The Need for Greater Secondary Market Liquidity for Small Businesses
Commissioner Luis A. Aguilar
U.S. Securities and Exchange Commission*
March 4, 2015
Advisory Committee on Small and Emerging Companies
Thank you and good morning. I want to start by welcoming the members of the Advisory Committee on Small and Emerging Companies. I appreciate your efforts and look forward to today’s discussions. I would also like to thank the staff of the Division of Corporation Finance’s Office of Small Business Policy for organizing this meeting.
I am delighted to see that today’s meeting will discuss the secondary trading environment for the securities of small businesses. The lack of a fair, liquid, and transparent secondary market for these securities is a longstanding problem that needs an effective solution. Indeed, I've spoken publicly about this very issue on a number of occasions, most recently less than two weeks ago at the annual SEC Speaks conference. This topic is increasingly urgent in light of certain new, or anticipated, Commission rules required by the JOBS Act that would result in a far wider range of small business securities needing to find liquidity in the secondary markets. Specifically, proposed rules under Regulation A-plus and Crowdfunding, and final rules under Rule 506(c) of Regulation D, would permit wide distributions of securities and also allow such securities to be freely-traded by security holders immediately upon issuance, or after a one-year holding period. These registration exemptions also provide—or are expected to provide—for lesser on-going reporting requirements than is required for listed securities.
Moreover, under the Commission’s recently proposed rules to amend Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”), as required by the JOBS Act, the number of record holders a company may have before it is required to publish annual and quarterly reports would greatly increase. In addition, the Crowdfunding proposal, as required by the JOBS Act, would permanently exclude any purchaser of the shares from counting as a record holder for purposes of Section 12(g)—and any future secondary purchasers of those shares would also be excluded. Thus, regardless of the resulting number of record holders of such shares, the Section 12(g) provisions would never be triggered.
The combined results of these existing and pending rules is that companies will be able to sell their securities to a wider swath of the public and remain outside of the protections of the registration provisions of the Exchange Act for longer periods of time—perhaps even permanently. As a result, investors who acquire these shares—many who are expected to be less financially sophisticated and need not be so-called “accredited investors” —may be left holding shares that they are unable to sell.
Viability of “Venture Exchanges”
One idea that been suggested as a way to foster an active secondary market for small company stocks is for the Commission to approve one or more venture exchanges. Such exchanges would be limited to smaller cap companies that are expected to meet less stringent listing standards. Clearly, the coming tsunami of unregistered and unlisted shares requires some new solutions—and venture exchanges may be a viable alternative. Venture exchanges are hardly a new idea, however, and prior efforts to establish them in this country have fared poorly. Accordingly, we need a thoughtful and prudent approach that carefully examines why the prior attempts failed. As we all know, “[t]hose who cannot remember the past are condemned to repeat it.”
For example, we should carefully examine the reasons for the demise of the American Stock Exchange’s Emerging Company Marketplace, known as the ECM. Although the ECM’s lower transaction costs allowed it to thrive for a time, the exchange eventually succumbed to a number of serious design flaws. For instance, the profitable firms that joined the ECM eventually graduated to the American Stock Exchange. This created the impression that the ECM was populated only by unsuccessful companies. The ECM’s image problem was only made worse by the exchange’s failure to properly screen candidate firms. Scandals involving some ECM companies only cemented the exchange’s reputation as a lawless Wild West. Finally, one academic study suggests that the narrow bid/ask spreads that prevailed on the ECM may have dissuaded broker-dealers from making markets for these stocks, which may have decreased liquidity. It may also have deterred broker-dealers from distributing research on these companies.
The issues raised by ECM’s demise are both complex and interrelated. But, it is not the only source of guidance available to us. There have been other attempts to create viable markets for smaller companies. For example, many European stock markets have experimented with a junior exchange for companies too small to meet normal listing requirements. These efforts generally proved unsuccessful, and we should try to understand why. Moreover, efforts in 2011 to establish a new venture exchange in the U.S., the Nasdaq BX Venture Market, appear to have stalled. Finally, we should examine the recent struggles of Canada’s TSX venture exchange. It has been reported that TSX’s over-reliance on mining and energy firms has left that exchange in the midst of a crisis, due to the global collapse in commodity prices.
