An advisory committee to the Securities and Exchange Commission recommended the creation of a separate U.S. equity market devoted to the trading of small companies.
The Advisory Committee on Small and Emerging Companies, which was formed in September of 2011, released its report last week calling for the new small-company exchange. The companies, defined by those with a market capitalization of less than $250 million, would also be subject to a separate set of potentially less onerous regulations. “These companies would be subject to a regulatory regime strict enough to protect investors but flexible enough to accommodate innovation and growth, offers promise of providing a satisfactory trading venue for small and emerging companies, which may encourage initial public offerings of their securities,” the committee wrote in the report.
The committee said in its findings that current U.S. equity markets often fail to offer a satisfactory trading venue for the securities of small companies because they fail to provide enough liquidity for such securities and because listing standards are too onerous. It also said the current environments discourages initial public offerings and damages the U.S. economy.
Trading on a dedicated small company exchange could potentially be limited to accredited investors. Some other specific recommendations of the advisory committee include exempting small companies from some executive compensation disclosures, and allowing them to delay compliance with new financial accounting standards until private companies are required to comply.
The recommendations come just a week before the one-year anniversary of when the Jumpstart our Business Startups Act was signed into law. Known as the JOBS Act, it was designed to give small businesses easier access to capital raising venues and provided for easing some regulatory restrictions, including controversial potential roll-backs on Sarbanes-Oxly Act and Dodd-Frank rules. Some has criticized the slow pace of JOBS Act rulemaking by the SEC, given that it was intended to provide quick jobs creation and a shot in the arm to the U.S. economy.