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The head of the SEC says more needs to be done to make it easier for companies to go public and that his office is taking a “fresh look” at allowing Main Street investors access to the private capital markets.
In a speech to the Economic Club of New York on Monday, SEC Chairman Jay Clayton said that the lack of more IPOs and the inability of most of the Main Street investing public to access private markets was a “growing concern.”
Clayton addressed what he called the “two segments” in capital markets: one is the public markets, the other is the private markets, including private equity and venture capital investments.
“Twenty five years ago, the public markets dominated the private markets in virtually every measure,” he said. “Today, in many measures, the private markets outpace the public markets, including in aggregate size,” he said.
Clayton wants to make the public capital markets (IPOs) more attractive for companies, and expand opportunities for Main Street investors to participate in the private markets. The SEC, Clayton says, is making efforts to modernize financial disclosure rules and to recognize that one size does not fit all, permitting what he calls “scaled disclosures.”
He expressed concern that the Main Street investor, for the most part, does not have access to private markets, noting that the cost of including individual investors in private offerings is “high.”
Clayton said he wants to take a “fresh look” at initiatives to expand access to the private markets while at the same time providing “appropriate investor protections.”
Clayton addressed several other issues in his speech, in the follow-up Q & A, and in a separate interview on CNBC:
Clayton said that “progress has been made” on one of the SEC’s core concerns: how custody is handled. On another core concern — that most pricing of bitcoin occurs on foreign exchanges that are subject to manipulation, Clayton noted that those exchanges “do not provide the same level of protection as our U.S. equity market,” implying that manipulation of prices was still a major concern.
Brexit and U.S. corporations
Clayton in the past has expressed concern about the impact of a “hard Brexit” on U.S. corporations. However, he noted that “for a lot of companies, Brexit has in many ways already come. People who run companies prepare for events and have been ordering their affairs to deal with a potential Brexit. So I think we are in a better place today than we were a year ago.” He admitted, however, that “the range of outcomes remains more than anybody should be comfortable with” and he reiterated that the SEC is continuing to “closely monitor” the potential effects.
When asked about the impact of quantitative trading and the growth of algorithms to facilitate high-speed trading and how the SEC was monitoring that trading, Clayton started by reminding everyone that “for all practical purposes, all trading today is machine trading. If you go to your broker and say, I want a hundred shares of this or sell a hundred shares of that, it gets fed through an algorithm.”
Clayton said that the SEC rules have continuously been “adjusted” to monitor algorithms, noting that “we are continuing to look at them to make sure that trading today is as fair and transparent as it was when it was voice trading.”
One questioner, former Congressman Harold Ford Jr, noted that Elliott Management had just announced a major stake in AT&T and asked if shareholder activism was being properly or improperly used.
Clayton replied that shareholder activism was one way for corporate owners to express what they want, though not the only way. Clayton clarified his remarks by saying that “We want to make sure that the shareholder engagement is indeed engagement with shareholders, you know, people who are looking for long-term returns.” He noted that the SEC had recently begun to explore the proxy process and predicted the SEC would be making “improvements in that area.”
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