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Source:SEC official website, Compiled by: Bitchain Vision
On the morning of December 2, local time in the United States, Paul S. Atkins, Chairman of the U.S. Securities and Exchange Commission (SEC), rang the opening bell at the New York Stock Exchange and delivered an important speech entitled “Revitalizing the U.S. Capital Market on the 250th Anniversary of the Founding of the United States.”In his speech, he elaborated on the reform of SEC capital market regulatory rules and the specific measures currently being taken by the SEC., expressing an overall vision for strengthening U.S. capital markets over the next century.
Paul S. Atkins said in his speech that hisOne of the top priorities is reforming the SEC’s disclosure rules, and focus on achieving two goals.First,SEC must base disclosure requirements on financial materiality principles.Secondly,These requirements must match the size and stage of development of the company.He also said that information disclosure reform is only one of the three pillars to revive its IPO glory.The second pillar is to depoliticize shareholder meetings and refocus them on director elections and voting on major corporate matters.In addition, the SEC must also reform the legal environment for securities litigation to eliminate unreasonable litigation while retaining channels for shareholders to make reasonable claims.
The following is the full text of Paul S. Atkins’ speech:
Good morning, ladies and gentlemen.Lynn, first of all I want to thank you for your warm introduction and for hosting this event on the exchange.I also want to thank all of the market participants who are here today.Of course, I also enjoyed meeting my colleagues from across government.Thank you all for coming, and thank you for understanding that the views I expressed today only represent my personal position as chairman and do not necessarily reflect the views of the U.S. Securities and Exchange Commission (SEC) or its members.
Introduction
There is probably no better place to think about the future of the U.S. financial system than here.The New York Stock Exchange is a temple of capital markets, filled with rhythms and rituals that allocate resources to socially valuable uses.Listen carefully and you can hear the low hum of human wisdom that has echoed in this temple for so long.And today, the echoes still ring around us.
Step out the door and the surrounding neighborhood itself tells the story of America.Take a short walk in either direction and you’ll reach landmarks like Federal Hall, where Washington was sworn in and Congress established the Treasury Department; the sycamore tree under which two dozen stockbrokers founded what is now the Exchange; and the cobblestone streets that were the cradle of commerce long before Manhattan’s skyscrapers rose.
The square mile around us is less a place than a prologue—the beginning of a story that we will now continue.
Of course, seven months later, this period of history will usher in a rare milestone – we will celebrate the 250th anniversary of the founding of the country.250 years ago, a group of revolutionaries declared that rights were neither licenses to be earned nor privileges to be taken away.They advocated the right to self-government, yes, but also to self-sufficiency.They advocate the right to work, to take risks, to get rich through one’s own efforts, to pursue happiness and property.Indeed, our Founding Fathers sought autonomy both in the centers of power and in the marketplace of ideas.
Such an important anniversary requires more than just ceremony, it demands more from us.It invites us to reflect and, of course, more importantly, prompts us to resolve to ensure that the future we shape is worthy of the legacy we inherit.
The beginning of U.S. capital markets
So allow me to take a few minutes to look back at how this history began.
Before the United States of America was a country, it was just an investment.
The earliest permanent British settlements in the Western Hemisphere were financed through joint-stock enterprises, which allowed people to pool funds, share risks and profits, and embark on this uncertain enterprise.For example, the Virginia Company—Britain’s first major security issue for the Americas—financed the Jamestown colony through share subscriptions, with investors expecting returns through land, trade, and dividends.
Decades later, a similar structure laid the foundation for the great city of New York, which would become the center of the global securities market.In fact, what is now Manhattan began as a corporate investment project.This morning, we bring you a copy of the company’s original stock offering document—New Amsterdam’s “birth certificate”—a reminder that Manhattan was founded on the idea that prosperity comes from putting capital to its most productive use.
Of course, this premise—and the financial system that sprang from it—has much older roots, dating back to Britain’s Glorious Revolution.At that time, Parliament wrested autocratic power from the Crown and established the principle that property rights were protected, contracts were enforced, and the state was governed by predictable rules rather than the personal will of the monarch.Britain became a financial power by creating an environment in which markets thrived.Our Founding Fathers inherited this worldview and built on it a more perfect Union—perhaps the most outstanding of them all, Hamilton, whose gravesite we gather today across from.
Hamilton knew that well-structured markets could unleash America’s powerful energies in a way that no monarch or government agency could.After all, free markets are the hallmark of free people.As Dr. Ludwig von Mises brilliantly put it, “If history can teach us anything, it is that private property is inseparable from civilization.”
