Chair Paul Atkins on Tuesday said that easing corporate disclosure requirements will help reverse decades of decline in the number of publicly traded companies.
Securities and Exchange Commission Chair Paul Atkins on Tuesday outlined his intent to reverse decades of”regulatory creep” that he blames for the steady decline in the number of publicly traded companies.
In prepared remarks delivered at the New York Stock Exchange, Atkins said that burdensome regulation hasled to a roughly 40% decrease in the number of publicly traded companies since his tenure as an SEC staffer in the early 1990s, adding that public companies are now largely limited to two industries, with investors forced to tap private markets for exposure to other industries.
“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,” Atkins said.
Atkins criticized disclosure requirements that he says have increasingly hampered existing companies andraised the barrier of entry for new ones.
“Over the years, and particularly over the past two decades, special interest groups, politicians, and — at times— the SEC itself have weaponized the disclosure regime that Congress created for our marketplace, in an effort to advance social and political agendas that stray far from the SEC’s mission of facilitating capital formation, protecting investors, and ensuring fair, orderly, and efficient markets,” Atkins said.
Atkins said that the commission under his guidance will prioritize materiality in its requirements to ensurethat companies are only required to disclose information that is helpful to investors. He said that under current regulations, annual reports and proxy statements have become bloated with unnecessary information.
“Investors sometimes do not benefit from the information because they struggle to parse and understand it —or find it so intimidating because of the volume and density that they ignore it,” Atkins said.
Atkins questioned disclosure requirements related to executive compensation, referencing Warren Buffett’s recent complaint that, because of compensation disclosures, proxy statements have “ballooned to 100-plus pages compared to 20 or less earlier.”
Atkins also suggested that disclosure requirements should scale according to company size. He said that the JOBS Act of 2012 and prior SEC regulatory framework loosened disclosure requirements for new and small companies, but that subsequent “dereliction of regulatory upkeep” has increased disclosure requirements and blocked the “IPO on-ramp,” resulting in “a company with a public float of as low as $250 million being subject to the same disclosure requirements as a company that is one hundred times its size.”
“If we want the next generation of innovators to choose our publicmarkets, we need disclosure that is calibrated for a company’s size and maturity; that is driven by market demands; and to the extent mandated by the SEC, that is rooted in materiality and not whimsical social or political agendas,” Atkins concluded.
Tuesday’s remarks build upon the “Make IPOs Great Again” initiative Atkins has repeatedly promoted since being named chair in April. Atkins has also backed President
Donald Trump’s proposal to eliminate quarterly reporting requirements for public companies.
Meanwhile, attorney David Harrison, whose Studio City, California–based firm Bakhtiari & Harrison represents investors in securities-industry claims, called reducing disclosure requirements for smaller companies “the regulatory equivalent of allowing thousands of companies to list onthe NYSE or Nasdaq while handing them a Reg D private-placement playbook.”
For such companies, disclosure requirements are limited “because the SEC assumes the purchasers aresophisticated enough to protect themselves,” Harrison said in emailed remarks to Financial Advisor IQ.
“Going public has always meant the opposite bargain: you get to sell shares to the entire investing public, including millions of ordinary households, but in exchange you accept a uniform, robust, audited transparency standard so those households aren’t flying blind.”
By reducing disclosure requirements for companies below a certain size, the SEC would create “a two-tier stockmarket: one tier for mega-caps with full sunlight, and a second, much larger tier of ‘public’ companies that are really just private placements wearing a ticker symbol,” Harrison added.
But Atkins in his remarks on Tuesday said that scaling back disclosure requirements won’t prevent investors from getting the information they need to make informed decisions. “Even with today’s numerous disclosure requirements, companies still provide additional information, such as non-GAAP numbers or key performance metrics, that are tailored to a company’s business or industry and are driven more by investor demand than the SEC’s rulebook,” Atkins said.