Harmonizing Private Securities Regulations

Simplicity, Access, and Institutional Investors

Over the past 15 years, the structure of capital markets in the US has changed.  While the number of companies listing their securities and raising capital in public markets has steadily declined, the number of private issuances aimed at raising capital in private markets has steadily increased1.  Reasons for this are numerous – costly compliance for companies, the abundance of capital seeking new exciting investment opportunities, changes in market structure, etc.

To tap private capital issuers of all sizes are relying on specific exemptions established decades ago from registration of their securities with the SEC.  Most of these exemptions from registration reduce disclosure and compliance burdens on issuers in return for limiting the pool of investors eligible to participate to only accredited and institutional investors.  While this structure was appropriate when exemptions were established, today it materially limits the investment opportunities.

Recognizing these changes, the SEC in June of 2019 issued a concept release asking for public commentary regarding private securities offering exemptions. The SEC statement said the SEC is seeking public comment on ways to simplify, harmonize, and improve the exempt offering framework”. The comments that are shared will be public, and whether you’re an investor in private securities, an issuer of private securities, or considering either, this discussion may have significant relevance to you.

In reading 200+ pages of SEC’s concept release one comes to the realization of how complex the current regulatory framework is.  There are dozens of options and rules set at the federal and state levels governing every aspect of the exempt securities markets, from issuance to secondary trading and investing.  Interesting enough is that the vast majority of the available exemptions are not even extensively utilized – over 90% of all exempt offerings rely on Rule 506(b) of Regulation D. Also worth noting that the most recent additions to the regulatory framework – Title III crowdfunding and Rule 506 (c) failed to gain much traction despite being heralded as ways to increase investor participation and ease the burden on issuers.

In reviewing the concept release, we believe it is timely and opens up an opportunity to materially re-architect the whole exempt offering regulatory framework.  Specifically, it is our opinion that there are three overarching themes that must be addressed as a part of this review.

  1. Focus on simplicity: Current private security exemptions framework is unnecessarily complex and often cost-prohibitive. If we can simplify these exemptions to provide a clearly defined path for issuers to use as they move from private to public markets, that could reduce the costs (time and money) associated with issuing an exempt offering, and potentially improve access to investor capital for the issuer, and deal-flow for investors.
  2. Improve access: Investors could be given the opportunity to invest if they can adequately “fend for themselves”. Regulation is put in place to protect broad groups of investors by limiting access to only accredited investors that account for approximately 9% of US households.  While we agree that only investors that can “adequately fend for themselves” should participate in the exempt offerings, careful consideration must be given to the tools available to investors to be able to do so. At the time of more information availability and an increased number of financial professionals providing services to broad groups of investors, regulators must take a more nuanced approach to investor accreditation qualification.    Simply limiting access based on income or assets is no longer adequate.
  3. Incentivize institutional investors.  Investment fund exemptions should be expanded to bring consistency among them and increase investors’ access to these pooled investment vehicles.  Institutional investors can provide important safeguards and ensure that individual investors receive benefits of professional investment advice. By allowing institutional investors to service individuals better, it will increase investor protections and broaden access to investment opportunities.

It is our belief that by applying these three overarching themes, as well as the Commission’s tri-part mission of capital formation, investor protection, and facilitating fair, orderly, and efficient markets, provides a thoughtful principle-based approach to the comprehensive analysis and harmonization of the private offering regulatory framework.

We look forward to continuing the dialogue with the SEC and other regulating bodies worldwide about the growing private securities markets and its potential impact on the way investors and issuers of private security interact. If you’d like to learn more about our views on this topic, feel free to reach out and email us at info@idevit.local with any questions you may have.

IOI Capital and Markets, LLC (“IOICM”) does not provide investment advice, endorse, analyze or recommend any securities. All securities listed on our platform are offered by, and all information included on this site is the responsibility of the issuer of such securities. All brokerage-related activity is conducted by IOICM. IOICM makes no communication that is to be construed as a recommendation for any security offered on this investment platform. Investments in private placements, and start-up investments in particular, are speculative and involve a high degree of risk. Those investors who cannot afford to lose their entire investment should not invest in start-ups. Companies seeking startup investments through private equity issuance tend to be in earlier stages of development and their business model, products and services may not yet be fully developed, operational or tested in the public marketplace. Member FINRA/SIPC.

1Source: Bloomberg.com August 9, 2018,

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