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From Securities Regulation Daily, March 9, 2018

Senate to mull amendments to corrections bill with securities provisions

By Mark S. Nelson, J.D.

The Senate is considering a bill to reduce the regulatory burdens imposed by the Dodd-Frank Act on community banks that also would address securities issues, such as the definition of "covered securities." The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155), sponsored by Senate Banking Committee Chairman Mike Crapo (R-Idaho), also contains provisions dealing with algorithmic trading in securities markets, the financial exploitation of seniors, cybersecurity, and hedge fund names. The Senate plans to resume action on the Crapo bill next week when it will also consider a manager’s amendment and possibly any number of other amendments from a total of 146 amendments submitted to date.

Manager’s amendment. Numerous securities provisions would be added to S. 2155 under a manger’s amendment (S. Amdt. 2151). Majority Leader Mitch McConnell (R-Ky) has already filed a motion for cloture on the manager’s amendment and a similar motion for another amendment that would make a technical change to S. 2155. Meanwhile, senators continue to negotiate over which of the other proposed amendments may come up for a vote.

Here is a list of the new securities provisions contained in the manager’s amendment:

  • Government-business forumUnder Section 503, the Commission would have to review findings and recommendations submitted by the Government-Business Forum on Capital Formation. The House passed identical legislation ( H.R. 1312) by a vote of 406-0, while S. 416 passed the Senate by unanimous consent.
  • Angel investorsSection 504 includes the Supporting America’s Innovators Act of 2017 (See, H.R. 1219 and S. 444) and would amend the Investment Company Act to fix an oversight by the Jumpstart Our Business Startups (JOBS) Act that left in place a 1940s-era investor threshold that hinders investments by venture capital funds.
  • SEC fee creditSection 505 contains the Securities and Exchange Commission Overpayment Credit Act (See, H.R. 1257 and S. 462), which cleared the House Financial Services Committee 59-0 and passed the Senate by unanimous consent.
  • U.S. territoriesSection 506 contains text equivalent to the U.S. Territories Investor Protection Act of 2016 (See, H.R. 1366 and S. 484), which strikes the text of Investment Company Act Section 6(a)(1), and previously sailed through the House FSC and was approved by the House by voice vote. The Senate likewise approved an identical bill by unanimous consent.
  • Compensatory benefit plansSection 507 would direct the Commission, within 60 days of enactment, to revise Securities Act Rule 701(e) to raise the disclosure threshold with respect to compensatory benefit plans from $5 million to $10 million, adjusted for inflation (See, H.R. 1343, which passed the House 331-87, and S. 488, which passed the Senate by unanimous consent).
  • Regulation AUnder Section 508, the Commission would be directed to remove the requirement under Rule 251 of Regulation A that an issuer of securities must satisfy a variety of requirements, including that the issuer is not subject to reporting under Exchange Act Sections 13 or 15(d) immediately before the offering. Rule 257 also would have to be amended to conform to the revision in Rule 251 (See, H.R. 2864, which passed the House 403-3).
  • Closed-end company proxy paritySection 509 contains a provision that would allow closed-end companies to use offering and proxy rules currently available to operating companies.

Original version of S. 2155. The substitute version offered by way of the manager’s amendment also retains several securities and securities-related provisions that appeared in the original version of the Crapo bill that was approved by the Senate Banking Committee. Here is a list of relevant provisions:

  • Exchange paritySection 211 of the Crapo bill (Section 501 in the manager’s amendment) would amend Securities Act Section 18(b)(1) to achieve parity among national securities exchanges by revising the term "covered securities," but it also would end the role currently played by the Commission in determining whether listing standards are substantially similar to those of specified exchanges.
  • Algorithmic trading studyUnder Section 502 of the Crapo bill, the SEC would have to submit a report to Congress on algorithmic trading.
  • SeniorsSection 303 of the Crapo bill would protect employees of financial institutions from liability when they report the suspected financial exploitation of a senior citizen to a covered agency.
  • Cyber studyThe Treasury Department would have to report to Congress under Section 501 of the Crapo bill (Section 216 in the manager’s amendment) regarding the preparedness of federal banking regulators and the SEC to handle cybersecurity issues.
  • Hedge fund namesSection 204 of the Crapo bill would permit a hedge fund or private equity fund to have the same name as a banking entity that is an investment adviser to the fund, provided that the investment adviser is not an insured depository institution or bank holding company, does not have the same name as an insured depository institution or bank holding company, and the name does not use the word "bank."

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