US Department of the Treasury Report on Capital Markets

President Trump issued executive order 13,772 on February 3, 2017, which aimed to regulate the U.S. financial system with a set of core principles. In response, the U.S. Department of the Treasury prepared a report titled, “A Financial System That Creates Economic Opportunities: Capital Markets”, to identify all laws and regulations that are either compliant or inhibit regulation according to these core principles.

These core principles are:

  • Empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth
  • Prevent taxpayer-funded bailouts
  • Foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry
  • Enable American companies to be competitive with foreign firms in domestic and foreign markets
  • Advance American interests in international financial regulatory negotiations and meetings
  • Make regulation efficient, effective, and appropriately tailored; and
  • Restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework

Because of how large the scope of the U.S. financial system is, the Treasury will be delivering four separate reports covering: the depository system, capital markets, asset management and insurance industries, and nonbank financial institutions. President Trump also issued two additional Presidential Memoranda on April 21, 2017 that call on the Treasury to review the Orderly Liquidation Authority (OLA) and the process the Financial Stability Oversight Council (FSOC) utilizes to determine if a nonbank financial company poses a threat to US financial stability. The Treasury plans on submitting additional reports relating to these topics as well.

These are some of the highlights and key recommendations from the report:

Promoting Access to Capital and Investment Opportunities

The Treasury made several recommendations designed to encourage companies towards going public, including the removal of duplicative requirements and non-material disclosure requirements. They also aimed to help smaller companies by recommending the removal of scaled disclosure requirements.

The Treasury also recommended that the SEC reevaluate their definition of “accredited investor”, in the hope that the number of eligible investors could be increased for private placements. They also recommended that caps be increased on the amount of capital that can be raised through Regulation A+ private offering exemptions.

Fostering Robust Markets for Businesses and Investors

The Treasury claims that the current “one-size-fits-all” market structure may inhibit small companies, and subsequently recommended that the SEC consider regulatory changes that would improve liquidity for these companies, including changing the price increment that companies can trade at.  

Because these recommendations are almost entirely out of the scope of the Treasury’s authority, the SEC, CFTC, and other financial regulators will be primarily responsible for choosing if they want to implement these recommendations.

The full 91 recommendations made in the Capital Markets Report can be found here: https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf

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