In addition, it’s been reported that venture exchanges—both here and abroad—have suffered from low liquidity and, at times, high volatility. This means investors could lose a lot of money quickly, and could have trouble selling their shares in a downturn. The Commission should attempt to determine the underlying causes of these problems and how best to address them. In this regard, we may need to ask some difficult questions. For example, should venture exchanges be structured as dealer markets, rather than auction markets? Also, could venture exchanges enhance liquidity through batch auctions, rather than continuous trading? How can the Commission, consistent with the Exchange Act, encourage traders to execute transactions on venture exchanges, rather than in off-exchange venues? And, finally, could larger ticker sizes enhance liquidity by encouraging market maker activity and fostering research coverage? In this regard, the Commission’s proposed tick size pilot program may offer valuable insights on the role of tick sizes in ensuring an active secondary market for smaller companies.
Importantly, each of these questions presents the possibility of a trade-off between what is best for investors, and what is best for the exchange and its participating broker-dealers. We must be mindful of these trade-offs as we review any proposals for new venture exchanges. We must also never lose sight of our core responsibility, which is to protect investors above all else.
Investors will also need to understand what venture exchanges are—and what they are not. Investors may think venture exchanges will be the place to find the next Apple, Google, or Facebook. But it’s never that easy. In fact, one study showed that London’s venture exchange, the Alternative Investment Market, actually has had fewer high performance firms than traditional exchanges. Instead, studies show that venture exchanges tend to have a high proportion of small, early stage companies operating in high-risk business sectors. This means that companies listed on venture exchanges can significantly underperform and, thus, tend to present a far higher risk profile than firms found on traditional exchanges.
To be sure, venture exchanges can, and do, attract reputable and profitable companies. But experience has shown that venture exchanges and the companies they list may present more risks than investors realize. The Commission needs to understand how best to address these risks before approving more of these exchanges. It also needs to make certain that investors understand these risks.
Those who have studied venture exchanges believe that they are far more likely to succeed when they focus on investor protection and education. Venture exchanges that implement appropriate listing standards, enforce them conscientiously, and educate investors about the higher risks involved with small cap companies seem to do better. Those that have not have struggled.
In addition, experts have pointed to other factors that can improve venture exchanges’ performance. For example, several academics have argued that some listing standards are more important than others. These experts have asserted that, while it may be appropriate for venture exchanges to lower certain listing standards, such as minimum firm size, other standards should be inviolate. In particular, these experts believe that effective corporate governance standards and accounting requirements are essential to the viability of any venture exchange.
In sum, venture exchanges are a possible solution to a looming problem and need to be considered. We should do so in a thoughtful and measured manner—fully cognizant of benefits, costs, and challenges—and always with the needs of investors at the forefront.
Reform the Broker-Dealer “Piggy-Back” Rule
Another measure that should be considered to facilitate secondary trading of small business securities is to revise and update Exchange Act Rule 15c2-11, and its so-called “piggy-back” exception. Rule 15c2-11 is widely used by broker-dealers to trade in unlisted securities. In fact, in 2014, over 10,000 of these unlisted securities traded in the so-called “over-the-counter” (“OTC”) markets, amounting to a total dollar volume of over $240 billion.
In order to use Rule 15c2-11, broker-dealers who wish to publish a quote of unlisted securities, which will often be smaller issuers, are required to review and maintain certain information about the security and the issuer. In addition, Rule 15c2-11 requires broker-dealers, prior to publishing quotes of these unlisted securities, to have a reasonable basis for believing that this information is accurate in all material respects and that it was obtained from reliable sources. In this way, Rule 15c2-11 is about trust. Specifically, investors need to have confidence that the quotes for these securities are fair and accurate. Without this confidence, a fair and liquid secondary market for these securities will not exist.
In this regard, the use of current Rule 15c2-11 often fails to meet expectations of fair and accurate pricing, and often fails to result in reliable quotes. Most critically, under the rule's “piggy-back” exception, broker-dealers are permitted to publish quotations for a security without complying with the rule's information requirements if any other broker-dealer has published regular and frequent quotations for that security. Accordingly, a broker-dealer can “piggy-back” on either its own or another broker-dealer’s prior quotations. As a result, broker-dealers need not review the information collected and reviewed by other broker-dealers before publishing a quote. Moreover, because the exception allows broker-dealers simply to rely on their own prior quotations, broker-dealers have no obligation to confirm that the information they initially relied on when they first published a quotation is still valid, no matter how old the initial quotation is. This is hardly an effective way to create a fair and efficient market—and it’s a poor way to instill trust in this market.
