On 27 April 2018, the Securities Industry and Financial Markets Association (SIFMA) along with other organisations, notably the U.S. Chamber of Commerce and Nasdaq, published a report entitled Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public (SIFMA Report).
The SIFMA Report sets forth several recommendations, including the following:
- Enhancement of several provisions of
the JOBS Act
The JOBS Act entered into force six years ago and has demonstrated that laws and regulations dealing with capital raising can be relaxed without compromising investor protections. The SIFMA Report recommends amending several provisions of the JOBS Act, notably:
- Extend certain JOBS Act "on-ramp" provisions from five years to ten years following an IPO in favour of issuers that continue to meet the definition of an EGC. These benefits include streamlined financial disclosure, allowance for confidential reviews of registration statements by the SEC and simplified executive compensation disclosure or exemption from certain executive compensation requirements under the Dodd- Frank Wall Street Reform and Consumer Protection Ac
- Allow all issuers, not only EGCs, to use "testing the waters" by amending Section 5(d) of the Securities Act of 1933 (Securities Act). See "SEC Considering Allowing All Companies to Use 'Testing the Waters'" above.
- Extend the five-year exemption from the requirement in Section 404(b) of the Sarbanes-Oxley Act of 2002 to report on the adequacy of internal control over financial reporting to ten years for EGCs that have less than $50 million in annual revenue and less than $700 million in public float.
- Encourage more research of emerging
EGCs and other small public companies>
In response to the lack of research coverage with regard to a majority of listed companies, which may reduce interest from investors and impact the liquidity for such companies' stock, the SIFMA Report recommends:
- Amend the Rule 139 research safe harbour to provide that continuing coverage by research analysts of any issuer (including those that do not qualify for Form S-3 or F-3) would not constitute an offer or sale of a security of such issuer before, during or after an offering by such issuer.
- Allow investment banking and research analysts to jointly attend "pitch" meetings in order to have an open and direct dialogue with EGCs. Currently, Section 105(b) of the JOBS Act prohibits analysts from engaging in efforts to solicit investment banking business.
- Improvement to certain corporate
governance, disclosure and other regulatory requirements
Companies often view the significant compliance costs of being a public company as a disincentive to going and staying public. In order to address this, the SIFMA Report recommends the following:
- Institute reasonable and effective SEC oversight of proxy advisory firms, such as Institutional Shareholder Services (ISS) and Glass Lewis which have growing influence over public companies and have become the standard setters for corporate governance.
- Reform shareholder proposal rules
under Rule 14a-8 under the Securities Exchange Act of 1934
(Exchange Act) by increasing the
"resubmission thresholds" that determine when a proponent
is permitted to resubmit a proposal that has previously garnered
low support. Currently, the level of support that a proposal must
receive before resubmission is:
- if voted on once in the past five years, 3% of shareholders the last time it was voted on;
- if voted on twice in the past five years, 6% of shareholders the last time it was voted on; or
- if voted on three or more times in the past five years, 10% of shareholders the last time it was voted on.
The SIFMA Report recommends raising these thresholds to 6%, 15% and 30%, respectively.
- Simplify quarterly reporting requirements and grant EGCs the option to issue a press release that includes quarterly earnings results in lieu of a full Form 10-Q.
- Recommendations related to financial
reporting
The SEC guidance, the SIFMA Report, recommends the following:
- Modernize the Public Company Accounting Oversight Board (PCAOB) inspection process related to internal control over financial reporting (ICFR), by updating SEC guidance issued in 2007. The recommendation is intended to ensure that the existing SEC guidance, which aimed to allow companies to prioritize and focus on "what matters most" in assessing ICFR, works as intended.
- It also suggests that the PCAOB should consider forming an ICFR task force that could address issues that arise for companies as a result of the PCAOB inspection process and its consequences for audit firms and auditors.
- Lastly, the SIFMA Report recommends pre- and post-implementation reviews to improve audit standards setting, prevent harmful impacts and address unintended consequences that occur in the process of implementing PCAOB auditing standards.
The SIFMA Report is available at:
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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