NASAA Wants to Stop Non Exchange Secondary Trading Under Reg A

Why It Matters

State regulators fear reduced oversight could expose investors to risks, while issuers seek clearer pathways to liquidity; the clash shapes the future of capital formation for small public offerings.

Key Takeaways

• NASAA opposes pre‑empting state oversight of secondary trades
• Bill aims to boost Reg A/CF liquidity via non‑exchange trading
• Primary Reg A offerings already exempt from Blue Sky rules
• NASAA cites transfer inefficiencies and rights of first refusal
• Some states accept EDGAR filings, reducing need for federal preemption

Pulse Analysis

Regulation A, revived by the 2012 JOBS Act, gave emerging companies a streamlined route to raise up to $75 million without full SEC registration. Yet the secondary market for these securities remains fragmented, largely confined to private transactions that lack the transparency of exchange trading. NASAA’s objection to the Restoring the Secondary Trading Market Act reflects a broader tension: states want to preserve Blue Sky oversight that protects investors, while issuers argue that state‑level hurdles impede liquidity and deter participation. By pre‑empting state rules for non‑exchange trades, the bill would create a uniform framework, potentially attracting more secondary market participants.

Proponents contend that the legislation could unlock capital for Reg A and Reg CF issuers by allowing shares to trade on alternative platforms without navigating a patchwork of state filings. However, NASAA points out that liquidity challenges stem more from operational frictions—such as cumbersome share transfer processes and issuer‑imposed rights of first refusal—than from regulatory barriers. Even if state oversight is removed, these structural issues would continue to suppress trading volume. Moreover, some states already accept EDGAR filings as a reliable information source, suggesting that a one‑size‑fits‑all pre‑emption may be excessive.

The debate underscores a pivotal question for the U.S. capital markets: how to balance investor protection with the need for efficient financing avenues for small and mid‑size companies. If Congress adopts the bill without addressing the underlying inefficiencies, the anticipated liquidity boost may fall short, leaving NASAA’s concerns validated. Conversely, a revised approach that couples regulatory harmonization with reforms to transfer mechanics could enhance market depth while maintaining essential safeguards, setting a precedent for future fintech‑driven securities offerings.