SEC Chair Clayton Expresses Concern over Decline of U.S. IPO Activity

At an SEC Investor Advisory Committee (the “Committee”) meeting focused on capital formation, SEC Chair Jay Clayton described negative market consequences stemming from a decline in the number of initial public offerings (“IPOs”). He stated:

“The substantial decline in the number of U.S. IPOs and publicly listed companies in recent years is of great concern to me. Some companies have shifted capital raising activities to the private markets, where many Main Street Americans have limited access. High-quality companies may choose to go public at a later stage, after much of their early growth has already been achieved. Other companies may choose to stay private. This ultimately results in fewer opportunities for Main Street Americans to share in our economy’s growth, at a time when we are asking them to do more on their own to save and invest for their future and their children’s futures.”

The June 22, 2017 Committee meeting included a panel on “Capital Formation, Smaller Companies, and the Declining Number of Initial Public Offerings.” A presentation prepared by Cowen Inc. President Jeffrey M. Solomon contained recommendations for improving the small cap market, such as relaxing rules associated with running small funds, as well as exploring measures to make the equity market structure more conducive for small caps.

In general, Chair Clayton explained, the SEC is focused on protecting retail investors, particularly older investors, by providing enhanced resources that can help them to make informed decisions. He added that the SEC will continue to prioritize price transparency for retail investors in the fixed-income markets.

Lofchie Comment: The priorities and concerns of the new SEC Chair are consistent with the traditional missions of the SEC; e.g., the promotion of capital formation and investor protection. This is likely to result in less attention to more political issues, such as conflict minerals and executive compensation disclosures.