Wall Street seeks rule changes to encourage IPOs, staying public

NEW YORK/WASHINGTON (Reuters) - Wall Street lobby groups urged U.S. policy makers and regulators to revamp rules to encourage more initial public offerings and to reduce the regulatory cost of staying public, in a white paper issued on Thursday.

People walk by a Wall Street sign close to the New York Stock Exchange (NYSE) in New York, U.S., April 2, 2018. REUTERS/Shannon Stapleton

Groups including the Securities Industry and Financial Markets Association (SIFMA), the U.S. Chamber of Commerce and Nasdaq along with technology and biotechnology groups, are pushing to reduce the reporting burden for smaller public companies and to relax other rules governing public companies and research analysts.

Industry groups have published several such papers since President Donald Trump was elected on a platform that included promises to boost economic growth by cutting red tape.

Banks and exchanges want to take advantage of the shifting tone in Washington, and the appointment of business-friendly regulators, to win rule changes they say will help the economy.

The U.S. Treasury has already published a blueprint on reforming the country’s capital markets, but bank lobbyists are hoping to keep the spotlight on the issue, they said.

Consumer advocates and progressive Democrats have warned, however, that loosening listing rules could ultimately hurt mom-and-pop investors.

Equity listings have “become increasingly unattractive to businesses”, according to the paper entitled Expanding the On-Ramp, referring to widely-cited data that IPOs in the United States have roughly halved over the past 20 years.

The paper advocates adjustments to the Jumpstart Our Business Startups (JOBS) Act including easing requirements for companies with less than $1 billion in annual revenue for up to 10 years, up from the five-year time span currently in place.

It also asks the Securities and Exchange Commission (SEC) to simplify quarterly reporting requirements, allowing smaller companies to issue a press release with financial results instead of the more detailed 10-Q report that companies file with the SEC.

Chipping away at a longstanding Chinese wall, the group also called for the SEC to remove barriers to investment banks and analysts from jointly attending deal pitch meetings and to expand what can be discussed at the meetings as long as no promises of favorable research are given.

It also called on the SEC to examine why very few investment banks publish pre-IPO research and for it to revamp its rules to reduce the number of shareholder proposals that must be put on proxy statements alongside management proposals.

The paper said that about 61 percent of listed companies with less than a $100 million market capitalization have no research analyst coverage and that a lack of research can reduce investor interest and hamper liquidity and overall trading, citing a June 2017 research report from CapitalIQ.

The group wants the SEC to change rules for venture capital investors to expand the pool of possible investors for smaller companies and also called for an increase in the amount of stock mutual fund firms can own in companies before triggering regulatory thresholds related to diversification. It wants to boost the threshold to 15 percent of voting shares from the current limit of 10 percent.

But it also asked the regulator to clamp down on unlawful activity by short-sellers and to ensure there is enough public information about potential market manipulation.

SEC representatives had no immediate comment on the paper. The body’s chairman, Jay Clayton, has signaled his support for rules easing that would boost capital formation, but any major changes would have to be voted on by the whole commission.

The group behind the paper also spoke out against activist investors and urged Congress to enact legislation requiring proxy advisory firms to disclose and manage conflicts of interest and provide issuers with enough time to respond to errors or flaws in voting recommendations.

Reporting by Sinéad Carew in New York and Michelle Price in Washington; Editing by Frances Kerry