June 30, 1999
Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Regulation of Securities Offerings (File No. S7-30-98)
Dear Mr. Katz:
Salomon Smith Barney ("SSB") and Citibank, N.A. ("Citibank") are submitting this letter in response to the request of the Securities and Exchange Commission (the "Commission") for comments on its proposal to modernize and clarify the regulatory structure for offerings under the Securities Act of 1933 (the "Securities Act"). SSB and Citibank together form an integrated corporate investment bank that provides global, full-service investment and corporate banking and securities brokerage services to corporations, governments and individuals and is a significant participant in the capital markets. SSB and Citibank appreciate the opportunity afforded by the Commission to participate in this undertaking which will be critical to the future competitive position of the U.S. capital markets.
SSB, as a member of both the Securities Industry Association and the Bond Market Association, has participated actively in the analysis by those organizations of the Release and in their preparation of detailed letters providing comments on the Release. Because these two organizations represent the views of the firms that underwrite and make markets in virtually all of the securities distributed and traded in the United States, and that have thereby contributed enormously to the growth and success of the U.S. capital markets, we believe that the views of these organizations and their member firms should be given considerable weight by the Commission. We fully support the views expressed in these two organizationsí comment letters, except where specifically noted below.
We will not respond point by point to the proposals contained in the Release or provide detailed comments on each proposed rule, in part due to the sheer size of the Release and the breadth and scope of the proposals and the detailed letters of the organizations referred to above, but more importantly because of the fundamental disagreements that we have with the basic concepts underpinning many of the proposals. We have instead focused on what we consider to be the most glaring flaws in the proposals. We would strongly encourage the Commission and its staff to review our and other comment letters seriously. We are willing to participate in any public forum created by the Commission to review the Release and would invite the Commission to meet with securities market professionals to discuss the problems that would be created by the proposals contained in the Release. In response to the significant public comment that is anticipated, we strongly urge the Commission to repropose a much narrower and more tailored set of amendments based upon the current framework of the securities registration system. Upon such a reproposal we will address in greater detail the specific rule proposals contained therein.
As stated in the Release, the basic principle behind the "Aircraft Carrier" proposals is that "registration benefits all participants: issuers, by lowering their cost of capital; investors, by enhancing disclosure and providing remedies; and the marketplace, by increasing depth and liquidity." The Commission intends that the proposed reforms will remove existing obstacles to immediate access to the capital markets for registered offerings and make registration of securities offerings a more attractive alternative than private and offshore offerings.
We appreciate the Commissionís acknowledgment that the existing registration system in many cases forces issuers to turn away from the U.S. public securities market to the private or offshore markets. Accordingly, the proposals would grant large seasoned issuers and certain smaller seasoned issuers the power to control the timing of effectiveness of their registration statements. In addition, the Commission has proposed to implement "pay-as-you-go" registration and eliminate the existing final prospectus delivery requirement.
Unfortunately, many other aspects of the proposals would slow the public offering process in comparison to existing registration procedures, leading to an increase in both offering costs and risks to market participants and to the very result that the Commission does not want ó fewer registered offerings and more private and offshore offerings. We are especially concerned about the harm that could occur to the competitive position of the U.S. capital markets vis-à-vis international capital markets, in particular the euromarkets, which we believe will only become stronger in coming years in response to the introduction of the euro and the harmonization of various local European market practices.
The requirement that issuers and underwriters deliver written disclosure to investors prior to their making investment decisions would, in particular, lead to this result. The renewed focus on delivery of information in securities offerings is contrary to the decades-long evolution of the securities offering process, in particular the development of the integrated disclosure and shelf registration systems over nearly 30 years. For many years, the Commission has espoused a securities regulation philosophy based on making information regarding companies and their securities available to the market generally, rather than on the delivery of information to particular investors. Indeed, that philosophy underpinned the Commissionís intensive efforts to develop and implement the EDGAR electronic filing system starting in the 1980ís.
Given the technological advancements in the area of information technology, availability of information about issuers through, for example, the Internet (including the Commissionís web site) should be sufficient to assure market and investor access. Rather than focusing on delivery of information to individual investors, the Commission should focus its efforts on ensuring the availability of information to the marketplace and propose regulation that fosters technology that maximizes investor access and availability, including necessary and long overdue improvements to the EDGAR system.
