U.S. panel backs exchange to list smaller companies

WASHINGTON Fri Feb 1, 2013 1:57pm EST

WASHINGTON Feb 1 (Reuters) - A panel of small business experts on Friday urged U.S. securities regulators to encourage the creation of a new exchange to list smaller companies to make it easier for them to enter the public market.

The recommendation by the Advisory Committee on Small and Emerging Companies to the Securities and Exchange Commission is not binding.

Still, policy suggestions from the group carry weight with regulators, who created the committee in 2011 to seek advice on regulations affecting private companies and public companies with a market capitalization of less than $250 million.

The 2012 Jumpstart Our Business Startups (JOBS) Act already contains provisions that aim to make it easier for smaller companies to go public by loosening securities regulations.

However, Stephen Graham, a partner at law firm Fenwick & West LLP and co-chair of the advisory committee, said the law does not go far enough to encourage initial public offerings by smaller companies.

He said a new exchange offering such listings could make it more cost-effective.

"You really have to make it a lot cheaper to go public," he told reporters on the sidelines of the meeting. "I don't think the JOBS Act does that. I think the JOBS Act certainly changes in a fundamental way how IPOs are done, but I don't think it encourages IPOs."

The committee envisions an exchange that would provide a regulatory framework "strict enough to protect investors, but flexible enough to accommodate innovation and growth," according to a draft of its recommendation.

The panel said it preferred to limit access to buying such stock to more sophisticated investors, like those meeting net worth standards. But some people who attended the session were skeptical about imposing limits.

"I think the small exchange idea is the best one," SEC Commissioner Daniel Gallagher, a Republican, told reporters after listening to the panel's discussions. "Whether it should be limited to accredited investors, I'm not sure about."

Whether or not a company would be willing to invest money to create an exchange for smaller-sized firms remains to be seen.

Graham said he could see existing exchange operators such as the NYSE Euronext or Nasdaq OMX getting involved in the launch of such a venture.

The committee also said the SEC can consider some alternatives to an exchange, such as regulations that can help privately held companies improve liquidity and raise capital in the secondary market without going public.