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Paul Atkins' Senate Confirmation Hearing: Part I; Private and Public Markets
By Jim Toes
STA President and CEO
Paul Atkins will soon testify before the Senate Banking Committee for his potential SEC Chairman nomination, with no set date. If approved, a full Senate vote could confirm him within three weeks.
After serving as an SEC Commissioner from 2002–2008, Atkins stayed influential in Washington, D.C., on market structure and economic issues. While his nomination has stirred less controversy than others, we can still expect scrutiny from Senators with opposing perspectives.
In addition to facing questions on his regulatory philosophy, enforcement priorities, and the SEC’s mandate: protecting investors, ensuring fair markets, and supporting capital formation, Atkins will face more specific inquiries. In this first of a multi-part series about the topics he will most likely face, we highlight the relationship between private and public equity markets.
Private and Public Markets: A Divergence in Growth Rates
Capital formation relies on thriving private and public markets, but striking the right balance has long challenged SEC Chairs—a difficulty that will persist. Since the Sarbanes-Oxley Act of 2002, the landscape has shifted dramatically, fueled by prolonged low interest rates and a mix of regulatory, economic, and structural factors.
Over the past two decades, the total market capitalization for public equity markets is more 2.5x its in level in 2000 when adjusted for inflation. But the increase masks a concerning trend: over that same time period, the number of publicly traded companies has dropped more than 30%, to approximately 4,500. Private equity companies on the other hand have seen robust growth across all metrics.
These growth divergences prompt critical questions about the role of our public markets. They should facilitate capital formation for new companies and provide wealth generation opportunities widely. However, our current one-size-fits-all market structure, governing public companies regardless of size, maturity, or industry, favors large caps but often feels ill-suited and onerous for smaller or younger companies.
Encouraging companies to go public earlier in their life cycles and ensuring their public experience is beneficial necessitates a rethink of the broader ecosystem. This includes bolstering support for small to mid-sized broker-dealers and asset managers, pivotal in guiding younger firms to market.
Reforms aimed at encouraging more companies to go public while maintaining robust investor protections have proven challenging to pinpoint and even more so to implement, given regulators' preference for uniform regulatory frameworks.
Reporting Standards: Providing Relief or Protection?
The regulatory reporting regime for private companies is far less burdensome than that imposed on their public counterparts, offering an appealing alternative for businesses looking to avoid the costs and scrutiny of public markets while also being able to control who becomes a shareholder. The relaxed reporting standards for private companies were originally intended to benefit startups and smaller firms by reducing compliance costs. However, this lighter regulatory touch has raised investor protection concerns when it comes to large private players with outsized influence.
Take, for example, Deepseek, a major private company incorporated outside the U.S. Recently, Deepseek made public remarks that sent ripples through the financial markets, impacting valuations and investor confidence. There are those who argue that if Deepseek were a public company, it might have faced liability for its statements and possible omissions that could have violated securities laws.
This incident underscores a growing tension: while lower reporting standards provide flexibility for emerging companies, they can also shield larger private entities from accountability, even when their actions reverberate across public markets.
Looking Ahead: Re-establish a Proper Balance
The evolution of private and public markets highlights broader shifts in how companies access capital and expand. While private markets offer significant advantages—lower costs, greater control over ownership, and fewer regulatory burdens—the decline in public companies represents the loss of a once-viable path for new businesses and a wealth-generating opportunity for all investors. Addressing this imbalance requires a holistic approach, from rethinking reporting standards to strengthening the infrastructure that supports companies in transitioning to public ownership.
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