The problems of Rule 15c2-11 have long been recognized. In fact, in 1998, and again in 1999, the Commission proposed comprehensive amendments to Rule 15c2-11 to address concerns about fraud and manipulation that had become increasingly common in microcap securities traded in the OTC market. At that time, the Commission acknowledged that microcap fraud was driven, in part, by broker-dealers’ routine failure to review any issuer information—whatsoever—before publishing quotations. The Commission hoped that the proposed amendments to Rule 15c2-11 would address abuses involving microcap securities, and more generally enhance the integrity of quotations for securities in this market sector. Unfortunately, these proposed rules were never finalized.
Many of the concerns originally raised by these proposed amendments to Rule 15c2-11 are equally applicable to today’s secondary market for small business shares. In fact, some of those proposals would be very helpful for dealing with today’s expanding market of small business securities, including:
- Eliminating (or amending) the broker-dealer “piggyback” exception for small business securities. This would require broker-dealers that wish to publish quotations to conduct a review of issuer and security information, and not simply rely on other broker-dealers or their own stale review;
- Requiring broker-dealers that publish quotations to obtain and review current information about an issuer at least annually. This would enhance accountability by requiring broker-dealers to do more than simply “check a box.” Instead, broker-dealers would need to review the information they receive from issuers each year in order to continue issuing quotes; and
- Enhancing investor access to the information collected, reviewed, and maintained by the broker-dealer about the issuer. This information could be made easily accessible to investors over the internet to review the materials of such issuers.
In addition, it will be critical to update Rule 15c2-11 to take into account the new information and filing requirements that will be required when the Commission adopts the proposed rules under Regulation A-plus and Crowdfunding.
Before I conclude, I also note that today you will be considering recommendations on the “accredited investor” definition. This is a topic that I discussed with this Committee back in December 2014, and my views remain the same.
I also note another topic to be discussed today is whether to formalize the so-called “Rule 4(a)(1½)” exemption. Shareholders often rely on this exemption to sell their restricted securities in a private transaction without being considered an issuer or an underwriter. While I welcome the Committee’s views on formalizing Rule 4(a)(1½), it doesn’t solve the basic problem of whether a seller will be able to find a willing buyer or access a secondary trading market that will be fair, transparent, and liquid. For the latter to occur, we will need much more than simply clarifying the contours of the Rule 4(a)(1½) exemption.
Ultimately, the goal is to develop a viable secondary trading environment that promotes a fair, transparent, and liquid market for the securities of small businesses—a market in which investors can have confidence that they are being treated fairly. There is no better way to protect investors’ interests, while promoting the successful expansion of small businesses.
I look forward to a robust discussion on any and all viable suggestions as to how to improve the secondary trading environment for shares of small business securities. Thank you.
[*] The views I express today are my own, and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (the “SEC” or “Commission”), my fellow Commissioners, or members of the staff.
 See Commissioner Aguilar, Setting forth Goals for 2015: Address to Practising Law Institute’s SEC Speaks in 2015 Program (Feb. 20, 2015), available at http://www.sec.gov/news/speech/022015-spchclaa.html.
 See Securities Act §3(b)(2)(C), as added by JOBS Act §401(a), and Securities Act §4(a)(6), as added by JOBS Act §302(e), and Securities Act Rule 506(c), as added by JOBS Act §201. Securities Act Rule 144 allows public resale of restricted and controlled securities if a number of conditions are met, including, for example, meeting the holding period requirement of one year (assuming the seller is not an affiliate of the issuer). See Rule 144 under the Securities Act.
