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SEC Chair Highlights Need for More Public Companies in First Public Speech

Emily Stewart

Securities and Exchange Commission Chairman Jay Clayton emphasized the need for more companies to go public in his first public speech since being appointed.

Clayton, who was appointed by President Donald Trump to succeed Mary Jo White as the head of the SEC, addressed the New York Economic Club Wednesday in midtown Manhattan. He lamented the decline in U.S.-listed public companies over the past 20 years as a "serious issue for our markets and the country more general" and called for reducing the regulatory burden and other measures to push more firms onto the public markets.

"To the extent companies are eschewing our public markets, the vast majority of Main Street investors will be unable to participate in their growth," he said in prepared remarks. "The potential lasting effects of such an outcome to the economy and society are, in two words, not good."

Clayton went off-script to emphasize the point during his speech, delivered at the Plaza Hotel, which Trump once owned. "This really matters to me," he said. "Our Main Street investors should have access to our growing companies."

Clayton, a former M&A lawyer at Sullivan & Cromwell LLP who was sworn in as SEC chairman on May 4, said there has been a 50% decline in the total number of U.S.-listed public companies over the past two decades. He said studies show the median word count for SEC has more than doubled in recent years, even as the readability of such documents have declined.

Recent high-profile public offerings, such as Snap Inc.  and Blue Apron , have been underwhelming.

"While there are many factors that drive the decision of whether to be a public company, increased disclosure and other burdens may render alternatives for raising capital, such as the private markets, increasingly attractive to companies that only a decade ago would have been all but certain candidates for the public markets," he said. "And, fewer small and medium-sized public companies may mean less liquid trading markets for those that remain public."

Clayton's first major move as SEC chairman has been to expand a part of the Jumpstart Our Business Startups Act (JOBS Act) in an effort to boost initial public offerings. The agency moved to expand rules for emerging growth companies set up by the 2012 legislation to allow all companies to file confidentially for IPOs.

Previously, only companies with under $1 billion in revenue were allowed to draft registration statements confidentially. Now, larger domestic and U.S.-companies have been given that option. The change allows companies to subit and withdraw their IPOs confidentially without the embarrassment of the markets knowing they tried to IPO but failed in such an event.

"I hope that allowing these companies to submit their sensitive information on a non-public basis while the Commission staff reviews their draft offering documents will encourage them to find the prospect of selling their shares in the U.S. public markets more attractive generally, and at an earlier stage in their development," Clayton said.

He brought up the issue again during a Q&A session following the speech when asked by journalist Maria Bartiromo to give his thoughts on corporate governance and whether quarterly earnings filings and guidance encourage short-termism among publicly-traded companies. "By comparison, the amount of time spent in compliance mode or shareholder communication mode is...substantially greater...than a similarly-situated private company," Clayton said. "They're at a comparative disadvantage to companies that may not have the same burdens."

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