Eye on Washington: JOBS Act 2.0 in the Offing?
Shriram Bhashyam | June 20, 2014
While the jury is out (NYT, Washington Post, Boardroom Brief) on whether the Jumpstart Our Business Startups Act ("JOBS Act"), passed in April 2012, has been a success, House Republicans may already have their sights on a follow-up ("JOBS Act 2.0").
Although the SEC has yet to finish adopting regulations that would fully implement the JOBS Act, including several key provisions such as the "crowd funding exemption," the House of Representatives Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises convened a hearing on June 12, 2013 entitled "Reducing Barriers to Capital Formation." The Committee Memorandum makes it clear that the focus is on small companies:
Based on the success of the [JOBS] Act (P.L. 112-106), which President Obama signed into law on April 5, 2012, the
Subcommittee is continuing its survey to identify legal, regulatory and market
impediments to capital formation, particularly for small and medium-capitalized
What was discussed at the hearing?
While the transcript of the hearing is not yet available, the following topics were on the agenda:
- changing the minimum trading increment or "tick size" for smaller companies (the current system prices shares in one cent increments);
- authorizing the creation
of new equity markets to register with the SEC and then list and trade the securities of
improving market quality for smaller issuers;
- modernizing the
regulatory structure of business development companies;
- improving capital formation for
privately held small businesses and publicly traded companies with less than $250 million
in public market capitalization; and
- and examining disclosure and corporate governance
requirements that may be burdensome for smaller companies.
What could JOBS Act 2.0 look like?
While the JOBS Act primarily facilitated capital raising and crowdfunding by small businesses, it appears that JOBS Act 2.0 would have an eye towards the next frontier for small business capital formation--trading markets for securities of small and emerging businesses. As ever, the parallel goals of facilitating capital formation and investor protection remain at tension. Lawmakers and the regulators that implement the laws will need to strike the appropriate balance. As noted securities law expert Professor Donald Langevoort has acknowledged, small companies have smaller market impact than large companies, and accordingly should be subject to less onerous regulatory responsibilities.
One aspect of a possible JOBS Act 2.0 that we at EquityZen are particularly interested in is a potential separate equity market for the trading of securities of small and emerging companies. In conjunction with this, it is likely that companies whose securities are listed on this market would be subject to lighter reporting and governance standards than their NYSE and Nasdaq-listed counterparts. In recognition of investor protection and the lighter regulatory touch on companies listed on this market, access to this market may be limited only to accredited investors.
The next hearing on "Reducing Barriers to Capital Formation" is expected to take place in July. EquityZen will monitor these developments and provide updates. We also geek out on secondary markets of private company securities, so expect a follow up from us on what a separate equity market for emerging company securities may look like. Don't forget to subscribe to Meditations to get EquityZen's take on new developments. Feel free to post and questions or comments below.
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