[House Report 115-292]
[From the U.S. Government Publishing Office]



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115th Congress      }                                {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session        }                                {        115-292
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   TO DIRECT THE SECURITIES AND EXCHANGE COMMISSION TO ALLOW CERTAIN 
  ISSUERS TO BE EXEMPT FROM REGISTRATION REQUIREMENTS, AND FOR OTHER 
                                PURPOSES

                                _______
                                

 September 5, 2017.--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. 2864]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2864) to direct the Securities and Exchange 
Commission to allow certain issuers to be exempt from 
registration requirements, and for other purposes, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. APPLICATION OF EXEMPTION.

  The Securities and Exchange Commission shall amend--
          (1) section 230.251 of title 17, Code of Federal Regulations, 
        to remove the requirement that the issuer not be subject to 
        section 13 or 15(d) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78a et seq.) immediately before the offering; and
          (2) section 230.257 of title 17, Code of Federal Regulations, 
        with respect to an offering described in section 230.251(a)(2) 
        of title 17, Code of Federal Regulations, to deem any issuer 
        that is subject to section 13 or 15(d) of the Securities 
        Exchange Act of 1934 as having met the periodic and current 
        reporting requirements of section 230.257 of title 17, Code of 
        Federal Regulations, if such issuer meets the reporting 
        requirements of section 13 of the Securities Exchange Act of 
        1934.

                          PURPOSE AND SUMMARY

    H.R. 2864 was introduced by Representatives Kyrsten Sinema 
and Trey Hollingsworth on June 8, 2017. H.R. 2864 would amend 
the federal securities laws to direct the Securities and 
Exchange Commission (SEC) to expand its Regulation A+ rules to 
include companies that are ``fully reporting'' companies under 
the Securities Exchange Act of 1934. In doing so, the 
legislation will facilitate capital formation for small 
reporting companies and provide small-dollar investors with 
enhanced investment opportunities and facilitate liquidity in 
the capital markets for these smaller companies.

                  BACKGROUND AND NEED FOR LEGISLATION

    H.R. 2864 will allow smaller, fully reporting SEC companies 
to raise capital publicly through Regulation A+ (Reg A+) 
offerings. Title IV of the Jumpstart Our Business Startups or 
``JOBS'' Act directed the SEC to issue rules to update 
Regulation A (Reg A), which exempts small offerings of up to $5 
million within a 12-month period from federal registration. 
Even though these small offerings are exempted under Reg A from 
federal registration, they remain subject to state securities 
law registration and qualification requirements. Historically, 
a limited number of issuers used the Reg A exemption. From 2009 
through 2012, there were 19 qualified Reg A offerings for a 
total offering amount of approximately $73 million. During the 
same period, there were approximately 27,870 offerings for a 
total offering amount of approximately $26 billion that were 
eligible to take advantage of the Reg A exemption but did not.
    The JOBS Act exemption, now known as Reg A+, increased the 
amount companies could offer from $5 million to $50 million 
within a 12-month period. Reg A+ also pre-empted state 
registration and qualification requirements. On March 25, 2015, 
the SEC approved its final rule to implement Title IV of the 
JOBS Act. The final rule provides for two tiers of offerings: 
Tier 1, for offerings of securities of up to $20 million in a 
12-month period, with not more than $6 million in offers by 
selling security-holders that are affiliates of the issuer; and 
Tier 2, for offerings of securities of up to $50 million in a 
12-month period, with not more than $15 million in offers by 
selling security-holders that are affiliates of the issuer. 
Both Tiers are subject to certain basic requirements while Tier 
2 offerings are also subject to additional disclosure and 
ongoing reporting requirements. The final rule also provides 
for the preemption of state securities law registration and 
qualification requirements for securities offered or sold to 
``qualified purchasers'' in Tier 2 offerings.
    Since the amendments to Reg A became effective in June 
2015, the rate of Reg A+ securities offerings has increased. As 
of October 2016, prospective issuers have publicly filed 
offering statements for 147 Reg A+ offerings, seeking up to 
$2.6 billion in financing. Of these filed, approximately 81 
offerings, seeking up to $1.5 billion have been qualified by 
the SEC and $190 million has been reported raised, though this 
understates the true amount raised due to reporting time 
frames. As a comparison, in the 12 months leading up to June 
18, 2015, there were approximately 51 filings seeking to raise 
$159 million, including 12 qualified filings seeking to raise 
up to $34 million. Average issuers were seeking $18 million in 
a given, qualified offering, the average for Tier 2 was $26 
million and the average for Tier 1 was $10 million, still well 
below the thresholds for each Tier.
    A 2016 SEC study showed that, consistent with the intent of 
Reg A+, the typical issuer based on offering data was 
relatively small. The typical issuer had median assets of 
approximately $0.1 million across all filings and approximately 
$0.2 million across qualified filings. Two-thirds of all 
filings and of qualified offerings were by issuers with assets 
up to $1 million. 92% of all filings and 87% of qualified 
filings were by issuers with total assets not exceeding $100 
million. Average assets were $51 million across all issuers and 
$79 million across issuers in qualified offerings. Median 
issuer had no cash, property, plants and equipment, long-term 
debt, revenue, or net income. These characteristics are 
consistent with the present pool of filers being primarily 
comprised of small, early-stage companies with limited 
collateral, which may restrict their ability to obtain a bank 
loan or other debt financing on favorable terms.
    Despite the data that demonstrates the importance of Reg A+ 
to provide investment capital to small issuers, not all issuers 
are permitted to make an offering using Reg A+. When the SEC 
issued its final rule to implement Title IV of the JOBS Act, it 
excluded fully SEC reporting companies (those reporting under 
13(a) or 15(d) of the Securities Exchange Act of 1934) as 
ineligible issuers who could use Reg A+. This exclusion was 
contrary to the intent of Title IV, which was meant to improve 
access to capital for all small companies, to include fully SEC 
reporting companies. H.R. 2864 corrects the SEC's action and 
will provides the benefits of Reg A+ to full reporting 
companies, which will enhance the liquidity and vibrancy of 
these issuers for initial and secondary offerings.

