Panelists at an SEC roundtable on the execution, clearance and settlement of microcap securities called for a more transparent and holistic process in response to a question from SEC Chairman Mary Schapiro on what the SEC could do is the area to enhance investor protection. Transparency could include more information than currently available through EDGAR, such as on trading patters and trading partners. The SEC was also asked to revisit what is required to have a specific registration exemption since exemptions are problematic sometimes. Regulators should also communicate with each other to ferret out bad actors who reinvent themselves. Also, players in the clearing and settlement process should be encouraged to communication with each other more often and exchange information as part of the process. Currently, there is no interchange of information to allow identifying those actors that should be kept out of the process.
Claire Santaniello, Managing Director and Chief Compliance Officer, Pershing, said that it can be hard for the clearing firm to get information because not all issuers are transparent about what it going. The clearing firm has to work with the introducing brokers to ferret out information. With regard to problematic activities, the clearing firm can provide reports and tools to introducing brokers to facilitate real time interdictions and a response to red flags. The clearing firm can try to elicit more information, but generally the conversation is with introducing brokers because they have the primary relationship.
Mihal Nahari, Chief Compliance Officer, The Depository Trust & Clearing Corporation (DTCC), noted that the focus in the microcap area is usually on the proper exemption from registration. Due diligence is important along the process. The collective goal is not to stymie legitimate businesses from accessing the capital markets, she noted, but those doing harm. DTCC has reached out to investors through initiatives to partner with investors through SIFMA, putting more information on its public website, and developing working partnerships with industry and trade associations.