[Congressional Record Volume 163, Number 177 (Wednesday, November 1, 2017)]
[House]
[Pages H8318-H8320]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                ENCOURAGING PUBLIC OFFERINGS ACT OF 2017

  Mr. HUIZENGA. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 3903) to amend the Securities Act of 1933 to expand the 
ability to use testing the waters and confidential draft registration 
submissions, and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 3903

       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 ``Encouraging Public Offerings 
     Act of 2017''.

     SEC. 2. EXPANDING TESTING THE WATERS AND CONFIDENTIAL 
                   SUBMISSIONS.

       The Securities Act of 1933 (15 U.S.C. 77a et seq.) is 
     amended--
       (1) in section 5(d)--
       (A) by striking ``Notwithstanding'' and inserting the 
     following: 
       ``(1) In general.--Notwithstanding'';
       (B) by striking ``an emerging growth company or any person 
     authorized to act on behalf of an emerging growth company'' 
     and inserting ``an issuer or any person authorized to act on 
     behalf of an issuer''; and
       (C) by adding at the end the following:
       ``(2) Additional requirements.--
       ``(A) In general.--The Commission may issue regulations, 
     subject to public notice and comment, to impose such other 
     terms, conditions, or requirements on the engaging in oral or 
     written communications described under paragraph (1) by an 
     issuer other than an emerging growth company as the 
     Commission determines appropriate.
       ``(B) Report to congress.--Prior to any rulemaking 
     described under subparagraph (A), the Commission shall issue 
     a report to the Congress containing a list of the findings 
     supporting the basis of such rulemaking.''; and
       (2) in section 6(e)--
       (A) in the heading, by striking ``Emerging Growth 
     Companies'' and inserting ``Draft Registration Statements'';
       (B) by redesignating paragraph (2) as paragraph (4); and
       (C) by striking paragraph (1) and inserting the following:
       ``(1) Prior to initial public offering.--Any issuer, prior 
     to its initial public offering date, may confidentially 
     submit to the Commission a draft registration statement, for 
     confidential nonpublic review by the staff of the Commission 
     prior to public filing, provided that the initial 
     confidential submission and all amendments thereto shall be 
     publicly filed with the Commission not later than 15 days 
     before the date on which the issuer conducts a road show (as 
     defined under section 230.433(h)(4) of title 17, Code of 
     Federal Regulations) or, in the absence of a road show, at 
     least 15 days prior to the requested effective date of the 
     registration statement.
       ``(2) Within one year after initial public offering or 
     exchange registration.--Any issuer, within the one-year 
     period following its initial public offering or its 
     registration of a security under section 12(b) of the 
     Securities Exchange Act of 1934, may confidentially submit to 
     the Commission a draft registration statement, for 
     confidential nonpublic review by the staff of the Commission 
     prior to public filing, provided that the initial 
     confidential submission and all amendments thereto shall be 
     publicly filed with the Commission not later than 15 days 
     before the date on which the issuer conducts a road show (as 
     defined under section 230.433(h)(4) of title 17, Code of 
     Federal Regulations) or, in the absence of a road show, at 
     least 15 days prior to the requested effective date of the 
     registration statement.
       ``(3) Additional requirements.--
       ``(A) In general.--The Commission may issue regulations, 
     subject to public notice and comment, to impose such other 
     terms, conditions, or requirements on the submission of draft 
     registration statements described under this subsection by an 
     issuer other than an emerging growth company as the 
     Commission determines appropriate.
       ``(B) Report to congress.--Prior to any rulemaking 
     described under subparagraph (A), the Commission shall issue 
     a report to the Congress containing a list of the findings 
     supporting the basis of such rulemaking.''.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Michigan (Mr. Huizenga) and the gentleman from Illinois (Mr. Foster) 
each will control 20 minutes.
  The Chair recognizes the gentleman from Michigan.

