UPDATE: The House of Representatives has passed the H.R. 1675 package bill, including Rep. Robert Hurt’s Small Company Disclosure Simplification Act, and has sent the bill on to the Senate for consideration by the Senate Banking Committee. The House rejected amendments offered by Rep. Darrell Issa (R-CA) and Rep. Keith Ellison (D-MN) to reduce the scope of the data reporting exemption to only include new public companies (Issa) and remove the Small Company Disclosure Simplification Act entirely from the package bill (Ellison).
However, the Issa amendment only failed narrowly, 221 votes to 194. Twenty Republicans broke with their party leadership to join Issa, support his amendment, and go on record in favor of data reporting at the SEC. The closeness of this vote will aid supporters of open data in persuading the Senate Banking Committee to reject the Small Company Disclosure Simplification Act if it takes up H.R. 1675. Meanwhile, the White House issued a statement indicating President Obama would veto H.R. 1675 if passed by the Senate.
Today the House of Representatives will consider – for at least the third time – Rep. Robert Hurt’s proposal to require the SEC to stop collecting most public companies’ financial statements as searchable, open data, and regress to only using plain-text documents.
Rep. Hurt’s bill, the Small Company Disclosure Simplification Act (H.R. 1965), is now part of a larger financial services bill, H.R. 1675, which wraps five previous proposals into a single package. House Majority Leader Kevin McCarthy has announced that the package bill will be considered this afternoon, with votes starting at around 1 pm Eastern.
Justified Frustration, Wrong Conclusion
The Small Company Disclosure Simplification Act is based on justified frustration with the SEC’s failure to make data reporting convenient for public companies and reliable for investors. Because the SEC hasn’t embraced the notion of open data internally, it hasn’t policed the quality of the data it’s receiving. Poor data quality discouraged investors and the analysts serving them from using the data set, especially early on.
But the right response would be for Congress to direct the SEC to fix the quality problems – not eliminate the reporting requirement outright! Learn more from our infographic – ironically, a PDF document! – here.
Unfortunately, the Small Company Disclosure Simplification Act is also based on a misconception of what data reporting costs public companies. Two biotech executives have told Congress that data reporting costs their companies $50,000 per year. But the only comprehensive study, conducted by the American Institute of CPAs and XBRL US, shows that the median cost to small companies is around $8,000 per year – minuscule compared to the overall cost of becoming a public company and complying with the SEC’s rules.
For the First Time, Amendments
The House has approved the Small Company Disclosure Simplification Act twice before – in September 2014 and January 2015 – as part of larger packages. But today, for the first time, supporters of open data will have an opportunity to offer amendments on the House floor.
(Last time the proposal came before the House, the House Rules Committee did not allow any amendments to it – or to most other House bills. But, insiders tell us, new House Speaker Paul Ryan’s commitment to more openness in the legislative process has changed the Rules Committee’s approach. The Rules Committee now permits members of the House to offer more amendments to bills on the House floor.)
Republican Darrell Issa, joined by Democrat Jared Polis, will proposes an amendment that reduces the scope of the Small Company Disclosure Simplification Act. The Issa/Polis amendment would limit the scope of the data reporting exemption to only include companies that make their initial public offerings after the bill becomes law. All existing companies would continue reporting their financial information as data; new companies would be on notice that they would need to start doing so within five years.
Meanwhile, Rep. Keith Ellison, joined by Reps. Carolyn Maloney, and Mike Quigley, all Democrats, will propose an amendment that completely removes the Small Company Disclosure Simplification Act from the larger package bill. Since Republicans control the House, the Ellison amendment is unlikely to pass. But if most Democrats vote for it, they will send a message to the Senate and the White House that this part of the package bill is unacceptable to Democrats.
Supporters of open data should contact their Member of Congress and ask them to support either the Issa amendment to reduce the scope of the data reporting exemption, the Ellison amendment to remove the data exemption entirely – or both.
We’ve seen this show before. The Small Company Disclosure Simplification Act has already been approved by the House, as part of other package bills, at least twice – once in September 2014 and again in January 2015. Each time, the Senate did not move the proposal any further. The Data Coalition and other supporters of open data reporting will oppose the Small Company Disclosure Simplification Act in the Senate, should the House approve it today.