There is a growing interest in a venture exchange in the United States to list smaller and startup companies operating under relaxed listing and regulatory rules, and the time could be right.
In recent years, there has been increased interest in the idea of establishing a venture exchange or venture market in the United States, one with less strict listing and regulatory rules to serve smaller and startup companies. The idea behind such an exchange is that a lighter regulatory touch would encourage more small companies to use the public markets to raise initial capital and to trade.
Venture exchanges already operate in a number of developed markets, with those in London and Toronto being the most prominent. A venture exchange was also attempted once before in the United States, but it failed to catch on with investors and issuers. The experiences of these markets can help inform what kind of listing and regulatory requirements and market structures might work in a similar system in the United States.
CFA Institute assembled an expert panel to discuss the potential of a venture market in the United States and to determine what such a venture market would need to look like in order for it to thrive. This report addresses the opportunities and challenges such a venture market would face, as well as what features it would need to offer investors, issuers, broker/dealers, and other parties in order to succeed.
These features include the following:
- Sufficient market liquidity to encourage investors, issuers, and broker/dealers to participate in such a market
- A robust vetting process to weed out bad actors in management, on the board, and in the principal investor ranks of potential venture companies
- Annual audits, with the auditor’s report and quarterly updates on performance and financial condition
- Use of generally accepted accounting principles (GAAP) in the preparation of financial statements
- Liability of company principals for fraudulent representations made in offering documents, financial statements, or company announcements delivered through these channels
- A high standard of transparency and governance, deviating from best practice standards only for legitimate reasons unique to small companies