Often, when I whine about the shrinking number of public companies and the absence of a robust pipeline for initial public offerings, I am very focused on the plights of securities lawyers and the companies they represent. But that is pretty self-centered, because the stock exchanges are also sad. There’ve been fewer bell-ringing parties, probably, among other reasons for wanting more listings.
So, it’s not too surprising that the major exchange operators are responding to the SEC’s call for deregulatory feedback. Reuters reported last week that Nasdaq and NYSE reps are among the groups that are sharing ideas with the SEC that could ease the burden of becoming – and remaining – a public company. Reuters describes some of the topics that may be on the table:
One area in focus is an overhaul of current proxy processes, which involves information that companies have to provide shareholders to allow them to vote on various matters.
The reform would make it harder for activist shareholders with small stakes to launch proxy contests and curb repetitive proxy proposals from minority investors, the sources said. It would also lead to less onerous disclosure requirements in preliminary proxy filings, according to the sources.
Another effort involves making it less expensive for companies to list on exchanges and remain public by reducing fees associated with listing, the sources said.
The conversations also include making it easier for companies that went public through deals with special purpose acquisition companies (SPACs) to raise capital, the sources said. In recent years, the SEC had cracked down on SPACs, in which a firm goes public by selling itself to a listed shell company, as a work around listing regulations.
The rollbacks would also make it easier for public companies to raise capital by selling additional shares through follow-on offerings, they said.
Meanwhile, as Dave shared last week, “capital formation” legislation has also advanced in the House. If you have ideas for improving the regulatory framework, don’t forget to add your two cents to the suggestion box!
It’s important to remember that regulations can only bear so much blame for the lack of initial public offerings. A bigger part of it is the market – where banks steer deal flow, availability of capital and high valuations in private fundraising rounds, and overall public market performance and perceptions. This Bloomberg article says there are reasons for optimism for those of us on Team IPO – with a few caveats:
At nearly the half-way mark of the year, IPOs on US exchanges have raised $29.1 billion, surging 45% versus the same period last year, according to data compiled by Bloomberg.
That’s not nearly as good as it sounds.
Proceeds from IPOs are actually down from last year, when you excise the $12.1 billion of blank-check vehicle listings — an increase of more than 400% from last year. While special purpose acquisition companies have raised a lot of money in listings, some of the underwriters’ fees are deferred until the blank-check merges with a private firm and takes it public. That activity remains depressed compared to the heady levels of 2021.
Excluding SPACs and tiny listings by companies raising less than $50 million, only 33 IPOs have priced this year, down from 41 in the first half of 2024.
I’m going to take a “glass half-full” view of these stats and our current environment. For one thing, the article shares predictions that the second half of 2025 and into 2026 will be a busy time for public offerings.
Second, even though the article disregards “tiny listings,” those deals help disprove the stereotype that today’s public markets are only for later-stage companies with huge valuations. The smaller companies are also an important part of the market – and they’re often pretty fun to work with, too.
Last week, the SEC’s Office of the Investor Advocate – which is also known as the “OIAD” – announced that it had delivered this 24-page report to Congress on its objectives for the fiscal year ending September 30, 2026. Priorities include:
1. Investor research and testing on existing and proposed disclosures to retail investors.
2. Informing SEC activities and policy priorities through data collected from nationally representative surveys.
3. Addressing and advocating for the priorities and concerns of retail investors affected by financial fraud, including through the Interagency Securities Council.
4. Private market investments in retirement accounts.
5. China-based variable interest entities listed on U.S. exchanges.
The report describes the Investor Advocate’s disclosure-related objectives as:
Among other things, the Investor Advocate will explore different approaches to making required disclosures more user-friendly and comprehensible to investors, particularly retail investors, while also considering the extent to which this may add to the costs and burdens on issuers and other providers of disclosure. For example, investors may benefit from highlighting or simplifying certain information, streamlining disclosure requirements, and/or reducing or eliminating repetitive disclosures.
A central aspect of this effort will be ongoing engagements by the Investor Advocate with retail investors and other relevant parties to develop a more thorough understanding of how investors use this information and to solicit a range of views on how to improve the effectiveness of the current disclosure system.
I heard a lot of complaints last week at the SEC’s Executive Compensation Roundtable – from both companies and investors – that executive compensation disclosure in particular has become very unwieldly. Hopefully, that means that when the OIAD solicits a range of views, it can find a few folks who can see the benefits of streamlined – and less burdensome – disclosures.
If you’re curious about why this report was delivered, it’s one of two that Exchange Act Section 4(g)(6) requires the Investor Advocate to deliver each year. This one is “forward-looking” for the forthcoming fiscal year. The other – due December 31st – reports on activities for the preceding fiscal year.
The Investor Advocate delivers the Report directly to Congress without any prior review or comment from the Commission, any Commissioner, any other officer or employee of the Commission outside of the OIAD or the Office of Management and Budget. So it doesn’t necessarily reflect the priorities of the Commission.
