[House Report 114-506]
[From the U.S. Government Publishing Office]


114th Congress  }                                          {   Report
                        HOUSE OF REPRESENTATIVES
 2d Session     }                                          {  114-506

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



 
               ACCELERATING ACCESS TO CAPITAL ACT OF 2015

                                _______
                                

 April 19, 2016.--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

                             together with

                        MINORITY VIEWS

                     [To accompany H.R. 2357]
 [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2357) to direct the Securities and Exchange 
Commission to revise Form S-3 so as to add listing and 
registration of a class of common equity securities on a 
national securities exchange as an additional basis for 
satisfying the requirements of General Instruction I.B.1. of 
such form and to remove such listing and registration as a 
requirement of General Instruction I.B.6. of such form, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                     PURPOSE AND SUMMARY

    Introduced by Representative Wagner on May 15, 2015, H.R. 
2357, the Accelerating Access to Capital Act of 2015, amends 
the Securities and Exchange Commission's (SEC's) Form S-3 
registration statement (a simplified registration form for 
companies that have met prior reporting requirements) for 
smaller reporting companies that have a class of common equity 
securities listed and registered on a national securities 
exchange. By amending the Form S-3, the legislation would allow 
companies to register primary securities offerings exceeding 
one-third of the aggregate market value of voting and non-
voting common equity held by non-affiliates of the registrant. 
H.R. 2357 would also allow smaller reporting companies without 
a class of common equity securities listed and registered on a 
national securities exchange to register primary securities 
offerings up to one-third of their public float.

             BACKGROUND AND NEED FOR LEGISLATION

    The cost of securities regulation continues to fall 
heaviest on smaller companies, many of which still having 
difficulty to access capital to grow their businesses and 
create jobs. Beyond the costs that directly burden smaller 
companies, the stifling regulatory environment resulting from 
the regulatory overreaction to the financial crisis has 
restricted bank and other traditional financing options for 
these smaller companies. As a result, the number of smaller 
companies, which are those with less than 500 employees, has 
declined over the five years since the financial crisis, the 
first time that has happened since the U.S. Census Bureau began 
keeping data on the subject. Investors can benefit when the 
regulatory regime is tailored to provide smaller companies with 
sensible relief from regulatory demands; efficient capital 
formation not only benefits the companies to raise funds but 
also can provide investors with more attractive investment 
opportunities.
    H.R. 2357 eliminates unnecessary costs that impede the 
growth of small businesses. The Accelerating Access to Capital 
Act reduces the burdens of SEC registration by amending the 
SEC's Form S-3 registration statement to allow smaller 
reporting companies with a class of common equity securities 
listed and registered on a national securities exchange to 
register primary securities offerings exceeding one-third of 
the aggregate market value of voting and non-voting common 
equity held by non-affiliates of the registrant. H.R. 2357 also 
allows smaller reporting companies without a class of common 
equity securities listed and registered on a national 
securities exchange to register primary securities offerings up 
to one-third of their public float.
    The SEC's Government-Business Forum on Small Business 
Capital Formation Final Report for 2012 included the 
recommendation to modernize and expand the utility of the Form 
S-3 for a greater number of public companies. Simplifying this 
disclosure regime will lower compliance costs associated with 
filing redundant paperwork, which allows eligible companies to 
direct more resources to growing their business.
    On May 2, 2014, the Chief Executive Officer of Fuel 
Performance Solutions, a small technology company from St. 
Louis, Missouri, wrote to the Committee on Financial Services 
in support of legislation to expand the utility of the Form S-
3, noting that:

        ``I would be in favor of allowing any SEC reporting 
        company that is current with its 1934 Act filings 
        access to SEC form S-3, irrelevant of how long they 
        have been a filer. Once full disclosure is achieved any 
        and all potential investors should have a fair and 
        equal ability to make an investment. That is the only 
        way to level the playing field for the small investor 
        verses the current system that effectively favors the 
        large investor by excluding the small investor.''

    At a Capital Markets and Government Sponsored Enterprises 
Subcommittee hearing on April 9, 2014, Brian Hahn, the Chief 
Financial Officer of GlycoMimetics, Inc. testified that 
legislation similar to H.R. 2357 ``would increase the pool of 
companies eligible to use Form S-3 to register for an offering. 
Form S-3 is the most simplified SEC registration form, and 
utilizing it to conduct an offering contributes to the cost-
savings goals of emerging companies. . . . These expansions to 
Form S-3 eligibility would increase small companies' access to 
public funds in an efficient and cost-effective manner that 
will stimulate capital formation.''
    The quickest way to access the public capital markets is to 
have an effective shelf registration statement. Registering a 
new securities issue in advance--so that later it can be 
quickly offered to the public during favorable market 
conditions--is a benefit that all public companies should 
enjoy. At a May 13, 2015 Capital Markets and Government 
Sponsored Enterprises Subcommittee hearing, David Weild, CEO of 
Weild & Co., testified that, ``the flexibility, speed and costs 
savings afforded by Form S-3 `Shelf Registrations' helps 
corporate issuers to improve their cost of equity capital. We 
would also support the expansion of Form S-3 and other shelf 
registration approaches to improve access to capital for 
smaller public companies that are current with their SEC 
filings.''

