关键词：Securities

21 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
1 12 U.S.C. 1841. [Printed in appendix to this volume.]
2 Section 231(b) of Public Law 106–102 amends this paragraph by ‘‘adding at the end’’ this
new subparagraph. The amendment should have been to insert subparagraph (H) after subparagraph
(G).
supervision by the Office of Thrift Supervision under section 8
of the Home Owners’ Loan Act of 1933.1
(H) 2 When used with respect to an institution described
in subparagraph (D), (F), or (G) of section 2(c)(2),
or held under section 4(f), of the Bank Holding Company
Act of 1956—
(i) the Comptroller of the Currency, in the case of
a national bank or a bank in the District of Columbia
examined by the Comptroller of the Currency;
(ii) the Board of Governors of the Federal Reserve
System, in the case of a State member bank of the
Federal Reserve System or any corporation chartered
under section 25A of the Federal Reserve Act;
(iii) the Federal Deposit Insurance Corporation, in
the case of any other bank the deposits of which are
insured in accordance with the Federal Deposit Insurance
Act; or
(iv) the Commission in the case of all other such
institutions.
(35) A person exercises ‘‘investment discretion’’ with respect
to an account if, directly or indirectly, such person (A) is
authorized to determine what securities or other property shall
be purchased or sold by or for the account, (B) makes decisions
as to what securities or other property shall be purchased or
sold by or for the account even though some other person may
have responsibility for such investment decisions, or (C) otherwise
exercises such influence with respect to the purchase and
sale of securities or other property by or for the account as the
Commission, by rule, determines, in the public interest or for
the protection of investors, should be subject to the operation
of the provisions of this title and rules and regulations thereunder.
(36) A class of persons or markets is subject to ‘‘equal regulation’’
if no member of the class has a competitive advantage
over any other member thereof resulting from a disparity in
their regulation under this title which the Commission determines
is unfair and not necessary or appropriate in furtherance
of the purposes of this title.
(37) The term ‘‘records’’ means accounts, correspondence,
memorandums, tapes, discs, papers, books, and other documents
or transcribed information of any type, whether expressed
in ordinary or machine language.
(38) The term ‘‘market maker’’ means any specialist permitted
to act as a dealer, any dealer acting in the capacity of
block positioner, and any dealer who, with respect to a security,
holds himself out (by entering quotations in an interdealer
communications system or otherwise) as being willing to
buy and sell such security for his own account on a regular or
continuous basis.
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 22
1 Margin so in law.
(39) A person is subject to a ‘‘statutory disqualification’’
with respect to membership or participation in, or association
with a member of, a self-regulatory organization, if such
person—
(A) has been and is expelled or suspended from membership
or participation in, or barred or suspended from
being associated with a member of, any self-regulatory
organization, foreign equivalent of a self-regulatory organization,
foreign or international securities exchange, contract
market designated pursuant to section 5 of the Commodity
Exchange Act (7 U.S.C. 7), or any substantially
equivalent foreign statute or regulation, or futures association
registered under section 17 of such Act (7 U.S.C. 21),
or any substantially equivalent foreign statute or regulation,
or has been and is denied trading privileges on any
such contract market or foreign equivalent;
(B) 1 is subject to—
(i) an order of the Commission, other appropriate regulatory
agency, or foreign financial regulatory authority—
(I) denying, suspending for a period not exceeding
12 months, or revoking his registration as a broker,
dealer, municipal securities dealer, government securities
broker, or government securities dealer or limiting
his activities as a foreign person performing a function
substantially equivalent to any of the above; or
(II) barring or suspending for a period not exceeding
12 months his being associated with a broker,
dealer, municipal securities dealer, government securities
broker, government securities dealer, or foreign
person performing a function substantially equivalent
to any of the above;
(ii) an order of the Commodity Futures Trading Commission
denying, suspending, or revoking his registration
under the Commodity Exchange Act (7 U.S.C. 1 et seq.);
or
(iii) an order by a foreign financial regulatory authority
denying, suspending, or revoking the person’s authority
to engage in transactions in contracts of sale of a commodity
for future delivery or other instruments traded on
or subject to the rules of a contract market, board of trade,
or foreign equivalent thereof;
(C) by his conduct while associated with a broker,
dealer, municipal securities dealer, government securities
broker, or government securities dealer, or while associated
with an entity or person required to be registered
under the Commodity Exchange Act, has been found to be
a cause of any effective suspension, expulsion, or order of
the character described in subparagraph (A) or (B) of this
paragraph, and in entering such a suspension, expulsion,
or order, the Commission, an appropriate regulatory
agency, or any such self-regulatory organization shall have
23 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
jurisdiction to find whether or not any person was a cause
thereof;
(D) by his conduct while associated with any broker,
dealer, municipal securities dealer, government securities
broker, government securities dealer, or any other entity
engaged in transactions in securities, or while associated
with an entity engaged in transactions in contracts of sale
of a commodity for future delivery or other instruments
traded on or subject to the rules of a contract market,
board of trade, or foreign equivalent thereof, has been
found to be a cause of any effective suspension, expulsion,
or order by a foreign or international securities exchange
or foreign financial regulatory authority empowered by a
foreign government to administer or enforce its laws relating
to financial transactions as described in subparagraph
(A) or (B) of this paragraph;
(E) has associated with him any person who is known,
or in the exercise of reasonable care should be known, to
him to be a person described by subparagraph (A), (B), (C),
or (D) of this paragraph; or
(F) has committed or omitted any act, or is subject to
an order or finding, enumerated in subparagraph (D), (E),
(H), or (G) of paragraph (4) of section 15(b) of this title,
has been convicted of any offense specified in subparagraph
(B) of such paragraph (4) or any other felony within
ten years of the date of the filing of an application for
membership or participation in, or to become associated
with a member of, such self-regulatory organization, is enjoined
from any action, conduct, or practice specified in
subparagraph (C) of such paragraph (4), has willfully
made or caused to be made in any application for membership
or participation in, or to become associated with a
member of, a self-regulatory organization, report required
to be filed with a self-regulatory organization, or proceeding
before a self-regulatory organization, any statement
which was at the time, and in the light of the circumstances
under which it was made, false or misleading
with respect to any material fact, or has omitted to state
in any such application, report, or proceeding any material
fact which is required to be stated therein.
(40) The term ‘‘financial responsibility rules’’ means the
rules and regulations of the Commission or the rules and regulations
prescribed by any self-regulatory organization relating
to financial responsibility and related practices which are designated
by the Commission, by rule or regulation, to be financial
responsibility rules.
(41) The term ‘‘mortgage related security’’ means a security
that is rated in one of the two highest rating categories by
at least one nationally recognized statistical rating organization,
and either:
(A) represents ownership of one or more promissory
notes or certificates of interest or participation in such
notes (including any rights designed to assure servicing of,
or the receipt or timeliness of receipt by the holders of
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 24
1 42 U.S.C. 5402(6).
1 12 U.S.C. 1709, 1715b.
2 12 U.S.C. 1703.
such notes, certificates, or participations of amounts payable
under, such notes, certificates, or participations),
which notes:
(i) are directly secured by a first lien on a single
parcel of real estate, including stock allocated to a
dwelling unit in a residential cooperative housing corporation,
upon which is located a dwelling or mixed
residential and commercial structure, on a residential
manufactured home as defined in section 603(6) of the
National Manufactured Housing Construction and
Safety Standards Act of 1974,1 whether such manufactured
home is considered real or personal property
under the laws of the State in which it is to be located,
or on one or more parcels of real estate upon which is
located one or more commercial structures; and
(ii) were originated by a savings and loan association,
savings bank, commercial bank, credit union,
insurance company, or similar institution which is
supervised and examined by a Federal or State authority,
or by a mortgage approved by the Secretary of
Housing and Urban Development pursuant to sections
203 and 211 of the National Housing Act,1 or, where
such notes involve a lien on the manufactured home,
by any such institution or by any financial institution
approved for insurance by the Secretary of Housing
and Urban Development pursuant to section 2 of the
National Housing Act;2 or
(B) is secured by one or more promissory notes or certificates
of interest or participations in such notes (with or
without recourse to the issuer thereof) and, by its terms,
provides for payments of principal in relation to payments,
or reasonable projections of payments, on notes meeting
the requirements of subparagraphs (A) (i) and (ii) or certificates
of interest or participations in promissory notes
meeting such requirements.
For the purpose of this paragraph, the term ‘‘promissory note’’,
when used in connection with a manufactured home, shall also
include a loan, advance, or credit sale as evidence by a retail
installment sales contract or other instrument.
(42) The term ‘‘government securities’’ means—
(A) securities which are direct obligations of, or obligations
guaranteed as to principal or interest by, the United
States;
(B) securities which are issued or guaranteed by corporations
in which the United States has a direct or indirect
interest and which are designated by the Secretary of
the Treasury for exemption as necessary or appropriate in
the public interest or for the protection of investors;
(C) securities issued or guaranteed as to principal or
interest by any corporation the securities of which are designated,
by statute specifically naming such corporation, to
25 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
constitute exempt securities within the meaning of the
laws administered by the Commission;
(D) for purposes of sections 15C and 17A, any put,
call, straddle, option, or privilege on a security described
in subparagraph (A), (B), or (C) other than a put, call,
straddle, option, or privilege—
(i) that is traded on one or more national securities
exchanges; or
(ii) for which quotations are disseminated through
an automated quotation system operated by a registered
securities association; or
(E) for purposes of sections 15, 15C, and 17A as applied
to a bank, a qualified Canadian government obligation
as defined in section 5136 of the Revised Statutes of
the United States.
(43) The term ‘‘government securities broker’’ means any
person regularly engaged in the business of effecting transactions
in government securities for the account of others, but
does not include—
(A) any corporation the securities of which are government
securities under subparagraph (B) or (C) of paragraph
(42) of this subsection; or
(B) any person registered with the Commodity Futures
Trading Commission, any contract market designated by
the Commodity Futures Trading Commission, such contract
market’s affiliated clearing organization, or any floor
trader on such contract market, solely because such person
effects transactions in government securities that the Commission,
after consultation with the Commodity Futures
Trading Commission, has determined by rule or order to
be incidental to such person’s futures-related business.
(44) The term ‘‘government securities dealer’’ means any
person engaged in the business of buying and selling government
securities for his own account, through a broker or otherwise,
but does not include—
(A) any person insofar as he buys or sells such securities
for his own account, either individually or in some
fiduciary capacity, but not as a part of a regular business;
(B) any corporation the securities of which are government
securities under subparagraph (B) or (C) of paragraph
(42) of this subsection;
(C) any bank, unless the bank is engaged in the business
of buying and selling government securities for its
own account other than in a fiduciary capacity, through a
broker or otherwise; or
(D) any person registered with the Commodity Futures
Trading Commission, any contract market designated
by the Commodity Futures Trading Commission,
such contract market’s affiliated clearing organization, or
any floor trader on such contract market, solely because
such person effects transactions in government securities
that the Commission, after consultation with the Commodity
Futures Trading Commission, has determined by
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 26
1 So in law. May include provisions amended by the Sarbanes-Oxley Act of 2002, such as sections
101(i) and 502(c)(7) of the Employee Retirement Income Security Act of 1974, sections
1348, 1349, 1350, 1514A, 1519, and 1520 of title 18, 523(a)(19) of title 11, and section 1658(b)
of title 28, United States Code, printed in the appendix to this volume.
rule or order to be incidental to such person’s futures-related
business.
(45) The term ‘‘person associated with a government securities
broker or government securities dealer’’ means any partner,
officer, director, or branch manager of such government
securities broker or government securities dealer (or any person
occupying a similar status or performing similar functions),
and any other employee of such government securities broker
or government securities dealer who is engaged in the management,
direction, supervision, or performance of any activities
relating to government securities, and any person directly or
indirectly controlling, controlled by, or under common control
with such government securities broker or government securities
dealer.
(46) The term ‘‘financial institution’’ means—
(A) a bank (as defined in paragraph (6) of this subsection);
(B) a foreign bank (as such term is used in the International
Banking Act of 1978); and
(C) a savings association (as defined in section 3(b) of
the Federal Deposit Insurance Act) the deposits of which
are insured by the Federal Deposit Insurance Corporation.
(47) The term ‘‘securities laws’’ means the Securities Act of
1933 (15 U.S.C. 78a et seq.), the Securities Exchange Act of
1934 (15 U.S.C. 78a et seq.), the Sarbanes-Oxley Act of 2002 1,
the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a
et seq.), the Trust Indenture Act of 1939 (15 U.S.C. 77aaa et
seq.), the Investment Company Act of 1940 (15 U.S.C. 80a–1
et seq.), the Investment Advisers Act of 1940 (15 U.S.C. 80b et
seq.), and the Securities Investor Protection Act of 1970 (15
U.S.C. 78aaa et seq.).
