[House Report 118-80]
[From the U.S. Government Publishing Office]


118th Congress    }                                     {       Report
                        HOUSE OF REPRESENTATIVES
 1st Session      }                                     {       118-80

======================================================================
 
TO REQUIRE THE SECURITIES AND EXCHANGE COMMISSION TO CARRY OUT A STUDY 
   AND RULEMAKING ON THE DEFINITION OF THE TERM ``SMALL ENTITY'' FOR 
        PURPOSES OF THE SECURITIES LAWS, AND FOR OTHER PURPOSES

                                _______
                                

  May 30, 2023.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                        [To accompany H.R. 2792]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2792) to require the Securities and Exchange 
Commission to carry out a study and rulemaking on the 
definition of the term ``small entity'' for purposes of the 
securities laws, and for other purposes, having considered the 
same, reports favorably thereon with an amendment and 
recommends that the bill as amended do pass.
    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 ``Small Entity Update Act''.

SEC. 2. STUDIES, REPORTS, AND RULES REGARDING SMALL ENTITIES.

  (a) Definitions.--In this section--
          (1) the term ``Commission'' means the Securities and Exchange 
        Commission; and
          (2) the term ``small entity''--
                  (A) has the meaning given the term in section 601 of 
                title 5, United States Code, with respect to the 
                activities of the Commission; and
                  (B) includes any definition established by the 
                Commission of the term ``small business'', ``small 
                organization'', or ``small governmental jurisdiction'' 
                under paragraph (3), (4), or (5), respectively, of 
                section 601 of title 5, United States Code, with 
                respect to the activities of the Commission.
  (b) Studies and Reports.--Not later than 1 year after the date of 
enactment of this Act, and again 5 years thereafter, the Commission 
shall--
          (1) conduct a study of the definition of the term ``small 
        entity'' with respect to the activities of the Commission for 
        the purposes of chapter 6 of title 5, United States Code, which 
        shall consider--
                  (A) the extent to which the definition of the term 
                ``small entity'', as in effect during the period in 
                which the study is conducted, aligns with the findings 
                and declarations made under section 2(a) of the 
                Regulatory Flexibility Act (5 U.S.C. 601 note);
                  (B) the amount by which financial markets in the 
                United States have grown since the last time the 
                Commission amended the definition of the term ``small 
                entity'', if applicable; and
                  (C) how the Commission should define the term ``small 
                entity'' to ensure that a meaningful number of entities 
                would fall under that definition; and
          (2) submit to Congress a report that includes--
                  (A) the results of the applicable study conducted 
                under paragraph (1); and
                  (B) specific and detailed recommendations on the ways 
                in which the Commission could amend the definition of 
                the term ``small entity'' to--
                          (i) be consistent with the results described 
                        in subparagraph (A); and
                          (ii) expand the number of entities covered by 
                        such definition.
  (c) Rulemaking.--After the completion of each study required under 
subsection (b), the Commission shall, subject to public notice and 
comment, revise the rules of the Commission consistent with the results 
of such study.

                          PURPOSE AND SUMMARY

    Introduced on April 20, 2023, by Representative Ann Wagner, 
H.R. 2792, the Small Entity Update Act, would direct the 
Securities and Exchange Commission (SEC) to conduct a study, 
followed by a rulemaking consistent with the results of such 
study, including defining the term ``small entity'' under the 
Regulatory Flexibility Act. The bill also directs the SEC to 
adjust the definition of small entity for inflation after 
enactment and every five years thereafter.

                  BACKGROUND AND NEED FOR LEGISLATION

    The Regulatory Flexibility Act requires all federal 
agencies to analyze the economic impact of regulations when 
there is likely to be a significant economic impact on a 
substantial number of small entities and to consider regulatory 
alternatives that will achieve the agency's goal while 
minimizing the burden on small entities.
    Regulations often impose disproportionate burdens on 
startups, small businesses, and other small entities. This bill 
represents a thoughtful approach to addressing longstanding 
concerns that numerous SEC rules are not tailored to 
appropriately balance the SEC's mandates to protect investors 
and facilitate capital formation. Studying and revising these 
definitions--and considering whether such definitions should 
include more meaningful metrics--will result in a better 
understanding of regulatory costs on small entities and will 
ensure that the SEC modernizes its criteria for defining 
``small entities.'' As such, H.R. 2792 will lead to more 
tailored regulations and appropriately reduced burdens on small 
entities under our securities laws.

