[House Report 114-279]
[From the U.S. Government Publishing Office]


114th Congress   }                                       {      Report
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                       {     114-279

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



 
        DISCLOSURE MODERNIZATION AND SIMPLIFICATION ACT OF 2015

                                _______
                                

October 6, 2015.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 1525]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 1525) to require the Securities and Exchange 
Commission to make certain improvements to form 10-K and 
regulation S-K, and for other purposes, having considered the 
same, report favorably thereon without amendment and recommend 
that the bill do pass.

                          PURPOSE AND SUMMARY

    Introduced by Representative Scott Garrett, H.R. 1525, the 
``Disclosure Modernization and Simplification Act of 2015,'' 
directs the Securities and Exchange Commission to simplify its 
disclosure regime for issuers and investors by permitting 
issuers to submit a summary page on Form 10-K with cross-
references to the content of the report. H.R. 1525 also directs 
the SEC to revise Regulation S-K to scale disclosure rules for 
emerging growth companies and smaller issuers, and to eliminate 
duplicative, outdated, or unnecessary Regulation S-K disclosure 
requirements for all issuers. Finally, H.R. 1525 directs the 
SEC to further study Regulation S-K and engage in rulemaking to 
implement additional reforms to simplify and modernize 
Regulation S-K disclosure rules within 360 days of enactment of 
the Act.

                  BACKGROUND AND NEED FOR LEGISLATION

    H.R. 1525 directs the SEC to simplify its disclosure regime 
for issuers and investors by permitting issuers to submit a 
summary page on Form 10-K with cross-references to the content 
of the report. Because the typical 10-K filed by an issuer is 
hundreds of pages long, investors find it difficult to locate 
important information about the company in the report. 
Permitting issuers to submit a summary page would enable 
companies to concisely disclose pertinent information to 
investors without exposing them to liability. This summary page 
would also enable investors to more easily access the most 
relevant information about a company.
    H.R. 1525 also directs the SEC to revise Regulation S-K to 
scale disclosure rules for emerging growth companies and 
smaller issuers, and to eliminate duplicative, outdated, or 
unnecessary Regulation S-K disclosure requirements for all 
issuers. In addition, H.R. 1525 directs the SEC to further 
study Regulation S-K and engage in rulemaking to implement 
additional reforms to simplify and modernize Regulation S-K 
disclosure rules.
    H.R. 1525 builds on Section 108 of the Jumpstart Our 
Business Startups Act (P.L. 112-106), which directed the SEC to 
study Regulation S-K in order to simplify and modernize 
disclosure rules. Although the SEC completed this study in 
December 2013, the study proposed few substantive reform 
measures. Because the SEC has failed to move quickly in 
modernizing Regulation S-K, Congress must encourage the SEC to 
take up these needed reforms through legislation. Simplifying 
and streamlining disclosure requirements will enable companies 
to divert fewer resources to compliance, freeing up additional 
capital for other purposes. In the 113th Congress, the House 
passed identical legislation, H.R. 4569, by voice vote.
    In testimony before the Capital Markets Subcommittee on 
April 29, 2015, Tom Quaadman of the U.S. Chamber of Commerce 
described the negative effects that the ballooning of 
companies' annual disclosures has had on investors:

          This expansion and increased complexity of disclosure 
        has contributed to the phenomenon of ``disclosure 
        overload,'' whereby investors are so inundated with 
        information it becomes difficult for them to determine 
        the most salient factors they need to make informed 
        voting and investment decisions. Retail investors are 
        particularly vulnerable, as they typically don't have 
        an army of analysts or lawyers to pore through SEC 
        filings of the companies they invest in. In fact, it is 
        the number one reason why retail shareholder 
        participation has dropped to levels as low as 5%. 
        Effectively, because of this ``overload'' retail 
        shareholders have become disenfranchised.

    At the same hearing, Shane Kovacs, Executive Vice President 
and Chief Executive Officer of PTC Therapeutics, Inc., noted 
the problem that requiring uniform disclosure raises for 
investors:

          [T]he information that these investors want and need 
        does not always align with what is required by the SEC. 
        Investors find value in biotech companies by 
        understanding scientific milestones and clinical trial 
        progress not financial disclosures that simply show a 
        decade-plus of R&D expenses. And yet small, pre-revenue 
        biotechs are often required to file the same reports as 
        revenue generating, profitable corporate behemoths. 
        Other industries surely face their own unique 
        circumstances, and many small businesses across all 
        sectors of the economy endure the cost burdens of 
        overregulation--yet a blanket one-size-fits-all 
        approach prevails.

