October 2, 2007
The International Association of Small Broker Dealers and Advisors
1620 Eye Street, NW, Suite 210 Washington, DC 20006
202-785-8940 ext. 108, pchepucavage@plexusconsulting.com, www.iasbda.com
The International Association of Small Broker-Dealers and Advisors,www.IASBDA.COM wishes to support the comments of the The U.S. Office Of Advocacy of The Small Business Administration regarding the impact of the Long Proposal on small firms.Whatever the merits of this proposal are for larger firms,a 1 year - 5% threshold for a small firm is too little and can impose costs largely out of proportion to the purported goal of shareholder democracy. A disgruntled shareholder could easily use a covered call or buy-write to achieve the 5% minimum at very little cost and very little risk.Alternatively the shareholder might short against the box to achieve the same risk free right to agitate.We believe that the costs to other shareholders will be disproportionate to the few disgruntled shareholders who choose to hold 5% solely for the reason of potentially seeking their own goals.We therefore recommend a higher threshold and longer holding period along with a more detailed cost estimate before any such proposals are adopted for the small firms.
We also believe that the number of shareholders as opposed to number of shares being represented might be factored into a more appropriate test.A pension fund representing thousands of long term small shareholders may present a better argument for democratic action than a small hedge fund that has acquired a no risk 5% holding to engineer a short term profit. As with the debate over Sarbanes Oxley, if the Long Proposal were adopted it would be wise to phase in implementation for small firms until the costs incurred by big firms are understood.The phase in of major changes to the regulatory structure should be a standard method of implementation to avoid costly surprises of regulatory initiatives.The unexpected costs of SOX implementation and the surprising volatility after the elimination of the tick test are but two recent examples of the law of unintended consequences that severely impact small firms.Therefore if the Long Proposal is chosen,there is nothing to be lost by phasing it in for the small firms.
Peter J. Chepucavage
General Counsel
Plexus Consulting