Company Filings More Search Options. Thank you and good morning. The lack of a fair, liquid, and transparent secondary market for these securities is a longstanding problem that needs an effective solution. Indeed, I've spoken publicly about this very issue on a number of occasions, most recently less than two weeks ago at the annual SEC Speaks conference. Specifically, proposed rules under Regulation A-plus and Crowdfunding, and final rules under Rule c of Regulation D, would permit wide distributions of securities and also allow such securities to be freely-traded by security holders immediately upon issuance, or after a one-year holding period.
The combined results of these existing and pending rules is that companies will be able to sell their securities to a wider swath of the public and remain outside of the protections of the registration provisions of liquid secondary market Exchange Act for longer periods of time—perhaps even permanently. One idea that been suggested as a way to foster an active secondary market for small company stocks is for the Commission to approve one or more venture exchanges. Venture exchanges are hardly a new idea, however, and prior efforts liquid secondary market establish them in this country have fared poorly.
This created the impression that the ECM was populated only by unsuccessful companies. But, it is not the only source of guidance available to us. There have been other attempts to create viable markets for smaller companies. For example, many European stock markets have experimented with a junior exchange for companies too small to meet normal listing requirements.
Moreover, efforts in to establish a new venture exchange in the U. The Commission should attempt to determine the underlying causes of liquid secondary market problems and liquid secondary market best to address them. In this regard, we may need to ask some difficult questions. For example, should venture exchanges be structured as dealer markets, rather than auction liquid secondary market Also, could venture exchanges enhance liquidity through batch auctions, rather than continuous trading?
How can the Commission, consistent with the Exchange Act, encourage traders to execute transactions on venture exchanges, rather than in off-exchange venues? Importantly, each of these questions presents the possibility of a trade-off between what is best for investors, and what is best for the exchange and liquid secondary market participating broker-dealers.
We must be mindful of these trade-offs as we review any proposals for new venture exchanges. We must also never lose sight of our core responsibility, which liquid secondary market to protect investors above all else. Investors will also need to understand what venture exchanges are—and what they are not.
Investors may think venture exchanges will be the place to find the next Liquid secondary market, Google, or Facebook. To be sure, venture exchanges can, and do, attract reputable and profitable companies. The Commission needs to understand how best to address these risks before approving more of these exchanges. It also needs to make certain that investors understand these risks. Those who have studied venture exchanges believe that they are far more likely to succeed when they focus on investor protection and education.
Venture exchanges that implement appropriate listing standards, enforce them conscientiously, and educate investors about the higher risks involved with small cap companies seem to do better. For example, several academics have argued that some listing standards are more important than liquid secondary market.
In particular, these experts believe that effective corporate governance standards and accounting requirements are essential to the viability of any venture exchange.
In sum, venture exchanges are a possible solution to a looming problem and need to be considered. We should do so in liquid secondary market thoughtful and measured manner—fully cognizant of benefits, costs, and challenges—and always with the needs of investors at the forefront.
Rule 15c is widely used by broker-dealers to trade in unlisted securities. In order to use Rule 15c, broker-dealers who wish to publish a quote of unlisted securities, which will often be smaller issuers, are required to review and maintain certain information about the security and the issuer.
In addition, Rule 15c requires broker-dealers, prior to publishing quotes of these unlisted securities, to have a reasonable basis for believing that this information is accurate in all material respects and that it was obtained from reliable sources. Specifically, investors need to have confidence that the quotes for these securities are fair and accurate.
Without this confidence, a fair and liquid secondary market for these securities will not exist. In this regard, the use of current Rule 15c often fails to meet expectations of fair and accurate pricing, and often fails to result in reliable quotes. As a result, broker-dealers need not review the information collected and reviewed liquid secondary market other broker-dealers before publishing a quote. Moreover, liquid secondary market the exception allows broker-dealers simply to rely on their own prior quotations, broker-dealers have no obligation to confirm that the information they initially relied on when they first published a quotation is still valid, no matter how old the initial quotation is.
The problems of Rule 15c have long been recognized. In fact, inand again liquid secondary marketthe Commission proposed comprehensive amendments to Rule 15c to address concerns about fraud and manipulation liquid secondary market had become increasingly common in microcap securities traded in the OTC market.
