February 25, 1992
TO: BOARD OF GOVERNORS NO. 12-92
SEC RULES MEMBERS NO. 8-92
TASK FORCE ON SMALL CAPITALIZATION INVESTMENTS
RE: CHAIRMAN BREEDEN'S SPEECH ON THE SEC'S SMALL BUSINESS
INITIATIVE
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In a recent speech at the National Press Club, SEC Chairman
Breeden described the SEC's small business initiative. He
stated that he intended to recommend that the SEC propose rule
amendments and seek legislative changes, where necessary, to
reduce regulatory burdens and increase flexibility in the raising
of capital for small businesses. A copy of the speech is
attached.
Specifically, Chairman Breeden stated that he will be
suggesting amendments to simplify and to expand Regulation A and
Rule 504 offerings under the Securities Act of 1933, which
regulate the offerings of securities by small companies. In
addition, he discussed creating a new form for small companies,
rather than small offerings, and a new "10-K Junior" and a "10-Q
Junior" to streamline the complexity of the forms to reduce the
filing costs for smaller companies.
Chairman Breeden also will be seeking changes to the
Investment Company Act of 1940. He stated that he will be
suggesting, among other things:
A. raising the eligible volume of "illiquid" holdings of
mutual funds from 10% to 15%;
B. allowing investment companies to redeem shares at
intervals less frequently than daily; and
C. raising current limitations on funds that can be raised
by Small Business Investment Companies and Business and
Industrial Development Companies.
In addition to these rulemaking initiatives, Chairman
Breeden discussed legislative changes to the Investment Company
Act, such as creating a new type of fund for raising venture
capital that would be exempt from registration under the Act so
long as all its investors are highly sophisticated individuals or
entities.
Finally, Chairman Breeden discussed the need for the SEC to
assist those who are attempting to develop ways to securitize the
receivables of small businesses into debt securities that can be
sold into a liquid secondary market. As a first step, he
suggested expanding the use of shelf registrations under Rule 415
(which allows for continuous offerings) for investment grade
securities backed by non-mortgage assets. In addition, he
suggested that the necessary relief under the 1940 Act be crafted
to help achieve a coordinated regulatory response to developments
in the securitization field.
The Institute's Task Force on Small Capitalization
Investment has provided the SEC with technical advice on the
various alternatives to enhance small capitalization investments
by mutual funds. Chairman Breeden's speech incorporated several
of the Institute's suggestions and did not include several
proposals to which the Institute objected such as modification of
the diversity tests in subchapter M of the Internal Revenue Code.
We will keep you informed of developments on this matter.
Lawrence A. Rogers
General Counsel
Attachment