Unlike U.S. public offerings, the Rule 144A market is not subject to SEC regulation under the ’34 Act (which includes Sarbanes-Oxley) and avoids exposure to securities class actions based on strict liability. Further, because access to this market is limited to large institutions, the risk of securities class actions is generally lower. Therefore, use of the Rule 144A market reflects a negative judgment on the perceived value of a public listing in the U.S.
We provide two measures of the size of the Rule 144A equity market.
Measure 6 – Rule 144A Equity Privately Raised by Foreign Issuers in the U.S.
No data exists regarding the aggregate annual issuances of Rule 144A equity (which is often bundled with debt and other non-U.S. equity and may be issued directly or through American Depositary Receipts (ADRs)). However, data is available regarding ADRs issued by the principal depositary bank—the Bank of New York Mellon (“BONY”). BONY’s market share of newly created Rule 144A ADR programs has ranged from 58% to 64% in the period from 2000 to 2008 (the three other major 144A depositary banks are JPMorgan, Citi and Deutsche Bank). Although Rule 144A ADRs issued by BONY provide the best basis for estimating the aggregate size of the Rule 144A ADR market, the figures do not include significant amounts of Rule 144A equity directly issued by foreign companies in recent years. Therefore, the data significantly understate the present size of total Rule 144A issuances.
Measure 7 – Relative Size of the Private Rule 144A and Public Equity Markets
This measure compares the amount of equity raised by foreign issuers in the U.S. via Rule 144A ADRs to the amount of equity publicly raised by foreign issuers in the U.S., which provides some indication of the relative attractiveness of the U.S. public market. The data estimates total Rule 144A ADR issuance extrapolating from BONY’s market share. (Again, because the Rule 144A ADR figures do not include Rule 144A equity directly issued by foreign issuers, we significantly understate total Rule 144A issuances.)