small and medium-sized companies, the task force said, and giving companies a gradual “on ramp” to full compliance could cut these costs by 30 to 50 percent.
2. Ease restrictions on the activities of research analysts employed by broker-dealers such as investment banks, as a way to get more information to potential IPO participants, especially non-institutional investors who don’t have their own research departments. Rules designed to curb the rampant conflicts of interest in the 1990s, when researchers routinely became shills for the the stocks their banks were promoting, have had the effect of leaving all but the biggest investors in the dark in the periods immediately before and after an IPO, the task force argued. (Related to the issue of pre-IPO disclosures, the task force recommended that the S-1 registration statements filed with the SEC by companies intending to go public be kept confidential until after the SEC’s initial review, to give companies time to work out the kinks in their applications.)
3. Give investors a capital-gains tax break for holding on to a stock for at least two years after an IPO. It’s common for investors to wait until after an IPO, to see whether a stock is trending up or down, before they start trading. If investors knew they’d get a tax break down the road for investing in the initial IPO allocation at the opening price, the companies themselves would presumably collect more capital.
4. Arm pre-IPO companies with better strategies for negotiating the hazards of going public. The task force addressed this recommendation not to lawmakers or regulators, but to “members of the emerging growth ecosystem,” including companies’ venture investors, board members, and advisors. The task force noted, for example, that companies should choose their investment bankers carefully, searching out those interested in encouraging their long-term growth rather than simply profiting from short-term trading.
Mitchell, the task force chairwoman, said in a statement today that the four recommendations are “extremely targeted” and that they would scale back existing regulations in a reasonable way without endangering investors. “Given the urgency of getting America back on the path to economic growth, we need to get capital back in the hands of companies that create jobs,” Mitchell said. “History tells us that emerging growth companies do exactly that.”
Here are the IPO Task Force summary slides, followed by the full report.
