The Securities and Exchange Commission (SEC) is quickly changing regulations to encourage transparency for individual investors. Several accounting changes are under review, including mark-to-market, while the commission continues to prosecute insiders involved with fraud. However, the recent move to eliminate paper filings and require electronic filings may usher in a whole new era of transparency for both public and private investors in the United States.

The private sector changes will primarily be seen in the required electronic filing for Regulation D. This controversial filing provides three exemptions from the Securities Act registration. These exemptions allow reporting companies to receive investment in private markets without having to report it as a registration. Further, the filings themselves (which do contain the information) can be concealed by filing it in paper form (so an interested investor would have to obtain a mailed copy from the SEC!).

Times are changing, however, and the SEC is set on increasing financial transparency. The SEC allowed companies to make electronic Regulation D filings this year, but this ability will turn into a requirement next year. This will not only allow visibility into the VC markets but also change a hedge fund strategy that has been built around this secrecy. This is good news for investors who will now be able to see private transactions in the companies they own without hassel.

However, the SEC also took a step backwards with the transparency. The new Regulation D form requires less information than the original. The removed information includes the names of significant shareholders and the specific type of security. So, while the financial terms are disclosed, information about the related parties are withheld. This was likely designed to protect hedge funds and other private investors who value their privacy from the public eye.

Investors are now being given access to the big picture, but it has been broken down into a puzzle...