[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
LEGISLATIVE PROPOSALS TO
ENHANCE CAPITAL FORMATION AND
REDUCE REGULATORY BURDENS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CAPITAL MARKETS AND
GOVERNMENT SPONSORED ENTERPRISES
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
APRIL 29, 2015
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-18
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U.S. GOVERNMENT PUBLISHING OFFICE
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
Subcommittee on Capital Markets and Government Sponsored Enterprises
SCOTT GARRETT, New Jersey, Chairman
ROBERT HURT, Virginia, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
PETER T. KING, New York BRAD SHERMAN, California
EDWARD R. ROYCE, California RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas STEPHEN F. LYNCH, Massachusetts
PATRICK T. McHENRY, North Carolina ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan DAVID SCOTT, Georgia
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
STEVE STIVERS, Ohio KEITH ELLISON, Minnesota
STEPHEN LEE FINCHER, Tennessee BILL FOSTER, Illinois
RANDY HULTGREN, Illinois GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida JOHN C. CARNEY, Jr., Delaware
ANN WAGNER, Missouri TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas
C O N T E N T S
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Page
Hearing held on:
April 29, 2015............................................... 1
Appendix:
April 29, 2015............................................... 39
WITNESSES
Wednesday, April 29, 2015
Deas, Thomas C., Jr., Vice President and Treasurer, FMC
Corporation, on behalf of the Coalition for Derivatives End-
Users.......................................................... 3
Gabaldon, Theresa A., Lyle T. Alverson Professor of Law, the
George Washington University Law School........................ 5
Hughes, Gayle G., Partner & Founder, Merion Investment Partners,
on behalf of the Small Business Investor Alliance (SBIA)....... 7
Kovacs, Shane, Executive Vice President and Chief Financial
Officer, PTC Therapeutics, Inc., on behalf of the Biotechnology
Industry Organization (BIO).................................... 8
Quaadman, Thomas, Vice President, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce...................... 10
APPENDIX
Prepared statements:
Luetkemeyer, Hon. Blaine..................................... 40
Deas, Thomas C., Jr.......................................... 42
Gabaldon, Theresa A.......................................... 47
Hughes, Gayle G.............................................. 62
Kovacs, Shane................................................ 83
Quaadman, Thomas............................................. 92
Additional Material Submitted for the Record
Garrett, Hon. Scott:
Letter from the American Bankers Association................. 104
Letter from Americans for Financial Reform................... 105
Letter from The Depository Trust & Clearing Corporation...... 109
Letter from the Food Marketing Institute..................... 113
Summary and No-action Letter from Warner Norcross & Judd..... 115
Letter from the Independent Community Bankers of America..... 121
Letters to Chairman Hensarling from Hon. Darrell Issa, a
Representative in Congress from the State of California.... 122
Letter from the M&A Source................................... 127
Written statement of the North American Securities
Administrators Association, Inc............................ 130
Written statement of XBRL US................................. 140
Huizenga, Hon. Bill:
Letter from the Association for Corporate Growth............. 148
Letter from the Alliance of Merger and Acquisition Advisors.. 150
Letter from the Business Brokers of Florida.................. 157
Letter from the International Business Brokers Association,
Inc........................................................ 158
Letter from the Nevada Business Brokers...................... 162
Letter from the Small Business & Entrepreneurship Council.... 164
Hultgren, Hon. Randy:
Written statement of John C. Partigan........................ 165
LEGISLATIVE PROPOSALS TO
ENHANCE CAPITAL FORMATION AND
REDUCE REGULATORY BURDENS
----------
Wednesday, April 29, 2015
U.S. House of Representatives,
Subcommittee on Capital Markets and
Government Sponsored Enterprises,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:28 p.m., in
room HVC-210, Capitol Visitor Center, Hon. Scott Garrett
[chairman of the subcommittee] presiding.
Members present: Representatives Garrett, Hurt, King,
Neugebauer, McHenry, Huizenga, Duffy, Fincher, Hultgren, Ross,
Wagner, Messer, Schweikert, Poliquin, Hill; Maloney, Hinojosa,
Scott, Himes, Ellison, Foster, Carney, Sewell, and Murphy.
Ex officio present: Representative Waters.
Also present: Representative Moore.
Chairman Garrett. Good afternoon, and welcome. The
Subcommittee on Capital Markets and Government Sponsored
Enterprises is hereby called to order.
Today's hearing is entitled, ``Legislative Proposals to
Enhance Capital Formation and Reduce Regulatory Burdens.'' I
thank the members of the subcommittee for being here, and I
thank the witnesses on the panel, as well. Forgive me if my
voice is a little bit off today. I am either suffering from a
little head cold or some allergies.
Again, thanks to the panel. We will begin as we do
normally. I know most of the panel is new to the testifying
process. Some of them are not so new, and have been around here
before. So, we will begin with opening statements, and I will
yield myself 3 minutes.
Since 2011, this subcommittee has held almost a dozen of
these hearings, basically to explore ways to do what? To
facilitate capital formation, and make the U.S. capital markets
more attractive to companies, and to try to increase investment
opportunities for all investors. Most notably, this
subcommittee led the charge, if you will, to implement one of
the most meaningful updates to our securities laws in recent
history, in recent memory, and that was the Jobs Act, Jobs 1.0.
And we are seeing the positive impacts of the Jobs Act as more
and more smaller companies are accessing the capital markets
and they are doing so at a lower cost. But I think most agree
that more needs to be done.
Therefore, it is incumbent upon this committee and this
Congress to provide sensible improvements to our securities
laws to help small companies and startups access the capital
markets and access capital they need to create jobs and to
grow.
The United States has the most fair, most efficient, and
deepest capital markets in the world. And the primary function
of the capital markets that we have is to do what? It is like I
say, it is to help facilitate the appropriate flow of capital
from investors to companies which need those funds to create
jobs, to grow the companies, to grow the economy, and for
prosperity in America.
So today, America's startups and small businesses continue
to encounter difficulty, unfortunately, accessing the U.S.
capital markets to finance operations. Moreover, the costs of
these companies of going and staying public remain unacceptably
high. So this afternoon, the subcommittee continues its capital
formation agenda by considering a dozen bills. And I want to
thank all of the cosponsors of the legislation that will be
coming before this subcommittee.
During the 113th Congress, this committee and the House
considered many of the bills that are before us today. We
approved them, and we approved them overwhelmingly with large,
in some cases unanimous, votes, which is a great thing. One of
those bills is H.R. 1525, the Disclosure Modernization and
Simplification Act, my bill.
This legislation is one that I introduced. I was pleased
that this legislation was able to pass by this committee on a
59-0 vote, and by the House with a voice vote last year. And
what would that bill do? It would direct the SEC to tailor
regulations, S-K disclosure rules, as they apply to emerging
growth companies and smaller issuers to eliminate other
duplicate, outdated, and unnecessary rules and regulations.
Now, although these bills that we are talking about are
modest, they are not insignificant to our fellow citizens back
home or to the entrepreneur or small company that our fellow
citizen depends upon in order to get his job. So in all of
this, it is important to remember that capital formation and
investment protection is not an either/or proposition.
When investors have additional investment options to earn a
return and they invest their money, that additional choice is a
significant protection.
So, I want to thank again--where I began--all of the
witnesses for their appearance at this hearing and also for
their very relevant and helpful written testimony that they
have all submitted. And I look forward to advancing all of the
bills under discussion at the committee markup, and then to the
full House at the earliest opportunity so we can move things
along. And with that, I yield 2 minutes to the vice chairman of
the subcommittee, Mr. Hurt.
Mr. Hurt. Thank you, Mr. Chairman. Thank you for holding
today's hearing, and I am pleased that this subcommittee is
moving forward with ideas to increase access to capital for our
small businesses and startups.
At a time when unemployment remains high, and my
constituents are struggling to find employment, it is incumbent
upon us to do everything we can to reduce the regulatory burden
on such entities that are so vital to job creation in
Virginia's 5th District and across this great Nation.
The bipartisan Jobs Act was one successful example of
identifying and remedying regulatory burdens that restrict
economic growth, and we need to build upon that success. We
must do more to remove or refine costly regulations,
particularly those that are disproportionately affecting
smaller public companies who are considering accessing capital
in the public markets.
While a single regulation may seem insignificant, the
combined effects of our regulatory regime can be
insurmountable. One such requirement is the eXtensible Business
Reporting Language, or XBRL, which was mandated by the SEC in
2009. While the SEC's rule is well-intended, this requirement
has become another example of a regulation where the costs
outweigh the potential benefits.
I put forth a proposal that would offer small companies
relief from the burdens of XBRL: H.R. 1965, the Small Company
Disclosure Simplification Act, provides a voluntary exemption
for all emerging growth companies (EGCs) and other small public
companies from the SEC's requirements to file their financial
statements via XBRL.
I believe this proposal is a measured step forward, and
during the 113th Congress identical legislation was passed by
this committee by a bipartisan vote of 51-5. I look forward to
the testimony of our distinguished witnesses and thank them for
their appearance before the subcommittee today.
I thank you, Mr. Chairman, and I yield back the balance of
my time.
Chairman Garrett. The gentleman yields back. I don't
believe there are any other opening statements, so at this
point we will turn to our panel.
And just as a refresher for our new panelists, your entire
written statement will be made a part of the record, and you
will be recognized now for 5 minutes for a summary of your
testimony.
We will begin with Mr. Deas, vice president and treasurer
of FMC Corporation. Welcome to the panel, and thank you.
You are recognized for 5 minutes.
STATEMENT OF THOMAS C. DEAS, JR., VICE PRESIDENT AND TREASURER,
FMC CORPORATION, ON BEHALF OF THE COALITION FOR DERIVATIVES
END-USERS
Mr. Deas. Thank you, Mr. Chairman, and thanks to the
members of this subcommittee. I am Tom Deas, vice president and
treasurer of FMC Corporation, and immediate past chairman of
the National Association of Corporate Treasurers (NACT). FMC
and NACT are members of the Coalition for Derivatives End-
Users, representing hundreds of companies across the country
that employ derivatives to manage day-to-day business risk.
First, let me sincerely thank you, Mr. Chairman, and the
ranking member, and also the members of the subcommittee for
doing so much to protect derivatives end-users from the burdens
of unnecessary regulation. When it comes to the needs of Main
Street companies, the members of this committee have worked
together to get things done. You drove the end-user margin bill
to enactment and have led the charge on the centralized
Treasury unit bill sponsored by Representatives Moore and
Stivers.
As you oversee the implementation of the Dodd-Frank Act, I
want to assure you that in my experience, end-users comprising
less than 10 percent of the derivatives market do not engage in
the kind of risky, speculative derivatives trading activity
that became evident during the financial crisis.
We use derivatives to hedge risks in our day-to-day
business activities. We are offsetting risks, not creating new
ones. FMC Corporation has been a proud American innovator since
our founding some 130 years ago. This is our 84th year of
listing on the New York Stock Exchange (NYSE).
When we first listed in 1931, the NYSE was the largest pool
of capital available to us to grow our business. Today, the
over-the-counter derivatives market represents an additional
and even larger pool of funds available to us, and is a
flexible and cheap way to hedge everyday business risk such as
changes in foreign exchange rates, interest rates, and also
global energy and commodity prices.
We support the transparency in the derivatives market that
the Dodd-Frank Act attempts to achieve. We also believe it is
sound policy and consistent with the law to exempt end-users
from provisions intended to reduce the inherent riskiness of
swap dealers activities.
However, at this point--4\1/2\ years after passage of the
Act--there are several areas where regulatory uncertainty
compels end-users to appeal for legislative relief.
First, centralized Treasury units. The Coalition recognizes
the efforts of the Commodity Futures Trading Commission (CFTC)
to provide relief on centralized Treasury units, but their
actions have not addressed the fundamental concern that
companies must operate at all times in strict compliance with
the law.
End user treasurers have long used widely accepted risk
reduction techniques to net exposures within our corporate
group so that we can reduce derivatives outstanding with banks.
However, the internal centralized Treasury units we use have
been viewed as financial entities subject to mandatory clearing
and margining even though they are acting on behalf of non-
financial end-user companies otherwise eligible for relief from
these burdens.
