SEC Rule 175

Overview and Regulatory Purpose

The Securities Act of 1933 was enacted in an environment of deep scepticism about speculative corporate representations. Its core liability provisions — particularly Section 11 and Section 12 — impose substantial exposure on issuers and associated persons for material misstatements and omissions in registration statements and prospectuses. 

The application of these strict liability standards to forward-looking statements posed an early and persistent regulatory problem: issuers that disclosed projections, earnings forecasts, or operational plans faced the risk that any deviation between the forecast and actual results could be characterised as a material misstatement, even where the original projection was well-founded and made in good faith.

The consequence of this exposure, as the Commission observed across several decades of regulatory study, was a systematic under-disclosure of forward-looking information. Issuers, advised by counsel, withheld projections and forecasts that would have been genuinely useful to investors precisely because the litigation risk attached to such disclosures outweighed the perceived regulatory benefit of transparency. 

This chilling effect on voluntary forward-looking disclosure represented a direct conflict with the Commission's investor protection mandate: investors denied access to management's honest assessment of a company's future prospects are less able to make informed investment decisions than investors who receive that information alongside appropriate cautionary framing.

Rule 175 was adopted to resolve this tension by creating a structured liability protection for forward-looking statements that meet defined qualitative standards. 

By shielding statements made with a reasonable basis and in good faith from fraud characterisation, the rule incentivises issuers to include projections and future-oriented information in their Commission filings and investor communications, thereby enriching the disclosure record available to market participants. 

The rule does not immunise all forward-looking statements regardless of quality — it specifically reserves liability for statements that lack a reasonable basis or are disclosed in bad faith — but it provides meaningful protection for the honest exercise of management's forward-looking judgment, which is the informational output the Commission considers most valuable to investors.

Statutory Authority and Rulemaking History

Rule 175 derives its authority from Section 19(a) of the Securities Act of 1933, which grants the Commission broad rulemaking power to prescribe rules and regulations necessary or appropriate to carry out the provisions of the Act. The Commission first adopted Rule 175 in 1979, published in Securities Act Release No. 33-6084, as part of a broader initiative to encourage voluntary disclosure of forward-looking information in Commission filings. 

The 1979 rulemaking followed a period of sustained Commission attention to the forward-looking disclosure problem, during which the Commission had considered and rejected more prescriptive approaches in favour of a liability-reduction mechanism designed to remove the chilling effect of litigation risk without mandating the disclosure of projections that management might legitimately prefer not to publish.

The rule was conceived from the outset as a complement to, rather than a substitute for, the Commission's voluntary forward-looking disclosure policy articulated in Regulation S-K, particularly Item 10(b), which sets out the Commission's views on the form and content of projections included in Commission filings. The relationship between Rule 175 and Item 10(b) has been central to the rule's operation throughout its history: Rule 175 provides the liability shield, and Item 10(b) provides the substantive guidance that defines what a well-formed, qualifying forward-looking statement looks like in practice.

The adoption of the Private Securities Litigation Reform Act of 1995 represented the most significant development in the forward-looking statement liability landscape since Rule 175's original enactment. The PSLRA introduced a separate statutory safe harbour under Section 27A of the Securities Act and Section 21E of the Exchange Act, with broader application than Rule 175 in certain respects but subject to important exclusions — most notably its unavailability for initial public offering registrants. The PSLRA safe harbour did not supersede Rule 175; rather, the two operate as parallel instruments, and issuers seeking maximum protection frequently structure their forward-looking disclosures to satisfy the conditions of both frameworks simultaneously.

Key Provisions and Operative Requirements

Rule 175(a) establishes the core safe harbour mechanism. A forward-looking statement within the coverage of Rule 175(b) that is made by or on behalf of an issuer, or by an outside reviewer retained by the issuer, shall be deemed not to be a fraudulent statement unless it is shown that the statement was made or reaffirmed without a reasonable basis or was disclosed other than in good faith. 

The dual standard — reasonable basis and good faith — is conjunctive: a statement that satisfies one condition but not the other falls outside the safe harbour. A projection that is technically grounded in plausible assumptions but disclosed in a context designed to mislead investors does not benefit from Rule 175 protection, nor does a statement made with honest intent that lacks any discernible analytical foundation.

Rule 175(b) defines the categories of statement and document to which the safe harbour applies. Qualifying statements include projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items; statements of management's plans and objectives for future operations; statements of future economic performance of the type contemplated by Item 303 of Regulation S-K, which governs Management's Discussion and Analysis; and statements of the assumptions underlying or relating to any of the foregoing. These statements qualify for Rule 175 protection when they appear in a document filed with the Commission, in Part I of a Form 10-Q, or in an annual report to security holders meeting the requirements of Exchange Act Rules 14a-3(b) and (c) or 14c-3(a) and (b).

Rule 175(c) addresses the position of outside reviewers — analysts, consultants, or advisors retained by the issuer to review or assess forward-looking statements before their inclusion in Commission filings. 

A statement made by an outside reviewer in that capacity is covered by Rule 175(b) and benefits from the same safe harbour as statements made directly by the issuer or management, provided the reasonable basis and good faith conditions are satisfied. 

