19–006 

112TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 112–406 

REOPENING AMERICAN CAPITAL MARKETS TO EMERGING 

GROWTH COMPANIES ACT OF 2011 

MARCH 1, 2012.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. BACHUS, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 3606] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 3606) to increase American job creation and economic 

growth by improving access to the public capital markets for 

emerging growth companies, having considered the same, report favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Reopening American Capital Markets to Emerging 

Growth Companies Act of 2012’’. 

SEC. 2. DEFINITIONS. 

(a) SECURITIES ACT OF 1933.—Section 2(a) of the Securities Act of 1933 (15 U.S.C. 

77b(a)) is amended by adding at the end the following: 

‘‘(19) The term ‘emerging growth company’ means an issuer that had total annual gross revenues of less than $1,000,000,000 during its most recently completed fiscal year. An issuer that is an emerging growth company as of the first 

day of that fiscal year shall continue to be deemed an emerging growth company until the earliest of— 

‘‘(A) the last day of the fiscal year of the issuer during which it had total 

annual gross revenues of $1,000,000,000 or more; 

‘‘(B) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer 

pursuant to an effective registration statement under this title; or 


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‘‘(C) the date on which such issuer is deemed to be a ‘large accelerated 

filer’, as defined in section 240.12b–2 of title 17, Code of Federal Regulations, or any successor thereto.’’. 

(b) SECURITIES EXCHANGE ACT OF 1934.—Section 3(a) of the Securities Exchange 

Act of 1934 (15 U.S.C. 78c(a)) is amended— 

(1) by redesignating paragraph (77), as added by section 941(a) of the Investor 

Protection and Securities Reform Act of 2010 (Public Law 111–203, 124 Stat. 

1890), as paragraph (79); and 

(2) by adding at the end the following: 

‘‘(80) EMERGING GROWTH COMPANY.—The term ‘emerging growth company’ 

means an issuer that had total annual gross revenues of less than 

$1,000,000,000 during its most recently completed fiscal year. An issuer that is 

an emerging growth company as of the first day of that fiscal year shall continue to be deemed an emerging growth company until the earliest of— 

‘‘(A) the last day of the fiscal year of the issuer during which it had total 

annual gross revenues of $1,000,000,000 or more; 

‘‘(B) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the issuer 

pursuant to an effective registration statement under the Securities Act of 

1933; or 

‘‘(C) the date on which such issuer is deemed to be a ‘large accelerated 

filer’, as defined in section 240.12b–2 of title 17, Code of Federal Regulations, or any successor thereto.’’. 

(c) OTHER DEFINITIONS.—As used in this Act, the following definitions shall apply: 

(1) COMMISSION.—The term ‘‘Commission’’ means the Securities and Exchange Commission. 

(2) INITIAL PUBLIC OFFERING DATE.—The term ‘‘initial public offering date’’ 

means the date of the first sale of common equity securities of an issuer pursuant to an effective registration statement under the Securities Act of 1933. 

(d) EFFECTIVE DATE.—Notwithstanding section 2(a)(19) of the Securities Act of 

1933 and section 3(a)(80) of the Securities Exchange Act of 1934, an issuer shall not 

be an emerging growth company for purposes of such Acts if the first sale of common equity securities of such issuer pursuant to an effective registration statement 

under the Securities Act of 1933 occurred on or before December 8, 2011. 

SEC. 3. DISCLOSURE OBLIGATIONS. 

(a) EXECUTIVE COMPENSATION.— 

(1) EXEMPTION.—Section 14A(e) of the Securities Exchange Act of 1934 (15 

U.S.C. 78n–1(e)) is amended— 

(A) by striking ‘‘The Commission may’’ and inserting the following: 

‘‘(1) IN GENERAL.— The Commission may’’; 

(B) by striking ‘‘an issuer’’ and inserting ‘‘any other issuer’’; and 

(C) by adding at the end the following: 

‘‘(2) TREATMENT OF EMERGING GROWTH COMPANIES.— 

‘‘(A) IN GENERAL.—An emerging growth company shall be exempt from 

the requirements of subsections (a) and (b). 

‘‘(B) COMPLIANCE AFTER TERMINATION OF EMERGING GROWTH COMPANY

TREATMENT.—An issuer that was an emerging growth company but is no 

longer an emerging growth company shall include the first separate resolution described under subsection (a)(1) not later than the end of— 

‘‘(i) in the case of an issuer that was an emerging growth company 

for less than 2 years after the date of first sale of common equity securities of the issuer pursuant to an effective registration statement 

under the Securities Act of 1933, the 3-year period beginning on such 

date; and 

‘‘(ii) in the case of any other issuer, the 1-year period beginning on 

the date the issuer is no longer an emerging growth company.’’. 

(2) PROXIES.—Section 14(i) of the Securities Exchange Act of 1934 (15 U.S.C. 

78n(i)) is amended by inserting ‘‘, for any issuer other than an emerging growth 

company,’’ after ‘‘including’’. 

(3) COMPENSATION DISCLOSURES.—Section 953(b)(1) of the Investor Protection 

and Securities Reform Act of 2010 (Public Law 111–203; 124 Stat. 1904) is 

amended by inserting ‘‘, other than an emerging growth company, as that term 

is defined in section 3(a) of the Securities Exchange Act of 1934,’’ after ‘‘require 

each issuer’’. 

(b) FINANCIAL DISCLOSURES AND ACCOUNTING PRONOUNCEMENTS.— 

(1) SECURITIES ACT OF 1933.—Section 7(a) of the Securities Act of 1933 (15 

U.S.C. 77g(a)) is amended— 

(A) by striking ‘‘(a) The registration’’ and inserting the following: 


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‘‘(a) INFORMATION REQUIRED IN REGISTRATION STATEMENT.— ‘‘(1) IN GENERAL.—The registration’’; and 

(B) by adding at the end the following: 

‘‘(2) TREATMENT OF EMERGING GROWTH COMPANIES.—An emerging growth 

company— 

‘‘(A) need not present more than 2 years of audited financial statements 

in order for the registration statement of such emerging growth company 

with respect to an initial public offering of its common equity securities to 

be effective, and in any other registration statement to be filed with the 

Commission, an emerging growth company need not present selected financial data in accordance with section 229.301 of title 17, Code of Federal 

Regulations, for any period prior to the earliest audited period presented in 

connection with its initial public offering; and 

‘‘(B) may not be required to comply with any new or revised financial accounting standard until such date that a company that is not an issuer (as 

defined under section 2(a) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 

7201(a)) is required to comply with such new or revised accounting standard, if such standard applies to companies that are not issuers.’’. 

(2) SECURITIES EXCHANGE ACT OF 1934.—Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a)) is amended by adding at the end the following: ‘‘In any registration statement, periodic report, or other reports to be 

filed with the Commission, an emerging growth company need not present selected financial data in accordance with section 229.301 of title 17, Code of Federal Regulations, for any period prior to the earliest audited period presented 

in connection with its first registration statement that became effective under 

this Act or the Securities Act of 1933 and, with respect to any such statement 

or reports, an emerging growth company may not be required to comply with 

any new or revised financial accounting standard until such date that a company that is not an issuer (as defined under section 2(a) of the Sarbanes-Oxley 

Act of 2002 (15 U.S.C. 7201(a))) is required to comply with such new or revised 

accounting standard, if such standard applies to companies that are not 

issuers.’’. 

(c) OTHER DISCLOSURES.—An emerging growth company may comply with section 

229.303(a) of title 17, Code of Federal Regulations, or any successor thereto, by providing information required by such section with respect to the financial statements 

of the emerging growth company for each period presented pursuant to section 7(a) 

of the Securities Act of 1933 (15 U.S.C. 77g(a)). An emerging growth company may 

comply with section 229.402 of title 17, Code of Federal Regulations, or any successor thereto, by disclosing the same information as any issuer with a market 

value of outstanding voting and nonvoting common equity held by non-affiliates of 

less than $75,000,000. 

SEC. 4. INTERNAL CONTROLS AUDIT. 

Section 404(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7262(b)) is amended 

by inserting ‘‘, other than an issuer that is an emerging growth company (as defined 

in section 3 of the Securities Exchange Act of 1934),’’ before ‘‘shall attest to’’. 

SEC. 5. AUDITING STANDARDS. 