The Coalition strongly supports H.R. 1317, which would
clarify that certain swaps with CTUs of non-financial end-users
are eligible for the end-user exception for mandatory clearing
and the requirement to post margin for their derivatives
positions.
With your help, however, we could successfully navigate the
complex regulatory issues I have described today, only to find
that the uncleared over-the-counter derivatives we use have
become too costly because of much higher capital requirements
imposed on our banks.
U.S. bank regulators are implementing significantly
increased capital requirements on all derivatives. However,
European regulators have concluded that end-users hedging
activities are risk-reducing and should attract less capital
than swap dealers trades. They have exempted non-financial end-
users from these additional capital requirements. This could
put FMC and other American companies at an economic
disadvantage relative to our European counterparts.
Although I have focused here on two main issues, end-users
are concerned about the web of, at times, conflicting rules
from U.S. as well as foreign regulators that will determine
whether we can continue to manage business risk through
derivatives.
Our fear is that cross-border regulatory uncertainty could
conflict, and put FMC and other American companies at an
economic disadvantage. End user exemptions for margining and
clearing we thought would apply are still uncertain as they
affect our risk-reducing centralized Treasury units,
confronting us with potentially competitive burdens that could
limit growth and, ultimately, hamper our ability to grow and
create jobs.
Thank you for your attention, Mr. Chairman.
[The prepared statement of Mr. Deas can be found on page 42
of the appendix.]
Chairman Garrett. I thank you for your testimony.
Professor Gabaldon from George Washington University Law
School, welcome to the panel. You are recognized for 5 minutes.
STATEMENT OF THERESA A. GABALDON, LYLE T. ALVERSON PROFESSOR OF
LAW, THE GEORGE WASHINGTON UNIVERSITY LAW SCHOOL
Ms. Gabaldon. I do thank Chairman Garrett, Ranking Member
Maloney, and the other members of the subcommittee for inviting
me. I am Theresa Gabaldon from George Washington University. I
have comments on eight of the proposed bills. I have a few
general remarks before addressing specific bills, as time
allows.
First, although the bills can be broadly characterized as
deregulatory, deregulation that is not well-thought-out does
not assist capital formation. I believe the bills generally
were prepared without appropriate regard to the opportunities
for abuse, and without regard to the way the proposals would
interact with other recent deregulations.
The proposed rules, in the wrong hands, essentially could
render registration under one or both of the 1933 and 1934 Acts
optional. I also am concerned that some of the proposals don't
work coherently together, pushing for modernization on one hand
and fighting it on another. Overall, the proposed changes would
adversely affect the quality and availability of the
information investors need.
I will move on to the specifics of the bills, in view of
the time, starting with the ones I believe are most flawed and
create the most opportunity for mischief.
First, with respect to the M&A Brokers bill, I will align
myself with Oliver Wendell Holmes and say that to know what a
law is you must look at it as a bad man--updating to include a
bad woman. As this bill is drafted, it literally would permit
someone banned from the securities industry to publicly offer
the securities of shell companies to what could be hundreds of
people who will, in 1 year, be permitted to resell the
securities without any limit whatsoever. I don't suppose that
is what is intended, but that is how it could and, in my
opinion, would operate if allowed to pass in exactly its
current form. Some of the defects can be remedied with bad-
actor provisions, exclusion of the involvement of most shell
companies, and limiting public offering activity.
The SEC's M&A no-action letter of early 2014 outlines
necessary conditions that would be improvements. And that
letter also makes this legislation unnecessary. Even if
improved, what you are left with is a bill to allow unlicensed
and federally unregulated brokers to compete with those who are
willing to submit to inspection and other controls.
The argument for deregulation supposes that this will bring
down M&A costs for smaller companies. I have a few responses to
that. One, the cutoffs for eligible privately held companies
who supposedly need cut rate service are extremely high. This
relates to a concern that the provision, even if improved, has
the potential for exploitation by large private equity firms
who already are pressing the envelope as far as avoiding
registration is concerned. I don't doubt their ingenuity in
structuring transactions that could capitalize on this
exemption.
Two, the resales to accredited investors, or Section
4[a](1\1/2\) bill. I started my evaluation of this bill with a
proposition that the common law Section 4[a](1\1/2\) exemption
is not broken and does not need to be fixed. This is
particularly true in light of the relaxation over Rule 144.
As written, the new exemption would be a perilously easy
way for affiliates to flip securities either on their own or on
the issuer's behalf, providing only that separate compensation
for that service is not received. In addition, first tier and
subsequent purchasers would assume no real holding risk and
could be expected to evaluate their purchases less carefully.
There are other problems with the bill, particularly its
failure to propose the types of protection associated with
private placements under Rule 506 and/or the existing resale
rule of Rule 144A.
The latter is especially startling since Rule 144A allows
resales only to qualified institutional buyers, generally
institutions with portfolios of $100 million or more with
issuer-sponsored disclosure.
Moving to the compensatory benefit, or Rule 701 bill, for
reasons amplified in my written testimony, doubling the limit
before disclosure to prospective employee investors is
triggered can't be justified simply by talking about inflation.
Things have changed since 1999 in addition to the value of a
dollar. We now have an amendment to Section 12G of the 1934 Act
that says purchasers under 701 don't count for triggering
registration requirements. The proposal then would allow large
issuers, year after year, to place $10 million worth of
securities with employees who would never receive the benefit
of disclosure under either Act.
Finally, I will close with a comment on the XBRL bill,
stating my conviction that it may well have the effect of
reducing access to capital and provide very little savings in
regulatory burden, all while lagging behind a number of other
countries.
Thank you once again for permitting me to speak today.
[The prepared statement of Professor Gabaldon can be found
on page 47 of the appendix.]
Chairman Garrett. Thank you, Professor.
Ms. Hughes, you are recognized for 5 minutes.
STATEMENT OF GAYLE G. HUGHES, PARTNER & FOUNDER, MERION
INVESTMENT PARTNERS, ON BEHALF OF THE SMALL BUSINESS INVESTOR
ALLIANCE (SBIA)
Ms. Hughes. Good afternoon, Chairman Garrett, Ranking
Member Maloney, and members of the subcommittee. My name is
Gayle Hughes, and I am a founder and partner of Merion
Investment Partners, a family of private equity funds licensed
by the Small Business Administration as small business
investment companies (SBICs). Merion was founded in 2003, is
based just outside Philadelphia, and is involved in providing
subordinated debt and equity to small businesses that have
significant growth potential. Merion advises two SBIC funds.
I am here today representing the Small Business Investor
Alliance (SBIA), which is a trade association of lower middle
market private equity funds. SBIA members provide vital capital
to small businesses across the country.
Over my 30-year career in the financial industry, I have
worked with companies from small entrepreneurial firms to
members of the Fortune 500, and found working with small
businesses most rewarding. For the last 20 years my partners
and I have focused on investing in and managing small
businesses. We work closely with management teams to help them
achieve their growth objectives.
The core of our strategy is to invest in small firms and
provide them with the financial wherewithal and management
expertise to realize their growth objectives. Merion's first
SBIC license was approved in August 2003. We sought a second
license, which was approved in January 2010. And we plan to
seek a third license later this year.
Since receiving our first SBIC license, we have invested
nearly $190 million in 35 small businesses, and have been
examined 14 times by Federal examiners. A large percentage of
our investments are made directly with business owners, with
Merion as the only institutional capital.
Despite our small size, I am pleased to tell you that of
the 23 different States represented by members of the
committee, Merion has made investments that are either
headquartered in or have significant operations in 78 percent
of those States. For example, we provided financing to fund a
growth opportunity for an IT services company in northern New
Jersey that tripled its revenues, expanded its footprint, and
nearly doubled its employees.
In a second example, Merion provided the capital for a
central Virginia firm that grew revenues at a 23 percent
compounded annual growth rate and its employment base grew by
67 percent. We helped other businesses grow from small business
to global business with hundreds of employees.
As an SBIC, we are highly regulated and regularly examined
by a regime designed for private equity and small businesses.
The cost and time associated with duplicative regulatory
burdens would materially reduce our ability to focus on finding
and growing small businesses. Dodd-Frank recognized this issue
and attempted to address it in the statute, but we know now
that a few technical corrections are needed to provide relief.
The SBIC Advisors Relief Act is a common-sense, bipartisan,
and effective clarification of the investment advisor
regulation that will enhance the ability of small business
investors to concentrate on making investments rather than
filling out forms. It concentrates on three targeted changes to
current law.
First, the legislation prevents venture funds from losing
their exemption from SEC registration when entering the SBIC
program. Having two exemptions should not be worse than having
one.
Second, the legislation helps advisors to both private
equity funds and SBICs by removing the SBIC capital, which is
already regulated by the SBA from the calculation for SEC
registration. This would help my fund and many other funds that
regularly face this problem of having more than one type of
small business fund.
Third, the legislation prevents the duplicative
registration of SBICs by Federal and State securities
regulators and returns SBICs to their original, sole Federal
regulator. Smaller funds have a lower threshold for regulatory
pain, and one regulator is enough. Our SBIC funds exceed the
registration trigger, and our fund in wind-down will eventually
cease to be an SBIC, triggering SEC registration and all the
associated costs and burdens.
This does not make sense and does not add investor
protections. It would create very significant and ongoing costs
for all of our small business funds. My written testimony
explains in more detail the elements of this legislation and
why the solutions and clarifications it makes to the Dodd-Frank
Act are necessary to ensure that smaller funds will be able to
continue focusing on small business investing rather than
filling out regulatory paperwork.
I would like to thank the subcommittee for examining this
bill today, and I especially want to thank the sponsors of the
legislation. In addition to H.R. 432, the SBIA generally
supports other legislation that is the subject of today's
hearing. These include H.R. 686, H.R. 1525 and H.R. 1659. These
bills will contribute to improving access to capital and
reducing associated regulatory burdens in the capital raising
and deal-sourcing process.
Thank you very much for allowing me to present this
testimony.
[The prepared statement of Ms. Hughes can be found on page
62 of the appendix.]
Chairman Garrett. Thank you for your testimony.
Next, Mr. Kovacs, welcome to Washington, and welcome to the
panel.
Mr. Kovacs. Thank you.
Chairman Garrett. You are recognized for 5 minutes.
STATEMENT OF SHANE KOVACS, EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, PTC THERAPEUTICS, INC., ON BEHALF OF THE
BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO)
Mr. Kovacs. Good afternoon, Chairman Garrett, Ranking
Member Maloney, and members of the subcommittee. My name is
Shane Kovacs, and I am the CFO of PTC Therapeutics, a biotech
company based in South Plainfield, New Jersey. We are a growing
company with 250 employees to date, up from about 125 at the
time of our initial public offering less than 2 years ago. And
we plan to grow to 400 employees by the end of this year.
PTC is developing a portfolio of treatments for ultra-rare
genetic disorders that mostly impact children, and capital
formation is a key to that lifesaving research and development.
PTC has spent approximately $800 million in R&D over the
past 17 years, and we are just now on the precipice of our
first FDA-approved product. Our story is common in the biotech
industry. BIO represents over 1,100 companies, and the vast
majority of them are pre-revenue small businesses.
Because biotech R&D is typically supported only by
investment capital, not product revenue, our investors
emphasize the importance of resource efficiency. Every dollar
spent on regulatory burdens is a dollar that we are not
spending in the lab or in the clinic. Yet, a one-size-fits-all
regulatory regime often prevails, bringing with it damaging
diversion of capital from science to compliance.
In my experience, there are three financial metrics that
biotech investors focus on and understand. It is pretty simple:
one, how much cash does the company have on its balance sheet;
two, what is the company's cash burn rate; and three, how much
time is there until that company needs to go to the markets to
raise more capital. These high-level metrics are not the focus
of the existing regulatory regime, which includes high-cost
regulatory standards like XBRL and SOX 404(b), yet we must
spend time and dollars preparing the mandated reports instead
of talking to our investors about a cash position and key non-
financial metrics like our science and our regulatory pathway.
The Jobs Act has supported over 140 biotech IPOs because it
strikes a nice balance between capital formation incentives and
appropriately tailored regulations.
