Back to General Resources

HFSC July Markup

House Financial Services Committee 

Markup

Wednesday, July 28, 2021 – Thursday, July 29, 2021

Bills Considered

Opening Statements
Chairwoman Maxine Waters (D-Calif.)
In her opening statement, Waters introduced the items under consideration, specifically highlighting the bills responding to the GameStop-related market volatility as examples of Committee Democrats’ desires to protect investors and strengthen market integrity.

Ranking Member Patrick McHenry (R-N.C.)
In his opening statement, McHenry highlighted the two Republican bills under consideration, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021 and the Financial Exploitation Prevention Act of 2021. He thanked Chair Waters for including these bills on the markup but criticized the other items under consideration, specifically those related to 13F disclosures, family offices, trading ahead, and manufactured housing, as being partisan and not based in sound policy.

H.R. 4590, the Promoting New and Diverse Depository Institutions Act
Rep. Jake Auchincloss (D-Mass.) introduced his bill and his Amendment in the Nature of a Substitute (ANS) which would require the Federal banking regulators to jointly conduct a study and develop a strategic plan to address challenges faced by proposed depository institutions seeking de novo depository institution charters, especially minority depository institutions (MDIs) and community development financial institutions (CDFIs). Reps. Andy Barr (R-Ky.), Bryan Steil (R-Wis.), David Kustoff (R-Tenn.), John Rose (R-Tenn.), French Hill (R-Ark.), Bill Huizenga (R-Mich.), Waters, and McHenry spoke in support of the bill, stating that it recognizes the need for de novo charters in order to make banking more available to more Americans. Barr, echoed by his Republican colleagues, spoke to the need for further action beyond just requiring another study from the banking regulators, specifically highlighting his bill, the Promoting Access to Capital in Underbanked Communities Act, which would take additional steps to increase de novo charters and incentivize new bank and capital formation in underserved rural areas. The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a voice vote.

H.R. 4618, the Short Sale Transparency and Market Fairness Act
Waters introduced her bill and her Amendment in the Nature of a Substitute which would shorten the reporting period for 13F disclosures from quarterly to monthly, require such reports to be filed within 10 days of the end of each month, expand the list of items to be disclosed to include certain derivatives, direct the Securities and Exchange Commission (SEC) to complete rulemaking pursuant to Section 929X of Dodd-Frank, which requires aggregate short positions to be disclosed on form 13F, and direct the SEC to study and report on the use of confidential filing requests. Reps. Ann Wagner (R-Mo.), Anthony Gonzalez (R-Ohio), and Huizenga spoke against the bill. Wagner specifically noted that this bill is unnecessary as the SEC recently stood up its security-based swap reporting, set to go into full effect this year. She added that the SEC has had the authority to require aggregated short sale disclosure, outlining that in her view, this has not been a priority for Democrat SEC chairs. She noted that this is perhaps the case because the costs outweigh the risks, explaining that shorting a stock plays an important role in price discovery and that the bill fails to take into account the risks associated with “frontrunning” or “copycatting.” Gonzalez emphasized that this bill, if in effect at the time, would have had no impact on either the GameStop-related or Archegos-related episodes despite his Democrat colleagues using these events as justification for the bill.

*H.R. 4618, H.R. 4619 & H.R. 4620 Considered on Block*

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 27 – 22.

H.R. 4619, To amend the Securities Exchange Act of 1934 to prohibit trading ahead by market makers, and for other purposes
Rep. Al Green (D-Texas) introduced his bill and his Amendment in the Nature of a Substitute which would statutorily prohibit market makers from “trading ahead” or engaging in insider trading. It would also require the CEO of each market maker to annually certify that the CEO has performed reasonable due diligence during the reporting period to ensure the market maker has not engaged in the prohibited activities. The bill would hold the market maker’s CEO and Directors of the Board personally liable for violating this prohibition. Reps. Huizenga and Hill spoke in opposition to the bill. Huizenga stated that all members of the House Financial Services Committee agree that those who breach their duty to their customers should be punished, but asserted that this practice is already prohibited and illegal via FINRA Rule 5320. Hill outlined the variety of compliance certifications required for executives and officers of publicly traded companies as well as for those at SEC and FINRA registered companies, noting that the attestation portion of this bill appears to be redundant.

