September 18, 2007

Reps. Meeks & Fossella's Bill to Enhance Competitiveness of U.S. Markets and Reverse Exodus of U.S. IPO's Passes Committee

Bill Removes Barriers to the Establishment of Developmental Tiers on U.S. Exchanges

(WASHINGTON, DC)–Congressman Gregory Meeks (D-NY6) and Congressman Vito Fossella's (R-NY13) bipartisan legislation to enhance the competitiveness of U.S. capital markets by allowing exchanges to establish developmental tiers to expand listing opportunities in the United States for smaller companies passed the House Financial Services Committee today by voice vote.

The legislation (H.R. 2868) would remove the barrier to creating developmental listing tiers on several of the major exchanges in the U.S. by amending Section 18 of the National Securities Markets Improvement Act (NSMIA).

Under the bill, all securities listed on a developmental tier would be subject to Securities and Exchange Commission (SEC) oversight and state blue-sky regulations in an effort to uphold investor protections.

Fossella said, "The inability to develop an additional, developmental tier can be a significant impediment to an exchange's ability to compete in the global marketplace. These barriers make our markets less competitive for small cap listings and can drive companies to list outside the United States. This legislation will help ensure an even playing field for all domestic exchanges to compete in a global marketplace. It would also enhance investor protection by strengthening oversight of these companies."

Meeks said, "The U.S. Capital Markets are the strongest and most efficient in the world. However we cannot rest on our laurels as other nations naturally seek to develop their own markets and make them more globally competitive. London is major economic center and our closest competitor. Their Alternative Investment Market is attracting capital worldwide. The U.S. must take the necessary steps to maintain our capital markets as the premiere choice for companies big and small worldwide."

Under Section 18, all securities listed on exchanges cited in the law are considered "covered securities" and therefore, are exempted from state blue-sky regulations. However, the SEC has interpreted Section 18 to preclude these exchanges from also establishing developmental tiers, which can be used to expand opportunities for smaller companies or companies with alternative business models.

With the listing standards for developmental tiers less stringent, the legislation would require that the securities offered on them be subject to both state regulation and the regulatory authority of the SEC. As public companies, they would also be required to fully comply with the securities laws of the United States, including Sarbanes Oxley.

The legislation is aimed at reversing a trend of overseas exchanges like the Toronto Stock Exchange and the London Stock Exchange's Alternative Investment Market (AIM) from recruiting U.S. IPO's. For instance, companies listed on AIM raised $30 billion in capital in 2006, according to a recent story in the International Herald Tribune. The exchange has tripled its number of listed companies to 1,640 since 2000, with about one-third of them international. A total of 63 companies worth about $11 billion are from the United States – the highest representation on AIM.

Meeks is a member of the House Financial Services Committee and the Chair of the Congressional Services Caucus. Fossella is Chairman of a new Republican Policy Committee Task Force focused on ways to enhance the capital markets and U.S. economic competitiveness.

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