Regulatory and Legal Reform

Washington, D.C. – The National Association of Manufacturers released a new economic analysis on the damaging impact of the Securities and Exchange Commission’s attempt to force private companies to disclose financial information publicly.

The SEC’s new rule interpretation would apply to private companies that raise capital via corporate bond issuances under SEC Rule 144A. If the new interpretation takes effect as scheduled in January 2023, these businesses will face decreased liquidity and increased borrowing costs—leading to significant job losses and a decline in U.S. GDP.

Key Findings:

These impacts will be felt across the economy, resulting in 30,000 jobs lost each year over the first five years the new interpretation is in effect. The job losses will increase over time—rising to 50,000 jobs lost each year after five years and 100,000 jobs lost each year after 10 years.

These job losses are attributable directly to the decreased liquidity and increased borrowing costs associated with the SEC’s new interpretation.

NAM Speaks Out:

NAM Managing Vice President of Tax and Domestic Economic Policy Chris Netram released the following statement:

“At a time of rising interest rates and economic uncertainty, manufacturers cannot afford for the SEC to roil the bond markets arbitrarily. With tens of thousands of jobs at stake, the SEC must act by year’s end to reverse this misguided interpretation.”

NAM Action:

Today, the NAM and the Kentucky Association of Manufacturers are filing two petitions for rulemaking with the SEC seeking to stop the harm this new rule interpretation would cause.

The NAM and the KAM are calling on the SEC to reverse course by clarifying—either by rule or by exemptive order—that Rule 144A issuers are not required to make public financial disclosures. The NAM and the KAM are also seeking emergency interim relief to prevent the new interpretation from taking effect in January.

Background:

• SEC Rule 15c2-11 requires broker dealers to ensure that key information about issuers of over-the-counter equity securities is current and publicly available prior to quoting those issuers’ securities freely.
• SEC Rule 144A allows for resales of securities (primarily corporate debt issuances) to qualified institutional buyers—large financial institutions that own or manage more than $100 million in securities. Retail investors cannot purchase Rule 144A securities. Notably, under Rule 144A, issuers are obligated to make their financial and operational information available to QIBs.
• In September 2021 and December 2021, the SEC’s Division of Trading and Markets issued no-action letters applying Rule 15c2-11 to Rule 144A debt; the new requirements take effect in January 2023. This decision contradicted the historical application of Rule 15c2-11 to OTC equity securities and bypassed important rulemaking safeguards required by the Administrative Procedure Act.
• The NAM has weighed in with the SEC and Congress seeking to reverse this damaging interpretation.

-NAM-

The National Association of Manufacturers is the largest manufacturing association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. Manufacturing employs more than 12.9 million men and women, contributes $2.77 trillion to the U.S. economy annually and accounts for 58% of private-sector research and development. The NAM is the powerful voice of the manufacturing community and the leading advocate for a policy agenda that helps manufacturers compete in the global economy and create jobs across the United States. For more information about the NAM or to follow us on Twitter and Facebook, please visit www.nam.org.