IPO task force argues for relaxed listing rules

On Thursday, an IPO task force assembled by the US Treasury recommended relaxing listing requirements for small companies as a way of reenergising a subdued IPO market.

Comprised entirely of private sector professionals – including chief executives, venture capitalists and lawyers – the task force will recommend US regulators and policymakers create an IPO “On-Ramp” small businesses can use to access public capital markets.

The On-Ramp is envisioned as a five year grace period allowing businesses with annual revenue of less than $1 billion a relaxed set of standards to follow before meeting full listing requirements. If enacted, the On-Ramp would today impact an estimated 14 percent of companies and 3 percent of total market capitalisation in the US.

The report noted listed companies spend some $2.5 million to meet listing rules, and once public, an additional $1.5 million per year thereafter to maintain compliance. Smaller companies can reduce these costs by about 30 to 50 percent if exempted from the requirement to provide regulators five fiscal years of certain financial data; scaled back disclosures requirements in registration statements and annual reports; and exemption from certain pending administrative requirements included under Dodd-Frank, argued the task force.

The scaled regulations would be limited to those areas of compliance that are high cost and which do not compromise investor protection or disclosure, the task force said in its submitted report, “Rebuilding the IPO On-Ramp: Putting Emerging Growth Companies and the Job Market Back on the Road to Growth”.

During the past 15 years, the number of high-growth companies  entering the capital markets through IPOs has plummeted relative to historical norms, in effect hobbling job creation, the report said.  The report concluded “the cumulative effect of a sequence of regulatory actions, rather than one single event, lies at the heart of the crisis.”

The report also suggests improving the availability and flow of information for investors before and after an IPO, and lowering the capital gains tax rate for investors who purchase shares in an IPO and hold said shares for at least two years.