[Congressional Record Volume 164, Number 115 (Tuesday, July 10, 2018)]
[House]
[Pages H6003-H6005]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MAIN STREET GROWTH ACT
Mr. HUIZENGA. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 5877) to amend the Securities Exchange Act of 1934 to allow
for the registration of venture exchanges, and for other purposes, as
amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 5877
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 ``Main Street Growth Act''.
SEC. 2. VENTURE EXCHANGES.
(a) Securities Exchange Act of 1934.--Section 6 of the
Securities Exchange Act of 1934 (15 U.S.C. 78f) is amended by
adding at the end the following:
``(m) Venture Exchange.--
``(1) Registration.--
``(A) In general.--A person may register themself (and a
national securities exchange may register a listing tier of
such exchange) as a national securities exchange solely for
the purposes of trading venture securities by filing an
application with the Commission pursuant to subsection (a)
and the rules and regulations thereunder.
``(B) Publication of notice.--The Commission shall, upon
the filing of an application under subparagraph (A), publish
notice of such filing and afford interested persons an
opportunity to submit written data, views, and arguments
concerning such application.
``(C) Approval or denial.--
``(i) In general.--Within 90 days of the date of
publication of a notice under subparagraph (B) (or within
such longer period as to which the applicant consents), the
Commission shall--
``(I) by order grant such registration; or
``(II) institute a denial proceeding under clause (ii) to
determine whether registration should be denied.
``(ii) Denial proceeding.--A proceeding under clause
(i)(II) shall include notice of the grounds for denial under
consideration and opportunity for hearing and shall be
concluded within 180 days of the date of the publication of a
notice under subparagraph (B). At the conclusion of such
proceeding the Commission, by order, shall grant or deny such
registration. The Commission may extend the time for
conclusion of such proceeding for up to 90 days if the
Commission finds good cause for such extension and publishes
the Commission's reasons for so finding or for such longer
period as to which the applicant consents.
``(iii) Criteria for approval or denial.--The Commission
shall grant a registration under this paragraph if the
Commission finds that the requirements of this title and the
rules and regulations thereunder with respect to the
applicant are satisfied. The Commission shall deny such
registration if it does not make such finding.
``(2) Powers and restrictions.--In addition to the powers
and restrictions otherwise applicable to a national
securities exchange, a venture exchange--
``(A) may only constitute, maintain, or provide a market
place or facilities for bringing together purchasers and
sellers of venture securities;
``(B) may not extend unlisted trading privileges to any
venture security;
``(C) may only, if the venture exchange is a listing tier
of another national securities exchange, allow trading in
securities that are registered under section 12(b) on a
national securities exchange other than a venture exchange;
and
``(D) may, subject to the rule filing process under section
19(b)--
``(i) determine the increment to be used for quoting and
trading venture securities on the exchange; and
``(ii) choose to carry out periodic auctions for the sale
of a venture security instead of providing continuous trading
of the venture security.
``(3) Treatment of certain exempted securities.--A security
that is exempt from registration pursuant to section 3(b) of
the Securities Act of 1933 shall be exempt from section 12(a)
of this title to the extent such securities are traded on a
venture exchange, if the issuer of such security is in
compliance with--
``(A) all disclosure obligations of such section 3(b) and
the regulations issued under such section; and
``(B) ongoing disclosure obligations of the applicable
venture exchange that are similar to those provided by an
issuer under tier 2 of Regulation A (17 C.F.R. 230.251 et
seq).
``(4) Venture securities traded on venture exchanges may
not trade on non-venture exchanges.--A venture security may
not be traded on a national securities exchange that is not a
venture exchange during any period in which the venture
security is being traded on a venture exchange.
``(5) Rule of construction.--Nothing in this subsection may
be construed as requiring transactions in venture securities
to be effected on a national securities exchange.
``(6) Commission authority to limit certain trading.--The
Commission may limit transactions in venture securities that
are not effected on a national securities exchange as
appropriate to promote efficiency, competition, capital
formation, and to protect investors.
``(7) Disclosures to investors.--The Commission shall issue
regulations to ensure that persons selling or purchasing
venture securities on a venture exchange are provided
disclosures sufficient to understand--
``(A) the characteristics unique to venture securities; and
``(B) in the case of a venture exchange that is a listing
tier of another national securities exchange, that the
venture exchange is distinct from the other national
securities exchange.
