Opening Public Markets Without Lowering the Bar
Expanding access to public capital is a worthy goal. Broadly weakening the registration, seasoning, and disclosure requirements that make public markets credible is not the way to achieve it.
Fan Yang
Public markets depend on trust.[1] Investors need confidence that listed companies meet meaningful standards, that disclosures are timely and comparable, and that market prices reflect information available to everyone.
That principle sits at the center of our recent comment letter to the U.S. Securities and Exchange Commission on its proposed Registered Offering Reform.[2] CFA Institute supports expanding access to public capital, but we oppose removing safeguards that distinguish emerging issuers from seasoned public companies. Instead, we recommend preserving the standards of the primary public markets and creating a separate US venture market for earlier-stage issuers.
The Form S-3 Question
One of the proposal’s most consequential changes involves Form S-3. The SEC is considering removing the one-year seasoning requirement and the $75 million public-float threshold that currently limit access to expedited shelf registration.
These requirements may sound technical, but they serve an essential purpose. Newly public and micro-cap companies often have thin public floats, limited trading volume, scarce analyst coverage, and less experience operating under public-company obligations. Allowing these issuers to conduct expedited offerings soon after an IPO could introduce sudden supply shocks, greater price volatility, and additional opportunities for market manipulation. Retail investors would often bear the greatest exposure to those risks.[3]
CFA Institute therefore recommends that the SEC retain meaningful seasoning and eligibility requirements for expedited Form S-3 registration rather than extending that pathway broadly to newly public and micro-cap issuers.
The distinction between an emerging issuer and a seasoned public company is supported by market evidence. A comprehensive study covering 9,343 operating-company IPOs from 1980 through 2024 found that long-term underperformance was concentrated among companies with less than $100 million in inflation-adjusted sales. Larger issuers with established revenue generally performed in line with, or slightly ahead of, the market over three years.[4]
The evidence does not establish that any particular seasoning period or float threshold is optimal. It does, however, reinforce the rationale for distinguishing between newly public, smaller issuers and companies with more established operating histories.
Public-market readiness matters. Registration and seasoning requirements help investors distinguish between companies that are still proving their business models and companies with more established operating records. Removing those distinctions may increase the number of listings, but it could also weaken the value of an exchange listing as a signal of baseline quality.[5]
A Better Path: A Fully Partitioned Venture Market
Our preferred approach is a separate, fully partitioned venture market for emerging growth companies.[6] International models provide useful precedents. The United Kingdom’s Alternative Investment Market[7] and Canada’s TSX Venture Exchange[8] give smaller companies access to public financing while keeping their rules and risk profiles separate from senior exchanges.
A US venture market should include its own registration framework and clear, mandatory risk disclosures. Investors should see prominent “Buyer Beware” notifications on prospectuses, brokerage platforms, and trading screens. They should understand that companies on the venue operate under reduced regulatory standards and carry higher risks. Segmentation would support capital formation without quietly lowering expectations across the main public markets.[9]
The SPAC Cycle Is a Cautionary Precedent
The recent special purpose acquisition company (SPAC) cycle shows why issuer readiness deserves serious attention. From 2020 through 2025, approximately 1,200 SPACs completed IPOs, but more than 500 ultimately liquidated. Among the roughly 625 companies that completed mergers, an estimated 87% to 89% traded below their original $10 offering price, and more than half traded below $2.[10]
Not every accelerated pathway will produce the same outcome. Still, the SPAC experience shows that increasing listing volume without sufficient diligence, disclosure, and operational maturity can lead to sustained underperformance and declining investor confidence.[11]
Other Protections Worth Preserving
Our letter also asks the SEC to preserve state securities oversight,[12] avoid disclosure systems that force investors to reconstruct a company’s financial position across multiple filings and maintain frequent financial reporting. These protections reduce information gaps and help investors compare companies on a consistent basis. In a CFA Institute survey, Investor Perspectives: Quarterly Reporting, 62% of investment professionals strongly opposed replacing quarterly reporting with semiannual reporting.
A Constructive Path Forward
Our message to the SEC is constructive. The United States can expand opportunities for emerging companies while preserving the standards that make its public markets credible. The strongest approach is to maintain robust rules for primary exchanges and build a dedicated public-market proving ground for earlier-stage issuers.
[1]Emily Strauss, IPO Gatekeeper Liability, The Business Lawyer (Spring 2026). The study describes trust as the foundation of financial markets and examines the verification mechanisms embedded in the traditional registered-offering framework.