(48) The term ‘‘registered broker or dealer’’ means a broker
or dealer registered or required to register pursuant to section
15 or 15B of this title, except that in paragraph (3) of this subsection
and sections 6 and 15A the term means such a broker
or dealer and a government securities broker or government
securities dealer registered or required to register pursuant to
section 15C(a)(1)(A) of this title.
(49) The terms ‘‘person associated with a transfer agent’’
and ‘‘associated person of a transfer agent’’ mean any person
(except an employee whose functions are solely clerical or ministerial)
directly engaged in the management, direction, supervision,
or performance of any of the transfer agent’s activities
with respect to transfer agent functions, and any person directly
or indirectly controlling such activities or controlled by
the transfer agent in connection with such activities.
(50) The term ‘‘foreign securities authority’’ means any foreign
government, or any governmental body or regulatory organization
empowered by a foreign government to administer or
enforce its laws as they relate to securities matters.
27 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
(51)(A) The term ‘‘penny stock’’ means any equity security
other than a security that is—
(i) registered or approved for registration and traded
on a national securities exchange that meets such criteria
as the Commission shall prescribe by rule or regulation for
purposes of this paragraph;
(ii) authorized for quotation on an automated
quotation system sponsored by a registered securities association,
if such system (I) was established and in operation
before January 1, 1990, and (II) meets such criteria as the
Commission shall prescribe by rule or regulation for purposes
of this paragraph;
(iii) issued by an investment company registered
under the Investment Company Act of 1940;
(iv) excluded, on the basis of exceeding a minimum
price, net tangible assets of the issuer, or other relevant
criteria, from the definition of such term by rule or regulation
which the Commission shall prescribe for purposes of
this paragraph; or
(v) exempted, in whole or in part, conditionally or unconditionally,
from the definition of such term by rule, regulation,
or order prescribed by the Commission.
(B) The Commission may, by rule, regulation, or order,
designate any equity security or class of equity securities described
in clause (i) or (ii) of subparagraph (A) as within the
meaning of the term ‘‘penny stock’’ if such security or class of
securities is traded other than on a national securities exchange
or through an automated quotation system described in
clause (ii) of subparagraph (A).
(C) In exercising its authority under this paragraph to prescribe
rules, regulations, and orders, the Commission shall
determine that such rule, regulation, or order is consistent
with the public interest and the protection of investors.
(52) The term ‘‘foreign financial regulatory authority’’
means any (A) foreign securities authority, (B) other governmental
body or foreign equivalent of a self-regulatory organization
empowered by a foreign government to administer or enforce
its laws relating to the regulation of fiduciaries, trusts,
commercial lending, insurance, trading in contracts of sale of
a commodity for future delivery, or other instruments traded
on or subject to the rules of a contract market, board of trade,
or foreign equivalent, or other financial activities, or (C) membership
organization a function of which is to regulate participation
of its members in activities listed above.
(53)(A) The term ‘‘small business related security’’ means
a security that is rated in 1 of the 4 highest rating categories
by at least 1 nationally recognized statistical rating organization,
and either—
(i) represents an interest in 1 or more promissory
notes or leases of personal property evidencing the obligation
of a small business concern and originated by an insured
depository institution, insured credit union, insurance
company, or similar institution which is supervised
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 28
and examined by a Federal or State authority, or a finance
company or leasing company; or
(ii) is secured by an interest in 1 or more promissory
notes or leases of personal property (with or without recourse
to the issuer or lessee) and provides for payments
of principal in relation to payments, or reasonable projections
of payments, on notes or leases described in clause
(i).
(B) For purposes of this paragraph—
(i) an ‘‘interest in a promissory note or a lease of personal
property’’ includes ownership rights, certificates of
interest or participation in such notes or leases, and rights
designed to assure servicing of such notes or leases, or the
receipt or timely receipt of amounts payable under such
notes or leases;
(ii) the term ‘‘small business concern’’ means a business
that meets the criteria for a small business concern
established by the Small Business Administration under
section 3(a) of the Small Business Act;
(iii) the term ‘‘insured depository institution’’ has the
same meaning as in section 3 of the Federal Deposit Insurance
Act; and
(iv) the term ‘‘insured credit union’’ has the same
meaning as in section 101 of the Federal Credit Union Act.
(54) QUALIFIED INVESTOR.—
(A) DEFINITION.—Except as provided in subparagraph
(B), for purposes of this title, the term ‘‘qualified investor’’
means—
(i) any investment company registered with the
Commission under section 8 of the Investment Company
Act of 1940;
(ii) any issuer eligible for an exclusion from the
definition of investment company pursuant to section
3(c)(7) of the Investment Company Act of 1940;
(iii) any bank (as defined in paragraph (6) of this
subsection), savings association (as defined in section
3(b) of the Federal Deposit Insurance Act), broker,
dealer, insurance company (as defined in section
2(a)(13) of the Securities Act of 1933), or business
development company (as defined in section 2(a)(48) of
the Investment Company Act of 1940);
(iv) any small business investment company licensed
by the United States Small Business Administration
under section 301 (c) or (d) of the Small Business
Investment Act of 1958;
(v) any State sponsored employee benefit plan, or
any other employee benefit plan, within the meaning
of the Employee Retirement Income Security Act of
1974, other than an individual retirement account, if
the investment decisions are made by a plan fiduciary,
as defined in section 3(21) of that Act, which is either
a bank, savings and loan association, insurance company,
or registered investment adviser;
29 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
1 So in law. Probably should read ‘‘section 3(a)(12) of this Act’’.
(vi) any trust whose purchases of securities are directed
by a person described in clauses (i) through (v)
of this subparagraph;
(vii) any market intermediary exempt under section
3(c)(2) of the Investment Company Act of 1940;
(viii) any associated person of a broker or dealer
other than a natural person;
(ix) any foreign bank (as defined in section 1(b)(7)
of the International Banking Act of 1978);
(x) the government of any foreign country;
(xi) any corporation, company, or partnership that
owns and invests on a discretionary basis, not less
than $25,000,000 in investments;
(xii) any natural person who owns and invests on
a discretionary basis, not less than $25,000,000 in
investments;
(xiii) any government or political subdivision,
agency, or instrumentality of a government who owns
and invests on a discretionary basis not less than
$50,000,000 in investments; or
(xiv) any multinational or supranational entity or
any agency or instrumentality thereof.
(B) ALTERED THRESHOLDS FOR ASSET-BACKED SECURITIES
AND LOAN PARTICIPATIONS.—For purposes of section
3(a)(5)(C)(iii) of this title and section 206(a)(5) of the
Gramm-Leach-Bliley Act, the term ‘‘qualified investor’’ has
the meaning given such term by subparagraph (A) of this
paragraph except that clauses (xi) and (xii) shall be applied
by substituting ‘‘$10,000,000’’ for ‘‘$25,000,000’’.
(C) ADDITIONAL AUTHORITY.—The Commission may, by
rule or order, define a ‘‘qualified investor’’ as any other
person, taking into consideration such factors as the financial
sophistication of the person, net worth, and knowledge
and experience in financial matters.
(55)(A) The term ‘‘security future’’ means a contract of sale
for future delivery of a single security or of a narrow-based
security index, including any interest therein or based on the
value thereof, except an exempted security under section
3(a)(12) of the Securities Exchange Act of 1934 1 as in effect on
the date of the enactment of the Futures Trading Act of 1982
(other than any municipal security as defined in section
3(a)(29) as in effect on the date of the enactment of the Futures
Trading Act of 1982). The term ‘‘security future’’ does not
include any agreement, contract, or transaction excluded from
the Commodity Exchange Act under section 2(c), 2(d), 2(f ), or
2(g) of the Commodity Exchange Act (as in effect on the date
of the enactment of the Commodity Futures Modernization Act
of 2000) or title IV of the Commodity Futures Modernization
Act of 2000.
(B) The term ‘‘narrow-based security index’’ means an
index—
(i) that has 9 or fewer component securities;
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 30
(ii) in which a component security comprises more
than 30 percent of the index’s weighting;
(iii) in which the five highest weighted component
securities in the aggregate comprise more than 60 percent
of the index’s weighting; or
(iv) in which the lowest weighted component securities
comprising, in the aggregate, 25 percent of the index’s
weighting have an aggregate dollar value of average daily
trading volume of less than $50,000,000 (or in the case of
an index with 15 or more component securities,
$30,000,000), except that if there are two or more securities
with equal weighting that could be included in the calculation
of the lowest weighted component securities comprising,
in the aggregate, 25 percent of the index’s
weighting, such securities shall be ranked from lowest to
highest dollar value of average daily trading volume and
shall be included in the calculation based on their ranking
starting with the lowest ranked security.
(C) Notwithstanding subparagraph (B), an index is not a
narrow-based security index if—
(i)(I) it has at least nine component securities;
(II) no component security comprises more than 30
percent of the index’s weighting; and
(III) each component security is—
(aa) registered pursuant to section 12 of the Securities
Exchange Act of 1934;
(bb) one of 750 securities with the largest market
capitalization; and
(cc) one of 675 securities with the largest dollar
value of average daily trading volume;
(ii) a board of trade was designated as a contract market
by the Commodity Futures Trading Commission with
respect to a contract of sale for future delivery on the
index, before the date of the enactment of the Commodity
Futures Modernization Act of 2000;
(iii)(I) a contract of sale for future delivery on the
index traded on a designated contract market or registered
derivatives transaction execution facility for at least 30
days as a contract of sale for future delivery on an index
that was not a narrow-based security index; and
(II) it has been a narrow-based security index for no
more than 45 business days over 3 consecutive calendar
months;
(iv) a contract of sale for future delivery on the index
is traded on or subject to the rules of a foreign board of
trade and meets such requirements as are jointly established
by rule or regulation by the Commission and the
Commodity Futures Trading Commission;
(v) no more than 18 months have passed since the
date of the enactment of the Commodity Futures Modernization
Act of 2000 and—
(I) it is traded on or subject to the rules of a foreign
board of trade;

31 SECURITIES EXCHANGE ACT OF 1934 Sec. 3
(II) the offer and sale in the United States of a
contract of sale for future delivery on the index was
authorized before the date of the enactment of the
Commodity Futures Modernization Act of 2000; and
(III) the conditions of such authorization continue
to be met; or
(vi) a contract of sale for future delivery on the index
is traded on or subject to the rules of a board of trade and
meets such requirements as are jointly established by rule,
regulation, or order by the Commission and the Commodity
Futures Trading Commission.
(D) Within 1 year after the enactment of the Commodity
Futures Modernization Act of 2000, the Commission and the
Commodity Futures Trading Commission jointly shall adopt
rules or regulations that set forth the requirements under
clause (iv) of subparagraph (C).
(E) An index that is a narrow-based security index solely
because it was a narrow-based security index for more than 45
business days over 3 consecutive calendar months pursuant to
clause (iii) of subparagraph (C) shall not be a narrow-based
security index for the 3 following calendar months.
(F) For purposes of subparagraphs (B) and (C) of this
paragraph—
(i) the dollar value of average daily trading volume
and the market capitalization shall be calculated as of the
preceding 6 full calendar months; and
(ii) the Commission and the Commodity Futures Trading
Commission shall, by rule or regulation, jointly specify
the method to be used to determine market capitalization
and dollar value of average daily trading volume.
(56) The term ‘‘security futures product’’ means a security
future or any put, call, straddle, option, or privilege on any
security future.
(57)(A) The term ‘‘margin’’, when used with respect to a
security futures product, means the amount, type, and form of
collateral required to secure any extension or maintenance of
credit, or the amount, type, and form of collateral required as
a performance bond related to the purchase, sale, or carrying
of a security futures product.
(B) The terms ‘‘margin level’’ and ‘‘level of margin’’, when
used with respect to a security futures product, mean the
amount of margin required to secure any extension or maintenance
of credit, or the amount of margin required as a performance
bond related to the purchase, sale, or carrying of a
security futures product.
(C) The terms ‘‘higher margin level’’ and ‘‘higher level of
margin’’, when used with respect to a security futures product,
mean a margin level established by a national securities exchange
registered pursuant to section 6(g) that is higher than
the minimum amount established and in effect pursuant to
section 7(c)(2)(B).
(58) AUDIT COMMITTEE.—The term ‘‘audit committee’’
means—
Sec. 3 SECURITIES EXCHANGE ACT OF 1934 32
(A) a committee (or equivalent body) established by
and amongst the board of directors of an issuer for the
purpose of overseeing the accounting and financial reporting
processes of the issuer and audits of the financial
statements of the issuer; and
(B) if no such committee exists with respect to an
issuer, the entire board of directors of the issuer.
