The SEC’s Advisory Committee on Small and Emerging Companies (ACSEC) addressed questions about secondary market liquidity in Reg A+ securities last week at their meeting in DC. The Committee members reviewed challenges and demands for facilitating secondary transactions. Providing liquidity is an important aspect of any investment. The Reg A+ market is still evolving with some issuers moving to various public marketplaces (like OTC, NASDAQ or NYSE) and others choosing not to pursue a listing. If barriers were reduced, Reg A+ may become a more impactful exemption and see greater utilization by smaller firms. As ACSEC noted;
“Capital is often more expensive or not available for issuers that are not able to provide investors with secondary market liquidity.”
The ACSEC members pointed to the following:
- Regulation A provides for the preemption of state securities law registration and qualification requirements for securities initially offered or sold in Tier 2 offerings; however, secondary sales of these same Tier 2 Regulation A securities require compliance with disparate state law requirements. This means willing sellers and buyers in the secondary trading market must find exemptions on a state by state basis.
- There are substantive differences in the various state exemptions. This lack of uniformity inhibits the development of a national secondary trading market.
- The Commission take steps to help reduce friction in secondary trading by holders of Tier 2 Regulation A securities where the issuer is current in its ongoing reports.
- The Commission collaborate with NASAA in this endeavor.
- The Commission use its authority under Section 18 of the Securities Act to preempt from state regulation the secondary trading in securities of Tier 2 Regulation A issuers that are current in their ongoing reports.
The letter, embedded below, was previously a draft but the updated letter is the document that has been forwarded to SEC Chair Jay Clayton.
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