[House Report 107-415]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     107-415

======================================================================



 
      SECURITIES AND EXCHANGE COMMISSION AUTHORIZATION ACT OF 2002

                                _______
                                

 April 22, 2002.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3764]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 3764) to authorize appropriations for the Securities 
and Exchange Commission, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     4
Committee Oversight Findings.....................................     5
Performance Goals and Objectives.................................     5
New Budget Authority, Entitlement Authority, and Tax Expenditures     5
Committee Cost Estimate..........................................     5
Congressional Budget Office Estimate.............................     5
Federal Mandates Statement.......................................     5
Advisory Committee Statement.....................................     6
Constitutional Authority Statement...............................     6
Applicability to Legislative Branch..............................     6
Section-by-Section Analysis of the Legislation...................     6
Changes in Existing Law Made by the Bill, as Reported............     6

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Securities and Exchange Commission 
Authorization Act of 2002''.

SECTION 2. AUTHORIZATION OF APPROPRIATIONS OF THE SECURITIES AND 
                    EXCHANGE COMMISSION.

  In addition to any other funds authorized to be appropriated to the 
Securities and Exchange Commission, there are authorized to be 
appropriated to carry out the functions, powers, and duties of the 
Commission, $776,000,000 for fiscal year 2003, of which--
          (1) not less that $134,000,000 shall be available for the 
        Division of Corporate Finance and for the Office of Chief 
        Accountant;
          (2) not less than $326,000,000 shall be available for the 
        Division of Enforcement; and
          (3) not less than $76,000,000 shall be available to implement 
        section 8 of the Investor and Capital Markets Fee Relief Act, 
        relating to pay comparability.

SEC. 3. SENSE OF THE CONGRESS.

  It is the sense of the Congress that the Securities and Exchange 
Commission should conduct a thorough annual review of the annual 
financial statements contained in the most recent periodic disclosures 
filed with the Commission by the largest 500 reporting issuers, as 
determined by market capitalization and by other factors as the 
Commission shall determine.

                          Purpose and Summary

    The purpose of H.R. 3764, the Securities and Exchange 
Commission Authorization Act of 2002, is to authorize 
appropriations for the Securities and Exchange Commission (SEC) 
for fiscal year 2003.
    The bill authorizes $776 million for fiscal year 2003, with 
$134 million designated for the use of the Division of 
Corporation Finance and the Office of the Chief Accountant, and 
$326 million designated for the use of the Division of 
Enforcement. Given this substantial increase in funding, the 
bill expresses the sense of the Congress that the SEC should 
conduct a thorough annual review of the annual financial 
disclosures of the 500 largest market participants. Finally, 
the Committee also fully funds the pay parity provisions of the 
Investor and Capital Markets Fee Relief Act (Public Law 107-
123), enacted into law in January 2002.

                  Background and Need for Legislation

    The SEC is statutorily charged with the supervision of the 
Nation's securities markets. This legislation will authorize 
the resources necessary for the SEC to enable it to continue 
its mission of protecting investors and promoting efficiency, 
competition, and capital formation.
    The U.S. securities markets are widely regarded as the 
deepest, most liquid, and fairest markets in the world, in 
large part due to the work of the Commission. With modest staff 
and limited resources, the SEC currently oversees an estimated 
8,000 brokerage firms employing nearly 700,000 brokers; 7,500 
investment advisers with approximately $20 trillion in assets 
under management; 34,000 investment company portfolios; and 
over 17,000 reporting companies. The Commission also has 
oversight responsibilities for nine registered securities 
exchanges, the National Association of Securities Dealers, the 
National Futures Association, 13 registered clearing agencies, 
and the Municipal Securities Rulemaking Board.
    The President's fiscal year 2003 budget request includes a 
total of $466.9 million for the SEC, an increase of 6.6 percent 
above the SEC's 2002 appropriation of $437.9. This proposed 
funding level would provide the SEC with a ``zero-growth'' 
budget in that it provides no new staff and only modest amounts 
for the SEC's e-government and information technology 
initiatives, telecommunications systems, and security 
enhancements. The Commission has not received a staffing 
increase in the last two years, despite the additional 
responsibilities put upon it by the enactment of the Commodity 
Futures Modernization Act and the Gramm-Leach-Bliley financial 
services modernization act. Now, with the events of September 
11 in which the SEC's Northeast Regional Office was destroyed, 
as well as the Enron and Global Crossing bankruptcies, the 
challenges facing the SEC and the SEC's responsibilities have 
expanded yet again. While the Administration has, in a 
supplemental budget request, asked for an additional $20 
million for the SEC in fiscal 2003 in order to fund 100 new 
staff positions, Chairman Pitt has noted, and the Committee 
agrees, that this amount is only enough to fill the SEC's 
immediate post-Enron needs. These needs include a greater focus 
on ``real-time'' enforcement, particularly in financial 
reporting cases, initiation of more current, rather than 
periodic, disclosures, increased investor education programs 
and updated information technology. To address these areas, 
H.R. 3764 provides for an additional $233.1 million beyond the 
President's initial budget plus the supplemental request, and 
designates specific programs at the SEC that are to receive 
substantially increased funding.
    Furthermore, this authorization level would allow the SEC 
to at last take the steps necessary to stem the agency's 
recruiting and retention problems. In January 2002, the 
President signed into law the Investors and Capital Markets Fee 
Relief Act, which provided both for substantial cuts in certain 
fees paid by investors and for ``pay parity'' between SEC staff 
and the employees of the Federal bank regulatoryagencies. 
However, the President's budget request does not provide funding for 
pay parity. SEC Chairman Harvey Pitt has requested an additional $76 
million above the President's budget request to fully fund pay parity 
in fiscal year 2003. H.R. 3764 provides the necessary funds for 
existing staff, as well as for the SEC's projected new hires.
    The authorization is consistent with the fee reduction 
provisions of the Investor and Capital Markets Fee Relief Act, 
which was intended to provide the SEC with stable funding, 
while reducing fees imposed on investors that impede the 
capital formation process. The Committee's authorization of 
$776 million for the SEC is less than the amount of fees that 
are projected by the Congressional Budget Office to be 
collected in fiscal year 2003 and designated as ``offsetting 
collections'' available to fund the activities of the SEC.

