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The Fundamentals of an Electronic-Based Federal Securities Act James D. Cox 75 Wash. U. L.Q. 857 (1997) F. Hodge O'Neal Corporate and Security Law Symposium: Market and Information Gathering in an Electronic Age: Security Regulation in the 21St Century |
ABSTRACT:
The benefits of the securities laws imposing speed bumps that require a close review of the registrant's public disclosures appear beyond dispute. What is in doubt is whether their costs exceed their benefits. The author suggests that whatever the balance of this social equation the cost considerations are greatly exacerbated when the defining moment of the speed bump is the public offering of securities. The author argues that, though the desirability of a speed bump for the unseasoned issuer is easy to justify, imposing a like burden in the path of every issuer that seeks additional capital is more questionable. The regulatory challenge, therefore, appears to be two-fold: identifying which issuers should be relieved of section 11 responsibilities as we know them today and defining what responsibilities this lucky group of issuers should have with respect to their public disclosures. this article argues that a truly continuous reporting system should provide for the periodic close review of filings made with the SEC. The suggestion here is to preserve the section 11 liability for seasoned issuers, but not have that liability arise in connection with the registration of securities. Public offerings by untested or financially distressed issuers should continue to be subjected to section 11. With speed bumps recontoured and repositioned, regulation could then better complement the filtration of information about registrants through the electronic-based securities act. Dissemination would occur through the mediums that are sought by investors and market professionals. The liabilty standards are not based nearly as much on whether the registrant is traded in an efficient market, but on more paternalistic concerns of whether the registrant falls within the profile of the type of company that poses a serious disclosure risk to investors, such as being unseasoned or recently suffering some observable financial distress.
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