Over-regulation dragging down capital markets, small business

Over the years, we have doubled and tripled-down on re-regulating the capital markets. One can debate the merits of these efforts; however, the practical impact is indisputable. Take America’s share of the global Initial Public Offerings (IPO), a great indicator of the direction of a given market. In the early 1990s, American exchanges played host to over half of the world's new public companies.

Flash forward to 2010 and it was just 11 percent. According to the Securities and Exchange Commission, Sarbanes-Oxley compliance is the most often cited reason why companies choose to list elsewhere. Legislation such as Sarbanes-Oxley and Dodd-Frank have driven up the cost of raising capital in our markets, impairing the ability of US businesses (especially start-ups) to expand and hire.
 

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Enter the JOBS Act and a key provision authored by Rep. Fincher (R-TN). The section would provide a regulatory “on ramp” for start-ups hoping to list on U.S. exchanges. According to the SEC, the burden of complying with regulations such as Section 404(b) of Sarbanes-Oxley is more than seven times that imposed on large firms relative to their assets. By creating a new emerging growth class of public companies, this bill provides a buffer for these start-up firms and makes a U.S. listing relatively more appealing.
 
While this provision is a strong step in the right direction, our “star player” is still on the bench. U.S. businesses are drowning in red tape and foreign jurisdictions are fighting to supplant the U.S. at the center of the global capital markets. They offer consistent and pragmatic regulatory and tax structures that provide a stark contrast to the U.S. business environment. Unless we take a deeper look at reforming our regulatory structure, our capital markets and our nation’s job creators will be on the losing end.

Rep. Ed Royce (R-CA), representing Fullerton and other parts of North Orange County, is a senior member of the House Financial Services Committee.