Form 1 Explainer
Lessons from the Application Process
While the process involves complex requirements, it provides valuable feedback that we use to strengthen our path forward.
- Disclosing the Truth: While our regulator, the Securities and Exchange Commission (the “SEC”), could not reach a positive conclusion on our application within the required time period due to “press reports raising questions about the potential misuse of funds,” we are committed to providing evidence to the SEC that disproves the press reports so the regulator can reach a positive determination that there was no misuse of funds and review and approve our renewed application based upon the evidence we provided.
- Commitment to Refiling: We are dedicated to a transparent and continuous dialogue with regulators to demonstrate our capacity to manage a public trust. This includes, but is not limited to, the evidence that we have sent regarding our use of investor proceeds.
- Public Comment Period: During our initial filing, we received no public comments opposing our application to become a register exchange in the Federal Register in spite of the standard two requests for comments by the SEC.
- Refining Our Structure: While we have answered all of the SEC’s comments on our application and there were no concerns expressed by the regulator with our application itself, we are using this time to review and implement certain organizational improvements, ensuring our operational systems meet the rigorous standards required by the Exchange Act.
The Application and Review Timeline
The registration process is rigorous and calls for continuous dialogue with regulators. The timeline generally follows these stages:
- Preparation and Submission: We meticulously draft the Form 1 and its exhibits to meet the high standards of the SEC. The draft is negotiated with the SEC to determine whether any of the content needs to be amended before formal filing.
- Initial Filing and Publication: Once the SEC receives the formal filing of the application, the SEC conducts another review of the content and makes a determination whether the content is sufficient to warrant a notice to inform the public. If they determine that the content is sufficient, the SEC will authorize the notice be published in the Federal Register.
- Iterative Dialogue and Amendments: It is standard for this process to involve multiple rounds of feedback and formal amendments as we work with the Commission to refine the application.
- Public Comment Period: Industry participants and the public are invited to provide feedback on our proposed rules and structure.
- SEC Decision Window: By statute, the SEC grants registration or begins proceedings to determine if an application should be denied within 90 days of publication, though this can be extended if necessary.
- Order Instituting Proceedings (“OIP”): By statute, the SEC is required to provide notice of the grounds for denial of a Form 1 application and institute proceedings on such application. The SEC has recently changed its custom and practice and has issued OIPs on ALL application – regardless of whether the SEC Staff believes should be granted or denied – to allow the SEC an additional 90 days to grant or deny an application. These OIPs provide yet another notice to the public to be published in the Federal Register. After the issuance of the OIP, the iterative dialogue between the applicant and the SEC continues so the SEC can provide the applicant with comments to allow the SEC to approve the application or concerns that the applicant needs to address, lest the application be denied.
- In the case of our previous application, the SEC provided comments during this period that led to the filing of Amendments Numbers 1 and 2, but did not provide us with any concerns that would lead us to believe that our application would be denied during the OIP period.
- Final Order: The process concludes with a final order from the SEC, granting or denying the application to become registered as a national securities exchange. Generally, a denial is a final order with prejudice, preventing the applicant from re-applying. In our case, there was explicit language in the denial order that stated that “nothing precludes DreamEx from filing another Form 1 application with the Commission in the future.”
The Standard of Equality
We view the rigor of the SEC review process as integral to our goal. By meeting these formidable requirements, we prove that our model as an exchange focused on the needs and listings of small and mid-sized companies, which are typically operated by minorities, can operate with the same financial integrity and operational capability as established peers focused on the listing of the larger, established companies.
Our mission remains clear. We are building a market that truly reflects the diversity of the American economy. We will continue to engage with regulators with sincerity and respect, ensuring that all people, our future issuers and investors, have a seat at the table of the national financial infrastructure.