                              {time}  1400


                             General Leave

  Mr. HUIZENGA. Mr. Speaker, I ask unanimous consent that all Members 
may have 5 legislative days in which to revise and extend their remarks 
and to include extraneous material on this bill.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Michigan?
  There was no objection.
  Mr. HUIZENGA. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, over the last two decades, our Nation has experienced a 
37 percent decline in the number of U.S. listed companies--public 
companies. Equally troubling, we have seen the number of publicly 
traded companies fall to around 5,700. These statistics are concerning 
because they are similar to the data we saw in the 1980s when our 
economy was less than half its current size.
  Mr. Speaker, since 2000, the average number of initial public 
offerings, or IPOs, has fallen to approximately 135 per year, which 
pales in comparison to the more than 450 IPOs filed per year in

[[Page H8319]]

the early 1990s. Notably, there has not been a corresponding downward 
trend in the creation of new companies over that same period. This 
demonstrates that the regulatory costs associated with going public is 
deterring new and emerging companies from making the decision to go 
public.
  Now, you may ask: Why is this important?
  Well, first of all, it is preventing our capital markets from 
reaching their full potential, which sounds very academic and pie in 
the sky.
  What does that mean, though?
  What it really means is that it is not allowing Mr. and Mrs. 401(k) 
from participating in the economic successes that we have seen lately.
  Federal securities regulations are typically written for large public 
companies, and this one-size-fits-all framework imposes a 
disproportionate burden on small and emerging companies looking to go 
public.
  The 2012 Jumpstart Our Business Startups Act, or JOBS Act, which was 
a bipartisan bill signed into law by President Obama, created a new 
type of issue called an emerging growth company, which allowed these 
so-called EGCs with less than $1 billion in revenue to be allowed to 
communicate with potential investors before an initial public offering 
and file confidential draft registration statements with the Securities 
and Exchange Commission.
  On June 29, 2017, the SEC extended to all companies the option of 
submitting in advance draft registration statements for IPOs and 
follow-on offerings within 1 year of an IPO.
  H.R. 3903, the Encouraging Public Offerings Act, would ensure that 
all issues making an IPO would be allowed to communicate with potential 
investors before an offering and file confidential draft registration 
statements with the Securities and Exchange Commission. In other words, 
we are going to codify what the Securities and Exchange Commission has 
said we should be doing.
  H.R. 3903 simply codifies that practice into law and it will allow 
these companies to finalize their registration documents without undue 
expectations from outside influences, and it allows companies to time 
their offering with the market before making their Form S-1s public and 
beginning an investor road show.
  I commend the bipartisan work of Representatives Budd and Meeks on 
this important bill to ensure that H.R. 3903 applies to all companies, 
without losing valuable investor protections--a key element in this.
  This bill will also help encourage companies to go public, and I 
encourage all of my colleagues to vote in favor of H.R. 3903.
  Mr. Speaker, I reserve the balance of my time.
  Mr. FOSTER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise today in support of H.R. 3903. This bill will 
expand the ability of companies to test the waters prior to going 
public and to submit confidential filings for feedback from the SEC 
staff prior to filing of an IPO.
  The JOBS Act of 2012 created these mechanisms for emerging growth 
companies. Emerging growth companies are those with less than $1 
billion in revenue, $700 million in public float, and $1 billion in 
nonconvertible debt. The JOBS Act enabled these companies to speak to 
institutional investors prior to an IPO without it being considered an 
unregistered offering for sale of securities.
  The definition of a securities offering is appropriately broad to 
protect investors and ensure transparency in our markets by requiring 
registration and significant disclosures. However, companies 
considering a public offering should be able to talk to the most 
sophisticated investors in the markets, large institutional investors, 