(59) REGISTERED PUBLIC ACCOUNTING FIRM.—The term
‘‘registered public accounting firm’’ has the same meaning as
in section 2 of the Sarbanes-Oxley Act of 2002.
(b) The Commission and the Board of Governors of the Federal
Reserve System, as to matters within their respective jurisdictions,
shall have power by rules and regulations to define technical,
trade, accounting, and other terms used in this title, consistently
with the provisions and purposes of this title.
(c) No provision of this title shall apply to, or be deemed to include,
any executive department or independent establishment of
the United States, or any lending agency which is wholly owned,
directly or indirectly, by the United States, or any officer, agent, or
employee of any such department, establishment, or agency, acting
in the course of his official duty as such, unless such provision
makes specific reference to such department, establishment, or
agency.
(d) No issuer of municipal securities or officer or employee
thereof acting in the course of his official duties as such shall be
deemed to be a ‘‘broker’’, ‘‘dealer’’, or ‘‘municipal securities dealer’’
solely by reason of buying, selling, or effecting transactions in the
issuer’s securities.
(e) CHARITABLE ORGANIZATIONS.—
(1) EXEMPTION.—Notwithstanding any other provision of
this title, but subject to paragraph (2) of this subsection, a
charitable organization, as defined in section 3(c)(10)(D) of the
Investment Company Act of 1940, or any trustee, director, officer,
employee, or volunteer of such a charitable organization
acting within the scope of such person’s employment or duties
with such organization, shall not be deemed to be a ‘‘broker’’,
‘‘dealer’’, ‘‘municipal securities broker’’, ‘‘municipal securities
dealer’’, ‘‘government securities broker’’, or ‘‘government securities
dealer’’ for purposes of this title solely because such organization
or person buys, holds, sells, or trades in securities for
its own account in its capacity as trustee or administrator of,
or otherwise on behalf of or for the account of—
(A) such a charitable organization;
(B) a fund that is excluded from the definition of an
investment company under section 3(c)(10)(B) of the
Investment Company Act of 1940; or
(C) a trust or other donative instrument described in
section 3(c)(10)(B) of the Investment Company Act of 1940,
or the settlors (or potential settlors) or beneficiaries of any
such trust or other instrument.
(2) LIMITATION ON COMPENSATION.—The exemption provided
under paragraph (1) shall not be available to any charitable
organization, or any trustee, director, officer, employee,
or volunteer of such a charitable organization, unless each per33
SECURITIES EXCHANGE ACT OF 1934 Sec. 3A
son who, on or after 90 days after the date of enactment of this
subsection, solicits donations on behalf of such charitable organization
from any donor to a fund that is excluded from the
definition of an investment company under section 3(c)(10)(B)
of the Investment Company Act of 1940, is either a volunteer
or is engaged in the overall fund raising activities of a charitable
organization and receives no commission or other special
compensation based on the number or the value of donations
collected for the fund.
(f) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION,
AND CAPITAL FORMATION.—Whenever pursuant to this title
the Commission is engaged in rulemaking, or in the review of a
rule of a self-regulatory organization, and is required to consider or
determine whether an action is necessary or appropriate in the
public interest, the Commission shall also consider, in addition to
the protection of investors, whether the action will promote efficiency,
competition, and capital formation.
(g) CHURCH PLANS.—No church plan described in section
414(e) of the Internal Revenue Code of 1986, no person or entity
eligible to establish and maintain such a plan under the Internal
Revenue Code of 1986, no company or account that is excluded
from the definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940, and no trustee, director,
officer or employee of or volunteer for such plan, company,
account person, or entity, acting within the scope of that person’s
employment or activities with respect to such plan, shall be deemed
to be a ‘‘broker’’, ‘‘dealer’’, ‘‘municipal securities broker’’, ‘‘municipal
securities dealer’’, ‘‘government securities broker’’, ‘‘government
securities dealer’’, ‘‘clearing agency’’, or ‘‘transfer agent’’ for purposes
of this title—
(1) solely because such plan, company, person, or entity
buys, holds, sells, trades in, or transfers securities or acts as
an intermediary in making payments in connection with transactions
in securities for its own account in its capacity as
trustee or administrator of, or otherwise on behalf of, or for the
account of, any church plan, company, or account that is excluded
from the definition of an investment company under
section 3(c)(14) of the Investment Company Act of 1940; and
(2) if no such person or entity receives a commission or
other transaction-related sales compensation in connection
with any activities conducted in reliance on the exemption provided
by this subsection.
SEC. 3A. ø78c–1¿ SWAP AGREEMENTS.
(a) NON-SECURITY-BASED SWAP AGREEMENTS.—The definition
of ‘‘security’’ in section 3(a)(10) of this title does not include any
non-security-based swap agreement (as defined in section 206C of
the Gramm-Leach-Bliley Act).
(b) SECURITY-BASED SWAP AGREEMENTS.—
(1) The definition of ‘‘security’’ in section 3(a)(10) of this
title does not include any security-based swap agreement (as
defined in section 206B of the Gramm-Leach-Bliley Act).
(2) The Commission is prohibited from registering, or requiring,
recommending, or suggesting, the registration under
Sec. 4 SECURITIES EXCHANGE ACT OF 1934 34
1 See also Reorganization Plan No. 10 of 1950 and Pub. L. 87–592, printed in the appendix
to this compilation.
this title of any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act). If the Commission
becomes aware that a registrant has filed a registration
application with respect to such a swap agreement, the Commission
shall promptly so notify the registrant. Any such registration
with respect to such a swap agreement shall be void
and of no force or effect.
(3) Except as provided in section 16(a) with respect to reporting
requirements, the Commission is prohibited from—
(A) promulgating, interpreting, or enforcing rules; or
(B) issuing orders of general applicability;
under this title in a manner that imposes or specifies reporting
or recordkeeping requirements, procedures, or standards as
prophylactic measures against fraud, manipulation, or insider
trading with respect to any security-based swap agreement (as
defined in section 206B of the Gramm-Leach-Bliley Act).
(4) References in this title to the ‘‘purchase’’ or ‘‘sale’’ of a
security-based swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act) shall be deemed to mean the execution,
termination (prior to its scheduled maturity date),
assignment, exchange, or similar transfer or conveyance of, or
extinguishing of rights or obligations under, a security-based
swap agreement, as the context may require.
SECURITIES AND EXCHANGE COMMISSION
SEC. 4. ø78d¿ (a) There is hereby established a Securities and
Exchange Commission (hereinafter referred to as the ‘‘Commission’’)
to be composed of five commissioners to be appointed by the
President by and with the advice and consent of the Senate. Not
more than three of such commissioners shall be members of the
same political party, and in making appointments members of different
political parties shall be appointed alternately as nearly as
may be practicable. No commissioner shall engage in any other
business, vocation, or employment than that of serving as commissioner,
nor shall any commissioner participate, directly or indirectly,
in any stock-market operations or transactions of a character
subject to regulation by the Commission pursuant to this
title. Each commissioner shall hold office for a term of five years
and until his successor is appointed and has qualified, except that
he shall not so continue to serve beyond the expiration of the next
session of Congress subsequent to the expiration of said fixed term
of office, and except (1) any commissioner appointed to fill a vacancy
occurring prior to the expiration of the term for which his
predecessor was appointed shall be appointed for the remainder of
such term, and (2) the terms of office of the commissioners first
taking office after the enactment of this title shall expire as designated
by the President at the time of nomination, one at the end
of one year, one at the end of two years, one at the end of three
years, one at the end of four years, and one at the end of five years,
after the date of the enactment of this title.1
35 SECURITIES EXCHANGE ACT OF 1934 Sec. 4
(b) APPOINTMENT AND COMPENSATION OF STAFF AND LEASING
AUTHORITY.—
(1) APPOINTMENT AND COMPENSATION.—The Commission
shall appoint and compensate officers, attorneys, economists,
examiners, and other employees in accordance with section
4802 of title 5, United States Code.
(2) REPORTING OF INFORMATION.—In establishing and adjusting
schedules of compensation and benefits for officers,
attorneys, economists, examiners, and other employees of the
Commission under applicable provisions of law, the Commission
shall inform the heads of the agencies referred to under
section 1206 of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (12 U.S.C. 1833b) and Congress
of such compensation and benefits and shall seek to maintain
comparability with such agencies regarding compensation and
benefits.
(3) LEASING AUTHORITY.—Nothwithstanding any other provision
of law, the Commission is authorized to enter directly
into leases for real property for office, meeting, storage, and
such other space as is necessary to carry out its functions, and
shall be exempt from any General Services Administration
space management regulations or directives.
(c) Notwithstanding any other provision of law, in accordance
with regulations which the Commission shall prescribe to prevent
conflicts of interest, the Commission may accept payment and reimbursement,
in cash or in kind, from non-Federal agencies, organizations,
and individuals for travel, subsistence, and other necessary
expenses incurred by Commission members and employees
in attending meetings and conferences concerning the functions or
activities of the Commission. Any payment or reimbursement
accepted shall be credited to the appropriated funds of the Commission.
The amount of travel, subsistence, and other necessary expenses
for members and employees paid or reimbursed under this
subsection may exceed per diem amounts established in official
travel regulations, but the Commission may include in its regulations
under this subsection a limitation on such amounts.
(d) Notwithstanding any other provision of law, former employers
of participants in the Commission’s professional fellows programs
may pay such participants their actual expenses for relocation
to Washington, District of Columbia, to facilitate their participation
in such programs, and program participants may accept
such payments.
(e) Notwithstanding any other provision of law, whenever any
fee is required to be paid to the Commission pursuant to any provision
of the securities laws or any other law, the Commission may
provide by rule that such fee shall be paid in a manner other than
in cash and the Commission may also specify the time that such
fee shall be determined and paid relative to the filing of any statement
or document with the Commission.
(f) REIMBURSEMENT OF EXPENSES FOR ASSISTING FOREIGN
SECURITIES AUTHORITIES.—Notwithstanding any other provision of
law, the Commission may accept payment and reimbursement, in
cash or in kind, from a foreign securities authority, or made on behalf
of such authority, for necessary expenses incurred by the ComSec.
4A SECURITIES EXCHANGE ACT OF 1934 36
mission, its members, and employees in carrying out any investigation
pursuant to section 21(a)(2) of this title or in providing any
other assistance to a foreign securities authority. Any payment or
reimbursement accepted shall be considered a reimbursement to
the appropriated funds of the Commission.
DELEGATION OF FUNCTIONS BY COMMISSION
SEC. 4A. ø78d–1¿ (a) In addition to its existing authority, the
Securities and Exchange Commission shall have the authority to
delegate, by published order or rule, any of its functions to a division
of the Commission, an individual Commissioner, an administrative
law judge, or an employee or employee board, including
functions with respect to hearing, determining, ordering, certifying,
reporting, or otherwise acting as to any work, business, or matter.
Nothing in this section shall be deemed to supersede the provisions
of section 556(b) of title 5, or to authorize the delegation of the
function of rulemaking as defined in subchapter II of chapter 5 title
5, United States Code, with reference to general rules as distinguished
from rules of particular applicability, or of the making of
any rule pursuant to section 19(c) of this title.
(b) With respect to the delegation of any of its functions, as
provided in subsection (a) of this section, the Commission shall retain
a discretionary right to review the action of any such division
of the Commission, individual Commissioner, administrative law
judge, employee, or employee board, upon its own initiative or upon
petition of a party to or intervenor in such action, within such time
and in such manner as the Commission by rule shall prescribe. The
vote of one member of the Commission shall be sufficient to bring
any such action before the Commission for review. A person or
party shall be entitled to review by the Commission if he or it is
adversely affected by action at a delegated level which (1) denies
any request for action pursuant to section 8(a) or section 8(c) of the
Securities Act of 1933 or the first sentence of section 12(d) of this
title; (2) suspends trading in a security pursuant to section 12(k)
of this title; or (3) is pursuant to any provision of this title in a case
of adjudication, as defined in section 551 of title 5, United States
Code, not required by this title to be determined on the record after
notice and opportunity for hearing (except to the extent there is involved
a matter described in section 554(a) (1) through (6) of such
title 5).
(c) If the right to exercise such review is declined, or if no such
review is sought within the time stated in the rules promulgated
by the Commission, then the action of any such division of the
Commission, individual Commissioner, administrative law judge,
employee, or employee board, shall, for all purposes, including appeal
or review thereof, be deemed the action of the Commission.
