changes when it files its Form 10-K.
Strategies for ATM Programs
CFI 116.26 creates meaningful strategic opportunities for companies that rely on ATM programs to raise capital but have volatile market capitalizations or are concerned their stock price may become subject to market volatility. Such companies should consider taking the following steps while their public float is at or above the $75 million threshold:
- Lock in ATM Capacity
Under the baby shelf rule, public float is measured during the 60 days immediately preceding the filing of the shelf registration statement, including any amendment thereto, and at the time of each Section 10(a)(3) update. Companies with an effective shelf registration statement that have or anticipate having a public float at or slightly above the $75 million threshold should consider establishing an ATM program before a Section 10(a)(3) update to preserve the full offering amount for the ATM program. This is particularly valuable for companies in capital-intensive or volatile sectors, where public float can shift meaningfully between annual reporting periods, that want to preserve optionality for an ATM program as a capital-raising strategy. - Monitor Public Float
Companies that are not currently subject to the baby shelf rule should pay special attention to their public float during the 60 days preceding their Form 10-K filing. If the public float declines below $75 million or appears likely to do so, a company should evaluate whether to increase the size of an existing ATM program or to launch a new ATM program before they might become subject to the baby shelf rule. - Act Quickly When Public Float Exceeds $75 Million
If the public float of a company that is subject to the baby shelf rule equals or exceeds $75 million even for one day, that company is no longer subject to the baby shelf rule. The exception lasts until the next post-effective amendment or Section 10(a)(3) update. Accordingly, a company that crosses the $75 million threshold, even briefly, should consider moving expeditiously to increase the size of an existing ATM program or to launch a new ATM program before it is deemed to be subject to the baby shelf rule again.
Limitations and Risks
Companies and their counsel should carefully consider the limitations and risks before launching or modifying an ATM program, including the following:
- Shelf Registration Statement Not Subject to Baby Shelf Rule When Launching ATM Program
The new CFI removes uncertainty surrounding ATM programs that are established while the company is not subject to the baby shelf rule. However, the new CFI only speaks to a specific set of circumstances. While the new CFI could be interpreted as being based on the underlying principle that the sole measurement date for a continuous offering is the filing date of the prospectus supplement for such offering and that does not change when there is a Section 10(a)(3) update, the new CFI may simply be intended as relief for those companies that launched an ATM program in good faith while they were not subject to the baby shelf rule. Absent further guidance from the SEC, if the prospectus supplement for the existing ATM program were filed at a time when the company was subject to the baby shelf rule and the company’s public float had subsequently risen above the $75 million threshold so that it was not subject to the baby shelf rule prior to its Section 10(a)(3) update, the company could not rely on the new CFI to sell the fully disclosed amount of its ATM program if it was again subject to the baby shelf rule following its latest Section 10(a)(3) update. - Relief Only Available for ATM Program Amount Prior to Section 10(a)(3) Update
The new CFI specifically applies to the amount of the ATM program prior to a Section 10(a)(3) update in which the company’s public float is below the $75 million threshold. Thus, any amendment or supplement to an existing program to lock in increased ATM capacity must be filed prior to filing the Form 10-K or other applicable Section 10(a)(3) update. In addition, as noted above, the new CFI alone does not provide unequivocal support for the view that Section 10(a)(3) updates no longer apply to ATM programs and companies should not assume that the amount they are able to sell under an ATM program established while they were subject to the baby shelf rule is not affected by a decrease in their public float at the time of a Section 10(a)(3) update. - ATM Program Amount Must Be What Company Reasonably Expects to Offer and Sell
The new CFI does not provide carte blanche to sell whatever amount under the ATM program a company chooses. To take advantage of the relief provided by CFI 116.26, the securities offered must be an amount “the company reasonably expected to offer and sell.” While there is no specific formula, when locking in ATM capacity, a company should select an amount that seems defensible given the performance of the company’s stock, the anticipated impact of the ATM offerings and the expected duration of the ATM program. - Impact on Other Financing Options
Before locking in a specific amount for its ATM program, a company should also consider the effect it would have on other desired financing options. CFI 116.23 makes it clear that the full amount of the ATM program, including unsold securities, is counted for purposes of the one-third limitation under the baby shelf rule, which would limit the extent to which the shelf registration statement could be used for other primary offerings while subject to the rule. - Whether Stockholder Approval is Required
