Global Arbitration, Trade and Advocacy Update

Treasury Clarifies Outbound Investment Regulations with New FAQs on Publicly Traded Securities and the COINS Act

January 8, 2026

The U.S. Department of the Treasury (Treasury) released new frequently asked questions (FAQs) regarding the interpretation of the Outbound Investment Regulations (OIR or Regulations) on December 23, 2025. The FAQs clarify how the OIR applies to investments in publicly traded securities and relate to new legislation on outbound investment. We summarize the highlights below.

Background

The OIR prohibits or requires notification of certain investments by U.S. persons in “covered foreign persons,” that is, certain Chinese-affiliated companies in the semiconductor and microelectronics, quantum information technology, and artificial intelligence sectors. The Regulations entered into force on January 2, 2025. In previous Updates, we provided an overview of the OIR and discussed lessons learned from the first six months of their enforcement.

Investments in publicly traded securities are exempt from the scope of the Regulations so long as the investment does not afford the investor rights in a covered foreign person that go beyond standard minority shareholder protections. Publicly traded securities are securities that are traded on a securities exchange or through any other method of trading that is commonly referred to as “over the counter,” in any jurisdiction.

In the months since the release of the OIR, there has been some confusion in the market about the extent to which the OIR applies to investments in initial public offerings (IPOs) or other share offerings. The new FAQs clarify several points regarding this exception.

Key Takeaways

The time of settlement is what matters, not the time when an investor enters into a subscription agreement. Before the FAQs, it was not clear whether the acquisition of shares through a subscription agreement entered into immediately prior to an IPO fell within the scope of the publicly traded securities exception. The new FAQs clarify that the date of the subscription agreement is not dispositive. Rather, the focus is on the time of the actual settlement, that is, when the shares are actually transferred. If the settlement occurs after the listing takes place, then the acquisition of securities falls within the publicly traded securities exception. Similarly, a security acquired by a U.S. financial institution as part of a standby underwriting agreement, where settlement occurs after the listing, is within the scope of the exception. In both instances, for the exception to apply, the investment must not give the investor rights in a covered foreign person that go beyond standard minority shareholder protections.
Investments in follow-on offerings are exempt if the securities are fungible with publicly traded securities. According to the FAQs, “[w]here an issuer’s securities are already publicly traded, and that issuer makes a follow-on offering of securities that are of the same class as the securities that are already publicly traded and, upon issuance, will be fungible with such publicly traded securities (e.g., will have the same identification number upon issuance, provides identical material rights and privileges — such as with respect to voting and dividends), a security issued in such follow-on offering falls” within the scope of the publicly traded security exception, provided that the security does not give the investor rights in a covered foreign person that go beyond standard minority shareholder protections.
Treasury changes its mind on the scope of standard minority shareholder protections. The publicly traded securities exception is not available if an investment in securities gives the investor rights that go beyond standard minority shareholder protections. When Treasury issued the OIR in January 2025, it took the position that certain rights that might be granted by default under certain domestic laws went beyond minority shareholder protections. For example, in the People’s Republic of China, if a shareholder acquires a share stake that exceeds certain thresholds, the shareholder would, by operation of law, be accorded the right to nominate a board director. When it issued the OIR, Treasury stated that such a right went beyond standard minority shareholder protections, and therefore the acquisition of equities that exceeded the specific threshold would not fall within the scope of the publicly traded securities exception. The new FAQs change this position. Treasury’s new position is that a shareholder’s right to nominate a director (i.e., the right to propose a director for election) is a standard minority shareholder protection if such right is generally available to similarly situated shareholders solely by virtue of their minority shareholding. By contrast, the right to appoint a director is not a standard minority shareholder protection in any scenario.
Interests that are convertible into publicly traded securities are within the scope of the publicly traded securities exception. The acquisition of a contingent equity interest that is convertible into, or provides the right to acquire, only a publicly traded security is not in itself within the scope of the OIR, provided that such acquisition does not afford the U.S. person rights beyond standard minority shareholder protections. For example, the acquisition of a convertible note that may be converted exclusively into publicly traded shares is not a covered transaction under the OIR. (Whether the actual conversion is a covered transaction would need to be analyzed separately).
Actions taken to facilitate IPOs but that do not involve acquisition of an equity or other interest are not covered transactions. The provision of underwriting services or other services ancillary to IPOs does not trigger prohibition or notification requirements under the OIR so long as these services do not entail the acquisition of an equity interest or another interest covered in the Regulations’ definition of “covered transactions.” This particular FAQ merely confirms guidance that Treasury provided at the time the OIR was issued last year.

COINS Act

The new FAQs also explain how the OIR relates to new legislation. The National Defense Authorization Act for Fiscal Year 2026, which became law on December 18, 2025, included the Comprehensive Outbound Investment National Security (COINS) Act of 2025. The COINS Act directs Treasury to promulgate regulations to implement a variety of changes to the OIR within 450 days. We profile the highlights in a separate client Update, also issued today. In its new FAQs, Treasury confirms that the Regulations that became effective on January 2, 2025, will remain in effect until Treasury issues new regulations to implement the COINS Act.

Sidley attorneys are closely monitoring developments relating to outbound investment restrictions and are available to answer questions regarding the regulatory landscape.

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