Section 103(a)(3) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7213(a)(3)) is 

amended by adding at the end the following: 

‘‘(C) TRANSITION PERIOD FOR EMERGING GROWTH COMPANIES.—Any rules 

of the Board requiring mandatory audit firm rotation or a supplement to 

the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the 

issuer (auditor discussion and analysis) shall not apply to an audit of an 

emerging growth company, as defined in section 3 of the Securities Exchange Act of 1934. Any additional rules adopted by the Board after the 

date of enactment of this subparagraph shall not apply to an audit of any 

emerging growth company, unless the Commission determines that the application of such additional requirements is necessary or appropriate in the 

public interest, after considering the protection of investors and whether 

the action will promote efficiency, competition, and capital formation.’’. 

SEC. 6. AVAILABILITY OF INFORMATION ABOUT EMERGING GROWTH COMPANIES. 

(a) PROVISION OF RESEARCH.—Section 2(a)(3) of the Securities Act of 1933 (15 

U.S.C. 77b(a)(3)) is amended by adding at the end the following: ‘‘The publication 

or distribution by a broker or dealer of a research report about an emerging growth 

company that is the subject of a proposed public offering of the common equity securities of such emerging growth company pursuant to a registration statement that 

the issuer proposes to file, or has filed, or that is effective shall be deemed for purVerDate Mar 15 2010 03:04 Mar 02, 2012 Jkt 019006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6621 E:\HR\OC\HR406.XXX HR406

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poses of paragraph (10) of this subsection and section 5(c) not to constitute an offer 

for sale or offer to sell a security, even if the broker or dealer is participating or 

will participate in the registered offering of the securities of the issuer. As used in 

this paragraph, the term ‘‘research report’’ means a written, electronic, or oral communication that includes information, opinions, or recommendations with respect to 

securities of an issuer or an analysis of a security or an issuer, whether or not it 

provides information reasonably sufficient upon which to base an investment decision.’’. 

(b) SECURITIES ANALYST COMMUNICATIONS.—Section 15D of the Securities Exchange Act of 1934 (15 U.S.C. 78o–6) is amended— 

(1) by redesignating subsection (c) as subsection (d); and 

(2) by inserting after subsection (b) the following: 

‘‘(c) LIMITATION.—Notwithstanding subsection (a) or any other provision of law, 

neither the Commission nor any national securities association registered under section 15A may adopt or maintain any rule or regulation in connection with an initial 

public offering of the common equity of an emerging growth company— 

‘‘(1) restricting, based on functional role, which associated persons of a broker, 

dealer, or member of a national securities association, may arrange for communications between a securities analyst and a potential investor; or 

‘‘(2) restricting a securities analyst from participating in any communications 

with the management of an emerging growth company that is also attended by 

any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst.’’. 

(c) EXPANDING PERMISSIBLE COMMUNICATIONS.—Section 5 of the Securities Act of 

1933 (15 U.S.C. 77e) is amended— 

(1) by redesignating subsection (d) as subsection (e); and 

(2) by inserting after subsection (c) the following: 

‘‘(d) LIMITATION.—Notwithstanding any other provision of this section, an emerging growth company or any person authorized to act on behalf of an emerging 

growth company may engage in oral or written communications with potential investors that are qualified institutional buyers or institutions that are accredited investors, as such terms are respectively defined in section 230.144A and section 

230.501(a) of title 17, Code of Federal Regulations, or any successor thereto, to determine whether such investors might have an interest in a contemplated securities 

offering, either prior to or following the date of filing of a registration statement 

with respect to such securities with the Commission, subject to the requirement of 

subsection (b)(2).’’. 

(d) POST OFFERING COMMUNICATIONS.—Neither the Commission nor any national 

securities association registered under section 15A of the Securities Exchange Act 

of 1934 may adopt or maintain any rule or regulation prohibiting any broker, dealer, 

or member of a national securities association from publishing or distributing any 

research report or making a public appearance, with respect to the securities of an 

emerging growth company, either— 

(1) within any prescribed period of time following the initial public offering 

date of the emerging growth company; or 

(2) within any prescribed period of time prior to the expiration date of any 

agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its shareholders that restricts or 

prohibits the sale of securities held by the emerging growth company or its 

shareholders after the initial public offering date. 

SEC. 7. OTHER MATTERS. 

(a) DRAFT REGISTRATION STATEMENTS.—Section 6 of the Securities Act of 1933 (15 

U.S.C. 77f) is amended by adding at the end the following: 

‘‘(e) EMERGING GROWTH COMPANIES.— 

‘‘(1) IN GENERAL.—Any emerging growth company, prior to its initial public 

offering date, may confidentially submit to the Commission a draft registration 

statement, for confidential nonpublic review by the staff of the Commission 

prior to public filing, provided that the initial confidential submission and all 

amendments thereto shall be publicly filed with the Commission not later than 

21 days before the date on which the issuer conducts a road show, as such term 

is defined in section 230.433(h)(4) of title 17, Code of Federal Regulations, or 

any successor thereto. 

‘‘(2) CONFIDENTIALITY.—Notwithstanding any other provision of this title, the 

Commission shall not be compelled to disclose any information provided to or 

obtained by the Commission pursuant to this subsection. For purposes of section 

552 of title 5, United States Code, this subsection shall be considered a statute 

described in subsection (b)(3)(B) of such section 552. Information described in 

or obtained pursuant to this subsection shall be deemed to constitute confidenVerDate Mar 15 2010 03:04 Mar 02, 2012 Jkt 019006 PO 00000 Frm 00004 Fmt 6659 Sfmt 6621 E:\HR\OC\HR406.XXX HR406

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tial information for purposes of section 24(b)(2) of the Securities Exchange Act 

of 1934.’’. 

(b) TICK SIZE.—Section 11A(c) of the Securities Exchange Act of 1934 (15 U.S.C. 

78k-1(c)) is amended by adding at the end the following new paragraph: 

‘‘(6) TICK SIZE.— ‘‘(A) STUDY AND REPORT.—The Commission shall conduct a study examining the transition to trading and quoting securities in one penny increments, also known as decimalization. The study shall examine the impact 

that decimalization has had on the number of initial public offerings since 

its implementation relative to the period before its implementation. The 

study shall also examine the impact that this change has had on liquidity 

for small and middle capitalization company securities and whether there 

is sufficient economic incentive to support trading operations in these securities in penny increments. Not later than 90 days after the date of enactment of this paragraph, the Commission shall submit to Congress a report 

on the findings of the study. 

‘‘(B) DESIGNATION.—If the Commission determines that the securities of 

emerging growth companies should be quoted and traded using a minimum 

increment of greater than $0.01, the Commission may, by rule not later 

than 180 days after the date of enactment of this paragraph, designate a 

minimum increment for the securities of emerging growth companies that 

is greater than $0.01 but less than $0.10 for use in all quoting and trading 

of securities in any exchange or other execution venue.’’. 

SEC. 8. OPT-IN RIGHT FOR EMERGING GROWTH COMPANIES. 

(a) IN GENERAL.—With respect to an exemption provided to emerging growth companies under this Act, or an amendment made by this Act, an emerging growth 

company may choose to forgo such exemption and instead comply with the requirements that apply to an issuer that is not an emerging growth company. 

(b) SPECIAL RULE.—Notwithstanding subsection (a), with respect to the extension 

of time to comply with new or revised financial accounting standards provided under 

section 7(a)(2)(B) of the Securities Act of 1933 and section 13(a) of the Securities 

Exchange Act of 1934, as added by section 3(b), if an emerging growth company 

chooses to comply with such standards to the same extent that a non-emerging 

growth company is required to comply with such standards, the emerging growth 

company— 

(1) must make such choice at the time the company is first required to file 

a registration statement, periodic report, or other report with the Commission 

under section 13 of the Securities Exchange Act of 1934 and notify the Securities and Exchange Commission of such choice; 

(2) may not select some standards to comply with in such manner and not 

others, but must comply with all such standards to the same extent that a nonemerging growth company is required to comply with such standards; and 

(3) must continue to comply with such standards to the same extent that a 

non-emerging growth company is required to comply with such standards for as 

long as the company remains an emerging growth company. 

SEC. 9. REVIEW OF REGULATION S-K. 

