Why We Need to Support Public Capital Markets

Traders Magazine Online News, June 11, 2018

Brett Paschke

America’s public capital markets are the most robust in the world and a vital source of financing for many of the world’s most innovative businesses. Unfortunately, changing market dynamics and heavy regulatory burdens are hampering capital formation for these businesses and restricting investors’ access to wealth creation opportunities. I recently testified on SIFMA’s behalf before the House Financial Services Subcommittee on Capital Markets, Securities and Investments at a hearing entitled “Legislative Proposals to Help Fuel Capital and Growth on Main Street” focused on addressing these issues.

It is difficult to overstate the changes that have occurred in U.S. public capital markets over the last twenty years.  Unfortunately, not all the changes have been positive. An explosion in private funding, the rise of index and passive investing, technological advances in our equities markets such as electronic trading, the development of hedge funds, high frequency trading, the maturation of international exchanges, consolidation in the investment banking industry, and yes, the impact of regulations from Sarbanes-Oxley and Dodd-Frank have all played a role in reshaping our markets.

From a peak in 1996, the total number of publicly listed domestic companies in the U.S. has fallen by almost 50%, from 8,000+ to just over 4,300. The U.S. now has about as many public companies as it did in the early 1980s. The annual number of U.S.-listed IPOs dropped from a peak of 492 in 1996 to ranging between 24 and 232 annually for the period from 2001 to 2017, despite the attempts of policymakers to revitalize this market through the Jumpstart Our Business Startups (JOBS) Act of 2012 and follow-on legislation.

I spend much of my time meeting with private company executives, their Boards and their investors, discussing alternatives for raising capital and realizing value. More often than not these decision makers cite the costs of going and staying public, the demands of quarterly reporting, regulatory and corporate governance requirements, and the reduced number of success stories as reasons that they prefer to be funded privately or to sell their business to a strategic acquirer or private equity fund. The explosion of private capital markets, led by angel investors, venture capital firms and private equity firms has allowed companies to grow their business and valuations without ever tapping public markets.

For more information on related topics, visit the following channels:

• Equities
• Exchanges and ECNs