REGULATION OF SMALLER PUBLIC COMPANIES

The U.S. Securities and Exchange Commission (SEC) chartered the Advisory Committee on Smaller Public Companies on March 23, 2005. The charter provided an objective of assessing the regulatory system for smaller companies under the securities laws of the United States, and makes recommendations for changes.

The SEC Advisory Committee gave its final recommendations to the SEC in April 2006. These recommendations included several primary recommendations including: establish a scaled or proportional securities regulation for smaller public companies based on a stratification of smaller public companies into two groups; micro cap companies and small cap companies.*

The report indicates that a scales or proportional securities regulation for smaller public companies assures the full benefits and protection of federal securities regulation for investors in large companies that make up 94% of the total public U.S. equity capital markets. . . .†

The committee acknowledges the relative risk to investors and the capital markets as it's currently used by professional investors when using proportional securities regulations.

Required:

It is perceived that the risk is greater when investing in smaller public companies with proportional securities regulations than in larger companies. Speculate on why the committee considers this risk worth  taking.

*Final Report of the Advisory Committee on Smaller Public Companies to the U.S. Securities and Exchange Commission (April  23,  2006),  p. 4. †Ibid., p. 16.