On Tuesday, January 13, 2015, the House will consider H.R. 37, the Promoting Job Creation and Reducing Small Business Burdens Act, under a rule. H.R 37 was introduced on January 6, 2014 by Rep. Mike Fitzpatrick (R-PA) and reported to the Committee on Financial Services.
H.R. 37 combines the text of 11 bills. This legislation previously passed on September 16, 2014 by a vote of 320-102. (See Roll Call #501) This legislation failed under suspension on January 7, 2015 by a vote of 276-146. (See Roll Call #9) The provisions of the bill are as follows:
Title I – Business Risk Mitigation and Price Stabilization Act
Title I, originally passed in the House as H.R. 634 in the 113th Congress under suspension, amends the Dodd-Frank Act to clarify that the Act’s margin requirements do not apply to the end-users of derivatives. The bill also stipulates that the bill is to be implemented through a modified regulatory process, precluding the regulatory process from starting de novo.
Title II – Treatment of Affiliate Transactions
Title II, originally passed in the House as H.R. 5471 under suspension in the 113th Congress, amends the Commodity Exchange Act and the Securities Exchange Act of 1934 to clarifies Dodd-Frank’s treatment of affiliates of non-financial firms that use a central treasury unit (CTU) as a risk-reducing, best practice to centralize and net the hedging needs of affiliates. Without a clear legislative exemption, non-financial companies may either have to eliminate the CTU function, be subjected to increased regulatory costs, or retain more risk on their balance sheets and pass along that risk to customers in the form of higher prices. Treasurers of non-financial end-users of derivatives operate central treasury units or “CTUs” that serve the risk-mitigating function of aggregating exposures on the books of one or more affiliates within their corporate group. The CTU nets the inter-affiliate exposures, and then enters into smaller and fewer derivatives trades with a bank or other swap dealer counterparty for the net amounts. The Dodd-Frank Act could force businesses to wind down those efficient units or meet burdensome new regulatory requirements that will be hard to justify. CTUs are risk-reducing, best practice to centralize and net the hedging needs of affiliates.
Title III – Holding Company Registration Threshold Equalization Act
Title III, originally passed in the House as H.R. 801 under suspension in the 113th Congress, amends the Securities Exchange Act of 1934 to increase the threshold required of savings and loan holding companies when registering with the Securities Exchange Commission (SEC). A savings and loans holding company (SLHC) must register if its assets exceed $10 million and it has 2,000 shareholders of record, an increase from the current requirement of 500 shareholders of record. This legislation also raises the deregistration threshold from 300 shareholders of record to 1,200 shareholders of record.
Title IV – Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act
Title IV, originally passed in the House as H.R. 2274 under suspension in the 113th Congress. H.R. 2274 amends Section 15(b) of the Securities Exchange Act of 1934 to exempt Mergers and Acquisitions (M&A) brokers from registration with the Securities Exchange Commission (SEC). A M&A broker is not exempt from registration if the broker: 1) directly or indirectly, in connection with the transfer of ownership of an eligible privately held company, receives, holds, transmits, or has custody of the funds or securities to be exchanged by the parties to the transitions; or 2) engages on behalf of an issuer in a public offering of any class of securities that is registered, or is required to be registered, with the SEC. This bill would apply to M&A deals involving companies with annual earnings of less than $25 million and annual gross revenue of less than $250 million.
Title V – Swaps Data Repository and Clearinghouse Indemnification Correction Act of 2013
Title V, originally passed in the House as H.R. 742 under suspension in the 113th Congress, repeals the indemnification requirements contained in Sections 725, 728, and 763 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). These sections of the Dodd-Frank Act are related to swap data gathered by swap data repositories (SDRs) and derivatives clearing organizations (DCOs). While the indemnification requirements are repealed, the bill keeps in place the requirement that, before swap data entities are allowed to share information with government regulators, they must receive a written agreement stating that the regulator will abide by certain confidentiality agreements.
Title VI – Improving Access to Capital for Emerging Growth Companies Act
Title VI was originally introduced as H.R. 3623 (and reported by the Financial Services Committee by a vote of 56-0) in the 113th Congress. Title VI reduces the number of days before a “road show” that an emerging growth company (EGC), before its IPO date, may publicly file a draft registration statement for confidential nonpublic review by the Securities Exchange Commission (SEC) staff. In addition, it provides a grace period during which an issuer that was an EGC at the time it filed (but is no longer one) shall continue to be treated as one. Title VI authorizes EGCs to submit confidential draft registration statements to the SEC within one year of its IPO for any securities to be issued subsequent to its IPO. Finally, it amends the Jumpstart Our Business Startups Act (JOBS) to include a notice on Form S-1 to indicate that a registration statement filed by an issuer prior to an IPO may omit financial information for certain historical periods.
Title VII – Small Company Disclosure Simplification Act
Title VII was originally introduced as H.R. 4164 (and reported by the Financial Services Committee by a vote of 51-5) in the 113th Congress. Title VII provides a voluntary exemption to EGCs and issuers with total annual gross revenues of less than $250 million from the requirements to use Extensible Business Reporting Language (XBRL) for financial statement and other mandatory periodic reporting filed by the SEC. Furthermore, it directs the SEC to conduct an analysis of the costs and benefits to issuers of the requirements to use XBRL for financial statements. This analysis would include an assessment of: 1) how such costs and benefits may differ from the costs and benefits identified by the SEC; and 2) the effect on efficiency, competition, capital formation, financing, and costs of using XBRL. Within one year of enactment, the SEC would be required to report to Congress of its findings.
