Congressman Kevin Cramer announced yesterday that the House of Representatives passed H.R. 1675, the Capital Markets Improvement Act of 2016. H.R. 1675 provides for various reforms related to financial services in an attempt to alleviate the burdens on employers (particularly small businesses) by repealing and/or amending outdated SEC regulations.
Thursday, February 04. 2016
Though the bill has passed the House, it may have difficulty surviving in the Senate. Further, the White House has issued a position letter stating that the bill would likely be vetoed.
The legislature combines a number of other bills, including H.R. 1675 (the Encouraging Employee Ownership Act of 2015), H.R. 686 (the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2015), H.R. 1965 (the Small Company Disclosure Simplification Act), H.R. 2354 (the Streamlining Excessive and Costly Regulations Review Act), and H.R. 2356 (the Fair Access to Investment Research Act of 2015). The Act is referred to as the “Capital Markets Improvement Act of 2016”.
Summary of the Capital Markets Improvement Act of 2016
Title I: Encouraging Employee Ownership (H.R. 1675)
The bill directs the SEC to revise section 230.701(e) of title 17, Code of Federal 7 Regulations, to increase the reporting threshold that requires the issuer of certain securities to provide additional disclosures to investors. Currently, if the aggregate sales price or amount of securities sold during any 12-month period exceeds $5,000,000, a company must provide this additional disclosure. The bill would increase that value to $10,000,000.
The bill also directs the SEC to index for inflation every 5 years to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, rounding to the nearest $1,000,000.
Title II: The Fair Access to Investment Research Act of 2015 (H.R. 2356)
The bill expands the safe harbor such that a covered investment fund research report would not, for the purposes of sections 8 2(a)(10) and 5(c) of the Securities Act of 1933, constitute an offer for sale or an offer to sell a security. The research reports and the covered investment company would need to meet certain requirements to be eligible for this safe harbor.
The SEC would be required to revise their regulations within 120 days of enactment if the Act were to pass the Senate and be signed into law. An interim safe harbor would take effect until the SEC finalized any rules.
Title III: The Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2015 (H.R. 686)
The bill amends Section 15(b) of the Securities Exchange Act of 1934 to add an exemption from registration for Merger and Acquisition (M&A) brokers with certain exemptions.
Title IV: The Small Company Disclosure Simplification Act (H.R. 1965)
The bill would provide both a voluntary and a time-limited exemption from the SEC’s XBRL financial reporting requirements for Emerging Growth Companies (EGCs) and smaller reporting companies with annual gross revenues under $250 million. Both types of companies could elect to use XBRL for financial reporting, if desired.
This exemption would last five years after the enactment of the Act, during which period the SEC would be required to conduct an analysis of the costs and benefits of XBRL reporting for these types of companies. If the analysis determined that the benefits outweighed the costs, the SEC could shorten the exemption period (however, the bill provides that the exemption must last a minimum of three years).
Title V: The Streamlining Excessive and Costly Regulations Review Act (H.R. 2354)
The bill provides that the SEC must periodically review each significant regulation (or major rule) that it issues and determine by Commission vote whether each regulation is outmoded, ineffective, insufficient, excessively burdensome, or is no longer necessary in the public interest or consistent with the SEC’s mandate to
protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
As part of the review, the SEC must provide notice to the public and solicit comment to determine whether an outmoded regulation should be amended to improve or modernize it or whether it should be repealed. Based on the Commission vote for each regulation, the SEC must then amend or repeal it. After any final Commission vote, the SEC will transmit a report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate that describes the review and recommends legislation, if necessary.
While this bill has passed the House, it still needs to make it through the Senate and also has the threat of a Presidential veto looming over it. The three major objections the White House has to this bill are Titles III, IV, and V, and President Obama’s senior advisors would recommend he veto the bill.