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Friday, June 7, 2013

Amending the JOBS Act: Issues in the 113th Congress

Gary Shorter Specialist in Financial Economics

On April 5, 2012, the Jumpstart Our Business Startups Act (JOBS Act; P.L. 112-106) was enacted with bipartisan support in the 112th Congress. The statute, examined in depth in the CRS Report R42427, U.S. Initial Public Stock Offerings and the JOBS Act, by Rena S. Miller and Gary Shorter, aims to boost corporate capital formation through amending parts of federal securities laws some viewed as an impediment to that process. The 113th Congress is currently considering legislation to amend the act in two ways: (1) expand coverage of the JOBS Act to more companies; and (2) accelerate Securities and Exchange Commission (SEC) rulemaking required for the implementation of a specific provision in the act.

Regulation A (Reg A) of the Securities Act of 1933 allows the SEC to exempt publicly offered securities from having to be registered if the value of the securities does not exceed $5 million during any 12-month period. Title IV of the JOBS Act raised that ceiling to $50 million during any 12-month period. Proponents of the provision said that it would provide new sources of capital for private enterprises. However, Title IV imposed no deadline on the SEC, which must adopt rules necessary for the provision’s implementation. To date, the agency has not completed the rulemaking process.

H.R. 701 (McHenry), which passed the House with bipartisan support on May 15, 2013, would impose a deadline of October 31, 2013, for completion of SEC rulemaking needed to implement the provision. The legislation is a congressional response to concerns that the SEC is not acting expeditiously enough to finish its rulemaking on what some regard as an important provision. SEC officials have indicated that they have begun the rulemaking process for the provision, but that they have been challenged by a multitude of rulemaking and regulatory obligations amidst resource constraints. Historically, under federal securities laws, banks and bank holding companies (BHCs) were generally required to register their publicly offered securities with the SEC if they have total assets exceeding $10 million and the shares are held by 500 or more shareholders. They were also allowed to stop registering the securities, and cease or reduce attendant reporting requirements, a process known as deregistration, when their shareholders of record fell to 300 or fewer. Title VI of the JOBS Act raised the shareholder registration threshold with the SEC from 500 to 2,000 and increased the deregistration threshold from 300 to 1,200, a provision that went into effect immediately after the JOBS Act’s enactment. As of December 2012, this has resulted in about 100 banks and BHCs deregistered since the provision went into effect, an unprecedented number.

Some say that the provision will make it easier for community banks to raise capital without triggering costly SEC registration requirements and enable some SEC-registered community banks to deregister, reducing their regulatory burdens and freeing up bank capital. Various community banks have taken advantage of Title VI’s liberalized registration trigger and have been able to raise shareholder equity capital without having to incur registration expenses. S. 872 (Toomey) and a companion bill, H.R. 801 (Womack), which has been ordered reported by committee, would expand the Title IV shareholder registration and deregistration thresholds to savings and loan holding companies. This report discusses these proposed amendments in more detail. It will be updated as developments warrant.

Date of Report: May 23, 2013
Number of Pages: 16
Order Number: R43084
Price: $29.95

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