Treasury proposes plan to streamline capital markets, boost publicly traded companies

The U.S. Department of the Treasury released a report last week that details how to streamline and reform the U.S. regulatory system for the capital markets to promote growth while eliminating some Dodd-Frank mandates.

The report was developed in response to an executive order issued by President Trump on Feb. 3, 2017, which calls on the Treasury to review financial laws and regulations.

“The U.S. has experienced slow economic growth for far too long. In this report, we examined the capital markets system to identify regulations that are standing in the way of economic growth and capital formation,” Treasury Secretary Steven Mnuchin said. “By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow.”

Over the last 20 years, the United States has seen a nearly 50 percent decline in the number of publicly traded companies. In the report, Treasury identifies numerous ways to reduce the burden on companies that are looking to go public or stay public.

Among them, the Treasury proposes to streamline disclosure requirements to reduce costs for companies while providing investors the information they need to make investment decisions, tailor the disclosure and other requirements for companies going public based on their size, and re-examine the JOBS Act to identify how its tools can be improved.

Further, the Treasury found that the federal financial regulatory framework and processes could be improved by seeking opportunities for harmonization of Securities and Exchange Commission and Commodity Futures Trading Commission regulation, incorporating more robust economic analysis and public input into the rulemaking process, and opening up private markets to more investors through proposals to facilitate pooled investments in private or less liquid offerings.

They also propose to repeal Dodd-Frank’s pay ratio rule, which requires public companies to disclose the ratio of the annual total compensation of the chief executive officer (CEO) to the median of the annual total compensation of the company’s employees. This ratio must be published in filings starting in 2018.

Sections 1502, 1503, and 1504 would repeal Dodd-Frank rules that mandate disclosure requirements for mining and other natural resources companies.

In addition, the Treasury proposes to increase the amount that can be raised in a crowdfunding from $1 million to $5 million, examine the impact of Basel III capital standards on secondary market activity in securitized products, and reduce costs of securities litigation for issuers.

FIA, the Futures Industry Association, praised the report.

“We appreciate the Treasury Department’s diligent work to create a thorough, analytical, and well-researched report,” Walt Lukken, president and CEO of FIA said. “Treasury’s recommendations will help to further strengthen and enhance centrally cleared derivatives markets.”

The Treasury recommendations on ensuring appropriate hedging exemptions for position limits, restoring the CFTC’s exemptive authority, promoting principles-based regulation, and promoting supervisory stress testing were cited by FIA as important changes.

“The appropriate tailoring of capital requirements is one of FIA’s top priorities,” Lukken said. “Currently, various capital rules increase the cost of client clearing, which undermines one of the key tenets of financial reform following the crisis, which is to utilize the safeguards of central clearing for standardized derivatives contracts. It also reduces end-users’ access to these markets which impedes their ability to effectively manage risk. Addressing this issue is critical to maintaining access to central clearing.”