IIB 114th CONGRESS 2d Session H. R. 1675 IN THE SENATE OF THE UNITED STATES February 4, 2016 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs AN ACT To direct the Securities and Exchange Commission to revise its rules so as to increase the threshold amount for requiring issuers to provide certain disclosures relating to compensatory benefit plans.

1. Short title; table of contents (a) Short title This Act may be cited as the Capital Markets Improvement Act of 2016 . (b) Table of contents The table of contents for this Act is as follows: Sec. 1. Short title; table of contents. Title I—Encouraging Employee Ownership Sec. 101. Increased threshold for disclosures relating to compensatory benefit plans. Title II—Fair Access to Investment Research Sec. 201. Safe harbor for investment fund research. Title III—Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Sec. 301. Registration exemption for merger and acquisition brokers. Sec. 302. Effective date. Title IV—Small Company Disclosure Simplification Sec. 401. Exemption from XBRL requirements for emerging growth companies and other smaller companies. Sec. 402. Analysis by the SEC. Sec. 403. Report to Congress. Sec. 404. Definitions. Title V—Streamlining Excessive and Costly Regulations Review Sec. 501. Regulatory review. I Encouraging Employee Ownership 101. Increased threshold for disclosures relating to compensatory benefit plans Not later than 60 days after the date of the enactment of this Act, the Securities and Exchange Commission shall revise section 230.701(e) of title 17, Code of Federal Regulations, so as to increase from $5,000,000 to $10,000,000 the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required under such section to deliver an additional disclosure to investors. The Commission shall index for inflation such aggregate sales price or amount every 5 years to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, rounding to the nearest $1,000,000. II Fair Access to Investment Research 201. Safe harbor for investment fund research (a) Expansion of safe harbor Not later than the end of the 45-day period beginning on the date of enactment of this Act, the Securities and Exchange Commission shall propose, and not later than the end of the 120-day period beginning on such date, the Commission shall adopt, upon such terms, conditions, or requirements as the Commission may determine necessary or appropriate in the public interest, for the protection of investors, and for the promotion of capital formation, revisions to section 230.139 of title 17, Code of Federal Regulations, to provide that a covered investment fund research report— (1) shall be deemed, for purposes of sections 2(a)(10) and 5(c) of the Securities Act of 1933, not to constitute an offer for sale or an offer to sell a security that is the subject of an offering pursuant to a registration statement that the issuer proposes to file, or has filed, or that is effective, even if the broker or dealer is participating or will participate in the registered offering of the covered investment fund’s securities; and (2) shall be deemed to satisfy the conditions of subsection (a)(1) or (a)(2) of section 230.139 of title 17, Code of Federal Regulations, or any successor provisions, for purposes of the Commission’s rules and regulations under the Federal securities laws and the rules of any self-regulatory organization. (b) Implementation of safe harbor In implementing the safe harbor pursuant to subsection (a), the Commission shall— (1) not, in the case of a covered investment fund with a class of securities in substantially continuous distribution, condition the safe harbor on whether the broker’s or dealer’s publication or distribution of a covered investment fund research report constitutes such broker’s or dealer’s initiation or reinitiation of research coverage on such covered investment fund or its securities; (2) not— (A) require the covered investment fund to have been registered as an investment company under the Investment Company Act of 1940 or subject to the reporting requirements of section 13 or 15(d) of the Securities Exchange Act of 1934 for any period exceeding twelve months; or (B) impose a minimum float provision exceeding that referenced in subsection (a)(1)(i)(A)(1)(i) of section 230.139 of title 17, Code of Federal Regulations; (3) provide that a self-regulatory organization may not maintain or enforce any rule that would— (A) condition the ability of a member to publish or distribute a covered investment fund research report on whether the member is also participating in a registered offering or other distribution of any securities of such covered investment fund; (B) condition the ability of a member to participate in a registered offering or other distribution of securities of a covered investment fund on whether the member has published or distributed a covered investment fund research report about such covered investment fund or its securities; or (C) require the filing of a covered investment fund research report with such self-regulatory organization; and (4) provide that a covered investment fund research report shall not be subject to