This appears to have flown in under the radar.
Anyone who has ever tried to take advantage of initial public offerings (IPO's) knows that participation in them is strictly limited to "insiders" such as corporate employees, brokerage firms, investment banks, "institutional investors," or the select few who have otherwise been afforded access to the low-priced shares usually associated with such offerings through various formal and informal channels. It's the way the game is played, and ordinary "retail" investors are essentially left out in the cold of such offerings:
For small investors, it's nearly impossible to get any kind of IPO allocation. They usually have to wait until the stock is listed on an exchange, unless they have a very large account with the bank or banks doing the underwriting. Only then would they be offered some shares.
Now an advisory panel to the SEC has
unanimously recommended that the SEC adopt a
"special exchange" catering exclusively to high net-worth investors (those with net worth in excess of $1,000,000, excluding their home equity, and those who earn more than $200,000 a year):
A panel that advises the Securities and Exchange Commission on Friday recommended an exclusive exchange be created for micro- and small-capitalization public companies that would only be available for only high-net-worth investors.
The panel, the advisory committee on small and emerging companies, voted to urge the SEC to support the setting up of an exchange for small publicly traded companies that would only be accessible for high-income individuals such as so-called accredited investors, who must have net worths, excluding their homes, of $1 million or more or income of $200,000 or more for at least two years.
This will permit smaller companies that wish to go public the "flexibility" to avoid pesky and costly regulations pertaining to accounting and disclosure of their financial state, how they are capitalized in the first place, and some of the risks they pose to investors. All that paperwork involved in "going public" costs money, apparently, and the SEC will allow the wealthy to save them that trouble in exchange for an exclusive piece of the pie:
Companies included on the exchange may not be required to provide prospectuses or all disclosures necessary when retail investors are involved, the panel said.
The advisory panel's co-chairman, Stephen Graham, told MarketWatch.com it is difficult for small private companies to "cross the line" and become publicly traded because of associated costs. He said such an exchange would serve as an intermediary into the broader market.
What sort of companies would be listed on this exchange and what sort of regulation would they be subject to? Well, that's a
little fuzzy:
The companies that listed on the exchange would “be subject to a regulatory regime strict enough to protect investors but flexible enough to accommodate innovation and growth.”
Some of the panel's
specific recommendations:
• Expand the definition of smaller reporting company to include issuers with public float of up to $250 million;
• Exempt smaller reporting companies from disclosures surrounding executive compensation;
• Allow smaller reporting companies to delay its compliance with new financial accounting standards until private companies are required to comply;
Because disclosure of executive compensation is so... inhibiting to growth, I suppose.
Although details regarding the exchange itself are not fleshed out yet, presumably it would be something which we lowly retail investors would at least be allowed to view. That would provide a visible way for the very rich to track their burgeoning, high-return portfolios while at the same time permitting the remaining 99 percent of us to watch their returns helplessly, as our own fee-laden "employer-based" plans continue their feeble rise and fall in tandem with the economic crisis du jour. At least the unwashed masses who can't afford these markets will be provided a glimpse into what up to this point has been the playground of the rich.
But it's important to remember that the financial condition of market drivers such as the Dow Jones components is no longer "distinct" from the financial state of the general public as a whole. The spread of 401k plans as the primary mechanism for Americans to sustain themselves after age 67 has already elevated the role of the "market" to the point where it is the primary factor determining the fates and lives of most Americans. Everyone's retirement and livelihood, including the futures of their children, is now inextricably linked to the performance of the stock market. Why, then, should the full rewards of market investments be available only to the wealthy?
Charles Rotblut, vice president of the American Association of Individual Investors, told MarketWatch that wealth -- or lack of it -- wasn't indicative of investment acumen.
"An accountant [who] does not have the wealth to be an accredited investor, but understands financial statements, would not be allowed to invest," Rotblut said. "Having wealth does not mean you have the knowledge to always make intelligent investment decisions."
But that fact seems lost on the SEC. As stated
here,
In summation: The SEC is looking to carve out a special niche market for startups and small companies that will lack transparency and that only the very rich can dabble in
Thus further aggravating income equality, while letting us all watch it happen before our eyes.