And I am encouraged by the fact that the subcommittee is
considering legislation today that will build on the Jobs Act's
successes. The Jobs Act was a boon to PTC's IPO, and we have
created 125 new jobs since our offering, with more on the way.
Clearly, smart policymaking can support job growth and
innovative R&D.
And particularly, I strongly support Congressman Hurt's
Small Company Disclosure Simplification Act. We spend nearly
$50,000 annually complying with XBRL, all to pay for reporting
that doesn't include key information on our company which is
important for investors to evaluate an opportunity in PTC. For
PTC and other small biotechs, an informed investor is a good
one. The Jobs Act, including testing-the-waters meetings, was
critical to our successful IPO because we could share more
information with investors prior to our offering.
But XBRL relies on standardized financial metrics better
suited to comparing financials on much larger companies. So, it
does not paint a true picture of the opportunity of investing
in small biotech companies.
I worked as an investment banker with Credit Suisse for 12
years on Wall Street before joining PTC, and I can say with
confidence that investors need to understand the scientific
foundation of biotech, the clinical progress, and the
regulatory pathway before really trying to evaluate metrics
enabled by XBRL.
Congressman Hurt's bill gives the SEC a chance to improve
the compliance mechanism to enhance transparency and decrease
costs, and removes the cost burden from small companies while
the SEC does its work. I want to thank him for introducing this
important legislation, and I urge the subcommittee to support
it.
I also encourage the subcommittee to take a discerning look
at any and all regulations governing public company
disclosures, with the goal of achieving a common-sense, right-
sized regulatory environment, a spirit embodied by Chairman
Garrett's Reg S-K bill.
This spirit also applies to Congresswoman Wagner's proposed
reforms to Form S-1, which I believe represent an important
change for SRCs, and I believe can go further by extending
forwarding corporation by reference to EGCs. Emerging biotechs
like PTC highly value capital formation and capital efficiency,
and I strongly support your efforts to enhance the capital
formation ecosystem by reducing regulatory burdens. Enhancing
the secondary market for Reg-A offerings, reforming Rule 701,
and enhancing the IPO on-ramp are all important steps toward a
common-sense disclosure regime.
Thank you for considering legislation to support the search
of next-generation medical advances, and I look forward to
answering any questions you may have.
[The prepared statement of Mr. Kovacs can be found on page
83 of the appendix.]
Chairman Garrett. And, again, I thank you.
And finally, last but not least, Mr. Quaadman, once again,
welcome back, and you are recognized for 5 minutes.
STATEMENT OF THOMAS QUAADMAN, VICE PRESIDENT, CENTER FOR
CAPITAL MARKETS COMPETITIVENESS, U.S. CHAMBER OF COMMERCE
Mr. Quaadman. Thank you, Chairman Garrett, Ranking Member
Maloney, and members of the subcommittee. Thank you again for
the opportunity to testify as well and, more importantly, for
this committee's bipartisan leadership on issues of importance
to capital formation and business creation.
Businesses need the ability and the tools to expand from
small to large, and they must be able to engage in the
reasonable risk-taking needed to stimulate economic growth and
job creation. The Jobs Act was an important piece of
legislation to help further those goals.
Since the turn of the century, we have had 14 years of
consecutive declines in public companies in the United States.
But since we have had the partial implementation of the Jobs
Act, we have actually seen a dramatic uptick in IPO activity,
and last year, we actually saw the number of public companies
in the United States rise for the first time.
However, when Michael Dell says that he will never operate
a public company again, we are still in perilous territory.
Indeed, the long-term trends are not good. We are still seeing
a large outflow of public companies as well as a series of
reports that have been released recently, including the Census
Bureau, that business formation in the United States is at its
lowest point since numbers were kept, since 1977, and that we
have had a steady decline in the number of overall businesses
in the United States since 2008.
So the package of legislation that we are discussing here
is important to build on that foundation of the Jobs Act as
well as to overcome the reluctance of the SEC to modernize its
rules. One doesn't have to look any further than the Reg A
example from the Jobs Act to understand how tortuous that can
be.
So with the Swap Data Repository and Clearinghouse
Indemnification Correction Act, this is an important
clarification needed to bridge international differences in law
to facilitate better cross-border coordination amongst
regulators.
The Holding Company Registration Threshold Equalization Act
and the SBIC Advisers Relief Act both codified congressional
intent of the Jobs Act as well as the Dodd-Frank Act.
The Small Business Mergers, Acquisitions, Sales, and
Brokerage Simplification Act is an important bill because we
have an atmosphere where businesses are increasingly looking to
be acquired. Younger business owners are no longer willing to
go down the path of the public company, and for older business
owners, where the business is their largest asset, that is what
they need to sell in order to retire.
So we need to have certainty to allow that activity to
flourish. And unfortunately, while the SEC no-action letter
does provide relief, we have recently seen, in an unrelated
area, where the SEC revoked a no-action letter that overturned
a decades-long process on a Friday night without any SEC
Commissioners being consulted.
With the improving access to capital for emerging growth
companies, this is a needed change to help emerging growth
companies get financing-simplified disclosures that are
material to investors. The Disclosure Modernization and
Simplification Act, the Small Company Disclosure Simplification
Act, and the Small Company Simple Registration Act, taken
together, these bills are an important step forward to change
the 1930s paper-based disclosure model and create one for 21st
Century markets using tools that investors use to acquire
information.
I also want to thank Chair White and Corporation Finance
Director Keith Higgins for their leadership in trying to
modernize disclosures. But these bills are important to help
save those efforts from inertia.
The Encouraging Employee Ownership Act is an important
change to make the Jobs Act effective. This will change the
threshold, based on inflation, which hasn't been changed since
1988. And these tools are used for employee retention and
reward and not for capital-raising.
The RAISE Act is an important piece of legislation as well
because courts have allowed for the sales of certain
securities. The RAISE Act will help set parameters around an
emerging market, ensure liquidity and, most importantly,
provide for investor protection.
The treatment of affiliates of non-financial firms that use
a central Treasury unit is a narrowly tailored bill. It
codifies congressional intent of the Dodd-Frank Act, and allows
a non-financial company to use derivatives without clearing, to
mitigate commercial risk, and lock in prices.
The bill to amend the Securities and Exchange Act of 1934
to require the SEC to refund or credit excessive Section 31
fees is in keeping with the bipartisan spirit of the Investors
Capital Market Fee Relief Act. This actually creates a
mechanism to pass back to investors overcharges.
So, again, Mr. Chairman, these bills are important to build
upon the foundation of the Jobs Act, and I am happy to answer
any questions you may have.
[The prepared statement of Mr. Quaadman can be found on
page 92 of the appendix.]
Chairman Garrett. Thanks. I appreciate your testimony, and
the testimony of the entire panel. So let us look at maybe the
most fundamental and most important piece of legislation that
is up here. Oh, it happens to be right in front of me--H.R.
1525, the Garrett bill. If you look at the--I will just throw
this out to the professor and then move on to some other bills.
If you look at what has happened in the history, here,
Professor, it was back at the end of 2013 when the SEC did
their review and said that maybe more review wasn't necessary.
But I think Chair White and Commissioner Gallagher said, hey,
maybe so, but there are certain areas that--they didn't use the
term, ``low-hanging fruit'' or what you say that can be done
for simplification in this area. Can you spend just 10 seconds,
so to speak, on where those areas are that we could have
appropriate scaling that this would provide for in the
legislation?
Ms. Gabaldon. I am familiar with the concept of low-hanging
fruit. And to my mind, I would like someone else to identify it
for me. Because it isn't obvious to me, looking at Regulation
S-K, exactly what it is that the SEC could be expected to act
on quickly. I do know that--and we all know that--they have an
ongoing initiative. This is the fifth, I believe, either task
force or initiative that has been under way in the last 2
decades.
Chairman Garrett. So there is nothing that should be done
now, even after all that time?
Ms. Gabaldon. I certainly would not say that there is
nothing to be done.
Chairman Garrett. Okay.
Ms. Gabaldon. And I do think that, as a matter of fact, the
scaling that we see coming out of the Regulation A-Plus process
may very well lead the way. I am skeptical of the idea that it
is of any kind of benefit to put the SEC on a tight timeframe.
We saw how that worked out as far as Dodd-Frank legislation was
concerned.
Chairman Garrett. Yes, right.
Ms. Gabaldon. And I don't see any particular need to
replicate that experiment, given that they do seem to be
working on it and do seem to be making progress with a template
of the Reg A-Plus.
Chairman Garrett. Let us ask the other people who are in
the field. I will jump down to Mr. Quaadman. Can we, on this
and on a number of other issues that are here before us, simply
wait on the SEC, on where they say there is additional study
that needs to be done?
And also, on the second area that you raise, which is the
area of saying there are guidance letters that they do, which
they can repeal back? Is there a need for us to intercede in
these areas, or should we just allow the SEC to go its course,
however long that course may be?
Mr. Quaadman. I think it is important that Congress acts in
order to push the SEC forward. All of the issues that were
encompassed in the Jobs Act, the SEC could have done on its own
and didn't do it. And even where the Congress mandated that the
SEC do it, it took them a long time.
I do want to take issue with something the professor said.
We issued a report last summer where we identified 15
regulations that are low-hanging fruit. So the issue here is
that the SEC is now talking about the potential of a concept
release, but if you take a look at, as an example, the SEC
issued a concept release to update proxy voting systems in 2010
and hasn't done anything.
Chairman Garrett. Let me just stop you there, sorry to
interrupt, but that just brings me to another point. The SEC
has various small business advisories on these areas, right?
And I guess they meet, and year after year they come up with
these recommendations, right? What is the track record on them
actually coming up with ideas, and then following suit with
them and implementing them?
Mr. Quaadman. That group does come up with a series of
recommendations. Again, those recommendations became the core
of the Jobs Act. And the SEC does not follow through--
Chairman Garrett. We did the Jobs Act.
Mr. Quaadman. Correct.
Chairman Garrett. Right, so in other words--
Mr. Quaadman. That is correct.
Chairman Garrett. --the SEC didn't take the initiative.
Mr. Quaadman. No, Congress acted on the recommendations of
that group, and not the SEC.
Chairman Garrett. Right. Thanks.
Mr. Kovacs, you mentioned a couple of bills, mine and also
Mrs. Wagner's. She is here, and she will probably bring it up
as well. But it is a great bill, so let us give credit where
credit is due. What is the significance and the importance of
that? And you also talked about the EGCs, as far as the reform
in those areas. Let me just give you some time to flesh that
out a little bit.
Mr. Kovacs. I think anything that will reduce the burden,
keep adequate disclosure but reduce the burden on companies,
can be helpful.
Chairman Garrett. Okay, I appreciate that.
Mr. Deas, can you walk me through, in the brief time that
we have here, as far as the netting arrangement that you were
referring to, I guess about two-thirds of the way through your
testimony, with regard to the net derivative units as it
actually happens for a company?
Mr. Deas. Yes, Mr. Chairman. The concept of a centralized
Treasury unit is to net exposures within a corporate group and
then trade one smaller amount of derivative transaction with a
bank. And unfortunately, the original language in Title VII
provided for the central Treasury unit to work only if it were
an agent--acting on behalf of the other companies, and it
didn't include, really, the more common way in which it
operates, which is netting. And so--
Chairman Garrett. Was there a risk there if you don't treat
it that way?
Mr. Deas. There is actually a risk-reducing activity. And,
in fact, the risk is higher when it acts as an agent. Because
the volume of derivatives that the group is doing with banks is
great. And, of course, it is everyone's aim to accomplish
netting.
Chairman Garrett. Right.
Mr. Deas. That was a major goal of Dodd-Frank. So it was a
drafting glitch, really, that everyone agreed--in fact, there
were colloquies entered in July of 2010 saying that, in
general, there would be these kinds of technical corrections
fixed promptly. And this is one which has taken 4\1/2\ years.
Chairman Garrett. Yes. So, I will close on that. My time is
up. But I guess that is the overall message that I think these
bills got when they received near unanimity in the past is that
this is not what we are talking--we are not talking about
deregulation here, we are just simply talking about re-
regulation or smart regulation to--fixing some of those
problems that were created in a 2,000-page bill that moved very
quickly.
