OTC Markets Group is seeking to broaden a venture exchange bill, arguing the measure as currently structured excludes non-exchange markets from its benefits.
General Counsel Dan Zinn, in a recent interview with Accounting & Compliance Alert, outlined an alternate vision for a venture market bill that covers exchanges, SEC-regulated alternative trading systems, and “potentially other types of trading markets where these companies could choose to have their securities traded.”
The Main Street Growth Act, which would set out a framework for venture exchanges, has floated around for years both as a standalone bill and as part of broader packages of securities law reforms, most recently as part of Senate Republicans’ “JOBS Act 4.0” legislation.
Separately, Sen. John Kennedy, a Louisiana Republican, introduced the Main Street Growth Act (S. 3097) in April, with Rep. Tom Emmer, a Minnesota Republican, introducing the House version (H.R. 5795) in November 2021.
The idea behind a venture exchange is to provide a centralized, lightly regulated trading venue for securities of small companies that aren’t ready to debut on national stock exchanges. Under the bill, the exchanges would list “venture securities,” defined as those of an unregistered “early-stage, growth company” with a public float of as much as $700 million, or an emerging growth company (EGC) under the JOBS Act of 2012. Also eligible to trade on the venture exchanges would be registered securities with a public float of as much as $700 million or an average daily trading volume of 75,000 shares or less.Sec. 1 of pl112-106
Under the bill, a venture exchange “may only constitute, maintain, or provide a market place or facilities for bringing together purchasers and sellers of venture securities,” and may not extend unlisted trading privileges (UTP) to any venture security. UTP allows trading of a security on an exchange despite it being listed on another exchange
OTC Markets Group runs three markets: OTCQX, OTCQB – which it bills as its venture market – and its lowest tier, Pink. Were the venture exchange bill passed as is, it would establish a competing market with distinct regulatory advantages, under a purely exchange-based model.
“It would probably give some companies pause in trying to determine what the right market is for them,” Zinn said. “It is unnecessarily setting up this choice where they would potentially have to wall themselves off from alternative market structures by listing on this venture exchange, versus having the ability to take advantage of those provisions elsewhere.”
Zinn said the UTP provision has been described as a way to allow investors to locate liquidity in one place, “but that consolidation of liquidity is not really a problem.”
“30, 40, 50, years ago when you had to source market data in very cumbersome ways, and try to understand what was happening in one market versus another market, maybe then having some kind of consolidation of liquidity in one spot would have made it easier for investors to get the best price,” he said. “That is no longer an issue. Certainly for all the exchange markets, for markets like ours, the best price is always publicly reported, it’s very easily attainable.”
Added Zinn: “What you are doing is sort of creating a monopoly for this exchange market that might get a venture company listing, instead of allowing for a competitive landscape to develop, support competitive market structures that work for these small companies, and ultimately allow them to figure out what works best for them.”
This article originally appeared in the May 25, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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