to gauge the interest in the offering. Having that ability will help 
encourage public offerings because it enables companies to realize 
efficiencies in assessing demand.
  Research-intensive firms are more likely to test the waters because 
it lowers the cost of proprietary disclosure. These are the firms that 
drive economic growth by bringing new ideas to market.
  Research is obviously a passion of mine, having founded a company 
that was based on my intellectual property and subsequently designing 
particle accelerators as a physicist at Fermi National Lab. It is the 
new ideas that grow our GDP and improve the standard of living for all 
Americans.
  Moreover, new businesses with new ideas do more to grow the economy 
than incumbents with new ideas or just acquisitions. The public market 
presents an opportunity for small businesses to become big businesses 
without being bought out.
  Additionally, this bill would allow companies of all sizes to file 
confidentially forms with the SEC. This allows the firm to receive 
feedback without making inappropriate or unrequired information public. 
Disclosing the correct information helps the markets understand risks 
and price an offering appropriately.
  The bill also includes a provision giving the SEC discretion to 
ensure that these mechanisms are used in a way that benefits markets 
and investors. The U.S. capital markets are the deepest and most liquid 
in the world, and this bill will help more companies tap into that 
capital and grow our economy.
  Mr. Speaker, I urge broad support for this bill today, and I reserve 
the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I am pleased to yield 5 minutes to the 
gentleman from North Carolina (Mr. Budd), the sponsor of this very 
important legislation.
  Mr. BUDD. Mr. Speaker, I thank the gentleman for yielding.
  Mr. Speaker, I rise today in support of the Encouraging Public 
Offerings Act, a bill that the gentleman from New York (Mr. Meeks) and 
I have worked on together, and I thank him for that.
  I also thank the Financial Services Committee, in particular, the 
staff and the subcommittee chairman, Mr. Huizenga.
  I also thank the chairman, the gentleman from Texas (Mr. Hensarling). 
His leadership of this committee and his devotion and fidelity to the 
conservative principles are legendary. His retirement will be a great 
loss to this institution. The Hensarling legacy of conservative 
leadership will not be forgotten, and I am certain that his next 
chapter will be as great as this one. He will be missed by all, 
especially by those of us--myself among them--who share his vision and 
his limited government principles.
  Mr. Speaker, no other country has a better history of connecting 
money with vision than the United States of America. We rightfully 
celebrate our legendary entrepreneurs: Steve Jobs, Bill Gates, Andrew 
Carnegie, Tom Davis, John Rockefeller, and a whole host of others who 
built the companies that drive our economy. None of those men could 
have done what they did without capital. None of them could have done 
what they did without intermediaries to connect that capital to their 
vision.
  So, Mr. Speaker, the depressing truth is that our capital markets are 
the biggest, strongest, and most transparent connectors between money 
and vision, and they are not where they once were. We have the same 
number of public offerings on our stock exchanges that we did in the 
1980s, when the economy was much smaller. We have lost 50 percent of 
our public companies since the 1990s, and more and more companies 
choose to go private, or they never even sell their shares to the 
public.
  The hope is that, with this bill, we will increase the desire of 
companies to go public, getting our financial markets back to being the 
number one method for capital formation. To that end, our bill does 
three things:
  First, it allows the companies to file their paperwork for going 
public with the SEC confidentially. That way, if there is an error or a 
discrepancy in the documents, the company can work it out with the 
agency without getting embarrassed in public or exposing information to 
competitors.
  Second, it allows all companies to confidentially file their 
paperwork for a second stock sale after an initial public offering. 
Again, the point being to allow for a dialogue between the company and 
the regulator.
  Third, it also allows all companies considering an IPO to talk to 
sophisticated investors and qualified institutions and see if these 
investors might want to buy their stock before offering it to the 
public, which is called ``testing the waters.'' It is hard to know if

