Securities and Exchange Commission Chair Gary Gensler was back on the Hill, this time testifying before the Subcommittee on Financial Services and General Government, US House Appropriations Committee. During his testimony, Chair Gensler commented on five key capital markets trends, which included a discussion on IPO, SPAC and direct listing trends and policy implications.
In what he called “a once-in-a-generation wave of traditional initial public offerings,” Chair Gensler noted that between January 1, 2021 and May 19, 2021, almost 400 companies filed to undertake traditional IPOs and 118 traditional IPOs have been completed, rivaling the total number of S-1s filed in 2016.
Chair Gensler stated that the SEC has received 700 S-1 filings from SPACs, to date, with 300 SPAC IPOs completed. Chair Gensler recognized that SPAC mergers facilitate a target company’s access to the public markets. He noted that over 100 “target IPOs,” the term the Chair used to describe what is commonly referred to as a “de-SPAC” or “SPAC merger,” have been completed in 2021. Chair Gensler also recognized that PIPEs have been used to raise capital by SPACs.
Chair Gensler also acknowledged that private companies are accessing the public markets through direct listings.
In his testimony, Chair Gensler outlined the issues the SEC has prioritized given its limited resources. These include the exchange rules for primary direct listings, which the Commission has recently approved (see our blog posts here and here), and providing guidance relating to the issues arising in connection with accounting for warrants issued by SPACs.
Chair Gensler also recognized that the recent surge in SPAC transactions raises a number of policy questions particularly related to the investor protection; the transparency of information provided to retail investors; and whether SPACs are less efficient than traditional IPOs. With regard to the last point, Chair Gensler raised issues relating to the economic incentives of SPAC sponsors and financial advisors, as well as conflict of interest issues. Chair Gensler remarked that he has asked the SEC Staff to consider what recommendations should be made to the SEC for possible rules relating to these issues.