Private markets outpacing public markets – Opportunities for Professional Advisors

Andrea Seidt, the President of North American Securities Administrators Association (NASAA), gave the keynote speech on April 1, 2014 at the Securities Industry and Financial Markets Association (SIFMA) Conference in Florida. One of the themes highlighted in her speech was the increasing number of private offerings that are sold to investors without any registered intermediary involvement and the need for professional financial advice. I believe her comments also have application to Canadian registered dealers and advisors. Below is an extract from her speech.

Private markets now outpace public markets in capital raises

… investors who are more willing to bear risk are increasingly turning away from Wall Street to the private capital markets to make up their losses. According to a July 2013 SEC Report, entitled Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009‐2012, authored by Vladimir Ivanov And Scott Bauguess, the private market now outpaces the public markets in capital raises in terms of numbers and dollar volume, with $1.7 trillion raised through private offerings in 2012, compared to $1.2 trillion raised through registered offerings that same year.

As the SEC report recognizes, the gap is likely much greater as private offering amounts are understated due to the SEC’s inability to observe all private capital activity. That fact may not come as much of a surprise to many people, especially those of you working at firms who are constantly and carefully monitoring the markets for dynamics like that.

Brokerage firms infrequently used

What may surprise some of you, I must say it surprised me a little bit, is just how infrequently brokerage firms and other intermediaries are used in the private market. Are you aware that only 13% of all new private offerings sold since 2009 have used a registered intermediary such as a finder or broker-dealer? That is what the SEC report says and the figure would be even lower if you excluded real estate deals that are more likely to use intermediaries. Most of these offerings have taken place in the Regulation D market where, by design, the terms of the deals receive no substantive regulatory review.

Gap in public and private markets to widen with Crowdfunding and Regulation A+

Looking ahead, I anticipate the gap between the public and private markets to only widen further, at least in the short term due to expansion of federal offering registration exemptions instituted as part of the JOBS Act. Regulation D deals are expected to increase under new Rule 506(c) with the SEC’s recent removal of general advertising and general solicitation restrictions. Additional unregistered deals will be sold through crowdfunding and possibly under new Regulation A+. While crowdfunding deals will require the use of a registered intermediary, there is no such requirement for the other offering exemptions where significantly greater sums of money can and likely will be raised. While some of the firms represented in the audience may plan on participating in these exempt offering types, I have heard from many firms who have serious reservations about dabbling in these new untested markets. If last year’s SEC report reflects what we should expect to see in this area, the broker-dealer community will be handling a decreasing minority of the deals sold to American investors. …

So what does all of this mean for the securities markets 

NASAA President Andrea Seidt summed it up in three themes which are:

  1. the need for good professional financial advice has never been greater
  2. investors need to understand the benefit of advice and know they can trust the professionals giving them advice
  3. our markets function most effectively when industry and regulators work together to protect and serve investors.

A copy of the speech can be found here.

Who is NASAA

According to its website, NASAA was organized in 1919 and is the oldest international organization devoted to investor protection. NASAA is a voluntary association whose membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

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This blog is not intended to create, and does not create an attorney-client relationship. You should not act or rely on information on this blog post without first seeking the advice of a lawyer.  This material is intended for general information purposes only and does not constitute legal advice.  For legal issues that arise, the reader should consult legal counsel.

Koscak_bBrian Koscak is a Partner at Cassels Brock & Blackwell LLP located in Toronto, Ontario and Chair of the Private Capital Markets Association of Canada (formerly the  Exempt Market Dealers Association of Canada). Brian is also a member of the Ontario Securities Commission’s Exempt Market Advisory Committee and Co-Chair of the Equity Crowdfunding Alliance of Canada.  Brian can be reached by phone at 416-860-2955, by e-mail at or on twitter @briankoscak. Brian also regularly writes about Canadian securities law matters on his personal blog at

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