                                Hearings

    The Committee has not held hearings on this legislation.

                        Committee Consideration

    The Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises was discharged from the 
further consideration of H.R. 3764 on April 8, 2002.
    The Committee on Financial Services met in open session on 
April 11, 2002 and ordered H.R. 3764 reported to the House with 
a favorable recommendation by a voice vote, a quorum being 
present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Oxley to order the bill reported to the House 
with a favorable recommendation was agreed to by a voice vote, 
a quorum being present.
    The following amendment was considered by a record vote. 
The names of members voting for and against follow:

    An amendment by Mr. Sherman, no. 2, calling for the 
Securities and Exchange Commission to conduct a thorough review 
of the largest companies within one year of the enactment of 
this bill was not agreed to by a record vote of 25 yeas and 26 
nays (Record vote no. 24).
        YEAS                          NAYS
Mr. LaFalce                         Mr. Oxley
Mr. Frank                           Mr. Leach
Mr. Kanjorski                       Mr. Bereuter
Ms. Waters                          Mr. Baker
Mr. Sanders                         Mr. Castle
Mrs. Maloney of New York            Mr. Royce
Mr. Watt of North Carolina          Mr. Ney
Mr. Bentsen                         Mr. Barr of Georgia
Mr. Maloney of Connecticut          Mrs. Kelly
Ms. Hooley of Oregon                Mr. Gillmor
Ms. Carson of Indiana               Mr. Weldon of Florida
Mr. Sherman                         Mr. Ryun of Kansas
Mr. Sandlin                         Mr. Manzullo
Ms. Lee                             Mr. Ose
Mr. Mascara                         Mrs. Biggert
Mr. Inslee                          Mr. Green of Wisconsin
Ms. Schakowsky                      Mr. Toomey
Mr. Moore                           Mr. Shays
Mr. Gonzalez                        Mr. Fossella
Mrs. Jones of Ohio                  Mr. Gary G. Miller of Cali-
Mr. Capuano                           fornia
Mr. Shows                           Mr. Cantor
Mr. Crowley                         Mr. Grucci
Mr. Israel                          Ms. Hart
Mr. Ross                            Mr. Ferguson
                                    Mr. Tiberi
                                    Mr. Lucas of Kentucky

    The following other amendments were considered by the 
Committee:

    An amendment by Mr. Oxley, no. 1, adding funding for pay 
parity, was agreed to by a voice vote.
    An amendment by Mr. Sherman, no. 3, expressing the Sense of 
Congress that the SEC should conduct a thorough annual review 
of the annual financial statements contained in the most recent 
periodic disclosures filed with the SEC by the largest 500 
companies, was agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held a hearing and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The Securities and Exchange Commission will use the funds 
authorized by this legislation to improve its oversight of 
public companies, including increasing the reviews of public 
company financial statements filed pursuant to the securities 
laws, improve its enforcement of the securities laws, and 
improve retention of key personnel.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    A cost estimate prepared by the Director of the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974 was not available in time for 
the filing of this report. The Committee estimates that budget 
authority will be made available to the SEC at approximately 
the levels authorized in the legislation.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, a cost estimate provided by the 
Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974 was not made available to the 
Committee in time for the filing of this report. The Chairman 
of the Committee shall cause such estimate to be printed in the 
Congressional Record upon its receipt by the Committee.

                       Federal Mandates Statement

    An estimate of Federal mandates prepared by the Director of 
the Congressional Budget Office pursuant to section 423 of the 
Unfunded Mandates Reform Act was not made available to the 
Committee in time for the filing of this report. The Chairman 
of the Committee shall cause such estimate to be printed in the 
Congressional Record upon its receipt by the Committee.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short Title

    Section 1 provides the short title of the bill, the 
``Securities and Exchange Commission Authorization Act of 
2002''.

Section 2. Authorization of Appropriations of the Securities and 
        Exchange Commission

    Section 2 authorizes appropriations in the amount of $776 
million for the SEC for fiscal year 2003, with $134 million 
designated for the use of the Division of Corporation Finance 
and the Office of Chief Accountant, and $326 million designated 
for the use of Division of Enforcement. Not less than $76 
million of the total authorized by the bill is to be available 
to implement the pay parity provisions of the Investor and 
Capital Markets Fee Relief Act (Public law 107-123). This 
authorization will allow the SEC to substantially increase its 
staff, and to bring its salary and benefits structure into 
parity with those of the Federal banking regulators.

Section 3. Sense of the Congress

    This section expresses the sense of the Congress that the 
SEC should conduct a thorough annual review of the annual 
financial statements of the largest 500 reporting issuers, 
based on market capitalization, or other factors that the SEC 
may apply. The section leaves to the SEC discretion over the 
method of implementation of this annual monitoring of the 
largest market participants' annual financial statements.

         Changes in Existing Law Made by the Bill, as Reported

    This bill does not amend existing law.

                                
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