The JOBS Act also revises Regulation A by mandating the issuer of securities to file audited financials annually. Title IV requires the SEC to establish electronic filing for Regulations A, and directs the SEC to consider other periodic disclosures.
But how does this impact financial professionals?
1) Liquidity
For many financial advisors and investors, Regulation D has become a dirty word. The chief reason is that these securities are highly illiquid both from a legal and a market perspective.
Legally, an investor cannot resell securities without either registering them under the 1933 securities act or finding an exemption from registration. This takes time and adds cost.
From a market perspective, there is no efficient way to put sellers with buyers when liquidity is needed. Even when an exemption to registration is available, pricing is problematic because there is little or no information concerning the issuer or the securities available to the public.
It comes as no news to many readers that the illiquidity of these securities have forced many investors in this economy to ride failing investments indefinitely. That has resulted in an upswing in arbitrations related to Regulation D investments, causing errors and omission insurers to no longer cover or otherwise discourage activities related to selling restricted securities.
Expanded Regulation A not only provides for legal liquidity but further requires filing with the SEC audited, annual financials of the issuers, thus, providing a baseline of information for buyers and advisors. The law also directs the SEC to consider other periodic reporting measures that will enhance transparency over time. SEC staff have want to work with the financial community to provide periodic reporting that will be meaningful to the market without violating the legislative intent to keep the requirements of Regulation A manageable.
Legal liquidity and transparency leads to efficiencies that build secondary markets and REAL liquidity.
2) Investment Options