The North American Securities Administrators Association (“NASAA”) held its annual Public Policy Conference in Washington D.C., featuring speakers such as SEC Commissioners Kara Stein and Luis Aguilar, as well as Senator Joe Manchin (D-WV).
The two panels discussed (i) digital investments, focusing on Bitcoin and other new or emerging types, and (ii) the decrease of stock ownership among Americans and how to encourage main street investors to return to the capital markets.
Commissioner Stein discussed the importance of revisiting the partnership between the SEC and NASAA, especially with the upcoming finalization of the JOBS Act rules, including general solicitation, crowdfunding and Regulation A (“Reg. A”). Additionally, Commissioner Stein briefly noted that she would like to hear from the NASAA regarding disclosure reform and the debate surrounding high-frequency trading. She stated that the SEC should be considering whether there has been illegal conduct, and stressed the “need to revise or create new rules to stop conduct that we think should be illegal.”
Commissioner Aguilar focused his remarks on the States’ role in Reg. A-plus offerings, the SEC’s proposal to improve Regulation D (“Reg. D”), and the importance of taking steps to combat the potential increase in fraud resulting from the JOBS Act rules. He voiced his awareness of NASAA’s concerns with the provision of proposed Reg. A-plus that would effectively preempt state securities law registration and qualification requirements for all Tier 2 offerings. He stated that one key consideration is a concern about the cost of having to file and qualify an offering separately under the state securities laws of each jurisdiction, and the impact that it would have in discouraging market participants from using the new exemption. Commissioner Aguilar mentioned that the Coordinated Review Program, which NASAA members approved last month, could help to address this concern.
Additionally, Commissioner Aguilar spoke about the JOBS Act rule allowing general solicitation and advertising in securities offerings under Rule 506, or Reg. D, stating that there were concerns that mass marketing under Reg. D would make fraud easier. He urged NASAA to encourage the SEC to adopt changes to help ameliorate the risks in Rule 506. Overall, Commissioner Aguilar stated, the JOBS Act and its rules have the effect of blurring the lines between public and private companies. He stated that the SEC and NASAA members must communicate with one another to address the potential problems.
Lofchie Comment: One negative consequence of Dodd-Frank has been the intrusion of regulatory agencies into areas in which they have no particular expertise. By way of example, a number of the SEC Commissioners pointed out the intrusion of bank regulators (partially under the cover of FSOC) into matters that are within the expertise of the securities regulators. In this regard, it is interesting that Commissioner Stein should seek NASAA’s views regarding “high-frequency trading.” Although members of NASAA are experienced in matters of securities regulation, their expertise is focused generally on issues of investor protection and not matters of market structure (which is a fairly specialized regulatory and economic area). On the positive side, various Commissioners are pushing for a comprehensive review of market structure – an effort that seems overdue.