Thus, in Federalist 11, Hamilton praised the “spirit of adventure” inspired by “the spirit of American commerce” – “that unparalleled spirit of enterprise which marks the genius of the American merchant and navigator, and which is itself an inexhaustible treasure” – and then predicted that this spirit had the potential to make the United States “the admiration and envy of the world.”
Hamilton saw in this “adventurous spirit” the potential for a vibrant young nation whose people could create their own prosperity.To be sure, he believed that government must establish stable rules, maintain public credibility, and reliably enforce contracts.But within this framework, the securities market will emerge as the times require, launching the most amazing capital mobilization in human history.
The canal connecting the interior to the coast was financed by government bonds.Railroads connecting the entire continent required unprecedented investment, giving rise to secondary markets, auditing standards and modern corporate governance structures in the process.The steel that built our cities, the oil that powered our factories, and the electricity that lit our homes all depended on the generosity of domestic and foreign investors who were willing to invest their money in an idea of what was then still a formative American nation.
Of course, we must have the humility to admit that as a nation we have sometimes failed to uphold some of our most basic founding principles.But by the early twentieth century, millions of Americans owned securities and had a framework for realizing their aspirations.In fact, wealth accumulation through financial markets accelerates social mobility.
As the century progressed, as ideologies competed to build economic power from the top down, our model steadily proved its worth on the global stage.We have redefined the boundaries of the possible by inventing the telephone and the phonograph, the assembly line and the airplane, the semiconductor that made computers universal, the Internet protocols that connected the world and GPS technology that positioned it, social media platforms that spread information at the speed of thought, and now the new realm of artificial intelligence that is changing the way we live and work.
Throughout this long journey of innovation, a clear pattern emerges: Great leaps in American life have always come from people’s willingness to tolerate and accept risks, in turn thanks to a system that rewards those who take risks.Our prosperity is not an accident of history, and our future leadership is not a given.The twentieth century was the triumph of economic freedom over restrictive dogma of all kinds.However, principles do not perpetuate themselves.Freedom is not an inheritance we inherit, but a responsibility we bear.In recent years, our regulatory framework has strayed away from the founding ideals that helped make the United States the premier destination for public companies around the world.
Deviations from SEC Capital Markets Regulation
By way of background, since the Securities Act of 1933, Congress has passed a flurry of legislation designed to address fraud and manipulation on Wall Street leading up to the stock market crash.Congress enacted securities laws at the federal level to restore public confidence in the market and thereby increase market transparency.After all, markets require trust, and trust requires transparency.
Shortly before the Securities Act took effect, President Franklin Roosevelt outlined his vision for this groundbreaking legislation in a message to Congress.He objects to the federal government’s role as a “cherry-picking regulator,” in which the government approves the issuance of securities and deems them suitable for public investment simply because it is expected to increase in value.Instead, President Roosevelt sought to protect investors through a regulatory regime based on disclosure—requiring companies that offer securities to the public to provide all material information about those securities.
In short, the Securities Act preserves the Hamiltonian model by incentivizing capital to flow toward opportunities based on investor judgment.In the same message to Congress, President Roosevelt explained, “The purpose of the Securities Act is to protect the public interest with the least possible interference with legitimate commerce.”
But over time, the inherent tendencies of the federal government gradually emerged.Regulations have proliferated faster than the problems they were designed to solve—and, in straying away from Congress’ original intent, the government has sought to substitute its own judgment for that of market participants.
Shortly after I left the SEC in the mid-1990s, there were more than 7,000 companies listed on the exchanges, ranging from small innovative companies to industry giants.However, by the time I returned to the SEC as chairman earlier this year, that number had dropped by about 40%.
What happened in those decades sounded the alarm for regulatory overreach.The moral of the story is that the path to public ownership is getting narrower, more expensive, and riddled with too many rules that often do more harm than good.
These trends undermine U.S. competitiveness; exclude ordinary investors from some of the most dynamic companies; and force entrepreneurs to seek capital elsewhere, whether in private markets or abroad.
This decline is neither inevitable nor irreversible.While the SEC has accumulated many rules and practices over the decades that are in desperate need of reform, perhaps nothing exemplifies regulatory overreach more than the lengthy disclosure requirements in the commission’s rulebook today.
SEC capital market regulatory reform measures
Over the years, and especially over the past two decades, special interest groups, politicians, and sometimes even the SEC itself have used the disclosure system Congress created for our markets to try to advance social and political agendas that stray far from the SEC’s mission of promoting capital formation, protecting investors, and ensuring fair, orderly, and efficient markets.