Before launching an ATM program, companies should consider whether state law or the rules of the stock exchange on which the company’s securities are listed could place restrictions on the size of the program that the board can authorize. For example, Nasdaq Rule 5635(b) and NYSE Rule 312.03(d) require stockholder approval if a listed company engages in a transaction that will result in a change of control. One difference is that Nasdaq Rule 5635(b) expressly includes the “potential issuance” of securities that will result in a change of control. An ATM offering of a significant number of securities could result in a person or group owning 20% or more of the company’s common stock, which according to Nasdaq guidance would be deemed a change of control and appear to fall under 5635(b). At least informally, Nasdaq historically treated bona fide public offerings as exempt from the stockholder approval requirements of Rule 5635(b) (mirroring the explicit exemption for bona fide public offerings from Rule 5635(d)). But there is no guarantee that Nasdaq will continue to take this approach, especially if companies were to attempt to launch ATM programs in amounts many times the size of the company’s market capitalization. Companies should seek clarification from their applicable exchange as to the applicability of Nasdaq or NYSE rules or structure their ATM program so that it could not result in the issuance of 20% or more of the company’s voting securities. - Relief Only for Section 10(a)(3) Update
The new CFI only references a company’s ability to sell the fully disclosed amount of its ATM program if the company fails to meet the $75 million threshold at the time of its Section 10(a)(3) update. A company that filed a post-effective amendment to a shelf registration statement for reasons other than a Section 10(a)(3) update (for example, because the company was no longer a “well-known seasoned issuer” or to add new classes of securities to the registration statement) would not be able to rely on the new CFI if it became subject to the baby shelf rule following the filing of such post-effective amendment. - Application to Foreign Private Issuers
Foreign private issuers file shelf registration statements on Form F-3, which has a similar baby shelf rule under General Instruction I.B.5. CFI 116.26 specifically addresses ATM programs offered pursuant to a prospectus supplement to a Form S-3 shelf registration statement and, while it might be reasonable for the guidance to extend to the Section 10(a)(3) update of Form F-3 through the filing of its Form 20-F, the SEC has not affirmatively stated that foreign private issuers are able to avail themselves of the same relief from the one-third limitation. - Application to Other Continuous Offerings
The new CFI only addresses ATM programs. Even if the new CFI does not reflect an underlying principle with respect to the measurement date for continuous offerings, it is possible that the SEC would be inclined to grant the same relief to other continuous offerings, such as an equity line of credit (ELOC), that were launched in good faith while an effective registration statement was not subject to the baby shelf rule. However, the SEC may be less inclined to provide such relief for continuous offerings that have been able to work around the limitations of the baby shelf rule. For example, ELOCs have been established on a registration statement on Form S-1, which does not have an equivalent to the baby shelf rule, by registering the resale of the shares issued pursuant to the ELOC.
Illustrative Example
As a hypothetical, consider Alpha Inc., which had a public float of $60 million when it filed its Form S-3 in July and filed a prospectus supplement for a $20 million ATM program in September. In October, positive buzz regarding its latest product caused its stock price to rise 30%, which pushed its public float over the $75 million threshold. Alpha Inc. then sold $10 million off its ATM program. However, Alpha Inc.’s financial results did not meet expectations when it filed its latest quarterly report on Form 10-Q, resulting in a decline in its stock price such that its public float was below the $75 million threshold at the time of its Section 10(a)(3) update when it filed its next Form 10-K. If Alpha Inc. does not have any availability under the baby shelf rule, absent further SEC guidance, it would be unable to rely on the new CFI to sell the remaining $10 million off its ATM program.
Since it was no longer limited by the baby shelf rule in October following the 30% rise in its stock price, Alpha Inc. could have filed an amendment to increase its ATM program to a total of $30 million at such time. After filing its Form 10-K, Alpha Inc. would then be able to rely on the new CFI and could sell the remaining $20 million off its amended ATM program. Alpha Inc. would be able to rely on the new CFI even if it filed the prospectus supplement for the amended ATM program after its public float was again below the $75 million threshold, as long as it was before the filing of its Form 10-K.
After filing its Form 10-K, Alpha Inc. is approached by an institutional investor who is interested in a registered direct offering for $5 million. If Alpha Inc. had amended its ATM program to sell up to $30 million of securities to lock in ATM capacity prior to filing its Form 10-K, it would not be able to conduct the registered direct offering unless it terminated or amended the ATM program or waited until 12 months after the amendment to conduct an offering. Alpha Inc. will need to weigh the influx of $5 million at that time, and uncertainty about how much they could raise subsequently against the certainty of raising $30 million over the life of the ATM program.
Because CFIs reflect informal staff positions that may be revised or withdrawn at any time, and it is possible that broader rulemaking on the baby shelf framework could follow, companies should be cautious about building long-term capital markets strategies around the current guidance without actively monitoring SEC developments.
For questions about recent SEC guidance regarding ATM programs and how the latest CFI could affect your company, contact the authors, your McGuireWoods contact or a member of the firm’s Public Company Advisory Practice Group or Capital Markets Practice Group.