August 3, 2022

SEC Commissioners Weigh In on Private Offering Secondary Market Liquidity

Steven Lofchie Commentary by Steven Lofchie

The SEC Small Business Capital Formation Advisory Committee held a hearing on (i) the capital-raising landscape for small businesses and (ii) secondary liquidity challenges for investors in small and emerging businesses. SEC Chair Gary Gensler and Commissioners Hester M. Peirce, Jaime Lizárraga and Mark T. Uyeda delivered remarks to the SEC Small Business Advisory Committee.

Chair Gensler was largely noncommittal on the issue, only requesting that the committee "discuss both longer term trends about rapidly changing technology and present day considerations."

Mr. Lizárraga expressed concern over capital raising for minority- and women-owned businesses, saying these businesses face "persistent challenges." This, he added, demonstrated the need for "new and innovative regulatory solutions" to address disparities. Citing the Office of the Advocate for Small Business Capital Formation's annual report, Mr. Lizárraga also expressed concern that "mature and later-stage businesses" are limited in their ability to access venture capital outside "personal and professional networks."

Mr. Uyeda addressed liquidity issues for Regulation A+ shares in secondary market transactions. He said that the JOBS Act 4.0 draft legislation currently circulating Congress attempts to address major concerns in these transactions by preempting state securities laws. Mr. Uyeda noted, however, that NASAA President Melanie Senter Lubin expressed objections to this provision in a recent Senate Banking Committee hearing (see related coverage).

Ms. Peirce was the most specific in her remarks, saying that even though there had been some liberalization under the JOBS Act of small businesses' ability sell their shares directly to retail investors, the SEC should do more to facilitate the development of secondary market liquidity. She said that while it is useful for the SEC to spotlight issues, it is more important that the SEC identify specific ways to improve secondary market liquidity for small businesses.


The remarks of the SEC Commissioners reflect their personal directions. Ultimately, improving secondary market liquidity for small companies necessarily means some reduction of the regulatory requirements applicable to trading in the shares of these companies. This is not a deregulatory SEC (if you leave aside the eccentric example of the deregulation of proxy advisors). Therefore, the SEC Chair is asking a question about new technology that he says needs discussion. By contrast, Commissioner Peirce wants to take action, asking if the rule changes are necessary.

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