When Donald Trump interviewed Jay Clayton to be his chiefsecurities regulator in December, the then-president elect wasfixated on the steep decline in U.S. initial public offerings.

During the meeting at the Mar-a-Lago club in Florida, Trump evencited statistics on the drop, which started two decades ago, saidpeople familiar with their discussion. He was particularlyconcerned that more companies were choosing to sell their sharesoverseas, rather than on the New York Stock Exchange and the NasdaqStock Market.

The conversation showed Trump's eagerness for the Securities andExchange Commission to focus on promoting growth, after it hasspent years layering tough rules on Wall Street and otherindustries. In Clayton, a corporate lawyer, the president hasnominated an SEC chairman who should know which regulations mayneed loosening.

“Public markets need to be more attractive,” said DavidHirschmann, president of the U.S. Chamber of Commerce's Center forCapital Markets Competitiveness. “We need a modern, effectiveregulatory system that enables growth.”

While there is disagreement about how much rules are stiflingmarkets, and even why companies are choosing to stay private,regulation has long served as a boogeyman for the chamber and othercorporate lobbyists. Much of their attention has focused on theDodd-Frank Act, which set new restrictions for Wall Street afterthe financial crisis.

But with Trump in the White House, Republicans controllingCongress and an SEC pick who has worked on some of the biggestIPOs, business groups see a chance to go further. They want torevisit long-standing SEC policies on what corporations mustdisclose to investors and chip away at onerous accountingrequirements imposed more than a decade ago in response to fraudsat Enron and WorldCom.

A new, deregulatory slant would mark a major shift in the SEC'spriorities. It also would rekindle a debate that went mostly quietin the years after the 2008 financial meltdown: Is the agency'smain job to police markets and protect shareholders, or should itgive more consideration to helping businesses raise capital?

Clayton may have his Senate confirmation hearing next month, andDemocrats are expected to press him on how to strike the rightbalance.

Creating Jobs

Trump has made clear he sympathizes with corporate complaints.As he noted last month after picking Clayton, the SEC chief will“play an important role in unleashing the job-creating power of oureconomy by encouraging investment in American companies.”

The tone is troubling to investor advocates who credit anaggressive SEC for stemming a long tide of corporatewrongdoing.

Over the past 15 years, the agency has imposed numerousregulations required by two major laws, Dodd-Frank and theSarbanes-Oxley Act, which Congress passed in 2002 after investorslost trillions of dollars in the wake of the Enron and WorldComfailures.

Mark Flannery, who stepped down as the SEC's chief economist inDecember, said there is always an inherent tension between addingrules to protect shareholders or easing them to goose markets.

“It's a tradeoff,” said Flannery, who is now a businessprofessor at the University of Florida in Gainesville. “Thequestion is, what's the right balance?”

Trump signed a directive in early February ordering the Treasurysecretary to review financial regulations, with an eye towardidentifying policies that hurt U.S. competitiveness. While hisadministration framed the order as an attack on Dodd-Frank, thelook back is likely to go deeper and touch on Sarbanes-Oxley aswell.

The law has been on Trump's radar for years. It required chiefexecutives to swear to the accuracy of their books and set new,expensive rules for auditing the internal controls companies use tocatch wrongdoing. In a 2008 CNN interview, the then-real estatemogul and reality TV star, said Sarbanes-Oxley was a classic caseof government overreach, noting “it really puts this country at acompetitive disadvantage.”

Statistics do show a dramatic drop in IPOs. The best year forU.S. listings was 1996 when 863 companies sold shares amid the techbubble, according to data compiled by Bloomberg. This decade, thehigh-water mark was 2014, when 362 companies went public. Lastyear, there were just 130 U.S. IPOs, compared with 1,367 on foreignmarkets.

'A Disaster'

Even though the decline started before Sarbanes-Oxley, the law'scritics say it has played a leading role in stifling IPOs.

“Those of us who opposed Sarbanes-Oxley at the time it passed,said it was going to be a disaster. And it has turned out to be,”said Peter Wallison, a senior fellow at the American EnterpriseInstitute in Washington. “It is a terrible problem for our economywhen we are not having companies go public.”

Clayton, a partner at the Sullivan & Cromwell law firm inNew York, is among those who have said regulatory burdens have putpressure on startups, though he also has cited other factors forwhy companies remain private. He got on Trump's radar by writing apolicy paper for the transition that argued smaller companiesshould be exempted from some rules when they go public.

Clayton declined to comment through a spokesman.

In recent meetings with lawmakers and others in Washington,Clayton has shared an anecdote that he says shows the need to cutsome of the SEC's regulations. Twenty years ago, when midsizedcompanies sought his opinion on whether to go public, he advised80% of them to go for it. Now he recommends that just 20% of thetime.

In 2012, Congress eased some burdens when it passed theJumpstart Our Business Startups Act. The law, which as its namesuggests was designed to spur jobs, allows smaller companies relieffrom SEC disclosure requirements when they go public. Still, ithasn't spurred a flood of new IPOs as some lawmakers expected.

Clayton, in his Washington meetings, has spoken approvingly ofthe Jobs Act and has said it should be expanded, the peoplefamiliar with the matter said.

Some securities lawyers argue that blaming regulationoversimplifies the situation. Firms have an ever-expanding menu ofways to raise money outside the stock market. And capital is easierto keep around when companies are private and investors aren'tpoised to flee every time quarterly earnings miss expectations.

Lawmakers' Help

“There's just such a deep private capital market,” said DavidLynn, a former SEC attorney who is now a partner at Morrison &Foerster.

If Trump and Clayton want to make big changes to Sarbanes-Oxley,they will need Congress' help.

In the House, a wide-ranging financial regulation bill could beintroduced as soon as this month that would exempt more companiesfrom Sarbanes-Oxley's internal control requirements. These audits,which are meant to ensure public companies have adequate safeguardsto prevent fraud, collectively cost corporations billions ofdollars annually.

Once the legislative wrangling begins, business lobbyists saidthey will try to get lawmakers to strike down even more ofSarbanes-Oxley. Chief on their list is a mandate that CEOs certify,under the risk of criminal penalties, that their companies'financial results are accurate. Accounting firms, too, may make apush to overturn the law's so-called independence restrictions,which bar them from doing many kinds of consulting work for auditclients.

Should that happen, “it would take less than five years to getback to Enron,” said Lynn Turner, a former SEC chief accountant whohelped write Sarbanes-Oxley.

“This is not how you create jobs,” Turner said. “That is afigment of someone's imagination.”

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