[Congressional Record Volume 164, Number 115 (Tuesday, July 10, 2018)]
[House]
[Pages H6013-H6015]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
MODERNIZING DISCLOSURES FOR INVESTORS ACT
Mr. HUIZENGA. Mr. Speaker, I move to suspend the rules and pass the
bill (H.R. 5970) to require the Securities and Exchange Commission to
implement rules simplifying the quarterly financial reporting regime,
as amended.
The Clerk read the title of the bill.
The text of the bill is as follows:
H.R. 5970
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 ``Modernizing Disclosures for
Investors Act''.
SEC. 2. FORM 10-Q ANALYSIS.
(a) In General.--The Securities and Exchange Commission
shall conduct an analysis of the costs and benefits of
requiring reporting companies to use Form 10-Q for submitting
quarterly financial reports. Such analysis shall consider--
(1) the costs and benefits of Form 10-Q to emerging growth
companies;
(2) the costs and benefits of Form 10-Q to the Commission
in terms of its ability to protect investors, maintain fair,
orderly, and efficient markets, and facilitate capital
formation;
(3) the costs and benefits of Form 10-Q to other reporting
companies, investors, market researchers, and other market
participants, including the costs and benefits associated
with--
(A) the public availability of the information required to
be filed on Form 10-Q;
(B) the use of a standardized reporting format across all
classes of reporting companies; and
(C) the quarterly disclosure by some companies of financial
information in formats other than Form 10-Q, such as a
quarterly earnings press release;
(4) the costs and benefits of alternative formats for
quarterly reporting for emerging growth companies to emerging
growth companies, the Commission, other reporting companies,
investors, market researchers, and other market participants;
and
(5) the expected impact of the use of alternative formats
of quarterly reporting by emerging growth companies on
overall market transparency and efficiency.
(b) Report Required.--Not later than 180 days after the
date of enactment of this Act, the Commission shall issue a
report to Congress that includes--
(1) the results of the analysis required by subsection (a);
and
(2) recommendations for decreasing costs, increasing
transparency, and increasing efficiency of quarterly
financial reporting by emerging growth companies.
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.
The Chair recognizes the gentleman from Michigan.
{time} 1630
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 include extraneous material on the 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 commend my colleague, Mrs. Wagner, from Missouri for
her work on this very important bill. This is part of a series of bills
that we have seen, not just today but throughout the time that we have
put forth on the Capital Markets Subcommittee, as well as the Financial
Services Committee overall, because we know that there is no one thing
that has ground the gears of our economy to a halt or to slow it down,
and there is also no one magic thing that can happen or be passed that
will suddenly spring it to life. It is a little like throwing sand in
the gears of a machine. Over time, it just gets harder and harder and
harder for that machine to grind on.
We are here through a whole series of bills, both today and at other
times, to add a little oil to the machine, to try to make sure that our
capital markets are continuing to move and to be the envy of the world.
We know, Mr. Speaker, that our capital markets here in the United
States have been and continue to be the envy of the world, and they are
a vibrant ecosystem fueling America's economic growth and generating
millions of private sector jobs.
These capital markets provide financing and needed resources to the
smallest startups and to the very largest of the international
companies that we have here in the United States. However, smaller
companies have often been penalized for their size.
As we have talked about in previous bills, the number of IPOs, or
initial public offerings, that have occurred in the United States have
plummeted. We have tried to fix that or tried to help improve that
through things like the JOBS Act, but these small companies still face
significant regulatory and market impediments that disincentivize them
from accessing capital via the public markets.
The Federal securities laws require that most SEC registrants
disclose certain information on an ongoing basis, including a quarterly
report on what is called the form 10Q. Form 10Q includes condensed
financial information and
[[Page H6014]]
other data prepared by a company and reviewed, though generally
unaudited, by its independent auditor.
The purpose is to provide a continuing view of the company's
financial position during the year. The report must be filed for each
of the first three fiscal quarters of the company's fiscal year.
The SEC's current corporate disclosure system imposes a number of
outdated, duplicative, burdensome, and unnecessary requirements on U.S.
companies diverting private sector resources toward regulatory
compliance and away from innovation, growth, and job creation, where it
really should be. Moreover, this outdated disclosure regime leads to
unnecessarily long, complicated, and often immaterial public company
disclosures, resulting in widespread investor confusion and,
potentially, suboptimal investment decisions.
While the SEC has often recognized the need to study and streamline
the corporate disclosure regime, it has recently been Congress that has
actually spurred them on in this regard. Through provisions such as the
JOBS Act and the FAST Act, the SEC is required to study current
regulations and then eliminate these outdated, duplicative, and
unnecessary disclosure obligations.
Form 10Q can create extreme administrative costs. A 2011 report of
the IPO Task Force found that 92 percent of public companies said that
``administrative burden of public reporting'' was a significant
challenge to completing an IPO and becoming a public company.
We have talked about, Mr. Speaker, earlier, that lack of ability for
retail investors, the Joe and Jane investor, to have the same
opportunity that some sort of well-financed, professional investor or
fund that is out there is going to have.
We need to allow them to have access into these pools of companies so
that they may catch the upside of so many of these companies that are
seeing extreme growth. That is the reason why we need to have these
IPOs.
