A sizable U.S. Securities and Exchange Commission (SEC) report on the impact of regulatory reforms enacted after the 2008 financial crisis finds gains for some sectors of the investment marketplace, no discernible impact on others, and positive movement for small company initial public offerings (IPOs), emerging growth companies (EGCs) and private offerings.
West Palm Beach attorney Laura Anthony, a securities investment specialist and founder of Legal and Compliance, LLC, notes in her Securities Law Blog that the report – all 315 pages of it – found “no empirical evidence that U.S. Treasury market liquidity deteriorated after regulatory reforms,” specifically the Dodd-Frank Act and the 2012 JOBS Act.
However, the report by the SEC Division of Economic and Risk Analysis (DERA) finds that total market securities increased after the implementation of the JOBS Act, as did the number of small company IPOs (less than $30 million), up from 17% of all to 22% of all IPOs.
“Although I do not believe that emerging growth companies are necessarily small companies, more than 75% of IPOs were by ECGs in 2016,” Ms. Anthony points out.
Other key findings from the DERA report:
· Capital formation totaled $20.2 trillion from the time Dodd-Frank was signed in 2010 through 2016; of the total, $8.8 trillion was raised through registered offerings, and the remainder through private offerings.
· IPO capital reached highs in 1999, 2007 and 2014, and lows in 2003, 2008 and 2016.
· The market liquidity of the U.S. Treasury did not deteriorate after regulatory reform, while corporate bond trading activity improved or remained flat.
· Factors in addition to regulatory legislation have also affected market liquidity, including the impact of electronic markets, macroeconomic changes and post-crisis charges in dealer risk preferences.
The DERA analysis looked at five broad considerations, including the link between primary market capital raising and secondary market liquidity; the impact of alternative credit risk products and bond market liquidity; capital market liquidity; smaller market behaviors; and other regulations that affect different investment groups disproportionately.