So with that, I now recognize the ranking member of the
full Financial Services Committee, Ms. Waters, for 5 minutes.
Ms. Waters. Thank you very much. I would like to start
with, I think it is Mr. Quaadman. When an entrepreneur wants to
finance an idea, and she is not independently wealthy, she must
approach an outside investor, possibly a friend, an angel
investor, a venture capitalist, or another institution, right?
Now, how does this entrepreneur convince more sophisticated
investors that her project, her idea, is worth financing?
Later, as her business takes off, it seems she will need to
attract a deeper pool of investors, many of whom may not have
the benefit of having known about the project from the
beginning.
How does she convince these investors to commit their
funds? She uses various information about her company,
including financial information, right? It seems that it is in
the best interest of this budding entrepreneur to provide her
investors with as much information as possible. If they do not
receive this information, would you expect them to impose a
premium to cover the uncertainty about the project? This is an
additional cost to the company, correct? Have you studied this
cost? So could you just tell me yes or no?
Mr. Quaadman. Let me answer it in two parts, Ranking Member
Waters. Number one is, if you are talking about a private
company, we were part of a blue ribbon panel that looked at
financial reporting for private companies. And when investors
to private companies said financial reports for private
companies was not as important as what the idea was that the
company was trying to sell, that is what angel investors were
worried about. And GAAP accounting doesn't fit with private
company accounting. Cash flow or cash burn is more important.
So public company disclosures don't fit there.
In terms of public company disclosures, I think a study
that sort of crystallizes it best is a study by Professor
Larcker out of Stanford University. He just released a study of
large institutional investors who have trillions of dollars in
the market. According to the study, 55 percent of them said the
current disclosure regime is too cluttered, and 48 percent said
they don't have the time to go through those disclosures. So
this is a matter of, let us figure out how to make it easier to
have investors access the information, and then also let them
sort through the information that they find most material.
Because materiality, for both private companies where
disclosure is needed, and public companies where we have
decided that large amounts of disclosure is important, that is
the key threshold for how information should be disclosed.
Ms. Waters. Professor Gabaldon, do you have any thoughts
about the importance of information to an investor's funding
decision? In your opinion, what happens when investors have
less information, less confidence in the information they have,
or find it harder to compare the information to other
companies? Who bears the cost of invester uncertainty? How do
some of the bills being considered today affect investor
confidence in American issuers, especially small businesses?
Ms. Gabaldon. It seems clear to me that to the extent
several of the bills head in the direction of reducing
disclosure to investors, that does come at a cost to the
entities that are trying to raise capital.
Reduced disclosure increases investor risk. Without a
doubt, the investor will be interested in seeking a higher
return. And therefore, to the extent disclosure is reduced or
there is less time made available for contemplation of what is
disclosed, or to the extent that what is disclosed is not
comparable to what is being disclosed by other entities, it may
reduce regulatory burden. But in my view, it does nothing to
assist capital formation.
Ms. Waters. Thank you very much.
I yield back the balance of my time.
Chairman Garrett. The gentlelady yields back.
I now recognize the vice chairman of the subcommittee, Mr.
Hurt.
Mr. Hurt. Thank you, Mr. Chairman. I want to thank each of
the panelists for appearing today. And I want to start with
Professor Gabaldon. First of all, just to set the stage for the
piece of legislation that we have introduced now for the second
Congress in a row, would you admit that what we are talking
about here is not whether or not the information is disclosed
through financial statements? Wouldn't you agree that the issue
here with XBRL is the format in which it is reported? Would you
agree with that?
Ms. Gabaldon. Yes.
Mr. Hurt. Would you also agree that the format in which it
is presented has been criticized for perhaps distorting the
information and really affecting the quality of the
information, as I think Mr. Kovacs testified or made clear in
his testimony. Would you agree with that?
Ms. Gabaldon. I agree that--I heard what Mr. Kovacs said,
but I would also point out that regulators in the United
Kingdom, in Japan, in China, and in Israel have all come to the
conclusion that XBRL reporting is appropriate and not
distortive.
Mr. Hurt. And that is right, and that is from the
regulators' standpoint, right? That is what you just said.
Ms. Gabaldon. Correct.
Mr. Hurt. That is why I was curious. In looking at your
testimony, you say that you believe that this bill, if passed,
would put investors and analysts at a disadvantage. I guess my
question is, who is in the best position to know whether this
information is useful and puts them at an advantage? The
regulators or the investors themselves?
Ms. Gabaldon. I believe that the regulators are
experienced. I believe that the regulators also need to rely
on, or are helped in their analysis, by the existence of XBRL.
And that helps them make better judgments about the regulations
that they devise, which is ultimately--
Mr. Hurt. But wouldn't you agree that certain--certainly,
the regulators have experience, and many of them have been in
the investing world and have been analysts. But I guess my
question is, at the end of the day, who is in the best position
to know? And I guess the reason I am asking that question--and
you didn't really answer it--is because if you look at a 2012
study that Columbia published, it says that only 10 percent of
investors use this format, or found it in any way, shape or
form useful. Doesn't that tell you something?
Ms. Gabaldon. It tells me that there is a learning curve,
and that the more XBRL is utilized, the more useful it will
probably become.
Mr. Hurt. What about the cost-benefit part of this? Don't
you think it is appropriate for the regulators to be looking at
the cost of things? And that would be--I think Mr. Kovacs
testified that it costs his company $50,000 to pay an XBRL
contractor to do this work. And he also testified that
investors aren't interested in it, analysts aren't interested
in it. Doesn't that mean something to you?
Ms. Gabaldon. What it means to me is that I suspect that
his company may be an unfortunate outlier, from what I have
read.
Mr. Hurt. Well, 90 percent of investors and analysts didn't
think it was useful in the 2012 study. I wouldn't call that an
outlier. But anyway, thank you for your answers.
Mr. Kovacs, I just wonder if you could talk a little bit
more about the idea that investors and analysts somehow would
be put at a disadvantage. And what I thought was most
remarkable about what Professor Gabaldon said was that emerging
growth companies would be put at a disadvantage by this bill.
And that this would actually restrict capital in a pretty
sophisticated marketplace. I was wondering if you could comment
on that?
Mr. Kovacs. It is interesting--in preparation for today's
meeting, I actually reached out to a number of the Wall Street
analysts who cover our company and cover the industry, and a
couple of the large institutional investors, and asked them,
``Do you know what XBRL is? And if so, do you think it is
important to your assessment in investing, at least, in
biotech?'' And the response I got was that they didn't even
know what XBRL was, and, from at least investing in small
biotech companies, the critical information in evaluating an
investment in us or one of our peers is really to understand
our data, our science, and what is going on in terms of our
future as opposed to looking at the historical financial
detail.
By the way, XBRL is really just a way of quickly getting
the financial information to compare costs to other companies.
Our 10Ks and 10Qs kind of lay out financials that are pretty
straightforward to be able to go on EDGAR and pull that
information and get it pretty quickly.
Mr. Hurt. Right.
Mr. Kovacs. I don't think people are using XBRL.
Mr. Hurt. Thank you.
I yield back.
Chairman Garrett. Thank you. Very good.
The gentlelady from New York is recognized.
Mrs. Maloney. The analysts and investors that I have talked
to say the more information they get in an easy, understandable
form, the better. All of us can find information if we go on
the Internet and spend hours looking for it and researching it.
But if it is in a format that is usable, then it is much, much
better to use. Now, I believe in testimony, Professor
Gabaldon--by the way, thank you all for being here, and I thank
the chairman and my colleagues for bringing these bills
forward--you testified that over time the cost will continue to
go down. And there was one study from the CPAs, the American
Institute of CPAs, that estimated the median cost of doing XBRL
for a company would be roughly $8,000. I don't see that as
onerous. And I am concerned. I am all for small companies, but
the more information you have easily attainable, the more
investors will be likely to invest in it.
And I would like to ask Professor Gabaldon, do you think
people are more likely to invest in a company that has data
they understand or in a dark pool where they don't understand
it and it is not out there?
Ms. Gabaldon. I most definitely think they are more willing
to invest in companies about which there is easily accessible
information.
Mrs. Maloney. I agree. And this debate reminds me somewhat
of our debate on Sarbanes-Oxley, where everyone was opposed to
it, industry was opposed to it. It had gotten to the point--
when major companies crashed overnight, losing their pensions,
going bankrupt, dragging this country down--that there wasn't
faith in the system. So we brought all the dark money back onto
the balance sheets. The cost of complying keeps going down
every year, and now no one is complaining about it.
And hopefully, we won't have an example of a company that
crashes with a grade A rating overnight, losing jobs and
disrupting the economy.
Now I would like to ask Professor Gabaldon--I would like to
ask you, really, about the XBRL. I think this is an important
debate. In your testimony you noted that H.R. 1965, which
exempts a large number of public companies from the requirement
to use XBRL, would be a step backwards. Why do you see it as a
step backwards? Could you elaborate a little bit?
Ms. Gabaldon. That would basically permit 60 percent of the
publicly traded companies in America not to use this tool
which, I believe, is an important research tool for investors
and certainly also useful for the SEC as it evaluates filers
and also goes through the exercise of considering its own
regulations.
In addition to the figure that you mentioned earlier, it
appears that of small reporting companies, 69 percent incur
annual costs of $10,000 or less annually. In the U.K., where
they have some experience with this, some filings have come
down to approximately 100 pounds per filing, or--
Mrs. Maloney. Now, I have another question. This bill
before us is intended to help small companies. But in my
opinion, I believe that it hurts small companies. Because if
small companies aren't included in the data set that analysts
and investors use to analyze industries and make investments,
then they are unlikely to attract much attention from the
markets.
Investing in any--I think most people, investors large and
small, want as much information as possible. So my question is,
in addition to putting investors, analysts, regulators, and
researchers at a disadvantage, do you think the bill would even
put small companies at a disadvantage? And again, back to the
professor.
Ms. Gabaldon. I do, and I think that could happen on an
individual basis as well as on a composite basis. If the United
States has a reputation for permitting 60 percent of its
companies not to provide this information, whereas other
countries do provide this information in a readily accessible
form, the number of overseas investors whom might be interested
in looking at American investment opportunities is going to
decline.
Mrs. Maloney. Okay. I have always said that markets run
more on trust than on capital. And one of the things that our
economies had is more trust than other economies. People want
to invest in America because they trust our regulation, they
trust our markets, they trust our workers. I think we have a
responsibility to keep that standard. And I feel that excluding
60 percent of the companies from disclosure is not the right
way to go.
My time has expired, so thank you very much.
Chairman Garrett. The gentlelady's time has expired.
Just moving down the row, the gentleman from Texas, Mr.
Neugebauer, is recognized for 5 minutes.
Mr. Neugebauer. Thank you, Chairman Garrett, and thank you
for calling this important hearing. I look forward to reviewing
these legislative proposals to enhance capital formation for
small and emerging growth companies.
I think nearly everyone can agree that these unnecessary
regulations are a burden both to individuals and the economy.
But they are even a greater burden for our smaller businesses
and startups. I was extremely pleased that in my TRIA
legislation we were able to include some relief for end-users
in using derivatives to hedge their risks. And we are examining
some additional proposals in that same vein today.
Mr. Deas, one of the questions I have is, how much capital
would end-users have to set aside for inter-affiliate swap
transactions to comply with the requirements imposed by Title
VII of the Dodd-Frank Act?
Mr. Deas. Congressman, we don't have that number
specifically for central Treasury units. But in a survey that
we have done, the amount of capital if the end-user exemption
from clearing and margining is not fully implemented, could be
$260 million for the average non-financial member of the
business roundtable.
Mr. Neugebauer. That is a big number.
Mr. Deas. Yes, sir.
Mr. Neugebauer. What kind of problems did this Title VII
create for the inter-affiliate derivative trading? How does
that impact the trading?