``(8) Definitions.--For purposes of this subsection:
``(A) Early-stage, growth company.--
``(i) In general.--The term `early-stage, growth company'
means an issuer--
``(I) that has not made any registered initial public
offering of any securities of the issuer; and
``(II) with a public float of less than or equal to the
value of public float required to qualify as a large
accelerated filer under section 240.12b-2 of title 17, Code
of Federal Regulations.
``(ii) Treatment when public float exceeds threshold.--An
issuer shall not cease to be an early-stage, growth company
by reason of the public float of such issuer exceeding the
threshold specified in clause (i)(II) until the later of the
following:
``(I) The end of the period of 24 consecutive months during
which the public float of the issuer exceeds $2,000,000,000
(as such amount is indexed for inflation every 5 years by the
Commission to reflect the change in the Consumer Price Index
for All Urban Consumers published by the Bureau of Labor
Statistics, setting the threshold to the nearest $1,000,000).
``(II) The end of the 1-year period following the end of
the 24-month period described under subclause (I), if the
issuer requests such 1-year extension from a venture exchange
and the venture exchange elects to provide such extension.
``(B) Public float.--With respect to an issuer, the term
`public float' means the aggregate worldwide market value of
the voting and non-voting common equity of the issuer held by
non-affiliates.
``(C) Venture security.--
``(i) In general.--The term `venture security' means--
``(I) securities of an early-stage, growth company that are
exempt from registration pursuant to section 3(b) of the
Securities Act of 1933;
``(II) securities of an emerging growth company; or
``(III) securities registered under section 12(b) and
listed on a venture exchange (or, prior to listing on a
venture exchange, listed on a national securities exchange)
where--
``(aa) the issuer of such securities has a public float
less than or equal to the value of public float required to
qualify as a large accelerated filer under section 240.12b-2
of title 17, Code of Federal Regulations; or
``(bb) the average daily trade volume is 75,000 shares or
less during a continuous 60-day period.
``(ii) Treatment when public float exceeds threshold.--
Securities shall not cease to be venture securities by reason
of the public float of the issuer of such securities
exceeding the threshold specified in clause (i)(III)(aa)
until the later of the following:
``(I) The end of the period of 24 consecutive months
beginning on the date--
``(aa) the public float of such issuer exceeds
$2,000,000,000; and
``(bb) the average daily trade volume of such securities is
100,000 shares or more during a continuous 60-day period.
``(II) The end of the 1-year period following the end of
the 24-month period described under subclause (I), if the
issuer of such securities requests such 1-year extension from
a venture exchange and the venture exchange elects to provide
such extension.''.
(b) Securities Act of 1933.--Section 18 of the Securities
Act of 1933 (15 U.S.C. 77r) is amended--
(1) by redesignating subsection (d) as subsection (e); and
(2) by inserting after subsection (c) the following:
``(d) Treatment of Securities Listed on a Venture
Exchange.--Notwithstanding subsection (b), a security is not
a covered security pursuant to subsection (b)(1)(A) if the
security is only listed, or authorized for listing, on a
venture exchange (as defined under section 6(m) of the
Securities Exchange Act of 1934).''.
(c) Sense of Congress.--It is the sense of the Congress
that the Securities and Exchange Commission should--
(1) when necessary or appropriate in the public interest
and consistent with the protection of investors, make use of
the Commission's general exemptive authority under section 36
of the Securities Exchange Act of 1934 (15 U.S.C. 78mm) with
respect to the provisions added by this section; and
(2) if the Commission determines appropriate, create an
Office of Venture Exchanges within the Commission's Division
of Trading and Markets.
(d) Rule of Construction.--Nothing in this section or the
amendments made by this section shall be construed to impair
or limit the construction of the antifraud provisions of the
securities laws (as defined in section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a))) or the authority of
the Securities and Exchange Commission under those
provisions.
(e) Effective Date for Tiers of Existing National
Securities Exchanges.--In the case of a securities exchange
that is registered as a national securities exchange under
section 6 of the Securities Exchange Act of 1934 (15 U.S.C.
78f) on the date of the enactment of this Act, any election
for a listing tier of such exchange to be treated as a
venture exchange under subsection (m) of such section shall
not take effect before the date that is 180 days after such
date of enactment.
The SPEAKER pro tempore. Pursuant to the rule, the gentleman from
Michigan (Mr. Huizenga) and the gentlewoman from California (Ms. Maxine
Waters) each will control 20 minutes.
[[Page H6004]]
The Chair recognizes the gentleman from Michigan.
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, I rise in support of H.R. 5877, the Main Street Growth
Act, introduced by my friend and colleague from the Financial Services
Committee, the gentleman from Minnesota (Mr. Emmer), which would help
further facilitate capital formation for smaller issuers.