The Commission hoped that the proposed amendments to Rule 15c would address abuses involving microcap securities, and liquid secondary market generally enhance the integrity of quotations for securities in this market sector.
Unfortunately, these proposed rules were never finalized. In addition, it will be critical to update Rule 15c to take into account liquid secondary market new information and filing requirements that will be required when the Commission liquid secondary market the proposed rules under Regulation A-plus and Crowdfunding.
This is a topic that I discussed with this Committee back in Decemberand my views remain the same. Shareholders often rely on this exemption to sell their restricted securities in a private transaction without being considered an issuer or an underwriter. Ultimately, the goal is to develop a viable secondary trading environment that promotes a fair, transparent, and liquid market for the securities of small businesses—a market in which investors can have confidence that they are being treated fairly.
I look forward to a robust discussion on liquid secondary market and all viable suggestions as to how to improve the liquid secondary market trading environment for shares of small business securities. Securities Act Rule allows public resale of restricted and controlled securities if a number liquid secondary market conditions are met, including, for example, meeting the holding period requirement of one year assuming the seller is not an affiliate of the issuer.
See Rule under the Securities Act. Currently, companies with more than shareholders of record are required to be registered with the SEC under Exchange Act Section 12 gwhile these proposed rules would expand that trigger to 2, record holders or holders who are not accredited investors. In addition, these proposed rules would exclude from the count of record holders those who acquired liquid secondary market securities pursuant to an employee compensation plan.
As a result, a company could have an enormous number of record holders without being required to provide the same level of disclosures as those applicable to public companies. The concern is that without the disclosure routinely provided by public companies, smaller business shares that are carved out from the Section 12 g registration requirements would be harder to value because of this lesser transparency.
The JOBS Act requires that the Liquid secondary market promulgate rules that, conditionally or unconditionally, exclude securities sold under the Crowdfunding provision from section 12 g of the Exchange Act. But there are liquid secondary market. For example, some commenters have suggested that the Commission amend Regulation ATS to facilitate the orderly sale of unregistered securities.
In addition, companies like SecondMarket and SharesPost have developed marketplaces to facilitate trading in the shares of unlisted companies. These alternative approaches are beyond the scope of these remarks. I, Reason in Common Senseavailable at http: In addition, Amex Rule directly prohibited market specialists from promoting their stocks. The lack of funding has reached such a critical stage that the TSX-V in its current constitution appears to be in danger of liquid secondary market a liquid secondary market in Canadian history books in the not so distant future.
The rise of AIM as a stock market for growing companies4 Sept. Specifically, they found that being listed on the ECM increased average daily trading volume, one measure of liquidity, for 21 firms, and that it decreased daily trading volume for 14 firms. For example, while Exchange Act Section 11A c 3 allows the Commission to prohibit broker-dealers from executing certain transactions off of an exchange, the Commission can invoke this authority only if certain criteria are met, such as that the restriction is the only lawful means of maintaining or restoring liquid secondary market or orderly markets.
See 15 USC 78k-1 A c iii. Another provision implicated by venture exchanges is Exchange Act Section 12 fwhich limits the amount of time that the Commission liquid secondary market prohibit unlisted trading of an initial public offering.
See 15 USC 78 l f. Perhaps most tellingly, AIM firm post-listing returns significantly underperform post-listing returns on other markets. See also Kyle Caldwell, A 3,pc rise or a 96pc fall: Specifically, they note that these exchanges i grew out of pre-existing over-the-counter markets; ii were dealer markets, rather than auction markets; and iii are separate entities liquid secondary market other national exchanges, liquid secondary market allows them to focus on serving their clientele.
Exchange Act Rule 15c f 3 sets forth frequency-of-quotation requirements which, if met, allow broker-dealers to publish quotations in the security without maintaining the information required by Exchange Act Rule 15c or filing a new Form Securities and Exchange Commission.
This would require broker-dealers that wish to publish quotations to conduct a review of issuer and security information, and not simply rely on other broker-dealers or their own stale review; Requiring broker-dealers that publish quotations liquid secondary market obtain and review current information about an liquid secondary market at least annually.
This information could liquid secondary market made easily accessible to investors over the internet to review the materials of such issuers.
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