[Congressional Record Volume 161, Number 146 (Tuesday, October 6, 2015)]
[House]
[Pages H6804-H6805]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        DISCLOSURE MODERNIZATION AND SIMPLIFICATION ACT OF 2015

  Mr. GARRETT. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 1525) to require the Securities and Exchange Commission to 
make certain improvements to form 10-K and regulation S-K, and for 
other purposes.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 1525

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Disclosure Modernization and 
     Simplification Act of 2015''.

     SEC. 2. SUMMARY PAGE FOR FORM 10-K.

       Not later than the end of the 180-day period beginning on 
     the date of the enactment of this Act, the Securities and 
     Exchange Commission shall issue regulations to permit issuers 
     to submit a summary page on form 10-K (17 C.F.R. 249.310), 
     but only if each item on such summary page includes a cross-
     reference (by electronic link or otherwise) to the material 
     contained in form 10-K to which such item relates.

     SEC. 3. IMPROVEMENT OF REGULATION S-K.

       Not later than the end of the 180-day period beginning on 
     the date of the enactment of this Act, the Securities and 
     Exchange Commission shall take all such actions to revise 
     regulation S-K (17 C.F.R. 229.10 et seq.)--
       (1) to further scale or eliminate requirements of 
     regulation S-K, in order to reduce the burden on emerging 
     growth companies, accelerated filers, smaller reporting 
     companies, and other smaller issuers, while still providing 
     all material information to investors;
       (2) to eliminate provisions of regulation S-K, required for 
     all issuers, that are duplicative, overlapping, outdated, or 
     unnecessary; and
       (3) for which the Commission determines that no further 
     study under section 4 is necessary to determine the efficacy 
     of such revisions to regulation S-K.

     SEC. 4. STUDY ON MODERNIZATION AND SIMPLIFICATION OF 
                   REGULATION S-K.

       (a) Study.--The Securities and Exchange Commission shall 
     carry out a study of the requirements contained in regulation 
     S-K (17 C.F.R. 229.10 et seq.). Such study shall--
       (1) determine how best to modernize and simplify such 
     requirements in a manner that reduces the costs and burdens 
     on issuers while still providing all material information;
       (2) emphasize a company by company approach that allows 
     relevant and material information to be disseminated to 
     investors without boilerplate language or static requirements 
     while preserving completeness and comparability of 
     information across registrants; and
       (3) evaluate methods of information delivery and 
     presentation and explore methods for discouraging repetition 
     and the disclosure of immaterial information.
       (b) Consultation.--In conducting the study required under 
     subsection (a), the Commission shall consult with the 
     Investor Advisory Committee and the Advisory Committee on 
     Small and Emerging Companies.
       (c) Report.--Not later than the end of the 360-day period 
     beginning on the date of enactment of this Act, the 
     Commission shall issue a report to the Congress containing--
       (1) all findings and determinations made in carrying out 
     the study required under subsection (a);
       (2) specific and detailed recommendations on modernizing 
     and simplifying the requirements in regulation S-K in a 
     manner that reduces the costs and burdens on companies while 
     still providing all material information; and
       (3) specific and detailed recommendations on ways to 
     improve the readability and navigability of disclosure 
     documents and to discourage repetition and the disclosure of 
     immaterial information.
       (d) Rulemaking.--Not later than the end of the 360-day 
     period beginning on the date that the report is issued to the 
     Congress under subsection (c), the Commission shall issue a 
     proposed rule to implement the recommendations of the report 
     issued under subsection (c).
       (e) Rule of Construction.--Revisions made to regulation S-K 
     by the Commission under section 3 shall not be construed as 
     satisfying the rulemaking requirements under this section.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from New 
Jersey (Mr. Garrett) and the gentlewoman from New York (Mrs. Carolyn B. 
Maloney) each will control 20 minutes.
  The Chair recognizes the gentleman from New Jersey.


                             General Leave

  Mr. GARRETT. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days in which to revise and extend their remarks 
and include extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from New Jersey?
  There was no objection.

                              {time}  1630

  Mr. GARRETT. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, first of all, I want to thank the chairman of the 
Financial Services Committee--that would be the gentleman from Texas 
(Mr. Hensarling)--for his leadership in helping to bring a number of 
bills, as we have just seen, to the floor today.
  I would also like to thank all of my colleagues on the Financial 
Services Committee from both sides of the aisle--obviously, both 
sides--because they have voted unanimously, voted the Disclosure 
Modernization and Simplification Act out of committee not just once, 
but twice, when you include passage last year as well.
  I would also like to add this legislation passed the House of 
Representatives by voice vote in December of 2014.
  So you ask what is the purpose of this bill, and why is it necessary.
  Well, Mr. Speaker, look, if you step back about eight decades ago, 
Congress made the monumental decision in this country that disclosure, 
opening up, and transparency would be the centerpiece of our Nation's 
securities law.