sections 24(b) or 34(b) of the Investment Company Act of 1940 or the rules and regulations thereunder. (c) Rules of construction Nothing in this section shall be construed as in any way limiting— (1) the applicability of the antifraud provisions of the Federal securities laws; or (2) the authority of any self-regulatory organization to examine or supervise a member’s practices in connection with such member’s publication or distribution of a covered investment fund research report for compliance with otherwise applicable provisions of the Federal securities laws or self-regulatory organization rules. (d) Interim effectiveness of safe harbor From and after the 120-day period beginning on the date of enactment of this Act, if the Commission has not met its obligations pursuant to subsection (a) to adopt revisions to section 230.139 of title 17, Code of Federal Regulations, and until such time as the Commission has done so, a covered investment fund research report published or distributed by a broker or dealer after such date shall be deemed to meet the requirements of section 230.139 of title 17, Code of Federal Regulations, and to satisfy the conditions of subsection (a)(1) or (a)(2) thereof for purposes of the Commission’s rules and regulations under the Federal securities laws and the rules of any self-regulatory organization, as if revised and implemented in accordance with subsections (a) and (b). (e) Definitions For purposes of this section: (1) Covered investment fund research report The term covered investment fund research report means a research report published or distributed by a broker or dealer about a covered investment fund or any of its securities. (2) Covered investment fund The term covered investment fund means— (A) an investment company registered under, or that has filed an election to be treated as a business development company under, the Investment Company Act of 1940 and that has filed a registration statement under the Securities Act of 1933 for the public offering of a class of its securities, which registration statement has been declared effective by the Commission; and (B) a trust or other person— (i) that has a class of securities listed for trading on a national securities exchange; (ii) the assets of which consist primarily of commodities, currencies, or derivative instruments that reference commodities or currencies, or interests in the foregoing; and (iii) that allows its securities to be purchased or redeemed, subject to conditions or limitations, for a ratable share of its assets. (3) Research report The term research report has the meaning given to that term under section 2(a)(3) of the Securities Act of 1933, except that such term shall not include an oral communication. (4) Self-regulatory organization The term self-regulatory organization has the meaning given to that term under section 3(a)(26) of the Securities Exchange Act of 1934. III Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification 301. Registration exemption for merger and acquisition brokers Section 15(b) of the Securities Exchange Act of 1934 ( 15 U.S.C. 78o(b) ) is amended by adding at the end the following: (13) Registration exemption for merger and acquisition brokers (A) In general Except as provided in subparagraph (B), an M&A broker shall be exempt from registration under this section. (B) Excluded activities An M&A broker is not exempt from registration under this paragraph if such broker does any of the following: (i) Directly or indirectly, in connection with the transfer of ownership of an eligible privately held company, receives, holds, transmits, or has custody of the funds or securities to be exchanged by the parties to the transaction. (ii) Engages on behalf of an issuer in a public offering of any class of securities that is registered, or is required to be registered, with the Commission under section 12 or with respect to which the issuer files, or is required to file, periodic information, documents, and reports under subsection (d). (iii) Engages on behalf of any party in a transaction involving a public shell company. (C) Disqualifications An M&A broker is not exempt from registration under this paragraph if such broker is subject to— (i) suspension or revocation of registration under paragraph (4); (ii) a statutory disqualification described in section 3(a)(39); (iii) a disqualification under the rules adopted by the Commission under section 926 of the Investor Protection and Securities Reform Act of 2010 ( 15 U.S.C. 77d note); or (iv) a final order described in paragraph (4)(H). (D) Rule of construction Nothing in this paragraph shall be construed to limit any other authority of the Commission to exempt any person, or any class of persons, from any provision of this title, or from any provision of any rule or regulation thereunder. (E) Definitions In this paragraph: (i) Control The term control means the power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. There is a presumption of control for any person who— (I) is a director, general partner, member or manager of a limited liability company, or officer exercising executive responsibility (or has