Nasdaq advocates for reforms to rejuvenate public equity markets

“While our markets and our economy are fundamentally healthier than they were a decade ago, there is a growing need to address structural concerns even amid steadily rising indexes and market tranquility,” says Adena Friedman, president and CEO of Nasdaq, in a statement.

She notes there are now nearly 1,000 fewer publicly traded companies in the U.S. than there were 10 years ago; and, that U.S. initial public offering activity is also near a 10-year low.

“This has negative consequences for job creation and economic growth and threatens to worsen income inequality as average investors become increasingly shut out of attractive investment opportunities,” Friedman says.

The report points to three primary concerns with the public markets: regulation that dis-incentivizes market participation; one-size-fits-all market structure; and an investment culture that “increasingly values short-term returns at the cost of long-term growth.”

Amid these concerns, Friedman says, “We have outlined a blueprint for reform designed to create a dialogue and facilitate common sense action steps that help reignite America’s economic engine by modernizing market structure, reconstructing the regulatory framework and reorienting to a longer term view.”

On the regulatory front, the report calls for: reforms to the proxy proposal process to reduce the burden on companies: greater flexibility associated with quarterly reporting: and rolling back disclosure requirements that don’t relate to a company’s financial and business performance. It also strongly supports comprehensive tax and litigation reform.

It terms of market structure, the report says, “We need to consolidate liquidity for lower-volume issuers, allow for flexible tick sizes, and consider a broad range of updates that would bring our markets into the 21st century.”

As for the rise of short-termism, Nasdaq supports, “enhancing transparency around activist investing, equalizing short interest transparency, and we continue to believe that dual class structure is critical to attracting the most innovative and growing companies to participate in public markets,” the report says.

The exchange acknowledges that its proposals require further study. “Nasdaq recognizes that it would be unrealistic and imprudent to enact all the reforms recommended at once,” the report says. “Some are “shovel-ready” and could be implemented immediately with great benefit, while other reforms we support require additional study and industry engagement.” So, for now, it hopes that the report motivates dialogue and action.

Recently, Canadian securities regulators launched their own effort to address some of the same issues raised in Nasdaq’s report, including the regulatory burden on issuers; particularly, the obligations of quarterly reporting.

Read: CSA aiming to reduce regulatory burden on issuers

Last month, the Canadian Securities Administrators (CSA) published a consultation paper that contemplates a variety of possible reforms to both prospectus and continuous disclosure requirements, including a possible move away from quarterly reporting. Comments on that paper are due by July 7.