Specifically, the Main Street Growth Act would provide for the
creation and registration of venture exchanges. Venture exchanges would
be prohibited from extending unlisted trading privileges, or UTP, as
they are known, to any venture security, which would prevent venture
securities from trading on exchanges other than the one that it is
listed on, in order to concentrate liquidity onto the venture exchange.
In addition, venture exchanges would also be exempt from
decimalization.
The U.S. capital markets have, and continue to be, a vibrant
ecosystem, fueling America's economic growth and generating millions of
private sector jobs. These markets provide financing and needed
resources to the smallest startups, as well as the largest
international companies.
However, a company's size has often impacted how easily it is to
access capital, as larger companies generally found the capital markets
easier to access than smaller companies.
While the number of IPOs in the U.S. has rebounded from its post-
crisis collapse--thanks, in part, to the success of the JOBS Act--
smaller companies still face significant regulatory and market
impediments that disincentivize them from accessing capital via the
public markets.
There are differing perspectives as to why fewer companies,
particularly smaller companies, have gone public over the past few
decades. In fact, Chairman Clayton recently said, at the end of the
day, no matter what those reasons are, it is ``not good'' that would be
happening.
The data suggests that, in order to fulfill its capital formation
mandate, the SEC needs to tailor its approach to account for the
varying nature and size of companies, including the one-size-fits-all
regulatory structure of the current equity markets.
As a natural extension of the JOBS Act and the new securities
offerings available to startup enterprises, venture exchanges offer one
possible solution to the liquidity and capital access challenges faced
by smaller issuers.
A venture exchange construct would expand access to capital for
entrepreneurs; enable earlier public participation in the company's
lifecycle; and attract post-issuance support, including research,
sales, and capital commitments by market-makers.
In fact, the SEC's Commissioners, market participants, and other
interested parties have all expressed interest in the concept of
venture exchanges as a means to provide secondary market liquidity to
smaller companies.
NASDAQ recently testified at a hearing held on May 23 of this year:
``NASDAQ recommends permitting issuers to choose to trade in an
environment with consolidated liquidity as would be allowed under the
Venture Exchange Legislation. By creating a market for smaller issuers
that is voluntary for issuers to join and largely exempt from the UTP
obligations, subject to key exemptions, we can concentrate liquidity to
reduce volatility and improve the trading experience.''
Additionally, at that same hearing, the U.S. Chamber stated: ``While
the JOBS Act did a great deal to help EGCs raise capital in primary
offerings, it did comparatively little to address the secondary market
trading in these same companies.''
Legislation like the Main Street Growth Act is an important
bipartisan step to better tailoring market structure rules for small
issuers and helping to facilitate capital formation.
I commend my colleague, Mr. Emmer, on his bipartisan work on the Main
Street Growth Act, which passed the Financial Services Committee by a
vote of 56-0, and I urge my colleagues to vote in favor of H.R. 5877.
Mr. Speaker, I reserve the balance of my time.
{time} 1530
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, I rise in support of H.R. 5877, the Main Street Growth
Act, a new and innovative idea that will help our Nation's small
businesses raise funds to grow by issuing stock that investors are able
to easily buy and sell in the secondary markets.
Specifically, H.R. 5877 would create a venture exchange for investors
to trade in the stock of emerging growth companies and early stage
growth companies.
Unlike a similar partisan bill last Congress, H.R. 5877, as amended,
would allow companies to create a venture exchange in a way that
balances the needs of small companies and the protection of their
investors in the secondary markets.
Most importantly, the bill would retain State regulatory oversight
over these small unregistered companies, which are more prone to fraud
and failure. For example, small companies that are not regularly traded
are frequent targets of scammers that use pump-and-dump schemes to dupe
investors into thinking the stock is worth more than it is by spreading
fake news and hot tips and then selling the stock at artificially high
prices.
So it makes sense for our State regulators, who are very familiar
with these scams, to regulate and oversee these companies.
I am also pleased that the bill ensures that companies trading on a
venture exchange have a minimum level of disclosure and ongoing
disclosure, including annual and semi-annual reports, that detail the
health of the company's finances, business, and management, as well as
the company's related party transactions and share ownership.
This is important to investors buying shares on a venture exchange
who may have little to no relationship to the company to otherwise have
access to such information.
In addition, the bill would allow the SEC to establish additional
restrictions on any over-the-counter trading that is not on a venture
exchange.
