By Michelle Price
WASHINGTON (Reuters) - U.S. policy proposals to cut red tape for public companies are unlikely to boost listings while borrowing rates continue to be low and could increase risks for investors, the chief executive of FTSE Russell, the world's largest index firm, said on Tuesday.
On Friday, the U.S. Treasury published a 232-page report proposing sweeping reforms to the country's capital markets, as it looks to implement Republican President Donald Trump’s agenda to promote economic growth by slashing regulation.
The report included measures to reduce the disclosure and compliance burden for listed companies and companies seeking listings in a bid to reverse a near 50 percent decline in the number of public companies in the United States over the past 20 years.
Speaking on the sidelines of a conference in Washington, FTSE Russell CEO Mark Makepeace said the proposals were unlikely to prove effective while central bank-led monetary easing continues to allow companies to access private capital cheaply.
"I don't think this is the best approach. Money is cheap, private equity firms are awash with cash and the stock market is competing with this. With so much cheap cash, companies don’t have to go through the rigors of a public listing but the cheap cash won’t be there forever and the trend of companies not listing will right itself," Makepeace told Reuters in an interview.
"Removing unnecessary levels of bureaucracy is a good thing but removing the need for good corporate governance practices will only increase risks for investors. It's important to make a distinction between the two," Makepeace added.
With around $15 trillion in assets under management tracking its indexes, FTSE Russell, owned by the London Stock Exchange Group Plc (L:LSE), is increasingly becoming a guardian of corporate governance standards as exchanges globally have raced to relax rules amid ever-fiercer competition for listings.
In July, the company said it would exclude Snap Inc (N:SNAP) from its widely tracked benchmarks because the owner of the Snapchat messaging app has an unusual share structure that denies voting rights to investors.
Makepeace said "long-only" asset owners such as pension fund investors were failing to influence the policymaking process as effectively as companies and banks, which in contrast stand to gain from looser listing rules.
"The long-only investors aren't getting their voice across. The buy side is not as organised and nowhere near as well funded as the corporate groups."