An SEC official said Commission staff had been directed to explore possible changes to Securities Act restrictions on communications during the IPO process. The official said the IPO Modernization initiative seeks to remove unnecessary obstacles within the IPO process. The official argued that the gun-jumping rules and exceptions are difficult to understand and can discourage issuers and underwriters from communicating with investors.
The official outlined three areas for staff to examine. First, staff should reconsider restrictions on communication content and on the categories of people who may receive communications. Second, staff should explore clearer standards for determining when communications are offers subject to the Securities Act’s gun-jumping restrictions. Third, staff should consider reducing inadvertent violations by issuers, including through easily applied cure provisions. The official said the Commission last completed a comprehensive examination of communication rules in 2005, when the official served as a Commissioner.
The official also asked Commission staff to assess potential amendments to Regulation Crowdfunding that could lower compliance burdens and increase the rules’ appeal to issuers and investors. More than 9,800 Regulation Crowdfunding offerings over the last decade raised an average of $364,000. When the Commission adopted the rules in 2015, the Commission said the rules sought to reduce the cost of small securities offerings involving small investments from the crowd. The intended beneficiaries were startups and small businesses. The official sought the Small Business Capital Formation Advisory Committee’s views on possible changes.
The official said expanding private-market access while preserving measures against fraud has long been a major priority. Last month, the Commission issued notices concerning possible additional routes to accredited investor status. One possible route would involve passing an examination that the Financial Industry Regulatory Authority (FINRA) would develop. The Committee had recommended a test of investor sophistication as a qualification route on three separate occasions. The official said the Committee’s discussions and recommendations contributed to the notices. The official had also advocated an examination and welcomed public comments on the examination concept and other possible designations.
The official discussed Commission proposals concerning optional semiannual reporting, simpler filer classifications and reforms to registered offerings at the Committee’s July meeting. Last month, the Committee recommended supporting all three proposals. The official said the proposals broadly seek to ease regulatory obstacles and encourage more companies to become and remain publicly traded.