(a) REVIEW.—The Securities and Exchange Commission shall conduct a review of 

its Regulation S-K (17 C.F.R. 229.10 et seq.) to— 

(1) comprehensively analyze the current registration requirements of such 

regulation; and 

(2) determine how such requirements can be updated to modernize and simplify the registration process and reduce the costs and other burdens associated 

with these requirements for issuers who are emerging growth companies. 

(b) REPORT.—Not later than 180 days after the date of enactment of this Act, the 

Commission shall transmit to Congress a report of the review conducted under subsection (a). The report shall include the specific recommendations of the Commission 

on how to streamline the registration process in order to make it more efficient and 

less burdensome for the Commission and for prospective issuers who are emerging 

growth companies. 

PURPOSE AND SUMMARY

H.R. 3606, the ‘‘Reopening American Capital Markets to Emerging Growth Companies Act of 2012,’’ amends the Securities Act of 

1933 to establish a new category of issuers known as ‘‘Emerging 

Growth Companies’’ (EGCs), which are issuers that have total annual gross revenues of less than $1 billion. H.R. 3606 exempts 


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EGCs from certain regulatory requirements until the earliest of 

three dates: (1) five years from the date of the EGC’s initial public 

offering; (2) the date an EGC has $1 billion in annual gross revenue; or (3) the date an EGC becomes a ‘‘large accelerated filer,’’ 

which is defined by the Securities and Exchange Commission (SEC) 

as a company that has a worldwide public float of $700 million or 

more. H.R. 3606 thus provides temporary regulatory relief to small 

companies, which encourages them to go public, yet ensures their 

eventual compliance with regulatory requirements as they grow 

larger. 

H.R. 3606 adapts the SEC’s scaled regulations for smaller companies by more slowly phasing in regulations that impose high 

costs on issuers, without compromising core investor protections or 

disclosures. EGCs would still be required to comply with SEC-mandated quarterly and annual disclosures, but they would be exempted from Section 404(b) of the Sarbanes-Oxley Act (P.L. 107–204) of 

2002 for a longer transition period—up to five years—instead of the 

current transition period of two years. To ensure that investors are 

adequately protected, an EGC’s management would still be required to establish and maintain internal controls over financial reporting, as mandated by Section 404(a) of the Sarbanes-Oxley Act, 

and its chief executive officer and chief financial officer would still 

have to certify the company’s financial statements. 

H.R. 3606 requires EGCs to provide audited financial statements 

for the two years prior to registration, rather than three years as 

is now required. This two-year period already applies to companies 

with a public float under $75 million, which are known as ‘‘non-accelerated filers.’’ Within a year of its initial public offering (IPO), 

the EGC would report three years’ worth of financial statements, 

as larger companies are required to do. 

H.R. 3606 exempts EGCs from any rules promulgated by the 

Public Company Accounting Oversight Board (PCAOB) that would 

require mandatory audit firm rotation, thereby allowing them to 

avoid the unnecessary costs of changing from an auditor familiar 

with the company to one that is not. H.R. 3606 gives EGCs the opportunity to ‘‘opt in’’ to certain regulations by complying with them 

before they lose their EGC status. However, if the Financial Accounting Standards Board adopts new accounting standards while 

a company is an EGC, the EGC must comply with either all or 

none of the new standards while it remains an EGC. 

H.R. 3606 exempts EGCs from two new corporate governance requirements that were established by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (P.L. 111–203). First, the bill 

exempts EGCs from Section 951’s requirement that public companies hold a non-binding stockholder vote on executive compensation 

arrangements. Second, the bill exempts EGCs from Section 953(b)’s 

requirement that public companies calculate and disclose the median compensation of all employees compared to the CEO. EGCs 

would still comply with all stock exchange corporate governance 

and listing requirements, including board member independence 

rules. 

H.R. 3606 also improves the flow of information about EGCs to 

investors by removing burdensome and outdated restrictions on 

communications between companies, research analysts, and investors. Existing SEC rules prohibit investment banks that underVerDate Mar 15 2010 03:04 Mar 02, 2012 Jkt 019006 PO 00000 Frm 00006 Fmt 6659 Sfmt 6602 E:\HR\OC\HR406.XXX HR406

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write a company’s IPO from publishing research on companies that 

would be classified as EGCs under the bill. The bill allows investors to obtain research reports about an EGC before or at the same 

time as its IPO. The bill, however, maintains other investor protections, such as those set forth in Section 501 of the Sarbanes-Oxley 

Act, which address potential conflicts of interest that can arise 

when analysts recommend equity securities. 

H.R. 3606 also permits EGCs to gauge the interest in potential 

IPOs by permitting greater pre-filing communications to institutional and qualified investors to determine whether an IPO is likely to be successful. All of the antifraud provisions of the securities 

laws still apply, however, and the delivery of a statutory prospectus 

before securities are sold in an IPO would still be required. 

Finally, H.R. 3606 permits EGCs to pre-file confidential registration statements, thereby allowing them to begin the SEC review 

process without publicly revealing sensitive commercial and financial information to their competitors. Currently, only foreign companies are permitted to file confidential registration statements 

with the SEC. The bill requires an EGC to publicly file its initial 

confidential submission at least 21 days before it begins a pre-IPO 

‘‘road show’’ for potential investors. 

BACKGROUND AND NEED FOR LEGISLATION

Over the last decade, the number of companies entering the U.S. 

capital markets through IPOs has sharply declined, irrespective of 

economic conditions during the same period. In October 2011, the 

IPO Task Force issued a report which found that 791 companies 

went public in 1996, and that the U.S. averaged 530 IPOs per year 

from 1991 to 2000. By contrast, the U.S. averaged fewer than 157 

IPOs per year from 2001 to 2008. In 2009, the U.S. had only 61 

IPOs; in 2010, it had 153 IPOs. The IPO Task Force found that the 

number of IPOs in the last two years remains well below historic 

levels and is far below the number needed to replace the number 

of listed companies lost to mergers, acquisitions, de-listings, and 

bankruptcy during that period. 

The falling number of IPOs has contributed to the decline of the 

U.S. as a global financial market. U.S. capital markets raised only 

15% of global IPO proceeds in 2010, down from an average 28% 

over the preceding ten years. Nearly 10% of the U.S. companies 

that went public in 2010 did so outside the U.S., turning to capital 

markets in the United Kingdom, Taiwan, South Korea, and Canada. Since 2010, capital markets in China, Hong Kong, and Singapore have seen more than 700 companies pursue IPOs, compared 

to fewer than 300 in the U.S. during the same period. 

The President’s Council on Jobs and Competiveness found that 

if the U.S. had maintained its 2007 level of start-up activity, nearly 

two million more Americans would be working today. Research indicates that 90% of the jobs that companies create are created after 

their IPO. Since 2009, the number of new businesses launched in 

the U.S. has fallen by 23%, and there were fewer venture-backed 

IPOs in 2008 and 2009 than in any year since 1985. 

As the number of U.S. IPOs fell precipitously, fewer small companies have gone public. Small companies are critical to economic 

growth in the United States. In order to grow and create jobs, 

small companies must have access to capital. Unfortunately, the 


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IPO Task Force found that fewer and fewer small companies have 

gone public: the share of IPOs smaller than $50 million fell from 

80% in the 1990s to 20% in the 2000s. To encourage small companies to go public in the U.S., to spur economic growth, and to create 

jobs, Representatives Fincher and Carney introduced H.R. 3606 on 

December 8, 2011. 

HEARING

On December 15, 2011, the Subcommittee on Capital Markets 

and Government Sponsored Enterprises held a hearing on ‘‘Legislative Proposals to Bring Certainty to the Over-the-Counter Derivatives Market.’’ At that hearing, the Subcommittee considered H.R. 

3606, the ‘‘Reopening American Capital Markets to Emerging 

Growth Companies Act of 2011.’’ The following witnesses testified: • Mr. Joseph Brantuck, Head, U.S. New Listings and IPOs 

& Vice President, NASDAQ OMX • Mr. Steven R. LeBlanc, Senior Managing Director of Private Markets, Teacher Retirement System of Texas • Ms. Kate Mitchell, Chair, Initial Public Offering (IPO) 

Task Force, Former President of the National Venture Capital 

Association (NVCA); and Managing Director & Co-Founder, 

Scale Venture Partners 

• Mr. Mike Selfridge, Head of Regional Banking, Silicon Valley Bank 

The Subcommittee received testimony from participants in the financial markets, all of whom spoke favorably on H.R. 3606. Ms. 