TRANSFER OF FUNCTIONS WITH RESPECT TO ASSIGNMENT OF
PERSONNEL TO CHAIRMAN
SEC. 4B. ø78d–2¿ In addition to the functions transferred by
the provisions of Reorganization Plan Numbered 10 of 1950 (64
Stat. 1265), there are hereby transferred from the Commission to
the Chairman of the Commission the functions of the Commission
37 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
with respect to the assignment of Commission personnel, including
Commissioners, to perform such functions as may have been delegated
by the Commission to the Commission personnel, including
Commissioners, pursuant to section 4A of this title.
SEC. 4C. ø78d–3¿ APPEARANCE AND PRACTICE BEFORE THE COMMISSION.
(a) AUTHORITY TO CENSURE.—The Commission may censure
any person, or deny, temporarily or permanently, to any person the
privilege of appearing or practicing before the Commission in any
way, if that person is found by the Commission, after notice and
opportunity for hearing in the matter—
(1) not to possess the requisite qualifications to represent
others;
(2) to be lacking in character or integrity, or to have engaged
in unethical or improper professional conduct; or
(3) to have willfully violated, or willfully aided and abetted
the violation of, any provision of the securities laws or the
rules and regulations issued thereunder.
(b) DEFINITION.—With respect to any registered public accounting
firm or associated person, for purposes of this section, the term
‘‘improper professional conduct’’ means—
(1) intentional or knowing conduct, including reckless conduct,
that results in a violation of applicable professional
standards; and
(2) negligent conduct in the form of—
(A) a single instance of highly unreasonable conduct
that results in a violation of applicable professional standards
in circumstances in which the registered public accounting
firm or associated person knows, or should know,
that heightened scrutiny is warranted; or
(B) repeated instances of unreasonable conduct, each
resulting in a violation of applicable professional standards,
that indicate a lack of competence to practice before
the Commission.
TRANSACTIONS ON UNREGISTERED EXCHANGES
SEC. 5. ø78e¿ It shall be unlawful for any broker, dealer, or exchange,
directly or indirectly, to make use of the mails or any
means or instrumentality of interstate commerce for the purpose of
using any facility of an exchange within or subject to the jurisdiction
of the United States to effect any transaction in a security, or
to report any such transaction, unless such exchange (1) is registered
as a national securities exchange under section 6 of this
title, or (2) is exempted from such registration upon application by
the exchange because, in the opinion of the Commission, by reason
of the limited volume of transactions effected on such exchange, it
is not practicable and not necessary or appropriate in the public interest
or for the protection of investors to require such registration.
NATIONAL SECURITIES EXCHANGES
SEC. 6. ø78f¿ (a) An exchange may be registered as a national
securities exchange under the terms and conditions hereinafter
provided in this section and in accordance with the provisions of
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 38
section 19(a) of this title, by filing with the Commission an application
for registration in such form as the Commission, by rule, may
prescribe containing the rules of the exchange and such other information
and documents as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or for the protection
of investors.
(b) An exchange shall not be registered as a national securities
exchange unless the Commission determines that—
(1) Such exchange is so organized and has the capacity to
be able to carry out the purposes of this title and to comply,
and (subject to any rule or order of the Commission pursuant
to section 17(d) or 19(g)(2) of this title) to enforce compliance
by its members and persons associated with its members, with
the provisions of this title, the rules and regulations thereunder,
and the rules of the exchange.
(2) Subject to the provisions of subsection (c) of this section,
the rules of the exchange provide that any registered
broker or dealer or natural person associated with a registered
broker or dealer may become a member of such exchange and
any person may become associated with a member thereof.
(3) The rules of the exchange assure a fair representation
of its members in the selection of its directors and administration
of its affairs and provide that one or more directors shall
be representative of issuers and investors and not be associated
with a member of the exchange, broker, or dealer.
(4) The rules of the exchange provide for the equitable allocation
of reasonable dues, fees, and other charges among its
members and issuers and other persons using its facilities.
(5) The rules of the exchange are designed to prevent
fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating
transactions in securities, to remove impediments to and perfect
the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the
public interest; and are not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers, or to
regulate by virtue of any authority conferred by this title matters
not related to the purposes of this title or the administration
of the exchange.
(6) The rules of the exchange provide that (subject to any
rule or order of the Commission pursuant to section 17(d) or
19(g)(2) of this title) its members and persons associated with
its members shall be appropriately disciplined for violation of
the provisions of this title, the rules or regulations thereunder,
or the rules of the exchange, by expulsion, suspension, limitation
of activities, functions, and operations, fine, censure, being
suspended or barred from being associated with a member, or
any other fitting sanction.
(7) The rules of the exchange are in accordance with the
provisions of subsection (d) of this section, and in general, provide
a fair procedure for the disciplining of members and persons
associated with members, the denial of membership to
39 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
any person seeking membership therein, the barring of any
person from becoming associated with a member thereof, and
the prohibition or limitation by the exchange of any person
with respect to access to services offered by the exchange or a
member thereof.
(8) The rules of the exchange do not impose any burden on
competition not necessary or appropriate in furtherance of the
purposes of this title.
(9) The rules of the exchange prohibit the listing of any
security issued in a limited partnership rollup transaction (as
such term is defined in paragraphs (4) and (5) of section 14(h)),
unless such transaction was conducted in accordance with procedures
designed to protect the rights of limited partners,
including—
(A) the right of dissenting limited partners to one of
the following:
(i) an appraisal and compensation;
(ii) retention of a security under substantially the
same terms and conditions as the original issue;
(iii) approval of the limited partnership rollup
transaction by not less than 75 percent of the outstanding
securities of each of the participating limited
partnerships;
(iv) the use of a committee of limited partners
that is independent, as determined in accordance with
rules prescribed by the exchange, of the general partner
or sponsor, that has been approved by a majority
of the outstanding units of each of the participating
limited partnerships, and that has such authority as is
necessary to protect the interest of limited partners,
including the authority to hire independent advisors,
to negotiate with the general partner or sponsor on behalf
of the limited partners, and to make a recommendation
to the limited partners with respect to
the proposed transaction; or
(v) other comparable rights that are prescribed by
rule by the exchange and that are designed to protect
dissenting limited partners;
(B) the right not to have their voting power unfairly
reduced or abridged;
(C) the right not to bear an unfair portion of the costs
of a proposed limited partnership rollup transaction that is
rejected; and
(D) restrictions on the conversion of contingent interests
or fees into non-contingent interests or fees and
restrictions on the receipt of a non-contingent equity interest
in exchange for fees for services which have not yet
been provided.
As used in this paragraph, the term ‘‘dissenting limited partner’’
means a person who, on the date on which soliciting material
is mailed to investors, is a holder of a beneficial interest
in a limited partnership that is the subject of a limited partnership
rollup transaction, and who casts a vote against the
transaction and complies with procedures established by the
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 40
exchange, except that for purposes of an exchange or tender
offer, such person shall file an objection in writing under the
rules of the exchange during the period during which the offer
is outstanding.
(c)(1) A national securities exchange shall deny membership to
(A) any person, other than a natural person, which is not a registered
broker or dealer or (B) any natural person who is not, or
is not associated with, a registered broker or dealer.
(2) A national securities exchange may, and in cases in which
the Commission, by order, directs as necessary or appropriate in
the public interest or for the protection of investors shall, deny
membership to any registered broker or dealer or natural person
associated with a registered broker or dealer, and bar from becoming
associated with a member any person, who is subject to a statutory
disqualification. A national securities exchange shall file notice
with the Commission not less than thirty days prior to admitting
any person to membership or permitting any person to become
associated with a member, if the exchange knew, or in the exercise
of reasonable care should have known, that such person was subject
to a statutory disqualification. The notice shall be in such form
and contain such information as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or for the
protection of investors.
(3)(A) A national securities exchange may deny membership to,
or condition the membership of, a registered broker or dealer if (i)
such broker or dealer does not meet such standards of financial
responsibility or operational capability or such broker or dealer or
any natural person associated with such broker or dealer does not
meet such standards of training, experience, and competence as are
prescribed by the rules of the exchange or (ii) such broker or dealer
or person associated with such broker or dealer has engaged and
there is a reasonable likelihood he may again engage in acts or
practices inconsistent with just and equitable principles of trade. A
national securities exchange may examine and verify the qualifications
of an applicant to become a member and the natural persons
associated with such an applicant in accordance with procedures
established by the rules of the exchange.
(B) A national securities exchange may bar a natural person
from becoming a member or associated with a member, or condition
the membership of a natural person or association of a natural person
with a member, if such natural person (i) does not meet such
standards of training, experience, and competence as are prescribed
by the rules of the exchange or (ii) has engaged and there is a reasonable
likelihood he may again engage in acts or practices inconsistent
with just and equitable principles of trade. A national securities
exchange may examine and verify the qualifications of an applicant
to become a person associated with a member in accordance
with procedures established by the rules of the exchange and require
any person associated with a member, or any class of such
persons, to be registered with the exchange in accordance with procedures
so established.
(C) A national securities exchange may bar any person from
becoming associated with a member if such person does not agree
(i) to supply the exchange with such information with respect to its

41 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
relationship and dealings with the member as may be specified in
the rules of the exchange and (ii) to permit the examination of its
books and records to verify the accuracy of any information so supplied.
(4) A national securities exchange may limit (A) the number of
members of the exchange and (B) the number of members and designated
representatives of members permitted to effect transactions
on the floor of the exchange without the services of another person
acting as broker: Provided, however, That no national securities exchange
shall have the authority to decrease the number of memberships
in such exchange, or the number of members and designated
representatives of members permitted to effect transactions on the
floor of such exchange without the services of another person acting
as broker, below such number in effect on May 1, 1975, or the date
such exchange was registered with the Commission, whichever is
later: And provided further, That the Commission, in accordance
with the provisions of section 19(c) of this title, may amend the
rules of any national securities exchange to increase (but not to decrease)
or to remove any limitation on the number of memberships
in such exchange or the number of members or designated representatives
of members permitted to effect transactions on the
floor of the exchange without the services of another person acting
as broker, if the Commission finds that such limitation imposes a
burden on competition not necessary or appropriate in furtherance
of the purposes of this title.
(d)(1) In any proceeding by a national securities exchange to
determine whether a member or person associated with a member
should be disciplined (other than a summary proceeding pursuant
to paragraph (3) of this subsection), the exchange shall bring specific
charges, notify such member or person of, and give him an
opportunity to defend against, such charges, and keep a record. A
determination by the exchange to impose a disciplinary sanction
shall be supported by a statement setting forth—
(A) any act or practice in which such member or person
associated with a member has been found to have engaged, or
which such member or person has been found to have omitted;
(B) the specific provision of this title, the rules or regulations
thereunder, or the rules of the exchange which any such
act or practice, or omission to act, is deemed to violate; and
(C) the sanction imposed and the reasons therefor.
(2) In any proceeding by a national securities exchange to
determine whether a person shall be denied membership, barred
from becoming associated with a member, or prohibited or limited
with respect to access to services offered by the exchange or a
member thereof (other than a summary proceeding pursuant to
paragraph (3) of this subsection), the exchange shall notify such
person of, and give him an opportunity to be heard upon, the specific
grounds for denial, bar, or prohibition or limitation under consideration
and keep a record. A determination by the exchange to
deny membership, bar a person from becoming associated with a
member, or prohibit or limit a person with respect to access to
services offered by the exchange or a member thereof shall be supported
by a statement setting forth the specific grounds on which
the denial, bar, or prohibition or limitation is based.
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 42
(3) A national securities exchange may summarily (A) suspend
a member or person associated with a member who has been and
is expelled or suspended from any self-regulatory organization or
barred or suspended from being associated with a member of any
self-regulatory organization, (B) suspend a member who is in such
financial or operating difficulty that the exchange determines and
so notifies the Commission that the member cannot be permitted
to continue to do business as a member with safety to investors,
creditors, other members, or the exchange, or (C) limit or prohibit
any person with respect to access to services offered by the exchange
if subparagraph (A) or (B) of this paragraph is applicable
to such person or, in the case of a person who is not a member,
if the exchange determines that such person does not meet the
qualification requirements or other prerequisites for such access
and such person cannot be permitted to continue to have such access
with safety to investors, creditors, members, or the exchange.
Any person aggrieved by any such summary action shall be
promptly afforded an opportunity for a hearing by the exchange in
accordance with the provisions of paragraph (1) or (2) of this subsection.
The Commission, by order, may stay any such summary
action on its own motion or upon application by any person aggrieved
thereby, if the Commission determines summarily or after
notice and opportunity for hearing (which hearing may consist
solely of the submission of affidavits or presentation of oral arguments)
that such stay is consistent with the public interest and the
protection of investors.
