In light of the shrinking capital markets, the Treasury made several recommendations, including:
- Repealing sections of the Dodd-Frank Act involving disclosure requirements for mining and other natural resources companies and company disclosure of annual employee compensation compared with that of the chief executive officer.
- Increasing the amount that can be raised in crowdfunding to $5 million from $1 million.
- Opening up private markets to more investors and revisiting the “accredited investor” definition.
- Limiting use of informal guidance, no-action letters or interpretation to impose new regulations, in contrast to making rules through notices and comments.
- Adjusting disclosure and other requirements for companies going public based on their size.
This is the second of four reports the Treasury is producing at the request of the Trump administration.
The Treasury pointed out that the number of publicly traded companies in the U.S. has fallen by nearly 50 percent over the last two decades, while the average number of initial public offerings a year has dropped to 188 since the financial crisis, down from 325 before.
Number of public companies in the United States, 1990-2016
Source: Securities and Exchange Commission staff analysis using data from the Center for Research in Securities Prices U.S. Stock and U.S. Index Databases(c) 2016 Center for Research in Securities Prices, The University of Chicago Booth School of Business.
Since the crisis, the total amount of debt and equity primary offerings reported in private markets has exceeded that of public markets by about 26 percent, according to a staff report from the Securities and Exchange Commission cited in the Treasury report.
A senior Treasury official said in a briefing that the department considers access to private markets to be too limited and that it’s pretty broad in terms of who could be added to the definition of “accredited investor,” which is currently a person with a net worth of $1 million or an annual salary of $200,000 for the last two years.
Expanding the definition of such investors would not increase disclosure requirements for private companies, the official said.
The Treasury also said the SEC should consider amending market structure rules such as Regulation NMS and the price increment, or “tick size,” at which stocks are traded in order to encourage greater trading volume. Reg NMS is a 2005 regulation focused on how stock trades are executed.
“We look forward to working with the Department to support the objectives outlined [in] this report and revitalizing our economic environment,” Tom Wittman, CEO of the Nasdaq Stock Exchange, said in a statement.
U.S. initial public offerings by number and dollar volume, 1996-2017
Source: Securities and Exchange Commission staff analysis based on Securities Data Corporation’s New Issues database (Thomson Financial). Excludes closed-end funds and American Depository Receipts. The data for 2017 is for the period ending Aug. 31, 2017.
The Treasury also said the SEC and Commodity Futures Trading Commission need to work together more to reduce regulatory overlap, but did not think the two institutions should merge.
The “Treasury’s review of the derivatives market found the need for greater harmonization between the SEC and CFTC, more appropriate capital and margin treatment for derivatives, and resolution of cross-border frictions that fragment global markets,” the report said.
“The Treasury Department’s report is a thoughtful and clear analysis of a range of market issues and, like the June report on banks and credit unions, will be of immediate and lasting value,” SEC Chairman Jay Clayton said in a statement, noting “We appreciate Treasury’s willingness to seek the SEC’s input during the drafting process.”
CFTC Commissioner Rostin Behnam said in a statement that he looks forward to working with his fellow commissioners “to consider carefully targeted regulatory adjustments that will support market participants, end-users, and customers by prioritizing safe, transparent derivatives markets.”
— CNBC’s Liz Moyer and Kayla Tausche contributed to this report.