CONGRESSWOMAN ELISE STEFANIK
On Tuesday, July 12, 2016, the House will consider H.R. 5421, the National Securities Exchange Regulatory Parity Act, under suspension of the rules. H.R. 5421 was introduced on June 9, 2016 by Rep. Edward Royce (R-CA), and was referred to the Committee on Financial Services, which ordered the bill reported, by the Yeas and Nays: 47-12.
H.R. 5421 amends Section 18 of the Securities Act of 1933, which provides what is known as a “blue sky” exemption for securities listed and traded on specified national securities exchanges: New York Stock Exchange (NYSE), American Stock Exchange (which no longer exists as a stand-alone exchange) and NASDAQ. The legislation would eliminate the specific references to those venues, and instead provide blue sky exemption for any security listed on a “national securities exchange” registered with the Securities and Exchange Commission (SEC). This statutory change better reflects today’s markets in that the NYSE and NASDAQ are not the only trading venues that list securities.
The Securities Act of 1933 exempts certain securities from individual state-by-state registration, which is commonly known as the “blue sky” exemption. The blue sky exemption is found in Section 18(b)(1) of the Act and applies based on where a particular security is listed for trading. In that regard, the Act specifically enumerates certain exchanges with national listings programs that were in existence when the provision was added to the Act by the National Securities Markets Improvement Act (NSMIA) in 1996.
The blue sky exemption in the Act applies to securities listed on the NYSE, the American Stock Exchange (which no longer exists as a stand-alone exchange), or the National Market System of the Nasdaq Stock Market (“NASDAQ”) as well as any national securities exchange the SEC determines by rule has “substantially similar” listing standards. Since the exemption’s enactment in 1996, additional securities exchanges have registered with the SEC, including, for example the Bats BZX Exchange (“Bats”). The statutory construction provides preferential treatment to the exchanges listed in Section 18(b)(1) of the Act, and limits innovation with respect to listings standards. The competition for listing securities is a global business and the presence of multiple U.S. listing venues gives issuers (public companies) options regarding the brand with which they choose to associate and protects them against unreasonably high listings fees. Unfortunately, the Act requires the SEC to consider an innovative listing standard proposal made by an exchange that is not specifically names in Section 18(b)(1) against standards that may have been in effect at the time of NSMIA’s enactment.
This treatment is an inherently unfair two-step process for the unlisted exchanges and creates a competitive disadvantage amongst exchanges. Issuers, broker-dealers, investment bankers and analysts should decide which listing venue would best serve the needs of the company’s shareholders. Listing venues should develop listing standards that are consistent with the Securities Exchange Act of 1934 and the SEC should not approve standards which do not meet this standard, however, the law should not place the SEC in a favorable position to limit innovation and competition to certain exchanges. H.R. 5421 corrects this disparity and amends the Act to represent today’s capital markets, given that there are more listing venues than NYSE and NASDAQ currently in existence.
According to the bill’s sponsor, “Government is often pretty slow to change with the times, but the market is not. Static regulation often does not keep pace with innovation. A lot has changed since 1996, when Congress amended the ’33 Act and exempted three specific stock exchanges by name from state-by-state regulation. The SEC’s interpretation of the law has created a two-tiered playing field by giving this ‘blue sky’ exemption only to these three exchanges which existed in 1996. It was not the intention of Congress to create such a carve-out. This bill, the National Securities Exchange Regulatory Parity Act, rights this wrong. It provides clarity around the exemption, which will now apply to all securities listed on a national exchange regulated by the SEC, with Commission-approved listing standards.”
 Press Release, Rep. Ed Royce, “Royce Effort to Establish Level Playing Field for Stock Exchanges Advances.” June 16, 2016.
The Congressional Budget Office (CBO) is not currently available.
For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.