Title VIII – Restoring Proven Financing for American Employers Act
Title VIII, originally passed by the House as H.R. 4167 (in the 113th Congress) by voice vote under suspension on April 29, 2014, corrects a provision of the final rule issued on December 10, 2013, to implement Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)(P.L. 111-203), also known as the “Volcker Rule,” regarding the treatment of collateralized loan obligations (“CLOs”) as impermissible covered fund investments. Title VIII amends the the Bank Holding Company Act to allow banks with investments in CLOs issued before January 31, 2014, until July 21, 2019 to be in compliance with the Volcker Rule. CLOs provide nearly $300 billion in financing to U.S. companies and this title will prevent a “fire-sale” of CLOs that were unexpectedly captured by the final rule to implement the Volcker Rule.
Title IX – SBIC Advisers Relief Act
Title IX was originally introduced as H.R. 4200 (and reported by the Financial Services Committee by a vote of 56-0) in the 113th Congress. The Dodd-Frank Act exempted from registration advisers to one or more venture capital funds and also exempted from registration advisers to Small Business Investment Companies (SBICs). If an adviser, however, advises both venture capital funds and SBICs, that adviser must register with the SEC. Title IX amends the Investment Advisers Act of 1940 to exempt specified advisers of small business investment companies (SBICs) from: 1) certain SEC registration requirements with respect to the provision of investment advice relating to venture capital funds; and 2) certain SEC registration and reporting requirements with respect to assets under management of private funds. Moreover, it provides the same exemption with respect to any state or local law requiring the registration, licensing, or qualifications of investment advisers.
Title X – Disclosure Modernization and Simplification Act
Title X was originally introduced as H.R. 4569 (and reported by the Financial Services Committee by a vote of 59-0) in the 113th Congress. Title X directs the SEC to issue regulations to permit issuers to submit a summary page on form 10-K. Within 180 days of enactment, the SEC is required to revise regulation S-K to: 1) further scale or eliminate requirements of regulation S-K to reduce the burden on EGCs, accelerated filers, and smaller reporting companies; and 2) eliminate provisions of regulation S-K that are duplicative, overlapping, outdated, or unnecessary. Moreover, Title X directs the SEC to study ways to: 1) modernize and simplify requirements in regulation S-K; 2) improve the readability of disclosure documents; and 3) discourage repetition and disclosure of immaterial information.
Title XI – Encouraging Employee Ownership Act
Title XI was originally introduced as H.R. 4571 (and reported by the Financial Services Committee by a vote of 36-23) in the 113th Congress. Title XI directs the SEC to revise its rules to increase the threshold amount for requiring issuers to provide certain disclosures relating to compensatory benefit plans. Within 60 days of enactment, the SEC would revise Section 230.701(e) of Title 17, Code of Federal Regulations, to increase the aggregate sales price or amount of sales threshold for disclosure from $5 million to $10 million. The SEC is directed to index the aggregate sales price or amount every five years to reflect the change in the Consumer Price Index, rounding to the near $1 million.
 According to the legislation, “the term M&A Broker means a broker, and any person associated with a broker, engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether the broker acts on behalf of a seller or buyer, through the purchase, sale, exchange, issuance, re-purchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company.”
 A financial road show is an offer that contains a presentation regarding an offering by one or more members of the issuer’s management and includes discussion of one or more of the issuer, such management, and the securities being offered. A road show is commonly a series of meeting across different cities before an IPO in which top executives from a company have the opportunity to talk with current or potential investors.
 Regulation S-K sets out reporting requirements for the SEC filings of publicly traded companies/issuers.
A CBO cost estimate for the entirety of this legislation is currently unavailable. All CBO estimates for below were conducted in the 113th Congress. CBO estimates for specific titles are as follows:
For questions or further information contact the GOP Conference at 5-5107.
STATEMENT OF ADMINISTRATION POLICY
H.R 37 – Promoting Job Creation and Reducing Small Business Burdens Act
(Rep. Fitzpatrick, R-Pennsylvania, and eight cosponsors)
The Administration strongly opposes H.R. 37. The President has been clear about his opposition to legislation that would weaken and undermine the Dodd-Frank Wall Street Reform and Consumer Protection Act. To that end, the Administration has significant concerns with provisions that would undermine the Volcker Rule by further delaying a part of its implementation to 2019. The Volcker Rule is a key component of the Dodd-Frank Wall Street Reform Act that prevents institutions from taking excessive risks through proprietary trading and fund investing, and taxpayers should not have to wait that long to have limits in place that protect them from risky practices.
The Administration also has concerns with other provisions that would roll back important derivatives reforms, as well as measures in the bill that would diminish protections for investors in public companies, including through reducing related reporting and disclosure requirements. More generally, the Administration has strong concerns with any provision that would weaken key consumer and investor protections and elements of financial oversight.
The Dodd-Frank Wall Street Reform and Consumer Protection Act is helping prevent the kinds of excessive financial risk taking that caused the worst recession in more than 70 years, left millions of Americans unemployed, and resulted in trillions of dollars in lost wealth. These reforms help protect hard working families in everything from saving for retirement to the ability of small businesses to access credit through a stable financial system. H.R. 37 unnecessarily puts these working and middle-class families at risk while benefitting Wall Street and other narrow special interests.
If the President were presented with H.R. 37, his senior advisors would recommend that he veto the bill.