US regulator extends secrecy rules to boost IPOs

The US financial regulator has extended laws on initial public offering (IPO) filings that will allow large companies to keep their financial information secret as they prepare stock market listings.

Companies, with less than $1bn (£0.77bn) annual turnover, already enjoy the "confidential filings" rule, made possible in the 2012 JOBS Act and the Securities and Exchange Commission's new chairman plans to extend the privilege to all companies.

SEC Confidential

Confidential filings mean a company considering an IPO can submit draft paperwork with the SEC under seal, thus allowing it to gauge interest and make adjustments to its pitch before it becomes necessary to disclose financial information.

Before the 2012 act, companies would have to submit performance numbers, financing and business strategy plans along with their IPO prospectus as the SEC reviewed their offering.

Since the act's introduction, however, about three out of every four IPOs in the US have used the confidentiality process to their benefit, according to data from Dealogic.

New SEC chairman Jay Clayton addresses concerns about the falling number of new listings in the US - Source: PA Images

A boost for new listings

Jay Clayton, appointed last month as chairman of the SEC after nomination by President Trump, said the move would provide a boost to the listless IPO market.

He said: "By expanding a popular JOBS Act benefit to all companies, we hope that the next American success story will look to our public markets when they need access to affordable capital."

Market operators in the US and Europe are concerned about the drop in listings in 2016 and into 2017.

The Federal Reserve's rate tightening, and increasingly hawkish undertones at Bank of England and European Central Bank meetings could be partially responsible as investors prepare for more volatile stock market conditions.

Fading IPO market

Recent history of US new listings may also have had some impact on the market.

IPOs in the US fell by more than a third in 2016 compared with 2015 as just 102 companies made their stock market debuts – well below the annual average of 157 that prevailed over the 10-year period to 2014.

And of the 102 new listings in 2016, one in four companies now trades below their initial offer price.

In Europe, there were 265 new listings in 2016, down from 364 in the previous year.

Hopes for a better 2017

"There are many drivers of these trends, but whatever the causes, fewer opportunities for Main Street investors to share in the growth of our economy is one of the consequences," Clayton said in a speech last week to the SEC Investor Advisory Committee.

This year, however, is already shaping up to be an improvement on 2016 as many of the uncertainties that may have prevented companies going public – such as elections and regulatory issues – have been resolved.