Equity Capital Formation (ECF) Task Force co-chairs, Scott Kupor, Managing Partner at Andreessen Horowitz and Jeffrey M. Solomon, CEO of Cowen and Company, announced today their endorsement of the Alternative Recommendation on market structure improvement recently presented to the SEC Investor Advisory Committee (the “Committee”) in a letter sent to Joseph Dear, Chairman of the Committee. The Alternative Recommendation, which calls for a pilot trading program for small-cap public companies, will be considered at the Committee’s meeting on January 31, 2014.
The letter highlights the following key points:
- Small-cap public companies have suffered from a lack of capital formation. This has inhibited job creation, innovation and investment opportunities stemming from startups and small companies.
- The core problem in the capital formation issue is the lack of trading liquidity in many publicly-traded small-cap companies. Existing market structure rules have made it challenging for meaningful institutional investor ownership, the primary source of trading liquidity.
- This problem adversely impacts individual investors as they comprise the vast majority of ownership in small-cap stocks. Studies have shown that stocks achieve greater valuations with the presence of institutional investment.
- A pilot program, as outlined in the Alternative Recommendation presented to the Committee, provides for a realistic way to enable institutional investors to return to the small-cap market while balancing the needs of investor protection and promoting capital formation.
- A pilot program offers a fair process to test a market structure that we believe will have a positive impact on the US economy, individual investors, institutional investors and small companies.
Mr. Kupor and Mr. Solomon commented, “The proposed Alternative Recommendation for a pilot program for small-cap companies can have a tremendously positive impact on the U.S. economy and deserves careful consideration by the Committee and the SEC. The Alternative Recommendation, in addition to the findings of the Equity Capital Formation Task Force, highlights a pilot program that would be a targeted effort for only 2% of the market. We would welcome the opportunity to assist in the design of a pilot program and contribute to a thoughtful approach that considers the needs of all market participants, including the individual investor, and has the potential to deliver the intended goals of capital formation and job creation.”