Small businesses benefits from SEC’s change in rule
February 15, 2008
The change that has been made to rule 144 by the Securities and Exchange Commission is going to help the small companies in negotiating their private investment deals in a better way. It is predicted that the change will facilitate for a huge amount of small-cap stock being liquidized in the week. The change that has been made is that the holding-time for investors has been shortened as well as restricting the securities from one year to six months. The change will come into effect from the 15th of February. The change however might provide for a massive small-cap sell-off as well, if the investors decide to get rid of their stocks.
The change which has been brought about in rule 144 of the SEC, is to make sure that the undersized publicly owned companies in the competition are able to raise enough capital by making the lockdown period shorter during which time the investors from outside have no option but to hold on to their individual shares. Usually these small companies raise the required capital through the policy often known as “private investment in public equity” (PIPE) deals. Such deals usually involve the selling of huge chunks of stock to the outside investors at a discounted rate. These outside investors are then required to hold on to these shares during the time known as the holding-period. There are various holding-period rules they have to abide by before they are able to sell off their shares. Now that the holding period has been shortened, as per the new change in the rule of the SEC, the companies will be able to negotiate more private investment deals. The rule 144 being retroactive will make all those restricted securities which were issued between the periods of February 15 to August 15th of year 2007 be eligible for trade immediately.
The market experts are expecting the changes in rule to encourage the investors to follow private investment agreements more vehemently. They believe that the revision in rules could not have come at a better time because of the ongoing credit crunch situation due to which many small businesses are suffering. They believe that if the securities are liquidized in six months instead of one year it would attract more people to invest in such stocks. The change would also help these small companies to negotiate better terms as well during the sale of stocks. The outside investors who would have earlier required a discount of ten percent for a PIPE deal may now agree on a five percent discount because of the reduced holding period. This is because there will be a change in perspective of the investors when they find that the holding period is only half of what it used to be earlier. The investors would now even consider investing larger amounts into these small businesses.
However these revisions might also ignite a massive sell-off by the current private stock holders. This is because once the change comes into effect billions of dollars become saleable and the investors might try to make full use of this. However this volatility is expected to be a short lived one and that it will level off in some time.
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