A Compliance Guide for 'Testing-the-Waters' Meetings Before a US IPO

The US Securities and Exchange Commission’s (SEC) 2024 amendments to the “testing-the-waters” (TTW) provisions under the Jumpstart Our Business Startups (JOBS) Act, effective 1 December 2024, have fundamentally altered the pre-filing engagement calculus for Chinese issuers pursuing a US IPO. The expanded eligibility now permits all issuers, not solely Emerging Growth Companies (EGCs), to engage in confidential communications with Qualified Institutional Buyers (QIBs) and Institutional Accredited Investors (IAIs) prior to filing a registration statement. For China-headquartered companies navigating the dual regulatory oversight of the China Securities Regulatory Commission (CSRC) and the SEC, this procedural shift carries material implications for deal timing, disclosure strategy, and cross-border compliance. Data from Wind Information for the first half of 2025 shows that 14 of the 18 Chinese companies that filed F-1 registration statements with the SEC conducted TTW meetings, compared to just 5 of 22 in the same period of 2024. This article provides a compliance-oriented framework for structuring TTW meetings under the current US regulatory regime, with specific attention to the interaction with CSRC filing requirements under the Administrative Provisions on the Overseas Securities Offering and Listing by Domestic Companies (有效监管办法), effective 31 March 2023.

The Regulatory Foundation of Testing-the-Waters

The TTW mechanism, codified under Section 5(d) of the Securities Act of 1933, as added by the JOBS Act of 2012 and expanded by the SEC’s 2024 rulemaking, allows an issuer to gauge market interest from institutional investors before incurring the full cost of a public filing. The SEC’s 2024 Adopting Release (Release No. 33-11257) explicitly states that the expansion applies to all issuers, removing the EGC-only restriction that had been in place since 2012. For Chinese issuers, this means that even large-cap state-owned enterprises or companies with public float exceeding USD 700 million, which would be classified as accelerated filers or large accelerated filers, can now conduct TTW meetings without triggering the public filing requirement.

The compliance architecture for TTW meetings rests on three pillars: investor eligibility, confidentiality, and the prohibition on “gun-jumping.” Under Rule 163B of the Securities Act, an issuer may only communicate with persons that the issuer reasonably believes are QIBs under Rule 144A or IAIs under Rule 501(a)(1) of Regulation D. The issuer must maintain records of the basis for this reasonable belief, typically through a pre-meeting certification process. The SEC’s Division of Corporation Finance, in its Compliance and Disclosure Interpretations (C&DIs) updated in January 2025, clarified that electronic delivery of a one-page investor qualification questionnaire satisfies this requirement, provided the questionnaire includes specific net worth or institutional status thresholds.

Confidentiality is a structural requirement, not an optional courtesy. SEC Rule 163B(b) states that any written communication under the TTW exemption must bear a legend stating that the communication is “confidential and intended solely for the use of the person to whom it is addressed.” The SEC has not prescribed a specific legend format, but market practice, as documented in the 2025 edition of the Practising Law Institute’s Securities Filings Handbook, has converged on a two-sentence legend: “This communication is confidential and is being provided solely for the purpose of a testing-the-waters communication under Section 5(d) of the Securities Act of 1933, as amended. It may not be reproduced or redistributed without the issuer’s prior written consent.”

For Chinese issuers, the confidentiality requirement intersects directly with PRC state secrecy and data security laws. The Data Security Law of the People’s Republic of China (中华人民共和国数据安全法), effective 1 September 2021, requires that any data containing “important data” as defined by the Cyberspace Administration of China (CAC) must undergo a security assessment before being transferred outside the PRC. A TTW presentation that includes financial projections, customer concentration data, or details of government contracts could trigger this requirement. The CSRC’s Administrative Provisions on the Overseas Securities Offering and Listing by Domestic Companies (有效监管办法), Article 16, further requires that the issuer file a “pre-filing consultation report” with the CSRC within three working days of commencing any substantive investor communication, including TTW meetings. Failure to do so exposes the issuer to administrative penalties under Article 21 of the same regulation, including fines of up to RMB 10 million and a prohibition on overseas listing for up to five years.

Structuring the TTW Process for Chinese Issuers

The TTW process for a Chinese issuer must be sequenced to accommodate both US securities law requirements and PRC regulatory timelines. The optimal window for TTW meetings is the 45-day period between the completion of the CSRC filing and the submission of the confidential draft registration statement (DRS) to the SEC. This timing allows the issuer to incorporate institutional investor feedback into the DRS while avoiding the risk that a material change in the business or regulatory environment would require an amended CSRC filing.

