I. EXECUTIVE SUMMARY 1
A. Highlights 1
B. Overview 2
C. What is an SME? 4
D. Guiding Principles 5
E. Harmonization 5
F. Context 6
G. Limitations on the Scope of this Report 7
H. Related Developments 8
I. Focus of Report 10
J. Exempt Offerings 10
K. Small Public Offerings 12
L. Future Oriented Financial Information 12
M. Escrow Requirements 13
N. Registration Requirements 14
O. Hold Periods 14
P. Secondary Market Trading 14
Q. Sectoral Strategies 15
R. Copies of the Report 15
II. OVERVIEW 16
A. The Mandate of the Task Force 16
B. The Process 17
C. What is an SME? 18
D. Guiding Principles 20
E. Harmonization 23
F. Limitations on the Scope of this Report 23
G. Related Developments 25
H. Inflation 26
III. CONTEXT 27
A. Sources of SME Capital 27
B. The SME Equity Capital Market 28
Identifying the Sources of SME Equity Capital
28
Categorizing the Sources of SME Equity 29
1. "Love Money" 29
2. The "Angel" Market 29
3. The Formal Venture Capital Market 31
4. The Institutional Private Placement Market
31
5. The Public Equity Markets 31
6. Trade Partners 32
C. Problems in Obtaining SME Capital 32
IV. EXEMPT OFFERINGS 36
A. Existing Regulatory Regime 36
The Prospectus Requirement 37
The Registration Requirement 39
Exemptions 40
1. Exemptions Based on the Identity of the
Purchaser 41
2. Minimum Acquisition Cost 41
3. Limited Offering Exemptions 42
4. The Private Company Exemption 43
B. Problems with Existing Framework 44
C. Recommendations for Reform 47
D. Marketing 63
E. Investment Matching Services 64
Nature and History of Investment Matching Services
64
Recommendations For Reform 68
V. SMALL PUBLIC OFFERINGS 69
A. Disclosure Regarding a Public Offering 69
B. Recommendations for Reform 70
C. "Marketing Securities" 77
D. The Prospectus Delivery Requirement 80
E. Auditors' Liability 81
F. Statutory Civil Liability 83
G. Continuous Disclosure Requirements 84
UTURE ORIENTED FINANCIAL INFORMATION 85
A. Existing Regulatory Regime 85
B. Practical Problems Faced by SMEs 86
C. Deliberations of the Task Force 87
VII. ESCROW REQUIREMENTS 88
A. Existing Regulatory Regime 88
B. Market-Induced Escrow Requirements 92
C. Problems with the Existing Framework 92
D. Recommendations for Reform 93
P>VIII. REGISTRATION REQUIREMENTS 95
A. Existing Regulatory Regime 95
B. Practical Problems Faced by SMEs 96
C. Recommendation for Reform 97
IX. HOLD PERIODS 100
A. Problems with the Closed System 100
B. Existing Regulatory Regime 101
The Closed System 101
Special Warrant Transactions 104
Impediments to Reform of the Closed System 106
C. Recommendations for Reform 107
X. SECONDARY MARKET TRADING
XI. SECTORAL STRATEGIES 114
