As previewed by John, the SEC’s Small Business Capital Formation Advisory Committee held a meeting this week, following up on its April meeting. The agenda focused on modernizing market access and encouraging IPOs and small public company capital formation. Chairman Atkins shared remarks, as did Commissioners Peirce and Uyeda. The morning session included remarks from outside speakers Sue Washer, a Biotechnology Consultant and former CEO of a small-cap, Nasdaq-listed company, and Daniel Zinn, General Counsel and Chief of Staff at OTC Markets Group. Sue Washer’s comments addressed the following:

– Despite the expansion of the private markets, private capital raising continues to be challenging for small issuers

– Shortening SEC review times and waiting periods and making shelf registration available immediately would significantly reduce capital raising challenges and costs for small issuers, who often want to move quickly on a capital raise after a business development, like clinical trial results, or when market conditions are positive

– The vigilence required to comply with the numerous rules restricting public company communication is very challenging for small-cap issuers (in particular, at her company, she had many discussions with outside counsel about whether information was MNPI for purposes of Regulation FD)

– Losing EGC status is very burdensome, especially for companies that are still pre-revenue when they lose that status (for example, her company had to double accounting staff for purposes of SOX 404(b) when, in her view, management’s time should have been focused on clinical trials)

– Analyst coverage is a really critical issue for small companies, and this is an area that needs a lot more attention

Sue and members of the Committee expressed support for the SEC’s recent rule proposals and discussed ways in which they addressed some of the challenges Sue identified.

Next, Daniel Zinn shared some suggestions in his prepared remarks, many of which tracked suggestions in OTC Markets Group’s comment letter on the registered offering reform proposal:

– Expand S-3 access to certain foreign private issuers that operate in jurisdictions with reporting regimes comparable to the U.S. and are located in jurisdictions with U.S. extradition treaties

– Permit ATM offerings under Tier 2 of Regulation A

– Expressly recognize OTCQX and OTCQB as qualifying trading markets for at-the-market (ATM) offerings in the final rule text to promote certainty and ensure those markets are actually utilized to conduct ATM offerings, instead of maintaining a separate list of markets designated by the Commission (though he noted that OTC is “thrilled” that the proposal recognizes OTCQX and OTCQB as qualifying trading markets for this purpose)

– Extend ELI and SELI benefits to certain OTCQX and OTCQB issuers

– Extend federal preemption from state Blue Sky laws to secondary trading in securities issued under Regulation A Tier 2 offerings and eligible OTCQX securities

– Modernize Form S-3 eligibility for former shell companies that provide comprehensive disclosure

– Meredith Ervine