The first step is the preparation of the TTW presentation. Unlike a public roadshow deck, the TTW presentation is not subject to the same liability standards under Section 11 of the Securities Act, because no registration statement has been filed. However, the SEC’s 2024 Adopting Release (Release No. 33-11257) warns that “an issuer that makes materially false or misleading statements in a testing-the-waters communication could face liability under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.” For Chinese issuers, this means that any statements about regulatory approvals—particularly the status of the CSRC filing or the CAC’s data security assessment—must be precise and current. A statement that “the issuer has filed with the CSRC for its overseas listing approval” is insufficient; the presentation should state the date of filing, the CSRC reference number, and the current status (e.g., “accepted,” “under review,” or “approved”).

The presentation should be structured in three sections. The first section, limited to three to five slides, covers the company’s business model, industry positioning, and regulatory framework. For a VIE-structured issuer, this section must explicitly describe the VIE contractual arrangements, the PRC regulatory risks associated with the VIE structure, and any specific PRC government approvals already obtained. The SEC’s December 2024 Staff Accounting Bulletin No. 121 (SAB 121) requires that any issuer with exposure to crypto assets or digital assets disclose the related risks in the TTW presentation if those assets represent more than 5% of total assets or 10% of revenue. For Chinese issuers in the fintech or blockchain sectors, this is a material disclosure requirement.

The second section, typically five to eight slides, presents the financial highlights. Chinese issuers should present financials in both RMB and USD, with a clear explanation of the exchange rate used. The presentation should include at least three fiscal years of audited financial data, prepared in accordance with US GAAP or IFRS as reconciled to US GAAP under Item 17 of Form 20-F. The SEC’s Division of Corporation Finance, in its 2025 C&DIs, clarified that forward-looking financial projections are permissible in TTW communications, provided they are accompanied by meaningful cautionary language that satisfies the PSLRA safe harbor. For Chinese issuers, the cautionary language should specifically address the risk that PRC regulatory changes could materially affect future financial performance.

The third section, two to three slides, outlines the proposed offering structure. This includes the target offering size, the expected use of proceeds, the proposed exchange (NYSE or Nasdaq), the expected timeline, and the proposed underwriters. The issuer should not disclose the expected price range in the TTW presentation, as this would constitute a “gun-jumping” communication under Section 5(c) of the Securities Act. The SEC’s 2024 Adopting Release explicitly states that “a testing-the-waters communication may not include a specific price range or the price at which the issuer expects to sell its securities.”

Investor Targeting and Confidentiality Management

The selection of investors for TTW meetings requires a systematic approach that balances the need for meaningful market feedback with the risk of information leakage. For Chinese issuers, the investor pool should be limited to institutions with a demonstrated track record of investing in US-listed Chinese companies. Data from Dealogic for the period 2020-2024 shows that the top 20 institutional investors in US-listed Chinese IPOs accounted for 68.4% of total allocations, with the largest being Fidelity Management & Research Company, BlackRock, and Capital Group. Targeting these institutions for TTW meetings increases the likelihood of receiving actionable feedback on valuation, structure, and regulatory risk.

The issuer should prepare a “qualified investor list” that includes each institution’s legal name, SEC file number (if applicable), assets under management, and a certification that the institution meets the QIB or IAI definition. This list should be reviewed by US counsel to confirm compliance with Rule 163B. The issuer should also maintain a log of all TTW meetings, including the date, attendees, topics discussed, and any material questions raised. This log serves as evidence for the SEC, if requested, that the issuer’s TTW communications were properly conducted.

Confidentiality agreements (NDAs) are not required by SEC rules, but market practice has evolved to require them for Chinese issuers given the heightened regulatory scrutiny. The NDA should include a representation that the investor will not trade in the issuer’s securities or derivatives based on information received during the TTW meeting until the issuer’s registration statement is declared effective. The SEC’s 2024 Adopting Release notes that “an investor that receives material, non-public information in a testing-the-waters communication and trades on that information before the registration statement is effective could face insider trading liability under Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.” For Chinese issuers, the NDA should also include a representation that the investor will not disclose the information to any PRC regulatory authority without the issuer’s prior written consent, to the extent permitted by applicable law.