 See Changes to Exchange Act Registration Requirements to Implement Title V and Title VI of the JOBS Act, SEC Release No. 33-9693 (Dec. 18, 2014), available at http://www.sec.gov/rules/proposed/2014/33-9693.pdf. Currently, companies with more than 500 shareholders of record are required to be registered with the SEC under Exchange Act Section 12(g), while these proposed rules would expand that trigger to 2,000 record holders (or 500 holders who are not accredited investors). In addition, these proposed rules would exclude from the count of record holders those who acquired the securities pursuant to an employee compensation plan. Moreover, the Commission’s proposed rules under Crowdfunding, as required by the JOBS Act, would also exempt securities sold under those provisions from the registration requirements of Exchange Act Section 12(g). See Crowdfunding, SEC Release No. 33-9470 (Oct. 23, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf. As a result, a company could have an enormous number of record holders without being required to provide the same level of disclosures as those applicable to public companies. The concern is that without the disclosure routinely provided by public companies, smaller business shares that are carved out from the Section 12(g) registration requirements would be harder to value because of this lesser transparency.
 See Crowdfunding, SEC Release No. 33-9470 (Oct. 23, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf (the Commission’s proposed rules under Crowdfunding, as required by the JOBS Act, would exempt securities sold under those provisions from the registration requirements of Exchange Act Section 12(g), and this exemption runs permanently with the securities). The JOBS Act requires that the Commission promulgate rules that, conditionally or unconditionally, exclude securities sold under the Crowdfunding provision from section 12(g) of the Exchange Act. See JOBS Act section 303.
 See SEC Commissioner Daniel M. Gallagher, Whatever Happened to Promoting Small Business Capital Formation? (Sept. 17, 2014), available at http://www.sec.gov/News/Speech/Detail/Speech/1370542976550; see also Sarah N. Lynch, SEC mulls promoting Creation of U.S. venture exchanges—White, Reuters (Feb. 20, 2015), available at http://www.reuters.com/article/2015/02/20/sec-exchanges-idUSL1N0VU1VU20150220.
 My remarks today discuss venture exchanges as one possible means of promoting an active secondary market for small business stocks. But there are alternatives. For example, some commenters have suggested that the Commission amend Regulation ATS to facilitate the orderly sale of unregistered securities. See Comment Letter from GATE Global Impact Inc., Letter to Director Higgins regarding Proposal to Amend Regulation ATS to Address the Sale of Unregistered Securities (Feb. 20, 2015), available at http://www.sec.gov/comments/s7-02-10/s70210.shtml. In addition, companies like SecondMarket and SharesPost have developed marketplaces to facilitate trading in the shares of unlisted companies. See, e.g., Aman Shah, Nasdaq, SharesPost to set up market for unlisted stocks, Reuters (Mar. 6, 2013), available at http://www.reuters.com/article/2013/03/06/us-nasdaq-sharespost-idUSBRE9250KT20130306. These alternative approaches are beyond the scope of these remarks.
 Kay Koplovitz, One Year After Title II And Equity Crowdfunding, Huffington Post (Oct. 10, 2014) (noting that “Title III may cause a funding tsunami to hit the market.”), available at http://www.huffingtonpost.com/kay-koplovitz/one-year-after-title-ii-a_b_5965466.html.
 See, e.g., Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace (Apr. 1998) (noting the “many failed attempts to launch public equity markets for small stocks in the United States and Europe”), available at http://faculty.msb.edu/aggarwal/jfe51.PDF.
 George Santayana, The Life of Reason, Vol. I, Reason in Common Sense (1905-06), available at http://www.gutenberg.org/files/15000/15000-h/vol1.html#CHAPTER_XII_FLUX_AND_CONSTANCY_IN_ HUMAN_NATURE.
 See, e.g., Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace (Apr. 1998) (noting the “many failed attempts to launch public equity markets for small stocks in the United States and Europe”), available at http://faculty.msb.edu/aggarwal/jfe51.PDF.
 See, e.g., id.
 See, e.g., id. at 11 Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace, 11 (Apr. 1998) (noting the “many failed attempts to launch public equity markets for small stocks in the United States and Europe”), available at http://faculty.msb.edu/aggarwal/jfe51.PDF.
 See, e.g., id. at 5-7.
 See, e.g., id. at 14-15. In addition, Amex Rule 190 directly prohibited market specialists from promoting their stocks. Id. at 15.
 Id. at 23.
 The Commission approved The BX Venture Market on May 6, 2011, but that market has yet to launch. See Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Thereto To Create a Listing Market on the Exchange, SEC Release No. 64437 (May 6, 2011), available at http://www.gpo.gov/fdsys/pkg/FR-2011-05-12/html/2011-11610.htm.
