At-the-Market (ATM) Programs: How "Dribble Out" Works

Introduction

An at-the-market (ATM) program is a fundamentally different structure from the discrete-event follow-on products: instead of selling a fixed share count at a single negotiated price, the issuer sells small clips of newly issued stock directly into the open market over weeks or months at prevailing prices. The structure compresses equity issuance into a continuous trickle rather than a single overnight event, and is the dominant capital-raising tool for biotechs, REITs, and other frequent-issuer profiles where flexibility and minimal market disruption matter more than absolute execution speed. Understanding ATM mechanics, the equity distribution agreement, the sales agent role, and when ATMs replace traditional follow-ons is core ECM knowledge for any candidate working on coverage clients with active programs.

The ATM structure separates the legal infrastructure (which is set up upfront) from the actual share sales (which occur on demand over the program's life).

The Legal Infrastructure

The issuer files (or already has) an effective Form S-3 shelf registering sufficient common stock for the program. To use S-3 on a primary basis without a cap, the issuer must have at least $75 million of public float; issuers below that threshold can still run ATM programs under the baby shelf provision (Instruction I.B.6), but are limited to selling no more than one-third of their public float in any rolling 12-month period. The issuer then enters into an equity distribution agreement (EDA) with one or more banks setting the program's maximum size, commission rate, legal representations, and conditions under which sales can occur.

Equity Distribution Agreement (EDA)

The umbrella contract between an issuer and one or more banks acting as sales agents under an ATM. The EDA covers program size, commission rates, representations and warranties, indemnification, comfort-letter and legal-opinion deliverables, conditions under which sales can occur, and the placement-notice mechanics. EDAs allow flexible amendment as parameters evolve over the program's multi-year life.

The Dribble-Out Mechanics

Once the EDA is in place, the issuer sends placement notices to the sales agent specifying the dollar amount or share count to be sold, the maximum number of shares per trading day, the minimum execution price, and any other constraints. The agent sells through ordinary broker transactions, blending into regular daily volume to minimize market impact. The issuer can pause or restart the program at any time based on market conditions or information situation.

The Sales Agent Role

The sales agent acts under one of two models. In the agency model, the agent sells shares for the issuer on a best-efforts basis and earns a commission. In the principal model, the agent purchases shares from the issuer at a negotiated discount and resells in the open market for its own account. The agency model is dominant for routine ATM activity; the principal model is used when the issuer wants execution certainty for a specific clip or the agent wants inventory. Both models are governed by the same EDA.

The ATM structure fits some issuer profiles very well and is poorly suited to others.

REITs and the Forward-Sale Variant

REITs are the heaviest users of the ATM market because their business model requires recurring equity capital to fund property acquisitions and the structure lets them match equity issuance to investment-deployment timing. Typical REIT ATM commissions run 50 to 75 basis points for routine executions, with the largest REIT issuers negotiating at the lower end of the range. REIT ATMs frequently include a forward-sale feature: the bank borrows shares and sells them into the market today at the prevailing price, the issuer locks in that pricing through a forward sale agreement with the bank, and physical delivery of the shares (and dilution) is deferred until the issuer settles the forward up to one to two years later. The forward-sale variant lets REITs match equity-financing timing to specific property closings without holding cash in advance, and is one of the most heavily used capital-management tools in the public-REIT sector.

Biotechs

Biotech issuers (especially clinical-stage companies funding ongoing trials) are the second-largest ATM user group. The structure lets a biotech raise capital opportunistically when the stock rallies on positive trial data, fund cash runway to the next milestone, and avoid the marketing intensity of a traditional follow-on.

Frequent Issuers and Capital-Heavy Sectors

Banks, utilities, and other capital-heavy sectors with recurring equity needs also use ATMs heavily. Continuous issuance fits recurring capital plans better than discrete follow-ons, and the lower commission cost adds up materially over the program's life.

Issuers cannot use an ATM during periods when they are in possession of material non-public information, which means the ATM must pause around earnings prints, M&A negotiations, regulatory disclosures, and other MNPI events. Many issuers maintain a Rule 10b5-1 plan covering ATM sales: the plan specifies the parameters under which the sales agent will execute (target price ranges, daily share limits, total program size) and is established outside any MNPI window, which lets the agent continue executing during subsequent blackout periods under the affirmative defense the rule provides. The 10b5-1 layer is what makes year-round ATM activity practical for issuers with frequent earnings cycles, which is why most active ATM programs include a parallel 10b5-1 plan.

Rule 415(a)(4)

The SEC rule under the Securities Act that governs at-the-market equity offerings. Rule 415(a)(4) permits an issuer to make continuous or delayed offerings of securities at prices other than a fixed amount, conducted through ordinary broker transactions into existing trading markets. The rule is the regulatory anchor for every active ATM program in the US market.

The commission and operational structure of an ATM differs from traditional follow-on economics.

Typical Commission Ranges

Routine equity ATM commissions run 50 to 200 basis points depending on issuer profile and execution complexity. REITs and other large frequent issuers negotiate at the lower end (50 to 75 bps); smaller-cap biotechs typically pay closer to 100 to 200 bps. The commission compares favorably to a traditional follow-on's gross underwriting spread (typically 3 to 4 percent for follow-ons) but delivers materially less marketing and capital commitment from the agent. Net proceeds to the issuer are simply gross sale proceeds less the commission:

Multi-Agent Programs

Larger issuers frequently maintain multi-agent ATMs with three to six banks listed as sales agents. The economics are split through a combination of pre-determined commissions (a fixed share of the program's commission pool allocated at inception), execution-based sharing (the agent that executes a particular clip earns a higher rate than non-executing agents), and reverse-inquiry incentives (agents that source inbound investor interest receive preferential terms). Multi-agent programs let the issuer maintain coverage relationships across multiple banks and create competitive tension among the agents on execution quality.

Off-ATM Block Issuance

Issuers with active ATM programs can execute larger one-shot transactions as off-ATM blocks, using the existing EDA and prospectus supplement to clear a meaningful tranche overnight without fresh paperwork. The off-ATM block is a key flexibility lever for ATM issuers because it lets them pivot from dribble-out mode to single-clip block execution at any point.

The choice between ATM and discrete-event follow-ons turns on capital-raising horizon and flexibility needs.

An EDA, a 10b5-1 plan, and a sales agent quietly working clips into the tape at prevailing prices: that is the shape of capital-raising at REITs and biotechs over multi-year horizons, a fundamentally different rhythm than the discrete-event follow-ons. A different alternative entirely, common in Europe and in stressed US situations, lets existing shareholders participate first by giving them the right to subscribe to new issuance at a fixed price. Rights offerings are next.