Mr. Deas. Yes, sir. There was an explicit exemption in the
bill as originally passed for centralized Treasury units, but
only those that act as an agent. We believe there is consensus
that it was a drafting error, that a more common way in which
we all operate these units as netting out these exposures and
thereby producing that risk reduction of a lower volume of
derivatives was omitted. And the proposed fix in H.R. 1317
would remedy that.
Mr. Neugebauer. So the regulators really haven't been able
to resolve that? It is going to take a legislative fix?
Mr. Deas. Yes, sir. The CFTC issued a no-action letter in
2013, and amended it last year. But the fundamental difference
is that for companies that operate as Dodd-Frank insists, and
make boards of directors declare every year that they are in
strict compliance with the Act, that no-action letter doesn't
get to that fundamental issue. It merely says that the staff
won't take an enforcement action. It skirts the issue of
whether it is actually in compliance with the law or not. And
by a plain reading, it would not be in compliance.
Mr. Neugebauer. Mr. Quaadman, in the subcommittee that I
Chair, the Financial Institutions Subcommittee, we have seen
consolidation in our community banking area by almost 1,000; we
have lost 1,000 community banks. And the primary reason, not
just according to community bankers but according to some
studies, has been the fact that this regulatory environment
makes it very difficult for smaller institutions to be in
compliance and to have a business model that is economic.
One of the things that I struggle with is that when we are
trying to talk about providing capital formation for smaller
companies and startups is people assume that everybody who is
starting up a company or who operates a small business is a
crook and is trying to take advantage of potential investors
out here.
And so what we do is, we make the environment so burdensome
out there that it is difficult to be in compliance and, more
importantly, there is the cost of trying to navigate through
that. And so at what point in time do we say, we have to at
some point in time have some rules that make sense and some
disclosure and some transparency, but yet allows these smaller
startups to find it economic to access the capital market?
Because otherwise, you are just going to see more and more and
more private activity and not much public activity.
Mr. Quaadman. Chairman Neugebauer, I think you really hit
it on the head, and that is why I raised that Census Bureau
report earlier. Because ultimately what is going to happen is,
the bigger companies are going to be able to spend the money
and engineer their way out of it. What we are seeing with these
reports is, we are seeing that it is on the lower end. With the
smaller businesses, they are no longer being created.
And we all acknowledge that the employee participation
rates are at the lowest they have ever been. We have seen
sluggish job creation. And the reason for that is, if you take
a look at SBA studies and the like, coming out of a recession,
90 percent of job creation happens in firms with 100 employees
or less. That is exactly where we are not seeing the job
creation. And so we need to have rules that are going to help
build from the bottom up, because that is what we have always
done.
Mr. McHenry [presiding]. The gentleman's time has expired.
And for Members' knowledge, there are 8\1/2\ minutes left
on sustaining the ruling of the Chair, a procedural motion on
the House Floor. It is the Chair's intention to keep the
hearing going, and people can depart and return in order to ask
questions.
We will now recognize Mr. Hinojosa for 5 minutes.
Mr. Hinojosa. Okay, thank you. Thank you, Mr. Chairman. I
would also like to thank the distinguished panel members for
sharing their insights on this issue. When it comes to our
economy and capital markets, the United States is the envy of
the world. We are so not only because our economy values and
rewards entrepreneurship and innovation, but because our
markets are transparent, safe, and liquid. My first question is
going to be for Mr. Shane Kovacs and for Mr. Tom Quaadman.
H.R. 1675 revises the SEC's Rule 701 by both raising and
then indexing for inflation the permissible aggregate sales
threshold of securities sold without certain disclosures to
employees and to other parties as part of their compensation
from $5 million to $10 million. Does raising the threshold to
$10 million increase the risk that employees will not receive
vital information about the company employees which they need
to make informed decisions? Mr. Kovacs?
Mr. Kovacs. For companies like PTC, biotech emerging growth
companies, we are in a position where we need to attract
talent. We need to attract talent from other companies that may
be larger and better capitalized, and able to compensate with
cash more than maybe we could afford as a small, growing
company. And therefore, we have to incentivize employees with
stock and options in the company which has growth potential.
And certainly as a private company or public companies we
need to do that. And for a private company, I can imagine that
raising the threshold from $5 million to $10 million, in terms
of the value that you are going to give to employees, without
having to put together some large disclosure statement on the
company and all those incremental costs, I don't foresee that
raising that bar from $5 million to $10 million would really
have any real impact as to putting the employees at risk. In
fact, I would almost think the employees would applaud that
because it would enable the companies to give more equity in
the company to them in the form of compensation.
Mr. Hinojosa. Okay.
Mr. Quaadman?
Mr. Quaadman. Yes, thank you, Mr. Hinojosa. Number one, the
Jobs Act raised the number of employees who would be eligible
for this, but we didn't change the threshold dollar level.
Number two, with private companies--proprietary information--we
are trying to look at this through the lens of a public
company. These are private companies. By allowing proprietary
information to get out into the public, which this could very
well happen, that will destroy a company. That will destroy
their ability to grow. So these are employees who are
incentivized to succeed. It will allow firms to get the talent
that they need.
And, I am just reminded that there is a gentleman by the
name of Eddie Antar, who was known as ``Crazy Eddie'' in New
York, who did everything possible to destroy his company, which
he did. And he is now a consultant to go out there and tell
regulators and people what you can do. Rule 701 is never
anything that he has ever raised.
Mr. Hinojosa. Thank you.
My next question is for Tom Deas. H.R. 1317 would exempt
certain Treasury affiliates from clearing and margin rules. Are
you concerned that said exemption would undermine transparency
in the derivatives market by allowing some Wall Street banks to
avoid clearing requirements for swaps if they are affiliated
with a non-financial end-user?
Mr. Deas. Congressman, I don't believe that the bill
provides for that. From the inception of Dodd-Frank, it has
been permitted for an operating subsidiary of a financial
company that is engaged in commercial business activity to
avail itself of the end-user exemption.
And we are talking about a central Treasury unit that has
the risk-reducing activities of netting out these exposures
which is to the benefit of the--lowering the systemic risk in
the system. And it should be what we would all want.
And there are very extensive anti-abuse provisions in the
bill that are utilized by the regulators that would stop any
company from exceeding what is permitted under the law.
Mr. Hinojosa. Your response helps me a great deal.
I think that my time has expired, and I yield back.
Mr. McHenry. I thank the gentleman from Texas. I will now
recognize myself for 5 minutes. I just want to ask more broadly
about capital formation and secondary markets. Mr. Quaadman,
there is existing case law on the sale in secondary markets of
restricted securities, right? And some would argue that you
don't actually need to have congressional action for that to
occur, and that would be correct, right? But as it now exists,
there is friction and cost associated with that friction in the
resale of those securities. Is that correct?
Mr. Quaadman. That is correct. And because we are talking
about case law, we don't have a uniform set of standards. That
is why I think the RAISE Act which you have proposed--you allow
for the SEC to actually put in place a set of rules that will
allow for those markets to function, to allow businesses to
have liquidity. But most importantly, to actually create
investor protections. Which, if we are talking about a hodge-
podge of case law, there is a lot that can slip through the
cracks.
Mr. McHenry. So greater investor protection with clarity.
Mr. Quaadman. Correct.
Mr. McHenry. Okay. But you talked about liquidity in the
secondary markets. And so that question of liquidity, it does
provide liquidity in the secondary markets for this resale. Why
is that? First of all, is that important, and--
Mr. Quaadman. Yes, because what we are--
Mr. McHenry. --if so, why?
Mr. Quaadman. Yes, what we are seeing is as a lot of the
different regulatory initiatives are coming online--so Basel
III, Dodd-Frank, other things are coming online--we are
increasingly seeing: one, liquidity crunches; and two, a lack
of market-making activity.
Now, that gets even worse as you go down to the lower scale
of business formation because you have traditional actors--let
us say a community bank or whomever else--are being shut out of
an ability to provide assistance to startups and people who are
looking to create a business. So this type of liquidity is an
important piece because there is a market demand for it.
Mr. McHenry. Okay. Market demand--so the RAISE Act will
make it easier for private companies to raise capital?
Mr. Quaadman. Correct.
Mr. McHenry. Is that the case?
Mr. Quaadman. Yes, that is correct.
Mr. McHenry. Okay. So explain that functionality one more
time here just so it is clear on the record.
Mr. Quaadman. Sure. What we need to have is--as I said, we
have seen a tremendous drop-off in business creation. We are
seeing a large drop-off in businesses overall. And we are
seeing a lack of capital formation because of a number of
different regulatory initiatives.
What the RAISE Act does is, it builds out what the courts
have allowed in terms of these secondary markets. And it will
inject liquidity but, most importantly, investor protections
which help provide the trust and confidence that was mentioned
before that markets operate on.
Mr. McHenry. Okay, so the ability to take that initial
group of folks, for them to sell their securities, that
actually provides that clarity and broadening that market a
bit, right?
Mr. Quaadman. Yes.
Mr. McHenry. It will create better, basically,
establishment of price, right?
Mr. Quaadman. Right.
Mr. McHenry. And with codified rules, it basically--a
larger game plan, more folks can have assurances that they are
participating in something that is safe and effective and
legal?
Mr. Quaadman. Right. Because you are going to provide the
information, you are going to provide the price discovery, and
you are going to lower costs.
Mr. McHenry. So what about community banks as private
issuers?
Mr. Quaadman. Again, community banks, as I said, are being
shut out of providing help to startups. And community banks
traditionally have provided that help because they know the
businesses or they know the individuals who are trying to start
a business. This allows for another way for community banks to
provide that capital formation operation that they
traditionally have through another means.
Mr. McHenry. Okay.
So Mr. Kovacs, in your experience in the world of biotech,
is enhanced liquidity in the secondary markets important in
biotech? And if so, why?
Mr. Kovacs. Absolutely. I think that is true, at least from
my experience as a banker. Liquidity is always important in
terms of attracting capital. There is all sorts of capital out
there and it has restrictions on it. And restrictions are often
driven both by the--mainly often by the liquidity and whether
or not there is a resale market so some can get in and out of
that investment.
Mr. McHenry. So something like the RAISE Act, would that
help stimulate private avenues of financing?
Mr. Kovacs. I am less familiar with the intricacies of the
RAISE Act proposal, but I can comment on liquidity being a good
source to attract additional capital.
Mr. McHenry. Okay. I certainly appreciate it. I appreciate
all of your answers to my questions. And with that, my time has
expired.
I will now recognize Mr. Carney for 5 minutes.
Mr. Carney. Thank you, Mr. Acting Chairman, and thank you
to the panelists for coming. I want to recognize and thank my
colleagues on both sides of the aisle for working together on
these bills. These are bills that we passed in the last
Congress overwhelmingly. We are here again to consider them, to
maybe improve them, and to get your feedback.
Mr. Deas, there is an FMC operation in the State of
Delaware. We appreciate that presence there, and it is nice to
see you this morning.
As you may know, Delaware is a center of excellence for
corporate formation, corporate governance, and corporate law.
Most of that is because of the expertise and the nature of our
Delaware chancery court, where Delaware-based domiciled
companies can get their disputes litigated quickly and by
expert judges.
We spend a lot of time focusing on the issues here that we
are talking about today. Some of my friends that work in the
Division of Corporation alerted me to a problem that we were
having in this country with IPOs, which led to my cosponsoring
the IPO on-ramp bill with my friend, Mr. Fincher from
Tennessee, whom I notice is not here.
So I would like to ask a couple of questions about that. I
have been told by the folks in Corporations that IPO numbers
are way up. And at least anecdotal feedback is that the IPO on-
ramp bill was instrumental in the decisions that some of those
emerging growth companies made to go public.
Mr. Kovacs, one of the things we have heard is that for bio
companies and pharmaceutical companies, maybe the on-ramp isn't
long enough. It is 5 years, as you may know, with different
stages. Could you comment on whether that is an issue for bio
and pharmaceutical companies, and whether we ought to look at
that question?
Mr. Kovacs. Yes, I think what is interesting from the on-
ramp, 5 years is actually, I think, an interesting and good
runway. But it is some of the other limitations for emerging
growth companies, when you are successful, that reduce that on-
ramp. For instance, we have been the benefit of a strong
capital market and a lot of interest in biotech, which has
brought our stock price and our market cap above this $700
million threshold. And so now this year we will lose our
ability of that 5-year runway, then we will have to become SOX-
compliant under Section 404(b), which will incur additional
burdens and cost to our company in--north of a million dollars.
