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SEC Advisory Committee Calls For New Small Issuer Stock Market
Written: April 1, 2013

United States Securities and Exchange Commission

On Sept. 13, 2011, the Securities and Exchange Commission (“SEC”) announced the formation of the Advisory Committee on Small and Emerging Companies(“Advisory Committee”) to focus on interests and priorities of small businesses and smaller public companies; pointedly the mandate was to advise on rules, regulations and policies pertaining to emerging companies, privately-held small businesses, and publicly traded companies with less than $250 million in public market capitalization. Among the specific topics on which the Advisory Committee’s guidance was sought were:

  • raising capital through securities offerings, including private and limited offerings and initial and other public offerings;
  • trading in the securities of emerging and smaller public companies; and
  • public reporting and corporate governance requirements of emerging and smaller public companies.

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As initially reported, the roster for the Advisory Committee comprised:

  • Co-Chair Stephen M. Graham, Partner at Fenwick & West LLP in Seattle, and
  • Co-Chair M. Christine Jacobs, CEO and Chairman at Theragenics Corp. in Buford, Ga.


  • David A. Bochnowski, Chairman and CEO, NorthwestIndiana Bancorp, Munster, Ind.
  • John J. Borer III, Senior Managing Director and Head of Investment Banking, Rodman & Renshaw LLC, New York, N.Y.
  • Dan Chace, Manager, Wasatch Micro Cap Fund, Salt Lake City, Utah
  • Milton Chang, Managing Director, Incubic Venture Fund, Menlo Park, Calif.
  • Joseph (Leroy) Dennis, Partner, McGladrey & Pullen, Bloomington, Minn.
  • Shannon L. Greene, CFO, Tandy Leather Factory, Fort Worth, Texas
  • Kara B. Jenny, CFO, BlueFly Inc., New York, N.Y.
  • Steven R. LeBlanc, Senior Managing Director of External Private Market, Teacher Retirement System of Texas, Austin, Texas
  • Richard L. Leza, Chairman of the Board, Exar Corp., Fremont, Calif.
  • Paul Maeder, General Partner, Highland Capital Partners, Lexington, Mass.
  • Kathleen A. McGowan, Vice President – Finance, Tobira Therapeutics Inc., Manalapan, N.J.
  • Catherine V. Mott, CEO and Founder, Blue Tree Capital Group, Pittsburgh, Pa.
  • Karyn Smith, Deputy General Counsel, Zynga Inc., San Francisco, Calif.
  • Dan Squiller, CEO, PowerGenix, San Diego, Calif.
  • Charlie Sundling, Chairman and CEO, Pipeline Software, Orange County, Calif.
  • Timothy Walsh, Director, State of New Jersey Division of Investment, Trenton, N.J.
  • Gregory C. Yadley, Partner, Shumaker, Loop & Kendrick LLP, Tampa, Fla.

Observor Members:

  • Sean Greene, Associate Administrator for Investment and Special Advisor for Innovation, U.S. Small Business Administration
  • A. Heath Abshure, Arkansas Securities Commissioner and Chairman of the Corporation Finance Section of the North American Securities Administrators Association.

Read the biographies of the Advisory Committee

New Equity Market

On February 1, 2013, the Advisory Committee unanimously recommended to the SEC the creation of a separate U.S. equity market that would purportedly facilitate trading in the securities of small and emerging companies. The recommendation was formally conveyed to the SEC on March 21, 2013, the substance of which is reprinted below:


  1. The Committee believes that current U.S. equity markets often fail to offer a satisfactory trading venue for the securities of small and emerging companies because they fail to provide sufficient liquidity for such securities and because the listing requirements are too onerous for such companies.
  2. The frequent failure of U.S. equity markets to offer a satisfactory trading venue for small and emerging companies has discouraged initial public offerings of the securities of such companies, undermines entrepreneurship, and weakens the broader U.S. economy.
  3. Establishing a separate U.S. equity market specifically for the securities of small and emerging companies, where 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.
  4. A possible feature of an appropriate regulatory regime for such a market would be limiting investor participation to accredited investors who meet a standard designed to assure that the regulatory protection afforded is appropriate given the characteristics of those investors.
  5. The separate U.S. equity market for small and emerging companies could be an exchange established under Section 6 of the Securities Exchange Act of 1934 (the “Exchange Act”), an alternative trading system operated under 17 C.F.R. § 242.301, or some other appropriately regulated trading venue.
  6. Other actions by the U.S. Securities and Exchange Commission (the “Commission”) with respect to trading venues may also be warranted in order to encourage small business capital formation and facilitate liquidity in the securities of small and emerging companies, including in the context of the Commission’s rulemaking to implement Section 3(b)(2) of the Securities Act of 1933.


