Should Retail Investors Be Given Greater Access to IPO Information?

At a Senate Banking Subcommittee hearing last week, the topic of whether retail investors should get more access to IPO information to even out the initial public offering process for both institutional and ordinary investors was discussed. One of the reasons the hearing was called was to look at the issues involving the recent IPO of Facebook (FB), which opened on the Nasdaq a few weeks ago.

There are some who believe that the social networking giant’s underwriters gave favored clients negative material information prior to the offering while leaving other investors out in the cold. Soon after trading began, Facebook shares declined sharply. At the hearing, Securities Subcommittee chairman Sen. Jack Reed (D-RI) spoke about the need to make sure that ordinary investors and sophisticated investors are subject to the same rules, including providing everyone with access to the same disclosures and data (or, at the very least, equivalent versions of both).

Among the witnesses who support giving retail investors more access to information about IPO’s is DePaul University finance professor Ann Sherman. She suggested making issuers publish online at least two Q and A sessions from the IPO road show so that retail investors would be getting the same amount of information as the typical institutional investor that usually attends one such meeting. While she acknowledged that there are reasonable grounds for limiting how much access is given to analyst forecasts that tend to be “speculative,” she said that lawmakers should either make this data available to no one or to everyone.

Meantime, although Class V Group LLC principal and founder Lisa Buyer also said that posting Q & A sessions online would benefit retail investors, she noted that it would be “difficult” to ensure that the information was distributed equally. Both Buyer and Sherman, however, warned against giving retail investors a greater role in IPOs as it relates to the setting of price. Sherman argued that as a group, regular retail investors might not be able to fulfill the same role as institutional ones. She spoke about how any regulatory changes implemented so that greater retail investor participation can take place should consider such differences.

Another topic that came up for discussion was the Jumpstart Our Business Startups Act. Senator Reed expressed worries that the legislation, which was recently enacted, could hurt ordinary investors taking part in IPOs. The statute, which establishes an IPO on-ramp for issuers that satisfy the definition of an emerging growth company, gives the latter temporary exemption from the full disclosures that public companies usually have to give. Reed was concerned that allowing EGCs to turn in confidential draft registration statements with the SEC prior to a public filing created confidentiality until “very late in the process” and that this would hinder the process of making sure investors are getting information.

Securities Fraud
Shepherd Smith Edwards and Kantas represents retail investors that have been defrauded by members of the financial industry. Our securities lawyers work with clients throughout US, and over the years, we have helped thousands recoup their losses.

Retail Investors Need More Access To IPO Information, Some Experts Say, Bloomberg/BNA, June 21, 2012

Jumpstart Our Business Startups Act (PDF)

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