A discussion draft presented at the February 1, 2013, meeting of the SEC’s Advisory Committee on Small and Emerging Companies recommended establishing a separate U.S. equity market specifically for small and emerging companies.
The companies that listed on the exchange would “be subject to a regulatory regime strict enough to protect investors but flexible enough to accommodate innovation and growth.”
Investor participation in the exchange might be limited to sophisticated investors who met some sort of pre-determined standard, according to the draft. Of course, some of the challenges facing smaller public entities were supposed to have been mitigated by the JOBS, or Jumpstart our Business Startups Act, which was signed into law last year. However, as this post from last month shows, less than one-third of investment bankers think the JOBS Act has boosted the number of IPOs.
In fact, in making its recommendation, the Committee noted that some existing smaller reporting companies (those with less than $75 million in common equity public float or less than $50 million in annual revenues), may be unable to take advantage of the JOBS Act, since it applies only to firms whose IPOs occurred after December 8, 2011. Smaller reporting companies also would benefit from relief from some of the Commission’s disclosure requirements, such as the mandate to submit financial information in XBRL format. Among the specific recommendations in the draft discussion:
- Expand the definition of smaller reporting company to include issuers with public float of up to $250 million;
- Exempt smaller reporting companies from disclosures surrounding executive compensation;
- Allow smaller reporting companies to delay its compliance with new financial accounting standards until private companies are required to comply;
- Allow scaled disclosures as long as a company is a smaller reporting company.
The SEC isn’t the only entity considering the creation of a stock exchange geared to smaller companies. Last year, the Strategic Planning Committee of the NYSE Euronext also advocated the creation of a new stock exchange dedicated to SMEs (small and medium-sized enterprises).
The new exchange would have its own governance and a presence in all four countries of the NYSE Euronext zone – Belgium, France, Netherlands and Portugal – but would be open to other countries and markets that wish to join. This “Entrepreneurs Exchange” also would include a “foyer” market in which companies that are not yet ready for listing could take a few years to gather experience.
“One of our goals is to favor growth of transaction volumes and to gain international visibility,” says Chris Buyse, director of finance for Belgian biotech Thrombogenics and a member of the Strategic Planning Committee.