[Congressional Record Volume 165, Number 114 (Tuesday, July 9, 2019)]
[House]
[Pages H5283-H5285]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           EXPANDING INVESTMENT IN SMALL BUSINESS ACT OF 2019

  Ms. WATERS. Mr. Speaker, I move to suspend the rules and pass the 
bill (H.R. 3050) to require the Securities and Exchange Commission to 
carry out a study of the 10 per centum threshold limitation applicable 
to the definition of a diversified company under the Investment Company 
Act of 1940, and for other purposes, as amended.
  The Clerk read the title of the bill.
  The text of the bill is as follows:

                               H.R. 3050

       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 ``Expanding Investment in 
     Small Businesses Act of 2019''.

     SEC. 2. SEC STUDY.

       (a) In General.--The Securities and Exchange Commission 
     shall carry out a study of the 10 per centum threshold 
     limitation applicable to the definition of a diversified 
     company under section 5(b)(1) of the Investment Company Act 
     of 1940 (15 U.S.C. 80a-5(b)(1)) and determine the impacts of 
     such threshold limits upon the protection of investors, 
     efficiency, competition, and capital formation.
       (b) Considerations.--In carrying out the study required 
     under subsection (a), the Commission shall consider the 
     following:
       (1) The size and number of diversified companies that are 
     currently restricted in their ability to own more than 10 
     percent of the voting shares in an individual company.
       (2) How the investing preferences of diversified companies 
     have shifted over time with respect to companies with smaller 
     market capitalizations and companies in industries where 
     competition may be limited.
       (3) The expected impact to small and emerging growth 
     companies regarding the availability of capital, related 
     impacts on investor confidence and risk, and impacts on 
     competition, if the threshold is increased or otherwise 
     changed.
       (4) The ability of registered funds to manage liquidity 
     risk.
       (5) Any other consideration that the Commission considers 
     necessary and appropriate for the protection of investors.
       (c) Solicitation of Public Comments.--In carrying out the 
     study required under subsection (a), the Commission may 
     solicit public comments.
       (d) Report.--Not later than the end of the 180-day period 
     beginning on the date of enactment of this Act, the 
     Commission shall issue a report to the Congress, and make 
     such report publicly available on the website of the 
     Commission, containing--
       (1) all findings and determinations made in carrying out 
     the study required under subsection (a); and

[[Page H5284]]

       (2) any legislative recommendations of the Commission.

  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 
have 5 legislative days 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.
  Our capital markets are the envy of the world. This is due, in part, 
to the fact that once a company goes public, it can efficiently raise 
money for mom-and-pop investors who, in turn, can easily buy and sell 
shares.
  However, there is some evidence that initial public offerings, or 
IPOs, of smaller companies, known as microcap companies, have declined 
since the dot-com bubble in 2001. This decline accounts for the main 
reason that the total number of stocks has declined.
  I think it is important that we look into why this is the case and 
find out what policies we should be working on in Congress to ensure 
that our Nation's small businesses are able to access the public 
markets.
  I support the gentleman from Wisconsin's bill, the Expanding 
Investment in Small Business Act of 2019, for doing just that. This 
bill would require the Securities and Exchange Commission to study and 
solicit public comment on the existing rules restricting a diversified 
mutual fund's exposure to a single company. It would also require the 
SEC to determine whether that requirement limits capital formation 
considering current investing trends and other factors the SEC 
determines are necessary and appropriate to protect investors.
  The SEC would have to issue a report to Congress with its findings 
and determinations made in carrying out the study and any legislative 
recommendations, including any recommendation to update the current 
thresholds.
  This bill helps ensure that we have the facts and data necessary to 
make an informed decision on whether we should change the current 
diversification limits for mutual funds and whether doing so will 
provide additional investment in small company IPOs.
  I thank Representative Steil for working with me this Congress to 
ensure that the revised text of the bill also seeks to promote 
competition in our capital markets, and Mr. Gonzalez for cosponsoring 
this bill.
  I urge all Members to vote ``yes,'' and 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 strong support of H.R. 3050, the Expanding 
Investment in Small Business Act.
  I commend my colleague, an outstanding new member of the Financial 
Services Committee, Congressman Steil from Wisconsin, for his hard work 
on this important bill that will help us make our capital markets 
stronger and more attractive. Because of his personal experience and 
his background in public markets as a counsel for a publicly traded 
company, he has brought to bear particular expertise in forwarding this 
legislation for our consideration.
  Mutual funds have historically played an important role in providing 
liquidity to newly public companies. Since 1990, the total number of 
registered mutual funds has grown approximately 10 times; mean fund 
size has more than doubled; and open-end fund holdings of U.S. 
corporate equities have reached approximately 24 percent of the entire 
market. This growth means the investment decisions of mutual funds 
today are an important aspect of our public capital markets.
  As the size of mutual funds has increased in recent years, the 
diversified fund limit rules, specifically the 10 percent cap on a 
diversified fund's ownership of an issuer's outstanding shares, have 
limited funds' ability to take meaningful positions in small-cap 
companies, according to industry experts.
  The current 10 percent cap on mutual fund positions limits interest 
in small-cap IPOs because as large funds' assets under management grow, 
the 10 percent cap means that any investment in a small IPO will have a 
negligible impact on overall fund return.
  Declining mutual fund interest in small IPOs also materially weakens 
the trading environment for small-cap stocks and likely deters small, 
private firms from joining our public markets, something we should not 
be discouraging.
  H.R. 3050 would require the SEC to study whether the current 
diversified fund limit threshold for mutual funds to 10 percent 
constrains their ability to take meaningful positions in small-cap 
companies.
  As part of its report, the SEC shall recommend to Congress any 
statutory changes that should be undertaken to address the SEC's 
findings.
  This is an important bill for helping us make our capital markets as 
attractive as possible, especially for smaller companies.
  For these reasons, I support H.R. 3050. I commend my colleague, the 
gentleman from Wisconsin, for his leadership and his experience on this 
issue, and I urge my colleagues to support this bill.
  I reserve the balance of my time.
  Ms. WATERS. Mr. Speaker, I reserve the balance of my time.
  Mr. BARR. Mr. Speaker, I yield such time as he may consume to the 
gentleman from Wisconsin (Mr. Steil), the author of this legislation.
  Mr. STEIL. Mr. Speaker, I thank my colleague from Kentucky.
  Mr. Speaker, I rise to support my bill today, the Expanding 
Investment in Small Business Act.
  Small businesses and entrepreneurs are vital to our economy. More 
than 60 percent of new jobs are created by small businesses, and almost 
half of our private-sector workforce is employed by firms with fewer 
than 500 employees.