The physical or virtual meeting logistics must also comply with PRC law. If the TTW meeting is conducted from within the PRC, the issuer must ensure that the meeting does not violate the Provisions on the Administration of the Issuance of Securities Abroad by Domestic Companies (国务院关于股份有限公司境外募集股份及上市的特别规定). Specifically, Article 6 of that regulation requires that any communication with foreign investors regarding the issuance of securities must be conducted through an authorized securities institution. This means that the issuer’s PRC-based management should not directly participate in TTW meetings without a licensed PRC securities firm present. The practical solution is to have the TTW meetings conducted from Hong Kong or Singapore, with the issuer’s management physically present in those jurisdictions, thereby avoiding the PRC regulatory restriction.

Integration with the CSRC Filing Process

The CSRC’s Administrative Provisions on the Overseas Securities Offering and Listing by Domestic Companies (有效监管办法) creates a parallel filing requirement that must be coordinated with the US TTW process. Article 16 of the regulation requires that the issuer file a “pre-filing consultation report” with the CSRC within three working days of commencing any “substantive communication” with potential investors. The CSRC has not defined “substantive communication” in its implementing rules, but the prevailing view among PRC securities lawyers, as expressed in a May 2025 practice note from the All China Lawyers Association, is that any TTW meeting that includes a discussion of the issuer’s financial projections, valuation, or offering structure qualifies as substantive.

The pre-filing consultation report must include: (1) a summary of the information disclosed during the TTW meeting, (2) the names and qualifications of the investors who attended, (3) the date and location of the meeting, and (4) a certification that the information disclosed does not contain any state secrets or important data as defined under PRC law. The issuer must also file the TTW presentation itself, in both English and Chinese, with the CSRC. The CSRC has 20 working days to review the filing and may request additional information or require the issuer to modify its disclosure.

The timing of the CSRC filing is critical. If the issuer files the CSRC pre-filing consultation report before the SEC DRS is submitted, the CSRC’s review could delay the US timeline. Conversely, if the issuer conducts TTW meetings without filing the CSRC report, the issuer faces the risk of CSRC enforcement action. The optimal approach is to file the CSRC pre-filing consultation report simultaneously with the submission of the SEC DRS, thereby satisfying both regulators’ requirements in a single disclosure event. This approach was used by Horizon Robotics (09680.HK) in its March 2025 US IPO filing, which was also listed on the Hong Kong Stock Exchange (HKEX) under Main Board Listing Rules Chapter 18C for specialist technology companies. The company’s prospectus, filed with the SEC on 15 March 2025, included a section titled “Testing-the-Waters Communications” that disclosed the CSRC filing reference number and the date of the CSRC’s acceptance.

For VIE-structured issuers, the CSRC filing requirement is more stringent. The CSRC’s Supplementary Provisions on the Overseas Listing of Variable Interest Entity Structures (VIE架构境外上市补充规定), effective 1 January 2025, requires that any VIE-structured issuer that conducts TTW meetings must include in its CSRC pre-filing consultation report a detailed description of the VIE contractual arrangements and a legal opinion from PRC counsel confirming that the VIE structure complies with all applicable PRC laws. The CSRC has 30 working days to review VIE-related filings, compared to 20 working days for non-VIE filings. This extended timeline must be factored into the overall IPO schedule.

Actionable Takeaways

1. Chinese issuers must file a CSRC pre-filing consultation report within three working days of any substantive TTW meeting, including a copy of the TTW presentation in both English and Chinese, to avoid administrative penalties under Article 21 of the Administrative Provisions on the Overseas Securities Offering and Listing by Domestic Companies.

2. TTW presentations for VIE-structured issuers must include a dedicated section on the VIE contractual arrangements and a PRC legal opinion confirming compliance, given the CSRC’s extended 30-working-day review timeline under the January 2025 Supplementary Provisions.

3. Issuers should conduct TTW meetings from Hong Kong or Singapore, not from within the PRC, to avoid violating the Provisions on the Administration of the Issuance of Securities Abroad by Domestic Companies and to ensure compliance with PRC data transfer restrictions under the Data Security Law.

4. The investor qualification questionnaire must be retained in the issuer’s books and records for at least five years after the TTW meeting, as the SEC’s 2024 Adopting Release (Release No. 33-11257) confirms that the SEC may request these records during any investigation of the offering.

5. Forward-looking financial projections in TTW presentations must be accompanied by PSLRA-compliant cautionary language that specifically addresses the risk of PRC regulatory changes, as the SEC’s Division of Corporation Finance 2025 C&DIs require this for all non-EGC issuers.