- with readers working within the Securities & Investment industries
On December 23, 2025, the US Department of the Treasury (Treasury) released additional guidance in the form of seven additional frequently asked questions (FAQs), clarifying certain aspects of the Outbound Investment Security Program (OISP). As a reminder, the OISP aims to restrict US persons from investing in "Covered Foreign Persons" (i.e., certain persons with a nexus to China, Hong Kong, or Macau that are engaged in specified activities in the artificial intelligence, quantum computing, or semiconductors sectors). Depending on the nature of the Covered Foreign Person's activities in the relevant technology sectors, a US person is either prohibited from investing in such Covered Foreign Person or is required to report such investments to Treasury (Covered Transactions).
While the OISP applies to a variety of forms of investments in Covered Foreign Persons, including the acquisition of equity interests or contingent equity interests in a Covered Foreign Person and the conversion of such contingent equity interests into equity interests, the regulations contain exceptions for certain types of transactions. Five of Treasury's most recent FAQs aim to clarify the scope of one such exception: the publicly traded securities exception. The remaining new FAQs address the Comprehensive Outbound Investment National Security Act of 2025 (COINS Act) that became law on December 18, 2025, which codifies and expands the scope of the OISP.
In Depth
Guidance on the publicly traded securities exception
Revised guidance on standard minority shareholder protections
Under the publicly traded securities exception, any investment in publicly traded securities, with "security" defined under 15 USC § 78c(a), that trade on a securities exchange in any jurisdiction or over-the-counter is not considered a Covered Transaction, so long as the acquisition of such securities does not provide a US person with rights beyond "standard minority shareholder protections." Significantly, prior to the new FAQs, Treasury took the position that the right to nominate a candidate for an issuer's board of directors was not a standard minority shareholder protection.
During the 12 months since the OISP went into effect, stakeholders have requested that Treasury reconsider its position on nomination rights, and they have sought further guidance on the scope of the publicly traded securities exception, including whether the acquisition of securities in an initial public offering (IPO) are Covered Transactions. The new FAQs address these issues.
In FAQ X.5, Treasury reversed its prior stance and determined that the right to nominate directors would be considered a standard minority shareholder protection so long as the right is "generally available to similarly situated shareholders of that entity solely by virtue of their minority shareholding." However, the right to appoint a director (as opposed to nominating or proposing a candidate for a shareholder vote) is not a minority shareholder protection. Thus, acquiring an appointment right would take an investment out of excepted status.
This is a notable change for US persons seeking to invest in publicly traded securities of Chinese incorporated companies, Hong Kong incorporated companies, or companies listed on the Taiwan Stock Exchange, as those jurisdictions generally provide the right to nominate directors to investors with very low thresholds of share ownership (i.e., 1% for China, 2.5% for Hong Kong, and 1% for Taiwan-listed companies). As a result, US persons are not prohibited from acquiring the publicly traded securities of Covered Foreign Persons solely because doing so will grant such investors the right to nominate directors for a shareholder vote. However, the publicly traded securities exception will not apply if the nomination right is not generally available to similarly situated shareholders.
Acquiring shares in an IPO pursuant to a subscription agreement entered into prior to the IPO
Treasury was asked to clarify whether a US person engages in a Covered Transaction by acquiring publicly traded securities in an IPO pursuant to a subscription agreement entered into before the listing date. During the notice and comment period for the OISP regulations, Treasury declined to modify the language of the regulations in response to a similar question, but Treasury has now published FAQ X.4 stating that such a transaction does fall under the publicly traded securities exception so long as "at the time of such acquisition the equity interest is publicly traded," regardless of when the agreement was entered into. While the FAQ does not explicitly say so, it appears to suggest that US persons may participate in an IPO as a cornerstone investor or through a subscription agreement, so long as the securities are not acquired before the securities are publicly listed.
Additional clarifications of the publicly traded securities exception
- Follow-on offerings: Treasury clarifies in FAQ X.1 that acquiring securities in a follow-on offering from an issuer whose securities are already publicly traded is an excepted transaction if the securities acquired are of the same class as, and will be fungible with, the issuer's securities that are already publicly traded.
- Contingent equity interest convertible into publicly traded securities: FAQ X.2 clarifies that the initial acquisition of a contingent equity interest "that is convertible into, or provides the right to acquire, only a publicly traded security" is excepted as an investment in such publicly traded security. However, Treasury warns that the conversion of such contingent equity interest into an equity interest must be assessed separately for whether it would be a Covered Transaction.
- Underwriting services to IPOs: FAQ X.3 confirms that providing underwriting services or other ancillary services to an IPO are not Covered Transactions so long as the financial institution does not acquire an equity interest in connection with such services. As explained in FAQ X.1, however, a US financial institution's acquisition of securities in connection with providing underwriting services for a follow-on offering would be excepted under the publicly traded securities exception if the securities are fungible with the issuer's already publicly traded securities.
US persons should note, however, that the publicly traded securities exception still does not apply to any investment that provides a US person with rights beyond standard minority shareholder protections, including investments in follow-on offerings or contingent equity interests.
Impact of the COINS Act
On December 18, 2025, the COINS Act was signed into law as Title LXXXV of the National Defense Authorization Act for Fiscal Year 2026. Among its provisions is a requirement that the Secretary of the Treasury issue within 450 days of the COINS Act's enactment regulations that restrict outbound investments from the US into countries of concern involving certain technologies. While the regulations envisioned by the statute are similar to the current OISP, there are certain key differences, including the addition of Cuba, Iran, North Korea, Russia, and Venezuela as countries of concern and the expansion of technology sectors targeted to include high-performance computing and hypersonic systems.
In response to the COINS Act, Treasury issued FAQs XI.1 and XI.2 confirming that the new law does not alter the provisions of the current OISP or the obligation to fully comply with its requirements. Until Treasury issues new regulations superseding the existing OISP regulations, US persons should continue their current practices to comply with the OISP.
Compliance takeaways
For the time being, Treasury's new FAQs addressing the publicly traded securities exception are generally favorable to investors, with guidance now confirming that certain transactions are not covered by the OISP. As a result, US persons should familiarize themselves with the FAQs and evaluate their investment strategies and OISP compliance programs accordingly.
Although the details of the regulations issued pursuant to the COINS Act will likely remain unclear for the foreseeable future, US persons should remain cognizant of the fact that their obligations under such regulations will likely increase, with the COINS Act expanding the countries and technology sectors it applies to, among other changes. While any regulations Treasury issues pursuant to the COINS Act will presumably alter the OISP, pursuant to FAQs XI.1 and XI.2, US persons should continue to comply with the current OISP regime, regardless of the passage of the COINS Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