 Peter Koven, Can the once-mighty TSX Venture Exchange be saved?, Financial Post (Dec. 27, 2014) (noting that “Canada’s junior stock market is in crisis”), available at http://business.financialpost.com/2014/12/27/can-the-once-mighty-tsx-venture-exchange-be-saved/; Dr. Volkmar Hable, Will Canadian regulators be able to avoid the final fatal crash of the TSX Venture Exchange?, Mining.com (Sept. 2, 2014) (noting that Canada’s TSX has suffered “an unprecedented historical annihilation in shareholder value that has not been seen in this form on any other stock exchange in the world, followed by the worst fund raising crisis in history. The lack of funding has reached such a critical stage that the TSX-V in its current constitution appears to be in danger of becoming a memory in Canadian history books in the not so distant future.”), available at http://www.mining.com/web/will-canadian-regulators-be-able-to-avoid-the-final-fatal-crash-of-the-tsx-venture-exchange-tsx-v/.
 See Aaron Hoddinott, TSX Venture Exchange . . . Buy or Sell?, Pinnacle Digest (Apr. 29, 2012) (noting that TSX Venture Exchange, the Canadian venture exchange “has always been a boom/bust exchange. It's extremely volatile. The exchange has existed for 11 years and during that time, it has gone through 7 bear markets of its own (market downturns of 20% or more).”), available at http://www.pinnacledigest.com/blog/aaron-hoddinott/tsx-venture-exchangebuy-or-sell; Peter Koven, Can the once-mighty TSX Venture Exchange be saved?, Financial Post (Dec. 27, 2014) (noting that “liquidity on most [TSX] stocks is very poor, which makes it difficult for them to be bid anywhere but down.”), available at http://business.financialpost.com/2014/12/27/can-the-once-mighty-tsx-venture-exchange-be-saved/; Sridhar Arcot, Julia Black, and Geoffrey Owen, From local to global: The rise of AIM as a stock market for growing companies, 4 (Sept. 2007) (noting that “[l]iquidity among AIM stocks varies widely; stocks with the highest capitalisation and the largest free float show liquidity levels that are comparable to the Main Market, but at the lower end of the market there is a large number of illiquid stocks”), available at http://www.lse.ac.uk/intranet/LSEServices/communications/pressAndInformationOffice/PDF/FULLREPORTAIM.pdf; Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace, 6, 23 (Apr. 1998), available at http://faculty.msb.edu/aggarwal/jfe51.PDF. Professors Aggarwal and Angel note that most venture exchanges in Europe “suffered from severe illiquidity,” and that two of the ECM’s original firms voluntarily withdrew from the exchange because they “were almost illiquid on the [ECM], and would sometimes go an entire week without trading.” Id. at 6, 23. But the analysis performed by Professors Aggarwal and Angel found that the ECM’s results were mixed. Specifically, they found that being listed on the ECM increased average daily trading volume, one measure of liquidity, for 21 firms, and that it decreased daily trading volume for 14 firms. Id. at 17.
 In this regard, certain Exchange Act provisions may limit the Commission’s ability to approve rules proposed by venture exchanges to centralize trading on their platforms. For example, while Exchange Act Section 11A(c)(3) allows the Commission to prohibit broker-dealers from executing certain transactions off of an exchange, the Commission can invoke this authority only if certain criteria are met, such as that the restriction is the only lawful means of maintaining or restoring fair or orderly markets. See 15 USC 78k-1(A)(c)(iii). Another provision implicated by venture exchanges is Exchange Act Section 12(f), which limits the amount of time that the Commission may prohibit unlisted trading of an initial public offering. See 15 USC 78(l)(f).
 Joint Industry Plan; BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc.; Notice of Filing of Proposed National Market System Plan to Implement a Tick Size Pilot Program On a One-Year Pilot Basis, SEC Release No. 34-73511 (Nov. 3, 2014), available at http://www.sec.gov/rules/sro/nms/2014/34-73511.pdf.
 Joseph Gerakos, Mark Lang, and Mark Maffett, Listing Choices and Self-Regulation: The Experience of the AIM, 7 (May 2011) (noting that, “[c]ompared with firms on other exchanges and controlling for a variety of factors, AIM firms perform poorly on almost every dimension. Perhaps most tellingly, AIM firm post-listing returns significantly underperform post-listing returns on other markets.”), available at https://www.kellogg.northwestern.edu/accounting/papers/Lang.pdf.