If our goal is to centralize trading on a single exchange to make it
easier for investors to buy and sell small company stock, then I think
it makes sense for the SEC to have the authority to limit over-the-
counter trading.
Mr. Speaker, I support H.R. 5877, and I thank Representative Emmer
for working with Democrats to support our Nation's small businesses and
their investors.
Mr. Speaker, I reserve the balance of my time.
Mr. HUIZENGA. Mr. Speaker, I yield such time as he may consume to the
gentleman from Minnesota (Mr. Emmer), the author of this legislation.
Mr. EMMER. Mr. Speaker, I too rise in support of H.R. 5877, the Main
Street Growth Act.
Ever since the JOBS Act was signed into law, Congress has worked hard
to build on its success to ensure American businesses, entrepreneurs,
and investors are able to realize the real and potential benefits that
make our markets the envy of the world.
The Main Street Growth Act continues that discussion. Approved by the
House Financial Services Committee by a vote of 56-0, this legislation
will facilitate the creation of venture exchanges, a concept many see
as a viable means to encourage more early-stage IPOs and improve
capital formation.
When businesses go public, jobs are created and new centers of wealth
are formed. In fact, a 2012 study found that for the 2,766 companies
that participated in an IPO between 1996 and 2010, total employment
across these businesses increased by 2.2 million jobs, while total
revenue increased by over $1 trillion.
Unfortunately, sustaining and encouraging more companies to move
forward with an IPO has proven difficult over time. Every year for the
past two decades, the number of public companies in the United States
has dropped,
[[Page H6005]]
with the only exception being the year Congress passed the JOBS Act.
Since 2009, the number of U.S.-listed IPOs, on average, has hovered
at fewer than 200 a year, well below the previous decade's average.
While there are a multitude of factors that a company takes into
consideration when determining whether to go public, one such
calculation is whether or not the current market structure fosters an
active and liquid secondary trading environment for that company's
securities.
Ensuring there is a place for investors to easily trade and sell
their securities is often a key determinant in a decision not to list,
if the business owner is not confident that such a marketplace exists.
Small business hesitation when making this determination is not
unfounded. According to the U.S. Securities and Exchange Commission,
small cap stocks, or those with capitalization below $100 million,
typically exhibit the least liquidity, while mid cap stocks, with
capitalization between $2 billion and $5 billion, tend to exhibit a
greater amount of liquidity.
Recognizing the continued challenges we face in courting new IPOs,
and understanding that liquidity is key for small companies interested
in going public, as well as securities currently trading in the
marketplace, it is clear that we must take steps to better tailor our
markets in order to account for the varying size and nature of
potential public companies if we are to encourage new capital
formation.
Here is where the Main Street Growth Act can help.
Under the Main Street Growth Act, an entity can register with the SEC
to establish a venture exchange; a market designed specifically to
support the trading of small and emerging companies, as well as
currently listed but liquidity-challenged securities.
These venture exchanges will trade venture securities, which include
early stage and emerging growth companies, as well as securities
currently trading in the marketplace but are below a certain public
float or average daily trade volume threshold.
In my home State of Minnesota, there are more than 30 companies
currently listed on an exchange that may meet the necessary criteria to
explore the benefits of a new venture exchange as envisioned by this
legislation.
Additionally, there are over 130 Minnesota-based companies that are
not listed publicly and have utilized private means of funding for
their businesses, but could qualify to list on a venture exchange to
improve their ability to create new growth and employment
opportunities.
The Main Street Growth Act includes important provisions to
concentrate liquidity by ensuring that the trading of securities listed
on a venture exchange may only occur on that venture exchange.
Also, utilizing the current exchange model serves as an efficient way
to ensure investor protection while improving their standing in our
capital markets.
The Main Street Growth Act is a consensus bill with input from my
colleagues on both sides of the aisle and with the administration as
well. It directly complements SEC Chairman Clayton's ongoing efforts to
``examine whether the current market structure meets the needs of all
types of companies that have the potential to be public companies.''
Mr. Speaker, I would like to extend my gratitude to the chairman and
ranking member of the Financial Services Committee and their staff for
their tireless work on this legislation and the issues related to
improving capital formation in the United States.
Mr. Speaker, I encourage my colleagues to join me in supporting H.R.
5877.
Ms. MAXINE WATERS of California. Mr. Speaker, I have no further
speakers, and I yield back the balance of my time.
Mr. HUIZENGA. Mr. Speaker, I also have no further speakers, 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. 5877, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
A motion to reconsider was laid on the table.
____________________