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Grant Thornton LLP. All rights reserved.
New Legislation, New Markets, New Opportunities
David Weild212-542-9979
Atlanta
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Grant Thornton LLP. All rights reserved.
"The financial system has been wounded by a flood of so-called innovations that merely promote hyper- rapid tradingIndividual
investors are being shortchanged." John C. Bogle, founder of VANGUARD
"A Mutual Fund Master, Too Worried to Rest"By Jeff Sommer
The New York Times August 11, 2012
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Grant Thornton LLP. All rights reserved.
"The irony of all this is that the change in Order Handling Rules [in 1997] that were instituted under my watch at the [SEC] has resulted in the
proliferation of markets, technologies and automation that brought about the flash crash and yesterday's [Knight Securities] events. I think public
confidence is severely shaken by things of this kind."
Arthur Levitt, former chairman of the SECBloomberg Surveillance with Ken Pruitt and Tom Keen
August 2, 2012
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"I think many of our problems with market liquidity in small- and mid-caps can be traced right back to decimalization [tick sizes]," said Dennis Dick,
prop trader at Bright Trading in Detroit. "Where decimalization has helped to reduce spreads in the large-cap space, it has actually harmed
liquidity in the small- and mid-cap space."
For blocks, "it's nearly impossible to execute any sizable order without significant price impact," Dick said.
"SEC to Examine Tick Size for Small Caps"By John DAntona Jr.Traders Magazine Online News
April 17, 2012
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" Larry Tabb, chief executive of the Tabb Group , said dime spreads shouldn't be off the table and considered as well. This, he added, would
incentivize brokers to trade and provide research for smaller and new companies.
" [Professor James] Angel believes issuers, not the regulators, should decide what the spread should be in stocks. But if a company trades better
with sub-penny pricing, 'then sub-penny should be permitted.'"
"Wider Spreads and Fees Could Help Restore Investor Confidence"By John DAntona Jr.Traders Magazine Online News
June 1, 2012
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Some past publicationsFoundational arguments behind The JOBS Act (but much left to be done!)
- Cited in Congress - Cited by the U.S. Treasury - Cited by the SEC- Cited by the Senate - Cited by The President's Jobs Council
Subscribe to the Capital Markets Series at www.GrantThornton.com/subscribe
November 2008 November 2009 June 2010 October 2011
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The JOBS ActSeminal events NYSE/NVCA Blue Ribbon Task Force2008
2009 Senator Kaufman speech on the floor of the U.S.Senate
CFTC-SEC Joint Panel on Emerging RegulatoryIssues2010
2011Title IV - House subcommittee on capital markets(testimony 3/16) President Obama cites IPO market problems
(9/8 speech)
SEC Small Business Forum (testimony 11/17)
Signing of The JOBS Act
SEC Advisory Committee testimony(Decimalization)
Congressional testimony (Decimalization)
2012
"How can we create a market structure that works for a $25 million IPO both in the offering and the secondary aftermarket. If we can answer that question, this country will be back in business."
Title I - Met with to interest Kate Mitchell who later Chaired the IPO Task Force for the US Treasury
Why are IPOs in the ICU? (11/2008)
Titles II, V, VI - A wake up call for America (11/2009)
"Were also planning to cut away the red tape that prevents too many rapidly growing
startup companies from raising capital and going public."
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(100)
(50)
0
50
100
150
200
250
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Indexed value of selected global exchange listings (1997 = 0)
Hong Kong
China
Australia
United States
Deutsche BrseTokyo
Toronto London
Sources: Capital Markets Advisory Partners LLC and World Federation of ExchangesBased on the number of listed companies at year-end, excluding funds. Data as of Dec. 31, 2011.
U.S. has lost 43.5% of all listed companies since 1997.First published in A Wake-Up Call for America (November 2009)
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Small IPO collapsed with SEC changes to theeconomic model that paid for small-cap support.Chapter 2 of the JOBS Act Title 1, Section 106(b): Tick Sizes
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
P e r c e n
t a g e o
f t o t a l U
. S .
