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Remarks at the Small Business Capital Formation Advisory Committee Meeting: Shining a Spotlight (or Searchlight) on Secondary Market Liquidity for Small Businesses

Washington D.C.

Aug. 2, 2022

Good morning. Thank you to our committee members for convening and to our panelists for joining today’s meeting. [1] I am pleased that the discussion will cover a critically important topic for small businesses and the many Americans who would like to invest in them: secondary market liquidity.

Pursuant to mandates under the now-decade-old JOBS Act, the Commission developed rules to broaden the ability for smaller companies to sell their shares directly to retail investors. Regulation Crowdfunding and Regulation A+ have allowed individuals to invest in companies at a much earlier stage of growth than typically is possible through a traditional IPO.

Investor protection is a top consideration when retail investors participate in these kinds of offerings; but, as originally drafted, Reg Crowdfunding and Reg A+ got the investor protection / investor choice / capital formation balance wrong.[2] Accordingly, under Chairman Jay Clayton’s leadership, during the pandemic certain Crowdfunding rules were adjusted temporarily,[3] and in 2020, the SEC made permanent changes to both Reg Crowdfunding and Reg A+ as part of a broader package of reforms. [4] While the amendments were helpful, we can do more.[5]

One area for further reform is on today’s agenda. Secondary market liquidity marries capital formation and investor protection considerations. Issuers’ ability to raise capital turns in part on whether purchasers of their securities will enjoy strong secondary market liquidity. We have heard, in the case of small cap issuers with publicly traded securities, that secondary market liquidity also is key to their ability to hire and retain employees.[6] A liquid secondary market also benefits investors, who want to realize gains from successful investments or otherwise move their money into new areas. Increasing secondary market liquidity, therefore, can protect retail investors and help small companies grow.

As the Commission staff noted in a recent report, “[m]ost [Regulation A] issuers do not have a liquid secondary market for their securities, which can make it difficult for investors to sell their investment quickly without a loss of value.”[7] The same is true for Reg Crowdfunding issuers. So today, this committee is shining a spotlight on secondary market liquidity in shares sold through these types of offerings.

Spotlighting issues is a good start, but we could benefit from a searchlight to identify specific ways the Commission can improve secondary market liquidity. I look forward to hearing from committee members and panelists on any issues you think are important in this regard. I have several questions:

  1. What opportunities do investors, who purchased shares through a crowdfunded or Reg A+ offering, have to sell the shares they hold? How do these differ from opportunities available to investors, who purchased shares through other types of private offerings?
  2. How are companies that have issued shares in a Reg Crowdfunding or Reg A+ offering affected by limited secondary market liquidity?
  3. How are investors that have purchased shares in a Reg Crowdfunding or Reg A+ offering affected by limited secondary market liquidity?
  4. The 2020 Small Business Forum recommended “state preemption for secondary transactions for shares issued under Regulation A and Regulation Crowdfunding.”[8] Do you agree with that recommendation?
  5. What regulatory provisions other than the lack of blue sky preemption have hindered the uptake of Reg A+ and Reg Crowdfunding?
  6. Can new technology, such as blockchain, smart contracts, or better auction technology, facilitate secondary market trading? If so, are rule changes necessary to allow people to put such new technology to work for this purpose?

Thank you, and I look forward to the discussion.

[1] My views are my own and do not necessarily represent those of the Commission or my fellow Commissioners.

[2] Regulation Crowdfunding included certain measures for investor protection such as investment limits and offering limits, which necessarily restrict this flow of capital between willing investors and companies. See “SEC Adopts Rules to Permit Crowdfunding” (Oct. 30, 2015), Reg A+ also included offering limits and only allowed for preemption of state securities laws for offers and sales of securities, where non-accredited investors were restricted in how much they can invest. See “SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital” (March 25, 2015),

[3] See Temporary Amendments to Regulation Crowdfunding, Release No. 33-10781 (May 4, 2020) [85 FR 27116 (May 7, 2020)]. See also Temporary Amendments to Regulation Crowdfunding; Extension, Release No. 33-10829 (Aug. 28, 2020) [85 FR 54483 (Sept. 2, 2020)].

[4] For an overview of the 2020 amendments, see “SEC Harmonizes and Improves “Patchwork” Exempt Offering Framework” (Nov. 2, 2020),,%2415%20million%20to%20%2422.5%20million. See also Commissioner Hester M. Peirce, “Statement at Open Meeting on Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets” (Nov. 2, 2020),

[5] For data on Reg A+ and Reg Crowdfunding offerings, see Office of the Advocate for Small Business Capital Formation, Annual Report for Fiscal Year 2021, at 16 and 18,

[6] See, e.g.,“Transcript of Roundtable on Market Structure for Thinly-Traded Securities” (Apr. 23, 2018) (the “Roundtable Transcript”), at 21-22, (Adam Epstein, Third Creek Advisors LLC, stated: “As a result of my firm’s work with dozens of exchange listed small cap companies over the last eight years, I see what I would characterize as the insidious nature of illiquidity on a day to day basis. And I use the word insidious because small cap trading illiquidity affects considerably more than capital formation. Trading illiquidity gravely impacts the ability for small cap companies to garner and retain research coverage. Trading illiquidity gravely impacts mergers and acquisitions in the small cap ecosystem. Trading illiquidity gravely impacts the ability for small cap companies to hire and actually retain great employees.”).

[7] Securities and Exchange Commission Staff Report on Regulation A Lookback Study and Offering Limit Review Analysis (Mar. 4, 2020), at 22,

[8] See Report of the 40th Annual SEC Small Business Forum, at 12,

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