(e)(1) On and after the date of enactment of the Securities Acts
Amendments of 1975, no national securities exchange may impose
any schedule or fix rates of commissions, allowances, discounts, or
other fees to be charged by its members: Provided, however, That
until May 1, 1976, the preceding provisions of this paragraph shall
not prohibit any such exchange from imposing or fixing any schedule
of commissions, allowances, discounts, or other fees to be
charged by its members for acting as broker on the floor of the exchange
or as odd-lot dealer: And provided further, That the Commission,
in accordance with the provisions of section 19(b) of this
title as modified by the provisions of paragraph (3) of this subsection,
may—
(A) permit a national securities exchange, by rule, to impose
a reasonable schedule or fix reasonable rates of commissions,
allowances, discounts, or other fees to be charged by its
members for effecting transactions on such exchange prior to
November 1, 1976, if the Commission finds that such schedule
or fixed rates of commissions, allowances, discounts, or other
fees are in the public interest; and
(B) permit a national securities exchange, by rule, to impose
a schedule or fix rates of commissions, allowances, discounts,
or other fees to be charged by its members for effecting
transactions on such exchange after November 1, 1976, if the
Commission finds that such schedule or fixed rates of commissions,
allowances, discounts, or other fees (i) are reasonable in
relation to the costs of providing the service for which such
fees are charged (and the Commission publishes the standards
employed in adjudging reasonableness) and (ii) do not impose
43 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
any burden on competition not necessary or appropriate in furtherance
of the purposes of this title, taking into consideration
the competitive effects of permitting such schedule or fixed
rates weighed against the competitive effects of other lawful
actions which the Commission is authorized to take under this
title.
(2) Notwithstanding the provisions of section 19(c) of this title,
the Commission, by rule, may abrogate any exchange rule which
imposes a schedule or fixes rates of commissions, allowances, discounts,
or other fees, if the Commission determines that such
schedule or fixed rates are no longer reasonable, in the public interest,
or necessary to accomplish the purposes of this title.
(3)(A) Before approving or disapproving any proposed rule
change submitted by a national securities exchange which would
impose a schedule or fix rates of commissions, allowances, discounts,
or other fees to be charged by its members for effecting
transactions on such exchange, the Commission shall afford interested
persons (i) an opportunity for oral presentation of data,
views, and arguments and (ii) with respect to any such rule concerning
transactions effected after November 1, 1976, if the Commission
determines there are disputed issues of material fact, to
present such rebuttal submissions and to conduct (or have conducted
under subparagraph (B) of this paragraph) such cross-examination
as the Commission determines to be appropriate and required
for full disclosure and proper resolution of such disputed
issues of material fact.
(B) The Commission shall prescribe rules and make rulings
concerning any proceeding in accordance with subparagraph (A) of
this paragraph designed to avoid unnecessary costs or delay. Such
rules or rulings may (i) impose reasonable time limits on each interested
person’s oral presentations, and (ii) require any crossexamination
to which a person may be entitled under subparagraph
(A) of this paragraph to be conducted by the Commission on
behalf of that person in such manner as the Commission determines
to be appropriate and required for full disclosure and proper
resolution of disputed issues of material fact.
(C)(i) If any class of persons, the members of which are entitled
to conduct (or have conducted) cross-examination under subparagraphs
(A) and (B) of this paragraph and which have, in the view
of the Commission, the same or similar interests in the proceeding,
cannot agree upon a single representative of such interests for purposes
of cross-examination, the Commission may make rules and
rulings specifying the manner in which such interests shall be represented
and such cross-examination conducted.
(ii) No member of any class of persons with respect to which
the Commission has specified the manner in which its interests
shall be represented pursuant to clause (i) of this subparagraph
shall be denied, pursuant to such clause (i), the opportunity to conduct
(or have conducted) cross-examination as to issues affecting
his particular interests if he satisfies the Commission that he has
made a reasonable and good faith effort to reach agreement upon
group representation and there are substantial and relevant issues
which would not be presented adequately by group representation.
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 44
1 So in law. Probably should be clauses (i) and (ii).
(D) A transcript shall be kept of any oral presentation and
cross-examination.
(E) In addition to the bases specified in subsection 25(a), a reviewing
Court may set aside an order of the Commission under section
19(b) approving an exchange rule imposing a schedule or fixing
rates of commissions, allowances, discounts, or other fees, if the
Court finds—
(1) 1 a Commission determination under subparagraph (A)
of this paragraph that an interested person is not entitled to
conduct cross-examination or make rebuttal submissions, or
(2) 1 a Commission rule or ruling under subparagraph (B)
of this paragraph limiting the petitioner’s cross-examination or
rebuttal submissions,
has precluded full disclosure and proper resolution of disputed
issues of material fact which were necessary for fair determination
by the Commission.
(f) The Commission, by rule or order, as it deems necessary or
appropriate in the public interest and for the protection of investors,
to maintain fair and orderly markets, or to assure equal regulation,
may require—
(1) any person not a member or a designated representative
of a member of a national securities exchange effecting
transactions on such exchange without the services of another
person acting as a broker, or
(2) any broker or dealer not a member of a national securities
exchange effecting transactions on such exchange on a regular
basis,
to comply with such rules of such exchange as the Commission may
specify.
(g) NOTICE REGISTRATION OF SECURITY FUTURES PRODUCT EXCHANGES.—
(1) REGISTRATION REQUIRED.—An exchange that lists or
trades security futures products may register as a national
securities exchange solely for the purposes of trading security
futures products if—
(A) the exchange is a board of trade, as that term is
defined by the Commodity Exchange Act (7 U.S.C. 1a(2)),
that—
(i) has been designated a contract market by the
Commodity Futures Trading Commission and such
designation is not suspended by order of the Commodity
Futures Trading Commission; or
(ii) is registered as a derivative transaction execution
facility under section 5a of the Commodity Exchange
Act and such registration is not suspended by
the Commodity Futures Trading Commission; and
(B) such exchange does not serve as a market place for
transactions in securities other than—
(i) security futures products; or
(ii) futures on exempted securities or groups or indexes
of securities or options thereon that have been
45 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
authorized under section 2(a)(1)(C) of the Commodity
Exchange Act.
(2) REGISTRATION BY NOTICE FILING.—
(A) FORM AND CONTENT.—An exchange required to
register only because such exchange lists or trades security
futures products may register for purposes of this section
by filing with the Commission a written notice in such
form as the Commission, by rule, may prescribe containing
the rules of the exchange and such other information and
documents concerning such exchange, comparable to the
information and documents required for national securities
exchanges under section 6(a), as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest
or for the protection of investors. If such exchange
has filed documents with the Commodity Futures Trading
Commission, to the extent that such documents contain
information satisfying the Commission’s informational
requirements, copies of such documents may be filed with
the Commission in lieu of the required written notice.
(B) IMMEDIATE EFFECTIVENESS.—Such registration
shall be effective contemporaneously with the submission
of notice, in written or electronic form, to the Commission,
except that such registration shall not be effective if such
registration would be subject to suspension or revocation.
(C) TERMINATION.—Such registration shall be terminated
immediately if any of the conditions for registration
set forth in this subsection are no longer satisfied.
(3) PUBLIC AVAILABILITY.—The Commission shall promptly
publish in the Federal Register an acknowledgment of receipt
of all notices the Commission receives under this subsection
and shall make all such notices available to the public.
(4) EXEMPTION OF EXCHANGES FROM SPECIFIED PROVISIONS.—
(A) TRANSACTION EXEMPTIONS.—An exchange that is
registered under paragraph (1) of this subsection shall be
exempt from, and shall not be required to enforce compliance
by its members with, and its members shall not,
solely with respect to those transactions effected on such
exchange in security futures products, be required to comply
with, the following provisions of this title and the rules
thereunder:
(i) Subsections (b)(2), (b)(3), (b)(4), (b)(7), (b)(9), (c),
(d), and (e) of this section.
(ii) Section 8.
(iii) Section 11.
(iv) Subsections (d), (f ), and (k) of section 17.
(v) Subsections (a), (f ), and (h) of section 19.
(B) RULE CHANGE EXEMPTIONS.—An exchange that
registered under paragraph (1) of this subsection shall also
be exempt from submitting proposed rule changes pursuant
to section 19(b) of this title, except that—
(i) such exchange shall file proposed rule changes
related to higher margin levels, fraud or manipulation,
recordkeeping, reporting, listing standards, or decimal
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 46
pricing for security futures products, sales practices
for security futures products for persons who effect
transactions in security futures products, or rules
effectuating such exchange’s obligation to enforce the
securities laws pursuant to section 19(b)(7);
(ii) such exchange shall file pursuant to sections
19(b)(1) and 19(b)(2) proposed rule changes related to
margin, except for changes resulting in higher margin
levels; and
(iii) such exchange shall file pursuant to section
19(b)(1) proposed rule changes that have been abrogated
by the Commission pursuant to section
19(b)(7)(C).
(5) TRADING IN SECURITY FUTURES PRODUCTS.—
(A) IN GENERAL.—Subject to subparagraph (B), it shall
be unlawful for any person to execute or trade a security
futures product until the later of—
(i) 1 year after the date of the enactment of the
Commodity Futures Modernization Act of 2000; or
(ii) such date that a futures association registered
under section 17 of the Commodity Exchange Act has
met the requirements set forth in section 15A(k)(2) of
this title.
(B) PRINCIPAL-TO-PRINCIPAL TRANSACTIONS.—Notwithstanding
subparagraph (A), a person may execute or trade
a security futures product transaction if—
(i) the transaction is entered into—
(I) on a principal-to-principal basis between
parties trading for their own accounts or as described
in section 1a(12)(B)(ii) of the Commodity
Exchange Act; and
(II) only between eligible contract participants
(as defined in subparagraphs (A), (B)(ii), and (C)
of such section 1a(12)) at the time at which the
persons enter into the agreement, contract, or
transaction; and
(ii) the transaction is entered into on or after the
later of—
(I) 8 months after the date of the enactment
of the Commodity Futures Modernization Act of
2000; or
(II) such date that a futures association registered
under section 17 of the Commodity Exchange
Act has met the requirements set forth in
section 15A(k)(2) of this title.
(h) TRADING IN SECURITY FUTURES PRODUCTS.—
(1) TRADING ON EXCHANGE OR ASSOCIATION REQUIRED.—It
shall be unlawful for any person to effect transactions in security
futures products that are not listed on a national securities
exchange or a national securities association registered pursuant
to section 15A(a).
(2) LISTING STANDARDS REQUIRED.—Except as otherwise
provided in paragraph (7), a national securities exchange or a
national securities association registered pursuant to section
47 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
15A(a) may trade only security futures products that (A) conform
with listing standards that such exchange or association
files with the Commission under section 19(b) and (B) meet the
criteria specified in section 2(a)(1)(D)(i) of the Commodity Exchange
Act.
(3) REQUIREMENTS FOR LISTING STANDARDS AND CONDITIONS
FOR TRADING.—Such listing standards shall—
(A) except as otherwise provided in a rule, regulation,
or order issued pursuant to paragraph (4), require that
any security underlying the security future, including each
component security of a narrow-based security index, be
registered pursuant to section 12 of this title;
(B) require that if the security futures product is not
cash settled, the market on which the security futures
product is traded have arrangements in place with a registered
clearing agency for the payment and delivery of the
securities underlying the security futures product;
(C) be no less restrictive than comparable listing
standards for options traded on a national securities exchange
or national securities association registered pursuant
to section 15A(a) of this title;
(D) except as otherwise provided in a rule, regulation,
or order issued pursuant to paragraph (4), require that the
security future be based upon common stock and such
other equity securities as the Commission and the Commodity
Futures Trading Commission jointly determine
appropriate;
(E) require that the security futures product is cleared
by a clearing agency that has in place provisions for linked
and coordinated clearing with other clearing agencies that
clear security futures products, which permits the security
futures product to be purchased on one market and offset
on another market that trades such product;
(F) require that only a broker or dealer subject to suitability
rules comparable to those of a national securities
association registered pursuant to section 15A(a) effect
transactions in the security futures product;
(G) require that the security futures product be subject
to the prohibition against dual trading in section 4j of the
Commodity Exchange Act (7 U.S.C. 6j) and the rules and
regulations thereunder or the provisions of section 11(a) of
this title and the rules and regulations thereunder, except
to the extent otherwise permitted under this title and the
rules and regulations thereunder;
(H) require that trading in the security futures product
not be readily susceptible to manipulation of the price
of such security futures product, nor to causing or being
used in the manipulation of the price of any underlying
security, option on such security, or option on a group or
index including such securities;
(I) require that procedures be in place for coordinated
surveillance among the market on which the security futures
product is traded, any market on which any security
underlying the security futures product is traded, and
Sec. 6 SECURITIES EXCHANGE ACT OF 1934 48
other markets on which any related security is traded to
detect manipulation and insider trading;
(J) require that the market on which the security futures
product is traded has in place audit trails necessary
or appropriate to facilitate the coordinated surveillance required
in subparagraph (I);
(K) require that the market on which the security futures
product is traded has in place procedures to coordinate
trading halts between such market and any market
on which any security underlying the security futures
product is traded and other markets on which any related
security is traded; and
(L) require that the margin requirements for a security
futures product comply with the regulations prescribed
pursuant to section 7(c)(2)(B), except that nothing in this
subparagraph shall be construed to prevent a national
securities exchange or national securities association from
requiring higher margin levels for a security futures product
when it deems such action to be necessary or appropriate.
