SEC chair Paul Atkins

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In a proposed rule change, the SEC declared that allowing public companies to file financial reports only twice a year will coax more of them to enter the public markets. But many investors aren't buying, instead pointing to a different main culprit: macro conditions.

This skepticism—and even outright rejection—could make SEC chair Paul Atkins' ambitions to overhaul IPO regulations more challenging. The semiannual rule is one of three IPO-friendly proposals the SEC floated this spring, alongside potential changes to offering registrations and expanding the emerging growth status to lighten disclosure requirements.

While the SEC has been attempting for years to get more companies to go public via friendlier regulation, such as the ability to confidentially file draft registrations, this change would run counter to what investors actually want, as numerous asset managers, pension funds and financial data firms told the agency in more than 2,000 public comment letters.

"It will reduce transparency, widen information asymmetry, and weaken accountability between management and shareholders," wrote Calpers CEO Marcie Frost, who heads the largest public pension in the US, in a June 19 letter.

Calpers has about $162 billion in equities, a little more than a third of its overall assets, and its most recent disclosures show a tech-heavy portfolio, with an S&P 500 ETF, Microsoft, Amazon, Nvidia and Apple accounting for about a third of the pension's stock portfolio.

Similarly, Calcbench, a financial data firm whose clients manage more than $20 trillion, argued that demand for company data is climbing, not falling: Queries it fielded for institutional clients rose about 20% over the past year.

"Shareholders want more information, not less," CEO Pranav Ghai wrote to the SEC, noting that Citadel, Fidelity, Two Sigma, BlackRock, T. Rowe Price and DE Shaw had all warned against the change.

The Managed Funds Association, the Alternative Investment Management Association and SIFMA's Asset Management Group, which lobby for the interests of institutional investors, asked the SEC on June 15 to push the July 6 deadline back 60 days as they solicit feedback from members.

"The [proposed rule] would fundamentally restructure a disclosure framework that has required quarterly reporting by U.S. public companies for more than 55 years," the June 15 letter said, adding that the measure would "fundamentally change the information environment upon which investment decisions are made."

Opting into semiannual disclosures would also have some downsides for companies, such as making it more difficult to raise debt, as lenders would expect the customary quarterly earnings reports, said DLA Piper partner Stephen Alicanti. It could also hamper subsequent share offerings. And given that it would not take effect before 2027, the change would do nothing for the IPO market this year.

In fact, support for the proposal has come mostly from the issuer side.

Foley & Lardner partners Louis Lehot and Patrick Daugherty, whose clients include issuers, backed all of the SEC's spring proposals and pressed the agency to further streamline and speed up the IPO filing process. Lehot told Pitchbook it could result in annual savings of up to $200,000 for public companies—a rounding error for a mega-cap, but a significant outlay for a small-cap. Still, they noted that the SEC could take a nuanced approach and permit this only for smaller companies.

The other firms declined to comment beyond their public letters.

That said, the rule could benefit newly public companies in certain sectors, including biotech and other R&D-focused companies, noted Alicanti. That's because drug developers and other research-intensive, newly public companies have fewer material developments to report quarterly.

While biotech IPOs have made somewhat of a comeback, it's been mostly from companies with solid patient data and operations—not pre-clinical ones as seen in the pandemic-era boom. A number of deep-tech companies have also jumped into the public markets over the last several months, though they've opted to merge with SPACs, which offer a faster and more certain process.

This article originally appeared on PitchBook News