SEC Expands Flexibility for ATM Programs Under New CD&I 116.26

The SEC recently issued new guidance that impacts how small-cap and microcap companies can approach capital formation.

Through new Compliance & Disclosure Interpretation 116.26, the SEC has clarified that issuers may continue selling shares under an existing at-the-market (ATM) program even after becoming subject to baby shelf limitations. For companies operating near the $75 million public float threshold, this is a notable development.

The Prior Framework

Under existing rules, an issuer with a public float below $75 million at the time of filing its Form 10-K becomes subject to the limitations set forth in Instruction I.B.6 of Form S-3. This restricts the amount of securities that can be sold to no more than one-third of the issuer’s public float over any 12-month period.

In practice, this created a significant constraint. Even where a company had previously established an ATM program or entered into an agreement to raise capital in excess of those limits, it could not access that capacity once it became baby shelf restricted.

What Has Changed

Under CD&I 116.26, the SEC has taken a more flexible position.

If an issuer establishes an ATM program while it is eligible to use a primary shelf registration statement on Form S-3 (i.e., while its public float exceeds $75 million), it may continue to utilize that ATM program up to the full registered amount, even if its public float subsequently falls below the threshold.

This effectively preserves access to previously established capital raising capacity, despite a later change in eligibility status.

It is important to note that this interpretation applies only to ATM programs. Other types of shelf takedowns, including registered direct offerings and other transactions, remain subject to traditional baby shelf limitations.

Strategic Implications for Issuers

This development places increased importance on timing and planning.

For issuers at or near the $75 million threshold, establishing or expanding an ATM program while still eligible can preserve significant flexibility. Once the program is in place, the issuer may retain the ability to raise capital up to the full registered amount, even if its public float declines.

Conversely, issuers that fall below the threshold without an ATM program in place remain subject to the one-third limitation and may face more constrained access to capital.

As a result, companies should be proactive in evaluating their current public float, shelf registration capacity, and overall capital markets strategy.

Important Considerations

• CD&I 116.26 allows continued use of an existing ATM program after becoming baby shelf restricted
• The full registered amount under the ATM may remain available if established while eligible
• The interpretation applies only to ATM programs, not other shelf takedowns
• Timing is critical – eligibility is effectively locked in when the ATM is established

Conclusion

This update introduces a new level of flexibility for small-cap issuers and reinforces the importance of forward-looking capital planning.

For companies near the $75 million public float threshold, establishing an ATM program is now a way to preserve optionality. Acting while eligible can make a big difference in maintaining access to capital in the future.

For more information on how this guidance may apply to your company, please contact our team.