The Securities and Exchange Commission’s Advisory Committee on Small and Emerging Companies met on March 4 to discuss various topics related to facilitating the secondary market for trading securities of small and emerging companies, including proposed rules under Regulation A+ and recommendations regarding the definition of “accredited investor.”
In her opening remarks at the meeting, SEC Chair Mary Jo White emphasized the importance of secondary market liquidity and its impact on availability of capital for small businesses, as well as investor protection. Chair White noted that the SEC’s staff in the Divisions of Corporation Finance and Trading and Markets have been looking at various ways to facilitate the secondary market trading of securities issued by small businesses, including through “appropriately structured venture exchanges.”
In his opening statement to the meeting, SEC Commissioner Daniel M. Gallagher reiterated the importance of secondary liquidity. Commissioner Gallagher noted a need for “a positive, proactive capital formation agenda for small businesses,” and that the Committee would be discussing two pieces of that agenda: (1) “enhancing secondary trading in private shares, both in general and through a focus on Rule 4(a)(1½),” and (2) secondary market trading, particularly through venture exchanges, which Commissioner Gallagher views as a “vital bookend” to the SEC’s rulemaking on Regulation A+.
SEC Commissioner Luis A. Aguilar, in his remarks at the meeting, commented on investor protection issues that may result from recent proposed and final rules relating to the secondary trading market, such as Regulation A+ and crowdfunding, as well as with the proposed venture exchanges.
The Committee also provided Chair White with its recommendations regarding the definition of “accredited investor,” expressing its view that any change to the definition should expand, not contract, the available pool of accredited investors (for example, including within the definition those investors who meet a sophistication test, regardless of their income or net worth). Specifically, the Committee recommended that (1) accredited investor thresholds going forward should adjust according to the consumer price index; and (2) rather than protecting investors by raising the accredited investor thresholds or excluding certain asset classes from the calculation to determine accredited investor status, the SEC should focus on enhanced enforcement efforts and increased investor education.