The accumulation of rulemaking over the years has produced a mountain of paperwork that does more to obscure the problem than to illuminate it.Today’s lengthy annual reports and proxy statements impose significant costs on companies because they take up a significant amount of board and management time and require significant expertise from attorneys, accountants, and consultants to prepare.Despite this high cost, investors sometimes fail to benefit because they struggle to understand the information or become overwhelmed by the volume and complexity of the information and ultimately choose to ignore it.
As Chairman, one of my first priorities will be reforming the SEC’s disclosure rules, focusing on two goals.First, the SEC must base its disclosure requirements on the principle of financial materiality.Second, these requirements must match the size and stage of development of the company.
Regarding the first objective, the Supreme Court clarified the objective standard of materiality and explained that information is material if it is more likely than not that a reasonable shareholder would consider the information to be material to his or her investment decision.Achieving this goal requires the SEC to exercise restraint and caution in rulemaking, and Congress should do the same when directing the SEC to mandate disclosure of information on specific topics.Our capital markets thrive not on the quantity of information disclosed but on its clarity and importance to investors.Writing for the Supreme Court, Justice Thurgood Marshall warned: “Some information is of questionable materiality, and insisting on its disclosure may do more harm than good…If the standard of materiality is too low…shareholders may be inundated with a deluge of trivial information – clearly detrimental to their ability to make informed decisions.”
To avoid information overload for investors, we should heed this warning.As advocated by President Roosevelt, our disclosure system is most effective when the SEC provides minimally effective regulation to obtain information material to investors.At the same time, we should also allow market forces to drive companies to disclose any additional operating information that may be beneficial to investors.On the contrary, if the SEC requires all companies to provide the same information, does not allow companies to adjust the disclosure content according to their own specific circumstances, and only requires that the information is “consistent and comparable” between companies, then this information disclosure system will be ineffective.
In fact, even with today’s myriad disclosure requirements, companies still provide additional information, such as non-GAAP data or key performance indicators, that is tailored to the company’s business or industry and is driven more by investor demand than by the SEC’s rulebook.
When the SEC’s information disclosure system is abused to require the disclosure of information that is not material, investors do not benefit.A prime example of this risk was highlighted by Warren Buffett in his recent final Thanksgiving letter to shareholders.No summary can do justice to what Mr. Buffett said.Therefore, I quote here an excerpt from his letter:
In my lifetime, reformers have tried to shame CEOs by requiring disclosure of how their pay compares to what the average employee is paid.The length of the power of attorney quickly expanded from the previous 20 pages or less to more than 100 pages.
But these well-intentioned initiatives did not work and backfired instead.In most of my observations, Company A’s CEO scanned Company B’s competitors and implicitly signaled to the board that he deserved higher compensation.Of course, he also increased directors’ pay and was extra cautious in selecting members of the compensation committee.The new rules inspire envy, not moderation.
This spiral is out of control.
I share Mr. Buffett’s sentiments and concerns, which is why earlier this year the SEC hosted a roundtable that brought together companies, investors, law firms and compensation consultants to discuss the current status of the agency’s current executive compensation disclosure rules and possible reforms.To my surprise, attendees agreed that executive compensation disclosures are too long and complex, limiting their usefulness and insight to investors.We need to revisit these and other SEC disclosure requirements, and this roundtable is one of the first steps I am taking to ensure that the principle of “materiality” becomes a core goal of the SEC’s disclosure regime.
Another priority of mine regarding the SEC’s disclosure rules is tailoring the requirements to a company’s size and degree of development as a public company.Balancing disclosure obligations with a company’s ability to shoulder the burden of compliance is particularly important at a time when Congress has directed the SEC to establish disclosure rules that may disproportionately impact certain companies.Of course, this approach is not a new concept.Back in 1992, during my first tenure at the SEC, the Commission first tailored disclosure requirements for smaller public companies.Twenty years later, Congress passed the “JOBS Act” with bipartisan support, providing an “IPO (initial public offering) grace period” for certain newly listed companies, allowing them to delay fulfilling some of the SEC’s information disclosure requirements.
Now is the time to revisit these concepts that have been proven to work and are worth promoting.As part of this effort, the SEC should carefully consider the thresholds that distinguish “large” companies (subject to all SEC disclosure rules) from “small” companies (subject to only some of the rules).The last time these thresholds were overhauled was in 2005.This oversight in regulatory oversight has resulted in companies with a market capitalization as low as $250 million subject to the same disclosure requirements as companies with a market capitalization of 100 times that amount.