The liberalization of communication of written materials relating to securities offerings would be a major step forward in conforming the U.S. securities offering process to the sensible modern market practices that have developed elsewhere in response to demands by market participants. The globalization of the securities markets and the demand for more information in connection with securities offerings have resulted in large part from technological advances that leave the Commission with little alternative but to liberalize. By requiring any so-called "free writing" materials that are outside of the prospectus and registration statement to be filed with the Commission and subjecting these materials to Securities Act prospectus liability, however, the Commission would discourage the free flow of information to investors that it intends to encourage. The proposals may well result in the dissemination of less information to investors in U.S. public offerings than is the case today. Particularly problematic is the proposed requirement that even proprietary and branded information would have to be filed by any underwriter or dealer that provided such information.
DELAY AND INEFFICIENCY IN PROPOSED REGISTRATION PROCEDURES
The Commission has stated on many occasions that the Release is intended to rationalize the securities registration system and provide issuers quicker access to the U.S. registered capital markets. The clear result of the proposals contained in the Release, however, would be the slowing down of the capital formation process. In the Form B proposals, the requirement that a term sheet be delivered to investors prior to the time investment decisions are made would add from several hours to several days to the offering process, particularly since many offerings under the existing shelf registration process are priced within a matter of hours or even minutes after a decision has been made to proceed with the offering. In the Form A proposals, delay would inevitably result from the required 7-day or 3-day preliminary prospectus delivery periods and the required 24-hour period for delivery of information relating to material changes. These delays could be very substantial because in the Form A context if even one new investor were invited to participate in an offering a few days before pricing (for example, if a new syndicate member was added), the clock would reset and a new 7- or 3-day period would begin. The only way for issuers and underwriters to avoid these potential delays would be to approach no new investors within the 7 or 3 days prior to an offering, a strategy that would severely hamper marketing efforts, especially in difficult market conditions, and prevent certain investors from being informed about and participating in offerings in which they might otherwise be interested.
In addition, for many years the Commission, practitioners and market participants have recognized the practical problems of final prospectus delivery requirements where as more efficient securities clearance and settlement processes have moved from T+5 to T+3 and are poised to go to T+1. Indeed this is one reason why the Aircraft Carrier proposes to do away with final prospectus delivery. To move the prospectus delivery function from the "back office" (clearance and settlement process) to the "front office" (investment decision process) will recreate those same problems once again, further increasing market risk and volatility for registered offerings.
The "speed bumps" or delays in both Form A and Form B offering processes would lead to one or both of the following results: issuers would be forced to accept less attractive pricing for their securities (in the form of either lower prices or higher interest rates); and issuers would be subject to greater market risk during the longer period prior to pricing. In many cases, offerings may be "downsized" or market opportunities may be lost altogether. The delay in the capital raising process would be particularly severe in three instances. First, in the fixed income markets, final pricing terms are in many cases orally negotiated among the issuer, underwriters and investors in the minutes before actual pricing. Second, in the case of offerings by Form A issuers, the inability to market offerings to investors during the late stages of a road show (due to the 7- and 3-day requirements) could lead to the failure to obtain sufficient investor interest for offerings conducted in difficult market conditions or by small issuers. Third, in the case of equity block trades, immediate pricing is a necessity, and as a practical matter can only be done by telephone in the span of a few short minutes.
Due to the uncertainty that would accompany the proposed securities registration and offering process, issuers wanting to take advantage of a market opportunity may require underwriters to commit their capital to position transactions in the market. Even if they were to agree to such arrangements, underwriters would of course insist upon greater compensation for the accompanying increase in risk, contributing further to increases in the cost of capital formation.
The timing constraints imposed by the information delivery requirements will be particularly burdensome in offerings that are made available to retail investors, as compared to institutional investors, due to the large number of investors to whom delivery would be required, the lower purchasing capacity of retail investors and such investorsí lack of access to sophisticated "real-time" delivery communication technologies. As a result, issuers and especially their underwriters and dealers can be expected to reduce their allocations of securities to retail investors or to eliminate them entirely. Instead, in order to ensure compliance with the prospectus delivery requirements, underwriters and dealers would restrict sales to a handful of large, institutional investors to whom term sheet or preliminary prospectus delivery can be made and confirmed easily, rather than to thousands of individual retail investors, for whom confirming receipt of disclosure would pose a significant administrative burden.