[[Page H8320]]

you should sell a product if you can't check and see if there is anyone 
out there who even wants to buy it.
  Mr. Speaker, these changes to the securities laws have received broad 
support. I want to quote the SEC chairman on this when he spoke at a 
hearing in our committee. He said: ``The initial data is positive. Not 
just people using it, but people saying, Thank you, we intend to use 
it. Both from an IPO perspective, but also from the perspective on 
follow-on offerings that occur in the first year . . . if there is any 
adverse views, I'd like to hear them. We haven't heard any.''
  The Center for American Progress, which has not traditionally been 
friendly to relaxing financial regulations, has said that these 
reforms, which were made available to smaller companies in the JOBS 
Act, were some of the most successful provisions in that law. This bill 
applies them to all companies, not just those with a certain amount of 
revenue.
  Finally, the Treasury Department gave favorable mention to these 
reforms in its report on the capital markets earlier this year. This 
bill passed out of the House Financial Services Committee with 
unanimous support.
  Mr. Speaker, the numbers on public companies are clear. We have a 
problem. The experts are clear that the changes in the Budd-Meeks bill 
would be a positive step towards fixing the problem. Similar bipartisan 
reforms have seen great success in the past.
  Mr. Speaker, I urge support.
  Mr. FOSTER. Mr. Speaker, I would like to, first off, reiterate my 
support of this bill. It is the sort of commonsense, bipartisan fix 
that will make an incremental improvement to our public markets.
  However, I would also like to emphasize what I believe is the real 
threat to the health of our public markets, which is the concentration 
of wealth at the very top. It is no secret that the competition to our 
public markets are private equity and venture capital, and these are 
investment instruments largely, almost entirely, under the control of 
the very wealthy.
  We are, this week, going to begin debate on a tax bill that will 
decide, to a large extent, whether we accelerate or decelerate the 
concentration of wealth at the very top. I just want to emphasize that 
connection to make everyone understand that the continued health of our 
public markets, which historically have been such an important 
contributor to middle class investment in growing businesses. So I want 
people to consider that as we debate this bill, which I fully support, 
and, as well, the variety of important issues that we debate that 
really affect the distribution of wealth in this country.
  Mr. Speaker, I yield back the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, I am pleased to yield such time as he may 
consume to the gentleman from Ohio (Mr. Davidson), a member of the 
Financial Services Committee.
  Mr. DAVIDSON. Mr. Speaker, access to capital is crucial to promoting 
a thriving U.S. economy. It allows companies to invest in growth and to 
develop new and innovative products and services. Historically, 
companies seeking a considerable amount of capital have preferred to 
use an initial public offering and have shares traded on a national 
securities exchange.
  However, the United States has experienced a 37 percent decline in 
the number of U.S. listed public companies, which is considerably lower 
than in the 1980s and 1990s.
  Public company compliance costs have grown sufficiently large that 
many smaller firms stay private rather than spend their profit 
overcoming these regulatory burdens. The Sarbanes-Oxley Act, the Dodd-
Frank Act, and other legislative and regulatory actions have 
contributed to these costs.

                              {time}  1415

  Title I of the JOBS Act created a new category of issuers known as 
emerging growth companies, or EGCs. These issuers must have less than 
$1 billion in annual revenue or $700,000 million in public float when 
they register with the SEC.
  While the JOBS Act made it easier for companies to go public, it was 
not enough to overcome capital formation obstacles entrepreneurs and 
small businesses are facing.
  H.R. 3903, the Encouraging Public Offerings Act of 2017, would allow 
any company, regardless of size or EGC status, to take advantage of the 
popular provisions of title I of the 2012 JOBS Act.
  Title I of the JOBS Act has proven to be a real policy success, and 
Congress and the SEC should continue to advance policy that will reduce 
or eliminate barriers to economic growth.
  Mr. Speaker, I applaud Mr. Budd and Mr. Meeks for their work on this 
important piece of legislation. I appreciate our chairman, Mr. 
Huizenga, for moving it expeditiously through our committee; and our 
chairman, Mr. Hensarling, for presiding over it.
  Mr. Speaker, I urge my colleagues to vote ``yes.''
  Mr. HUIZENGA. Mr. Speaker, I yielded myself the balance of my time.
  Mr. Speaker, in closing, we know that trillions of dollars are 
invested in our economy through IRAs, 401(k)s, and other investment 
tools. However, these companies need to be publicly traded for Joe and 
Jane IRA or Mr. and Mrs. 401(k) to even be able to have the opportunity 
to invest in them. That is what this bill is trying to do.
  This bill is trying to make sure that those emerging companies, those 
small startup kind of companies, who may be very innovative or, 
frankly, might be even more mundane, but they are small and they are 
looking to grow, that they have an opportunity to do so.
  Who benefits? Everyone. Everyone is going to be able to take a much 
more broad view of how they are going to invest their hard-earned 
dollars that they have worked so long and hard for.
  Mr. Speaker, this is also, I believe, an important aspect, because we 
know that economic growth comes from small- and medium-sized 
businesses. That is where we are going to see really the engine of our 
economy rev up.
  It is maybe not as much of a headline grabber as some of those big 
companies adding 100 or 200 or even thousands of jobs, but all of those 
smaller companies adding people into the workforce add up to far larger 
numbers than those numbers are.
  Mr. Speaker, I ask all of my colleagues to join me in supporting H.R. 
3903, and I yield back the balance of my time.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Michigan (Mr. Huizenga) that the House suspend the rules 
and pass the bill, H.R. 3903, as amended.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. HUIZENGA. Mr. Speaker, on that I demand the yeas and nays.
  The yeas and nays were ordered.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this motion will be postponed.

                          ____________________