TheCorporateCounsel.net

Earlier this week, Nasdaq announced the release of a comprehensive set of policy recommendations in a paper titled “Advancing the U.S. Public Markets: Unlocking Capital Formation for a Stronger American Economy.” In its announcement, Nasdaq notes:

The paper draws insights from a recent survey and ongoing engagement with thousands of Nasdaq-listed companies and advances critical policy proposals to strengthen the public markets and retain the U.S. capital markets’ status as the global standard for economic innovation and wealth creation.

Over the past 25 years, the number of public companies listed on U.S. exchanges has declined 36%, from 7,000 to 4,500, while the number of private equity-backed companies in the U.S. has increased approximately 475%, from 2,000 to 11,500. One of key drivers behind this trend is the increased burden associated with public company status. The decline in the number of public-traded companies is harmful to the overall strength, liquidity, and depth of the U.S. markets. The unjustifiable increase in the burdens and costs that must be borne as the price for the privilege of accessing U.S. public markets has needlessly hampered U.S. companies’ growth, scale, and competitiveness in the global economy. Importantly, it has also limited Main Street Americans from benefiting from the value and wealth creation potential from American innovation.

Nasdaq’s paper recommends pragmatic and results-oriented regulatory changes to restore balance between oversight and accessibility in the public markets. The analysis includes views from companies and argues for proxy process modernization, scaled disclosure with renewed emphasis on materiality, common sense litigation reform, and increased transparency into short selling.

Several of the key policy initiatives addressed in the paper include:

– Proxy Process Modernization, including improving proxy plumbing, common sense proxy access and shareholder proposal reforms, and proxy advisory reform.

– Scaled Disclosure Relief, including anchoring disclosure requirements in materiality, streamlining quarterly reporting practices, and updating scaled disclosure for emerging growth companies, accelerated filers, smaller reporting companies and well-known seasoned issuers.

– Leveling the Playing Field with Smart Regulation, including ensuring audits remain relevant and affordable, updating short selling disclosures, and reining in unproductive litigation practices.

In a Q&A with John Zecca, Nasdaq’s Executive Vice President and Global Chief Legal, Risk, and Regulatory Officer, that was released at the same time as the paper, John was asked “What are the risks if the advice in the report is not taken?” He replied:

I think the biggest risk is that companies skip the public markets, and that will impact the ability of mainstream investors to save for retirement and meet their needs. They’ll have fewer investment options. On top of that, the U.S. economy as a whole will be impacted if there are fewer public companies, generating fewer jobs. And the cutting-edge companies of tomorrow that need to raise capital may not have that capital and may struggle.

Without these modernization reforms, we will lose ground to other countries. If you look around the world now, the U.S. markets are the envy of the world: When I travel, I hear repeatedly that others are looking to emulate the U.S. model. And these other countries are not standing still: They are deregulating and changing their listing rules to try to draw in more companies. So, if the U.S. doesn’t act now, then we are at risk of falling behind in the global capital race.

That’s the core risk, but the good news is that U.S. policymakers understand this, and they see these concerns. The new administration is very focused on improving the public company model.

That’s why we believe this report outlines the right policy ideas at the right time.

– Dave Lynn