So--
Mr. Carney. So that would be helpful.
Mr. Kovacs. Yes.
Mr. Carney. And one of the things we hear, again somewhat
anecdotally, from the people that I have talked to is that the
blackout period, for want of a better term, where emerging
growth companies can keep their information confidential as
they explore the potential of going public, has been the most
significant thing. Actually, not the 404(b) audit thing, which
we thought would be the big incentive. Do you have any comments
on how that might be improved and enhanced?
Mr. Kovacs. Yes. Investing, at least in biotech where I
think there has been a huge boon in terms of the number of IPOs
as a result of the Jobs Act, is complicated. Because the
investors have to spend a lot of time going through pre-
clinical data, thinking about--talks and issues. It is a
complicated investment. And so to be on a roadshow, where you
get a 30-minute interview, effectively, with all these
investors isn't enough time to evaluate. And therefore, being
able to go and do test-the-waters meetings while you are on
file is important, as well as many companies like the idea of
being able to file confidentially because the biotech market
can swing positively and negatively pretty quickly.
And it is always sort of the tainted company if the market
went away when you are on file and say, well, you couldn't get
your deal done. So this allows companies to file and just be on
file publicly for 30 days before you launch your deal. So both
of those have been positive.
Mr. Carney. Any other panelists with comments, positive or
negative? Please?
Ms. Gabaldon. I would comment very positively with respect
to the Jobs Act and the benefits that it has bestowed. I
definitely think that there have been some huge advantages as
far as the on-ramps. And I know that a lot of companies have
been taking advantage of that, and we are seeing the results.
There are a couple of bills that affect the on-ramp and the
EGCs, and I am a little concerned, particularly about the
follow-on provision having to do with EGCs. I am not sure of
its status right now, whether it is still part of the bill or
not, but I think that specifically is quite problematic insofar
as it would allow public filing 2 days before stock is to be
issued, which seems to me to be an unworkably short period for
the public to evaluate anything.
In addition, the idea of shortening the period between
public filing and the roadshows from 21 to 15 days strikes me
as a bad idea, and unnecessary, because right now the average
is something like 40 days before the roadshow takes place. And
the justification that, oh, this will allow a company to dive
through a market window before the market goes down is, to my
mind, just a way of saying that it is a way to take money from
investors who immediately are going to experience a diminution
in value.
Mr. Carney. Thank you very much. I see my time has expired.
I yield back.
Chairman Garrett. Thank you. The gentleman yields back.
I now recognize Mr. Hultgren.
Mr. Hultgren. Thank you, Chairman Garrett. And thank you
all so much for being here.
I want to start by saying that I am grateful that the
Financial Services Committee is going to be considering a bill
I have introduced, H.R. 1675, the Encouraging Employee
Ownership Act of 2015. This bipartisan, common-sense law will
make it easier for companies in Illinois and nationwide to
offer their hardworking employees a stake in their own
businesses.
My constituents in the 14th District in Illinois have shown
me the value of employee ownership. For example, when you walk
into Scot Forge, a locally employee-owned manufacturer, you
notice their employees' energy from upper management on down to
the shop floor. They are proud of their work because it
contributes to their share in the business.
Companies like Scot Forge have an easier time hiring and
retaining talented employees, and this is true in other
industries such as the biotech field. Brian Hahn, chief
financial officer of a biotech company, GlycoMimetics,
Incorporated, testified that expanding opportunities for
employee ownership would help innovative biotechs to attract
talented workers and compensate them competitively without
incurring additional compliance burdens.
Unfortunately, some companies are not offering employee
ownership because regulations limit how much ownership they can
safely offer. SEC Rule 701 mandates various disclosures for
privately held companies that sell more than $5 million worth
of securities for employee compensation.
This information includes business-sensitive information
like financials, capital expenditures, and risk factors within
the company. Businesses that want to offer their employees more
ownership have to decide if they want to make these
confidential disclosures that would greatly damage future
innovations and put them into the wrong hands.
In 1999, an American Bar Association subcommittee expressed
concerns with these disclosures, stating in a letter that these
disclosures risked having this information come into the
possession of a company's competitors. The letter continues
that they could result in serious injury to the company. One
would be naive to think this could be avoided with a
confidentiality agreement. And this is not to mention the cost
of preparing these disclosures.
The Encouraging Employee Ownership Act (EEOA) addresses
this problem and opens up more opportunities for employees to
share in the companies they work for every day. My bill is a
simple, bipartisan fix that amends SEC Rule 701 to raise this
disclosure threshold from $5 million to $10 million and adjusts
the threshold for inflation every 5 years.
Last year's version of the bill set the threshold at $20
million, but as a bipartisan show of good faith we lowered it
to $10 million. This won't put employees at risk of fraud. The
SEC said, in their 1999 rulemaking, that there haven't been any
major allegations of abuse of Rule 701, and this hasn't changed
since.
They also noted that employees know a lot about the
businesses and they don't need as much disclosure as the
typical investor with no particular connection to the company.
What's more, companies will have to comply with all pertinent
anti-fraud and civil liability requirements. This means that
every investor will receive information that a reasonable
investor would need before making an investment decision.
So I believe the EEOA will empower all levels of a business
and help create a stronger working middle class. We should
applaud employee ownership from the shop floor to the
boardroom. I welcome your support for the Encouraging Employee
Ownership Act of 2015, and I thank our generous cosponsors,
Representatives Fitzpatrick, Stivers, Delaney, Polis, Higgins,
and Sinema.
The first question I wanted to ask was to Mr. Quaadman. I
have read and heard from several sources that companies are
worried about the required disclosures containing confidential,
business-sensitive information that could be harmful. I wonder
if you could elaborate on the danger that these disclosures
pose to private companies, especially if they were provided to
former employees and got into the hands of competitors. Are
there costs associated with these disclosures?
Mr. Quaadman. Yes, thank you, Mr. Hultgren, and thank you
for introducing this bill. It is an important step forward also
to implement the Jobs Act.
So I think with your statement, with your question, you
sort of hit it on the head, right? Because number one is, there
has been no history of abuse with Rule 701. But number two, and
more importantly, you are dealing with start-up companies that
are trying to grow and are using a proprietary model in order
to grow and effectuate the next great idea. And the problem is,
if that information leaks out, it could either hamper the
ability of that company to be successful or it could actually
destroy them.
So, again, the opponents of this bill are trying to impose
a public company disclosure model on a private startup and it
is apples and oranges. Or it is North Pole-South Pole; it is
that diametric. So, again, companies, employees are
incentivized to help the company be successful. Because if they
are, that stock is going to be worth a lot of money.
At the same time, they have a good idea of what they are
trying to do and how they are trying to get there. And, at the
same time, owners of the company are trying to make sure that
they have the talent to be successful. So this bill is a win-
win.
Mr. Hultgren. Thank you for that. I see my time has
expired.
I yield back, Mr. Chairman.
Chairman Garrett. The gentleman yields back.
I now recognize Mrs. Wagner.
Mrs. Wagner. Great. Thank you, Mr. Chairman, and thank you
all for joining us today to discuss important legislation that
will help empower small businesses to raise more funding and
which will allow them to grow and create more jobs, my
favorite, favorite topic.
Small businesses create more jobs than any other business
sector in America, and are leading the way on exciting new
products and technologies. In fact, studies have shown that
startups create an average of 3 million jobs annually. Ensuring
that small businesses are able to raise capital is absolutely
essential to getting our economy back on track while we are
still recovering from the financial crisis.
For that reason, I have introduced legislation, along with
my colleague on the other side of the aisle, Representative
Terri Sewell, H.R. 1723, the Small Company Simple Registration
Act, which would streamline how small businesses file
additional registration documents in order to continue offering
securities to willing investors. In fact, this common-sense
idea was originally proposed by the SEC's own working group on
capital formation.
Mr. Kovacs, how are small issuers harmed by not allowing
forward incorporation by reference for Form S-1 registration
statements?
Mr. Kovacs. It is interesting. The friction costs
associated with raising capital can be quite high. And any way
that you can reduce those costs yields more capital to the
companies that need it. By allowing forward incorporation on an
S-1, per se, means that you don't have to be continually--if
there is some delay in the offering, you are continually
updating those statements. You just reference your Q when you
are next filing. We do that all the time as a public company.
We reference forward aspects of our proxy when we file our K.
So this is just allowing less costs in terms of updating an S-1
if there is, for some reason, a delay or you are doing a
follow-on offering inside of a year after your initial IPO.
Mrs. Wagner. You may have answered my next question
somewhat here. But how would allowing forward incorporation by
reference for Form S-1 registration reduce and simplify
disclosure burdens for smaller issues? Obviously, you talked
about the cost factor, but there must be compliance issues and
simplification of the process, correct?
Mr. Kovacs. Yes. I mean, there are time aspects, too.
Companies that want to do another follow-on offering inside of
a year of the IPO use S-1. We did it. We went public in June of
2013, we did a follow-on offering in February of 2014. We had
to go and update the entire S-1. It required a couple of
visits, a few weeks of time and outside legal counsel and--
Mrs. Wagner. Weeks.
Mr. Kovacs. Yes, of going to get things done and updated.
Whereas if we could have referenced our K, which was going to
get filed about 2 weeks later, it would have been much simpler.
Mrs. Wagner. In your opinion, would it be appropriate to
also extend this provision to emerging growth companies?
Mr. Kovacs. Yes, I think so. We were an emerging growth
company at the time, and it certainly would have been helpful.
Mrs. Wagner. Mr. Quaadman, how else does the current SEC
registration process make it more difficult for smaller issuers
to raise capital?
Mr. Quaadman. First of all, just to answer your last
question, I also would welcome an extension to emerging growth
companies, as well.
Part of the issue is, and I think what your bill is getting
at, is that if you create a company file can use incorporation
as a way to streamline disclosures and get the information out
to investors without repetitive disclosures. So what we are
faced with here is that the explosion of disclosures,
particularly for smaller companies, isn't providing material
information to investors.
So what we need to do is to determine, and press on the SEC
to determine, what are material disclosures, how can it be
disclosed effectively? Because this will actually help
investors get the information, it will help smaller companies
communicate that information. And your bill is an important
step forward in that.
Mrs. Wagner. What are some of the other filing and
disclosure burdens that disproportionately affect small
business issuers?
Mr. Quaadman. So you start to look at things like historic
stock price, disclosures about the public reading room at the
SEC that individually sound like small things. But you start to
add them up and add them up and they are costly and they are
burdensome and there is a time opportunity cost. I was talking
to a company that we were doing some regulatory meetings with
who is also an emerging growth company. And he was talking
about the fact that he has a choice right now: he can hire two
compliance people to deal with more disclosures that are not
going to give more information to investors; or he can hire
scientists. He asks, ``Which do you think I would rather do?''
Mrs. Wagner. We hear it all the time. We hear it in every
industry, not just the financial services sector--businesses
that want to hire people to grow their business as opposed to
hiring compliance officers, lawyers, people who are going
through all of this red tape. I appreciate your indulgence, Mr.
Chairman.
My time has expired, and I thank the panel very much.
Chairman Garrett. Absolutely. Thank you. The gentlelady's
time has expired.
Mr. Ellison, welcome back, and you are recognized for 5
minutes.
Mr. Ellison. Yes, and I thank the chairman for the time.
I originally voted for H.R. 1965 last session. But after
digging into the issue of XBRL, I have come to really wonder
whether or not I cast the right vote. You don't hear Members of
Congress admit that maybe they didn't vote the right way often,
but I have to admit that I am not sure that I was right. And
the reason has to do with some research I have done which shows
that XBRL filing costs are lower than expected, according to
some writers. And so, I actually think that it is probably a
good idea to move toward a 21st Century searchable electronic
database, and probably not a good idea to move away from it.
So I am wondering. Dr. Gabaldon, in February 2015 the
investor advocate at the SEC, Rick Fleming, said H.R. 1965
would be harmful to disclosure. If we exempt more than two-
thirds of the issuers, approximately 6,000 companies, from
using XBRL-formatted reporting, do you think that this would be
harmful to firms and markets?