(4) AUTHORITY TO MODIFY CERTAIN LISTING STANDARD
REQUIREMENTS.—
(A) AUTHORITY TO MODIFY.—The Commission and the
Commodity Futures Trading Commission, by rule, regulation,
or order, may jointly modify the listing standard
requirements specified in subparagraph (A) or (D) of paragraph
(3) to the extent such modification fosters the development
of fair and orderly markets in security futures
products, is necessary or appropriate in the public interest,
and is consistent with the protection of investors.
(B) AUTHORITY TO GRANT EXEMPTIONS.—The Commission
and the Commodity Futures Trading Commission, by
order, may jointly exempt any person from compliance
with the listing standard requirement specified in subparagraph
(E) of paragraph (3) to the extent such exemption
fosters the development of fair and orderly markets in
security futures products, is necessary or appropriate in
the public interest, and is consistent with the protection of
investors.
(5) REQUIREMENTS FOR OTHER PERSONS TRADING SECURITY
FUTURE PRODUCTS.—It shall be unlawful for any person (other
than a national securities exchange or a national securities
association registered pursuant to section 15A(a)) to constitute,
maintain, or provide a marketplace or facilities for bringing together
purchasers and sellers of security future products or to
otherwise perform with respect to security future products the
functions commonly performed by a stock exchange as that
term is generally understood, unless a national securities association
registered pursuant to section 15A(a) or a national
securities exchange of which such person is a member—
(A) has in place procedures for coordinated surveillance
among such person, the market trading the securities
underlying the security future products, and other
49 SECURITIES EXCHANGE ACT OF 1934 Sec. 6
markets trading related securities to detect manipulation
and insider trading;
(B) has rules to require audit trails necessary or
appropriate to facilitate the coordinated surveillance required
in subparagraph (A); and
(C) has rules to require such person to coordinate
trading halts with markets trading the securities underlying
the security future products and other markets trading
related securities.
(6) DEFERRAL OF OPTIONS ON SECURITY FUTURES TRADING.—
No person shall offer to enter into, enter into, or confirm
the execution of any put, call, straddle, option, or privilege on
a security future, except that, after 3 years after the date of
the enactment of this subsection, the Commission and the
Commodity Futures Trading Commission may by order jointly
determine to permit trading of puts, calls, straddles, options,
or privileges on any security future authorized to be traded
under the provisions of this Act and the Commodity Exchange
Act.
(7) DEFERRAL OF LINKED AND COORDINATED CLEARING.—
(A) Notwithstanding paragraph (2), until the compliance
date, a national securities exchange or national securities
association registered pursuant to section 15A(a)
may trade a security futures product that does not—
(i) conform with any listing standard promulgated
to meet the requirement specified in subparagraph (E)
of paragraph (3); or
(ii) meet the criterion specified in section
2(a)(1)(D)(i)(IV) of the Commodity Exchange Act.
(B) The Commission and the Commodity Futures
Trading Commission shall jointly publish in the Federal
Register a notice of the compliance date no later than 165
days before the compliance date.
(C) For purposes of this paragraph, the term ‘‘compliance
date’’ means the later of—
(i) 180 days after the end of the first full calendar
month period in which the average aggregate comparable
share volume for all security futures products
based on single equity securities traded on all national
securities exchanges, any national securities associations
registered pursuant to section 15A(a), and all
other persons equals or exceeds 10 percent of the average
aggregate comparable share volume of options on
single equity securities traded on all national securities
exchanges and any national securities associations
registered pursuant to section 15A(a); or
(ii) 2 years after the date on which trading in any
security futures product commences under this title.
(i) Consistent with this title, each national securities exchange
registered pursuant to subsection (a) of this section shall issue such
rules as are necessary to avoid duplicative or conflicting rules applicable
to any broker or dealer registered with the Commission
pursuant to section 15(b) (except paragraph (11) thereof ), that is
also registered with the Commodity Futures Trading Commission
Sec. 7 SECURITIES EXCHANGE ACT OF 1934 50
pursuant to section 4f(a) of the Commodity Exchange Act (except
paragraph (2) thereof ), with respect to the application of—
(1) rules of such national securities exchange of the type
specified in section 15(c)(3)(B) involving security futures products;
and
(2) similar rules of national securities exchanges registered
pursuant to section 6(g) and national securities associations
registered pursuant to section 15A(k) involving security futures
products.
( j) PROCEDURES AND RULES FOR SECURITY FUTURE PRODUCTS.—
A national securities exchange registered pursuant to subsection
(a) shall implement the procedures specified in section
6(h)(5)(A) of this title and adopt the rules specified in subparagraphs
(B) and (C) of section 6(h)(5) of this title not later than 8
months after the date of receipt of a request from an alternative
trading system for such implementation and rules.
(k)(1) To the extent necessary or appropriate in the public interest,
to promote fair competition, and consistent with the promotion
of market efficiency, innovation, and expansion of investment
opportunities, the protection of investors, and the maintenance
of fair and orderly markets, the Commission and the Commodity
Futures Trading Commission shall jointly issue such rules,
regulations, or orders as are necessary and appropriate to permit
the offer and sale of a security futures product traded on or subject
to the rules of a foreign board of trade to United States persons.
(2) The rules, regulations, or orders adopted under paragraph
(1) shall take into account, as appropriate, the nature and size of
the markets that the securities underlying the security futures
product reflect.
MARGIN REQUIREMENTS
SEC. 7. ø78g¿ (a) For the purpose of preventing the excessive
use of credit for the purchase or carrying of securities, the Board
of Governors of the Federal Reserve System shall, prior to the
effective date of this section and from time to time thereafter, prescribe
rules and regulations with respect to the amount of credit
that may be initially extended and subsequently maintained on any
security (other than an exempted security or a security futures
product). For the initial extension of credit, such rules and regulations
shall be based upon the following standard: An amount not
greater than whichever is the higher of—
(1) 55 per centum of the current market price of the security,
or
(2) 100 per centum of the lowest market price of the security
during the preceding thirty-six calendar months, but not
more than 75 per centum of the current market price.
Such rules and regulations may make appropriate provision with
respect to the carrying of undermargined accounts for limited periods
and under specified conditions; the withdrawal of funds or
securities; the substitution or additional purchases of securities;
the transfer of accounts from one lender to another; special or different
margin requirements for delayed deliveries, short sales, arbitrage
transactions, and securities to which paragraph (2) of this
subsection does not apply; the bases and the methods to be used

51 SECURITIES EXCHANGE ACT OF 1934 Sec. 7
in calculating loans, and margins and market prices; and similar
administrative adjustments and details. For the purposes of paragraph
(2) of this subsection until July 1, 1936, the lowest price at
which a security has sold on or after July 1, 1933, shall be considered
as the lowest price at which such security has sold during the
preceding thirty-six calendar months.
(b) Notwithstanding the provisions of subsection (a) of this section,
the Board of Governors of the Federal Reserve System, may,
from time to time, with respect to all or specified securities or
transactions, or classes of securities, or classes of transactions, by
such rules and regulations (1) prescribe such lower margin requirements
for the initial extension or maintenance of credit as it deems
necessary or appropriate for the accommodation of commerce and
industry, having due regard to the general credit situation of the
country, and (2) prescribe such higher margin requirements for the
initial extension or maintenance of credit as it may deem necessary
or appropriate to prevent the excessive use of credit to finance
transactions in securities.
(c) UNLAWFUL CREDIT EXTENSION TO CUSTOMERS.—
(1) PROHIBITION.—It shall be unlawful for any member of
a national securities exchange or any broker or dealer, directly
or indirectly, to extend or maintain credit or arrange for the
extension or maintenance of credit to or for any
customer—
(A) on any security (other than an exempted security),
except as provided in paragraph (2), in contravention of
the rules and regulations which the Board of Governors of
the Federal Reserve System (hereafter in this section referred
to as the ‘‘Board’’) shall prescribe under subsections
(a) and (b); and
(B) without collateral or on any collateral other than
securities, except in accordance with such rules and regulations
as the Board may prescribe—
(i) to permit under specified conditions and for a
limited period any such member, broker, or dealer to
maintain a credit initially extended in conformity with
the rules and regulations of the Board; and
(ii) to permit the extension or maintenance of
credit in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying
securities or of evading or circumventing the provisions
of subparagraph (A).
(2) MARGIN REGULATIONS.—
(A) COMPLIANCE WITH MARGIN RULES REQUIRED.—It
shall be unlawful for any broker, dealer, or member of a
national securities exchange to, directly or indirectly, extend
or maintain credit to or for, or collect margin from
any customer on, any security futures product unless such
activities comply with the regulations—
(i) which the Board shall prescribe pursuant to
subparagraph (B); or
(ii) if the Board determines to delegate the authority
to prescribe such regulations, which the CommisSec.
7 SECURITIES EXCHANGE ACT OF 1934 52
sion and the Commodity Futures Trading Commission
shall jointly prescribe pursuant to subparagraph (B).
If the Board delegates the authority to prescribe such regulations
under clause (ii) and the Commission and the
Commodity Futures Trading Commission have not jointly
prescribed such regulations within a reasonable period of
time after the date of such delegation, the Board shall prescribe
such regulations pursuant to subparagraph (B).
(B) CRITERIA FOR ISSUANCE OF RULES.—The Board
shall prescribe, or, if the authority is delegated pursuant
to subparagraph (A)(ii), the Commission and the Commodity
Futures Trading Commission shall jointly prescribe,
such regulations to establish margin requirements,
including the establishment of levels of margin (initial and
maintenance) for security futures products under such
terms, and at such levels, as the Board deems appropriate,
or as the Commission and the Commodity Futures Trading
Commission jointly deem appropriate—
(i) to preserve the financial integrity of markets
trading security futures products;
(ii) to prevent systemic risk;
(iii) to require that—
(I) the margin requirements for a security future
product be consistent with the margin
requirements for comparable option contracts
traded on any exchange registered pursuant to
section 6(a) of this title; and
(II) initial and maintenance margin levels for
a security future product not be lower than the
lowest level of margin, exclusive of premium, required
for any comparable option contract traded
on any exchange registered pursuant to section
6(a) of this title, other than an option on a security
future;
except that nothing in this subparagraph shall be construed
to prevent a national securities exchange or national
securities association from requiring higher
margin levels for a security future product when it
deems such action to be necessary or appropriate; and
(iv) to ensure that the margin requirements (other
than levels of margin), including the type, form, and
use of collateral for security futures products, are and
remain consistent with the requirements established
by the Board, pursuant to subparagraphs (A) and (B)
of paragraph (1).
(3) EXCEPTION.—This subsection and the rules and regulations
issued under this subsection shall not apply to any credit
extended, maintained, or arranged by a member of a national
securities exchange or a broker or dealer to or for a member
of a national securities exchange or a registered broker or
dealer—
(A) a substantial portion of whose business consists of
transactions with persons other than brokers or dealers; or
53 SECURITIES EXCHANGE ACT OF 1934 Sec. 7
(B) to finance its activities as a market maker or an
underwriter;
except that the Board may impose such rules and regulations,
in whole or in part, on any credit otherwise exempted by this
paragraph if the Board determines that such action is necessary
or appropriate in the public interest or for the protection
of investors.
(d) UNLAWFUL CREDIT EXTENSION IN VIOLATION OF RULES AND
REGULATIONS; EXCEPTIONS TO APPLICATION OF RULES, ETC.—
(1) PROHIBITION.—It shall be unlawful for any person not
subject to subsection (c) to extend or maintain credit or to arrange
for the extension or maintenance of credit for the purpose
of purchasing or carrying any security, in contravention
of such rules and regulations as the Board shall prescribe to
prevent the excessive use of credit for the purchasing or carrying
of or trading in securities in circumvention of the other
provisions of this section. Such rules and regulationsy may impose
upon all loans made for the purpose of purchasing or carrying
securities limitations similar to those imposed upon
members, brokers, or dealers by subsection (c) and the rules
and regulations thereunder.