 Sridhar Arcot, Julia Black, and Geoffrey Owen, From local to global: The rise of AIM as a stock market for growing companies, 4 (Sept. 2007) (noting that “a large proportion of AIM companies are early-stage businesses and/or operating in high-risk sectors . . . .”), available at http://www.lse.ac.uk/intranet/LSEServices/communications/pressAndInformationOffice/PDF/FULLREPORTAIM.pdf; Investopedia, TSX Venture Exchange (noting that Canada’s TSX Venture Exchange “is home to a lot of high risk penny stocks”), available at http://www.investopedia.com/terms/t/tsxventureexchange.asp; Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace, 24 (Apr. 1998) (noting that the companies that first joined the ECM “were relatively small, having a median market capitalization of $18 million and a median market price of $3.00 per share,” and that most of the companies that subsequently joined the ECM “came from the Pink Sheets or . . . were private firms which had no public market for their stocks”), available at http://faculty.msb.edu/aggarwal/jfe51.PDF; Heather Connon, Should you invest in the AIM market?, Moneywise (Apr. 6, 2011) (noting that small companies comprise the bulk of London’s venture exchange, AIM, with only 78 of the 1,182 companies listed there having market valuations of at least GBP 250 million), available at http://www.moneywise.co.uk/investing/stocks-and-shares/should-you-invest-the-aim-market.
 Joseph Gerakos, Mark Lang, and Mark Maffett, Listing Choices and Self-Regulation: The Experience of the AIM, 6 (May 2011) (noting that, “[c]ompared with firms on other exchanges and controlling for a variety of factors, AIM firms perform poorly on almost every dimension. Perhaps most tellingly, AIM firm post-listing returns significantly underperform post-listing returns on other markets.”), available at https://www.kellogg.northwestern.edu/accounting/papers/Lang.pdf. See also Kyle Caldwell, A 3,500pc rise or a 96pc fall: the best and worst Aim shares, The Telegraph (Aug. 8, 2014) (noting that companies listed on London’s venture exchange, called AIM, are “normally small businesses and therefore much riskier than the big blue-chip firms found in the FTSE 100.”), available at http://www.telegraph.co.uk/finance/personalfinance/investing/isas/11018306/A-3500pc-rise-or-a-96pc-fall-the-best-and-worst-Aim-shares.html.
 Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor James Angel, McDonough School of Business, Georgetown University (Feb. 28, 2015) (noting that the Nasdaq began as a marketplace for small and mid-sized companies); Joseph Gerakos, Mark Lang, and Mark Maffett, Listing Choices and Self-Regulation: The Experience of the AIM, 2 (May 2011) (noting AIM’s “relative success in attracting listings” and further noting that AIM’s success has “spawned the launch of similar markets in a variety of countries”), available at https://www.kellogg.northwestern.edu/accounting/papers/Lang.pdf; Simone Filippetti, Milan’s 2014 IPOs: 5 new companies listed, but 5 withdrew, Italy24 (Jan. 5, 2015) (noting the “success” of Italy’s venture exchange, AIM Italia), available at http://www.italy24.ilsole24ore.com/art/markets/2015-01-02/milan-s-2014-ipo-with-double-sign-debuts-set-back-by--withdrawals-record-for-the-aim--141230.php?uuid=ABN8f3XC.
 Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor Reena Aggarwal, Robert E. McDonough Professor of Finance and Director, Georgetown Center for Financial Markets and Policy, McDonough School of Business, Georgetown University (Mar. 1, 2015); Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor James Angel, McDonough School of Business, Georgetown University (Feb. 28, 2015); see also Reena Aggarwal and James Angel, The Rise and Fall of the Amex Emerging Company Marketplace, 24 (Apr. 1998), available at http://faculty.msb.edu/aggarwal/jfe51.PDF. In their 1998 paper, Professors Aggarwal and Angel observed that successful venture exchanges, like Japan’s version of Nasdaq, which is called Jasdaq, share certain characteristics. Specifically, they note that these exchanges (i) grew out of pre-existing over-the-counter markets; (ii) were dealer markets, rather than auction markets; and (iii) are separate entities from other national exchanges, which allows them to focus on serving their clientele. But Professors Aggarwal and Angel also note that London’s venture exchange, AIM, is a hybrid market that contains elements of both an auction and a dealer market. Id.
 Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor Reena Aggarwal, Robert E. McDonough Professor of Finance and Director, Georgetown Center for Financial Markets and Policy, McDonough School of Business, Georgetown University (Mar. 1, 2015); Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor James Angel, McDonough School of Business, Georgetown University (Feb. 28, 2015); Susanne Espenlaub, Arif Khurshed, and Abdulkadir Mohamed, Is AIM a Casino? A study of the survival of new listings on the UK Alternative Investment Market (AIM) (Nov. 2009) (noting that firm age and size, as well as the quality of the firm’s sponsor, significantly increase the survival times of firms admitted to the AIM), available at https://research.mbs.ac.uk/accounting-finance/Portals/0/docs/IsAIMaCasinoAstudyofthesurvivalofnewlistings.pdf.
 Telephone Interview by Neil Lombardo, Counsel to Commissioner Luis A. Aguilar, with Professor Reena Aggarwal, Robert E. McDonough Professor of Finance and Director, Georgetown Center for Financial Markets and Policy, McDonough School of Business, Georgetown University (Mar. 1, 2015); Telephone Interview by Neil Lombardo, Counsel to Commissioner Aguilar, with Professor James Angel, McDonough School of Business, Georgetown University (Feb. 28, 2015).
 This data comes from aggregating numbers from the OTC Markets Group official website reflecting 2014 trading statistics for the OTCQX, OTCAB, and OTC Pink marketplaces and FINRA’s website reflecting 2014 trading statistics for the OTCBB. See OTC Markets Group Reports 2014 Trading Statistics and Highlights, available at http://www.otcmarkets.com/stock/OTCM/news/OTC-Markets-Group-Reports-2014-Trading-Statistics-and-Highlights?id=96163, and FINRA Over-the-Counter Equities, Market Statistics, Historical Data, available at http://otce.finra.org/MSHistoricalDataAnnual/.
 See Exchange Act Rule 15c2-11, 17 CFR 240.15c2-11.
 FINRA implements Exchange Act Rule 15c2-11 through its Rule 6432, which prohibits a member from initiating or resuming the quotation of certain “non-exchange listed securities” in a quotation medium unless the member has demonstrated compliance with the requirements of Exchange Act Rule 15c2-11 pertaining to the review and maintenance of information about the security and the issuer. For these purposes, FINRA defines “non-exchange-listed security” as any equity security, other than a restricted equity security, that is not traded on any national securities exchange. To demonstrate compliance with FINRA Rule 6432 and Exchange Act Rule 15c2-11, a member must file with FINRA a Form 211, together with the information required under Exchange Act Rule 15c2-11(a), at least three business days before the quotation is published or displayed. Once a broker-dealer has filed a Form 211 with respect to a security, and that Form 211 is cleared by FINRA, the security may become “piggy-back” eligible provided the quoting activity meets the requirements of Exchange Act Rule 15c2-11(f)(3). Exchange Act Rule 15c2-11(f)(3) sets forth frequency-of-quotation requirements which, if met, allow broker-dealers to publish quotations in the security without maintaining the information required by Exchange Act Rule 15c2-11 or filing a new Form 211.
 See Commissioner Luis A. Aguilar, Revisiting the "Accredited Investor" Definition to Better Protect Investors (Dec. 17, 2014), available at http://www.sec.gov/news/statement/spch121714laa.html. At that December 2014 meeting of the Advisory Committee on Small and Emerging Companies, I noted that there is nothing in the accredited investor definition that helps to identify whether individuals have the financial sophistication and/or investment experience to be able to assess whether any particular investment is appropriate for them. I also noted that “[a]s a result, the single working parent with three children, the widow with the inheritance, and the retiree all deserve the Commission’s attention to make sure they are not made more vulnerable by an ‘accredited investor’ definition that may fail to distinguish between individuals who can protect their own interests and those who cannot. For these reasons, it is entirely appropriate for the Commission to review whether the ‘accredited investor’ definition is accomplishing its intended goals.” See id.