July 17, 2017

The Heritage Foundation: The SEC, Entrepreneurship and Economic Growth


  • Michael Piwowar, Commissioner, Securities and Exchange Commission (SEC)
  • David Burton, Senior Fellow in Economic Policy, The Heritage Foundation



The Heritage Foundation’s David Burton and Securities and Exchange Commissioner Michael Piwowar began by discussing SEC Chairman Jay Clayton’s focus on capital formation broadly and how the Commission can encourage companies to use public capital markets. Piwowar told Burton that the Commission is still formulating its capital formation reform plans, but said that some of the proposed changes can be enacted at the staff and not the Commission level. Piwowar noted that the SEC’s Division of Corporation Finance recently extended a popular confidential filing provision, previously available only to emerging growth companies (EGCs), to all companies exploring a public offering. Piwowar also conceded that some capital formation regulation changes would require legislation.


In a follow-on exchange regarding the attractiveness of public markets for U.S. companies, Piwowar said that while there are macro-level trends contributing to the decline in total public companies, the success of several Jumpstart Our Business Startups (JOBS) Act provisions–such as the confidential filing provisions–show that small regulatory changes could have far-reaching, positive effects on public markets. Piwowar also discussed his recently completed “capital formation listening tour” where he traveled the country talking to entrepreneurs and venture capital firms about the issues they face in taking companies public.


When asked by Burton about implementing bright line tests or otherwise broadening the definition of “sophisticated investors,” Piwowar questioned the need have a such a category at all. Piwowar said that all investors should be able to take advantage of higher-risk, higher-reward offerings, and that the SEC should be concerned not just with protecting investors from risks to individual securities, but also with protecting investors from the risks created by undiversified portfolios. Piwowar said that securities currently available only to sophisticated investors could help all investors diversify their portfolios.


Burton and Piwowar also had several lengthy exchanges on possible changes to public company disclosures. Piwowar criticized the Dodd-Frank Act’s CEO pay ratio and conflict minerals disclosure requirements, saying they were evidence of attempts to politicize the SEC and did not provide useful information to investors. Piwowar also criticized the redundancy of reported information in SEC filings, and said that many parts of corporate 10-Ks today (such as the risk factor section) are simply “boilerplate” and do not provide investors with useful information. Piwowar advocated for a disclosure regime that allowed material information to “rise to the top” by reducing the length and complexity of SEC filings.


A frequent topic of discussion between Burton and Piwowar were the different types of securities offerings that the JOBS Act made changes to. Burton began by asking Piwowar if the SEC would move forward on several 2013 proposed amendments to Reg D offerings, and Piwowar said the SEC would not move forward on these amendments. On the topic of Reg A / Reg A+, Piwowar said it is a priority of the Commission to increase the attractiveness of these offerings, such as by exempting small companies using Reg A from Blue Sky laws. Piwowar also said the Commission is examining ways to improve the secondary offering environment for Reg A+ securities. Piwowar urged legislators to explore changes to crowdfunding, saying that the statutory language (and the accompanying SEC rules) regarding crowdfunding are too restrictive to be useful to entrepreneurs.


Regarding small finders, Piwowar argued that they should not have to register as broker-dealers, saying the Commission needs to find a space for finders in the capital formation regulatory framework.


Burton closed by asking Piwowar about the SEC’s oversight of the Financial Industry Regulatory Authority (FINRA) and if there will be changes to the Commission’s relationship with FINRA. Piwowar said the SEC recently reshuffled its internal staff to decrease the manpower dedicated to regulating broker-dealers and shift personnel to regulating investment advisers.  Piwowar said that the SEC will be looking closer at FINRA now that it will have a more salient role in broker-dealer regulation. Piwowar also praised FINRA CEO Robert Cook’s review of FINRA regulations (FINRA 360).


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