Issuers and other market participants have put a premium on speed and predictability of execution. Issuers faced with uncertainty of execution and corporate treasurers who cannot take advantage of attractive pricing opportunities in rapidly changing markets due to unpredictable execution and pricing will look instead to Europe and other offshore markets that permit predictable and rapid execution of securities offerings. Similarly, if SSB is positioning securities, particularly fixed income securities, and cannot confirm sales to U.S. accounts, we will divert our selling efforts offshore. Investors will follow issuers and underwriters offshore in response to the proposals. With the advent of the European Monetary Union, the introduction of the euro and the expected growth of a unitary liquid capital market in Europe, the Commission and its staff should not underestimate the threat to the competitive position of the U.S. capital markets presented by the proposals contained in the Release, especially for the fixed income market.
EFFECTIVENESS ON DEMAND; DISQUALIFICATIONS
We believe that the Commission can, and should, implement effectiveness on demand for a wide category of issuers without adopting the more problematic and sweeping proposals contained in the Release. Effectiveness on demand would be a logical extension of the evolution of the securities laws in the last 30 years from a system that relies on full company and securities disclosure with respect to each offering to one that provides large seasoned issuers with short-form registration requirements and greater predictability of timing. These principles are embodied in the existing shelf registration system.
The effectiveness on demand proposal contained in the Release, unfortunately, would not provide the desired predictability. The proposals indicate that the Commission would review reports on Forms 10-K, 10-Q and 8-K on an ad hoc basis and provide comments on those reports to issuers. This would be appropriate. However, the proposed disqualifications from eligibility for Form B and automatic effectiveness would include the failure to amend a report "in accordance with the Commissionís comments." While this disqualification may appear innocuous, it would permit technical staff comments on Exchange Act reports to block an issuerís access to the capital markets, irrespective of materiality and even in circumstances where a genuine difference of opinion exists between the issuer and Commission staff. Under such a system, issuers could never have complete confidence in the ability to access the market quickly (unless they cede to the Commission staff all rights to prepare their own disclosure). Linking availability of Form B, and effectiveness on demand, to the resolution of staff comments is unjustified given the myriad of other weapons the SEC has available to it to deal with serious transgressions. The Commission should eliminate this disqualification and instead allow issuers to maintain their eligibility for effectiveness on demand during the pendency of staff review of annual and quarterly reports.
EXTERNAL OFFERING MATERIALS
We support efforts by the Commission to increase the free flow to investors of information outside of the prospectus and registration statement. In light of developments in information technology and the demands of investors for access to research and other information, the securities laws initially designed in 1933 pose unnecessary and unworkable obstacles to the communication of relevant information to investors. The liberalization of restraints on communications and "free writing" would be of particular importance in connection with offerings of equity and high yield securities, which often require additional marketing efforts, and structured securities, for which additional individualized written material would assist issuers and underwriters in providing a more complete explanation of the securities being offered and the advantages and disadvantages of the securities for particular investors.
We understand that the Commission has expressed concern about selective disclosure of written materials to investors by issuers and broker-dealers. We do not believe such a problem exists, especially in respect of broker-dealer communications, and we do not believe that it is appropriate to require the filing with the Commission of free writing materials, particularly those prepared by underwriters and dealers for their customers. Significant issues relating to liability and competitive concerns are raised by the proposal. Under the Form B proposal, materials distributed by one underwriter or dealer could be deemed to constitute "offering information" and would thereby have to be filed as part of the registration statement. As a result, the issuer and every other underwriter participating in the offering would be subject to liability under Section 11 of the Securities Act for those materials, whether or not they participated in the preparation or even knew about the existence of such materials.
Of equal importance, external marketing materials that constitute "free writing" would also include a broker-dealerís proprietary communications to its customers, and the "public" to whom that information would be disclosed under the Commissionís proposals would include non-customers and competitors of the broker-dealer publishing the research or written material. The proposals would therefore eliminate the commercial advantage that broker-dealers seek to offer to their customers by developing an expertise in a particular market or industry or by taking a particular proprietary approach. Broker-dealers will simply not be willing to work to create a competitive edge that will have to be given away to competitors and non-customers. That unwillingness, combined with the reluctance of broker-dealers to accept risk of liability in respect of the research and marketing materials prepared by other broker-dealers, would result in a reduction of the quantity as well as the quality of information made available by broker-dealers through these materials.
