The United States Securities Exchange Commission (SEC) has submitted a proposal regarding its definition of „accredited investor“ as well as „qualified institutional buyer“ that would expand the list of people and institutions currently allowed to invest. This could potentially benefit companies that are hesitant to meet full public reporting requirements.
The news was made public on the SEC’s website, where it is stated that the financial regulator was currently looking for commentary from the public on its proposed amendments regarding the above mentioned categories.
The submitted proposal would expand the number of people allowed to invest in private securities, offerings, hedge funds as well as privet-equity funds. At the moment, the regulator defines an accredited investor as an individual with a net worth of over $1 million or earning more than §200,000 in annual income. In addition to that, other means of classifying include being an executive at the company making the offering.
“Our current definition includes investors that spend their days cruising around in a Ferrari that Daddy paid for,” SEC Commissioner Hester Peirce said. “Yet it excludes investors who spend their days earning money and their weekends and nights figuring out how to invest it.”
According to SEC, many people who don’t meet the financial qualifications for accredited investor status are nevertheless knowledgeable enough to participate in private markets; as such the regulator suggested the commission broaden the definition to include a test of an investor’s sophistication levels based on professional knowledge, experience or certifications.
Specifically, the new proposal would include individuals with entry-level stockbroker’s license or other credentials issued by an accredited institution, knowledgeable employees knowledgeable employees might be allowed the same access to their firms’ offerings as executives currently have, family offices with at least $5 million in assets under management as well as spousal equivalents who could merge their assets for the purpose of qualifying as accredited investors.
The proposal is open to commentary and the public can submit comments up to 60 days following the announcement. The agency is also looking for commentary on whether the financial thresholds should be lowered in areas where income levels may be lower and whether investors advised by professional brokers should also be considered accredited.
“Today’s proposals are an important step in our ongoing efforts to assess the private offering framework as a whole, including ways to increase opportunity for more of our Main Street investors to participate in the private capital markets,” said SEC Chairman Jay Clayton.