Reps. Sylvia Garcia (D-Texas), Ed Perlmutter (D-Colo.), and Juan Vargas (D-Calif.) spoke in support of the bill.

*H.R. 4618, H.R. 4619 & H.R. 4620 Considered on Block*

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 27 – 22.

H.R. 4685, Trading Isn’t A Game Act
Rep. Sean Casten (D-Ill.) introduced his bill and his Amendment in the Nature of a Substitute which would require the Government Accountability Office (GAO) to carry out a study on the positive and negative impacts of the trend of gamification of online trading platforms, such as the use of nudging and other inducement, and require the GAO to issue a report of findings and recommendations to Congress.

Amendment Offered by Rep. Ann Wagner (R-Mo.) on Behalf of Rep. Warren Davidson (R-Ohio)
Wagner introduced the amendment which expresses concern that a GAO study would not produce an unbiased study and asserts the Committee Minority’s preference for a balanced, neutral study that does not attack certain online trading platforms. Huizenga spoke in support, and Waters and Casten expressed opposition. Reps. Bill Foster (D-Ill.), Alma Adams (D-N.C.), Brad Sherman (D-Calif.), Perlmutter, Waters, and Casten spoke in support of the underlying amendment. In criticizing the gamification of investing, Casten cited Robinhood’s features, including the use of digital confetti, and the suicide of Alex Kerns. Foster also referenced Alex Kerns, stating that the seriousness of investing should not be taken lightly or downplayed, and that gamification can have adverse consequences. Foster and Adams emphasized the need to better understand the harms of gamification. Sherman outlined his view on how markets are a form of gambling in which participants often lose money, and that gamification is not consistent with building wealth and saving for the future. Adams and Casten tried to distinguish between access to markets and investor protection with Casten further emphasizing the need to protect young investors from the psychological traps of gamification.

Wagner and Huizenga criticized Casten’s ANS, citing the need to increase retail investor access to the market. Huizenga summarized the modern changes happening in the consumption of information, investments, and banking and the need to examine how those changes happen for different generations of investors. He also asserted that Democrats are hindering access to capital markets and suggested that the Committee explore different proposals to protect young investors but also expand access to markets. The amendment was not agreed to by a vote of 22 – 29.

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 28 – 23.

H.R. 4620, Family Office Regulation Act of 2021
Rep. Alexandria Ocasio-Cortez (D-N.Y.) introduced her bill and her Amendment in the Nature of a Substitute which would limit the use of the family office exemption from registration as an investment adviser with the SEC to offices with $750 million or less in assets under management, and prevent persons who are barred or subject to final order for conduct constituting fraud, manipulation, or deceit from being associated with a family office. Reps. Rashida Tlaib (D-Mich.), Nydia Velasquez (D-N.Y.), Garcia, Vargas, Green, Auchincloss, Waters, and Sherman spoke in support of the measure. Ocasio-Cortez defended her bill from criticism by stating that the bill addresses an oversight in Dodd-Frank, that being the fact that no one saw the potential for today’s degree of income inequality, and that the bill addresses systemic risk. She also explained that a line had to be drawn somewhere, resulting in the $750 million reporting threshold, and cited consensus around the figure. Reps. Green, Waters, and Vargas expressed concerns about systemic risk, and Reps. Garcia, Tlaib, Waters, and Vargas emphasized the lack of transparency in family offices. Reps. Waters and Velasquez voiced concern over the ability of family offices to evade federal regulation, and Reps. Tlaib, Vargas, Waters, and Velasquez cited the Archegos collapse in their arguments. Reps. Wagner and Huizenga criticized the amendment. Wagner called the bill a significant rollback of the SEC’s family office rule and questioned the need for the SEC to interfere with families, the privacy implications of the bill, Ocasio-Cortez’s earlier comment that her bill addresses income inequality, and the reasoning for the $750 million reporting threshold. Huizenga stated that nothing in the bill contemplates fluctuating assets, which Ocasio-Cortez insisted the SEC would address. Huizenga also highlighted concerns about state securities laws and the absence of conflict of interest in family offices, and disagreed with Ocasio-Cortez’s earlier comment that the U.S. had a fairer economy in the 1940s.