For newly listed companies, the SEC should consider improving the “IPO buffer period” established by Congress in the “Startup Financing Act.”For example, allowing companies to stay in a “window period” for at least a few years, rather than forcing an exit in the first year after an IPO, could provide companies with greater certainty and incentivize more companies to IPO, especially smaller companies.
America’s entrepreneurs have built the most dynamic economy in history by taking their companies public and sharing the profits with employees, savers and investors.This partnership deserves to be revived.If we want the next generation of innovators to choose our public markets, we need to tailor our disclosures to the size and development of our companies; such disclosures should be driven by market needs; and, within SEC regulations, be based on substantive content rather than arbitrary social or political purposes.
Of course, disclosure reform is only one of the three pillars of my plan to revive IPO glory.The second pillar is to depoliticize shareholder meetings and refocus them on director elections and voting on major corporate matters.Finally, we must reform the legal environment for securities litigation to eliminate meritless lawsuits while preserving avenues for shareholders to make legitimate claims.The SEC has been working hard to implement this plan and looks forward to sharing the progress being made with everyone soon.
Raising funds through IPOs should not be the prerogative of a few “unicorn” companies.Public offerings are increasingly concentrated in a handful of companies, often in just one or two industries.Our regulatory framework should provide IPO opportunities for companies at all stages of development and from all industries, especially those designed to raise capital for the company rather than just provide liquidity to insiders.
Outlook for the Future of U.S. Capital Markets
The reforms I have just outlined are a valuable and necessary start.They will help capital flow faster and more freely toward its highest and best use, which is toward human initiative and creativity.They will also help guide the SEC back to the fundamental financial principles on which its mission is based.
But it’s just the first step in a broader effort to return our markets to their most fundamental purpose: to put the full power of America into the hands of citizens, not regulators.
As we look toward America’s 250th anniversary, let us remember that no country has ever given individuals so much autonomy, and no country has reaped so many rewards for doing so.Yet even as history and evidence bear out this truth, some in our society are beginning to question whether capital markets remain the most reliable engine of upward mobility.They argue that capital allocation led by political forces is superior to allocation by free market forces.They called for “the seizure of the means of production.”Often through cleverly rhymed slogans, they claim that decisions made by the government are more efficient and fair than those made by the people.They ask: “Can capitalism help people transcend the limitations of their origin or background?” Can it embody our highest values?
I personally firmly believe that capital can do this – and history has proven this.Because, at its best, capital is a tool for individuals to mobilize free social resources and pursue common prosperity.It enables us to create value for others by creating value for ourselves.Indeed, our market is a deeply moral enterprise because it is one of mutual benefit.Because every transaction has the potential to benefit both parties.Because our markets affirm the dignity of the human spirit and unleash the human potential to create, build, innovate and thrive like no other alternative.
That’s why the SEC’s work is critical.Because when our capital markets are strong, it enhances people’s sense of dignity around the world.Because no force can lift people out of poverty, broaden their paths to opportunity, or solve society’s most intractable problems more than capital investment through capital markets.
Over the coming months, we will move forward with the reforms I’ve discussed today and several others with the urgency and caution we deserve.We will work closely with Congress and the administration.We will listen carefully to the opinions of market participants and investors.We will uphold sound principles and clear mandates and move forward steadily and with confidence.But most importantly, we will advance reform with the determination of a nation that aspires to prosperity.
Conclusion
Ultimately, I believe that our capital markets are more than just financial mechanisms—at their core, they are expressions of our national character.This character has inspired generations of Americans to take risks and reap the rewards, to innovate without stopping, and to believe that the future is in our own hands.
As the 250th anniversary of the founding of the United States approaches, the question before us is not whether our entrepreneurs have the ability to reinvigorate our capital markets, but whether we as regulators have the determination to do so.
As we face a new day at the SEC, and under President Trump’s leadership, I’m pleased to report that we have done just that.
Indeed, I firmly believe that we can safeguard the future of capital markets so that they will continue to thrive for the next 250 years and beyond.I believe that we will regain the enterprising spirit that Hamilton foresaw and that this will be the source of our strength.And, I believe, we will ensure that the American story lives on not just in memory and speech, but in the courage of those determined to write its next chapter.
Thank you all so much for taking the time today.You listeners have been very patient and tolerant.I look forward to what we do next.Thanks.
