Andrea Seidt, the President of North American Securities
Administrators Association (NASAA), gave the
keynote speech on April 1, 2014 at the Securities Industry and
Financial Markets Association (SIFMA) Conference
in Florida. One of the themes highlighted in her speech was the
increasing number of private offerings that are sold to investors
without any registered intermediary involvement and the need for
professional financial advice. I believe her comments also have
application to Canadian registered dealers and advisors. Below is
an extract from her speech.
Private markets now outpace public markets in capital
... investors who are more willing to bear risk are
increasingly turning away from Wall Street to the private capital
markets to make up their losses. According to a July 2013 SEC
Report, entitledCapital Raising in the U.S.: An Analysis of
Unregistered Offerings Using the Regulation D Exemption, 2009‐2012, authored by Vladimir Ivanov And
Scott Bauguess, the private market now outpaces the public markets
in capital raises in terms of numbers and dollar volume, with $1.7
trillion raised through private offerings in 2012, compared to $1.2
trillion raised through registered offerings that same
As the SEC report recognizes, the gap is likely much greater
as private offering amounts are understated due to the SEC's
inability to observe all private capital activity. That fact may
not come as much of a surprise to many people, especially those of
you working at firms who are constantly and carefully monitoring
the markets for dynamics like that.
Brokerage firms infrequently used
What may surprise some of you, I must say it surprised me a
little bit, is just how infrequently brokerage firms and other
intermediaries are used in the private market. Are you aware that
only 13% of all new private offerings sold since 2009 have used a
registered intermediary such as a finder or broker-dealer? That is
what the SEC report says and the figure would be even lower if you
excluded real estate deals that are more likely to use
intermediaries. Most of these offerings have taken place in the
Regulation D market where, by design, the terms of the deals
receive no substantive regulatory review.
Gap in public and private markets to widen with Crowdfunding
and Regulation A+
Looking ahead, I anticipate the gap between the public and
private markets to only widen further, at least in the short term
due to expansion of federal offering registration exemptions
instituted as part of the JOBS Act. Regulation D deals are expected
to increase under new Rule 506(c) with the SEC's recent removal
of general advertising and general solicitation restrictions.
Additional unregistered deals will be sold through crowdfunding and
possibly under new Regulation A+. While crowdfunding deals will
require the use of a registered intermediary, there is no such
requirement for the other offering exemptions where significantly
greater sums of money can and likely will be raised. While some of
the firms represented in the audience may plan on participating in
these exempt offering types, I have heard from many firms who have
serious reservations about dabbling in these new untested markets.
If last year's SEC report reflects what we should expect to see
in this area, the broker-dealer community will be handling a
decreasing minority of the deals sold to American investors.
So what does all of this mean for the securities
NASAA President Andrea Seidt summed it up in three themes which
the need for good professional financial advice has never been
investors need to understand the benefit of advice and know
they can trust the professionals giving them advice
our markets function most effectively when industry and
regulators work together to protect and serve investors.
According to its website, NASAA was organized in 1919 and is the
oldest international organization devoted to investor protection.
NASAA is a voluntary association whose membership consists of 67
state, provincial, and territorial securities administrators in the
50 states, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands, Canada, and Mexico.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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