[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.
____________________