BOSTON (CNN/Money) -
Late last year the Securities and Exchange Commission quietly proposed loosening some 70-year-old rules and regulations that have restricted the amount of information investors receive about initial public offerings -- unless those investors happen to be institutions and their well-heeled clients.
These rules probably should have been changed eight years ago. If they had been, it might have helped some investors keep their shirts during the tech bust.
The proposal, blandly named "Securities Offering Reform," will be a small first step toward modernizing the way IPO information is disseminated.
Some of the proposed changes are in the "duh!" category, such as allowing underwriters to e-mail IPO pricing information to investors.
Others are pretty radical and should be a great boon to investors.
One such suggestion would allow individual investors to listen, via a Webcast, to the road shows where company management visits institutional investors to give a song and dance about the company and why these large investors should invest.
They are usually tightly scripted affairs, with management giving PowerPoint presentations and carefully responding to questions. But for investors, access to these meetings could provide some insight into a company.
"A lot of times with road shows, it's not what's being said, but how management says it," says Tom Taulli, co-founder of CurrentOfferings.com, an IPO research company. "Will you get information that's not in the prospectus? Probably not, but you'll get a better idea of who the management is and whether you have confidence in them."
The SEC's proposed IPO reform, limited as it is, arrives at a propitious time, when IPOs are roaring back.
In 2004, 48 technology companies went public, more than twice 2003's total. What's more, the IPOs raised a total of $10.7 billion last year, compared with $3.3 billion in 2003, according to Thomson Financial.
While everyone I spoke with for this column lauded the SEC's move, some suspected the organization was engaging in CYA tactics. (That's "cover your ass," for those not versed in the jargon of Wall Street.)
The SEC is just trying to make up for years of lax oversight, some analysts say. "The SEC has been behind the curve for a while," says Walter Cruttenden, founder of eOfferings, a site that tried to give investors additional IPO information, such as virtual road shows, in the late 1990s. "We had to get a special letter from the SEC [to do virtual road shows], and it was a hassle. It hampered our ability to do them."
I don't think the SEC's proposal goes far enough.
It still leaves in place too many of the rules blocking the dissemination of information, such as the quiet period, which companies interpret as carte blanche to say nothing about their business to the public.
Dan Weaver, an associate professor of finance at Rutgers University, told the SEC that the quiet period should be eliminated. He says it's unlikely that the SEC will listen to his suggestion, but he believes the current proposal has merit.
"It's a good thing for individuals," he says. "The IPO process has been discriminatory for so long."
Right now the SEC is seeking comments from the public on the proposal, but word hasn't trickled down to the investors who would be helped the most: the little guys.
As of early this week, only three comments had been filed. John Heine, a spokesman for the SEC, says comments "typically come at the end of the review period."
The public has until Jan. 31 to submit comments. Here is the link to the comment field.
Of course, opening the information gates to the unwashed masses likely won't result in the hordes getting access to hot issues at or near IPO prices. But letting investors listen in on road shows and receive pricing information will help investors -- and companies.
"It'll take time for old habits to break," Taulli says. "But the more interactions with investors, the better. It's always better to get more investors interested in your company."
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