By Douglas Gillison
WASHINGTON, May 19 (Reuters) – Wall Street’s top regulator on Tuesday announced what it said were broad-based reform proposals for regulations on how companies offer shares and report required information to investors, moving to advance the Trump administration’s goal of encouraging more companies to go public on stock markets.
If adopted, the changes would greatly expand the number of companies able to issue shares more quickly and less expensively and avail themselves of looser requirements for public disclosure until they reach a higher valuation threshold, according to the U.S. Securities and Exchange Commission.
SEC Chair Paul Atkins said in a statement that the changes would create incentives for companies “to go and stay public.” The agency said the changes would not compromise investor protections, however.
As with much of the Trump administration’s financial regulatory agenda, the proposals drew cheers from industry groups but warnings from public interest advocates. The American Securities Association, among others, hailed the announcement while Better Markets, which calls for tougher Wall Street oversight, said the SEC was needlessly increasing the risk of corporate misconduct.
Public offerings are down because the SEC has expanded private markets so much that companies “can raise as much money as they need without accessing the public markets,” Better Markets’ Ben Schiffrin said in a statement.
The first of two proposals announced Tuesday would, among other changes, lift the threshold at which companies become known as “large accelerated filers” from $700 million to $2 billion in the total value of shares that are available for sale and trading by the public.
Such large firms are deemed mature public companies, facing stricter scrutiny and tighter deadlines for annual and quarterly reports and have to get independent auditors to vouch for the quality of their internal financial record keeping.
Under the proposal announced Tuesday, all companies would avoid this category for five years after making their Wall Street debuts. They would also avoid certain disclosure requirements on executive compensation tied to shareholder advisory votes, among other changes.
SEC officials anticipate that these changes would mean that about one in five current publicly traded companies would still qualify as large accelerated filers meeting the stricter requirements but those companies would still account for 90% of market capitalization, an SEC official speaking on condition of anonymity told reporters on Tuesday.
The SEC on Tuesday also proposed expanding the number of companies able to issue so-called “shelf offerings.” Under existing regulations, companies are allowed to pre-register securities with the SEC and later sell them when market conditions are favorable.
To benefit from these rules, companies are currently required to have at least $75 million in shares publicly available for sale and trading and must have been subject to SEC reporting requirements for a year. Tuesday’s proposal would eliminate these requirements.
However, another SEC official speaking on condition of anonymity told reporters the proposed changes would not apply to so-called foreign private issuers, which offer less investor transparency and are the subject of other possible rule changes, so-called blank-check companies, penny stock firms and shell companies.
The nature of shelf-registrations can mean investors do no get a complete picture at the outset and in recent years regulators have worked to address such concerns.
The proposals will be subject to public notice and comment for 60 days and may be changed before the SEC decides on whether to finalize them.
(Reporting by Douglas Gillison in Washington; Editing by Chizu Nomiyama and Nick Zieminski)
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