I P O s
Tick size
12-1/2 to 25 cents
Order Handling Rules
1/100thof 1 cent
Regulation NMS
Regulation ATS
3-1/8 cents
Decimalization
1 cent
Sources: Grant Thornton LLP, Capital Markets Advisory Partners LLC and Dealogic
Data includes corporate IPOs as of Dec. 31, 2011, excluding funds, REITs, SPACs and LPs.
Transactions raisingless than $50 million
Transactions raisingat least $50 million
Smaller tick sizes undermined U.S. small-company IPOs
Sarbanes-Oxley
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Grant Thornton LLP. All rights reserved.
Why do we care about IPOs? A vibrant IPO marketimproves private investment activity and M&A values.
Large-cap public (symmetricalorder book)
Small-cap public (asymmetricalorder book)
IPO (canary in the coal mine)
Venture B, C, D round, etc.
Angel | venture A
Startup: Friends, family, angel
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The "one-two punch[Order Handling Rules (1997) and Reg. ATS (1998)]
$0.00
$0.05
$0.10
$0.15
$0.20
$0.25
$0.30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
T i c k s
i z e s
P e r c e n
t a g e o f
t o t a l U
. S .
I P O s
Sources: Grant Thornton LLP, Capital Markets Advisory Partners LLC and DealogicData includes corporate IPOs as of Dec. 31, 2011, excluding funds, REITs, SPACs and LPs.11992: $0.125 for NASDAQ stocks $10, AMEX stocks $5 ( $10 in 1995) and NYSE stocks > $1; 1997: $0.0625 for NASDAQ stocks $10,
AMEX stocks $0.25 and NYSE stocks $0.50.21992: $0.03125 for NASDAQ stocks < $10, AMEX stocks < $0.25 and NYSE stocks < $0.50.
A Order Handling RulesB Regulation ATSC DecimalizationD Sarbanes-Oxley ActE Regulation NMS
A B C D E
Quote-driven market (pre-Reg. ATS)
Effective tick size > minimum tick size
Electronic order book market (post-Reg. ATS)
Effective tick size collapsed to minimum tick size
Transactions raisingless than $50 million
Transactions raisingat least $50 million
Tick size for higher priced stocks 1
"Bankable" spreador effective tick size
Tick size for lower priced stocks 2
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JOBS ActSEC resources
SEC JOBS Act portal: http://www.sec.gov/spotlight/jobs-act.shtml
FAQs:Emerging Growth Companies (Title I)
General Applicability of Title 1:http://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm Confidential Submission Process for Emerging Growth Companies:http://www.sec.gov/divisions/corpfin/guidance/cfjumpstartfaq.htm
Crowdfunding (Title III)
Crowdfunding Intermediaries:http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htm Notice: Use of the Crowdfunding Exemption:http://www.sec.gov/spotlight/jobsact/crowdfundingexemption.htm
Exchange Act Registration and Deregistration (Titles V VI)Changes to Registration and Deregistration Requirements:http://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htm
http://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjumpstartfaq.htmhttp://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htmhttp://www.sec.gov/spotlight/jobsact/crowdfundingexemption.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-12g.htmhttp://www.sec.gov/spotlight/jobsact/crowdfundingexemption.htmhttp://www.sec.gov/spotlight/jobsact/crowdfundingexemption.htmhttp://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htmhttp://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htmhttp://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htmhttp://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediariesfaq.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjumpstartfaq.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjumpstartfaq.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htmhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtmlhttp://www.sec.gov/spotlight/jobs-act.shtml -
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Emerging Growth Companies (EGCs) : Category defined IPO process reforms Reduced public company reporting
requirements Research restrictions loosened
Shareholder registration threshold raised
for companies to 2000 "Held of record" definition revised nodeadline for SEC rulemaking
Shareholder registration threshold raisedfor banks SEC rule due April 5, 2013
The JOBS ActImplementation timeline
April 5, 2012 (signing)
General solicitation and advertisingpermitted for accredited investorsand QIBs (Reg. D and Rule 144A)
SEC study on decimalization'simpact on small companies due toCongress (public companies)
GAO report on impact of Blue Skylaws on Reg. A offerings
October 2, 2012 (180 days)
SEC authorized to increasetrading in EGC stocks from onepenny to nine cents
Review of Reg. S-K to decreaseEGC registration and reportingburden
July 5, 2012 (90 days)
SEC to issue rules exemptingcrowdfunding offerings of up to$1 million annually (aggregate)
Crowdfunded shareholdersexcluded from shareholder count
December 31, 2012 (270 days)
No deadline
New registrationexemption on offerings upto $50 million
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Emerging Growth Companies (EGCs) : Category defined
IPO process reforms Reduced public company reportingrequirements
Research restrictions loosened Shareholder registration threshold raised
for companies to 2000 "Held of record" definition revised no
deadline for SEC rulemaking Shareholder registration threshold raised
for banks SEC rule due April 5, 2013
The JOBS ActImplementation timeline
April 5, 2012 (signing)
"News You Can Use"Please consult your attorney.
