SEC Task Force Recommends Rule Changes to Simplify Offerings
The Securities and Exchange Commission should eliminate hundreds of rules and required forms to simplify corporate offering procedures and make it easier for small companies to raise capital, an SEC task force recommended Tuesday.
The report of the Task Force on Disclosure Simplification is 94 pages and makes 140 recommendations. It will be presented to the SEC for consideration. The panel was formed in August in response to pressure from House Republicans seeking to pare federal securities regulation.
The task force recommends extending to small companies some shelf registration ideas that allow use of shortened forms for registration of stock and bond offerings, and allowing broader exemptions for these businesses.
The task force, advised by writer and lawyer Philip Howard, also proposes increasing the flexibility of large companies to gain access to public markets and replacing “unnecessarily restrictive” trading-practice rules that seek to limit trading during a securities offering.
“Reconfiguring these regulatory tenets must be done with caution, in order to avoid tipping the balance in favor of certain market participants or jeopardizing investor protection,” the report says. “But the need for modernization is apparent.”
The report criticizes redundant forms, obsolete rules and “dense writing with legal boilerplate,” calling them relics of another era.
Federal regulation “should be rethought in the age of novel financial instruments and virtually instantaneous electronic information and clearance,” the report says.
It calls for eliminating or modifying a quarter of the 700 rules that pertain to corporate capital-raising, including many accounting rules, and half of the 80 forms and schedules.
The SEC plans to propose new rules for some technical recommendations and to seek comments from investors before issuing formal proposals for the more significant findings, an agency spokesman said.
Some SEC commissioners have already voiced support for the report. “This will make a dramatic change in expediting and simplifying the process of raising capital,” SEC Chairman Arthur Levitt told Congress last week.
The report calls on the SEC to prod companies to provide the same information to the investing public that they do privately to institutions. Companies have become more cautious about putting their financial projections in writing to avoid legal liabilities, it says.
Under current rules, small companies can publicly offer up to $5 million in unregistered securities per year through a short-form offering circular. The report recommends that this exemption be broadened to enable companies to raise the money in six months.
A second task force headed by SEC Commissioner Steve M. H. Wallman has recommended that 30% of all public companies be allowed to use a cheaper and simpler registration method to sell securities during a two-year trial period.
