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Last month, the Subcommittee on Capital Markets of the House Financial Services Committee held a hearing entitled “U.S. Public Markets Built for the 21st Century: Exploring Reforms to Make Our Public Markets Attractive for Small and Emerging Companies Raising Capital.” As noted in the Committee Memorandum, the purpose of the hearing was to examine policies designed to strengthen public markets. Testifying at the hearing were: The Honorable Michael S. Piwowar, Executive Vice President of MI Finance, Milken Institute and former SEC Commissioner; Sue Washer, Former CEO of Applied Genetics Technology Corp.; Anna Pinedo, Partner and Co-Leader of Global Capital Markets, Mayer Brown; and Stacey Bowers, Professor of the Practice, University of Denver Sturm College of Law. The Committee examined the significant decline in IPOs and whether Congress could build on the success of the JOBS Act with incremental reforms that would encourage companies to go public.

A number of legislative proposals were listed for consideration, including:

– H.R. [____], the “Improving Disclosure for Investors Act of 2023”. This bill directs the SEC to promulgate rules permitting financial firms to electronically deliver certain disclosures to investors.

– H.R. [____], the “Helping Startups Continue to Grow Act”. This bill allows certain issuers of securities regulated as emerging growth companies to continue operating under such regulations, including those related to reduced disclosures and other exemptions, for an additional five years. It also raises the maximum thresholds for companies to qualify as emerging growth companies to not more than $2 billion.

– H.R. [____], to reduce the required aggregate market value of voting and non-voting common equity shares for an issuer of securities to qualify as a well-known seasoned issuer. A well-known seasoned issuer is allowed to make expedited public offerings of securities through automatic shelf registrations.

– H.R. [____], the “Encouraging Public Offerings Act”. The bill allows issuers of securities to communicate with potential investors to ascertain interest in a contemplated securities offering, either before or after the filing of a registration statement (i.e., test the waters). The bill also allows issuers to submit a confidential draft registration statement to the Securities and Exchange Commission for review prior to public filing or within one year after the initial public offering or registration.

– H.R. [____], to expand the provision for research reports in Section 2(a)(3) of the Securities Act to cover research reports about any issuer that undertakes a proposed public offering of securities.

– H.R. [____], to update the emerging growth company (EGC) financial statement requirements to clarify that any EGC may present two years, rather than three years, of audited financial statements in both IPOs and spin-off transactions.

– H.R. [____], to establish that an emerging growth company (EGC), as well as any issuer that went public using EGC disclosure obligations, only needs to provide two years of audited financial statements.

– H.R. [____], to update the SEC and PCAOB auditor independence requirements to provide that the auditor of a private company that is transitioning to public company status (via IPO, spin-off or otherwise) must comply with SEC/PCAOB independence rules for the latest fiscal year, as long as the auditor is independent under AICPA or home-country standards for earlier periods.

– H.R. [____], to clarify that a company’s market capitalization, for purposes of testing the significance of an acquisition or disposition, may include the value of all shares, including preferred stock and non-traded common shares that are convertible into, or exchangeable for, traded common shares.

– H.R. [____], to update Section 12(g) of the Exchange Act to provide that the mandatory registration threshold of 2,000 or more holders of record shall exclude Qualified Institutional Buyers (QIBs) and institutional accredited investors. This bill also prevents the SEC from revising the definition of securities “held of record” in a way that forces companies to go public sooner than they are currently required.

– H.R. [____], to exempt certain low-revenue issuers from being required to have their management’s assessment of the effectiveness of internal controls over financial reporting attested to, and reported on, by an independent auditor, as required by SOX Section 404(b).

– H.R. [____], to codify certain SEC no action letters that allow broker-dealers to continue accepting cash or “hard dollar” payments for research reports, in order to comply with international regulations such as MiFID and MiFID II.

– H.R. [____], to permit a registered investment company to omit certain fees from the calculation of Acquired Fund Fees and Expenses

– Dave Lynn