"Confidential filings" for IPOs becoming thenorm.
"Testing the waters" to become the norm for technologically complex businesses.
Likely more parallel pathing of privateplacements and IPOs. Check with attorneyson "integration."
Companies able to stay private longer andmake more aggressive use of Rule 144A,Rule 506 of Reg. D and other privateplacement exemptions (shareholder capincreased from 500 to 2000).
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General solicitation and advertisingpermitted for accredited investorsand QIBs (Reg. D and Rule 144A)
SEC study on decimalization'simpact on small companies due toCongress (public companies)
GAO report on impact of Blue Skylaws on Reg. A offerings
July 5, 2012 (90 days)
The JOBS ActImplementation timeline
"News You Can Use"Please consult your attorney.
Deadlines missed. Reg. D expected shortly. Definition of accredited investor Rules governing advertising
Debate over what restrictions may be placedon advertising content to accredited investorsand QIBs under Reg. D.
Likely to see firms advertise (esp. funds) andsolicit via email.
Point of control shifted from solicitation toverifying that the investor is duly qualified.
Reg. A Blue Sky may be an impediment.Lots of back channel discussion to ensue withstock exchanges and SEC (TBD).
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October 2, 2012 (180 days)
SEC authorized to increase
trading in EGC stocks from onepenny to nine cents
Review of Reg. S-K to decreaseEGC registration and reportingburden
The JOBS ActImplementation timeline
"News You Can Use"Please consult your attorney.
Deadlines aggressive likely to be missed bySEC. Please monitor.
Increased tick sizes will increase support for small cap public companies, but needs to beextended well beyond simply EGCs.
We recently spoke to the SEC Advisory
Committee on Small and Emerging Companies.They are taking this seriously.
SEC report to Congress on the impact of Decimalization on capital formation concluded
that they needed to study the issue further.
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The JOBS ActImplementation timeline
SEC to issue rules exemptingcrowdfunding offerings of up to $1million annually (aggregate)
Crowdfunded shareholdersexcluded from shareholder count
December 31, 2012 (270 days)
"News You Can Use"Please consult your attorney.
Deadlines aggressive likely to be missed bySEC. Please monitor.
Limited to $1 million. Regulation not yet settled likely to go to
FINRA. Broker/dealers and crowdfunding portals
prohibited from acting until SEC gives
approval. Likely to be used to satisfy 400 shareholder
requirements on IPOs (TBD)!
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The JOBS ActImplementation timeline
No deadline
New registrationexemption on offerings upto $50 million
"News You Can Use"Please consult your attorney.
"Reg. A+" Needs to be fleshed out. Currently in discussions with one stock
exchange and a known tech securities lawfirm on providing some advice to SEC.
Hoping for a construct (no guarantees) that: Limits Blue Sky Provides streamlined disclosure Provides and exchange listing
Advantage: investors receive tradablesecurities.
