New SEC Chair Seeks Paths to Enhance IPO ‘Attractiveness’

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By Andrew Ramonas

The SEC is considering how best to enhance the “attractiveness” of public markets, Chairman Jay Clayton said June 22.

The decrease in initial public offerings and publicly traded companies is of “great concern to me,” the chairman said at a Securities and Exchange Committee Investor Advisory Committee meeting. His remarks are some of his first public comments since he left his job as a deals lawyer at Sullivan & Cromwell LLP in May.

Clayton didn’t discuss any specific plans to make listing on public markets more alluring. SEC staff, including Division of Corporation Finance Director William Hinman, are exploring possibilities, he said. Hinman, who worked on Alibaba Group Holding Ltd.’s record $25 billion IPO with Clayton, was the chairman’s first major appointment at the commission.

“The market is different,” Clayton said. “I think we have to look at our mission in light of a changed market and see what adjustments need to be made.”

The 1996 tech bubble brought a record 863 U.S. IPOs, but the number has fallen considerably since, according to Bloomberg data. Only 130 companies went public in the United States in 2016.

‘No Smoking Gun’

Financial industry observers at the advisory panel meeting couldn’t agree on why IPOs are declining or how to reverse the trend.

Regulations, a greater availability of private capital, and other factors may all play a role in the slide, they said.

“The evidence overall is very mixed,” said Elisabeth de Fontenay, an associate professor at Duke University School of Law. “There’s no smoking gun, at least so far.”

Regulatory Costs

Regulatory costs, however, were brought up repeatedly during the discussion.

Jeffrey Solomon, president of financial services firm Cowen Inc., estimated that being a public company costs his firm about $4.5 million annually, which is 1 percent of its market capitalization every year. The sum is a “huge tax,” he said.

“I think there is more that we can be doing to eliminate some of the costs for smaller companies,” Solomon said.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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