SEC Chair Calls for Regulatory Overhaul to Revive IPO Market

SEC Chair Paul Atkins attributed the decline in initial public offerings of small/medium sized companies to decades of cumulative rulemaking that made the process of going public - and remaining public - more burdensome than beneficial.

At a meeting of the SEC Small Business Capital Formation Advisory Committee, Mr. Atkins said the IPO pipeline shrank by roughly 40 percent since the mid-1990s. He called this result a regulatory failure - not a market cycle. He said companies typically do not go public now until after a Series E private funding round, whereas two decades ago, an IPO served the equivalent function of today's Series B or C round. Mr. Atkins framed this as a problem of democratic access, saying that when fewer companies list on public markets, fewer American workers and savers are able to participate in the wealth created by the next generation of domestic enterprise. He argued that a public offering should serve as a capital-raising mechanism for the company itself - not primarily as a liquidity event for insiders.

Mr. Atkins said he directed SEC staff to evaluate the following:

• extending or eliminating the automatic five-year termination of IPO "on-ramp" protections for smaller companies, to provide greater regulatory certainty and encourage companies to remain public;
• overhauling the so-called "baby shelf" rules under Form S-3, which Mr. Atkins described as unnecessarily complex and restrictive, to give nearly all small public companies full access to shelf registration and the ability to raise capital quickly when market conditions are favorable; and
• giving companies the option to file required regulatory reports on either a quarterly or semiannual basis, allowing flexibility based on industry, business model, and investor expectations.