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Treasury recommends that Section 1502 (conflict minerals), Section 1503 (mine safety), Section 1504 (resource extraction), and Section 953(b) (pay ratio) of Dodd-Frank be repealed and any rules issued pursuant to such provisions be withdrawn, as proposed by H.R. 10, the Financial CHOICE Act of 2017. In the absence of legislative action, Treasury recommends that the SEC consider exempting smaller reporting companies (SRCs) and emerging growth companies (EGCs) from these requirements.
As required by the Fixing America’s Surface Transportation Act, Treasury recommends that the SEC proceed with a proposal to amend Regulation S-K in a manner consistent with its staff’s recent recommendations.
Treasury recommends that the SEC move forward with finalizing its current proposal to remove SEC disclosure requirements that duplicate financial statement disclosures required under generally accepted accounting principles by the Financial Accounting Standards Board.
Treasury recommends that companies other than EGCs be allowed to “test the waters” with potential investors who are qualified institutional buyers (QIBs) or institutional accredited investors.
Treasury recommends further study and evaluation of proxy advisory firms, including regulatory responses to promote free market principles if appropriate.
Treasury recommends that the $2,000 holding requirement for shareholder proposals be substantially revised.
Treasury recommends that the resubmission thresholds for repeat proposals be substantially revised from the current thresholds of 3%, 6%, and 10% to promote accountability, better manage costs, and reduce unnecessary burdens.
Treasury recommends that the states and the SEC continue to investigate the various means to reduce costs of securities litigation for issuers in a way that protects investors’ rights and interests, including allowing companies and shareholders to settle disputes through arbitration.
Treasury recommends that the SEC continue its efforts, when reviewing company offering documents, to comment on whether the documents provide adequate disclosure of dual class stock and its effects on shareholder voting.
Treasury recommends that the SEC revise the securities offering reform rules to permit business development companies (BDCs) to use the same provisions available to other issuers that file Forms 10-K, 10-Q, and 8-K.
Disproportionate Challenges for Smaller Public Companies
Treasury supports modifying rules that would broaden eligibility for status as an SRC and as a non-accelerated filer to include entities with up to $250 million in public float as compared to the current $75 million.
Treasury recommends extending the length of time a company may be considered an EGC to up to 10 years, subject to a revenue and/or public float threshold.
Treasury recommends that the SEC review its interval fund rules to determine whether more flexible provisions might encourage creation of registered closed-end funds that invest in offerings of smaller public companies and private companies whose shares have limited or no liquidity.
Treasury recommends a holistic review of the Global Settlement and the research analyst rules to determine which provisions should be retained, amended, or removed, with the objective of harmonizing a single set of rules for financial institutions.
Expanding Access to Capital Through Innovative Tools
Treasury recommends expanding Regulation A eligibility to include Exchange Act reporting companies.
Treasury recommends steps to increase liquidity for the secondary market for Tier 2 securities. Treasury recommends state securities regulators promptly update their regulations to exempt secondary trading of Tier 2 securities or, alternatively, the SEC use its authority to preempt state registration requirements for such transactions.
Treasury recommends that the Tier 2 offering limit be increased to $75 million.
Treasury recommends allowing single-purpose crowdfunding vehicles advised by a registered investment adviser. Treasury recommends that any rulemaking in this area prioritize alignment of interests between the lead investor and the other investors participating in the vehicle, regular dissemination of information from the issuer, and minority voting protections with respect to significant corporate actions.
Treasury recommends that the limitations on purchases in crowdfunding offerings should be waived for accredited investors as defined by Regulation D.
Treasury recommends that the crowdfunding rules be amended to have investment limits based on the greater of annual income or net worth for the 5% and 10% tests, rather than the lesser.
Treasury recommends that the conditional exemption from Section 12(g) be modified, raising the maximum revenue requirement from $25 million to $100 million.
Treasury recommends increasing the limit on how much can be raised in a crowdfunding offering over a 12-month period from $1 million to $5 million.
Maintaining the Efficacy of the Private Markets
Treasury recommends that the SEC, FINRA, and the states propose a new regulatory structure for finders and other intermediaries in capital-forming transactions.
Treasury recommends that amendments to the accredited investor definition be undertaken with the objective of expanding the eligible pool of sophisticated investors.
Treasury recommends a review of provisions under the Securities Act and the Investment Company Act that restrict unaccredited investors from investing in a private fund containing Rule 506 offerings.
Treasury recommends that federal and state financial regulators, along with their counterparts in self-regulatory organizations, work to centralize reporting of individuals and firms that have been subject to adjudicated disciplinary proceedings or criminal convictions, which can be searched easily and efficiently by the investing public free of charge.
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