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Raising Regulatory Costs of Growth Capital: Implications of the Proposal to Amend Rule 144A
Sep 08, 1999
Glenn Yago and Lalita Ramesh

The Securities and Exchange Commission (SEC) is considering a proposal to overhaul U.S. securities laws, which would reduce private placements by encouraging companies to issue stocks and bonds through public offerings. This proposal, so cumbersome it has been dubbed the "aircraft carrier," is likely to shut off the private placement market that has flourished since the introduction of Rule 144A, raise transaction costs, and limit access to capital for firms issuing high-yield securities. This would remove what used to be a training ground for foreign companies. Moreover, smaller companies would still be scrutinized.

The proposal under consideration by the SEC could choke off a thriving market in private issuance for domestic, below-investment-grade firms that do not have ready access to capital. It could also discourage overseas issuers and result in complicated issuance procedures that have been greatly simplified since the introduction of Rule 144A.