Securities Regulation Daily Administration opposes Capital Markets bill that passed House
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Wednesday, February 3, 2016

Administration opposes Capital Markets bill that passed House

By John Filar Atwood

Senior advisers to President Obama said that the Administration opposes the Capital Markets Improvements Act of 2016 and they would recommend that he veto the bill if it makes it to his desk. The legislation, which was introduced by Rep. Randy Hultgren, (R.-Ill), provides, among other things, a safe harbor for investment fund research, a registration exemption for merger and acquisition (M&A) brokers, and an exemption from XBRL filing requirements for emerging growth companies and other smaller companies.

After an afternoon of debate that saw the failure of several proposed amendments, the Hultgren bill passed the full House by a vote of 265-159. Both Rep. Hultgren and the House Financial Services Committee majority lauded the chamber’s efforts to freshen rules for capital markets.

But a statement from the Executive Office of the President indicates that the Administration strongly opposes the bill because it includes several provisions that pose risks to investors, are overly broad, and allow financial institutions to avoid appropriate oversight. Other provisions duplicate existing administrative authorities, according to the Administration.

M&A brokers. Title III of the legislation provides an exemption from SEC registration for M&A brokers. The Administration notes that this section would eliminate registration requirements for M&A brokers engaged on a transaction for any privately held company with gross revenues up to $250 million, thus exempting deals of significant size and applying to businesses far larger than the small businesses the bill intends to aid. The Administration also believes this section is duplicative because the SEC has already taken administrative action to exempt certain M&A brokers from broker-dealer registration.

Disclosure simplification. The Administration also opposes Title IV of the bill, which would exempt certain publicly traded companies from the requirement to use XBRL for financial statements and other periodic reports. In the Administration’s opinion, machine-readable financial statements and open data disclosure systems benefit investors, issuers and the public by making the filings of publicly traded companies more accessible. Impeding regulators’ ability to use the latest technological tools to regulate markets and protect investors is contrary to the SEC’s mission, the Administration said.

Regulatory review. The Administration’s final complaint about the proposed legislation is that Title V, which calls for the SEC to review periodically all of its existing significant regulations and determine whether they are outdated, is unnecessarily duplicative. The SEC already complies with the Regulatory Flexibility Act, the Administration notes, and is encouraged under Executive Order 13579 to review rules to assess whether they are outdated or excessively burdensome. Requiring a review and Commission vote on every major rule every 10 years would hinder the SEC’s ability to monitor markets and protect investors, the Administration concluded.

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