SEC Advisory Committee on Small and Emerging Companies Makes Recommendations

by Katten Muchin Rosenman LLP

On March 21, the Securities and Exchange Commission Advisory Committee on Small and Emerging Companies (Advisory Committee) submitted several recommendations to the SEC on rules, regulations and policies relating to emerging privately held small businesses and publicly traded companies with less than $250 million in public market capitalization.

Scaled Disclosure Recommendations

The Advisory Committee addressed some inconsistencies between the scaled disclosure requirements available to “smaller reporting companies” under current SEC rules and to emerging growth companies under the Jumpstart Our Business Startups Act. The Advisory Committee recommended that the SEC revise disclosure requirements for smaller reporting companies to include certain exemptions available to emerging growth companies, including exemptions from shareholder advisory votes on executive compensation and the frequency of those votes (“say-on-pay” and “say-on-frequency” votes), certain compensation disclosure requirements and certain requirements relating to compliance with financial accounting standards. In addition, the Advisory Committee recommended that smaller reporting companies no longer be required to file with their material contracts schedules or similar attachments that are not material to an investment decision or otherwise disclosed, or submit financial information in XBRL format for periodic reports and other filings. The Advisory Committee also expressed its belief that the threshold for smaller reporting companies is too low and recommended that the definition of a smaller reporting company be revised to include companies with public floats of up to $250 million (or less than $100 million in annual revenues if the public float cannot be calculated). The Advisory Committee further recommended that the definition of “accelerated filer” be revised to include companies with public floats of $250 million or more, but less than $700 million, as of the applicable measuring date (thereby excluding companies with public floats of between $75 million and $250 million from the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act).

Click here to read the full text of the recommendation.

In a separate recommendation, the Advisory Committee expressed its belief that the disclosure requirements in the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to conflict minerals and payments by resource extraction issuers are disproportionately burdensome to small businesses and outside of the scope of the SEC’s mission. The Advisory Committee recommended that the SEC inform the Committee on Banking, Housing and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives of the Advisory Committee’s belief.

Click here to read the full text of the recommendation.

Trading Recommendations

The Advisory Committee further expressed its belief that current US equity markets may be unsatisfactory for the trading of securities of small and emerging companies due to onerous listing requirements and failure to provide sufficient liquidity. The Advisory Committee recommended that the SEC encourage the creation of a separate equity market with a more flexible regulatory regime for trading in securities of small and emerging companies by accredited investors.

Click here to read the full text of the recommendation.

In a separate recommendation, the Advisory Committee expressed its belief that a change in the method of determining tick sizes for equity securities of smaller exchange-listed companies could increase their liquidity and facilitate initial public offerings and capital formation. The Advisory Committee recommended that the SEC adopt rules to increase tick size for these companies and allow them to choose their own tick sizes within a limited range determined by the SEC.

Click here to read the full text of the recommendation.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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