POTENTIAL REFORM OF FINRA AND DTC COULD STREAMLINE THE IPO PROCESS

Two of the principal impediments remaining with even a Regulation A+  IPO   as an alternative to the  reverse merger is that even after the IPO is successfully completed, trading cannot commence until FINRA and DTC have cleared the trading and the deposit of the securities.

These two requirements introduce additional uncertainty into the equation, particularly for smaller companies. This is because these two agencies have an inherent bias against smaller companies. It is assumed that the more that a company has raised from investors, the more that the validity of its business plan has been established, and the less these regulators need to be concerned with in evaluating the merits of listing of the company.

It would lead to much more efficient and streamlined capital raising if the requirements of these two agencies could be incorporated into the Regulation A+ process. For example, to eliminate FINRA’s concerns with concentration, the offering circular could provide for a mandatory range on the number of securities each person could purchase, with the provision that persons purchasing above those ranges might have some restrictions on resale. In exchange, FINRA could quote preapproved” trading of the stock similar in a manner to how NASDAQ and the stock exchanges preapproved the listing of firm underwritings on their markets.

The DTC could, for example, provide clear approval metrics and also process the approval of the security for deposit in a system during the Regulation A+ process.

These two small, simple changes could dramatically improve Regulation a+