24 Nov Strong SEC Small Business Forum

As I have for many years, last week I attended the annual SEC Government-Business Forum on Small Business Capital Formation. This Congressionally mandated event leads with a few panels followed by breakout discussion groups that develop formal recommendations to the SEC staff and commissioners to improve regulation of small business. The conference has taken on more importance in recent years when it was clear that the Jumpstart Our Business Startups (JOBS) Act of 2012 got some of its content from Forum recommendations. Also, the latest JOBS-type initiatives passed by the House Financial Services Committee included references to having originated in the Forum. Congressional staffers now regularly attend the Forum.

All five SEC commissioners attended at least part of the event and each had remarks about the importance of small business as the engine of growth in our economy. Of course the Republican appointees talk about enhancing capital formation more and the Democrats tend to focus more on investor protection. But with the GOP taking control of both houses of Congress in January, one hopes that small business could be an area for both parties to come together, as they did for JOBS, to pass further meaningful legislation to ease the regulatory burden on small companies. Here are some of the highlights of the recommendations (apologies in advance for some of the technical jargon):

• A new venture exchange should be set up for OTC securities with a blue sky preemption
• The tick size pilot with larger spreads between bid and ask prices should be extended to 5 years
• Regulation A+ aftermarket trading should be blue sky preempted, and there should be a speedy path to full SEC reporting after a Regulation A+ offering and no limit on how much one can invest
• Rule 144 key holding period should be shortened to 3 months
• Private placement brokers (“finders”) should have a simplified SEC registration or none
• Form 8-K for “current reporting” should be eliminated for smaller reporting companies (SRCs)
• XBRL financial reporting should be optional for SRCs due to the cost with minimal benefit
• The accredited investor income and net worth minimums should not change, but expand accredited investor status to those who pass an exam or are licensed attorneys, accountants, registered reps, financial advisors,  etc.

Kudos as always to my good friends in the SEC Office of Small Business Policy, led by Sebastian Gomez, his aide Tony Barone who organized the conference, and Division of Corporation Finance head Keith Higgins for overseeing a very productive day.