Trump Administration Wants an Easier Path for Firms to Go PublicBy
Treasury calls for bar for IPOs to be lowered in report
Listed public companies in U.S. down 50 percent over 20 years
The Trump Administration is seeking to relax the rules for companies to go public, echoing calls from the exchange industry that the regulations are too burdensome.
In a report released Friday, the Treasury Department recommended changes for financial markets regulators to consider, calling for an easier pathway to initial public offerings, with an emphasis on encouraging small companies. Although this was the focus of the Jumpstart Our Business Startups Act of 2012, the report said that regulators could go further to prop up IPOs, as the number of domestic public companies listed in the U.S. has declined by almost 50 percent in the past 20 years.
Treasury said IPO standards should be relaxed by allowing all companies to “test the waters,” or contact institutional investors and gauge their interest in buying the shares before they file for a public offering. Currently the practice is only allowed for so-called emerging-growth companies, meaning businesses with less than $1 billion in annual gross revenues.
In addition, the department called for a longer window of time in which companies can be in the emerging-growth category, which comes with certain benefits. And the report suggested tweaks to how small companies trade to smooth out the ability to buy and sell the shares.
Some of the proposals echo exchange rallying cries for regulators to make it easier for companies to list their shares and stay public, particularly small companies.
NYSE Group Inc. President Tom Farley addressed the topic in July during a hearing to discuss the Sarbanes-Oxley Act and corporate governance. Farley said that the 2002 law, passed in the wake of the accounting scandals at Enron Corp. and WorldCom Inc. to ensure corporations give truthful accounts of their finances, sets the bar too high for many small companies and can prevent startups from raising money through IPOs.
And in May, Nasdaq Inc. CEO Adena Friedman issued a white paper urging a broad rethink of stock market rules, including the regulations around going public.
“As the U.S. has continued to add layer after layer of obligation, we have reached a point where companies increasingly question whether the benefits of public ownership are worth the burdens,” she wrote. “If not addressed, this could ultimately represent an existential threat to our markets.”
Still, there isn’t universal agreement that regulatory standards must be lowered. Some question the narrative that the U.S. IPO market is dying. Ernst & Young LLP has argued that the hand-wringing is unnecessary.
“More than half of the decline in the number of public companies since 1996 can be attributed to the post-dot-com bubble era of business failures and delistings that immediately followed an extraordinary number of IPOs,” the firm wrote in a May report. “In more recent years, we find that a surge in private capital and the unique characteristics of many of today’s new companies have made it easier to grow outside the public equity market for longer than historically was feasible.”