In addition to considering the impact of streamlined disclosures on investors and companies, the report that the SEC’s Office of the Investor Advocate delivered to Congress says that public-private markets are also a 2026 priority for the OIAD. Specifically:
The Investor Advocate will explore some of the issues surrounding the inclusion of alternative investments – such as private equity and private credit – in retirement savings plans and their implications for retail investors.
That’s a timely endeavor since – as Bloomberg’s Matt Levine has explained, “the new market is public-private.” Here are just a few of the recent developments in this quick-moving space:
– The WSJ reported last week that BlackRock will begin including private investments in its 401(k) target date funds.
– State Street announced back in March that it’s exploring a similar move.
If anyone had unresolved questions on whether the asset managers are prioritizing financial returns over long-term “sustainability” or “ESG” considerations, the fact that they’re hopping on the private equity train should put those doubts to rest.
SquareWell Partners – a Europe-based shareholder advisory boutique for high profile “special situations” – recently published the latest edition of its survey on institutional investors’ views on shareholder activism (available for download).
This year’s survey includes responses from 30+ global investors – representing $35 trillion in assets under management. SquareWell asked how these institutions view activism, what drives their support for activist campaigns, and how boards can engage more effectively to avoid escalation.
Some highlights:
– Most investors (77%) view activism as a useful force for catalyzing change and accountability.
– A key concern (65%) is that activists may oversimplify complex businesses or adopt overly short-term views and cause disruption.
– Board-related activism tied to governance and management change is most supported (71%), while M&A and balance sheet activism receive minimal backing (3%).
– Nearly half of investors are open to engaging before a campaign is public; many also consult peers to gauge broader sentiment.
If you want to stay in the know about shareholder activism – and what your company or clients can do to stay out of the crosshairs – make sure to also check out the “Understanding Activism with John and J.T.” podcast. John and J.T. Ho have been covering all sorts of interesting topics with engaging guests. The episodes are all posted on TheCorporateCounsel.net and DealLawyers.com!
FINRA filings are about to get significantly more expensive! Under a rule change submitted last fall, they are going to phase in higher fees over the course of the next few years. FINRA doesn’t receive tax dollars – it relies on fees to fund its mission of regulating brokers. It’s been over a decade since some of the fees have last increased. Not surprisingly, FINRA says that the current fee structure isn’t keeping up with costs.
For Section 7 – which spells out the fees that apply to reviews of proposed underwriter arrangements for public offerings under FINRA Rule 5110 – FINRA is hiking the fee cap for non-WKSIs by 400%! Here’s more detail:
Section 7 of Schedule A to the FINRA By-Laws sets forth the fees associated with filing documents pursuant to the Corporate Financing Rule. It currently provides for a flat fee of $500 plus .015% of the proposed maximum aggregate offering price or other applicable value of all securities registered on an SEC registration statement or included on any other type of offering document (where not filed with the SEC), with a cap of $225,500; or a fee of $225,500 for an offering of securities filed with the SEC and offered pursuant to Securities Act Rule 415 by a Well-Known Seasoned Issuer (“WKSI”) as defined in Securities Act Rule 405. The fee associated with any amendment or other change to the documents initially filed with Corporate Financing is also subject to the current $225,500 cap.
FINRA has not raised the fee cap since 2012. FINRA is proposing to increase and modify the fee cap beginning in July 2025 as follows:
Corporate Financing Public Offering Review Fee Cap – Proposed Implementation
IPO
2024
2025
2026
2027
2028
2029
Non-WKSI
$225,000
$1,125,000
$1,125,000
$1,125,000
$1,125,000
$1,125,000
WKSI
$225,000
$270,000
$324,000
$389,000
$467,000
$560,000
This proposed rule change would raise the fee cap to $1,125,000, which would account for the significant growth in the size of offerings since the cap was last raised in 2012. However, for WKSIs, the cap would be raised to $560,000 over a period of five years. FINRA notes that raising the caps would also create more consistency with the SEC IPO review fee, which has no cap.
FINRA projects that increasing the cap as proposed would capture 81% of the incremental revenues if there were no cap while bounding the impact on WKSIs whose offerings tend to be less resource intensive for Corporate Financing to review. FINRA believes such fees are and would continue to be paid for by, or passed through to, issuers. When the proposed fee increase is fully implemented, it is designed to generate an additional $31 million in annual revenue by 2029.
In addition, FINRA is implementing a private placement review fee for private offerings that exceed $25 million and that use a registered broker-dealer. The cap for those fees is around $40k.
The new fees go into effect on July 1st. This Alston & Bird memo offers a couple important action items:
Issuers and FINRA members are advised to prepare for the implementation of these increased and new fees and consider their impact on future offerings from a budgetary standpoint and, in the case of private placements, to update expense reimbursement provisions of placement agent agreements (e.g., to ensure clarity regarding treatment of FINRA filing fees, which we expect would be reimbursable by the issuer outside any expense cap).
