SEC Commissioner Kara M. Stein cautioned regulators to “look forward” not “backward” in order to take advantage of the “amazing opportunities” created by markets in a “continual state of change.” In a speech before the 2017 “SEC Speaks” Conference, Commissioner Stein described a vision based on the premise that: “the markets exist to connect the capital of people who have saved with people who will put that capital to good use building companies and creating jobs.” She stated that: “Our policies should reflect that purpose—they should facilitate economic activity in a way that is fair and efficient and that benefits Americans who are saving and investing.”
She urged regulators to consider the impact of several market changes, including increased growth and diversity in exchange-traded products (“ETPs”), electronic trading and capital raising. She asserted that the “changes in the markets – the rise of institutional investors, the move to private markets, and the evolution of electronic trading – are all closely intertwined.”
On issues of disclosure, Commissioner Stein recognized that the Consolidated Audit Trail and similar regulatory developments will enhance disclosure requirements, and emphasized that “much more needs to be done.” Commissioner Stein stated that regulators themselves must change:
“The landscape in which we operate is quickly and fundamentally shifting. We too need to change. We cannot address the new world by simply turning the clock backward. Instead, we must look to the future.”
Lofchie Comment: Commissioner Stein’s vision of the future is about more regulation. When she asks why companies stay private for longer periods of time, she does not consider the possible answer that the costs of regulation are not worth the benefits of going public. Her conclusion is never whether regulation is the answer, only which regulation is the answer, as in: “Should we apply enhanced disclosure laws to these private companies? Or perhaps they require a unique set of rules.”
It is possible that Commissioner Stein is right, and that more disclosure could be needed. However, better reasoning demands broader questions. Perhaps one might ask: “Should we reduce the burden on public companies so that growing companies are more willing to register with the SEC?” Both questions (i.e., whether we should have more regulation or less) are worth asking. Ideally, all of the SEC Commissioners would raise and address both types of questions. Certainly, Commissioner Stein should consider why, for the past eight years, issuers have trended toward being willing to forego the benefits of the public markets in order to avoid the costs.