The existing U.S. regulatory regime under the Securities Act with respect to the use of non-prospectus written materials is unnecessarily out of step with the methods by which securities are marketed throughout the rest of the world. In so-called "global" offerings, irrespective of whether the U.S. tranche is registered under the Securities Act or offered in a transaction that is exempt from registration pursuant to Rule 144A, distribution participants (i.e., broker-dealers) generate their own research to market the offering to their customers, who also receive the more formal collaborative offering document prepared by the issuer with the review of underwriters. The investors want the "written" view of the underwriterís research analysts. This deal research is often identical to the research report that the underwriter will produce once the offering is complete. For the most part, this broker-dealer deal research is not available to any U.S. investors, although several broker-dealers, including SSB, in certain cases make offering-related research available to qualified institutional buyers ("QIBs") in offerings made in reliance on Rule 144A. This process yields a disparity between the information that is provided to investors outside of the U.S. and that provided to investors in the U.S. Unfortunately, under the approach proposed by the Commission in the Release, U.S. investors would be likely to continue to be denied access to the same deal research and marketing materials we provide to non-U.S. investors because of the proposed filing and liability requirements. In order to provide additional information to U.S. investors, we would therefore have to continue to rely on less efficient oral communications.
We believe that the concept behind "free writing" adopted by Congress under the Securities Act should inform the Commission today and should be extended to meet modern circumstances. Under that concept, once full information about an issuer becomes available (under the statute, when the final prospectus is available), written offering material outside of the prospectus is permitted so long as it is accompanied by that final prospectus. There is no filing requirement or prospectus liability for these materials. Congress adopted this approach based on the view that where complete and up-to-date information is available to investors, there is no reason to prohibit the dissemination of additional written materials and that the prospectus liability on the ß10(a) prospectus adequately protect investors. The development of the integrated disclosure system means that in todayís securities markets information about large seasoned issuers is available and well known to the marketplace even during the pre-effective period. In addition, in the case of issuers with effective shelf registration statements, detailed information regarding the terms of the securities to be offered is included in the base prospectus. For these issuers, the distinction between the time preceding and subsequent to final prospectus delivery is meaningless today. The availability of this information in the market justifies permitting the dissemination of "free writings," particularly by underwriters and dealers, prior to the filing and/or delivery of a final prospectus in offerings by seasoned issuers without requiring such material to be filed and without prospectus liability for such material. The market would rely on the Exchange Act reporting system to provide updated company information to investors and, in the case of shelf registration statements, the filed base prospectus to provide information about the detailed terms of the securities being offered.
We believe that investors are adequately protected by Sections 11 and 12(a)(2) of the Securities Act. If a prospectus fails to include adequate information about the issuer, but such information is included in non-prospectus marketing materials prepared by distribution participants, Section 11 and Section 12(a)(2) liability for material omissions in the registration statement and the prospectus would protect investors who receive only the prospectus. No loss of protection would result to any investors as a result of the ability of broker-dealers to provide "free writings" to their own customers.
The Commission has expressed a particular concern about the selective disclosure problem caused by roadshows, since only selective institutional investors are often invited to roadshow presentations. Historically, roadshow materials (including slide presentations) that are not distributed have been viewed as oral communications and therefore not deemed a written offer or prospectus pursuant to Section 5 and Section 2(a)(10) of the Securities Act. The proposals contained in the Release would require underwriters to file roadshow presentation materials as "free writings," thereby imposing Section 12(a)(2) liability. As a practical matter, issuers and underwriters will seek to limit this liability by limiting the information included in roadshow presentations, contrary to the intended result of encouraging more, rather than less, "free writing" outside of the prospectus. There is also no change in circumstances or other justification for a change in the Commissionís and the industryís long-standing position that roadshow materials that are not distributed are not written materials. We would therefore strongly encourage the Commission to maintain its current position that roadshow presentation materials constitute oral, not written, materials.
ELIMINATION OF EXXON CAPITAL EXCHANGE OFFERS
The Commission has made it clear that one of the purposes of the "Aircraft Carrier" proposals is to encourage more widespread use of the registration process and reduce issuer reliance on private offerings. The Commission has therefore proposed to repeal the Exxon Capital line of interpretive letters and the registered exchange offers permitted thereby, even if the proposals in the Release are not otherwise adopted.