                                HEARINGS

    The Committee on Financial Services' Subcommittee on 
Capital Markets, Securities, and Investment held hearings 
examining matters related to H.R. 2864 on March 22, 2017, and 
July 18, 2017.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
July 25, 2017 and ordered H.R. 2864 to be reported favorably to 
the House as amended by a recorded vote of 59 yeas to 0 nays 
(Record vote no. FC-68), a quorum being present. Before the 
motion to report was offered, the Committee adopted an 
amendment in the nature of a substitute offered by Ms. Sinema 
by voice vote.

                            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 recorded vote was on a motion by Chairman 
Hensarling to report the bill favorably to the House as 
amended. The motion was agreed to by a recorded vote of 59 yeas 
to 0 nays (Record vote no. FC-68), 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. 2864 
will enhance access to capital for small issuers, create 
greater investor choice and provide liquidity to the capital 
markets by allowing for ``fully reporting'' companies to raise 
capital publicly using Regulation A+.

   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.

                 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, September 5, 2017.
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. 2864, the 
Improving Access to Capital Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Stephen 
Rabent.
            Sincerely,
                                              Keith Hall, Director.
    Enclosure.

H.R. 2864--Improving Access to Capital Act

    Under current law, some securities offerings are exempt 
from registration with the Securities and Exchange Commission 
(SEC) if the offering meets certain criteria and if an issuer 
is exempt from other SEC reporting requirements. H.R. 2864 
would expand the exemption to allow issuers that are subject to 
SEC reporting requirements to qualify for the registration 
exemption. The bill also would require the SEC to deem certain 
offerings as having met the exemption's reporting requirements 
if the issuer is subject to and meets reporting requirements 
under a different securities law.
    Based on an analysis of information from the SEC, CBO 
estimates that implementing H.R. 2864 would increase the 
agency's costs by less than $500,000, to update its 
regulations. Under current law, the SEC is authorized to 
collect fees sufficient to offset its annual appropriation; 
therefore, CBO estimates that the net effect on discretionary 
spending would be negligible, assuming appropriation actions 
consistent with that authority.
    Enacting H.R. 2864 would not affect direct spending or 
revenues; therefore, pay-as-you-go procedures do not apply. CBO 
estimates that enacting H.R. 2864 would not increase net direct 
spending or on-budget deficits in any of the four consecutive 
10-year periods beginning in 2028.
    H.R. 2864 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act and would not affect the 
budgets of state, local, or tribal governments.
    If the SEC increases fees or premiums to offset the costs 
associated with implementing the bill, H.R. 2864 would increase 
the cost of an existing mandate on private entities required to 
pay those assessments. CBO estimates that incremental cost of 
the mandate would be small and would fall well below the annual 
threshold for private-sector mandates established in UMRA ($156 
million in 2017, adjusted annually for inflation).
    The CBO staff contacts for this estimate are Stephen Rabent 
(for federal costs) and Logan Smith (for private-sector 
mandates). The estimate was approved by H. Samuel Papenfuss, 
Deputy Assistant Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                      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

    With respect to clause 9 of rule XXI of the Rules of the 
House of Representatives, the Committee has carefully reviewed 
the provisions of the bill and states that the provisions of 
the bill do not contain any congressional earmarks, limited tax 
benefits, or limited tariff benefits within the meaning of the 
rule.

                    DUPLICATION OF FEDERAL PROGRAMS

    In compliance with clause 3(c)(5) of rule XIII of the Rules 
of the House of Representatives, the Committee states that no 
provision of the bill establishes or reauthorizes: (1) a 
program of the Federal Government known to be duplicative of 
another Federal program; (2) a program included in any report 
from the Government Accountability Office to Congress pursuant 
to section 21 of Public Law 111-139; or (3) a program related 
to a program identified in the most recent Catalog of Federal 
Domestic Assistance, published pursuant to the Federal Program 
Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 
98-169).

                   DISCLOSURE OF DIRECTED RULEMAKING

    Pursuant to section 3(i) of H. Res. 5, (115th Congress), 
the following statement is made concerning directed 
rulemakings: The Committee estimates that the bill requires no 
directed rulemakings within the meaning of such section.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short Title.

    This section cites H.R. 2864 as the ``Improving Access to 
Capital Act''.

Section 2. Application of Exemption

    This section requires the Securities and Exchange 
Commission to remove the requirement that the issuer not be 
subject to section 13 or 15(d) of the Securities Exchange Act 
of 1934.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2864 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]