In its determination to reverse a two-decade slump in U.S. stock listings, a regulator might offer companies an extreme incentive to go public: the ability to bar aggrieved shareholders from suing.

The Securities and Exchange Commission in its long history has never allowed companies to sell shares in initial public offerings while also letting them ban investors from seeking big financial damages through class-action lawsuits. That’s because the agency has considered the right to sue a crucial shareholder protection against fraud and other securities violations.

But as President Donald Trump’s pro-business agenda sweeps through Washington, the SEC is laying the groundwork for a possible policy shift, said three people familiar with the matter. The agency, according to two of the people, has privately signaled that it’s open to at least considering whether companies should be able to force investors to settle disputes through arbitration, an often closed-door process that can limit the bad publicity and high legal costs triggered by litigation.

A change to the SEC’s stance would be the most significant move yet by Chairman Jay Clayton to make going public more appealing, which he’s laid out as one of his highest priorities since taking over Wall Street’s top regulator last year. It would also hew to the Trump administration’s goal of dismantling government policies that it blames for hurting economic growth.

But allowing companies to shield themselves from shareholder lawsuits would almost certainly enrage investor advocates and Democratic lawmakers, a combination that helped defeat a 2012 attempt by private-equity giant Carlyle Group LP to prohibit investor suits as part of its IPO.

SEC spokeswoman Judith Burns declined to comment.

Clayton, a former deals lawyer who worked on Alibaba Group Holding Ltd.’s record U.S. IPO, is trying to turn around a trend that’s existed since the tech bubble burst in the early 2000s. While corporate lobbyists blame regulation for stifling IPOs, others point to an abundance of investments from venture capital firms and additional sources for many companies shunning stock listings.

The best year for U.S. listings was 1996 when 949 companies sold shares, according to data compiled by Bloomberg. This decade, the high-water mark was 2014, when 450 companies went public. In 2017, there were 237 U.S. IPOs, compared with more than 2,000 on foreign markets.

‘Frivolous Litigation’
Kevin P. Kennedy, a partner at law firm Simpson Thacher in Palo Alto, California, said he’s heard instances of SEC staff encouraging companies to come forward with proposals that would require shareholders to use arbitration to resolve shareholder grievances. That would allow the regulator to review whether the plans pass muster, he said.

“It’d be a real sea change,” Kennedy said. “One of the major inhibitors that’s concerned companies as they think about going public is the risk of what a lot of companies view as frivolous shareholder litigation. I think the idea that you could eliminate that risk is pretty significant.”

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