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Regulatory costs are a major hindrance to companies going public, former Securities and Exchange Commissioner Paul Atkins said June 12.
Executives, investors, and others “all take into account the cost of doing business and regulations,” Atkins, chief executive of Patomak Global Partners LLC, said at an Insured Retirement Institute conference in Washington.
A surplus of private money and the prospect of class-action lawsuits also are factors, Atkins said. He led President Donald Trump’s transition team focused on financial services regulation.
A record 863 companies went public in 1996 during the tech bubble, but the number of U.S. IPOs since has fallen considerably, according to Bloomberg data. In 2016, only 130 companies went public in the U.S.
Not everyone is sure how big a role regulations play.
The IPO decrease could be as much a market issue as it is a regulatory problem, David Lynn, a former chief counsel in the SEC’s Division of Corporation Finance, told Bloomberg BNA in a phone interview. “There’s no easy fix,” said Lynn, a co-chairman of Jenner & Block’s securities practice.
Earlier this year, a venture capital executive suggested that globalization and other economic factors may be playing a bigger role than regulatory obligations.
Jay Clayton, who became SEC chairman May 4, has said he sees “meaningful room for improvement” in making public capital markets more attractive to businesses. He has yet to provide a detailed plan to address the decline, but made IPO lawyer William Hinman his first major appointment to the commission. Hinman, who leads the Division of Corporation Finance, previously worked on Alibaba Group Holding Ltd.’s record $25 billion IPO with Clayton when they both were in private practice.
Troy Paredes, a former Republican SEC commissioner, told Bloomberg BNA in an email he was hopeful that Clayton’s SEC will forge a stronger IPO market through a multipronged approach.
“I’m optimistic that we can achieve a win-win-win by reforming current regulation to promote economic growth while at the same time enhancing the effectiveness of the SEC disclosure regime and maintaining the safeguards needed to protect investors from fraud,” said the former commissioner, who founded Paredes Strategies LLC.
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