Yesterday, Chairman Atkins rang the NYSE opening bell and delivered a speech entitled “Revitalizing America’s Markets at 250.” He was introduced by NYSE president Lynn Martin, who focused her remarks on the declining number of publicly traded companies and the rising cost of going public, noting that the exchange looks forward to working with the SEC to create a simpler framework and reduce the regulatory burdens imposed on public companies.

In his speech, Chairman Atkins outlined his “vision to strengthen U.S. capital markets for the next century and what the SEC is doing now to lay that groundwork” and restated the three pillars of his plan to make IPOs great again – including disclosure reform, “de-politicizing” shareholder meetings and reforming the litigation landscape for securities lawsuits. On disclosure reform, he highlighted two main goals:

– To root disclosure requirements in the concept of financial materiality; and

– That disclosure requirements scale with a company’s size and maturity.

On materiality, he noted:

[O]ur disclosure regime is most effective when the SEC provides, as FDR advocated, the minimum effective dose of regulation needed to elicit the information that is material to investors, and we allow market forces to drive the disclosure of any additional aspects of their operations that may be beneficial to investors.

In contrast, an ineffective disclosure regime would be one where the SEC requires that all companies provide the same information without the ability to tailor the disclosure to their specific circumstances, with the only view that such information should be “consistent and comparable” across companies.

He cites the SEC’s executive compensation disclosure rules as an example of where he feels disclosure requirements have gone off the rails:

[E]arlier this year, the SEC held a roundtable that brought together companies, investors, law firms, and compensation consultants to discuss the current state of the agency’s executive compensation disclosure rules and potential reforms. Somewhat to my surprise, there was universal agreement among the panelists that the length and complexity of executive compensation disclosure have limited its usefulness and insight to investors. We need a re-set of these and other SEC disclosure requirements, and this roundtable was one of the first steps to execute my goal of ensuring that materiality is the north star of the SEC’s disclosure regime.

With respect to the scalability of disclosure requirements, he suggested:

[T]he SEC should give strong consideration to the thresholds that separate “large” companies, which are subject to all of the SEC disclosure rules, and “small” companies that are subject to only some of them. The last comprehensive reform to these thresholds took place in 2005. This dereliction of regulatory upkeep has resulted in a company with a public float of as low as $250 million being subject to the same disclosure requirements as a company that is one hundred times its size.

For newly public companies, the SEC should consider building upon the “IPO on-ramp” that Congress established in the JOBS Act. For example, allowing companies to remain on the “on-ramp” for a minimum number of years, rather than forcing them off as soon as the first year after the initial offering, could provide companies with greater certainty and incentivize more IPOs, especially among smaller companies.

Notably, in his conclusion, Chairman Atkins reiterated the ambitiousness of his agenda, saying, “But these are only the first steps in a broader effort to realign our markets with their most fundamental purpose, which is to place the full measure of American might where it belongs: in the hands of our citizens instead of the regulatory state.”

– Meredith Ervine