Kate Mitchell, Managing Director & Co-Founder, Scale Venture 

Partners, and Chair of the IPO Task Force, testified that H.R. 3606 

would ‘‘help restore effective access to the public markets for EGCs 

without compromising investor protection,’’ which would ‘‘spur U.S. 

job creation and economic growth at a time when we desperately 

need both.’’ Mike Selfridge, Head of Regional Banking, Silicon Valley Bank, testified that ‘‘[b]y providing an ‘on-ramp’ to public markets, H.R. 3606 will meaningfully improve growing companies’ ability to obtain the capital necessary to fund continued growth.’’ Joseph Brantuk, Head of U.S. Listings and IPOs & Vice President, 

NASDAQ OMX, testified that H.R. 3606 ‘‘would begin the process 

of reducing the barriers to strong and effective capital markets for 

companies across the United States.’’ Finally, Steven LeBlanc, Senior Managing Director of Private Markets, Teachers Retirement 

System of Texas, testified that ‘‘H.R. 3606’s scaling of regulations 

for newly public companies presents a workable approach to facilitating small and emerging growth companies’ access to capital.’’ 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

February 16, 2012, and ordered H.R. 3606, as amended, favorably 

reported to the House by a record vote of 54 yeas and 1 nay 

(Record vote no. FC–57). 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. On February 16, 


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2012, the Committee on Financial Services met in open session and 

ordered H.R. 3606, as amended, favorably reported to the House by 

a record vote of 54 yeas and 1 nay (Record vote no. FC–57). The 

names of Members voting for and against follow: 

RECORD VOTE NO. FC–57 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ........................... X ........... ............. Mr. Frank (MA) ..................... X ........... .............

Mr. Hensarling ...................... X ........... ............. Ms. Waters ........................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mrs. Maloney ........................ ........... ........... .............

Mr. Royce .............................. X ........... ............. Mr. Gutierrez ........................ X ........... .............

Mr. Lucas .............................. X ........... ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. Paul ................................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Manzullo ......................... X ........... ............. Mr. Ackerman ....................... X ........... .............

Mr. Jones ............................... X ........... ............. Mr. Sherman ........................ X ........... .............

Mrs. Biggert .......................... X ........... ............. Mr. Meeks ............................. X ........... .............

Mr. Gary G. Miller (CA) ......... ........... ........... ............. Mr. Capuano ........................ ........... X .............

Mrs. Capito ........................... X ........... ............. Mr. Hinojosa ......................... X ........... .............

Mr. Garrett ............................ X ........... ............. Mr. Clay ................................ X ........... .............

Mr. Neugebauer .................... X ........... ............. Mrs. McCarthy (NY) .............. X ........... .............

Mr. McHenry .......................... X ........... ............. Mr. Baca .............................. X ........... .............

Mr. Campbell ........................ ........... ........... ............. Mr. Lynch ............................. X ........... .............

Mrs. Bachmann .................... X ........... ............. Mr. Miller (NC) ..................... X ........... .............

Mr. McCotter ......................... X ........... ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ X ........... ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. X ........... ............. Mr. Cleaver ........................... ........... ........... .............

Mr. Posey .............................. X ........... ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... X ........... ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. X ........... ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... X ........... ............. Mr. Donnelly ......................... X ........... .............

Mr. Huizenga ......................... X ........... ............. Mr. Carson ........................... X ........... .............

Mr. Duffy ............................... X ........... ............. Mr. Himes ............................. X ........... .............

Ms. Hayworth ........................ X ........... ............. Mr. Peters ............................. X ........... .............

Mr. Renacci ........................... X ........... ............. Mr. Carney ............................ X ........... .............

Mr. Hurt ................................ X ........... .............

Mr. Dold ................................ X ........... .............

Mr. Schweikert ...................... X ........... .............

Mr. Grimm ............................. X ........... .............

Mr. Canseco .......................... X ........... .............

Mr. Stivers ............................ X ........... .............

Mr. Fincher ............................ X ........... .............

During consideration of H.R. 3606 by the Committee, the following amendments were considered: 

1. An amendment offered by Mr. Himes, no. 7, to reduce the total annual gross revenue test to qualify as an EGC from $1 billion to 

$750 million and eliminate the large accelerated filer test, was not 

agreed to by a record vote of 23 yeas and 31 nays (Record vote no. 

FC–55). 

RECORD VOTE NO. FC–55 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ........................... ........... X ............. Mr. Frank (MA) ..................... X ........... .............

Mr. Hensarling ...................... ........... X ............. Ms. Waters ........................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mrs. Maloney ........................ ........... ........... .............

Mr. Royce .............................. ........... X ............. Mr. Gutierrez ........................ X ........... .............

Mr. Lucas .............................. ........... X ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. Paul ................................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Manzullo ......................... ........... X ............. Mr. Ackerman ....................... X ........... .............

Mr. Jones ............................... ........... X ............. Mr. Sherman ........................ X ........... .............

Mrs. Biggert .......................... ........... X ............. Mr. Meeks ............................. X ........... .............

Mr. Gary G. Miller (CA) ......... ........... X ............. Mr. Capuano ........................ X ........... .............


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RECORD VOTE NO. FC–55—Continued 

Representative Aye Nay Present Representative Aye Nay Present 

Mrs. Capito ........................... ........... X ............. Mr. Hinojosa ......................... X ........... .............

Mr. Garrett ............................ ........... X ............. Mr. Clay ................................ X ........... .............

Mr. Neugebauer .................... ........... X ............. Mrs. McCarthy (NY) .............. X ........... .............

Mr. McHenry .......................... ........... X ............. Mr. Baca .............................. X ........... .............

Mr. Campbell ........................ ........... ........... ............. Mr. Lynch ............................. X ........... .............

Mrs. Bachmann .................... ........... X ............. Mr. Miller (NC) ..................... X ........... .............

Mr. McCotter ......................... ........... X ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ ........... X ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. ........... X ............. Mr. Cleaver ........................... ........... ........... .............

Mr. Posey .............................. ........... X ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... ........... X ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. ........... X ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... ........... X ............. Mr. Donnelly ......................... X ........... .............

Mr. Huizenga ......................... ........... X ............. Mr. Carson ........................... X ........... .............

Mr. Duffy ............................... ........... ........... ............. Mr. Himes ............................. X ........... .............

Ms. Hayworth ........................ ........... X ............. Mr. Peters ............................. ........... ........... .............

Mr. Renacci ........................... ........... X ............. Mr. Carney ............................ ........... X .............

Mr. Hurt ................................ ........... X .............

Mr. Dold ................................ ........... X .............

Mr. Schweikert ...................... ........... X .............

Mr. Grimm ............................. ........... X .............

Mr. Canseco .......................... ........... X .............

Mr. Stivers ............................ ........... X .............

Mr. Fincher ............................ ........... X .............

2. An amendment offered by Mr. Ellison, no. 9, to strike the EGC 

exemption from the ‘‘say-on-pay’’ shareholder vote requirement, 

was not agreed to by a record vote of 24 yeas and 31 nays (Record 

vote no. FC–56). 

RECORD VOTE NO. FC–56 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Bachus ........................... ........... X ............. Mr. Frank (MA) ..................... X ........... .............

Mr. Hensarling ...................... ........... X ............. Ms. Waters ........................... X ........... .............

Mr. King (NY) ........................ ........... ........... ............. Mrs. Maloney ........................ ........... ........... .............

Mr. Royce .............................. ........... X ............. Mr. Gutierrez ........................ X ........... .............

Mr. Lucas .............................. ........... X ............. Ms. Vela ́zquez ...................... X ........... .............

Mr. Paul ................................ ........... ........... ............. Mr. Watt ............................... X ........... .............

Mr. Manzullo ......................... ........... X ............. Mr. Ackerman ....................... X ........... .............

Mr. Jones ............................... X ........... ............. Mr. Sherman ........................ X ........... .............

Mrs. Biggert .......................... ........... X ............. Mr. Meeks ............................. X ........... .............

Mr. Gary G. Miller (CA) ......... ........... ........... ............. Mr. Capuano ........................ X ........... .............

Mrs. Capito ........................... ........... X ............. Mr. Hinojosa ......................... X ........... .............

