I don't think 3. Should be getting the ribbing it is as an idea. I think that SEC required "Amicus Briefs" would go a long way to tempering some irrational exuberance.
However the Prospectus document for the IPO at Groupon made sobering reading and covered pretty much all the points being raised here. Prospectuses are horrifying things to read carefully - everything that could go wrong is detailed.
So I would suggest turning 3. Into a requirement for a standard modelling simulation framework - which the SEC supports and mandates that the IPOing company provides whatever functions within that framework are representative of the various scenarios in the prospectus
Something similar is proposed for monitoring bank risk but I cannot remember the link - it's an SEC experiment from a few years back iirr.
I 100% agree that the Prospectus is "The Document" and that retail investors do not read it (and sadly may "professional" asset managers too).
Unfortunately the prospectus is a one-sided story, and it will never say if the valuation is stretched or not... even the price and issue number is inserted at the last minute! Yes, I know the company is book building, but if a company out there is going to go public, a public institution should be calling BS from a valuation stand point, and amend the "Risk Factors" of the company accordingly.
My point 3 was an in-extremis case. Nevertheless FO's are a very common and inexpensive instrument, and it is a shame that the public investor doesn't have access to this BS detector.
However the Prospectus document for the IPO at Groupon made sobering reading and covered pretty much all the points being raised here. Prospectuses are horrifying things to read carefully - everything that could go wrong is detailed.
So I would suggest turning 3. Into a requirement for a standard modelling simulation framework - which the SEC supports and mandates that the IPOing company provides whatever functions within that framework are representative of the various scenarios in the prospectus
Something similar is proposed for monitoring bank risk but I cannot remember the link - it's an SEC experiment from a few years back iirr.