In May 2017, Nasdaq published a report titled The Promise of Market Reform: Reigniting America’s Economic Engine. The report stems from Nasdaq’s concern about the state of U.S. pubic markets, which have become “more complex and costly for issuers, particularly for publicly-listed small and medium growth companies and for private companies that might consider public offerings.”
The report emphasizes that “companies increasingly question whether the benefits of public ownership are worth the burdens” and warns that if such burdens are not addressed, it “could ultimately represent an existential threat to our markets” as “a growing number of companies have been choosing to remain private—and some public companies are reversing course and going private.”
But Nasdaq’s report does not just create an alarm, it sets forth a blueprint for “critically-needed reforms.”
The report identifies the following three specific problems and offers concrete solutions in these areas:
(i) a complex patchwork of regulation disincentivizes market participation and creates the need to reconstruct the regulatory framework;
(ii) a one-size-fits-all market structure deprives companies of the benefits they need to participate in public markets (particularly for small and medium growth companies), which can be fixed by modernizing the market structure; and
(iii) a culture in the investment community and in the mainstream media that values short-term returns that should be changed to promote long-termism.
For example, Nasdaq suggests that the reconstruction of the regulatory framework would involve: (i) reforming the proxy proposal process; (ii) reducing the burden of corporate disclosure; (iii) rolling back politically-motivated disclosure requirements; (iv) reducing the burden of meritless class action lawsuits; and (v) a tax reform to incentivize long-term investing.
The implementation of most Nasdaq-suggested reforms would involve a lengthy rulemaking process, but it’s important that a dialogue about these issues “among investors, public and private companies, industry groups, and policymakers” has been launched.