The Commission suggests in the Release that the Exxon Capital procedures would no longer be necessary under the proposals because seasoned issuers would be permitted to use Form B to conduct QIB-only offerings. Effectiveness on demand for Form B offerings to QIBs would not eliminate the need for registered exchange offers for many below-investment grade issuers or first-time issuers. First, many high yield offerings occur in the context of significant acquisitions and recapitalizations in which the issuer does not have a one-year reporting history. In addition, few of the non-U.S. issuers that take advantage of Exxon Capital would meet this seasoning requirement. Second, the Form B QIB-only proposal does not permit sales to dealers or investment advisers. These categories of purchasers, in particular investment advisers (acting for QIB clients), make up a large portion of the purchasers in Rule 144A offerings. Finally, the Commissionís warning in the Release that an "indirect public distribution" of securities would violate Section 5 recalls the old "presumptive underwriter" doctrine and would unless explicitly corrected by the Commission deter issuers from registering on Form B in reliance on the QIB-only eligibility provisions.
We could accept a repeal of the Exxon Capital line of letters if the Commission eliminates the threat of the "presumptive underwriter doctrine" and permits QIB-only offerings on Form B to be made by issuers without a reporting history and to investment advisers and dealers (and at the same time addresses the other problems discussed earlier associated with the proposed Form B registration system). In fact, we would prefer (and believe that the Commission should prefer) a rationalized registration system that encourages high yield issuers that currently raise capital outside of the registered securities market to participate instead in the registered market.
Exxon Capital has been a very helpful accommodation by the staff to the practical problems associated with high yield private placements and registration rights. Exxon Capital is particularly important for high yield non-U.S. issuers and start-up. In high yield offerings, which must be executed quickly due to ever-changing and often volatile market conditions, Rule 144A offerings permit issuers rapid market access to the QIBs that purchase in those offerings. The Exxon Capital procedure recognizes the timing difficulties faced by high yield issuers as well as the limits (or "baskets") on the amount of restricted securities that can be held by certain institutional investors such as insurance companies and mutual funds. The ability of these institutional investors to place securities issued in Rule 144A offerings in their unrestricted "baskets" in particular permits issuers access to a much larger universe of QIB investors than would exist in the absence of Exxon Capital. This increased liquidity leads in turn to better pricing terms for such Rule 144A issuances.
Our capital markets professionals estimate that the elimination of Exxon Capital exchange offers could cost issuers 25 - 50 basis points in interest rate for billions of dollars of their debt. Yet the Commission provides no evidence in the Release of any abuse of the Exxon Capital procedures. We understand that Commission staff have expressed concern that securities received by institutional investors in Exxon Capital exchange offers are being resold to retail investors. The facts simply do not justify this concern. In fact, in 1994, SSB provided the staff of the Division of Corporation Finance with trade runs demonstrating that high yield bonds received in Exxon Capital exchange offers do not "flip" to the public following the exchange. The main benefit of Exxon Capital exchange offers is not that they provide holders with the ability to freely resell securities in the public, non-institutional market. Instead, as discussed above, it is to allow institutional investors to place the securities in their unrestricted baskets.
The repeal of Exxon Capital would also be problematic for non-U.S. issuers due to the time required for them to reconcile their financial statements to U.S. generally accepted accounting principles and the resulting delay in accessing the U.S. capital markets. For these issuers, Rule 144A offerings of American Depositary Shares have served as a "stepping stone" to the U.S. public market (utilizing a Rule 144A offering, followed, often a significant period later, by an Exxon Capital registered exchange offer and, sometimes a simultaneous registered cash offering). The elimination of Exxon Capital would cause a number of non-U.S. issuers not to access the U.S. capital markets.
AFTERMARKET PROSPECTUS DELIVERY
The Commission has proposed the imposition of a uniform 25-day aftermarket prospectus delivery period for all dealer transactions in order to ensure that Section 12(a)(2) liability exists in dealer transactions following all registered offerings. Currently, only initial public offerings are subject to an aftermarket prospectus delivery period.
We do not believe dealers participating in secondary market transactions should be subject to prospectus liability. Prospectus liability for underwriters under the Securities Act is intended to apply to the distribution of securities into the market and is based on a relationship with the issuer not shared by dealers not participating in the distribution. The purpose of the aftermarket prospectus delivery requirement was never to impose liability on securities dealers for secondary market trades. It was instead intended to ensure that adequate information about the issuer and trading in the securities in question was widely disseminated in the market. In response to the increasingly efficient dissemination of market information and the development of the integrated disclosure system, Congress and the Commission have in most cases eliminated and in other cases shortened, the aftermarket prospectus delivery requirement. No justification exists for now extending the requirement to new categories of offerings.