This extension of coverage acknowledges the practical role of outside reviewers in the projection preparation process and ensures that the safe harbour is not undermined by the use of intermediaries.

Rule 175(d) defines "fraudulent statement" for the purposes of the rule as a statement that is an untrue statement of a material fact, a statement that omits to state a fact necessary in order to make the statement, in the light of the circumstances under which it was made, not misleading, or a statement prepared or certified by an accountant or auditor in an accountant's or auditor's report or purported report. 

This definition imports the materiality standard familiar from the Securities Act's core antifraud provisions into the Rule 175 framework, confirming that the rule operates within, and does not displace, the broader materiality architecture of securities law.

Scope of Application

Rule 175 applies to forward-looking statements made by or on behalf of issuers in the specified categories of document — Commission filings, Part I of Form 10-Q, and qualifying annual reports to security holders. It does not extend to oral statements, press releases issued outside the Commission filing context, or communications made in settings other than those enumerated in Rule 175(b). 

This documentary scope is narrower than that of the PSLRA safe harbour, which covers a broader range of written and oral communications, and represents one of the primary respects in which the two frameworks serve complementary rather than identical functions.

The safe harbour is available to all issuers regardless of size, reporting status, or the specific nature of the forward-looking statement, provided the statement falls within the enumerated categories of Rule 175(b) and satisfies the reasonable basis and good faith conditions of Rule 175(a). 

Rule 175 does not restrict its coverage to any particular class of issuer or any particular type of transaction, and its protection is available in the context of registered offerings, ongoing reporting obligations, and annual shareholder communications alike.

However, Rule 175 does not provide protection in all circumstances where a forward-looking statement is made. The safe harbour is unavailable where the Commission establishes that a statement was made or reaffirmed without a reasonable basis or in bad faith — a showing that, in the enforcement context, typically involves evidence that management knew the projection was unsupported by the company's actual operational data or that the disclosure was structured to create a false impression of the company's future prospects. The reasonable basis and good faith standards therefore function not merely as threshold conditions but as substantive constraints on the types of forward-looking disclosure that Rule 175 is designed to protect.

Relationship to Related Rules and Regulations

Rule 175 operates within a layered forward-looking statement liability framework that encompasses several distinct but interrelated instruments. 

Its most direct companion rule under the Exchange Act is Rule 3b-6, which provides a parallel safe harbour for forward-looking statements contained in documents filed under the Exchange Act, including annual reports on Form 10-K and quarterly reports on Form 10-Q filed pursuant to Rules 13a-1 and 13a-13. 

Together, Rule 175 and Rule 3b-6 cover the full scope of issuer forward-looking statements across both the Securities Act and Exchange Act filing contexts, and issuers that file integrated disclosure documents — such as registration statements incorporating Exchange Act reports by reference — benefit from both rules simultaneously.

The relationship between Rule 175 and Item 10(b) of Regulation S-K is particularly significant in the post-July 1, 2024 regulatory environment. The Commission's January 2024 SPAC rulemaking, adopted in Securities Act Release No. 33-11265, amended Item 10(b) to expand and update the Commission's guidance on the presentation of projections in all Commission filings, not merely in SPAC-related transactions. Under the amended Item 10(b), projections that are not based on historical financial results or operational history must be clearly distinguished from projections that are so based; projections incorporating non-GAAP financial measures must include a clear definition of the measure, a description of the most closely related GAAP measure, and an explanation of why the non-GAAP measure was used; and projections based on historical results must present that historical data with equal or greater prominence to the forward-looking figures. These requirements apply to all issuers in all Commission filings and directly shape what constitutes a well-formed projection that is likely to satisfy the reasonable basis condition of Rule 175.

The PSLRA safe harbour and Rule 175 are complementary instruments that issuers frequently invoke simultaneously. The PSLRA safe harbour is unavailable for forward-looking statements in initial public offering registration statements and, following the 2024 SPAC rulemaking, is also unavailable for statements made in SPAC IPO filings and de-SPAC transaction documents, given the amended definition of blank check company under the revised Rule 405. In these contexts, where the PSLRA safe harbour cannot be invoked, Rule 175 remains available as an independent basis for liability protection provided its conditions are satisfied. The Commission's 2024 adopting release specifically confirmed that Rule 175 and the judicially developed bespeaks caution doctrine remain available to SPAC issuers notwithstanding the PSLRA's unavailability in that context.

The bespeaks caution doctrine, a judicially developed principle originating in federal circuit court decisions, provides a third layer of forward-looking statement protection that does not depend on either Rule 175 or the PSLRA. Under the doctrine, a forward-looking statement accompanied by sufficient cautionary language that specifically addresses the risks capable of causing actual results to differ materially from the projection is not actionable as a material misstatement because the cautionary language renders it immaterial as a matter of law. Rule 175, the PSLRA, and the bespeaks caution doctrine are designed to work in concert rather than as alternatives, and a comprehensive forward-looking disclosure programme will typically be structured to invoke all three forms of protection simultaneously.

