[Congressional Record Volume 165, Number 114 (Tuesday, July 9, 2019)]
[House]
[Pages H5282-H5283]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    IMPROVING INVESTMENT RESEARCH FOR SMALL AND EMERGING ISSUERS ACT

  Ms. WATERS. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 2919) to require the Securities and Exchange Commission to 
carry out a study to evaluate the issues affecting the provision of and 
reliance upon investment research into small issuers.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 2919

       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 ``Improving Investment 
     Research for Small and Emerging Issuers Act''.

     SEC. 2. RESEARCH STUDY.

       (a) Study Required.--The Securities and Exchange Commission 
     shall conduct a study to evaluate the issues affecting the 
     provision of and reliance upon investment research into small 
     issuers, including emerging growth companies and companies 
     considering initial public offerings.
       (b) Contents of Study.--The study required under subsection 
     (a) shall consider--
       (1) factors related to the demand for such research by 
     institutional and retail investors;
       (2) the availability of such research, including--
       (A) the number and types of firms who provide such 
     research;
       (B) the volume of such research over time; and
       (C) competition in the research market;
       (3) conflicts of interest relating to the production and 
     distribution of investment research;
       (4) the costs of such research;
       (5) the impacts of different payment mechanisms for 
     investment research into small issuers, including whether 
     such research is paid for by--
       (A) hard-dollar payments from research clients;
       (B) payments directed from the client's commission income 
     (i.e., ``soft dollars''); or
       (C) payments from the issuer that is the subject of such 
     research;
       (6) any unique challenges faced by minority-owned, women-
     owned, and veteran-owned small issuers in obtaining research 
     coverage; and
       (7) the impact on the availability of research coverage for 
     small issuers due to--
       (A) investment adviser concentration and consolidation, 
     including any potential impacts of fund-size on demand for 
     investment research of small issuers;
       (B) broker and dealer concentration and consolidation, 
     including any relationships between the size of the firm and 
     allocation of resources for investment research into small 
     issuers;
       (C) Securities and Exchange Commission rules;
       (D) registered national securities association rules;
       (E) State and Federal liability concerns;
       (F) the settlement agreements referenced in Securities and 
     Exchange Commission Litigation Release No. 18438 (i.e., the 
     ``Global Research Analyst Settlement''); and
       (G) Directive 2014/65/EU of the European Parliament and of 
     the Council of 15 May 2014 on markets in financial 
     instruments and amending Directive 2002/92/EC and Directive 
     2011/61/EU, as implemented by the European Union (``EU'') 
     member states (``MiFID II'').
       (c) Report Required.--Not later than 180 days after the 
     date of the enactment of this Act, the Securities and 
     Exchange Commission shall submit to Congress a report that 
     includes--
       (1) the results of the study required by subsection (a); 
     and
       (2) recommendations to increase the demand for, volume of, 
     and quality of investment research into small issuers, 
     including emerging growth companies and companies considering 
     initial public offerings.
  The SPEAKER pro tempore. Pursuant to the rule, the gentlewoman from 
California (Ms. Waters) and the gentleman from Kentucky (Mr. Barr) each 
will control 20 minutes.
  The Chair recognizes the gentlewoman from California.


                             General Leave

  Ms. WATERS. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days in which to revise and extend their remarks on 
this legislation and to insert extraneous material thereon.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentlewoman from California?
  There was no objection.
  Ms. WATERS. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I thank the ranking member of our Investor Protection, 
Entrepreneurship, and Capital Markets Subcommittee, Representative 
Huizenga, and Representative McAdams, for working across the aisle on 
this bipartisan bill to improve investment research coverage for small 
issuers.
  Investment research helps to raise investor awareness, understanding, 
and interest about a company, which in turn can promote informed 
investment and overall trading in a company's securities.
  However, reports indicate significant declines in analyst research on 
small public companies. In fact, it appears that most exchange-listed 
companies with less than $100 million in market capitalization have no 
research coverage at all.
  To address this concerning trend, H.R. 2919 would direct the SEC to 
conduct a study on the issues that are affecting the availability of 
research coverage for small issuers, including emerging growth 
companies, companies considering an initial public offering, and 
minority-, women-, and veteran-owned businesses. It also directs the 
SEC to report back recommendations to improve the quality and 
availability of investment research for small issuers.
  I urge my colleagues to support this bipartisan bill to enable us to 
identify some of the barriers small businesses face when attempting to 
get their story out to investors in our public capital markets.
  Mr. Speaker, I reserve the balance of my time.
  Mr. BARR. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I rise in support of H.R. 2919, the Improving Investment 
Research for Small and Emerging Issuers Act. I thank my colleagues, 
Congressman Huizenga and Congressman McAdams, for their efforts on this 
bipartisan legislation that will help small companies and our capital 
markets.
  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 and the largest international 
companies.
  However, a company's size often impacts how easily it can access 
capital. For example, larger companies have generally found capital 
markets easier to access than smaller ones.
  While the number of IPOs in the U.S. has rebounded from its post-
crisis glut--thanks in large part to the success of the bipartisan JOBS 
Act of 2012--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 small companies, have gone public over the past few 
decades. The data suggest that in fulfilling its capital formation 
mandate, the Securities and Exchange Commission needs to tailor its 
approach to account for the varying nature and size of companies.