(2) EXCEPTIONS.—This subsection and the rules and regulations
issued under this subsection shall not apply to any
credit extended, maintained, or arranged—
(A) by a person not in the ordinary course of business;
(B) on an exempted security;
(C) to or for a member of a national securities exchange
or a registered broker or dealer—
(i) a substantial portion of whose business consists
of transactions with persons other than brokers or
dealers; or
(ii) to finance its activities as a market maker or
an underwriter;
(D) by a bank on a security other than an equity security;
or
(E) as the Board shall, by such rules, regulations, or
orders as it may deem necessary or appropriate in the public
interest or for the protection of investors, exempt, either
unconditionally or upon specified terms and conditions or
for stated periods, from the operation of this subsection
and the rules and regulations thereunder.
(3) BOARD AUTHORITY.—The Board may impose such rules
and regulations, in whole or in part, on any credit otherwise
exempted by subparagraph (C) if it determines that such action
is necessary or appropriate in the public interest or for the
protection of investors.
(e) The provisions of this section or the rules and regulations
thereunder shall not apply on or before July 1, 1937, to any loan
or extension of credit made prior to the enactment of this title or
to the maintenance, renewal, or extension of any such loan or
credit, except to the extent that the Federal Reserve Board may by
rules and regulations prescribe as necessary to prevent the circumvention
of the provisions of this section or the rules and regulations
thereunder by means of withdrawals of funds or securities,
Sec. 7 SECURITIES EXCHANGE ACT OF 1934 54
substitutions of securities, or additional purchases or by any other
device.
(f)(1) It is unlawful for any United States person, or any foreign
person controlled by a United States person or acting on behalf
of or in conjunction with such person, to obtain, receive, or
enjoy the beneficial use of a loan or other extension of credit from
any lender (without regard to whether the lender’s office or place
of business is in a State or the transaction occurred in whole or in
part within a State) for the purpose of (A) purchasing or carrying
United States securities, or (B) purchasing or carrying within the
United States of any other securities, if, under this section or rules
and regulations prescribed thereunder, the loan or other credit
transaction is prohibited or would be prohibited if it had been made
or the transaction had otherwise occurred in a lender’s office or
other place of business in a State.
(2) For the purposes of this subsection—
(A) The term ‘‘United States person’’ includes a person
which is organized or exists under the laws of any State or, in
the case of a natural person, a citizen or resident of the United
States; a domestic estate; or a trust in which one or more of
the foregoing persons has a cumulative direct or indirect beneficial
interest in excess of 50 per centum of the value of the
trust.
(B) The term ‘‘United States security’’ means a security
(other than an exempted security) issued by a person incorporated
under the laws of any State, or whose principal place
of business is within a State.
(C) The term ‘‘foreign person controlled by a United States
person’’ includes any noncorporate entity in which United
States persons directly or indirectly have more than a 50 per
centum beneficial interest, and any corporation in which one or
more United States persons, directly or indirectly, own stock
possessing more than 50 per centum of the total combined voting
power of all classes of stock entitled to vote, or more than
50 per centum of the total value of shares of all classes of
stock.
(3) The Board of Governors of the Federal Reserve System
may, in its discretion and with due regard for the purposes of this
section, by rule or regulation exempt any class of United States
persons or foreign persons controlled by a United States person
from the application of this subsection.
(g) Subject to such rules and regulations as the Board of Governors
of the Federal Reserve System may adopt in the public interest
and for the protection of investors, no member of a national
securities exchange or broker or dealer shall be deemed to have extended
or maintained credit or arranged for the extension or maintenance
of credit for the purpose of purchasing a security, within
the meaning of this section, by reason of a bona fide agreement for
delayed delivery of a mortgage related security or a small business
related security against full payment of the purchase price thereof
upon such delivery within one hundred and eighty days after the
purchase, or within such shorter period as the Board of Governors
of the Federal Reserve System may prescribe by rule or regulation.
55 SECURITIES EXCHANGE ACT OF 1934 Sec. 9
RESTRICTIONS ON BORROWING BY MEMBERS, BROKERS, AND DEALERS
SEC. 8. ø78h¿ It shall be unlawful for any registered broker or
dealer, member of a national securities exchange, or broker or
dealer who transacts a business in securities through the medium
of any member of a national securities exchange, directly or
indirectly—
(a) In contravention of such rules and regulations as the Commission
shall prescribe for the protection of investors to hypothecate
or arrange for the hypothecation of any securities carried for
the account of any customer under circumstances (1) that will permit
the commingling of his securities without his written consent
with the securities of any other customer, (2) that will permit such
securities to be commingled with the securities of any person other
than a bona fide customer, or (3) that will permit such securities
to be hypothecated, or subjected to any lien or claim of the pledgee,
for a sum in excess of the aggregate indebtedness of such customers
in respect of such securities.
(b) To lend or arrange for the lending of any securities carried
for the account of any customer without the written consent of such
customer or in contravention of such rules and regulations as the
Commission shall prescribe for the protection of investors.
PROHIBITION AGAINST MANIPULATION OF SECURITY PRICES
SEC. 9. ø78i¿ (a) It shall be unlawful for any person, directly
or indirectly, by the use of the mails or any means or instrumentality
of interstate commerce, or of any facility of any national
securities exchange, or for any member of a national securities
exchange—
(1) For the purpose of creating a false or misleading appearance
of active trading in any security registered on a national securities
exchange, or a false or misleading appearance with respect
to the market for any such security, (A) to effect any transaction
in such security which involves no change in the beneficial ownership
thereof, or (B) to enter an order or orders for the purchase of
such security with the knowledge that an order or orders of substantially
the same size, at substantially the same time, and at
substantially the same price, for the sale of any such security, has
been or will be entered by or for the same or different parties, or
(C) to enter any order or orders for the sale of any such security
with the knowledge that an order or orders of substantially the
same size, at substantially the same time, and at substantially the
same price, for the purchase of such security, has been or will be
entered by or for the same or different parties.
(2) To effect, alone or with one or more other persons, a series
of transactions in any security registered on a national securities
exchange or in connection with any security-based swap agreement
(as defined in section 206B of the Gramm-Leach-Bliley Act) with
respect to such security creating actual or apparent active trading
in such security, or raising or depressing the price of such security,
for the purpose of inducing the purchase or sale of such security
by others.
(3) If a dealer or broker, or other person selling or offering for
sale or purchasing or offering to purchase the security or a secuSec.
9 SECURITIES EXCHANGE ACT OF 1934 56
rity-based swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act) with respect to such security, to induce
the purchase or sale of any security registered on a national securities
exchange or any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) with respect to such
security by the circulation or dissemination in the ordinary course
of business of information to the effect that the price of any such
security will or is likely to rise or fall because of market operations
of any one or more persons conducted for the purpose of raising or
depressing the price of such security.
(4) If a dealer or broker, or the person selling or offering for
sale or purchasing or offering to purchase the security or a security-
based swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act) with respect to such security, to make,
regarding any security registered on a national securities exchange
or any security-based swap agreement (as defined in section 206B
of the Gramm-Leach-Bliley Act) with respect to such security, for
the purpose of inducing the purchase or sale of such security or
such security-based swap agreement, any statement which was at
the time and in the light of the circumstances under which it was
made, false or misleading with respect to any material fact, and
which he knew or had reasonable ground to believe was so false or
misleading.
(5) For a consideration, received directly or indirectly from a
dealer or broker, or other person selling or offering for sale or purchasing
or offering to purchase the security or a security-based
swap agreement (as defined in section 206B of the Gramm-Leach-
Bliley Act) with respect to such security, to induce the purchase of
any security registered on a national securities exchange or any
security-based swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act) with respect to such security by the circulation
or dissemination of information to the effect that the price
of any such security will or is likely to rise or fall because of the
market operations of any one or more persons conducted for the
purpose of raising or depressing the price of such security.
(6) To effect either alone or with one or more other persons any
series of transactions for the purchase and/or sale of any security
registered on a national securities exchange for the purpose of pegging,
fixing, or stabilizing the price of such security in contravention
of such rules and regulations as the Commission may prescribe
as necessary or appropriate in the public interest or for the protection
of investors.
(b) It shall be unlawful for any person to effect, by use of any
facility of a national securities exchange, in contravention of such
rules and regulations as the Commission may prescribe as necessary
or appropriate in the public interest or for the protection of
investors—
(1) any transaction in connection with any security
whereby any party to such transaction acquires (A) any put,
call, straddle, or other option or privilege of buying the security
from or selling the security to another without being bound to
do so; or (B) any security futures product on the security; or
(2) any transaction in connection with any security with
relation to which he has, directly or indirectly, any interest in
57 SECURITIES EXCHANGE ACT OF 1934 Sec. 9
any (A) such put, call, straddle, option, or privilege; or (B) such
security futures product; or
(3) any transaction in any security for the account of any
person who he has reason to believe has, and who actually has,
directly or indirectly, any interest in any (A) such put, call,
straddle, option, or privilege; or (B) such security futures product
with relation to such security.
(c) It shall be unlawful for any member of a national securities
exchange directly or indirectly to endorse or guarantee the performance
of any put, call, straddle, option, or privilege in relation
to any security registered on a national securities exchange, in contravention
of such rules and regulations as the Commission may
prescribe as necessary or appropriate in the public interest or for
the protection of investors.
(d) The terms ‘‘put’’, ‘‘call’’, ‘‘straddle’’, ‘‘option’’, or ‘‘privilege’’ as
used in this section shall not include any registered warrant, right,
or convertible security.
(e) Any person who willfully participates in any act or transaction
in violation of subsection (a), (b), or (c) of this section, shall
be liable to any person who shall purchase or sell any security at
a price which was affected by such act or transaction, and the person
so injured may sue in law or in equity in any court of competent
jurisdiction to recover the damages sustained as a result of
any such act or transaction. In any such suit the court may, in its
discretion, require an undertaking for the payment of the costs of
such suit, and assess reasonable costs, including reasonable attorneys’
fees, against either party litigant. Every person who becomes
liable to make any payment under this subsection may recover contribution
as in cases of contract from any person who, if joined in
the original suit, would have been liable to make the same payment.
No action shall be maintained to enforce any liability created
under this section, unless brought within one year after the discovery
of the facts constituting the violation and within three years
after such violation.
(f) The provisions of subsection (a) shall not apply to an
exempted security.
(g)(1) Notwithstanding any other provision of law, the Commission
shall have the authority to regulate the trading of any put,
call, straddle, option, or privilege on any security, certificate of deposit,
or group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or
privilege entered into on a national securities exchange relating to
foreign currency (but not, with respect to any of the foregoing, an
option on a contract for future delivery other than a security futures
product).
(2) Notwithstanding the Commodity Exchange Act, the Commission
shall have the authority to regulate the trading of any
security futures product to the extent provided in the securities
laws.
(h) LIMITATIONS ON PRACTICES THAT AFFECT MARKET VOLATILITY.—
It shall be unlawful for any person, by the use of the mails
or any means or instrumentality of interstate commerce or of any
facility of any national securities exchange, to use or employ any
act or practice in connection with the purchase or sale of any eqSec.
10 SECURITIES EXCHANGE ACT OF 1934 58
1 Margin so in law.
uity security in contravention of such rules or regulations as the
Commission may adopt, consistent with the public interest, the
protection of investors, and the maintenance of fair and orderly
markets—
(1) to prescribe means reasonably designed to prevent
manipulation of price levels of the equity securities market or
a substantial segment thereof; and
(2) to prohibit or constrain, during periods of extraordinary
market volatility, any trading practice in connection with the
purchase or sale of equity securities that the Commission
determines (A) has previously contributed significantly to
extraordinary levels of volatility that have threatened the
maintenance of fair and orderly markets; and (B) is reasonably
certain to engender such levels of volatility if not prohibited or
constrained.
In adopting rules under paragraph (2), the Commission shall, consistent
with the purposes of this subsection, minimize the impact
on the normal operations of the market and a natural person’s freedom
to buy or sell any equity security.
(i) The authority of the Commission under this section with respect
to security-based swap agreements (as defined in section
206B of the Gramm-Leach-Bliley Act) shall be subject to the
restrictions and limitations of section 3A(b) of this title.