Ms. Gabaldon. It seems clear to me that it would. The
United States would have a reputation as being not very
technologically hospitable as far as would-be investors and
would-be analysts are concerned. And I find that very
concerning.
And I also think that in light of the fact that, frankly,
the SEC's relationship with technology thus far has been
anything but overwhelmingly impressive. EDGAR is a very
difficult tool to use. Allowing them to move forward with
something that does have some promise, that has been pioneered
successfully in other countries and appears to be very useful
and cost-effective in those countries seems to me to be the
clear way to go.
Mr. Ellison. Okay. So have you had a chance to look at this
article that I am holding in my hand? I don't know if they have
given you a copy.
Ms. Gabaldon. I believe so, yes.
Mr. Ellison. Do you have any off-the-cuff sort of
reflections on it?
Ms. Gabaldon. I think that it really--
Mr. Ellison. Just for the record, for clarity--sorry for
interrupting--it says it is AICPA-XRL.US and then it is styled:
``Research Shows XBRL Filing Costs Lower Than Expected.''
Ms. Gabaldon. Correct. And it does make it clear that 69
percent of small reporting companies experience an annual XBRL
expenditure of $10,000 or less. There is a large number who are
paying as little as $2,000 a year. To my mind, that is a very
small amount. And I mentioned earlier as well that in the U.K.,
it has gone as low as 100 pounds for some types of filings. And
I don't see any reason that couldn't be replicated here.
Mr. Ellison. Okay. Some say that the cost of compliance is
too high. That is their view. And as you just pointed out, this
article indicates the costs are going in the downward
direction. Do you think that the compliance costs are
appropriate? Do you think that they are exorbitant? Do you
think the trend is headed in the right direction?
Ms. Gabaldon. The trend is encouraging as far as it really
seems to come in under budget, so to speak, less than people
were fearing would be the costs. And they do seem to be
declining. And I do believe that the SEC gets a lot of benefit
out of being able to run the numbers easily when it can check
to see if one company is out of line.
In addition, they can make use of it as a tool to evaluate
their own regulations, which seems to me to promise very clear
benefits that are well worth the steadily declining costs.
Mr. Ellison. So what do other countries do, say like
Britain, Israel, Japan? What do they do?
Ms. Gabaldon. They use XBRL. And in addition, the European
Union in general is working towards something like XBRL if not
XBRL itself.
Mr. Ellison. I read that in June 2013 the European
parliament approved a proposal that would assign European
securities and markets authority the task of developing a
single electronic format for financial statements filed with
European exchanges. Any kind of reflections on that?
Ms. Gabaldon. It seems that we will be a genuine outlier if
we don't step into the 21st Century.
Mr. Ellison. Okay. So if H.R. 1965 became law, would the
United States run the risk of being behind foreign
jurisdictions in terms of the sophistication of and ease of use
for information contained in public filings? I think I know
what your answer is, but I would like to give you a chance to
elaborate.
Ms. Gabaldon. It wouldn't just be running the risk, it
would be a fait accompli at that point. We would be behind.
Mr. Ellison. Okay. Thank you for your time, ma'am, and
thank you to all our guests.
Chairman Garrett. The gentleman's time has expired .
Mr. Poliquin, you are recognized for 5 minutes.
Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very
much. And I want to thank everybody for being here today, and
for addressing how we can have small businesses that really are
the engine of growth in this economy and in hiring and
providing our families with more opportunity. So I appreciate
everyone taking the time to come here and be here today.
I represent Maine's 2nd District. If you haven't been there
to vacation, you really should. It is a great place to go, and
you can spend money. We are a State that needs that. So I
invite all of you to come up when you have a chance.
I represent a highly rural part of our State, where in the
last year alone, we lost 3 paper mills, 1,000 jobs, in
Bucksport, East Millinocket, and in Old Town. And the reason
for that, in part, is because in New England, and in particular
in Maine, we have converted burning oil and coal to burning
natural gas in order to produce electricity. And the
electricity, of course, is used to run our machines to make our
paper.
We are the greatest papermakers in the world, and we are
surrounded by all these trees in Maine. But we have a real
problem with this. So not only do we need to produce more
product and get that product up to Maine by increasing the
pipeline capacity and drive down the cost so we can be more
competitive and keep these jobs going, we also need to make
sure we have an opportunity for our paper mills--many of which
are owned by other companies; they are subsidiaries of larger
companies--to hedge their bets and be able to secure long-term
natural gas and other commodity prices such that they can keep
these mills open.
So doesn't it make sense--and Mr. Deas, I will ask you this
question, if you don't mind, sir--that we can allow a parent
company to be able to execute those financial transactions on
behalf of their subsidiaries in order to make sure the entire
enterprise is able to secure, in this case, natural gas or
whatever they are trying to secure for the entire enterprise to
make sure you keep the risk down, keep the cost down, be more
competitive and keep these companies growing and creating jobs?
Mr. Deas. Congressman, yes. And the first 18 years of my
career was at Scott Paper Company and S.D. Warren Company in
your State in the--
Mr. Poliquin. Sure. Thank you.
Mr. Deas. --in the mills that you mentioned. And energy, of
course, is a big part of that business and my business. And
hedging those activities at the lowest cost involves netting
out opposite-way trades. That happens in the foreign exchange
market and other examples of exposure. And doing one trade with
a financial counterparty, a bank--and a smaller amount--lowers
costs and, ultimately, makes us more competitive.
Mr. Poliquin. And with no risk to the secondary market.
Mr. Deas. No, sir. It actually reduces your systemic risk
in the market by reducing the amount of external derivatives
outstanding.
Mr. Poliquin. I would like to move on to another question
if I can, and Ms. Hughes, I will direct this to you if I may,
please. I support Congressman Hultgren's bill, H.R. 1675, that
he just mentioned a moment ago, when it talks about how you can
incent small businesses that are just starting up. And all the
challenges and all the excitement you have with small
businesses taking off, especially in your space, Mr. Kovacs.
But often, these companies are strapped for cash or have no
cash. And as you mentioned earlier, sir, they have no product,
they have no revenue stream. And so how in the dickens do you
attract the capital that you want to make sure you grow your
business and you can be successful for the investors and for
those who are hired by the enterprise?
So Ms. Hughes, with your experience in this space and the
number of companies that you folks get involved with, give us
an idea of opportunities you might have run into in the past
where you want to incent people, but you don't want to take on
debt and maybe you can't borrow money because the company is so
small.
Why not offer them a piece of the action, and why not offer
them stock in the company? Doesn't that create an exciting
environment for folks to really want to dig in, make the
company successful, grow, produce products we want in this
country, and hire more people?
Ms. Hughes. I can say yes, absolutely. Every single time we
have employees involved in the ownership of the company they
are much more committed and much more interested in what is
going on, improving the production and efficiencies within the
businesses themselves.
I don't have a tremendous amount of experience in the
start-up market, unfortunately. We deal with very small
businesses, but most of the businesses we are involved with
have revenues of about $10 million, and we are helping them
through the next phase of growth. But absolutely, employee
ownership is a real driver when trying to create value and
growth over time.
Mr. Poliquin. And Mr. Kovacs, therefore, doesn't it make a
lot of sense to support H.R. 1675 that Mr. Hultgren was talking
about a little bit before? Doesn't that make a lot of sense?
Mr. Kovacs. I think it does.
Mr. Poliquin. Yes. Thank you very much.
I appreciate it.
Chairman Garrett. Thank you. The gentleman yields back.
Mr. Hill is recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman, and I thank the panel
for your patience and indulgence this afternoon. Thanks for
being with us.
Ms. Hughes, I want to start with you, and tell you I was
impressed by looking at Mr. Luetkemeyer's and Mrs. Maloney's
bill on this SBIC simplification process. Having been a
community banker and investor in SBICs, I certainly know a lot
about duplicated regulation. We had the Fed and the State and
the FDIC and the State insurance commissioner, the State
securities commissioner, the SEC, and FINRA, and I am sure I am
leaving someone out and we will get a letter from them. But I
have a lot of empathy for this issue of duplication. And hasn't
the SBA had exclusive regulatory oversight over SBICs since the
late 1950s?
Ms. Hughes. Yes, 1958.
Mr. Hill. So, did the Dodd-Frank Act tell us to just
inadvertently step on it in the private equity space, as they
now have opened the door for duplicate regulation of SBIC
managers or SBIC advisors?
Ms. Hughes. Actually, I think that Dodd-Frank tried to get
it right in that they recognized that SBICs were already
regulated by a Federal regulator and they were excluding them.
I think the catch was really that it is the solely commentary.
So if you solely invest in SBICs, then you are exempt from
registration. But I don't think anybody really thought through
the fact that multiple licensees often get to a point where
they have a very small piece of a fund left. And at that point
in time, typically, when the debentures are repaid, you would
hand back your SBIC license.
At that point, I now manage a dollar beyond a non-SBIC so
my other SBIC monies prompt registration with the SEC.
And that would prompt duplicate registration and cost and
burden. So I think the idea is to streamline it so that it--
focus on the SBA has done a good job, they have done this for a
long time, we are very closely regulated from the beginning to
the end as they vet the management teams coming in. And we are
not opposed to regulation, we appreciate their insights, but we
just don't want it to be from multiple sources, I think is the
point.
Mr. Hill. Yes, and I think it is good for the record to
show the SBA has a long track record here, including a
disciplinary action against bad actors who have SBIC funds that
don't need another one. But it certainly should not result in
duplicate oversight. I think they do a good job. And no one
knows the SBIC space better than the SBA. And the cost of
getting an SBIC approved is extensive. It is months and
months--9 months, 12 months--and very expensive to fill out the
highly specialized forms that are required there.
Ms. Hughes. It is. We have become expert in that.
Mr. Hill. What would you say it costs to register to have
an SBIC--
Ms. Hughes. To get an--
Mr. Hill. I know it is the best bargain in Washington in
legal prices. What would you say to that?
Ms. Hughes. Through the fund-raising process, on average I
would venture a guess that you are spending somewhere between
$100,000 and $200,000, all in start-up costs, but certainly not
all paid to the government. But certainly attorneys back and
forth as everything is approved, all of the paperwork
associated with checking the boxes, completely vetting your
track record and those kinds of components, as well as the
importance of being able to fundraise in the marketplace and
bring private capital to the mix. To be able to invest in those
small businesses is critical.
Mr. Hill. I know our State has really benefited over the
years by an expansion of SBIC opportunities. And so, thank you
for your comments. I certainly support the effort to streamline
this and remove the duplication.
Mr. Kovacs, you mentioned Section 404 in kind of a sidebar
in your testimony. Can you catch me up on--I thought small
filers were exempt under 404 at a lower level of scrutiny. Can
you talk to me about why you keep that on your list, please--
Mr. Kovacs. Yes, for emerging growth companies, you have 5
years before you become SOX 404(b)-compliant, which is where
myself and my CEO sign off saying that we have internal
controls. But that is when the auditors sign off, and therefore
there are all sorts of additional SOPs and outside the auditors
there is a lot more regulation around 404(b).
Normally, we would expect we would have 5 years to be
404(b)-compliant, but there are a few things that take that
away from you. One is if you had a billion dollars of revenue.
We are clearly far from a billion dollars of revenue; it is a
small biotech. We have, really, no revenue today.
But our market cap has done well because people see that
our drug is getting close to market and there is enthusiasm for
the long-term potential in our company. And so our stock prices
have performed and our stock has gone through the $700 million
threshold. And now we are losing our emerging growth company
status, even though we still really are an emerging growth
company.
And so now I have to become SOX-compliant by next year. And
I have to hire more people, I have to bring in outside
consultants, and I have to pay my auditor more money to get
ready for that.
Mr. Hill. Thanks for that clarification.
And, Mr. Chairman, I yield back. Thank you.
Chairman Garrett. Thank you. The gentleman yields back.
Mr. Huizenga is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that,
and it is my pleasure to have a bill that we are discussing
today, as well. And I know some of you had referenced it, H.R.
