Monthly Archives: April 2012

DirectMarkets Update

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Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

I had a chance to speak with Kevin Lupowitz, head of the Direct Markets unit of Rodman & Renshaw about  the planned launch of the service.

DirectMarkets is an online system to permit public companies to sell shares to investors in a manner that bypasses much of the current Wall Street process.

Regarding the launch, Kevin indicated that investors were currently signing up to become bidders.  Presumably, many of Rodman’s current deal investors would form the initial investor pool.

We might see the first deal processed through the DirectMarkets platform within the next couple weeks.

I asked Kevin a question that has been nagging me, don’t many small and microcap companies need the assistance of bankers and salesmen to get offerings done.

Bankers to advise the company on market conditions and prepare marketing materials.  Salesmen to alert investors to the deal.  Together, the two intermediate the deal terms if needed.

Kevin admitted that the system might benefit from human intervention, at least initially.

He cited his experience at Liquidnet, an automated block trading system, however, to indicate that he’s seen investors get comfortable with automated systems.

I know we’ll all be watching this launch with great interest.  If DirectMarkets succeeds, it’s bound to have a major impact on the small cap market on Wall Street.  But more on that next time.

The JOBS Act – Update

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Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

The new JOBS Act, intended to make it easier for smaller companies to raise capital, was signed into law by the President on April 5th.

First, let me say that I welcome the reduction in the regulatory burden on smaller companies.  I hope this spirit of deregulation will be extended to existing small cap public companies which continue to operate under the old burdens.

However, some needed changes to encourage capital formation by smaller companies aren’t as easily handled through legislation.  For example, thin liquidity in many small cap stocks has several causes and would require several fixes.  Lack of liquidity, therefore, will likely continue to plague smaller cap stocks.

Also, we can’t legislate good judgment.  Even under the former, so-called stricter rules, investors shoveled money into Chinese stocks, many of which proved to be unwise investments.  The new JOBS Act places even greater responsibility on investors to exert good judgment.

Experience tells me that companies considering raising capital should take advantage of these relaxed rules as soon as possible before some visible blow-ups or disasters trigger re-tightening of the rules.

The following links provide helpful summaries and analyses of the JOBS Act.  Thank you.

Sheppard Mullin: http://www.corporatesecuritieslawblog.com/capital-markets-president-obama-signs-jobs-act-landmark-reform-for-small-and-emerging-growth-companies-now-law.html

TroyGould: http://troygould.com/index.cfm?fuseaction=content.contentDetail&ID=9187&tID=303

Latham & Watkins:http://w.on24.com/r.htm?e=445288&s=1&k=17FD77D843F6EAE8A36641AD5AE93257