[House Report 118-91]
[From the U.S. Government Publishing Office]


118th Congress   }                                     {        Report
                        HOUSE OF REPRESENTATIVES
 1st Session     }                                     {        118-91

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



 
                MIDDLE MARKET IPO UNDERWRITING COST ACT

                                _______
                                

  June 5, 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. 2812]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2812) to require the Securities and Exchange 
Commission to carry out a study of the costs associated with 
small- and medium-sized companies to undertake initial public 
offerings, 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 ``Middle Market IPO Underwriting Cost 
Act''.

SEC. 2. STUDY ON IPO FEES.

  (a) Study.--The Securities and Exchange Commission (``Commission''), 
in consultation with the Financial Industry Regulatory Authority, shall 
carry out a study of the costs associated with small- and medium-sized 
companies to undertake initial public offerings (``IPOs''). In carrying 
out such study, the Commission shall--
          (1) consider the direct and indirect costs of an IPO, 
        including--
                  (A) fees, such as gross spreads paid to underwriters, 
                IPO advisors, and other professionals;
                  (B) compliance with Federal and State securities laws 
                at the time of the IPO; and
                  (C) such other IPO-related costs as the Commission 
                determines appropriate;
          (2) compare and analyze the costs of an IPO with the costs of 
        obtaining alternative sources of financing and of liquidity;
          (3) consider the impact of such costs on capital formation;
          (4) analyze the impact of these costs on the availability of 
        public securities of small- and medium-sized companies to 
        retail investors; and
          (5) analyze trends in IPOs over a time period the Commission 
        determines is appropriate to analyze IPO pricing practices, 
        considering--
                  (A) the number of IPOs;
                  (B) how costs for IPOs have evolved over time, 
                including fees paid to underwriters, investment 
                advisory firms, and other professions for services in 
                connection with an IPO;
                  (C) the number of brokers and dealers active in 
                underwriting IPOs;
                  (D) the different types of services that underwriters 
                and related persons provide before and after a small- 
                or medium-sized company IPO and the factors impacting 
                underwriting costs;
                  (E) changes in the costs and availability of 
                investment research for small- and medium-sized 
                companies; and
                  (F) any other consideration the Commission considers 
                necessary and appropriate.
  (b) Report.--Not later than the end of the 360-day period beginning 
on the date of the enactment of this Act, the Commission shall issue a 
report to the Congress containing all findings and determinations made 
in carrying out the study required under subsection (a) and any 
administrative or legislative recommendations the Commission may have.

                          PURPOSE AND SUMMARY

    Introduced on April 25, 2023, by Representative James 
Himes, H.R. 2812, the Middle Market IPO Underwriting Cost Act, 
would require the SEC, in consultation with the Financial 
Industry Regulatory Authority, to study the direct and indirect 
costs associated with small and medium-sized companies to 
undertake initial public offerings.

                  BACKGROUND AND NEED FOR LEGISLATION

    When a company decides to sell its securities to the 
public, they incur various costs to comply with the 
requirements to conduct the IPO, as well as to enhance the 
ability for the IPO to price and market successfully. Various 
studies have focused on the costs of being a public company, 
but recent data may be helpful to better understand the 
regulatory and professional services costs of undertaking the 
IPO and becoming a public company. The SEC itself has estimated 
that the average cost of just achieving regulatory compliance 
for going public is $2.5 million, which may not include 
additional costs of hiring professionals to help undertake the 
IPO. The study required under this bill will help Congress and 
the market better understand the costs associated with small-
and medium-sized companies to undertake initial public 
offerings (IPOs) and become public companies.

                                HEARING

    The Subcommittee on Capital Markets of the Committee on 
Financial Services held a hearing examining matters relating to 
H.R. 2812 on April 19, 2023.

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 26, 2023, and ordered H.R. 2812 to be reported favorably 
to the House as amended by a recorded vote of 49 ayes to 0 nays 
(Record vote no. FC-45), 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 Mr. Himes 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. 
2812 was ordered reported favorably to the House as amended by 
a recorded vote of 49 ayes to 0 nays (Record vote no. FC-45), a 
quorum being present.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                      COMMITTEE OVERSIGHT 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. 2812 is to help 
Congress and the market better understand the costs associated 
with small-and medium-sized companies to undertake IPOs and 
become public companies by requiring the SEC, in consultation 
with the Financial Industry Regulatory Authority, to conduct a 
study.

   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. 2812 would require the Securities and Exchange 
Commission (SEC) to study and report to the Congress within 360 
days on the cost for small- and medium-sized companies to 
undertake initial public offering.
    Using information from the SEC about the cost of similar 
reports, CBO estimates that implementing H.R. 2812 would cost 
$2 million over the 2023-2024 period. CBO expects that the SEC 
would need five employees, at an average annual cost of 
$300,000 per employee, to complete the study and report to the 
Congress. However, 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. 2812 would increase the cost 
of an existing mandate on private entities required to pay 
those assessments. CBO estimates that the incremental cost of 
the mandate would be small and would fall well below the annual 
threshold for private-sector mandates established in the 
Unfunded Mandates Reform Act (UMRA, $198 million in 2023, 
adjusted annually for inflation).
    H.R. 2812 contain 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 H. Samuel Papenfuss, Deputy Director 
of 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. 2812 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. 2812 as the ``Middle Market IPO 
Underwriting Cost Act''.

Section 2. Study on IPO fees

    This section requires the SEC, in consultation with the 
Financial Industry Regulatory Authority, to study the costs 
associated with small and medium-sized companies to undertake 
initial public offerings. This section states that in carrying 
out such study, the SEC shall consider the direct and indirect 
costs of an IPO, compare and analyze the costs of an IPO with 
the costs of obtaining alternative sources of financing and of 
liquidity, consider the impact of such costs on capital 
formation, analyze the impact of these costs on availability of 
public securities of small and medium-sized companies to retail 
investors, and analyze trends in IPOs over a time period the 
SEC determines appropriate to analyze IPO pricing practices. In 
analyzing trends in IPOs, the SEC will consider, the number of 
IPOs, how costs of IPOs have evolved, the number of brokers and 
dealers active in underwriting IPOs, the different types of 
services that underwriters and related persons provide and the 
factors impacting underwriting costs, changes in the costs and 
availability of investment research, and any other 
consideration the SEC deems appropriate.
    Finally, this section notes that the SEC shall issue a 
report to Congress containing all finding and determinations 
made in carrying out the study and any administrative or 
legislative recommendations the SEC may have not later than the 
end of the 360-day period beginning on the date of the 
enactment of this Act.

         CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    H.R. 2812 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]