The Australian Coat of Arms in metal hangs on the glass wall of a building that reflects another high-rise across the street.
iStock/John M. Chase

Australian regulators are grappling with a familiar challenge — how to reinvigorate listings amid a decline in public markets, and an ongoing shift to private capital markets.

 The Australian Securities and Investments Commission (ASIC) issued a discussion paper that sets out its initial views on the evolution of both global and domestic markets, and calls for ideas to help address its concerns about the decline of public markets, and growing risks in private markets.

Among other things, the paper said that, while it’s possible that the decline in public listings and initial public offerings (IPOs) is cyclical, regulators are “worried about the future of public markets.”

The paper detailed the decline in public listings in other markets, including Canada — which it said now accounts for 2.6% of global market capitalization, down from 3.0% in 2014. Over the same period, Australia’s share has also dropped to 1.4% from 1.7%, whereas the U.S. share has risen to 51.4% from 34.1%, it noted.

At the same time, private markets have grown, and are now capturing a greater share of corporate finance activity.

The ASIC said that it doesn’t see regulation as the primary factor driving public equity listing activity, but it also conceded that there may be opportunities to adjust its rules to improve the attractiveness of its markets.

The paper also said that this is taking place in other markets, including Canada, where the Toronto Stock Exchange (TSX) has proposed changes to its listing rules to improve transparency and reduce complexity.

“We can’t be complacent about the future of Australia’s public equity markets,” said ASIC chair Joe Longo, in a release.

“ASIC is determined to achieve dual goals with this paper by ensuring Australia’s markets are attractive to companies and investors while protecting against risks,” Longo said.

Longo called the discussion paper — which seeks “actionable ideas on regulation” that could improve the operation of capital markets — one of the regulator’s most important initiatives of the year.

Alongside concerns about the vibrancy of its public markets, the paper noted that there are also key risks in private markets, including conflicts of interest, a lack of transparency, uncertain valuation, illiquidity, and leverage that may require increased regulatory attention.

To that end, it noted that regulators in other markets are improving their access to data on private markets, which it also needs “to more accurately assess risk.”

In particular, the paper noted that: “The private credit market does not appear to be systemically important in Australia, but failures are on the horizon, and at current volumes it is untested by prior crises.”

Regulators need better information to monitor these risks and plan responses, it added.

“At present, ASIC’s data and information gathering powers are inefficient and incomplete. We simply can’t do our job properly if we are in the dark,” Longo said.

The ASIC is seeking feedback on its paper by April 28.