Mr. Garrett ............................ ........... X ............. Mr. Clay ................................ X ........... .............

Mr. Neugebauer .................... ........... X ............. Mrs. McCarthy (NY) .............. X ........... .............

Mr. McHenry .......................... ........... X ............. Mr. Baca .............................. X ........... .............

Mr. Campbell ........................ ........... ........... ............. Mr. Lynch ............................. X ........... .............

Mrs. Bachmann .................... ........... X ............. Mr. Miller (NC) ..................... X ........... .............

Mr. McCotter ......................... ........... X ............. Mr. David Scott (GA) ............ X ........... .............

Mr. McCarthy (CA) ................ ........... X ............. Mr. Al Green (TX) ................. X ........... .............

Mr. Pearce ............................. ........... X ............. Mr. Cleaver ........................... ........... ........... .............

Mr. Posey .............................. ........... X ............. Ms. Moore ............................. X ........... .............

Mr. Fitzpatrick ....................... ........... X ............. Mr. Ellison ............................ X ........... .............

Mr. Westmoreland ................. ........... X ............. Mr. Perlmutter ...................... X ........... .............

Mr. Luetkemeyer .................... ........... X ............. Mr. Donnelly ......................... X ........... .............

Mr. Huizenga ......................... ........... X ............. Mr. Carson ........................... X ........... .............

Mr. Duffy ............................... ........... X ............. Mr. Himes ............................. ........... X .............

Ms. Hayworth ........................ ........... X ............. Mr. Peters ............................. X ........... .............

Mr. Renacci ........................... ........... X ............. Mr. Carney ............................ ........... X .............

Mr. Hurt ................................ ........... X .............

Mr. Dold ................................ ........... X .............

Mr. Schweikert ...................... ........... X .............


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RECORD VOTE NO. FC–56—Continued 

Representative Aye Nay Present Representative Aye Nay Present 

Mr. Grimm ............................. ........... X .............

Mr. Canseco .......................... ........... X .............

Mr. Stivers ............................ ........... X .............

Mr. Fincher ............................ ........... X .............

The following amendments and motion were also considered by 

the Committee: 

1. An amendment offered by Messrs. Fincher and Carney, no. 1, 

to make technical corrections to the bill; to add an effective date 

to the bill; to strike Section 3(c) of the bill and replace it with language amending Section 7(a) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 to clarify that 

EGCs can take advantage of the timing provided by the Financial 

Accounting Standards Board to private companies for new accounting standards, if such new standards apply to private companies; 

to incorporate technical comments from the SEC on financial reporting in Section 3 and auditing standards in Section 5; and to 

add a new Section 8 to the bill that clarifies that EGCs can ‘‘optin’’ to regulations that they are exempted from by the bill, other 

than for accounting standards, where they must either choose to 

use the EGC treatment for accounting standards, or not at all, was 

agreed to by voice vote. 

2. An amendment offered by Mr. Schweikert, no. 2, to require the 

SEC to study the transitional impact to fraction trading from 

penny trading, and provide the SEC authority to increase the trading increment for the class of securities created by the bill, was 

agreed to by voice vote. 

3. An amendment offered by Mr. Renacci, no. 3, to allow an EGC 

to determine a period of time, following its initial public offering, 

when its stock can only be traded on the exchange where it chooses 

to list; to allow EGCs to designate a period of time during which 

trading on non-exchange venues would be limited; and to require 

that quotation and transaction information for EGCs must be made 

available by an entity that operates a national market system, was 

withdrawn. 

4. An amendment offered by Mr. McHenry, no. 4, to promote development of ‘‘market quality incentive programs’’ on registered national securities exchanges, was withdrawn. 

5. An amendment offered by Ms. Waters, no. 5, to require that 

the distribution of a research report by a broker or dealer or any 

oral or written communications to institutional or accredited investors be filed with the SEC and be deemed a prospectus, was not 

agreed to by voice vote. 

6. An amendment offered by Mr. Royce, no. 6, to increase the exemption from compliance with Section 404(b) of the Sarbanes-Oxley 

Act of 2002 from $75 million in public float to $1 billion, was withdrawn. 

7. An amendment offered by Mr. Himes, no. 8, to require the 

SEC, in consultation with the national securities exchanges, to establish a uniform system to easily identify EGCs for investors, was 

not agreed to by voice vote. 

8. An amendment offered by Mr. Ellison, no. 10, to clarify that 

issuers who no longer qualify for EGC status before the five year 


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12 

exemption ends, must comply with ‘‘say-on-pay’’ shareholder votes 

in the following fiscal year, was withdrawn. 

9. An amendment offered by Mr. Ellison, no. 11, to strike the 

Dodd-Frank Act Section 953(b) pay ratio disclosure exemption for 

EGCs, was not agreed to by voice vote. 

10. An amendment offered by Mr. Garrett, no. 12, to require the 

SEC to study the impact of regulation S-K and report to Congress 

within 180 days of enactment, was agreed to by voice vote. 

11. An amendment offered by Mr. Ellison, no. 13, to clarify that 

issuers who no longer qualify for EGC status before the five year 

exemption ends, must comply with ‘‘say-on-pay’’ shareholder votes 

in the following fiscal year, was agreed to by voice vote. 

12. A motion offered by Mr. Garrett to move the previous question on H.R. 3606 was agreed to by voice vote. 

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee has held hearings and made 

findings that are reflected in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

The objective of H.R. 3606 is to make it easier for small companies to raise capital in U.S. financial markets, thereby facilitating 

their growth and creating jobs. Because small companies are critical to the economic growth of the United States, H.R. 3606 establishes a new category of issuers, EGCs, and exempts them from 

certain regulatory requirements in order to encourage them to go 

public in the United States. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee finds that this legislation 

would result in no new budget authority, entitlement authority, or 

tax expenditures or revenues. 

COMMITTEE COST ESTIMATE

A cost estimate prepared by the Director of the Congressional 

Budget Office pursuant to section 402 of the Congressional Budget 

Act of 1974 was not made available in time for the filing of this 

report. The Chairman of the Committee shall cause such estimate 

to be printed in the Congressional Record upon its receipt by the 

Committee. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, a cost estimate provided by the Congressional 

Budget Office pursuant to section 402 of the Congressional Budget 

Act of 1974 was not made available to the Committee in time for 

the filing of this report. The Chairman of the Committee shall 


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13 

cause such estimate to be printed in the Congressional Record upon 

its receipt by the Committee. 

FEDERAL MANDATES STATEMENT

An estimate of Federal mandates prepared by the Director of the 

Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act was not made available to the Committee in time for the filing of this report. The Chairman of the 

Committee shall cause such estimate to be printed in the Congressional Record upon its receipt by the Committee. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

H.R. 3606 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This short title of this bill is the ‘‘Reopening American Capital 

Markets to Emerging Growth Companies Act of 2012.’’ 

Section 2. Definitions 

This section would amend the Securities Act of 1933 and the Securities Exchange Act of 1934 to establish a new category of issuers 

known as ‘‘Emerging Growth Companies’’ (EGCs) which are issuers 

that have total annual gross revenues of less than $1 billion. An 

issuer that is an EGC as of the first day of a fiscal year shall continue to be deemed an EGC until: (1) the last day of the fiscal year 

during which the issuer had $1 billion in annual gross revenues or 

more; (2) the last day of the fiscal year following the fifth anniversary of the issuer’s initial public offering date; or (3) the date in 

which the issuer is deemed to be a ‘‘large accelerated filer,’’ defined 

by the U.S. Securities and Exchange Commission (SEC) as an 

issuer with more than $700 million in public float. 

This section also would define the ‘‘initial public offering date’’ as 

the date of the first sale of common equity securities of an issuer 

pursuant to an effective registration statement under the Securities 

Act of 1933. This section would establish the effective date for the 

bill as December 8, 2011, which is the date the bill was introduced. 

