Listings

Public spirited

The plan to make IPOs great again

Anybody who has “not been through a public-company experience may think that being public is desirable. This is not so,” wrote Elon Musk to employees of SpaceX, his rocket company, in 2013. Mr Musk added that it might not go public “until Mars is secure”. Since then he seems to have softened his stance: SpaceX, which recently merged with xAI, his artificial-intelligence lab, is this year expected to list its shares in the largest initial public offering (IPO) of all time. The 75bn Mr Musk is reportedly seeking to raise, at a value for the company of 1.75trn, would be more than twice as much as the next-largest offering, of shares in Saudi Aramco in 2019.

SpaceX may not be this year’s only mega-IPO; OpenAI and Anthropic, leading model-makers, are also said to be eyeing a listing. That will hearten those who have complained about the growing aversion of American companies to public markets. The number of businesses listed in America has fallen by more than a third since the mid-1990s as the cost of compliance has risen and private markets have expanded and matured. Buy-out barons have gobbled up many public companies, while startups have increasingly opted to remain in the hands of venture backers or else sell themselves to larger incumbents. Now, however, regulators and the companies that keep public markets running want to make IPOs great again.

In December Paul Atkins, head of the Securities and Exchange Commission (SEC), lamented that the diminution of public markets had “eroded American competitiveness, locked average investors out of some of the most dynamic companies and pushed entrepreneurs to seek capital elsewhere”. The SEC is pursuing several solutions, with a focus on reducing the regulatory burden of being a public company. It is currently drafting a proposal to allow listed firms to file reports twice a year rather than quarterly. It is also looking to reduce disclosure mandates such as those relating to climate change. And it wants to curb the power that proxy advisers, class-action litigants and other outsiders have over bosses.

Compilers of stock indices are also joining in the effort to revive interest in listings. They care because companies’ reluctance to go public undermines one of their main selling points: that their indices include the most important firms in the economy. According to S&P Global, which manages the S&P 500 and Dow Jones indices, the collective value of the ten largest venture-backed companies has increased by 1,500% over the past five years, to nearly $3trn. It and its competitors yearn to add these companies to their rolls.

One proposal is to reduce the time businesses must wait after an IPO before they can be included in an index, known as the “seasoning” period, which at present usually ranges from three months to a year. That would bring forward billions of dollars’ worth of stock purchases by passive funds. Nasdaq is adopting a “fast-entry” period of 15 trading days for suspiciously SpaceX-shaped companies seeking admission to its Nasdaq 100 index; LSEG has suggested five trading days for entry to its Russell indices. Another carrot they are considering is reducing the percentage of shares companies must float before being eligible for index inclusion. S&P Global is reportedly weighing similar changes.

For Nasdaq, encouraging more companies to go public would be doubly sweet, since it also runs a stock exchange that rakes in fees when firms list (and annually thereafter). It is competing with the New York Stock Exchange to win the SpaceX listing, and Mr Musk has reportedly made early index inclusion a condition of gaining his favour.

The three mega-IPOs will also gladden those who want to see the wealth generated by AI spread more widely. Still, there may be losers from the changes. Consider the impact on passive funds. One purpose of the seasoning period is to allow the market to settle on a price for a firm’s shares before these investors must buy them; reducing that period may force the funds to buy overpriced shares. The problem may be compounded by the change to the free-float rules, which would mechanically raise demand from passive funds while keeping the supply of shares down, pushing up the price. Since 1980 all but one of the large firms that initially floated less than 5% of their stock underperformed the market over the next three years, according to data gathered by Jay Ritter of the University of Florida. Retail traders may also struggle to get their hands on the shares of the hottest companies.

The coming months will serve as a test of the balance of power between public markets and private firms. At present the latter seem to have the upper hand. Index operators in particular are “anxious to please without regard to potential consequences”, says Patrick Healy, who has negotiated IPO terms with them for many big companies. Still, there are limits to the sway of bosses such as Mr Musk, who need the vast pools of money available in public markets to fund their ambitions. After all, getting to Mars is not cheap.

Terms

Listing & IPO

listing 在金融行业是上市的意思， 而IPO (initial public offering, 首次公开募股)

公司一般有两种发行股票的方式：IPO公开募股和Private placement 非公开，私募(Private Equity Fund)

Seasoning period: 在公司上市之前IPO之后的持有期，过了此期限才能够上市

Venture backers VC: 天使投资人

free float: 在上市公司股权中自由交易的部分

SpaceX may not be this year’s only mega-IPO; OpenAI and Anthropic, leading model-makers, are also said to be eyeing a listing.

eyeing verb. 瞄准，有意向

That will hearten those who have complained about the growing aversion of American companies to public markets.

heart → hearten 使振奋

aversion 厌恶 to/toward 词根 -vers- 表示“转”。

It is also looking to reduce disclosure mandates such as those relating to climate change. And it wants to curb the power that proxy advisers, class-action litigants and other outsiders have over bosses.

disclosure 揭露

mandates 授权

litigant 诉讼当事人

Discussion

American private giants have been reluctant to get listed or go public over recent decades. However, this year, SpaceX and two other AI mega-companies are eyeing a listing to attract capital from the public - and especially from passive funds. This is good news for liquidity in the capital market. Policymakers have reduced the restriction on report filings. Stock index compilers, as negotiators between the market and corporations, promote the listing of top firms to expand their rolls and substantially enhance their competitiveness: the seasoning period has been shortened - a quick entry of capital is exactly what they are expecting.