similar status or functions); (II) has the right to vote 20 percent or more of a class of voting securities or the power to sell or direct the sale of 20 percent or more of a class of voting securities; or (III) in the case of a partnership or limited liability company, has the right to receive upon dissolution, or has contributed, 20 percent or more of the capital. (ii) Eligible privately held company The term eligible privately held company means a privately held company that meets both of the following conditions: (I) The company does not have any class of securities registered, or required to be registered, with the Commission under section 12 or with respect to which the company files, or is required to file, periodic information, documents, and reports under subsection (d). (II) In the fiscal year ending immediately before the fiscal year in which the services of the M&A broker are initially engaged with respect to the securities transaction, the company meets either or both of the following conditions (determined in accordance with the historical financial accounting records of the company): (aa) The earnings of the company before interest, taxes, depreciation, and amortization are less than $25,000,000. (bb) The gross revenues of the company are less than $250,000,000. (iii) M&A broker The term M&A broker means a broker, and any person associated with a broker, engaged in the business of effecting securities transactions solely in connection with the transfer of ownership of an eligible privately held company, regardless of whether the broker acts on behalf of a seller or buyer, through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the eligible privately held company, if the broker reasonably believes that— (I) upon consummation of the transaction, any person acquiring securities or assets of the eligible privately held company, acting alone or in concert, will control and, directly or indirectly, will be active in the management of the eligible privately held company or the business conducted with the assets of the eligible privately held company; and (II) if any person is offered securities in exchange for securities or assets of the eligible privately held company, such person will, prior to becoming legally bound to consummate the transaction, receive or have reasonable access to the most recent fiscal year-end financial statements of the issuer of the securities as customarily prepared by the management of the issuer in the normal course of operations and, if the financial statements of the issuer are audited, reviewed, or compiled, any related statement by the independent accountant, a balance sheet dated not more than 120 days before the date of the offer, and information pertaining to the management, business, results of operations for the period covered by the foregoing financial statements, and material loss contingencies of the issuer. (iv) Public shell company The term public shell company is a company that at the time of a transaction with an eligible privately held company— (I) has any class of securities registered, or required to be registered, with the Commission under section 12 or that is required to file reports pursuant to subsection (d); (II) has no or nominal operations; and (III) has— (aa) no or nominal assets; (bb) assets consisting solely of cash and cash equivalents; or (cc) assets consisting of any amount of cash and cash equivalents and nominal other assets. (F) Inflation adjustment (i) In general On the date that is 5 years after the date of the enactment of the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2015 , and every 5 years thereafter, each dollar amount in subparagraph (E)(ii)(II) shall be adjusted by— (I) dividing the annual value of the Employment Cost Index For Wages and Salaries, Private Industry Workers (or any successor index), as published by the Bureau of Labor Statistics, for the calendar year preceding the calendar year in which the adjustment is being made by the annual value of such index (or successor) for the calendar year ending December 31, 2012; and (II) multiplying such dollar amount by the quotient obtained under subclause (I). (ii) Rounding Each dollar amount determined under clause (i) shall be rounded to the nearest multiple of $100,000. . 302. Effective date This title and any amendment made by this title shall take effect on the date that is 90 days after the date of the enactment of this Act. IV Small Company Disclosure Simplification 401. Exemption from XBRL requirements for emerging growth companies and other smaller companies (a) Exemption for emerging growth companies Emerging growth companies are exempted from the requirements to use Extensible Business Reporting Language (XBRL) for financial statements and other periodic reporting required to be filed with the Commission under the securities laws. Such companies may elect to use XBRL for such reporting. (b) Exemption for other smaller companies Issuers with total annual gross revenues of less than $250,000,000 are exempt from the requirements to use XBRL for financial statements and other periodic reporting required to be filed with the Commission