04.26.2017
By John D'Antona

CEO Chat: Cromwell Coulson, OTC Markets

Just what is the goal of the equities market?

Price discovery? A simpler market structure?

Cromwell Coulson, OTC Markets

If one asks an academic, the goal of the stock market is capital formation. Helping companies, whether they be large, medium or small, find the capital they need to operate is one of the basic underpinnings of private business. And according to C. Cromwell Coulson, CEO of OTC Markets, the stock markets fall woefully short when it comes to helping small companies. Now he wants to change that and spoke to Traders Magazine about his own proposal to help small companies better sell their shares in the public marketplace.

“The trading community engages in endless market structure discussions over tick sizes, trade at and other ‘solutions’ that proponents say will miraculously ‘fix’ small company capital formation. Lost in the debate is that it is not market structure, but access to growth capital that is the primary driver of attracting companies into the public markets,” Coulson began. “I constantly meet innovative, small companies wary of the burdens of going public. The capital raising process has become too expensive and time-consuming, requiring companies to develop a prospectus and hire underwriters even though most of this information is already part of a company’s SEC disclosure. “

Rather than deal with this red tape, he explained many public companies are forced to turn to private offerings. These types of offerings force companies to sell their shares at a sizable discount and are often fraught with negative terms and toxic financings – all of which ultimately destroy shareholder value.

“It is very clear that if we want to help more companies go public, job one is to make public capital raising more business-friendly and cost-effective,” Coulson said. “By making public markets a more competitive source of capital, more companies will see the value of being public. In a recent OpEd, I proposed an innovative idea to provide more value to SEC reporting companies by easing the costly restrictions on selling their shares publicly. Rather than forcing companies to raise capital privately, we should allow SEC reporting companies to sell their shares in the same manner that they currently buy them back: through brokers directly into their established public markets.”

So how can this be done?

Coulson said there were a few simple regulatory changes could make it possible for companies to sell shares directly into the public market, offering more efficient access to capital: 

  • First, we need to streamline and broaden existing shelf registration rules to cover all SEC reporting companies.
  • Second, eliminate the requirement for public companies to file “supplemental registration statements” when selling authorized shares into the market, and expand the safe harbor rule to include sales of all legally authorized shares.
  • And finally, allow brokers to execute orders to sell shares directly from the issuer without the burden of underwriting obligations. Brokers would function as intermediaries and sales agents and the public company would be responsible for appropriate disclosure and solely liable for any false statements.

“With modest rule changes, the U.S. public markets can provide a source of growth capital for innovative and entrepreneurial companies,” Coulson said.

 

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