Section 3. Disclosure obligations 

This section would exempt EGCs from Section 951 of the DoddFrank Wall Street Reform and Consumer Protection Act (P.L. 111– 


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14 

203), which requires publicly-traded companies to hold a non-binding shareholder vote at least once every three years on executive 

compensation and a shareholder vote on executive severance payments known as ‘‘golden parachutes.’’ This section also would exempt EGCs from Section 953(b) of the Dodd-Frank Act, which requires publicly-traded companies to disclose in every SEC filing the 

ratio of the CEO’s compensation to the median compensation of all 

other employees. This section also would require an issuer that 

loses its EGC status before its second anniversary as a public company to comply with the Dodd-Frank Act’s executive compensation 

disclosure requirements described above starting in its third year 

of being a public company. Further, this section would require an 

issuer that loses its EGC status after its second anniversary as a 

public company to comply with the Dodd-Frank Act’s executive 

compensation disclosure requirements beginning in the fiscal year 

after losing its status. 

This section also would require that EGCs provide no more than 

two years of audited financial statements along with their SECfiled registration statement. Additionally, this section would phase 

in the requirement to provide financial data to the SEC so that an 

EGC is not required to provide audited financial statements for periods prior to those provided with the registration statement. 

This section also would provide EGCs with the same extended 

compliance period for new or revised accounting standards issued 

by the Financial Accounting Standards Board that are currently 

available to private companies, if such new or revised standards 

apply to companies that are not issuers. 

This section would also require an EGC to present selected financial data in its periodic reports only for the earliest audited period 

presented in connection with its first registration statement. This 

section would also permit EGCs to follow the same executive compensation disclosure requirements followed by companies with less 

than $75 million in public float. 

Section 4. Internal controls audit 

This section would allow EGCs to defer compliance with Section 

404(b) of the Sarbanes-Oxley Act of 2002 until the company is no 

longer considered an EGC. 

Section 5. Auditing standards 

This section would provide that any rules promulgated by the 

Public Company Accounting Oversight Board (PCAOB) that would 

require mandatory audit firm rotation or a supplement to the auditor’s report shall not apply to an EGC. In addition, this section 

would provide that any auditing standards adopted by the PCAOB 

after enactment would not apply to EGCs unless the SEC finds 

that the application of such rules to EGCs is necessary or appropriate after it considers investor protection, efficiency, competition, 

and capital formation. 

Section 6. Availability of information about EGCs 

This section would amend the Securities Act of 1933 to permit 

the publication or distribution by a broker or dealer of a research 

report about an EGC that is the subject of a proposed public offering, even if the broker or dealer is participating or will participate 


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15 

in the offering. This section also would amend the Securities Act 

of 1933 to expand the range of permissible pre-filing communications to sophisticated institutional investors to allow EGCs to determine whether qualified institutional or accredited investors 

might have an interest in a contemplated securities offering. 

This section would amend the Securities Exchange Act of 1934 

to permit members of the investment banking team for a broker or 

dealer participating in an offering to arrange for communications 

between securities analysts and potential investors in EGCs, and 

to permit research analysts to participate in communications with 

management of the issuer that are also attended by other members 

of the broker or dealer. 

This section would also permit the publication and distribution 

of research reports about EGCs during post-IPO quiet periods and 

lock-up periods established by the SEC or national securities associations under the Securities Exchange Act of 1934. 

Section 7. Other matters 

This section would permit U.S. companies to submit draft registration statements to the SEC on a confidential basis, as is currently permitted for non-U.S. companies. Final registration materials, including all amendments resulting from the SEC review 

process, will still be required to be made publicly available to investors with adequate time for review prior to an EGC’s initial public 

offering. 

This section also would require the SEC to study the effects of 

the transition from fraction trading to penny trading for securities, 

including the effect of the transition on initial public offerings and 

liquidity for small and mid-cap companies. The section would require the SEC to report to Congress about the impact of penny 

trading 90 days after enactment of the bill. The section also would 

authorize the SEC to increase the trading increment for EGCs to 

greater than $.01 but less than $.10 within 180 days of enactment. 

Section 8. Opt-in right for emerging growth companies 

This section would allow EGCs to forgo the regulatory exemptions afforded to EGCs and instead ‘‘opt-in’’ to certain regulatory 

requirements as they see fit. However, EGCs cannot selectively 

‘‘opt-in’’ to comply with new or revised accounting standards. Instead, an EGC must declare in its SEC-filed registration statement 

whether it will or will not use the extension of time for all new or 

revised accounting standards applicable to EGCs. 

Section 9. Review of regulation S–K. 

This section would require the SEC to review Regulation S–K 

and determine how the registration process can be simplified for 

EGCs. This section requires the SEC to report to Congress on 

streamlining the registration process for prospective EGCs within 

180 days of enactment of the bill. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitVerDate Mar 15 2010 03:04 Mar 02, 2012 Jkt 019006 PO 00000 Frm 00015 Fmt 6659 Sfmt 6602 E:\HR\OC\HR406.XXX HR406

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16 

ted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

SECURITIES ACT OF 1933 

TITLE I—SHORT TITLE 

* * * * * * * 

DEFINITIONS

SEC. 2. (a) DEFINITIONS.—When used in this title, unless the context otherwise requires— 

(1) * * * 

* * * * * * * 

(3) The term ‘‘sale’’ or ‘‘sell’’ shall include every contract of 

sale or disposition of a security or interest in a security, for 

value. The term ‘‘offer to sell’’, ‘‘offer for sale’’, or ‘‘offer’’ shall 

include every attempt or offer to dispose of, or solicitation of 

an offer to buy, a security or interest in a security, for value. 

The terms defined in this paragraph and the term ‘‘offer to 

buy’’ as used in subsection (c) of section 5 shall not include preliminary negotiations or agreements between an issuer (or any 

person directly or indirectly controlling or controlled by an 

issuer, or under direct or indirect common control with an 

issuer) and any underwriter or among underwriters who are or 

are to be in privity of contract with an issuer (or any person 

directly or indirectly controlling or controlled by an issuer, or 

under direct or indirect common control with an issuer). Any 

security given or delivered with, or as a bonus on account of, 

any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. The issue 

or transfer of a right or privilege, when originally issued or 

transferred with a security, giving the holder of such security 

the right to convert such security into another security of the 

same issuer or of another person, or giving a right to subscribe 

to another security of the same issuer or of another person, 

which right cannot be exercised until some future date, shall 

not be deemed to be an offer or sale of such other security; but 

the issue or transfer of such other security upon the exercise 

of such right of conversion or subscription shall be deemed a 

sale of such other security. Any offer or sale of a security futures product by or on behalf of the issuer of the securities underlying the security futures product, an affiliate of the issuer, 

or an underwriter, shall constitute a contract for sale of, sale 

of, offer for sale, or offer to sell the underlying securities. Any 

offer or sale of a security-based swap by or on behalf of the 

issuer of the securities upon which such security-based swap is 

based or is referenced, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for 

sale, or offer to sell such securities. The publication or distribution by a broker or dealer of a research report about an emerging growth company that is the subject of a proposed public offering of the common equity securities of such emerging growth 

company pursuant to a registration statement that the issuer 


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17 

proposes to file, or has filed, or that is effective shall be deemed 

for purposes of paragraph (10) of this subsection and section 

5(c) not to constitute an offer for sale or offer to sell a security, 

even if the broker or dealer is participating or will participate 

in the registered offering of the securities of the issuer. As used 

in this paragraph, the term ‘‘research report’’ means a written, 

electronic, or oral communication that includes information, 

opinions, or recommendations with respect to securities of an 

issuer or an analysis of a security or an issuer, whether or not 

it provides information reasonably sufficient upon which to 

base an investment decision. 

* * * * * * * 

(19) The term ‘‘emerging growth company’’ means an issuer 

that had total annual gross revenues of less than 

$1,000,000,000 during its most recently completed fiscal year. 

An issuer that is an emerging growth company as of the first 

day of that fiscal year shall continue to be deemed an emerging 

growth company until the earliest of— 

(A) the last day of the fiscal year of the issuer during 

which it had total annual gross revenues of $1,000,000,000 

or more; 

(B) the last day of the fiscal year of the issuer following 

the fifth anniversary of the date of the first sale of common 

equity securities of the issuer pursuant to an effective registration statement under this title; or 

(C) the date on which such issuer is deemed to be a 

‘‘large accelerated filer’’, as defined in section 240.12b–2 of 

title 17, Code of Federal Regulations, or any successor 

thereto. 

