WSJ: U.S. House Panel Passes IPO Bill
February 17, 2012 -
A U.S. House panel Thursday advanced bipartisan legislation to make it easier for smaller companies to launch initial public offerings, the latest in a series of bills designed to spur job creation.
The House Financial Services Committee voted 54-1 to pass the measure, which aims to improve smaller companies' access to capital by easing certain securities regulations, ranging from audit requirements to analyst research restrictions.
"With passage of this bill, small companies considering going public will get the extra break they need to go forward," said Rep. Stephen Fincher (R., Tenn.), who helped draft the legislation. "Small businesses are the real job creators and this bill will help them move forward with their goals so they can expand, hire employees and put Americans back to work."
Similar legislation is pending in the Senate and President Barack Obama has called for its passage from Congress. The full House has approved a series of additional bills, now pending in the Senate, to make it easier for startups to raise money from investors.
The exemptions would apply only to a category of so-called emerging- growth companies that have less than $1 billion in annual revenue at the time they register with the SEC for an IPO and less than $700 million in publicly traded shares. An estimated 11% to 13% of companies would fit the bill's emerging-growth category today. The exemptions would phase out after five years or if the companies grow above certain thresholds.
Among the technical changes in the bill is an exemption from a section of the 2002 Sarbanes-Oxley Act requiring that companies pay an outside auditor to attest to the company's internal controls and procedures. Company executives would still have to certify that their controls are adequate, so that liability wouldn't be eliminated. The exemption is being sought as a way to control the cost of going public for smaller firms.
A current exemption from the audit provision applies to companies with market capitalizations of less than $75 million.
The bill also includes provisions to allow analyst research about emerging- growth companies before and immediately after their IPOs from analysts who work at banks underwriting the offering. Current regulations prohibit such research during a so-called quiet period. The bill wouldn't waive regulations addressing analyst conflicts of interest.
The committee also was poised to pass legislation requiring the Securities and Exchange Commission to conduct a more thorough assessment of how much regulations cost the financial industry, part of a push to curtail what Republicans contend are overly burdensome rules.
The bill, authored by Rep. Scott Garrett (R., N.J.), would require an evaluation of whether regulations are narrowly "tailored to impose the least burden on society." Garrett said the proposal was a "common sense" reform to eliminate overly burdensome regulations.
However, Rep. Barney Frank of Massachusetts and other Democrats opposed the bill, characterizing it as an attack on the SEC.
Under the Republican bill, the SEC would need to more carefully examine a problem to see if there is a need for a rule. After the agency proposes a rule, its chief economist would be required to conduct a cost-benefit analysis. Two years after implementation, the agency would have to perform another analysis to see if the rule met its intended goals.
In September, SEC Chairman Mary Schapiro warned that an earlier draft of the proposal would establish a significant number of unneeded, duplicative or inappropriate standards for cost-benefit analysis of SEC rules and orders. She noted economic and cost-benefit analyses already comprise "fundamental components" of its work.