WASHINGTON (Reuters) – The top securities regulator pledged a rigorous review of potentially outdated private securities trading rules, but stopped short of endorsing changes being advocated by Republican lawmakers.
At a congressional hearing on Tuesday, Securities and Exchange Commission Chairman Mary Schapiro was pressed to make regulatory changes to help small and medium-sized companies more easily raise capital without going public.Republicans want the SEC to raise the 500 shareholder threshold, or else change the rule so that more sophisticated investors who understand the markets will not count toward the total. They say the cap is too low and forces companies to raise capital only with large sophisticated investors and harms the ability of smaller investors to get a piece of the action. They also fear it creates costly logistical challenges for companies as they seek to manage the shareholder total so they do not hit the 500 mark.
"These folks are very sophisticated," said Representative Patrick McHenry. "For heaven's sake, if you look at these substantial institutional players, they've got better research and information than the SEC and the government," he said.
Schapiro sought to strike a balance between lowering regulatory barriers for companies and protecting investors from fraud, telling McHenry that sophisticated investors "are no less deserving of the protections of the securities laws."
She and SEC Corporation Finance Division Director Meredith Cross assured lawmakers the SEC is exploring whether to exempt certain investors from the 500 shareholder rule as part of the SEC's broader review into private securities trading. They also said they are exploring if the 500 number is the right one.
In addition, Cross said the SEC is thinking about soliciting input from the public about potential changes to general solicitation rules.
Some Democrats on the panel expressed skepticism about overhauling rules designed to protect investors.
"I fully support helping U.S. firms access additional capital, but I also believe this must be done without sacrificing critical protections," said the Elijah Cummings, the committee's top Democrat.