In addition to filing forms 10K annually and 10Q quarterly, companies
must file current reports on form 8K, often within 4 business days
after the occurrence of specified events; these are things that could
move their stock price, for example, and is relevant disclosure that
needs to happen. They are then required to file these form 8Ks.
In other words, by the time a quarterly report is filed, many
material events have already been reported by a company through these
8Ks; and according to widespread economic views regarding efficiency of
markets, that information has then been priced into the cost of an
equity. Granting early growth companies the option of issuing a press
release or other short form that includes earnings results, as opposed
to a full 10Q form, would provide investors with important quarterly
financial information but reduce unnecessary burdens and complexities
associated with the current quarterly reporting system.
Again, it is extremely important that investors have access to that
information. This bill does nothing to diminish that. In fact, it makes
it more approachable and more accessible to the average investor.
Nonetheless, this bill does not require any action by the SEC to
change the 10Q reporting regime. It simply requires the SEC to consider
the issue and report back to Congress on it. In doing so, the SEC can
consider the substantial costs of these financial disclosures and aim
to modernize the disclosure process in a manner that encourages
investors to make more efficient use of the information filed with the
SEC.
Specifically, H.R. 5970, the Modernizing Disclosures for Investors
Act, would require the SEC to provide a report to Congress with a cost-
benefit analysis for emerging growth companies' use of the SEC form 10Q
and recommendations for decreasing costs, increasing transparency, and
increasing efficiency of quarterly financial reporting by emerging
growth companies within 180 days after enactment of this bill.
I would like to commend my colleagues, Representative Wagner and
Representative Gottheimer, for their bipartisan work on this very
important bill. This bill, it is important to note, Mr. Speaker, passed
the Financial Services Committee by a vote of 56-0. That is very
important information because I believe that this is bipartisan and
should be a bicameral step toward maintaining the health of our capital
markets.
Mr. Speaker, I urge all of my colleagues to vote for H.R. 5970, and I
reserve the balance of my time.
Ms. MAXINE WATERS of California. Mr. Speaker, I yield myself such
time as I may consume.
Mr. Speaker, robust and regular disclosures by public companies, such
as the detailed quarterly financial information filed on a form 10Q,
make our markets more attractive to investors by enabling informed
investment decisions and ensuring shareholders can hold corporate
boards accountable for practices that may undermine the value of the
company.
Standardized quarterly financial reporting on form 10Q also provides
a means for regulators to conduct efficient and effective oversight of
public companies and protect investors from fraud and other corporate
misconduct.
When investors have faith in the integrity of our markets, they are
more likely to entrust their capital to public companies, thereby
providing opportunities for economic growth and job creation.
The benefits of quarterly reporting are well recognized by the
investor community. In a June 2016 letter to the SEC's Division of
Corporate Finance, the SEC's Investor Advisory Committee wrote, ``The
current degree, quality, and frequency of disclosure for U.S. issuers
overall is appropriate and a source of strength for the U.S. capital
markets. The current system greatly benefits retirees, pension funds,
endowments, and households that are directly and indirectly market
participants.''
Additionally, in May and June of this year, investors and investor
advocacy groups wrote to the Financial Services Committee expressing
their support for the SEC's current quarterly reporting regime,
including the form 10Q.
According to CalPERS, the largest public pension fund in the United
States with more than $350 billion in global assets, ``10Qs provide
substantial and important information and serve as a great historical
resource. Any modification of standard quarterly filings should be
preceded by significant study with ample opportunity for investor
input.''
While some business groups have called for the elimination of the 10Q
as a cost-saving measure for corporations, I agree that any attempt to
alter the existing quarterly reporting requirements first requires a
careful and balanced study that considers the impact of any changes on
investors and our markets.
H.R. 5970, as amended, requires the SEC to conduct such a study, to
include consideration of the benefits of form 10Q reporting to the SEC,
public companies, investors, market researchers, and other market
participants.
I support the bill as amended, and I thank Mr. Gottheimer and Mrs.
Wagner for working together to develop a bipartisan approach to the
study. I hope that the SEC takes this study as an opportunity to hear
from investors about the disclosures they find important and ensure
that our public markets and the companies which seek to access them
continue to enjoy the benefits of comprehensive and standardized
financial disclosure.
Mr. Speaker, I yield back the balance of my time.
Mr. HUIZENGA. Mr. Speaker, it has been a long afternoon. We have
covered a lot of territory, eight different bills, I think, today. As I
had said earlier, there is no magic bill that is going to somehow cure
or remedy some of the challenges that our capital markets have seen
over the last number of years, but this is a step towards that.
H.R. 5970 and so many of these other bills are important steps that
this House is taking on a very bipartisan basis. I commend everybody
who has worked on this--Mr. Gottheimer and Mrs. Wagner in this
particular case--and I look forward to continuing to work with my
colleagues across the aisle to search for true solutions in policy and
to set aside the politics of what needs to happen.
Mr. Speaker, I urge my colleagues to vote in favor of H.R. 5970, and
I yield back the balance of my time.
[[Page H6015]]
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. 5970, as amended.
The question was taken; and (two-thirds being in the affirmative) the
rules were suspended and the bill, as amended, was passed.
The title of the bill was amended so as to read: ``A bill to require
the Securities and Exchange Commission to carry out a cost benefit
analysis of the use of Form 10-Q and for other purposes.''.
A motion to reconsider was laid on the table.
____________________