“We are taking a critical look at our exemptions from registration to ensure that our multifaceted private offering framework works for investors and entrepreneurs alike, no matter where they are located in the United States,” said SEC Chairman Jay Clayton. “Input from startups, entrepreneurs and investors who have first-hand experience with our framework will be key to our efforts to analyze and improve the complex system we have today.”
The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the Commission’s exemptions for both companies and investors, including identifying potential overlap or gaps within the framework. It also considers, among other things, whether:
- The limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities
- The Commission should take steps to facilitate a company’s ability to transition from one offering to another or to a registered offering
- The Commission should expand companies’ ability to raise capital through pooled investment funds
- Retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds such as interval funds and other closed-end funds
- The Commission should revise its exemptions governing the secondary trading of securities initially issued in exempt offerings
The public comment period for the concept release will remain open for 90 days following publication of the release in the Federal Register.
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CONCEPT RELEASE ON HARMONIZATION OF SECURITIES OFFERING EXEMPTIONS
The Commission issued a concept release that reviews the framework for exempt offerings, including several exemptions from registration under the Securities Act of 1933 that facilitate capital raising. The concept release seeks comment on possible ways to simplify, harmonize, and improve this exempt offering framework to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.
Over the years, and particularly since the Jumpstart Our Business Startups Act of 2012, several exemptions from registration have been introduced, expanded, or otherwise revised. As a result, the overall exempt offering framework has changed significantly. Our capital markets would benefit from a comprehensive review of the design and scope of the Commission’s exempt offering framework.
The Exempt Offering Framework
Whether the Commission’s exempt offering framework, as a whole, is
consistent, accessible, and effective for both companies and investors
or whether the Commission should consider changes to simplify, improve,
or harmonize the exempt offering framework.
The Capital Raising Exemptions within the Framework
Whether there should be any changes to improve, harmonize, or
streamline any of the capital raising exemptions, specifically: the
private placement exemption and Rule 506 of Regulation D, Regulation A,
Rule 504 of Regulation D, the intrastate offering exemptions, and
Potential Gaps in the Framework
Whether there may be gaps in the Commission’s framework that may
make it difficult, especially for smaller companies, to rely on an
exemption from registration to raise capital at key stages of their
Whether the limitations on who can invest in certain exempt
offerings, or the amount they can invest, provide an appropriate level
of investor protection (i.e., whether the current levels of investor
protection are insufficient, appropriate, or excessive) or pose an undue
obstacle to capital formation or investor access to investment
opportunities, including a discussion of the persons and companies that
fall within the “accredited investor” definition.
Whether the Commission can and should do more to allow companies
to transition from one exempt offering to another and, ultimately, to a
registered public offering, if desired, without undue friction or delay.
Pooled Investment Funds
Whether the Commission should take steps to facilitate capital
formation in exempt offerings through pooled investment funds, including
interval funds and other closed-end funds, and whether retail investors
should be allowed greater exposure to growth-stage companies through
pooled investment funds in light of the potential advantages and risks
of investing through such funds.
Whether the Commission should revise its rules governing
exemptions for resales of securities to facilitate capital formation and
to promote investor protection by improving secondary market liquidity.
The Commission welcomes all feedback and encourages interested parties to submit comments on any or all topics of interest and to respond to one, multiple, or all questions asked in this release.
The release will be published on the Commission’s website and in the Federal Register. The comment period will remain open for 90 days from publication in the Federal Register.