*H.R. 4618, H.R. 4619 & H.R. 4620 Considered on Block*

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 27 – 22.

H.R. 3555, Voters on the Move Registration Act
Rep. Nikema Williams (D-Ga.) introduced her bill and her Amendment in the Nature of a Substitute which would require the Consumer Financial Protection Bureau (CFPB) and Election Assistance Commission (EAC) to create a standardized statement included with leases and vouchers for federally assisted housing that would inform tenants about their voting rights and how they can register to vote at their new address. Reps. Garcia, Adams, Perlmutter, and Auchincloss spoke in support of the measure. Williams defended her bill by arguing that the CFPB and EAC consulted on the bill, which provides voters with information but does not give the CFPB more power. Garcia explained that the bill gives residents a clear and coherent snapshot of their voter registration information, and Adams added that the bill lowers the barrier to access the ballot box for millions of Americans. Reps. Blaine Luetkemeyer (R-Mo.), Hill, and Steil criticized the amendment as regulatory overreach that grants the CFPB too much power in a policy area where they have no expertise. Hill added that the bill would add more red tape to home buying and renting, and Steil compared the bill to H.R. 1 and that bill’s automatic registration provision.

*H.R. 3555 & H.R. 3332 Considered on Block*

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 28 – 23.

H.R. 3332, the Manufactured Housing Community Preservation Act of 2021
Rep. Cindy Axne (D-Iowa) introduced her bill and her Amendment in the Nature of a Substitute which would provide assistance via grants of up to $2 million for the acquisition, preservation, and maintenance of manufactured housing communities. Gonzalez objected to the bill, claiming it has drastic consequences for the health and safety of these communities and sends taxpayer dollars to unqualified entities, adding that it is duplicative of HUD’s home and block grant program. Axne clarified that the bill would limit how much rent can be increased by each year, not that the rent cannot be increased at all. Hill said manufactured housing is an important alternative for citizens but agreed the proposed bill seems redundant and urged colleagues to not support it. Auchincloss and Waters spoke in support of the bill to help low-income renters maintain their housing and protect them against actions by private investment firms.

*H.R. 3555 & H.R. 3332 Considered on Block*

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 28 – 23.

H.R. 4617, To amend the Securities Exchange Act of 1934 to prohibit payment for order flow
Sherman introduced his bill and his Amendment in the Nature of a Substitute which would require the SEC to carry out a study on payment for order flow (PFOF) and price improvement. Sherman clarified that this bill does not actually prohibit PFOF and explained that it will better help create policy responses that improve financial markets.

Amendment Offered by Rep. Bill Huizenga (R-Mich.)
Huizenga introduced his Amendment which would “balance” the underlying bill. He said the bill must be written more objectively, noting that the original bill lists potential problems with PFOF, but does nothing to examine its benefits. Huizenga said his amendment requires a balanced study to include the benefits like price improvement to retail investors as well as increased access and participation in the markets. Huizenga added that giving the SEC only 180 days to complete the study seems unrealistic, so his bill would increase the timeline to be 18 months. Barr spoke in favor of Huizenga’s amendment, arguing that PFOF helps facilitate low-cost investment options. Barr also outlined his opposition to Sherman’s bill in which the proposed SEC study lacks a full and fair approach to the issue as it has a predetermined negative connotation around PFOF and intends to force an SEC ruling regardless of the study’s outcome. Huizenga said his amendment would ensure that the study is completed before a rulemaking takes place prematurely. Gonzalez spoke in favor of Huizenga’s amendment and opposed the underlying ANS, arguing the GameStop volatility had nothing to do with PFOF, but rather was a result of Robinhood’s undercapitalization.

