It's too early to start cheering, but the Securities and Exchange Commission may soon make life a lot easier for companies in need of outside capital. Last October, it quietly released a proposal to change the rules that govern private-placement trading. If adopted, the new rules could dramatically alter the burgeoning private-placement market, making it easier and cheaper to get loans and equity.

The changes are designed to loosen the restraints on private-placement buyers, who are now generally required to hold an investment at least two years before selling it to another investor. The current rules thus limit the ease with which insurance companies and other institutions can tailor their private-placement portfolios to fit their internal cash-flow needs.

The new rules would make the private market a lot more inviting for institutional investors. Institutions would be free to sell private placements immediately, without notifying the SEC, as long as the securities are bought by investors with assets greater than $100 million. In addition, smaller institutions (such as banks and pension funds) with more than $5 million in assets would be allowed to buy securities not listed or traded publicly on any U.S. exchange.

All of this adds up to that most desirable trait in a market: liquidity. The more easily an investor can shed an investment, the more likely he or she is to make it in the first place. The implications? First, the cost of private-placement capital would probably fall, since investors wouldn't have to cushion themselves from the risks of being saddled with an investment over a long period. Second, a more liquid market is likely to attract a greater number of institutional players -- with the result that capital seekers may find themselves in the enjoyable position of watching institutions compete for their business. Many investors will be actively looking to make loans in areas previously ignored by established players, according to James R. Wilson, senior vice-president of Equitable Capital Management Corp.'s private-placement unit. One target market: smaller companies.

None of this is likely to happen overnight, however. The SEC took two years to develop the proposed rule changes; it will undoubtedly take several months before making them formal.

-- Ellyn E. Spragins

The Private-Placement Boom
The private capital market just keeps on growing.

Annual volume of private placements ($ in billions):

1987 $139.4

1986 123.5

1985 73.1

1984 53.3

1983 35.6

1982 24.3

1981 18.4

1980 15.7

1975 13.5

1970 6.4

Source: IDD Information Services and Investment Dealers' Digest.