under the securities laws. Such issuers may elect to use XBRL for such reporting. An exemption under this subsection shall continue in effect until— (1) the date that is 5 years after the date of enactment of this Act; or (2) the date that is 2 years after a determination by the Commission, by order after conducting the analysis required by section 402, that the benefits of such requirements to such issuers outweigh the costs, but no earlier than three years after enactment of this Act. (c) Modifications to regulations Not later than 60 days after the date of enactment of this Act, the Commission shall revise its regulations under parts 229, 230, 232, 239, 240, and 249 of title 17, Code of Federal Regulations, to reflect the exemptions set forth in subsections (a) and (b). 402. Analysis by the SEC The Commission shall conduct an analysis of the costs and benefits to issuers described in section 401(b) of the requirements to use XBRL for financial statements and other periodic reporting required to be filed with the Commission under the securities laws. Such analysis shall include an assessment of— (1) how such costs and benefits may differ from the costs and benefits identified by the Commission in the order relating to interactive data to improve financial reporting (dated January 30, 2009; 74 Fed. Reg. 6776) because of the size of such issuers; (2) the effects on efficiency, competition, capital formation, and financing and on analyst coverage of such issuers (including any such effects resulting from use of XBRL by investors); (3) the costs to such issuers of— (A) submitting data to the Commission in XBRL; (B) posting data on the website of the issuer in XBRL; (C) software necessary to prepare, submit, or post data in XBRL; and (D) any additional consulting services or filing agent services; (4) the benefits to the Commission in terms of improved ability to monitor securities markets, assess the potential outcomes of regulatory alternatives, and enhance investor participation in corporate governance and promote capital formation; and (5) the effectiveness of standards in the United States for interactive filing data relative to the standards of international counterparts. 403. Report to Congress Not later than 1 year after the date of enactment of this Act, the Commission shall provide the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate a report regarding— (1) the progress in implementing XBRL reporting within the Commission; (2) the use of XBRL data by Commission officials; (3) the use of XBRL data by investors; (4) the results of the analysis required by section 402; and (5) any additional information the Commission considers relevant for increasing transparency, decreasing costs, and increasing efficiency of regulatory filings with the Commission. 404. Definitions As used in this title, the terms Commission , emerging growth company , issuer , and securities laws have the meanings given such terms in section 3 of the Securities Exchange Act of 1934 ( 15 U.S.C. 78c ). V Streamlining Excessive and Costly Regulations Review 501. Regulatory review (a) Review and action Not later than 5 years after the date of enactment of this Act, and at least once within each 10-year period thereafter, the Securities and Exchange Commission shall— (1) review each significant regulation issued by the Commission; (2) determine by Commission vote whether each such regulation— (A) is outmoded, ineffective, insufficient, or excessively burdensome; or (B) is no longer necessary in the public interest or consistent with the Commission’s mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation; (3) provide notice and solicit public comment as to whether a regulation described in subparagraph (A) or (B) of paragraph (2) (as determined by Commission vote pursuant to such paragraph) should be amended to improve or modernize such regulation so that such regulation is in the public interest, or whether such regulation should be repealed; and (4) amend or repeal any regulation described in subparagraph (A) or (B) of paragraph (2), as determined by Commission vote pursuant to such paragraph. (b) Definition As used in this section and for purposes of the review required by subsection (a) the term significant regulation has the meaning given the term major rule in section 804(2) of title 5, United States Code. (c) Report to Congress Not later than 45 days after any final Commission vote described in subsection (a)(2), the Commission shall transmit a report to the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate describing the Commission’s review under subsection (a), its vote or votes, and the actions taken pursuant to paragraph (3) of such subsection. If the Commission determines that legislation is necessary to amend or repeal any regulation described in subparagraph (A) or (B) of subsection (a)(2), the Commission shall include in the report recommendations for such legislation. (d) Not subject to judicial review Any vote by the Commission made pursuant to subsection (a)(2) shall be final and not subject to judicial review.

Passed the House of Representatives February 3, 2016. Karen L. Haas, Clerk