SEC Holds Government-Business Forum on Small Business Capital Formation

The SEC held its 33rd Government-Business Forum, focusing on small business capital formation on November 20, 2014. SEC Chair Mary Jo White and Commissioners Daniel Gallagher, Kara Stein, Luis Aguilar and Michael Piwowar all spoke at the Forum, discussing regulatory issues regarding small businesses.

According to Chair White, one important issue for small businesses is secondary market liquidity. She explained that although the JOBS Act sought to facilitate smaller companies' ability to access the capital markets, investors in IPOs for emerging growth companies could face liquidity challenges, placing their investments at risk. Chair White stated that the SEC must consider these liquidity challenges carefully and requested feedback on the topic.

As one solution to the liquidity issue for small post-IPO companies, Commissioner Gallagher suggested better scaling of the periodic reporting regime for small companies to match commonly-accepted definitions of "microcap and "nanocap." Additionally, Commissioner Gallagher stated that it may help to allow companies "barely clinging to a NASDAQ or NYSE listing" to fit "more comfortably" at a Venture Exchange, where Regulation A ("Reg. A+") shares could be listed and traded by anyone, not just accredited investors, doing so with an exemption from state blue sky laws and with scaled listing standards appropriate for Reg. A+ issuers.

Chair White further mentioned that the accredited investor definition is an important subject for small businesses, which she explained SEC staff is reviewing to assess "whether we are properly identifying the population of investors who should be able to purchase securities in a securities offering without the protection afforded by the registration requirements of the Securities Act." In contrast, Commissioner Gallagher stated that he is "yet to be persuaded" that the definition of accredited investor is an issue the SEC should be taking up, explaining that revising the definition would essentially be "protecting" the wealthiest two to three percent of investors in the country, potentially at the cost of hindering private markets.

Both Commissioner Gallagher and Commissioner Stein also voiced their desire to see the SEC finalize Reg. A+. According to Commissioner Gallagher, to fully activate the benefits of Reg. A+, the SEC must consider how to create secondary markets in these shares, again mentioning that Venture Exchanges could "truly revolutionize small business capital formation."

See: Commissioner Gallagher's Speech; Commissioner Stein's Speech; Commissioner Aguilar's Speech; Commissioner Piwowar's Speech.