                          HEARINGS

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing examining matters relating to H.R. 2357 on May 13, 
2015.

                    COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
May 20, 2015 and ordered H.R. 2357 to be reported favorably to 
the House without amendment by a recorded vote of 33 yeas to 24 
nays (recorded vote no. FC-42), 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. That motion was agreed to by a recorded vote of 33 
yeas to 24 nays (record vote no. FC-42), a quorum being 
present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                  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. 2357 
will improve access to capital for small businesses by 
requiring the SEC to amend Form S-3 to enable greater numbers 
of smaller companies to conduct lower cost securities 
offerings.

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. 2357, the 
Accelerating Access to Capital 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.
    Enclosure.

H.R. 2357--Accelerating Access to Capital Act of 2015

    H.R. 2357 would make it easier for businesses to file 
registration statements with the Securities and Exchange 
Commission (SEC) in order to sell securities to the public. 
Specifically, the bill would remove certain limitations on the 
use of a simplified form for filing a registration statement.
    Based on information from the SEC, CBO estimates that 
implementing H.R. 2357 would cost about $1 million in fiscal 
year 2016 to complete a rulemaking process as required under 
the bill. 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. CBO estimates that enacting H.R. 2357 would not 
affect direct spending or revenues; therefore, pay-as-you-go 
procedures do not apply.
    H.R. 2357 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. 2357 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 in 2016 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 Susan Willie 
and Ben Christopher (for federal costs) and Logan Smith (for 
the private-sector impact). The estimate was approved by 
Theresa Gullo, 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. 2357 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. 2357 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. 2357 contains one directed 
rulemaking.

       SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1: Short title

    This section cites H.R. 2357 as the ``Accelerating Access 
to Capital Act of 2015.''

Section 2: Expanded eligibility for use of Form S-3

    Revises SEC Form S-3 to permit securities to be registered 
if the primary securities offerings exceed one-third of the 
aggregate market value of voting and non-voting common equity 
held by non-affiliates of the registrant and would also permit 
smaller reporting companies without a class of common equity 
securities listed and registered on a national securities 
exchange to register primary securities offerings up to one-
third of their public float.

     CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2357 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.

                MINORITY VIEWS ON H.R. 2357

    H.R. 2357 would revise SEC Form S-3 by: 1) allowing 
microcap companies traded on an exchange to issue an unlimited 
number of shares using shelf registration in a 12-month period; 
and 2) permitting unlisted microcap companies, including those 
listed on the ``pink sheets,'' with less than $75 million in 
common equity to sell up to 1/3 of the market value of its 
common equity using shelf registration in a 12-month period. 
The bill, therefore, would enable microcap companies to take 
advantage of favorable conditions by quickly issuing shares 
without prior notice to the SEC.
    However, speedy access to the markets also leads to 
accounting fraud, market manipulation, insider trading and 
sales of artificially inflated stock. In fact, studies have 
found that 80% of manipulation cases involved non-exchange 
traded stocks and a positive correlation between lower 
disclosure requirements and the likelihood of manipulation. 
According to Democratic witnesses who testified on this bill, 
allowing companies with securities traded in the illiquid over-
the-counter markets, such as Pink Sheets, to issue up to 1/3 of 
their total outstanding shares a year only increases this 
concern. In addition, these companies would be exempt from 
certain exchange protections, such as corporate governance 
requirements, and stock liquidity assurances that come with 
exchange listing.
    Previously, the Consumer Federation of America wrote a 
letter to the Committee stating that ``the most likely, and 
perhaps the best outcome, if this legislation is adopted, is 
that the market simply will not accept such offerings, and thus 
it will do nothing to promote capital formation.'' It is 
important to remember that capital formation involves two 
actors, the company raising the capital and the investor 
providing the capital. In an effort to promote capital 
formation by reducing disclosures and certain restrictions for 
these companies, the bill would affect the quality or 
availability of information investors need to make investment 
decisions. Consequently, investors may decide not to invest in 
these companies or demand a higher rate of return, negating any 
supposed benefits to capital formation.
    For these reasons, we oppose H.R. 2357.

                                   Maxine Waters.
                                   Denny Heck.
                                   John C. Carney.
                                   Al Green.
                                   Ruben Hinojosa.
                                   Stephen F. Lynch.
                                   Gregory W. Meeks.
                                   Gwen Moore.
                                   Wm. Lacy Clay.
                                   Carolyn B. Maloney.
                                   Keith Ellison.
                                   Joyce Beatty.

                           [all]