US SEC commissioner backs direct listings to rein in Wall Street fees

WASHINGTON — US Securities and Exchange Commissioner Robert Jackson told on Tuesday that he supports so-called direct listings as a way to help bring down the excessive fees companies pay to Wall Street banks in order to go public.

His comments come as staff at the SEC, the top US securities regulator, weigh a proposal by the New York Stock Exchange for a rule change that would allow more companies to go public without using banks to underwrite the transaction.

Mr. Jackson, a Democratic commissioner who was a capital markets banker early in his career, said he could not comment on the NYSE’s specific proposal but that he generally welcomed innovations that could reduce the 7% fee companies raising less than $1 billion typically pay to Wall Street banks to go public.

That fee, which has remained unchanged for two decades, according to research conducted by Mr. Jackson’s office, is a major obstacle for middlemarket companies looking to list, he said.

“In the modern world we live in, where everything costs less, it is astonishing that we charge a 7% tax to give people access to the public capital markets of the United States,” Mr.

Jackson said. He also rejected the claim frequently made by corporate lobbyists that red tape is the main reason the number of public companies has declined over the past 20 years.

“The good news is I think people are starting to compete, and direct listings is the beginning of what I hope will be a lot of innovation in the space,” Mr. Jackson said.

In 2018, music streaming business Spotify Technology SA launched a direct listing, followed in 2019 by communication platform Slack Technologies Inc. Both had successful market debuts, but their share prices have since struggled.

One advantage of direct listings is that the companies paid less in fees to Wall Street banks than in a traditional IPO. Critics, though, worry that direct listings could weaken investor protections, since banks also act as gatekeepers helping to spot fraudulent would-be issuers.

Mr. Jackson, who has established himself as a vocal advocate for investors during his two years at the SEC, acknowledged that “trade off” and said he would want to see details on how any direct listing rule change would protect investors.

“What we’ll need is a solution that’s robust and protects investors,” he said.

SHAREHOLDER RIGHTS

Over the past year, Jackson has increasingly found himself at odds with his Republican colleagues, voting against a raft of rule changes he said could diminish shareholder rights.

Among those were two highly contentious November proposals that critics say could reduce shareholders’ ability to call for corporate changes on thorny issues like political spending — a murky area on which Jackson tried to cast more transparency during his previous role as an academic.

Those proposals have sparked vigorous push-back by investor groups and proxy advisory firms, which help investors vote on corporate ballots. Jackson said the proposals had “a long way” to go before they could be adopted and that he hoped his SEC colleagues would reconsider them.

He also raised concerns over a lack of disclosure by funds that claim to invest in sustainable companies, saying there was “troubling evidence” some are taking extra fees but doing very little to change the way they invest.

Net new deposits in sustainable funds grew to $20.6 billion in 2019, nearly four times the previous year’s record, according to Morningstar.