Sherman said he would agree to a timeline longer than 180 days but opposed Huizenga’s amendment due to the provision that prevents any rulemaking by the SEC before the study is completed. Sherman said there are aspects of PFOF that should be banned, which might be made clear to the SEC before the entire study is completed. Sherman argued this provision ties the hands of the SEC and attempts to do as little as possible for 18 months. Garcia opposed Huizenga’s amendment, and spoke in favor of Sherman’s ANS arguing it is very common to find a need for action before the end of a study. Foster spoke in favor of Sherman’s amendment and hopes the SEC study results in increased transparency for day traders to see best prices across brokers. Waters spoke in favor of the underlying bill and opposed Huizenga’s amendment, arguing the SEC can and should update its rule before the end of the study. She said Huizenga’s amendment would cut out items for the SEC to study and narrows the focus to retail trade related payments, rather than study the full monopoly of payments that are made. The amendment was not agreed to by a vote of 23 – 28.

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a vote of 28 – 22.

H.R. 4616, the Adjustable Interest Rate (LIBOR) Act of 2021
Sherman introduced his bill and his Amendment in the Nature of a Substitute which would establish a process for certain financial contracts that reference LIBOR and do not contain sufficient fallback language that would allow them to continue to function as originally intended after LIBOR is discontinued, to instead reference SOFR, or an appropriately adjusted form of SOFR without the need to be amended or subject to litigation. The bill also directs the Federal Reserve Board to issue regulations regarding the appropriate reference interest rate that should be used for specific categories of LIBOR-based contracts that fall within the scope of the legislation. Sherman noted SIFMA’s, along with other joint trades’, support for this legislation. He also explained that his managers amendment was strictly technical in nature, drafted by the Federal Reserve Board legal team, and improves the underlying legislation. Reps. McHenry and Huizenga criticized the legislative process surrounding this bill, commenting specifically on the fact that only one subcommittee hearing was held on the issue despite this being a once in a generation event. Following these comments, both McHenry and Huizenga expressed their support for moving this legislation forward but added that more work needs to be done on a bipartisan basis.

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a voice vote.

H.R. 2265, the Financial Exploitation Prevention Act of 2021
Wagner introduced her bill and her Amendment in the Nature of a Substitute which would codify an SEC no action letter by amending the Investment Company Act of 1940 to allow a company or agent of the company to postpone a payment or redemption of a security, provided they meet certain conditions, when they suspect the request of payment or redemption is the result of exploitation of an elder. She added that the postponement period may not extend past 15 business days and that the bill also requires the SEC to submit a report to Congress with legislative recommendations to address the financial exploitation of seniors. Reps. Green, Perlmutter, and Waters spoke in favor of the bill, stating that broker dealers and investment managers are in a unique position to protect elders from financial crimes.

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a voice vote.

H.R. 935, the Small Business Mergers, Acquisitions, Sales, and Brokerage Simplification Act of 2021
Huizenga introduced his bill and his Amendment in the Nature of a Substitute which would codify an SEC no action letter that exempts certain merger-and-acquisition brokers from securities registration requirements that facilitate the transfer of ownership in privately held companies with earnings or revenues under specified thresholds, provided such brokers meet certain conditions. Huizenga highlighted the importance of small businesses to the economy and the role of merger and acquisition advisors and business brokers in preparing privately held businesses for sales and mergers. He also highlighted the difference between the service of these advisors and brokers to private businesses compared to those of investment bankers.

The Amendment in the Nature of a Substitute was agreed to and the amended measure was reported favorably to the House by a voice vote.

For more information on this markup, please click here.