Before the United States was a nation, it was an investment.
Securities and Exchange Commission Chairman Paul Atkins delivered a speech at the New York Stock Exchange today outlining his thoughts on how to reinvigorate US markets.
As everyone knows, public markets have been in decline. Meanwhile, private markets have boomed. Much of this stems from the costs and burdens of being a public firm. At the same time, there is an ocean of private capital seeking the best of private firms in which to invest. This also means that too frequently, smaller investors are not provided access to extraordinary gains, as much of the wealth creation is generated before a firm goes public, if it ever does.
Atkins notes that after he left the SEC as a staff member in the mid-1990s, there were around 7,000 companies listed on public exchanges. Today, that number has dropped by around 40%. Atkins stated that it was, in effect, a “cautionary tale of regulatory creep.”
“A tale that tells us that the path to public ownership has become narrower, costlier, and overly burdened with rules that often create more friction than benefit. These trends have eroded American competitiveness; locked average investors out of some of the most dynamic companies; and pushed entrepreneurs to seek capital elsewhere, either in the private markets or on foreign shores.”
While the decline is disheartening, highlighting the mediocrity of past policymakers, Atkins believes the damage is reversible. The biggest transgressions have to do with the “voluminous disclosure requirements.”
Atkins also noted that the disclosure regime has been weaponized in the past by “special interest groups, politicians, and—at times—the SEC.” This is a clear failure of the SEC’s mandate of “facilitating capital formation; protecting investors; and ensuring fair, orderly, and efficient markets.”
The decades of the rule-upon-regulation approach, by those who sought to strangle markets, capital formation, and the American dream, either by malice or ineptitude, have harmed economic growth and wealth creation. Atkins believes that the fix is to first, “root its disclosure requirements in the concept of financial materiality” and “second, these requirements must scale with a company’s size and maturity.”
Beyond current disclosure requirements that at times veer into “information unmoored from materiality,” Atkins sees an opportunity to build upon the JOBS Act and its IPO on ramp for smaller firms.
“Raising capital through an IPO should not be a privilege reserved for those few “unicorns.” More and more, public investments are concentrated in a handful of companies that are generally in the same one or two industries. Our regulatory framework should provide companies in all stages of their growth and from all industries with the opportunity for an IPO, particularly an IPO that represents a capital raising mechanism for the company, instead of a liquidity event for insiders.”
It is difficult to estimate the damage done during the previous SEC Chairman’s tenure, which was rife with politics and obtuse rulemaking pursuits. It also sought to vilify digital assets, an innovation that is inevitable and will boost markets around the world.
Atkins outlines a very tall task, as change within government agencies requires Herculean perseverance. Atkin’s strategy could potentially invigorate capital formation and access to opportunities for all investors if the needed reforms come to fruition. As the US leads the world in innovation and productivity, reforming markets could push American markets even further ahead of the competition – to the benefit of the entire country. Atkins says that the American character that compelled entrepreneurs to take risks and “innovate endlessly and restlessly” must be embraced. And the biggest hurdle is whether regulators “have the will” to improve the viability of capital markets.
The complete speech is viewable here.