                                HEARINGS

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 1525 on April 29, 
2015.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
May 20, 2015 and ordered H.R. 1525 to be reported favorably to 
the House without amendment by a recorded vote of 60 yeas to 0 
nays (Record vote no. FC-28), 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. The 
sole record vote in committee was a motion by Chairman 
Hensarling to report the bill favorably to the House without 
amendment. The motion was agreed to by a recorded vote of 60 
yeas to 0 nays (Record vote no. FC-28), a quorum being present.


                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the findings and recommendations of 
the Committee, based on oversight activities under clause 
2(b)(1) of rule X of the Rules of the House of Representatives, 
are incorporated in the descriptive portions of 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 states that H.R. 1525 
will reduce regulatory burden on issuers while enhancing the 
utility of disclosures to investors by requiring the SEC to 
revise certain registration and disclosure requirements and 
providing for the removal of duplicative or unnecessary 
provisions of such requirements.

   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 adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 CONGRESSIONAL BUDGET OFFICE ESTIMATES

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                      U.S. Congress
                               Congressional Budget Office,
                                     Washington, DC, June 18, 2015.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1525, the 
Disclosure Modernization and Simplification Act of 2015.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susan 
Willie and Ben Christopher.
            Sincerely,
                                                Keith Hall,
                                                          Director.
    Enclosure.

H.R. 1525--Disclosure Modernization and Simplification Act of 2015

    H.R. 1525 would require the Securities and Exchange 
Commission (SEC), within 180 days of enactment, to revise 
certain registration and disclosure requirements for securities 
issuers with an aim to reduce the burden on smaller companies 
and to remove any duplicative or unnecessary provisions. The 
SEC also would be required, within 360 days of enactment, to 
report to the Congress on ways to further simplify those 
regulations and, 360 days after that, to issue a proposed rule 
based on the findings of the report.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 1525 would cost about $1 million over the 
2016-2020 period to comply with the reporting and rulemaking 
requirements under the bill. The SEC is currently studying and 
in the process of revising certain registration and disclosure 
requirements, so the costs of the initial rulemaking required 
under the bill would not be significant. Most of the costs 
would be incurred to issue the report and complete a second 
rulemaking process. Under current law the SEC is authorized to 
collect fees sufficient to offset its appropriation each year; 
therefore, we estimate that the net cost to the SEC would be 
negligible, assuming appropriation action consistent with that 
authority. Enacting H.R. 1525 would not affect direct spending 
or revenues; therefore, pay-as-you-go procedures do not apply.
    H.R. 1525 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    If the SEC increases fees to offset the costs associated 
with implementing the bill, H.R. 1525 would increase the cost 
of an existing mandate on private entities required to pay 
those fees. Based on information from the SEC, CBO estimates 
that the incremental cost of the mandate would amount to about 
$1 million over the 2016-2020 period and would fall well below 
the annual threshold for private-sector mandates established in 
UMRA ($154 million in 2015, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Ben 
Christopher and Susan Willie (for federal costs) and Logan 
Smith (for the private-sector impact). The estimate was 
approved by H. Samuel Papenfuss, Deputy Assistant Director for 
Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

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

                  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 the section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 1525 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    DUPLICATION OF FEDERAL PROGRAMS

    Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), 
the Committee states that no provision of H.R. 1525 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), 
the Committee states that H.R. 1525 requires three directed 
rulemakings.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 1525 as the ``Disclosure 
Modernization and Simplification Act of 2015.''

Section 2. Summary page for form 10-K

    This section requires the SEC to issue regulations, within 
180 days of enactment of the Act, to permit issuers to submit a 
summary page on form 10-K provided that such page includes a 
cross-reference to the material contained in form 10-K to which 
the item relates.

Section 3. Improvement of regulation S-K

    This section requires the SEC to take action, within 180 
days of enactment of the Act, to revise regulation S-K to 
reduce regulatory burdens on emerging growth companies, 
accelerated filers, smaller reporting companies, and other 
smaller issues, provided that it is not necessary to first 
determine the efficacy of such revisions through the study 
required under Section 4.

Section 4. Study on modernization and simplification of regulation S-K

    This section requires the SEC to complete a study and issue 
a report concerning regulation S-K to Congress within 360 days 
of enactment of the Act. The SEC must issue a proposed rule to 
implement the recommendations contained in the report not later 
than the 360-day period beginning on the date that the report 
is issued to Congress.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 1525 does not repeal or amend any section of a 
statute. Therefore, the Office of Legislative Counsel did not 
prepare the report contemplated by clause 3(e)(1)(B) of rule 
XIII of the House of Representatives.

                                  [all]