A case for US capital markets regulatory reform company registration and related issues

Abstract

The current regulatory structure governing the US capital markets was established by the Securities Act of 1933 (SA 1933) and the Securities Exchange Act of 1934 (SEA 1934). The SA 1933 regulates offerings; the SEA 1934 regulates listings, and imposes heightened reporting and disclosure requirements on companies of a certain size and with a certain number of shareholders. The disclosure requirements of the two Acts have been integrated through shelf-registration, but each has its own liability regime, the regulatory structure remains bifurcated, and there has been no review of how they operate in many years. While there have been recent amendments to address the financing needs of small- A nd medium-sized enterprises, the regulatory framework must be re-evaluated, the linkage between private and public offerings must be reviewed and the regulation of market participants must be reassessed. We recommend that the regulatory focus of capital raising shift from the transaction approach in the SA 1933 to a company registration approach, a recommendation made several decades ago in the Wallman Report, published by the Securities and Exchange Commission's Advisory Committee on the Capital Formation and Regulatory Process. This approach would require companies of a certain size and with a specified number of shareholders to report to the market on a periodic or continuous basis. Such a model would make the capital raising process more efficient for companies, while also strengthening investor protections. Lastly, we suggest that the Securities and Exchange Commission appoint an Advisory Committee to develop in more detail the structure of company registration, a roadmap for implementation and to review other parts of our regulatory framework that might be changed if the company registration model were adopted.