Company Registration In Its Historical Context: Evolution Not Revolution

Abstract

The piece examines proposals for changing the current system for registering securities under the Securities Act of 1933. Under the current transaction-based system, issuers must register each non-exempt public offering of securities. Despite the SEC\u27s rule-making power, regulatory revision, at least with respect to the implementation of any major changes to the existing federal securities regulation landscape, has traditionally followed a somewhat cyclical model. First, there is discussion in the academic and professional literature, commenting on, criticizing or proposing changes to some facet of the existing regulatory system (“public debate”); then, either overlapping with or following this public debate, the SEC may informally float non-binding suggestions for changes, through presentations at conferences, or unofficial articles and publications written by SEC staff members (“agency debate”). Again, perhaps overlapping with the agency debate, the SEC may next issue a formal statement, such as a release, containing proposals to address, and even further shape the discourse, seeking comments on the statements (“agency proposal”). After renewed public debate, and taking into consideration, to varying extents, the comments made, the SEC then exercises its rule-making power and formalizes the revisions into rules (“agency action”). Because of the cyclical nature of the model, as new rules are enacted and put into effect, courts may have an opportunity to interpret them or to pass on their constitutionality, and commentators and the private bar have an opportunity to evaluate the success of the new rules and any deficiencies or other issues arising therefrom, generating additional public debate. Thus, in the aftermath of the agency action, the cycle starts all over again (“next public debate”). The agency action portion of the model has become much easier for the SEC to accomplish in recent years. The SEC is now authorized by statute to go beyond rule-making simply to carry out the provisions of securities laws. Agency action to adopt a company registration system is the next logical step in the progression from a transaction-based registration system to a company-based registration system. This progression includes the public debate and agency action that was the precursor of company registration - the adoption of the integrated disclosure system for the primary offering and secondary trading markets and the adoption of the shelf registration process. This was followed by the penultimate step towards a company-based registration system, the universal shelf. Arguably, the entire federal securities regulatory system fits into the cyclical model. This Article, however, is limited to an exploration of the company registration proposal put forth by the SEC in July 1996 in its historical context. Part II of this Article is an application of the cyclical model to the adoption of the integrated disclosure system and the shelf registration process. Part III is an application of the cyclical model to the SEC\u27s company registration proposal as a logical outflow of prior debates, including a discussion of possible issues left unresolved by or raised by the company registration proposal that may generate the next public debate, with a recommendation that the SEC adopt company registration