686, the Small Business Mergers, Acquisitions, Sales, and
Brokerage Simplification Act of 2015. It was interesting
earlier, the chairman, towards the beginning, had talked a
little bit about the recommendations that the SEC has developed
and then not acted upon. This was one of those. It was 7 years
running. A gentleman from our district or right near our
district, Shane Hansen--a partner at Warner Norcross & Judd--
who chaired the M&A section of the bar, approached me and said,
``Look, we have been trying to move them along here, and we
just simply cannot get this done. This makes a tremendous
amount of sense.''
And what it is, is under the current system there is a one-
size-fit-all approach to SEC registration for brokers. And I
felt that we needed to have a more tailored registration system
for these smaller, family-owned, oftentimes privately-held
mergers and acquisitions for these brokers.
I know, Mr. Quaadman, you have talked a little bit about
this previously. I don't know if you care to comment on why you
believe the SEC should have this more tailored registration,
and maybe Ms. Hughes, as well?
Mr. Quaadman. Sure. Thank you, Mr. Huizenga, and thank you
for reintroducing the bill.
As I said before, we support the bill. And I made reference
in my opening remarks about the no-action letter with the SEC.
I think that was welcome. I frankly only think that they issued
that no-action letter because you introduced the bill in the
last Congress. Because the SEC has just not been willing to
move on ideas that the emerging growth committee has been
coming out with.
But more importantly, what the regulator can giveth, the
regulator can taketh away. So we saw earlier this year, in
January, on the Friday night before the Martin Luther King
weekend, where on a corporate governance issue that the Chair
issued guidance overturning a decision staff had made in what
is known as the Whole Foods decision that had overturned
decades of practice in terms of shareholder proposals.
So our concern here is that if it is just left to a no-
action letter, you can get a new chairman next year, and a no-
action can go away and we are right back to where we started.
Mr. Huizenga. Or a Chair could change his or her mind.
Mr. Quaadman. Correct. So we think that your bill is a
sensible way to get the parameters out there, get it set in
stone, get this done. And so we are not going to have any give
and take that can make this go away.
Mr. Huizenga. And, Mr. Chairman, I would like to--and I
will get to you, Ms. Hughes, or somebody else who was starting
to speak. But I would like to submit for the record letters of
support for H.R. 686 from: the Small Business &
Entrepreneurship Council; the Business Brokers of Florida; the
Nevada Business Brokers Association; the International Business
Brokers Association; the Alliance of Merger and Acquisition
Advisors; and the Association for Corporate Growth.
Chairman Garrett. Without objection, it is so ordered.
Mr. Huizenga. Thank you. And I will note that this
committee passed this bill last Congress on voice vote, where
it hit the Floor. And as I try to tell constituents back home,
yes, things actually do pass Congress. And, in fact, they are
all shocked that this one passed unanimously, 422-0. Most don't
believe that Congress can actually work that way, but we are
hoping that we are going to have a similar action here in this
term, as well.
But I don't know, Ms. Hughes, if you wanted to comment?
Ms. Hughes. Sure. We do a lot of business with small M&A
and business brokers who are transacting mostly small private
companies. They truly add value. A lot of those companies are
very interested in dealing with the smaller firms. They are a
little bit afraid of the larger, bigger houses and would far
rather deal with the guy down the street whom they have known
for 20 years as they bring their company to market because it
is their baby for which they are transacting, or they are
trying to raise money to generate fine growth capital.
Ms. Gabaldon. Could I quickly--
Mr. Huizenga. Yes.
Ms. Gabaldon. I just wanted to say I think that in many
cases, the guy down the street may be registered at this point
in time. But in addition, I think it is critical to note that
the SEC no-action letter has a number of protections that are
built into it that I think are very important and that the
committee should seriously consider.
Mr. Huizenga. And we just hope to codify a number of those
things.
So with that, Mr. Chairman, I will yield back the balance
of my time.
Chairman Garrett. The gentleman yields back 9 seconds.
Ms. Moore, welcome to the subcommittee.
Ms. Moore. Thank you so much, Mr. Chairman. And I want to
thank you for your indulgence. I am not a member of this
subcommittee so I am very grateful that you yielded the time. I
want to apologize to the witnesses. I just cannot see any of
your names from over here, from this vantage point, I have no
idea with whom I am speaking. So, just indulge me.
I have a couple of bills that are under the jurisdiction of
this subcommittee, and I want to talk about H.R. 1317, the End-
User Affiliate Clearing Exception. I listened very carefully to
Mr. Quaadman, on the end there, when you talked about the
importance of legislating, even though the regulators sometimes
issue these no-action letters. So I think this question is for
Mr. Deas, about the no-action letter of the CFTC that really
endorsed the idea that commercial businesses ought to be able
to aggregate their swaps into a SCTU, as they indicated in
their no-action letter which is similar to my bill.
So I guess I want to know, do you think that it is
important to pass H.R. 1317? And can you just briefly address
the notion that this bill could permit a large swap-dealing
bank to buy a commercial business selling widgets, and then
transact their entire swap business using this subsection of
the end-user exception?
Mr. Deas. Yes, thank you for that question. The basis of a
no-action letter is that the action covered by the letter is
probably not in compliance with law. But the staff, in this
case the CFTC Division staff, is committing, for so long as
that letter is outstanding, not to take an enforcement action.
We all feel so strongly about compliance with law and that
there is a special provision in Dodd-Frank that requires boards
of directors of companies that avail themselves of the end-user
exception for clearing and margining to affirm, every year,
that they are in compliance with the law in order to use that
end-user exception.
So it puts treasurers and other officers of the company in
a very awkward position. And there has been broad, bipartisan
support for this fix that is to just the drafting to make the
intent clear and which everyone wants to achieve.
The second part of your question, this idea that there
could be this kind of loophole. First of all, I would say that
from the beginning, from the passage of Dodd-Frank, it has
always been the case that an operating company engaged in
appropriate end-user commercial activity that happens to be
owned by a financial parent can avail itself--it was in the
law--of the end-user exemption. What we are talking about is
permitting other companies in that group to trade through a
centralized Treasury unit and reduce the risk by reducing the
amount, the volume, of derivatives outstanding through netting
them in the central Treasury unit.
So this just clarifies what was really, we believe, the
intent of the drafters. And we urge continued consideration for
this bill.
Ms. Moore. Thank you so much. And just briefly, can you
explain the credit support language in the bill, and what that
accomplished, and how it protects the system and provides
regulators with the flexibility to tailor the regs?
Mr. Deas. The credit support language is meant to assure
that there wouldn't be some separate derivative activity
outstanding that doesn't ultimately come back within the group,
the parent company in the group. And so there is a provision
providing for that kind of credit support for the inter-company
derivative transactions.
Ms. Moore. Thank you so much.
Thank you, Mr. Chairman, and I yield back the balance of my
time.
Chairman Garrett. The gentlelady yields back.
The vice chairman of the subcommittee requests recognition.
Mr. Hurt. Thank you, Mr. Chairman.
I just have a couple of follow-up questions for Ms.
Gabaldon. Were you familiar with the article that was
circulated earlier and referred to in questioning?
Ms. Gabaldon. Yes.
Mr. Hurt. Who published that?
Ms. Gabaldon. I don't know who--
Mr. Hurt. AICPA.
Ms. Gabaldon. AICPA and XBRL.
Mr. Hurt. XBRL US?
Ms. Gabaldon. Yes.
Mr. Hurt. Mr. Kovacs, in his testimony, talked about XBRL
contractors. So obviously, you have to do--if you are going to
have to pay to have this work done because you can't do it in-
house, you would get an XBRL contractor. Is that correct?
Ms. Gabaldon. Yes.
Mr. Hurt. And who do AICPA and XBRL US represent? They
represent folks who are looking for--who are investing and who
are in the analyst business?
Ms. Gabaldon. The AICPA is an association for certified
public accountants, and--
Mr. Hurt. XBRL US--
Ms. Gabaldon. That is a non-profit organization.
Mr. Hurt. Okay, because in the list--
Ms. Gabaldon. It is definitely an--
Mr. Hurt. In the list of all of the different folks who
were going to be disadvantaged by this proposal, you said
investors would be disadvantaged, analysts would be
disadvantaged. You said emerging growth companies would be
disadvantaged. But you didn't say the folks in the XBRL
contracting business would be disadvantaged. You think they
would?
Ms. Gabaldon. I think they have employees, too.
Mr. Hurt. Okay. So I guess my last question for you is, is
you understand this would be a voluntary--the bill would make
this filing voluntary.
Ms. Gabaldon. I do understand that, and I do also want to
make the point that I don't think that the AICPA has any
particular dog in the fight. And I think that is noteworthy,
but--
Mr. Hurt. Okay. Well, they have their name on this article.
It doesn't say exactly where this came from. But I guess they
have that much of a dog in the fight they published an article
about it, correct?
Ms. Gabaldon. I think that, in general, the AICPA engages
in a lot of studies. I get the newsletter from them, as a law
professor, that just talks about studies they have conducted
that they think are going to be helpful to the readers.
Mr. Hurt. All right.
Turning to Mr. Kovacs, do you understand that our proposal
is voluntary?
Mr. Kovacs. Yes.
Mr. Hurt. Then I guess my second question is, if you look
at this article it says--it may be that a company pays $10,000,
it may be that a company pays $20,000, or it may be that a
company pays $50,000. Why would would any company pay $1 if the
information is not something that they believe is useful to
investors and analysts? Why would you pay even $1?
Mr. Kovacs. I can only speak for us; I think we would
probably opt to not pay it.
Mr. Hurt. Let me ask you this: If this were made law, would
you all opt out of having to file XBRL?
Mr. Kovacs. Yes, at this point in time I think that would
probably be the direction we would take. We would rather
probably hire somebody as opposed to paying that to a third
party.
Mr. Hurt. Okay.
Mr. Kovacs. The hiring.
Mr. Hurt. Even? Okay.
Mr. Kovacs. A scientist or someone like that.
Mr. Hurt. I just have a few minutes.
Mr. Quaadman?
Mr. Quaadman. Yes. Mr. Hurt, so yes it is voluntary. Number
two, what is important here is that XBRL is a delivery system,
right? And that has been a very problematic system that 90
percent of investors aren't using. And people who have been
involved with it acknowledge that there have been problems with
it.
So the issue here is, can we get a better delivery system
that uses electronics to get the information out there? But can
we do it in such a way that if an emerging growth company
doesn't want to be a guinea pig they don't have to be, so they
can save their money?
The third part of your bill, about the cost-benefit
analysis, actually provides that lever on the SEC to continue
to improve the delivery system. So I think this provides the
additional legislative pressure to get us into a 21st Century
delivery system. So the information is still going to be there
for investors, the delivery system here is going to--you can
volunteer in and out.
And one thing I just want to note, as well--as far as the
United States being an outlier, I had a meeting with the
European commission, with the people who are dealing with their
shareholder directive, last November. And they said, ``You know
what? A Latvian investor who invests in a U.K. company can put
their money there, but they can't vote in the governance of
that U.K. company. So tell us how you guys do it.'' So if we
are going to have a voluntary XBRL exemption for U.S.
investors, we are still going to have the most sophisticated
information and corporate governance system by far, and that is
why we have the deepest capital markets. And actually, we think
your bill helps us get into the 21st Century.
Mr. Hurt. Thank you.
I yield back.
Chairman Garrett. The gentleman yields back.
And looking around, I think that is all that we have as far
as Members. Without objection, I seek unanimous consent to make
the following written statements a part of the record: the
Honorable Darrell Issa; the American Bankers Association;
Americans for Financial Reform; the Depository Trust & Clearing
Corporation; the Food Marketing Institute; the Independent
Community Bankers of America; the M&A Source; the North
American Securities Administrators Association; Shane Hansen, a
partner at Warner Norcross & Judd; and XBRL US.
With that, we bring to a close today's Capital Markets
Subcommittee hearing. As always, I thank the members of the
panel.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
So with that, I again thank the panel, and this hearing is
adjourned.
[Whereupon, at 4:26 p.m., the hearing was adjourned.]
A P P E N D I X
April 29, 2015
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