                              {time}  1745

  An important piece to this approach is recognizing insufficient 
research coverage of microcap, small-cap, and emerging companies can 
undermine the liquidity necessary to attract investor interest and 
facilitate capital necessary for growth.
  This bipartisan legislation would direct the SEC to study, evaluate, 
and

[[Page H5283]]

report on issues affecting the ability of emerging growth companies and 
other small issuers to obtain research coverage, including SEC rules, 
FINRA rules, State and Federal liability concerns, the 2003 Global 
Analyst Research Settlements, and MiFID II.
  Again, I thank Congressman Huizenga and Congressman McAdams for this 
commonsense and bipartisan legislation, which I support.
  Mr. Speaker, we have no further speakers, so at this time, I will 
close. Let me once again urge my colleagues to support this commonsense 
legislation, and I yield back the balance of my time.
  Ms. WATERS. Mr. Speaker, I yield myself the balance of my time.
  Mr. Speaker, I am pleased that Mr. Huizenga and Mr. McAdams worked in 
a bipartisan manner to bring forth H.R. 2919. Markets work best when 
there is adequate public information, and the study on additional 
research provided for in this bill will help ensure that this is the 
case.
  I urge my colleagues to join me in supporting this important 
legislation, and I yield back the balance of my time.
  Mr. HUIZENGA. Mr. Speaker, initial public offerings, or IPOs, have 
historically been one of the most meaningful steps in the lifecycle of 
a company. ``Going public'' was the ultimate goal for entrepreneurs. 
You start a business from scratch, build it up into a successful 
enterprise, and then open up an opportunity for the public to share in 
your success.
  By completing an IPO, a company is able to raise much-needed capital 
for job creation and expansion opportunities, while allowing main 
street investors the opportunity to have an economic piece of the 
action and ability to participate in the growth phase of a company.
  However, over the past two decades, our nation has experienced a 37 
percent decline in the number of U.S. listed companies. Equally 
troubling, we have seen the number of public companies fall to around 
5,700. These statistics are concerning because they are similar to the 
data we saw in the 1980's when our economy was less than half its 
current size.
  For myriad reasons, the public model is no longer viewed as an 
attractive means of raising capital. Instead, small and emerging growth 
companies are choosing to go public much later in their lifecycle or 
choosing not to go public at all.
  We must work to change the trajectory. In speaking to the New York 
Economic Club, SEC Chairman Clayton stated that ``Regardless of the 
cause, the reduction in the number of U.S.-listed public companies is a 
serious issue for our markets and the country more generally. To the 
extent companies are eschewing our public markets, the vast majority of 
Main Street investors will be unable to participate in their growth. 
The potential lasting effects of such an outcome to the economy and 
society are, in two words, not good.''
  I share Chairman Clayton's concerns. We need to ensure that our 
capital markets are open for innovators and job creators and we must 
work to right-size regulations for smaller companies as well.
  One way that Congress worked to lift burdensome regulations and help 
small companies gain access to capital markets was the bipartisan 
Jumpstart Our Business Startups Act--popularly known as the JOBS Act.
  Section 105 of the JOBS Act changed the ``gun-jumping rules'' to 
provide an exception from the definition of an offer to allow for the 
publication or distribution by a broker or dealer of a research report 
about an emerging growth company that is the subject of a proposed 
public offering. However, few investment banks have published any pre-
IPO research since passage of the JOBS Act, and research coverage in 
general on small issuers continues to be an issue. This negatively 
affects investor interest and awareness in a company as well as trading 
liquidity.
  This provision was intended to increase research but unfortunately it 
has had the opposite effect and instead, there has been a significant 
decline over recent years in analyst research covering small public 
companies. According to the U.S. Chamber, ``61% of all companies listed 
on a major exchange with less than a $100 million market capitalization 
have no research coverage at all.''
  For equities with a market cap below $750 million, the average number 
of research analysts covering that stock is one, while equities above 
$750 million in market cap have an average of 12 research analysts 
covering the stock.
  Additionally, the amount of research written on small companies has 
declined even as the percentage of individual ownership in small cap 
companies has increased. Little to no research coverage generally 
corresponds with lower stock liquidity, and reduced research coverage 
may be particularly disadvantageous to individual investors who have 
limited research capabilities on their own.
  In fact, one study published June 2017 in the Journal of Finance 
found that an increase in the number of analysts covering an industry 
improved the quality of analyst forecasts and information flow to 
investors. For that reason, it is important to examine current SEC 
rules and regulations affecting the ability of investment research 
coverage regarding small issuers. The Treasury Report on Capital 
Markets recommended a holistic review of rules and regulations 
regarding research, including the Global Settlement, to determine, 
which provisions should be retained, amended, or removed.
  Our bipartisan bill, the Improving Investment Research for Small and 
Emerging Issuers Act, would direct the SEC to study and evaluate issues 
affecting the ability of emerging growth companies and other small 
issuers in obtaining research coverage, including SEC rules, FINRA 
rules, state and federal liability concerns, the 2003 Global Research 
Analyst Settlements, and MiFID II. Not later than 180 days after 
enactment, the SEC will be required to submit to Congress a report that 
includes the results of the study and recommendations to assist EGCs 
and other small issuers in obtaining research coverage.
  Among the issues the SEC must consider are factors related to the 
demand for such research by institutional and retail investors, cost 
considerations for such research, and the impact on the availability of 
research coverage for small issuers due to a variety of market and 
regulatory conditions. The SEC's report must include recommendations to 
increase the demand for, volume of, and quality of investment research 
into small issuers, including EGCs.
  I'd like to thank the Financial Services Chairwoman, Mrs. Waters, and 
Rep. Ben McAdams, for recognizing the importance of research in our 
capital markets and working with me to address this issue.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentlewoman from California (Ms. Waters) that the House suspend the 
rules and pass the bill, H.R. 2919.
  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.

                          ____________________