                                HEARING

    The Subcommittee on Capital Markets of the Committee on 
Financial Services held a hearing examining matters relating to 
H.R. 2792 on February 8, 2023.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 26, 2023, and ordered H.R. 2792 to be reported favorably 
to the House as amended by a recorded vote of 42 ayes to 0 nays 
(Record vote no. FC-37), a quorum being present. Before the 
question was called to order the bill favorably reported, the 
Committee adopted an amendment in the nature of a substitute 
offered by Mrs. Wagner by voice vote.

                            COMMITTEE VOTES

    Clause 2(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the order to report legislation and amendments thereto. H.R. 
2792 was ordered reported favorably to the House as amended by 
a recorded vote of 42 ayes to 0 nays (Record vote no. FC-37), a 
quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      COMMITTEE OVERISGHT FINDINGS

    Pursuant to clause 3(c) 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 goal of H.R. 2792 is to ensure 
the SEC has a better understanding of regulatory costs on small 
entities and modernizes its criteria for defining ``small 
entities.''

   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 1973.

                 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:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    H.R. 2792 would require the Securities and Exchange 
Commission (SEC) to study its current definition of ``small 
entity'' under the Regulatory Flexibility Act (RFA) and revise 
its rules based on the results of the study. Under current law, 
agencies subject to the RFA need to determine if their rules 
have a significant economic impact on small entities, including 
businesses, nonprofit organizations, and governmental 
jurisdictions. If so, agencies must consider alternatives that 
minimize that impact.
    Using information about the cost of similar provisions, CBO 
estimates that implementing the bill would cost $2 million over 
the 2023-2028 period. CBO expects that the SEC would need about 
five employees, at an average annual cost of $300,000 per 
employee, to carry out the study and amend rules. Because the 
SEC is authorized to collect fees each year to offset its 
annual appropriation, CBO expects that the net effect on 
discretionary spending over the 2023-2028 period would be 
negligible, assuming appropriation actions consistent with that 
authority.
    If the SEC increases fees to offset the costs associated 
with implementing the bill, H.R. 2792 would increase the cost 
of an existing mandate on private entities required to pay 
those assessments. CBO estimates that the incremental cost of 
that mandate would be small and fall below the annual threshold 
established in the Unfunded Mandates Reform Act (UMRA) for 
private-sector mandates ($198 million in 2023, adjusted 
annually for inflation).
    H.R. 2792 contains no intergovernmental mandates as defined 
in UMRA.
    The CBO staff contacts for this estimate are David Hughes 
(for federal costs) and Rachel Austin (for mandates). The 
estimate was reviewed by Emily Stern, Senior Adviser for Budget 
Analysis.

                                         Phillip L. Swagel,
                             Director, Congressional Budget Office.

                       FEDERAL MANDATES STATEMENT

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995.
    Per the estimate from CBO, H.R. 2792 could increase the 
cost of an existing mandate on private entities if the SEC 
increased costs to implement the bill. However, this increase 
would still fall below the annual threshold for private-sector 
mandates as defined in the Unfunded Mandates Reform Act.
    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 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 a program of 
the Federal Government known to be duplicative of another 
Federal program, including any program that was included in a 
report to Congress pursuant to section 21 of the Public Law 
111-139 or the most recent Catalog of Federal Domestic 
Assistance.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

    This section cites H.R. 2792 as the Small Entity Update 
Act.

Section 2. Studies, reports, and rules regarding small entities

    This section directs the SEC to conduct a study of the 
definition of the term ``small entity.'' This section also 
directs the SEC to propose and finalize rules consistent with 
the results of its study to define the term ``small entity'' 
under the Regulatory Flexibility Act. Lastly, this section 
directs the SEC to adjust the definition of small entity for 
inflation after enactment of this Act and every five years 
thereafter.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2792 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]