  Small businesses are also an engine for innovation. According to the 
Small Business Administration, small businesses account for an outsized 
percentage of patents granted in the most innovative industries.
  I see this ingenuity in Wisconsin in Racine, Janesville, Kenosha, and 
everywhere in-between. Entrepreneurs and startups create good-paying 
jobs for workers.
  It is important that we continue giving job creators the ability to 
invest in our communities. But in order to grow, hire, and invest in 
innovation, small businesses need access to capital.
  Unfortunately, rules and regulations have made it harder for 
companies to gain access to capital, made it harder for them to go 
public, and made it harder for them to stay public. This hurts small 
companies, and this hurts the broader economy.
  In particular, this hurts American workers and their retirement 
security. Just under half of all households are invested in mutual 
funds. Many Americans are invested in these funds through 401(k)'s and 
pension plans. Their retirement security depends upon the ability to 
invest in a diverse set of growing, innovative companies.
  Our rules, though, are burdensome. They shrink the number of publicly 
traded companies, either by deterring companies from going public or by 
encouraging them to stay private. In doing so, they limit the 
opportunities for Americans saving for retirement.
  Members of both parties and a wide range of stakeholders and experts 
have identified the existing mutual fund rules as an area for potential 
improvement. I thank my colleague, Congressman Gonzalez from Texas, for 
joining me in this across-the-aisle effort to support this bill.
  This isn't a new idea, but until now, it hasn't gotten done. I am 
glad to see bipartisan support for taking this important step forward 
to improving our capital markets.
  The Expanding Investment in Small Business Act directs the SEC to 
consider whether existing mutual fund rules make it harder for small 
and emerging companies to raise money, so they can grow and invest.
  Under the Investment Company Act, a diversified mutual fund may not 
own more than 10 percent of an issuer's outstanding securities. As 
mutual funds have grown both in number and in size, they become an 
important source of

[[Page H5285]]

capital, in particular for small businesses.
  A substantial mutual fund investment in a small-cap company can 
easily exceed the 10 percent cap. This likely deters mutual fund 
investments into growing and innovative companies.
  My bill asks the SEC to consider four key items: one, how many mutual 
funds are currently affected by the 10 percent cap; two, how the 
investing preferences of diversified mutual funds have shifted over 
time with respect to smaller companies; three, the potential impact of 
a change in the 10 percent threshold; and, four, the ability of 
diversified funds to manage liquidity risk.
  This information is necessary so that we can continue to work in a 
nonpartisan manner to ensure that small businesses have access to 
capital, so they can grow and invest.
  Smart, targeted reforms can give us more vibrant capital markets; 
growing, innovative small businesses; better outcomes for American 
investors; and, ultimately, a stronger economy.
  I look forward to continuing to work with my colleagues toward this 
goal. I thank Chair Waters and Ranking Member McHenry for their support 
of this bill, and I urge my colleagues to support its passage.
  This bill is an important step forward toward a stronger economy, 
more dynamic small businesses, and more jobs for American workers.

                              {time}  1800

  Ms. WATERS. Mr. Speaker, I have no further speakers, and I reserve 
the balance of my time.
  Mr. BARR. Mr. Speaker, I yield 2 minutes to the gentleman from 
Virginia (Mr. Riggleman), who is an outstanding new member of the House 
Financial Services Committee. He is another gentleman who comes to 
Congress not as a politician, but as an entrepreneur, someone who has 
built businesses and created jobs himself and understands intimately 
the need for small businesses and entrepreneurs to have the ability to 
access capital.
  Mr. RIGGLEMAN. Mr. Speaker, I have to support my good friend from 
Wisconsin as we go forward. I am also in a very small business type of 
atmosphere in Virginia. I own a small business, a distillery, and for 
us, small businesses are one of the most important things we can 
support as we go forward.
  I am here today to support my colleagues and to support Democrats in 
a bipartisan fashion. This is something that we need to do, we have to 
do, and I urge my colleagues to support this bill.
  Mr. Speaker, I don't need the 2 minutes to actually make sure that 
this happens. I urge my colleagues to support this bill and make sure 
we support small businesses in everything that we do.
  Mr. BARR. Mr. Speaker, I urge my colleagues to support the 
legislation, and I yield back the balance of my time.
  Ms. WATERS. Mr. Speaker, I yield myself the balance of my time. I 
want to, again, thank the sponsors of H.R. 3050 and the gentleman from 
Wisconsin for working with my side on the text of this legislation. I 
think it is a good bill and will, along with other measures that we are 
considering today, improve the access of small businesses to U.S. 
capital markets.
  Mr. Speaker, I urge my colleagues to join me in supporting this 
important piece of legislation, and I yield back the balance of my 
time.
  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. 3050, 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. STEIL. 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.

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