New Markets Movement Takes Aim at Sarbanes-Oxley

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

By Tom Taulli, InvestorPlace Writer

NEW YORK ( InvestorPlace) -- Back in the 1990s, it seemed that just about any company could go public as long as it had a ".com" at the end of its name. But by 2001, that bubble had burst -- and many investors had lost their life savings.

To try to prevent that from happening again, Congress passed Sarbanes-Oxley, or SOX, which greatly increased the regulations for going public. Yet that legislation was put together fairly quickly, so there wasn't much time to think about the consequences.
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  • And yes, since then, the IPO market has been sluggish. For the most part, it seems only well-established companies such as Google ( GOOG), Salesforce.com ( CRM) and LinkedIn ( LNKD) have been able to meet the tougher standards.

    So might there be some pushback on SOX? There are certainly some political rumblings, with even Democrats supporting a more lenient approach.
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  • And now, there's something else: The New Markets Movement, an organization led by a former Nasdaq vice chairman, David Weild IV, and media entrepreneur Brett Johnson.

    NMM's first step will be putting together the Issuer Choice Jobs Act. The rationale is that fewer regulations will allow smaller companies to access the public markets, which should lead to more jobs. Consider that, according to a study from Grant Thornton, if IPO activity had continued at the same levels of the 1990s, the U.S. economy would have generated 11.6 million to 22.7 million new jobs during the past decade.
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  • All in all, this makes a lot of sense. SOX is certainly an albatross. Yet it's just one part of the problem. The other is a change in the economics of Wall Street. Keep in mind that it is not profitable for investment banks to pull off small IPOs, especially in light of the thin margins for trading fees.

    NMM addresses this by allowing higher tick prices on share trading. For many stocks, the difference between the bid and ask price can be a penny or even less -- which leaves little profit for brokers.

    But changing this will be tough. Do investors really want to pay higher markups on stock trading when they're accustomed to rock-bottom costs? Probably not.

    Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of All About Short Selling and All About Commodities. Follow him on Twitter at @ttaulli.

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  • This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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