[2]CFA Institute, Comment Letter on Proposed Registered Offering Reform (File No. S7-2026-17), submitted July 27, 2026, responding to SEC Release No. 33-11418 (the “Proposal”).
[3]CFA Institute, Response to the European Commission Consultation on Venture Capital and Growth Capital Funds (Mar. 12, 2026). Early-stage issuers exhibit high idiosyncratic risk, low liquidity, and long duration to stable cash generation, while senior exchanges are calibrated around seasoned-issuer parameters.
[4]Jay R. Ritter, “Initial Public Offerings: Updated Long-Run Statistics”, University of Florida, Warrington College of Business.
[5]CFA Institute, Letter to the U.S. Securities and Exchange Commission on Exemptive Markets and Investor Protection (June 12, 2020). Addresses adverse selection and the erosion of the exchange listing as a signal of baseline issuer quality.
[6]CFA Institute Policy Brief, “United States Venture Market”, Research and Policy Center.
[7]London Stock Exchange, “AIM”.
[8]TMX Group, TSX Venture Exchange issuer resources.
[9]CFA Institute Policy Brief, “United States Venture Market,” supra note 6.
[10]Odyssey Trust, “SPAC Outlook 2026”; Empower, “SPACs: How They Work”.
[11]CFA Institute, “A New Age of Special Purpose Acquisition Companies”.
[12]SEC Press Release 2017-235, “SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors” (Dec. 21, 2017). At least five states had issued cease-and-desist orders against Woodbridge entities before federal charges were brought.
References
Proposed Registered Offering Reform, SEC Release No. 33-11418 (File No. S7-2026-17). The Commission’s proposal to modify registration, seasoning, and disclosure requirements for registered offerings.
CFA Institute Policy Brief, “United States Venture Market,” Research and Policy Center. Advocates for a fully separate, transparent venture exchange architecture to isolate high-risk micro-cap rules from main exchange standards.
CFA Institute Advocacy Commentary, Letter to the U.S. Securities and Exchange Commission on Exemptive Markets and Investor Protection, June 12, 2020. Outlines concerns regarding asset risk, adverse selection, and the dilution of mandatory retail disclosure regimes in private-market expansions.
CFA Institute Comprehensive Market Survey, “CFA Institute Survey Finds Investors Strongly Support Quarterly Reporting, Oppose Reducing Disclosure Requirements,” June 10, 2026. Details empirical feedback from 2,500 professional analysts resisting reporting-frequency rollbacks due to capital cost increases.
CFA Institute Consultation Response, Response to the European Commission Consultation on Venture Capital and Growth Capital Funds, March 12, 2026. Evaluates investor suitability metrics and asset-class risk limits regarding early-stage, non-traditional public assets.
London Stock Exchange AIM Profile, “AIM | London Stock Exchange.” Details the institutional parameters, listing protocols, and regulatory mechanics of Europe’s primary small- and medium-sized enterprise growth market ecosystem.
TMX Group Venture Forward Report, “TSX Venture Exchange Overview — TMX Group.” Reviews the structural architecture, market segmentation, and tiering protocols of Canada’s dedicated public venture market framework.
The Business Lawyer Article, Emily Strauss, “IPO Gatekeeper Liability,” Spring 2026. Examines IPO gatekeeper liability and fraud-deterrence mechanisms in the public offering process, including evidence from more than 3,800 IPOs from 1997 to 2019.
SEC Press Release, “SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors,” December 21, 2017. Describes SEC charges against operators of unregistered funds that allegedly defrauded more than 8,400 investors, many of them seniors, in a $1.2 billion Ponzi scheme.
University of Florida IPO Database, Jay R. Ritter, “Initial Public Offerings: Updated Long-Run Statistics,” Warrington College of Business. Documents long-run buy-and-hold returns for 9,343 operating-company IPOs from 1980–2024, showing post-IPO underperformance concentrated among issuers with inflation-adjusted sales below $100 million.
CFA Institute Position, “A New Age of Special Purpose Acquisition Companies.” Reviews conflicts of interest, disclosure gaps, and incentive misalignment embedded in the SPAC pathway.
SPAC Market Data: Odyssey Trust, “SPAC Outlook 2026”; Empower, “SPACs: How They Work.” Sources for post-merger SPAC trading performance and liquidation figures cited above.
