Committee Study Shows Weakness in the Competitiveness of US Primary Markets

U.S. capital market competitiveness showed continued historical weakness through the second quarter of 2014, although some limited signs of improvement over the previous year did develop.

“While we have seen a modest improvement in U.S. capital market competitiveness this year as compared to 2013, the overall competitive landscape continues to disappoint,” said Professor Hal S. Scott, Director of the Committee on Capital Markets Regulation. “Foreign companies are choosing to raise capital outside U.S. public markets at rates far below the historical average.”

Cross-border IPOs have increased in the first half of 2014 over the levels seen in 2013 with the U.S. share increasing from 7% in 2013 to nearly 12% in 2014 to date. In addition, the U.S. has also outpaced Hong Kong this year in this respect. However, while the relative improvement over 2013 is a step in the right direction, the fact remains that the absolute levels of U.S. competitiveness measures are a long way from the strength seen in the past. Compared to the historical average of 26.8% (1996-2007), the 11.9% U.S. share of global IPOs by foreign companies remains quite low.

Furthermore, while the overall U.S. IPO market did see renewed signs of strength in the first half of the year, increasing 55% in volume over the first half of 2013 ($35 billion versus $22.6 billion), foreign issuers accounted for relatively little of that activity. In fact, a number of additional key measures of market competitiveness showed continued weakness, including:

Foreign companies that did raise equity capital in the United States in the first half of 2014 did so overwhelmingly via private rather than public markets. Over 84% of initial offerings of foreign equity in the United States were conducted through private Rule 144A offerings rather than public offerings. This measure of aversion to U.S. public equity markets has remained consistently higher over the past five years than the historical average of 66.1% (1996-2007).

U.S. share of equity globally raised in public markets sits at the lowest level since 2009. Equity markets in the U.S. captured only 29.9% of primary and secondary offerings so far this year, down from a recent high of nearly 50% in 2012. This reflects a continued preference by issuers to avoid the United States equity capital markets.

Cross-listing activity in the U.S. by foreign companies for non-capital raising purposes remained low. Activity in the first half of 2014 suggests only 4 foreign companies will cross-list in the U.S. this year for purposes other than capital raising (such as bonding to US standards), fewer than in any year since 2008, and well below the historical average of 17 cross-listings per year. The low number of companies seeking to list in the U.S. without raising capital provides further evidence that the regulatory climate is not attractive to companies wishing to associate themselves with more rigorous standards of conduct.

The CCMR believes that the policy recommendations in its 2006 Interim Report remain essential to the restoration of U.S. competitiveness. “We urge regulators implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to minimize the adverse competitive effects of new regulations, particularly in areas where the U.S. regulatory approach differs significantly from competitor markets,” said Scott.

Historical data through 2013 are available here.


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For Further Information:

Hal Scott,
Director, Committee on Capital Markets Regulation