* * * * * * * 

PROHIBITIONS RELATING TO INTERSTATE COMMERCE AND THE MAILS

SEC. 5. (a) * * * 

* * * * * * * 

(d) LIMITATION.—Notwithstanding any other provision of this section, an emerging growth company or any person authorized to act 

on behalf of an emerging growth company may engage in oral or 

written communications with potential investors that are qualified 

institutional buyers or institutions that are accredited investors, as 

such terms are respectively defined in section 230.144A and section 

230.501(a) of title 17, Code of Federal Regulations, or any successor 

thereto, to determine whether such investors might have an interest 

in a contemplated securities offering, either prior to or following the 

date of filing of a registration statement with respect to such securities with the Commission, subject to the requirement of subsection 

(b)(2). 

ø(d)¿ (e) Notwithstanding the provisions of section 3 or 4, unless 

a registration statement meeting the requirements of section 10(a) 

is in effect as to a security-based swap, it shall be unlawful for any 

person, directly or indirectly, to make use of any means or instruments of transportation or communication in interstate commerce 

or of the mails to offer to sell, offer to buy or purchase or sell a 

security-based swap to any person who is not an eligible contract 


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participant as defined in section 1a(18) of the Commodity Exchange 

Act (7 U.S.C. 1a(18)). 

REGISTRATION OF SECURITIES AND SIGNING OF REGISTRATION

STATEMENT

SEC. 6. (a) * * * 

* * * * * * * 

(e) EMERGING GROWTH COMPANIES.— (1) IN GENERAL.—Any emerging growth company, prior to its 

initial public offering date, may confidentially submit to the 

Commission a draft registration statement, for confidential nonpublic review by the staff of the Commission prior to public filing, provided that the initial confidential submission and all 

amendments thereto shall be publicly filed with the Commission not later than 21 days before the date on which the issuer 

conducts a road show, as such term is defined in section 

230.433(h)(4) of title 17, Code of Federal Regulations, or any 

successor thereto. 

(2) CONFIDENTIALITY.—Notwithstanding any other provision 

of this title, the Commission shall not be compelled to disclose 

any information provided to or obtained by the Commission 

pursuant to this subsection. For purposes of section 552 of title 

5, United States Code, this subsection shall be considered a 

statute described in subsection (b)(3)(B) of such section 552. Information described in or obtained pursuant to this subsection 

shall be deemed to constitute confidential information for purposes of section 24(b)(2) of the Securities Exchange Act of 1934. 

* * * * * * * 

SEC. 7. ø(a) The registration¿ (a) INFORMATION REQUIRED IN

REGISTRATION STATEMENT.— (1) IN GENERAL.—The registration statement, when relating 

to a security other than a security issued by a foreign government, or political subdivision thereof, shall contain the information, and be accompanied by the documents, specified in 

Schedule A, and when relating to a security issued by a foreign 

government, or political subdivision thereof, shall contain the 

information, and be accompanied by the documents, specified 

in Schedule B; except that the Commission may by rules or 

regulations provide that any such information or document 

need not be included in respect of any class of issuers or securities if it finds that the requirement of such information or 

document is inapplicable to such class and that disclosure fully 

adequate for the protection of investors is otherwise required 

to be included within the registration statement. If any accountant, engineer, or appraiser, or any person whose profession gives authority to a statement made by him, is named as 

having prepared or certified any part of the registration statement, or is named as having prepared or certified a report or 

valuation for use in connection with the registration statement, 

the written consent of such person shall be filed with the registration statement. If any such person is named as having 

prepared or certified a report or valuation (other than a public 

official document or statement) which is used in connection 

with the registration statement, but is not named as having 


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prepared or certified such report or valuation for use in connection with the registration statement, the written consent of 

such person shall be filed with the registration statement unless the Commission dispenses with such filing as impracticable or as involving undue hardship on the person filing the 

registration statement. Any such registration statement shall 

contain such other information, and be accompanied by such 

other documents, as the Commission may by rules or regulations require as being necessary or appropriate in the public 

interest or for the protection of investors. 

(2) TREATMENT OF EMERGING GROWTH COMPANIES.—An 

emerging growth company— 

(A) need not present more than 2 years of audited financial statements in order for the registration statement of 

such emerging growth company with respect to an initial 

public offering of its common equity securities to be effective, and in any other registration statement to be filed 

with the Commission, an emerging growth company need 

not present selected financial data in accordance with section 229.301 of title 17, Code of Federal Regulations, for 

any period prior to the earliest audited period presented in 

connection with its initial public offering; and 

(B) may not be required to comply with any new or revised financial accounting standard until such date that a 

company that is not an issuer (as defined under section 

2(a) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(a)) 

is required to comply with such new or revised accounting 

standard, if such standard applies to companies that are 

not issuers. 

* * * * * * * 

SECURITIES EXCHANGE ACT OF 1934 

TITLE I—REGULATION OF SECURITIES EXCHANGES 

* * * * * * * 

DEFINITIONS AND APPLICATION OF TITLE

SEC. 3. (a) When used in this title, unless the context otherwise 

requires— 

(1) * * * 

* * * * * * * 

ø(77)¿ (79) ASSET-BACKED SECURITY.—The term ‘‘assetbacked security’’— 

(A) * * * 

* * * * * * * 

(80) ECONOMIC GROWTH COMPANY.—The term ‘‘emerging 

growth company’’ means an issuer that had total annual gross 

revenues of less than $1,000,000,000 during its most recently 

completed fiscal year. An issuer that is an emerging growth 

company as of the first day of that fiscal year shall continue to 

be deemed an emerging growth company until the earliest of— 


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(A) the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1,000,000,000 

or more; 

(B) the last day of the fiscal year of the issuer following 

the fifth anniversary of the date of the first sale of common 

equity securities of the issuer pursuant to an effective registration statement under the Securities Act of 1933; or 

(C) the date on which such issuer is deemed to be a 

‘‘large accelerated filer’’, as defined in section 240.12b–2 of 

title 17, Code of Federal Regulations, or any successor 

thereto. 

* * * * * * * 

NATIONAL MARKET SYSTEM FOR SECURITIES; SECURITIES

INFORMATION PROCESSORS

SEC. 11A. (a) * * * 

* * * * * * * 

(c)(1) * * * 

* * * * * * * 

(6) TICK SIZE.— 

(A) STUDY AND REPORT.—The Commission shall conduct a 

study examining the transition to trading and quoting securities in one penny increments, also known as decimalization. 

The study shall examine the impact that decimalization has 

had on the number of initial public offerings since its implementation relative to the period before its implementation. The 

study shall also examine the impact that this change has had 

on liquidity for small and middle capitalization company securities and whether there is sufficient economic incentive to support trading operations in these securities in penny increments. 

Not later than 90 days after the date of enactment of this paragraph, the Commission shall submit to Congress a report on the 

findings of the study. 

(B) DESIGNATION.—If the Commission determines that the securities of emerging growth companies should be quoted and 

traded using a minimum increment of greater than $0.01, the 

Commission may, by rule not later than 180 days after the date 

of enactment of this paragraph, designate a minimum increment for the securities of emerging growth companies that is 

greater than $0.01 but less than $0.10 for use in all quoting 

and trading of securities in any exchange or other execution 

venue. 

* * * * * * * 

PERIODICAL AND OTHER REPORTS

SEC. 13. (a) Every issuer of a security registered pursuant to section 12 of this title shall file with the Commission, in accordance 

with such rules and regulations as the Commission may prescribe 

as necessary or appropriate for the proper protection of investors 

and to insure fair dealing in the security— 

(1) * * * 

* * * * * * * 


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Every issuer of a security registered on a national securities exchange shall also file a duplicate original of such information, documents, and reports with the exchange. In any registration statement, periodic report, or other reports to be filed with the Commission, an emerging growth company need not present selected financial data in accordance with section 229.301 of title 17, Code of 

Federal Regulations, for any period prior to the earliest audited period presented in connection with its first registration statement 

that became effective under this Act or the Securities Act of 1933 

and, with respect to any such statement or reports, an emerging 

growth company may not be required to comply with any new or revised financial accounting standard until such date that a company 

that is not an issuer (as defined under section 2(a) of the SarbanesOxley Act of 2002 (15 U.S.C. 7201(a))) is required to comply with 

such new or revised accounting standard, if such standard applies 

to companies that are not issuers. 