[[Page H6805]]

  See, instead of carving out or creating a merit review system where 
the Federal Government determined which companies we were allowed to 
put our money into, Congress wisely went down the other road and 
decided that those decisions would be best made where?
  Left in the hands of the people, in the hands of the investors 
themselves, so long as they were provided with a sufficient level of 
disclosure from publicly traded companies.
  Unfortunately, over the last eight decades since the securities laws 
were first put in place, the quarterly and annual reports filed by the 
public companies have grown, and they have grown in size tremendously, 
larger and more complex than ever, to the point where now the most 
sophisticated of investors have trouble understanding even the most 
basic operations and risks of these companies. This has come to be 
known as the phenomenon of information overload.
  So to put this in perspective, a recent article in the Wall Street 
Journal noted that the average annual report from public companies is 
now 42,000 words, a 40 percent increase just from the year 2000 alone 
and even longer than the entire Sarbanes-Oxley bill that passed 
Congress in 2002.
  Another recent report out of Stanford University found that only 38 
percent of institutional investors view disclosures about executive 
compensation as ``easy to understand.''
  So, if you think about it, if the majority of institutional investors 
can't understand the disclosure, what chance does the little guy, the 
mom-and-pop investor, have to understand all this?
  They, of course, have very little chance and can even be harmed by 
the disclosures that too voluminous and complex reports show.
  As then-SEC Commissioner Troy Paredes put it way back in 2013, ``If 
investors are overloaded, more disclosure actually can result in less 
transparency and worse decisions, in which case capital is allocated 
less efficiently and market discipline is compromised.''
  So what would our bill do today? It would rectify the situation.
  How? One, it would require that the SEC eliminate any outdated or 
duplicative disclosure requirements that are not material to investors 
and, furthermore, to scale disclosures for emerging growth companies 
and small issuers.
  Two, it will allow issuers to file a summary page of their annual 
report that will include simply cross-references to the material 
already included.
  Three, it would require the SEC to produce a broad study on how best 
to, amongst all the other things, utilize technology in order to 
improve delivery and presentation systems for disclosure and, also, a 
requirement that the SEC commence a rulemaking in order to implement 
some of these ideas that come out of the study.
  You see, these provisions will help our disclosure regime of the 21st 
century while at the very same time address the issue of information 
overload that I mentioned before.
  If you go back, as part of the JOBS Act, Congress directed the SEC to 
review its existing disclosure requirements, and it was told to 
identify ways to make our current disclosure regime less burdensome for 
issuers and for people as investors.
  While the SEC produced a report a few years ago--2013--that 
identified a number of obsolete things and duplicative requirements 
that could be addressed, unfortunately, the agency has yet to act upon 
them, this despite an ongoing disclosure effectiveness review that has 
so far only produced a concept release.
  So, at the end, it is important that this Congress come here today 
and act on behalf of all the American investors, all the people in this 
country, in order to keep the original intent of our securities laws 
relevant today and ensure that the effective disclosure remains this 
very centerpiece of the capital markets.
  Mr. Speaker, I reserve the balance of my time.
  Mrs. CAROLYN B. MALONEY of New York. Mr. Speaker, I yield myself such 
time as I may consume.
  I rise today in support of this bill. I thank Mr. Garrett for his 
hard work. We worked together on this in the last Congress, and I added 
an amendment to improve the bill in the markup last year.
  Markets are constantly evolving, and so too must our regulatory 
regime. This is especially true when it comes to reporting requirements 
for small public companies.
  The process of scaling and streamlining the reporting requirements 
for these small companies is something that, in order to keep pace with 
the ever-evolving marketplace, has historically been revisited roughly 
once every 10 years. It requires vigilance by the SEC and, also, by 
Congress.
  The Disclosure Modernization and Simplification Act directs the SEC 
to simplify the reporting requirements for small companies in 
regulation S-K.
  First, the SEC would be required to revise regulation S-K to take 
care of any low-hanging fruit, that is, make any improvements to 
regulation S-K that they have already identified as helpful for small 
companies.
  Next, the SEC would conduct a study of the best way to simplify and 
modernize the disclosure requirements in regulation S-K while still 
providing all the necessary information to investors and to also make 
specific detailed recommendations to Congress for how to achieve this.
  Finally, the bill allows companies to submit a summary page on their 
form 10-K annual reports in order to make these annual reports easier 
to understand by investors.
  In testimony before the Financial Services Committee last year, 
Colombia Professor John Coffee called the idea ``simple and 
unobjectionable'' and said that he ``didn't see how anyone could be 
opposed to it.''
  I agree that this is a commonsense idea that could make lengthy 
annual reports, which are often hundreds of pages long and difficult to 
navigate, significantly more investor-friendly.
  So I urge my colleagues to support this bill.
  I thank my colleague, Mr. Garrett, for his leadership. He has worked 
on this for several Congresses.
  Mr. Speaker, I have no additional speakers.
  I yield back the balance of my time.
  Mr. GARRETT. Mr. Speaker, I yield myself the balance of my time.
  I thank the gentlewoman from New York for working with us today and 
also working with us over the last several years as well, trying to 
move this along. As you have said and I have said, this is one of those 
proverbial commonsense pieces of legislation.
  If anyone got confused by all the technical terms that you and I used 
here, at the end of the day, it means, whether you are a sophisticated 
institutional investor or whether you are a mom-and-pop-type investor 
or if you are something in between, you just want to have clarity, you 
just want to understand what all these voluminous, hundreds-of-pages 
annual reports and quarterly reports are.
  That is what our bill does. It just makes it a little bit simpler and 
then directs the SEC to go even the step further to develop other ways 
to do so as well.
  So I look forward to passing this out of this House now for the third 
time, I believe, send it over to the Senate and, hopefully, get some 
action in the Senate and put it on the President's desk.
  I encourage Members from both sides of the aisle, once again, out of 
the House and to the Senate.
  Mr. Speaker, I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from New Jersey (Mr. Garrett) that the House suspend the 
rules and pass the bill, H.R. 1525.
  The question was taken; and (two-thirds being in the affirmative) the 
rules were suspended and the bill was passed.
  A motion to reconsider was laid on the table.

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