UNDERWRITERSí DUE DILIGENCE
The proposed amendments to Rule 176 of the Securities Act address to only a limited extent concerns expressed in recent years about the liability of underwriters in a registration system in which emphasis is moving away from Securities Act disclosure (in which underwriters can play a significant role in positively influencing the quality of disclosure) to Exchange Act disclosure (in which underwriters generally are not involved). We believe that the Commission has not gone nearly far enough in addressing these concerns, given the increasing speed with which public offerings occur today and the Commissionís intent to facilitate immediate market access for certain issuers.
The Commission has proposed to add six new positive factors to Rule 176. These six factors would be limited, however, to equity and non-investment grade debt offerings by large seasoned Form B issuers that are marketed and priced in fewer than five days. In fact, most offerings that are marketed and priced in such a short period are investment grade debt offerings, whereas equity and high-yield debt offerings generally have longer marketing periods. In addition, the time pressure on underwriters is greatest (and the opportunity for due diligence most compressed) during the period from the time an underwriter is appointed to the time it commits to go forward with an offering, not between that later time and the time of pricing (since due diligence must be conducted prior to, not during, marketing). This time pressure will continue to exist, whether or not the proposed Form B system is implemented. Accordingly, we believe that at the least the six new factors should cover all offerings, and that the 5-day limitation should be eliminated.
In light of the increasing speed at which offerings move forward and the growing importance of the role of Exchange Act reports in the securities registration process, underwriters in many cases cannot perform the same gatekeeper role that they served under the registration system as originally designed. As the Commission moves towards effectiveness on demand and provides even greater emphasis on periodic Exchange Act reporting, the underwriter liability provisions in Sections 11 and 12(a)(2) cannot serve their original function of providing a strong incentive for underwriters to conduct meaningful and complete due diligence that influences disclosure because of the limitations placed on the role of underwriters by market factors and market realities. In these circumstances in which underwriters essentially are forced to provide the marketplace with insurance, we believe that the Commission should repeal its position that indemnities for Securities Act disclosure liability are unenforceable as they are contrary to public policy. Once due diligence and disclosure enhancements are no longer an issue there is no reason why the investor insurance function cannot be transferred or diversified.
Even with the addition of new positive factors, underwriters will continue to face uncertainty as to the adequacy of their due diligence, and courts considering the adequacy of underwriter due diligence will lack sufficient guidance (particularly since, not being securities law specialists, they may not be familiar with market practice in the area of underwriter due diligence). For these reasons, we continue to believe that the Commission should provide underwriters with a safe harbor from liability rather than simply a list of "relevant circumstances," at a minimum in the case of shelf (or, if adopted, Form B) offerings. The quality of underwriter due diligence in the face of such a safe harbor would not decline, as the primary incentives for underwriters to conduct thorough due diligence are the preservation of their market reputations and the protection of their customers, not liability under Sections 11 and 12(a)(2) of the Securities Act. Indeed, in Rule 144A and offshore international offerings, to which Section 11 and 12(a)(2) liability do not apply, SSB performs substantially similar due diligence and insists on substantially similar disclosure as it does in U.S. registered public offerings.
The Commission has been the primary regulator of a capital formation system that is the envy of the world. The U.S. capital markets allow issuers from around the world to gain access to investors of all types ó from large institutions to individual retail investors ó and at the same time provide strong protections to those investors. We believe the Commissionís goal should be to build on the successes of the existing system, rather than to dismantle that system in favor of one that has not been tried and tested and on its face raises serious risks. The benefits that would be gained under the proposals by providing investors more transactional information and more time to make investment decisions, which would be marginal at best, would be greatly outweighed by the cost to the U.S. capital markets in terms of liquidity and speed of execution. In addition, the proposals in the Release would, if adopted, significantly reduce the ability of retail investors to participate in securities offerings.
The Commission should not underestimate the competitive windfall for non-U.S. markets, especially the euromarkets, that would result from any impediments imposed on the capital formation process in the United States. Rather than taking any steps that would undermine the efficient functioning of the U.S. capital markets, the Commission should reconsider the proposals contained in the Release and repropose a narrower and more carefully tailored set of proposals that builds upon the existing securities registration system.
Very truly yours,
Salomon Smith Barney/Citibank
/s/ Joan Guggenheimer
Managing Director and General Counsel of Citigroup Global Corporate and Investment Bank
cc: Arthur Levitt, Chairman
Paul R. Carey, Commissioner
Isaac C. Hunt, Jr., Commissioner
Norman Johnson, Commissioner
Laura Simone Unger, Commissioner