The Commission should facilitate and encourage the creation of a separate U.S. equity market or markets that would facilitate trading by accredited investors in the securities of small and emerging companies, and such small and emerging companies would be subject to a regulatory regime strict enough to protect such investors but flexible enough to accommodate innovation and growth by such companies.

Bill Singer’s Comment

Okay, so we have yet another blue ribbon panel coming out with yet another batch of recommendations to yet another government organization. Like what — we haven’t been through this revolving door before with far too many other well-intentioned private-sector-meet-the-public-sector efforts? Does the name National Commission on Fiscal Responsibility and Reform ring a bell? Howsabout if I refer to it by its more common names: Bowles-Simpson or Simpson-Bowles? Yeah, like that got much traction.

For some reason, we have this penchant for setting up a plethora of roundtables, panels, committees, and the ever-popular subcommittees as a substitute for truly tackling problems with workable solutions. In the end, these feel-good, make-work undertakings result in little more than an unending stream of white papers filled with broad brush recommendations that never quite seem to attract the full support of the organizations to which the political hot potatoes are handed off to — and, even more exacerbating, by the time the watered down draft rules and regulations come under Congressional scrutiny, little, if anything, survives.

So, with all due respect to the good folks on the Advisory Committee, what have you all truly accomplished?

Maybe, Perhaps, What If, And Much Wondering

The Advisory Committee tells us that it believes our equity markets often fail to provide sufficient liquidity to smaller listings because of onerous listing requirements. We’ve heard such a complaint for many years and have similarly heard many proposals from Dutch Auctions to crowdfunding. I’m not sure that I necessarily see any convincing cause-and-effect between what you deem as onerous listing requirements and a lack of liquidity.

As an active trader myself, I rarely, if ever, stayed out of the market or went in because of a listing requirement; moreover, given all the crap parading in the markets as legitimate companies, I’m not sure that we necessarily need to open the taps for more untreated sewage. Frankly, the Facebook/NASDAQ meltdown, the Flash Crash, and the Knight Capital and BATS disasters likely discouraged more investors from the markets than any listing requirements. Have you committee members thought through the architecture and compliance regime that would be needed to handle small firm listings in a separate venue in order to avoid more of the same that has plagued the larger marketplaces such as the New York Stock Exchange or NASDAQ?

In a fairly conclusory fashion, the Advisory Committee opines that the lack of satisfactory trading venues discourage smaller firm IPOs. While I concur, to an extent, that the inability to attract public funding undermines entrepreneurship, I am also old enough to recall what you seem to recall as the halcyon days of the 1980s and 1990s when IPOs were all the rage and boiler-rooms and pennystocks proliferated. I would respectfully suggest that you need to propose a formidable bulwark against the onslaught of pump-and-dump and naked shorting that would inevitably accompany the launch of a new market venue for smaller listings — and I do not see the details embedded in your recommendation. Are you not concerned about adding more fuel to a still raging fire?

In theory, I support your call for a separate U.S. equity market specifically for the securities of small and emerging companies; and, I would note, that was a suggestion I had made over a decade ago when I proposed “incubator” markets — the equivalent of the minor league farm system for Wall Street. On the other hand, the more the merrier is not the prescription for the recent ills of Wall Street. And let’s not forget that the NYSE and NASDAQ are not exactly going to sit on their hands and on the sidelines while all this new business is being divvied up for some newfangled market that will become a siphon of whatever liquidity is still extant.

Among your suggestions – which even your recommendation tepidly characterizes as “a possible feature of an appropriate regulatory regime”— is to limit investor participation on the new exchange to so-called accredited investors. Given that we have accumulated a history of abuse of that standard, which has been on the books for a long time, it may have been more helpful for your recommendation to explain why you have confidence in the ability to now police an issue that has bedeviled regulators and investors for decades.

Ultimately, I must wonder whether the Advisory Committee is simply trying to put new wine into old wineskins, with the likely result that these proposals will simply burst through whatever regulatory regime will be in place. I wish that someone had the courage to ask whether the quaint concept of an equity market has much vitality in the 21st Century – and whether amassing a panel of folks inculcated into the old ways and concepts of raising capital was calculated to produce visionary brainstorming. Sadly, what I do see in this recommendation is finger pointing at a failed market structure, for which I respond with an approving thumb’s up. What I don’t see are any specifics. All of which leaves an already beleaguered SEC with the task of drafting more rules and submitting them to a fractured group of commissioners, who probably will stalemate on any approval. Of course, should the commissioners manage to agree on anything, good luck getting our useless Congress to approve any new laws.

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