Our latest Investor Alert, “The 'On-Ramp' Gets Longer—Who's Watching the Road?,” examines the Securities and Exchange Commission's (SEC’s) proposed changes to the disclosure requirements for companies going public through initial public offerings (IPOs). 

The SEC’s proposal would change the categories that determine filing requirements for public companies, allowing more companies to benefit from reduced disclosure requirements.  It would extend the post-IPO “on-ramp” to allow all newly public companies to provide less information to the SEC for up to five years and would raise the public float threshold that determines which companies qualify for the SEC's most comprehensive disclosure and reporting requirements.

The alert also places these proposed changes in historical context, tracing the evolution of the SEC's reporting framework and the disclosure requirements that were originally designed to promote market transparency, improve investor confidence, and provide investors with more timely and complete information.

The alert further examines the practical implications of the proposal, noting that allowing more companies to provide reduced disclosures for longer periods may facilitate capital formation but it will also diminish the information available to investors.  As the authors explain, these changes could result in “a significantly less transparent market” with meaningful implications for market efficiency, volatility, and investor confidence.

Finally, the alert discusses the heightened importance of private enforcement in an environment where mandatory disclosure obligations are reduced, explaining that securities fraud claims, derivative suits, and other common-law remedies may be required to protect investors and preserve market efficiency.  As the authors conclude, “while capital formation is an important goal, investor confidence is paramount to a functioning, successful and efficient market.”