As I shared yesterday, the SEC is seeking feedback on whether it should amend the definition of “foreign private issuer” to better balance capital formation and investor protection. Meanwhile, the New York Court of Appeals recently delivered two decisions that are welcome news under state corporate law for foreign entities doing business in the U.S. This Cleary memo explains:
Both disputes posed the question whether New York’s Business Corporation Law (BCL) allows a shareholder plaintiff to bring derivative claims on behalf of a foreign corporation in New York so long as it satisfies the BCL requirements for such a suit, even if the plaintiff lacks standing under the law of the place of incorporation. The Court of Appeals rejected that theory and held that the BCL does not displace the well-settled internal affairs doctrine, which applies the substantive law
of the place of incorporation (not the law of the forum) to, among other things, the question of who has standing to assert derivative claims on behalf of the corporation.
Here’s Cleary’s takeaway (also see this D&O Diary blog):
In Ezrasons, the New York Court of Appeals emphatically endorsed the internal affairs doctrine and thwarted plaintiffs’ attempts to turn New York courts into unofficial arbiters of the internal corporate governance of corporations around the world. Foreign corporations and their boards should take comfort that they will not necessarily subject themselves to derivative suits in New York simply by doing business here. That said, it is important to note that shareholders still have some ability to bring derivative claims on behalf of foreign corporations if doing so is consistent with substantive foreign law and if plaintiffs can show that any contrary foreign law rule is merely procedural, not substantive.
Yesterday marked the 40th anniversary of Ferris Bueller’s day off. Brilliantly, it was also “field day” at my kids’ elementary school. Who else remembers these parachute games from their own childhood? Wishing you all a few carefree moments to enjoy baseball games, popsicles, and pool parties in the months ahead!
At its open meeting yesterday, the SEC announced publication of this 71-page Concept Release – which seeks feedback on whether the Commission should amend the definition of “foreign private issuer” to better balance investor protection and capital formation.
Dave has blogged about “the plight of foreign private issuers” – as recent rulemaking hasn’t afforded as many accommodations as FPIs might hope for. Yesterday’s 2-page fact sheet highlights that the FPI population has changed over the last two decades:
• The two jurisdictions most frequently represented among Exchange Act reporting FPIs in fiscal year 2003 were Canada and the United Kingdom, both in terms of incorporation and the location of headquarters. In contrast, the most common jurisdiction of incorporation for Exchange Act reporting FPIs in fiscal year 2023 was the Cayman Islands, and the most common jurisdiction of headquarters in fiscal year 2023 was mainland China. The Commission staff also found a substantial increase in Exchange Act reporting FPIs with differing jurisdictions of incorporation and of headquarters, from 7% in fiscal year 2003 to 48% in fiscal year 2023.
• The Commission staff found that the global trading of Exchange Act reporting FPIs’ equity securities has become increasingly concentrated in U.S. capital markets over the last decade. As of fiscal year 2023, approximately 55% of Exchange Act reporting FPIs appear to have had no or minimal trading of their equity securities on any non U.S. market and appear to maintain listings of their equity securities only on U.S. national securities exchanges. As a result, the United States is effectively those issuers’ exclusive or primary trading market.
In light of these changes to the FPI population, and in line with remarks that Commissioner Uyeda made almost exactly a year ago, the concept release seeks input on the following possible approaches to amending the FPI definition:
• Updating the existing FPI eligibility criteria;
• Adding a foreign trading volume requirement;
• Adding a major foreign exchange listing requirement;
• Incorporating an SEC assessment of foreign regulation applicable to the FPI;
• Establishing new mutual recognition systems; or
• Adding an international cooperation arrangement requirement.
The comment period will be open for 90 days following publication of the comment request in the Federal Register. You can submit comments here. Each of the Commissioners also published statements on the concept release, which provide more color on their views.
I blogged yesterday about the spike in “against” recommendations from ISS each June, for director votes and say-on-pay. In its initial look at how the “June phenomenon” applies to say-on-pay votes, Exequity looked at whether the voting trends could be explained by industry practices or pay-for-performance disconnects. Neither of those possible factors appeared to drive the trend. Exequity also looked at “repeat offenders” – which did seem to contribute somewhat to the spike, but only partially.
A member said they’d given it some thought, and pointed out that there could be another straightforward explanation:
Compared to April and May, the proportion of June meetings held by small- and mid-cap companies is higher. Those companies are more likely to have persistent material weaknesses in internal controls (a major driver of “withhold” recommendations on small-cap directors); and more likely to lack board diversity (which was a significant driver of withhold recommendations in prior years).
I’ve also noticed that in some cases, accounting issues, succession crises and other indicators of deeper problems are what cause the shareholder meeting to be delayed until June (if the company is non-timely in filing its 10-K, it may not be able to hold its AGM on the normal schedule, for example).
I’d also note that some smaller companies are less likely than their larger counterparts to make changes in response to a low say-on-pay vote – and that could drive adverse recommendations the following year – including against compensation committee members in some cases. Exequity’s “repeat offender” analysis took some of that into account and found it’s a contributing factor.
At any rate, in my experience, many small cap companies would love to have the luxury of worrying about ISS voting recommendations and AGM scheduling! Companies that geek out over a “spike” are probably not the ones affected by it…
