On March 19, 2026, the SEC’s Division of Corporation Finance issued a pivotal new Compliance and Disclosure Interpretation (C&DI 116.26) that provides substantial relief to small-cap issuers utilizing at-the-market (ATM) offering programs. This interpretation represents a significant departure from previous staff practice regarding the transition from full Form S-3 eligibility to “baby shelf” limitations.
The core of the issue involves the annual re-testing of Form S-3 eligibility and the impact of the “baby shelf” rules on existing, effective prospectus supplements. For a comprehensive review of foundational Form S-3 eligibility, including the distinction between full shelf general instruction I.B.1 and baby shelf general instruction I.B.6, see my previous blog HERE.
Background: The “Baby Shelf” and Section 10(a)(3) Updates
Form S-3 can be used for primary offerings of a company whose market value of voting and non-voting common equity held by non-affiliates is $75 million or more. If an issuer’s float falls below this threshold, it may still use Form S-3 in reliance on General Instruction I.B.6 (the “baby shelf”), provided it: (i) has a class of common equity listed on a national securities exchange; (ii) is not a shell company; and (iii) does not sell more than one-third of its public float in any trailing 12-month period.
Pursuant to Section 10(a)(3) of the Securities Act, a company must update its registration statement annually by filing its Form 10-K. At the time of this update, the issuer must re-evaluate its eligibility to use Form S-3. Historically, if an issuer dropped from I.B.1 eligibility to the I.B.6 “baby shelf” at the time of its 10-K filing, it was widely understood that the company had to immediately downsize its ATM program by filing a new prospectus supplement to reflect the restricted “one-third” capacity.
C&DI 116.26
The newly issued C&DI 116.26 reverses this restrictive practice for companies that already have an active ATM supplement on file.
Question: A company entered into a sales agreement with a named selling agent for an at-the-market offering of an amount of securities that the company reasonably expected to offer and sell. The company had an effective Form S-3 registration statement, was eligible to offer and sell securities in reliance on General Instruction I.B.1, and filed a prospectus supplement for the offering. At the time of its next Section 10(a)(3) update, the company does not meet the $75 million public float requirement of Instruction I.B.1 but remains eligible to use Form S-3 in reliance on General Instruction I.B.6 (the “baby shelf”). Will the staff object if the company continues to offer and sell the full amount of securities covered by the prospectus supplement even if that amount would exceed the offering limits of General Instruction I.B.6?
Answer: Under these circumstances, the staff will not object if the company continues offering and selling the full amount of securities covered by the prospectus supplement that was filed prior to the Section 10(a)(3) update. [March 19, 2026]
The Significance of the Change: Under the prior staff approach, the Section 10(a)(3) update acted as a “hard reset” on capacity. If a company had a $50 million ATM supplement filed while it had a $100 million unaffiliated float (I.B.1 eligible), but its unaffiliated float dropped to $60 million at the time of the 10-K filing, it would have been limited by I.B.6 to selling only $20 million (one-third of the float) of the ATM, less any other sales made under the S-3 in the prior 12 months.
Now, the SEC is “grandfathering” the capacity of the supplement filed while the issuer was I.B.1 eligible. As long as the supplement was on file prior to the 10-K update, the issuer can continue to sell the full amount of securities remaining under that specific supplement, even if those sales exceed the one-third cap of the baby shelf.
Partner Advisory: The Deal Maker’s Strategy
This C&DI provides a strategic window for liquidity planning. The goal is always to get the deal done cleanly, and this guidance adds a layer of efficiency to ATM management.
- Strategic Timing of ATM Supplements: If your public float is hovering near the $75 million mark, there is a clear “deal maker” advantage to filing or increasing an ATM prospectus supplement before you file your Form 10-K. By securing the capacity while I.B.1 eligible, you preserve the ability to raise the full amount of the supplement even if the market dips and pushes you into “baby shelf” status at the time of the 10-K update.
- Compliance and Disclosure: While the Staff will not object to the amount sold, the issuer must still ensure that its disclosures remain current. A drop in float and the transition to I.B.6 status is a material event that should be clearly disclosed in subsequent filings.
- Efficiency and Cost Savings: This change eliminates the need for “corrective” prospectus supplements and the associated legal and accounting costs previously required to downsize an ATM program upon losing I.B.1 status.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony, Linder & Cacomanolis, PLLC has served clients providing fast, personalized, cutting-edge legal service. The firms reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALC legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including the American Red Cross for Palm Beach and Martin Counties, Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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