* * * * * * * 

PROXIES

SEC. 14. (a) * * * 

* * * * * * * 

(i) DISCLOSURE OF PAY VERSUS PERFORMANCE.—The Commission 

shall, by rule, require each issuer to disclose in any proxy or consent solicitation material for an annual meeting of the shareholders 

of the issuer a clear description of any compensation required to be 

disclosed by the issuer under section 229.402 of title 17, Code of 

Federal Regulations (or any successor thereto), including, for any 

issuer other than an emerging growth company, information that 

shows the relationship between executive compensation actually 

paid and the financial performance of the issuer, taking into account any change in the value of the shares of stock and dividends 

of the issuer and any distributions. The disclosure under this subsection may include a graphic representation of the information required to be disclosed. 

* * * * * * * 

SEC. 14A. SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION. 

(a) * * * 

* * * * * * * 

(e) EXEMPTION.—øThe Commission may¿ 

(1) IN GENERAL.—The Commission may, by rule or order, exempt øan issuer¿ any other issuer or class of issuers from the 

requirement under subsection (a) or (b). In determining whether to make an exemption under this subsection, the Commission shall take into account, among other considerations, 

whether the requirements under subsections (a) and (b) disproportionately burdens small issuers. 

(2) TREATMENT OF EMERGING GROWTH COMPANIES.— (A) IN GENERAL.—An emerging growth company shall be 

exempt from the requirements of subsections (a) and (b). 

(B) COMPLIANCE AFTER TERMINATION OF EMERGING

GROWTH COMPANY TREATMENT.—An issuer that was an 

emerging growth company but is no longer an emerging 


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growth company shall include the first separate resolution 

described under subsection (a)(1) not later than the end 

of— 

(i) in the case of an issuer that was an emerging 

growth company for less than 2 years after the date of 

first sale of common equity securities of the issuer pursuant to an effective registration statement under the 

Securities Act of 1933, the 3-year period beginning on 

such date; and 

(ii) in the case of any other issuer, the 1-year period 

beginning on the date the issuer is no longer an emerging growth company. 

* * * * * * * 

SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS. 

(a) * * * 

* * * * * * * 

(c) LIMITATION.—Notwithstanding subsection (a) or any other provision of law, neither the Commission nor any national securities 

association registered under section 15A may adopt or maintain any 

rule or regulation in connection with an initial public offering of the 

common equity of an emerging growth company— 

(1) restricting, based on functional role, which associated persons of a broker, dealer, or member of a national securities association, may arrange for communications between a securities 

analyst and a potential investor; or 

(2) restricting a securities analyst from participating in any 

communications with the management of an emerging growth 

company that is also attended by any other associated person 

of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst. 

ø(c)¿ (d) DEFINITIONS.—In this section— 

(1) * * * 

* * * * * * * 

INVESTOR PROTECTION AND SECURITIES REFORM ACT 

OF 2010 

* * * * * * * 

TITLE IX—INVESTOR PROTECTIONS 

AND IMPROVEMENTS TO THE REGULATION OF SECURITIES 

SEC. 901. SHORT TITLE. 

This title may be cited as the ‘‘Investor Protection and Securities 

Reform Act of 2010’’. 

* * * * * * * 


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Subtitle E—Accountability and Executive 

Compensation 

* * * * * * * 

SEC. 953. EXECUTIVE COMPENSATION DISCLOSURES. 

(a) * * * 

(b) ADDITIONAL DISCLOSURE REQUIREMENTS.— 

(1) IN GENERAL.—The Commission shall amend section 

229.402 of title 17, Code of Federal Regulations, to require 

each issuer, other than an emerging growth company, as that 

term is defined in section 3(a) of the Securities Exchange Act of 

1934, to disclose in any filing of the issuer described in section 

229.10(a) of title 17, Code of Federal Regulations (or any successor thereto)— 

(A) * * * 

* * * * * * * 

SARBANES-OXLEY ACT OF 2002 

* * * * * * * 

TITLE I—PUBLIC COMPANY 

ACCOUNTING OVERSIGHT BOARD 

* * * * * * * 

SEC. 103. AUDITING, QUALITY CONTROL, AND INDEPENDENCE STANDARDS AND RULES. 

(a) AUDITING, QUALITY CONTROL, AND ETHICS STANDARDS.— 

(1) * * * 

* * * * * * * 

(3) AUTHORITY TO ADOPT OTHER STANDARDS.— 

(A) * * * 

* * * * * * * 

(C) TRANSITION PERIOD FOR EMERGING GROWTH COMPANIES.—Any rules of the Board requiring mandatory audit 

firm rotation or a supplement to the auditor’s report in 

which the auditor would be required to provide additional 

information about the audit and the financial statements of 

the issuer (auditor discussion and analysis) shall not apply 

to an audit of an emerging growth company, as defined in 

section 3 of the Securities Exchange Act of 1934. Any additional rules adopted by the Board after the date of enactment of this subparagraph shall not apply to an audit of 

any emerging growth company, unless the Commission determines that the application of such additional requirements is necessary or appropriate in the public interest, 

after considering the protection of investors and whether 

the action will promote efficiency, competition, and capital 

formation. 

* * * * * * * 


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TITLE IV—ENHANCED FINANCIAL 

DISCLOSURES 

* * * * * * * 

SEC. 404. MANAGEMENT ASSESSMENT OF INTERNAL CONTROLS. 

(a) * * * 

(b) INTERNAL CONTROL EVALUATION AND REPORTING.—With respect to the internal control assessment required by subsection (a), 

each registered public accounting firm that prepares or issues the 

audit report for the issuer, other than an issuer that is an emerging 

growth company (as defined in section 3 of the Securities Exchange 

Act of 1934), shall attest to, and report on, the assessment made 

by the management of the issuer. An attestation made under this 

subsection shall be made in accordance with standards for attestation engagements issued or adopted by the Board. Any such attestation shall not be the subject of a separate engagement. 

* * * * * * * 


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MINORITY VIEWS 

H.R. 3606 encourages emerging growth companies (EGCs) to access the public capital markets by temporarily exempting EGCs 

from some registration procedures, prohibitions on initial public offering (IPO) communications, and independent audits of internal 

controls over financial reporting, among other exemptions. Democrats agree in principle that it is important to modernize and improve the ability of a company to raise capital in today’s environment, but are concerned H.R. 3606 goes beyond what is necessary 

at the expense of protecting the investor. 

During consideration of H.R. 3606, Democrats offered several 

amendments to strike the right balance between promoting capital 

formation of smaller businesses and guarding against bad actors, 

but each of these was rejected. Ms. Waters offered an amendment 

to ameliorate the conflicts between investors and the underwriters 

and their analysts, requiring that the research be subject to potential liability, to better prevent the kinds of fraudulent practices 

that were prevalent during the ‘‘dot.com’’ bubble. Mr. Ellison’s 

amendment recognizes the importance of early compensation practices by empowering EGC shareholders to cast a nonbinding vote 

on executive compensation levels as well as golden parachutes. Mr. 

Himes proposed to better target H.R. 3606’s exemptions for EGCs 

to truly small companies that may not be able to afford some public 

company requirements by reducing the exemption limit from $1 billion to $750 million, and to better identify those companies. 

While we believe that additional changes must be made in H.R. 

3606, Democrats worked with the Majority to improve the bill during the markup. One amendment was adopted that, among other 

things, prevents the politicization of the accounting standards setting process of the Federal Accounting Standards Board. Another 

amendment expedited the ability for shareholders to cast a vote on 

the executive compensation levels within one year instead of up to 

3 years after the EGC’s exemption expires. These improvements 

represent a first step in the right direction. 


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Democrats and Republicans share the desire to create an accessible, robust and efficient capital market for the benefit of small 

businesses and investors, alike. We expect that as H.R. 3606 moves 

forward, further refinements will be adopted to ensure that investor protections are not sacrificed. 

BARNEY FRANK. 

WM. LACY CLAY. 

GWEN MOORE. 

JAMES A. HIMES. 

RUBE ́ N HINOJOSA. 

KEITH ELLISON. 

ED PERLMUTTER. 

MICHAEL E. CAPUANO. 

AL GREEN. 

STEPHEN F. LYNCH. 

DAVID SCOTT. 

MAXINE WATERS. 

CAROLYN B. MALONEY. 

MELVIN L. WATT. 

LUIS V. GUTIERREZ. 

GARY C. PETERS. 

ANDRE ́ CARSON. 

GARY L. ACKERMAN. 

GREGORY W. MEEKS. 

Æ 


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