Middle Market Ipo Cost Act

Floor Speech

Mr. Speaker, I rise in support of H.R. 2812, the middle market IPO underwriting study act, sponsored by the gentleman from Connecticut (Mr. Himes), and I commend him for his work in bringing this bill to the floor and authoring it.

This bill passed our committee by a voice vote. I don't think there was a dissenting voice in the room.

As the gentlewoman from Missouri points out, the process of going public and filing a registration statement is expensive. Due to that expense, companies may choose not to go public and not raise the money they need to expand their businesses and provide additional employment to aid our economy. Therefore, it is in all of our interests to see whether that cost can be reduced.

Companies in this process usually engage an underwriter or broker- dealer to help them sell the shares to prospective investors. Underwriters are typically compensated for their services through fees such as underwriting spreads and underwriting fees.

The underwriting spread is the difference between the price at which the underwriter buys the security from the issuer and the price at which those securities are sold to the public in the public offering.

The underwriting fee, which often constitutes the largest share of the cost of doing an IPO, or initial public offering, is typically a percentage of the gross proceeds of the sale of the securities. The exact amount varies and can be negotiated between the issuer and the underwriter. Large companies have, in recent years, been able to negotiate lower percentages for this process, which reduces their overall fee. At the same time, smaller companies have continued to pay the same historic percentage for this service, which is often 7 percent of the transaction.

Higher underwriting fees essentially increase the cost of raising capital, allowing middlemen to pocket profits that would otherwise be available to grow the company.

Despite technological advancements, such as digital platforms which now allow for a quicker and wider distribution of securities, underwriting costs for small-and medium-sized companies have remained stagnant and uncompetitive.

The gentleman from Connecticut (Mr. Himes) has brought forward a bill to direct a study of this problem and offer concrete solutions. It will focus on the underwriting fee. It will also look at the auditing fee, as well.

I support this bill, which will shed light on how much small- and medium-sized companies are paying chiefly for underwriting services when they go public. I hope this will get the SEC to address this behavior on Wall Street.

Mr. Speaker, I urge my colleagues to support the bill, and I reserve the balance of my time.
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Mr. SHERMAN. Mr. Speaker, I think the gentleman from Connecticut said it well: Costs should be coming down because technology is available, yet they seem exactly stuck at a noncompetitive 7 percent. Our investors in companies need more robust competition and fairer underwriting practices. This bill would shed light on these practices and help us strengthen competition in underwriting services for our smaller and medium-sized companies.

Mr. Speaker, I urge my colleagues to support this bill, which passed, I believe, on a voice vote in our committee. I know of no opposition.

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