October 15, 2019
Subject: Proposed Rule Change
File Number S7-14-19
Dear SEC,
I am writing to express my concern about the impact on investors from the proposed rules and to offer several suggestions for improving investor protections.
Problems with the proposal:
1. Elimination of quotes would inflict significant harm on current public shareholders of legitimate OTC companies. Shockingly, these shareholders are not mentioned in the commentary on Affected Parties beginning on page 167 of the analysis of the proposed rule. As of 10/11/19 the OTCMarkets database included 391 stocks of US-incorporated companies classified as PINK NO INFORMATION with prices over $0.25/share and running as high as $150,000/share for Pendrell Corporation (PCOA).
2. Market pricing is an essential element of a capitalist economy. Modern communications have spawned tremendous efficiencies through publication of pricing for everything from Beanie Babies to Mega-Mansions. It's shocking that in 2019 you are seeking to prohibit publication of prices from willing buyers and sellers. Pricing promotes transparency and benefit to all legitimate market participants.
3. The proposal includes no measures that will increase the availability of information that would help investors.
My suggestions:
1. Make it harder to de-register. Many companies have removed themselves from SEC reporting requirements by taking advantage of the antiquated Shareholders of Record rule. Acquiring physical share certificates is costly, time consuming, and provides no benefit so almost all investors now hold securities as beneficial owners rather than record holders. Companies take advantage of the small number of record holders to de-register because a) they believe it will save on their compliance costs and b) management may perceive a benefit from releasing as little information as possible about their company, its value, executive compensation, governance etc... I believe that public shareholders nearly always suffer from de-registration and the SEC should make it much more difficult.
2. Use corporate registrations and tax filings to identify defunct companies. Companies that have failed to maintain their legal entity registrations in their state of incorporation and failed to make basic tax filings are highly likely to be defunct and should be ineligible for purchase by public investors.
3. Seek ways to lower the cost of compliance for SEC registered companies. A Protiviti analysis in 2017 estimated average costs of $700,000/year for non-accelerated filers, a very significant burden on small businesses. I believe the SEC should force companies to release more information by making it much more difficult to de-register, but also seek ways to significantly reduce compliance costs. Perhaps companies under a certain size could be exempted from Sarbanes-Oxley Section 404. Trading in securities of such companies could be restricted to unsolicited orders from sophisticated investors.
Thank you for your attention to my comments. I hope that you will seriously reconsider the proposed rule in order to protect the investment of existing shareholders of companies with limited or no public reporting and take steps to both require and facilitate improved reporting.
Best Regards,
John Sheehy