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Tags: Garrett | regulation | capital | business

Rep. Garrett Offers Proposals to Enhance Capital Formation

By    |   Thursday, 30 April 2015 08:10 AM

The House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises, chaired by Rep. Scott Garrett, R-N.J., held a hearing April 29 titled "Legislative Proposals to Enhance Capital Formation and Reduce Regulatory Burdens," during which the subcommittee received comment, mostly from industry representatives, on a dozen bills "to provide sensible improvements to our securities laws to help startup companies enhance capital markets and access capital they need to create jobs and to grow."

In his opening statement, Garrett decried the "unacceptably high" costs public companies face in order to stay public. He recalled that many of the bills passed by large margins in the last Congress, and his own bill, H.R. 1525, passed unanimously to direct the Securities and Exchange Commission (SEC) to tailor regulations that apply to emerging growth companies and smaller issuers in order to eliminate duplicative and unnecessary regulations.

Republicans have plenty of support to get this agenda through the House, and some Democrats have supported these bills again, whereas others see some of the bills as impeding the flow of information that investors need in order to avoid getting involved in investments that are beyond their appetite for risk.

Democrats are allowed to name one witness to each panel, and Theresa Gabaldon, a professor at George Washington University Law School, criticized the proposals as "generally prepared without appropriate regard to the opportunities for abuse and without regard to the way the proposals would interact with other relatively recent deregulatons."

Among the proponents, Thomas Deas, vice president and treasurer of FMC Corp., represented end-users of derivatives, who are exempt under the Dodd-Frank Act from having to post margin when they use derivatives to hedge the risks of their operations. However, this exemption has proven difficult to implement, and now the industry is seeking relief for the treatment of so-called "centralized Treasury units" that enable them to net long and short derivatives positions in order to reduce their exposures. However, this raises the thorny question of whether these positions actually offset, because they are usually not identical in their terms. Also, they are currently operating under "no action" letters from the SEC and would like to have legal certainty that they can continue to treat these transactions as offsetting.

Gayle Hughes, a founding partner of Merion Investment Partners, a family of private equity funds in Pennsylvania, manages several Small Business Investment Corporations that have invested $190 million in 35 small businesses around the country. Her firm and other firms in the industry are seeking relief from regulation by the SEC and the Small Business Administration.

Shane Kovacs, CFO of PTC Therapeutics, spoke on behalf of the biotech industry, whose model involves years of research and investment of $1 billion or more over a decade or more to obtain approval of drugs before meaningful revenues can be realized. The industry complains that it suffers under a regime of "compliance versus science." It supports several bills on the list, including one that would give the industry more time to implement the internal controls under the Sarbanes-Oxley Act.

In the past, bills such as these would pass the House and then languish in the Democratic-controlled Senate. Garrett and his colleagues hope that they can get Senate action now that Republicans control the Senate and that there will be enough Democratic support to lead the president to sign these bills, given that he signed the Jumpstart Our Business Startups Act in 2012.

(Archived video, witness testimony and the staff memorandum can be found here.) http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=398911

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The House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises held a hearing April 29 titled "Legislative Proposals to Enhance Capital Formation and Reduce Regulatory Burdens."
Garrett, regulation, capital, business
Thursday, 30 April 2015 08:10 AM
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