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0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08
Success rate of IPOs maintainingissue price one month after going p
Source: Capital Markets Advisory Partners LLC, All rights reservedIncludes only corporate issuers, excluding funds, MLPs, SPACs and REITs.Based on the average success rate of the last 30 filed deals, up to one month ago. A successful
IPOs that are trading at or above issue price 30 daysafter pricing(Trailing 30 IPOs)
FaceBook Not an anomaly Unintentional Underlying causes
Deteriorating coverage of investors
Unreliable feedback
Poor placement
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Increased economic incentives (e.g., tick sizes) arethe third leg of the stool
Improve economicincentives to supportespecially small-cap
stocks(increases in tick sizes)
Lowered costfor issuers
Improved issuer communication
with investors
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Collapse (Before and after structural changes)
Small-capitalization companies and capital formation
Before 1997 After 2001 % changeTick sizes $0.25 per share $0.01 per share -96%
Investment banks (acting as a bookrunner) 167 (1994) 39 (2006) -77%
Small company IPOs 2,990 (1991-1997) 233 (2001-2007) -92%
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A major contributor to employment
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5
10
15
20
0
200
400
600
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1,000
1,200
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
A d d i t i o n a
l j o b s
M i l l i o n s
D o m e s
t i c c o m p a n
i e s g o i n g p u
b l i c
i n t h e
U . S .
Minimumadditional jobs(direct plusprivate marketeffect)*
+3.1 million jobs (direct)
*Best estimate of the multiplier effect in the private market of more companies going public
Sources: Grant Thornton LLP, Dealogic and the U.S. Department of Commerce Bureau of Economic AnalysisDomestic corporate companies going public in the U.S. as of Dec. 31, 2011, excluding funds, REITs and other trusts, SPACs and LPs.
Assumes an annual growth rate of 2.57% (U.S. real GDP growth, 1991-2011) and 822 jobs created on average post-IPO (see "Post-IPOEmployment and Revenue Growth for U.S. IPOs," Kauffman Foundation ).
+6.2 million jobs (direct plus private market effect)
+9.4 million jobs (direct)+18.8 million jobs (direct plus private market effect)
Minimumadditional IPOs
Actual number of domestic IPOs
Maximumadditional IPOs
Minimumadditional jobs(direct)
Maximumadditional jobs(direct plusprivate marketeffect)*
Maximumadditional jobs(direct)
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Grant Thornton LLP All rights reserved
U.S. member firm of Grant Thornton International Ltd
This presentation is the work of Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, and is in all respectssubject to negotiation, agreement and signing of specific contracts. The information contained within this document is intended only forthe entity or person to which it is addressed and contains confidential and/or proprietary material. Dissemination to third-parties,copying or use of this information is strictly prohibited without the prior written consent of Grant Thornton LLP.
David [email protected]@cmapartners.com212-542-9979
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While 81% of all public companies are sub-$2 billionin market value
0%
20%
40%
60%
80%
100%
Nano-cap(sub $100 million)
Micro-cap($100 to $500 million)
Small-cap($500+ to $2 billion)
Mid-cap($2+ billion to $10 billion)
Large-cap($10+ billion)
52.0%
15.6%
12.5%6.4%
81.1% of listed companies
13.5%
Percentage of total number of list ed companies
Sources: Grant Thornton LLP and Capital IQIncludes NASDAQ, NYSE (including AMEX) and OTC listings. Corporate issuers only, excluding holding companies, funds, MLPs, SPACs, REITs and other trusts.
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0%
20%
40%
60%
80%
100%
Nano-cap(sub $100 million)
Micro-cap($100 to $500 million)
Small-cap($500+ to $2 billion)
Mid-cap($2+ billion to $10 billion)
Large-cap($10+ billion)
0.3% 1.3%
19.1%
74.3%
6.6% of total market value
5.0%
Percentage of total public company market value
sub -$2 billion companies represent less than 7% of total public company market value
Sources: Grant Thornton LLP and Capital IQIncludes NASDAQ, NYSE (including AMEX) and OTC listings. Corporate issuers only, excluding holding companies, funds, MLPs, SPACs, REITs and other trusts.