Feb. 15, 2017
Good morning. In this dynamic environment, the ability to work on consensus topics is even more important. This committee remains focused on ways of fostering and supporting healthy marketplaces for fledgling smaller companies while protecting investors. This is a focus that we all can stand behind, and your commitment and work towards this goal, as always, is appreciated.
Today's agenda re-examines topics that have been previously discussed. We now have the added benefit of an initial inflow of information and data about how certain JOBS Act regulations are working in practice. One aspect of your discussion concerns secondary market liquidity for smaller companies that are using Reg. A+.
Secondary market liquidity is a multifaceted topic. For example, our Equity Market Structure Advisory Committee has also looked at this issue. The availability of more data and current research continues to inform us on the role of information and transparency and its co-relation to secondary market liquidity and firm value for OTC firms.[1] While your discussion today may be primarily focused on state securities laws and its impact on secondary market liquidity, it need not end there.
Blue sky requirements that apply to secondary sales of Reg. A securities are intended to provide a layer of protection for investors against fraudulent activities within each state in which transactions occur. State laws provide a protective guardrail in an attempt to balance efficient capital formation with robust investor protections. That said, some posit that the current blue sky regime may negatively affect secondary market liquidity. I am particularly interested in learning more about how compliance with state securities laws is working for Reg. A non-exchange listed securities. I look forward to the discussion of the pros and cons of blue sky laws and how they can be improved.
Finally, if there are inefficiencies with blue sky compliance regimes, how can we adjust the current regime? For example, is there a means by which the North American Securities Administrators Association or NASAA, working with the states, can improve the availability of the manual exemption across more states?
The other item on your agenda that I am sure will generate significant discussion concerns the relative lack of IPOs as compared to prior periods. What does the data reveal? What are the current observations and explanations? For example, have JOBS Act provisions that changed the registration thresholds or that have allowed for greater private capital raising, contributed to companies remaining private for a longer period of time?
I look forward to today's discussion. I hope it will delve into the varied factors that are changing the ecosystem of our markets for capital formation, including the effects of the economic environment and the regulatory structure.
Finally, you will also consider a recommendation on broker dealer finders and finalize the long awaited board diversity recommendation. I look forward to the discussion. Thank you.
[1] See e.g., Joshua White, "Outcomes of Investing in OTC stocks," (Dec. 16, 2016) available at https://www.sec.gov/dera/staff-papers/white-papers/16dec16_white_outcomes-of-investing-in-otc-stock.html