I recently had the opportunity to assist the Alternative & Direct Investment Securities Association (ADISA) with a comment letter to the Securities and Exchange Commission concerning the SEC’s proposed reforms for federal preemption of registered offerings.
Exchange-listed securities generally benefit from federal preemption of state registration and qualification requirements. However, presently certain registered, non-exchange-traded offerings do not. As a result, sponsors of those offerings can face a state-by-state process involving additional filings and reviews, which typically leads to delays and expenses.
ADISA argues that this distinction no longer makes sense. A security does not somehow become less “registered” because it does not trade on an exchange. These offerings have gone through SEC registration and remain subject to federal securities laws, including their disclosure and liability requirements. Broker-dealers distributing them also remain subject to FINRA requirements.
There is an understandable tendency in securities regulation to assume that more review means more investor protection. However, here having a separate state qualification process for securities that have already gone through a federal registration imposes costs without necessarily providing a corresponding investor benefit. I appreciated the opportunity to help ADISA address these issues. They may seem like relatively small pieces of securities regulation, but the structure of the regulatory process can have a significant effect on which path issuers choose—and which investment opportunities ultimately reach individual investors.
Read ADISA’s full comment letter to the SEC
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