79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–808 

IMPROVING INVESTMENT RESEARCH FOR SMALL AND 

EMERGING ISSUERS ACT 

JULY 10, 2018.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 6139] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 6139) to require the Securities and Exchange Commission 

to carry out a study to evaluate the issues affecting the provision 

of and reliance upon investment research into small issuers, having 

considered the same, report favorably thereon without amendment 

and recommend that the bill do pass. 

PURPOSE AND SUMMARY

On June 19, 2018, Representative Bill Huizenga introduced H.R. 

6139, the ‘‘Improving Investment Research for Small and Emerging 

Issuers Act’’, which requires the U.S. Securities and Exchange 

Commission (SEC) to report to Congress within 180 days after enactment on issues that affect the provision of and reliance upon investment research into small issuers, including emerging growth 

companies (EGCs), other small issuers, such as nano-cap and 

microcap issuers, and companies considering initial public offerings 

(IPOs). Among the issues the SEC must consider are factors related to the demand for such research by institutional and retail 

investors, cost considerations for such research, and the impact on 

the availability of research coverage for small issuers due to a variety of market and regulatory conditions. The SEC’s report must include recommendations to increase the demand for, volume of, and 

quality of investment research into small issuers and pre-IPO companies. 


lotter on DSKBCFDHB2PROD with REPORTS
2 

BACKGROUND AND NEED FOR LEGISLATION

The goal of H.R. 6139 is to help understand the issues affecting 

the ability of smaller cap issuers and emerging growth companies 

in obtaining research coverage. 

Section 105 of the Jumpstart or Business Startups (JOBS) Act 

(P.L. 112–106) changed the ‘‘gun-jumping rules’’ to provide an exception from the definition of an offer to allow for 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. However, few investment banks have published any preIPO research since passage of the JOBS Act, and research coverage 

in general on small issuers continues to be a problem—which affects investor interest in these growth companies, their trading liquidity, and their ability to access investment firm capital. 

Title I of the JOBS Act explicitly provided a safe harbor for research related to offerings of EGC securities. Yet despite their similarities to these other asset classes, research that covers openended funds and ETFs, popular investment options for retail investors, does not benefit from similar safe harbors. Consequently, 

broker-dealers do not publish research regarding ETFs, depriving 

investors of useful information when deciding whether to invest in 

this product. The Fair Access to Investment Research (FAIR) Act 

(P.L. 115–66) corrects a problem that the Securities and Exchange 

Commission (SEC) had known about since 2001, but failed to address. Prior to the FAIR Act, federal securities law inhibited the 

free flow of investment research. The law directs the SEC to revise 

its regulations to create a safe harbor for certain publications or 

distributions of research reports by brokers or dealers distributing 

securities, such as Exchange Traded Funds (ETFs). The revised 

regulation shall declare that the investment funds research report 

shall not be deemed to constitute an offer for sale nor an offer to 

sell a security that is the subject of the offering pursuant to a registration statement that the issuer proposes to file, or has filed, or 

that is effective. The covered investment fund research report 

would satisfy the regulation’s requirements as well as those of any 

self-regulatory organization. The bill prohibits the SEC from imposing specified conditions and requirements when implementing the 

safe harbor. 

A recent report by Cowen to the SEC Investor Advisory Committee noted that about 61% of all companies listed on a major exchange with less than a $100 million market capitalization have no 

research coverage at all. For equities with a market cap below $750 

million, the average number of research analysts covering that 

stock is 1, while equities above $750 million in market cap have 

an average of 12 research analysts covering the stock. Moreover, a 

2017 survey by OTC Markets reported that 68% of respondents 

stated they had no research coverage and another 5% stated they 

did not know if they had any research coverage. 

Additionally, the amount of research written on smaller cap companies has declined even as the percentage of individual investor 

ownership in smaller cap companies has increased. Little-to-no research coverage generally corresponds with lower stock liquidity, 

and since investment firms typically avoid investing in illiquid 

stocks, the lack of research coverage effectively precludes smaller 


lotter on DSKBCFDHB2PROD with REPORTS
3 

cap issuers with illiquid stocks from accessing investment firm capital. Moreover, reduced research coverage may be particularly disadvantageous to individual investors who have limited research capabilities on their own. 

One study also found that an increase in the number of analysts 

covering an industry improved the quality of analyst forecasts and 

information flow to investors. 

For that reason, it is important to examine current SEC rules 

and regulations that affect the ability of investment analysts to 

provide research coverage about small issuers. The Treasury Report on Capital Markets recommended a holistic review of rules 

and regulations regarding investment analyst research, including 

the Global Analyst Research Settlement, to determine which provisions should be retained, amended, or removed. 

HEARINGS

The subcommittee on Capital Markets, Securities, and Investment held a hearing examining matters relating to H.R. 6139 on 

May 23, 2018. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

June 21, 2018, and ordered H.R. 6139 to be reported favorably to 

the House without amendment by a recorded vote of 58 yeas to 0 

nays (recorded vote no. FC–192), a quorum being present. 

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. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 58 yeas to 0 nays (Record vote no. FC–192), 

a quorum being present. 


lotter on DSKBCFDHB2PROD with REPORTS
4 


lotter on DSKBCFDHB2PROD with REPORTSInsert graphic folio 5 HR808.001
5 

COMMITTEE OVERSIGHT FINDINGS

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

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of 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 states that H.R. 6139 will help 

to identify the challenges small issuers face in obtaining research 

coverage and the subsequent impact this has on the trading liquidity of their securities and their ability to access investment firm 

capital by directing the SEC to conduct a study on the causes affecting the ability of such issuers to obtain research coverage. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

The Committee has not received an estimate of new budget authority contained in the cost estimate prepared by the Director of 

the Congressional Budget Office pursuant to Sec. 402 of the Congressional Budget Act of 1974. In compliance with clause 3(c)(2) of 

rule XIII of the Rules of the House, the Committee opines that 

H.R. 6139 will not establish any new budget or entitlement authority or create any tax expenditures. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

The cost estimate prepared by the Director of the Congressional 

Budget Office pursuant to Sec. 402 of the Congressional Budget Act 

of 1974 was not submitted timely to the Committee. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

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

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 


lotter on DSKBCFDHB2PROD with REPORTS
6 

contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires no directed rulemaking 

within the meaning of such section. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This Section cites H.R. 6139 as the ‘‘Improving Investment Research for Small and Emerging Issuers Act.’’ 

Section 2. Research study 

This section requires the SEC to conduct a study to evaluate the 

issues affecting the provision of and reliance upon investment analyst research for small issuers, including emerging growth companies, and other small cap issuers like nano-cap and microcap companies at the lower end of the market capitalization spectrum, and 

companies considering initial public offerings. The SEC is required 

to report to Congress within 180 days on its results and on recommendations to increase the demand for, volume of, and quality 

of investment research into small issuers. 

Æ 


lotter on DSKBCFDHB2PROD with REPORTS