A Summary of SEC Commissioner Michael Piwowar’s Remarks on IPOs

Introduction

At the beginning of his opening remarks in May of 2017, SEC Commissioner Michael Piwowar expressed that he was happy to be involved in the SEC-NYU dialogue in which he shared his views on the IPO market. Piwowar has a thorough background in economics, politics, and finance – including an employment history in economics, a Ph.D. in Finance, a M.B.A., and a B.A. in Foreign Science and International Politics (according to the SEC). Piwowar gave the opening remarks for the discussion on “Reviving the U.S. IPO Market” (see www.sec.gov).

Benefits of IPOs

After a small introduction of gratitude, Piwowar begins his opening remarks by discussing the benefits of IPOs to convince his listeners that the improvements he suggests are necessary and beneficial. Among these benefits he includes:

  • Increasing Capital through Public Investors – Companies can increase capital through not only private, but also public investors. In addition, Piwowar mentions that this capital can be used in a variety of ways including “to hire employees, develop new products and technologies, and expand operations.”
  • Including an Exit Strategy – Piwowar details that including an exit strategy (through a merger/acquisition, IPO, selling to a colleague, etc.) will allow companies to be more productive and make IPOs “available to employees through stock options and grants.”
  • Adding Economic Exposure – Piwowar explains that “adding economic exposure from growing firms and industries” will allow companies and their employees to “share in the wealth” and “enhance their overall risk diversification.” In other words, IPOs will allow investors to raise more capital and be more prepared to cope with potential financial
  • Enhancing Capital Formation – IPOs create competition between public and private markets, which, Piwowar explains, will thereby increase
  • Enhancing Efficient Decision Making – Piwowar explains that IPOs help investors better decide on investment options.

Piwowar concludes this section on the advantages of IPOs by motivating his listeners to implement them. He says, “In a nutshell, a robust IPO market encourages entrepreneurship, facilitates growth, creates jobs, and fosters innovation, while providing attractive opportunities for investors to increase their wealth and mitigate risk,” which further details the numerous benefits of IPOs.

Reduction in IPO Activity

Secondly, Piwowar shares why there has been a dramatic reduction in IPO activity in the last 15 years and gives several other statistics which suggest that there has been a reduction in IPO activity. If you are interested in hearing more about what Piwowar believes has caused this reduction. Piwowar shares the following about the reduction in IPO activity:

  • He believes that there has been an increase in the availability of alternative sources of capital; therefore, there are more ways to raise capital and consequently less IPOs, particularly small IPOs.
  • Trading venues have increased the alternative sources of capital.
  • Crowdfunding and Regulation A also provided alternatives.
  • He shows concern for the decrease in the number of underwriters for small IPOs.
  • Because of globalization and consolidations (“in investment banking and brokerage services”), Piwowar believes that there is cheaper debt financing.
  • The reduction in IPO activity is also due to the “winner-takes-all” trend. In other words, as Piwowar states, “firms have to get bigger faster to improve profitability.”
  • Regulatory changes, which have been affected by Sarbanes-Oxley Act of 2002, Decimalization and Regulation NMS, and Section 12(g) of the Securities Exchange Act, have reduced IPO activity.

Improvements

Piwowar then answers the question, “How can we improve the IPO process?” He mentions Title I of the JOBS Act, titled “Emerging Growth Companies,” which can be found on www.sec.gov. Another encouraging improvement is to support small businesses, thereby benefiting the economy.

Piwowar concludes his speech by showing gratitude for his listeners and requests comments. I encourage you to read his opening remarks if you would like a more detailed reading than the summary above.

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