SEC Staff Issues Corporate Finance Interpretation (Formerly CD&I) Providing ATM Program Flexibility to S-3 Issuers Facing Baby Shelf Transition

On March 19, 2026, the Staff of the Securities and Exchange Commission (“SEC”) issued Corporate Finance Interpretation (“CFI”) Question 116.26. The new guidance confirms that an S-3 issuer may continue selling securities under an at-the-market (“ATM”) program even after becoming subject to “baby shelf” limitations if the issuer filed its ATM’s prospectus supplement while still eligible for unrestricted offerings under General Instruction I.B.1 of Form S-3.

Background

Under General Instruction I.B.1 of Form S-3, a company with a public float of at least $75 million may use a primary shelf registration statement to sell an unlimited amount of securities. However, if a company’s public float falls below $75 million, it becomes subject to the “baby shelf” limitations under General Instruction I.B.6 of Form S-3. Under this designation, a company may not sell securities valued at more than one-third of its public float in any 12-month period.

A company’s Section 10(a)(3) update typically coincides with its Annual Report on Form 10-K filing.

Effect

The new guidance clarifies that the SEC will allow a company to continue selling shares under an ATM program established under General Instruction I.B.1, even if the issuer’s public float later drops below $75 million. This protection applies as long as the prospectus supplement was filed before the Section 10(a)(3) update that triggered the “baby shelf” limitations.

Key Implications for Public Companies:

This guidance applies only to ATM offerings. While securities covered by a prospectus supplement filed prior to a Section 10(a)(3) update are grandfathered in, the issuer cannot increase the ATM program size after becoming subject to baby shelf rules.

For small-cap issuers near the $75 million public float threshold, the timing of an ATM prospectus supplement filing is critical. These issuers should consider establishing an ATM program prior to their next Section 10(a)(3) update to maximize flexibility.

This CFI provides important protection for small-cap issuers whose public float may temporarily fall below $75 million due to stock price volatility or other market conditions.

The entire text of the CFI is as follows:

Question 116.26

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]

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