SEC Advisory Committee Approves Proposal Based on COL Prof’s Presentation

On February 1, the Security and Exchange Commission’s (SEC) Advisory Committee on Small and Emerging Companies approved, with minor modifications, a recommendation to create a U.S. equity market for small and emerging companies that is based on scholarship by Jeff Schwartz, Associate Professor of Law at the University of Utah S.J. Quinney College of Law.

At the invitation of the agency, Schwartz spoke at a September meeting of the advisory committee where he argued for a “lifecycle model” of securities regulation.  Under this approach, companies would trade on markets specially designed to fit the size and age of the regulated firms.  Schwartz recently said that, “The key part of my proposal is the recommendation to establish a market specifically for newly public young firms, where they would be subject to a regulatory regime that is strict enough to protect investors yet flexible enough to accommodate innovation and growth. “

Schwartz’s proposal is based on his article, “The Twilight of Equity Liquidity,” originally published in the Cardozo Law Review . He said that, “The number of IPOs has declined precipitously from what it had been in the 1980s and ‘90s.  Many believe that a key cause is that the traditional public markets, like the NYSE and NASDAQ, no longer provide many small and emerging firms with an attractive platform on which to list their shares.  The idea is to remedy this deficiency through the creation of a new market designed with regulations and market-structure rules created to fit these companies.  If the agency moves forward with this proposal, it could create the framework pursuant to which such a market could exist. “

The committee’s decision has received publicity in a number of publications, including the Wall Street Journal’s MarketWatch and Reuters.