The Securities and Exchange Commission proposed two rule changes Monday designed to make it easier and less expensive for companies to go public and remain listed, the agency said.
The proposal to reform the registered offering, if adopted, would be the most significant update to the registered offering framework in more than 20 years, the SEC said. A broader set of public companies will have access to the offering, allowing firms to pre-register securities and sell them when market conditions permit. Current eligibility for shelf offerings requires a minimum amount of $75 million and a full year of SEC reporting history — two criteria the new proposal would eliminate, according to Reuters.
More companies will also be able to use registration and contact conditions reserved for “known experienced issuers,” a term associated with large public floats. The proposal would also prioritize the registration requirements of federal securities laws for all registered offerings, reducing the cost and complexity of multi-state listings, the SEC said.
The second proposal would raise the threshold when a company becomes a “big filer” — a term that triggers stricter reporting requirements and mandatory auditor certifications about internal financial controls — from $700 million to $2 billion in publicly traded shares. No company will reach that stage for at least 60 months following its IPO regardless of how it goes public, the SEC said.
Every company outside the main category of accelerated filers will fall into one non-accelerated filer category, freeing them from the obligation to have an external auditor verify the adequacy of their financial controls. Taken together, the changes will make the reduced disclosure framework available to about 81% of publicly traded companies. A sub-category comprising the bottom 18% of publicly traded companies will get more time to file – 30 more days for annual reports and five more days for quarterly filing. Despite the small pool of large accelerated filings, those remaining companies – about a fifth of all listed companies – will represent 90% of the total market capitalization, Reuters reported based on anonymous SEC officials.
“Today, the Commission proposed two rules that serve as the foundation of my agenda to make IPOs Great Again,” SEC Chairman Paul S. Atkins said in a statement.
The proposals drew criticism from Better Markets, a group that advocates for tighter oversight of Wall Street. Ben Schiffrin of Better Markets argued that the regulatory changes would expose investors to greater risks of corporate misconduct, and pointed to the growth of private markets – where companies can meet their capital needs without a public listing – as evidence that regulatory incentives for IPOs are misplaced, according to Reuters.
Tuesday’s announcements follow a series of related SEC actions. The agency proposed in early May to allow public companies to file earnings reports twice a year instead of four, giving firms the option to replace quarterly 10-Q filings with the new annual form. Both sets of proposals are open to public comment for 60 days following publication in the Federal Register.