Amendment History and Regulatory Evolution

Since its original adoption in 1979, Rule 175 has not been materially amended in its operative text. The rule's core structure — a deemed non-fraud standard conditioned on reasonable basis and good faith, applied to a defined category of forward-looking statements in specified documents — has remained stable across more than four decades of securities regulation, surviving the enactment of the PSLRA in 1995, the Securities Offering Reform of 2005, the Dodd-Frank Act of 2010, and the JOBS Act of 2012 without substantive modification.

The most significant recent development affecting the Rule 175 framework is the 2024 SPAC rulemaking, which, while not amending Rule 175 itself, materially altered the environment in which the rule operates. The amendment to Item 10(b) of Regulation S-K, effective July 1, 2024, imposes more prescriptive requirements on the form and content of projections in all Commission filings, thereby raising the substantive standard that a forward-looking statement must meet to demonstrate the reasonable basis required for Rule 175 protection. A projection that fails to comply with the amended Item 10(b) guidance — by, for example, presenting non-GAAP measures without adequate disclosure or failing to distinguish historically grounded projections from those without a historical basis — is more likely to be found to lack the reasonable basis necessary to invoke Rule 175, even if the rule itself has not been changed.

The eCFR confirms that Rule 175 was last amended in January 2017, with no subsequent changes to the operative text of the rule through June 2026. The Commission's rulemaking agenda as of mid-2026 does not identify any pending proposals to amend Rule 175 directly, and no legislative developments have been enacted that would require modification of the rule's substantive framework.

Enforcement Context and SEC Action Patterns

Enforcement actions invoking Rule 175 directly are comparatively rare, in part because the rule functions as a defence to fraud claims rather than as an affirmative obligation. The Commission's Division of Enforcement has brought actions under the Securities Act's antifraud provisions — particularly Section 17(a) — in cases involving forward-looking statements that were made without a reasonable basis or in deliberate bad faith, and in those cases the unavailability of Rule 175's safe harbour is typically a component of the enforcement theory rather than its primary focus.

The Commission has identified materially misleading projections as a recurring enforcement theme in the context of registered offerings, business combination transactions, and de-SPAC transactions specifically. Staff guidance and enforcement actions have emphasised that the reasonable basis standard is not satisfied by projections derived from optimistic assumptions that management had reason to believe were unrealistic at the time of disclosure, or by projections presented in a format that obscures the extent to which they depend on speculative or unverifiable inputs. The 2024 amendment to Item 10(b) reflects the Commission's concern that projections lacking a clear connection to historical performance data have been used in certain contexts — particularly de-SPAC transactions — to present an unjustifiably favourable picture of target companies' future prospects.

The Office of Examinations has not identified Rule 175 as a standalone examination priority, consistent with the rule's character as a liability protection framework rather than a compliance obligation. However, examination staff reviewing broker-dealer communications and investment adviser marketing materials have noted that forward-looking statements in client-facing documents should be prepared with the same reasonable basis and good faith standards applicable to Commission filings, even where those documents are not themselves filed with the Commission and do not directly benefit from Rule 175's safe harbour.

Examination Relevance and Key Takeaways

Rule 175 is relevant to Series 7, Series 65, and Series 66 candidates primarily in the context of issuer disclosure obligations, the liability framework governing registration statements and periodic reports, and the conditions under which forward-looking statements may be included in Commission filings without exposing the issuer to fraud liability. Candidates should understand the dual standard of reasonable basis and good faith as the threshold conditions for Rule 175 protection, and should be able to distinguish Rule 175 from the PSLRA safe harbour — particularly the PSLRA's unavailability in the IPO and de-SPAC contexts where Rule 175 remains independently available.

A common examination concept involves the layered structure of forward-looking statement protections. Candidates should understand that Rule 175, the PSLRA safe harbour, and the bespeaks caution doctrine are complementary frameworks that serve related but distinct functions, and that the unavailability of one does not preclude reliance on another. The 2024 amendments to Item 10(b) of Regulation S-K, which raise the substantive standard for well-formed projections in all Commission filings, are increasingly relevant to examination candidates as a practical gloss on what the reasonable basis condition requires in the contemporary disclosure environment.

The key points to retain are these. Rule 175 provides a safe harbour from fraud liability for forward-looking statements made with a reasonable basis and in good faith, appearing in documents filed with the Commission, Part I of Form 10-Q, or qualifying annual shareholder reports. 

The protection is unavailable for statements made without a reasonable basis or in bad faith. Rule 175 operates alongside Exchange Act Rule 3b-6, the PSLRA statutory safe harbour, and the bespeaks caution doctrine as part of a layered forward-looking statement liability framework. 

The PSLRA safe harbour is unavailable in IPO registration statements and, following the 2024 SPAC rulemaking effective July 1, 2024, in de-SPAC transaction filings — in those contexts, Rule 175 remains independently available. 

The 2024 amendments to Item 10(b) of Regulation S-K, while not modifying Rule 175's operative text, raise the practical standard for what constitutes a projection with a reasonable basis in all Commission filings. Rule 175 has not been materially amended since January 2017 and no pending rulemaking as of June 2026 proposes changes to its substantive framework.