REGULATION OF THE USE OF MANIPULATIVE AND DECEPTIVE DEVICES
SEC. 10. ø78j¿ It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of interstate
commerce or of the mails, or of any facility of any national securities
exchange—
(a)(1) To effect a short sale, or to use or employ any stoploss
order in connection with the purchase or sale, of any security
registered on a national securities exchange, in contravention
of such rules and regulations as the Commission may prescribe
as necessary or appropriate in the public interest or for
the protection of investors.
(2) 1 Paragraph (1) of this subsection shall not apply to security
futures products.
(b) To use or employ, in connection with the purchase or
sale of any security registered on a national securities exchange
or any security not so registered, or any securitiesbased
swap agreement (as defined in section 206B of the
Gramm-Leach-Bliley Act), any manipulative or deceptive device
or contrivance in contravention of such rules and regulations
as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
Rules promulgated under subsection (b) that prohibit fraud, manipulation,
or insider trading (but not rules imposing or specifying reporting
or recordkeeping requirements, procedures, or standards as
prophylactic measures against fraud, manipulation, or insider trading),
and judicial precedents decided under subsection (b) and rules
promulgated thereunder that prohibit fraud, manipulation, or insider
trading, shall apply to security-based swap agreements (as
59 SECURITIES EXCHANGE ACT OF 1934 Sec. 10A
defined in section 206B of the Gramm-Leach-Bliley Act) to the
same extent as they apply to securities. Judicial precedents decided
under section 17(a) of the Securities Act of 1933 and sections 9, 15,
16, 20, and 21A of this title, and judicial precedents decided under
applicable rules promulgated under such sections, shall apply to
security-based swap agreements (as defined in section 206B of the
Gramm-Leach-Bliley Act) to the same extent as they apply to securities.
SEC. 10A. ø78j–1¿ AUDIT REQUIREMENTS.
(a) IN GENERAL.—Each audit required pursuant to this title of
the financial statements of an issuer by a registered public accounting
firm shall include, in accordance with generally accepted
auditing standards, as may be modified or supplemented from time
to time by the Commission—
(1) procedures designed to provide reasonable assurance of
detecting illegal acts that would have a direct and material effect
on the determination of financial statement amounts;
(2) procedures designed to identify related party transactions
that are material to the financial statements or otherwise
require disclosure therein; and
(3) an evaluation of whether there is substantial doubt
about the ability of the issuer to continue as a going concern
during the ensuing fiscal year.
(b) REQUIRED RESPONSE TO AUDIT DISCOVERIES.—
(1) INVESTIGATION AND REPORT TO MANAGEMENT.—If, in
the course of conducting an audit pursuant to this title to
which subsection (a) applies, the registered public accounting
firm detects or otherwise becomes aware of information indicating
that an illegal act (whether or not perceived to have a
material effect on the financial statements of the issuer) has
or may have occurred, the firm shall, in accordance with generally
accepted auditing standards, as may be modified or supplemented
from time to time by the Commission—
(A)(i) determine whether it is likely that an illegal act
has occurred; and
(ii) if so, determine and consider the possible effect of
the illegal act on the financial statements of the issuer, including
any contingent monetary effects, such as fines,
penalties, and damages; and
(B) as soon as practicable, inform the appropriate level
of the management of the issuer and assure that the audit
committee of the issuer, or the board of directors of the
issuer in the absence of such a committee, is adequately
informed with respect to illegal acts that have been detected
or have otherwise come to the attention of such firm
in the course of the audit, unless the illegal act is clearly
inconsequential.
(2) RESPONSE TO FAILURE TO TAKE REMEDIAL ACTION.—If,
after determining that the audit committee of the board of
directors of the issuer, or the board of directors of the issuer
in the absence of an audit committee, is adequately informed
with respect to illegal acts that have been detected or have otherwise
come to the attention of the firm in the course of the
Sec. 10A SECURITIES EXCHANGE ACT OF 1934 60
audit of such accountant, the registered public accounting firm
concludes that—
(A) the illegal act has a material effect on the financial
statements of the issuer;
(B) the senior management has not taken, and the
board of directors has not caused senior management to
take, timely and appropriate remedial actions with respect
to the illegal act; and
(C) the failure to take remedial action is reasonably
expected to warrant departure from a standard report of
the auditor, when made, or warrant resignation from the
audit engagement;
the registered public accounting firm shall, as soon as practicable,
directly report its conclusions to the board of directors.
(3) NOTICE TO COMMISSION; RESPONSE TO FAILURE TO NOTIFY.—
An issuer whose board of directors receives a report
under paragraph (2) shall inform the Commission by notice not
later than 1 business day after the receipt of such report and
shall furnish the registered public accounting firm making
such report with a copy of the notice furnished to the Commission.
If the registered public accounting firm fails to receive a
copy of the notice before the expiration of the required 1-business-
day period, the registered public accounting firm shall—
(A) resign from the engagement; or
(B) furnish to the Commission a copy of its report (or
the documentation of any oral report given) not later than
1 business day following such failure to receive notice.
(4) REPORT AFTER RESIGNATION.—If a registered public accounting
firm resigns from an engagement under paragraph
(3)(A), the firm shall, not later than 1 business day following
the failure by the issuer to notify the Commission under paragraph
(3), furnish to the Commission a copy of the report of the
firm (or the documentation of any oral report given).
(c) AUDITOR LIABILITY LIMITATION.—No registered public accounting
firm shall be liable in a private action for any finding,
conclusion, or statement expressed in a report made pursuant to
paragraph (3) or (4) of subsection (b), including any rule promulgated
pursuant thereto.
(d) CIVIL PENALTIES IN CEASE-AND-DESIST PROCEEDINGS.—If
the Commission finds, after notice and opportunity for hearing in
a proceeding instituted pursuant to section 21C, that a registered
public accounting firm has willfully violated paragraph (3) or (4) of
subsection (b), the Commission may, in addition to entering an
order under section 21C, impose a civil penalty against the registered
public accounting firm and any other person that the Commission
finds was a cause of such violation. The determination to
impose a civil penalty and the amount of the penalty shall be governed
by the standards set forth in section 21B.
(e) PRESERVATION OF EXISTING AUTHORITY.—Except as provided
in subsection (d), nothing in this section shall be held to limit
or otherwise affect the authority of the Commission under this
title.
(f) DEFINITIONS.—As used in this section, the term ‘‘illegal act’’
means an act or omission that violates any law, or any rule or reg

61 SECURITIES EXCHANGE ACT OF 1934 Sec. 10A
ulation having the force of law. As used in this section, the term
‘‘issuer’’ means an issuer (as defined in section 3), the securities of
which are registered under section 12, or that is required to file reports
pursuant to section 15(d), or that files or has filed a registration
statement that has not yet become effective under the Securities
Act of 1933 (15 U.S.C. 77a et seq.), and that it has not withdrawn.
(g) PROHIBITED ACTIVITIES.—Except as provided in subsection
(h), it shall be unlawful for a registered public accounting firm (and
any associated person of that firm, to the extent determined appropriate
by the Commission) that performs for any issuer any audit
required by this title or the rules of the Commission under this
title or, beginning 180 days after the date of commencement of the
operations of the Public Company Accounting Oversight Board
established under section 101 of the Sarbanes-Oxley Act of 2002 (in
this section referred to as the ‘‘Board’’), the rules of the Board, to
provide to that issuer, contemporaneously with the audit, any nonaudit
service, including—
(1) bookkeeping or other services related to the accounting
records or financial statements of the audit client;
(2) financial information systems design and implementation;
(3) appraisal or valuation services, fairness opinions, or
contribution-in-kind reports;
(4) actuarial services;
(5) internal audit outsourcing services;
(6) management functions or human resources;
(7) broker or dealer, investment adviser, or investment
banking services;
(8) legal services and expert services unrelated to the
audit; and
(9) any other service that the Board determines, by regulation,
is impermissible.
(h) PREAPPROVAL REQUIRED FOR NON-AUDIT SERVICES.—A registered
public accounting firm may engage in any non-audit service,
including tax services, that is not described in any of paragraphs
(1) through (9) of subsection (g) for an audit client, only if the activity
is approved in advance by the audit committee of the issuer, in
accordance with subsection (i).
(i) PREAPPROVAL REQUIREMENTS.—
(1) IN GENERAL.—
(A) AUDIT COMMITTEE ACTION.—All auditing services
(which may entail providing comfort letters in connection
with securities underwritings or statutory audits required
for insurance companies for purposes of State law) and
non-audit services, other than as provided in subparagraph
(B), provided to an issuer by the auditor of the
issuer shall be preapproved by the audit committee of the
issuer.
(B) DE MINIMUS EXCEPTION.—The preapproval requirement
under subparagraph (A) is waived with respect to the
provision of non-audit services for an issuer, if—
(i) the aggregate amount of all such non-audit
services provided to the issuer constitutes not more
Sec. 10A SECURITIES EXCHANGE ACT OF 1934 62
1 So in law. Probably should be ‘‘non-audit’’ for conformity.
than 5 percent of the total amount of revenues paid by
the issuer to its auditor during the fiscal year in which
the nonaudit 1 services are provided;
(ii) such services were not recognized by the issuer
at the time of the engagement to be non-audit services;
and
(iii) such services are promptly brought to the
attention of the audit committee of the issuer and approved
prior to the completion of the audit by the
audit committee or by 1 or more members of the audit
committee who are members of the board of directors
to whom authority to grant such approvals has been
delegated by the audit committee.
(2) DISCLOSURE TO INVESTORS.—Approval by an audit committee
of an issuer under this subsection of a non-audit service
to be performed by the auditor of the issuer shall be disclosed
to investors in periodic reports required by section 13(a).
(3) DELEGATION AUTHORITY.—The audit committee of an
issuer may delegate to 1 or more designated members of the
audit committee who are independent directors of the board of
directors, the authority to grant preapprovals required by this
subsection. The decisions of any member to whom authority is
delegated under this paragraph to preapprove an activity
under this subsection shall be presented to the full audit committee
at each of its scheduled meetings.
(4) APPROVAL OF AUDIT SERVICES FOR OTHER PURPOSES.—
In carrying out its duties under subsection (m)(2), if the audit
committee of an issuer approves an audit service within the
scope of the engagement of the auditor, such audit service shall
be deemed to have been preapproved for purposes of this subsection.
(j) AUDIT PARTNER ROTATION.—It shall be unlawful for a registered
public accounting firm to provide audit services to an issuer
if the lead (or coordinating) audit partner (having primary responsibility
for the audit), or the audit partner responsible for reviewing
the audit, has performed audit services for that issuer in each of
the 5 previous fiscal years of that issuer.
(k) REPORTS TO AUDIT COMMITTEES.—Each registered public
accounting firm that performs for any issuer any audit required by
this title shall timely report to the audit committee of the issuer—
(1) all critical accounting policies and practices to be used;
(2) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed with management officials of the issuer, ramifications
of the use of such alternative disclosures and treatments,
and the treatment preferred by the registered public accounting
firm; and
(3) other material written communications between the
registered public accounting firm and the management of the
issuer, such as any management letter or schedule of
unadjusted differences.
63 SECURITIES EXCHANGE ACT OF 1934 Sec. 10A
(l) CONFLICTS OF INTEREST.—It shall be unlawful for a registered
public accounting firm to perform for an issuer any audit
service required by this title, if a chief executive officer, controller,
chief financial officer, chief accounting officer, or any person serving
in an equivalent position for the issuer, was employed by that
registered independent public accounting firm and participated in
any capacity in the audit of that issuer during the 1-year period
preceding the date of the initiation of the audit.
(m) STANDARDS RELATING TO AUDIT COMMITTEES.—
(1) COMMISSION RULES.—
(A) IN GENERAL.—Effective not later than 270 days
after the date of enactment of this subsection, the Commission
shall, by rule, direct the national securities exchanges
and national securities associations to prohibit the listing
of any security of an issuer that is not in compliance with
the requirements of any portion of paragraphs (2) through
(6).
(B) OPPORTUNITY TO CURE DEFECTS.—The rules of the
Commission under subparagraph (A) shall provide for
appropriate procedures for an issuer to have an opportunity
to cure any defects that would be the basis for a
prohibition under subparagraph (A), before the imposition
of such prohibition.
(2) RESPONSIBILITIES RELATING TO REGISTERED PUBLIC ACCOUNTING
FIRMS.—The audit committee of each issuer, in its
capacity as a committee of the board of directors, shall be directly
responsible for the appointment, compensation, and
oversight of the work of any registered public accounting firm
employed by that issuer (including resolution of disagreements
between management and the auditor regarding financial reporting)
for the purpose of preparing or issuing an audit report
or related work, and each such registered public accounting
firm shall report directly to the audit committee.
(3) INDEPENDENCE.—
(A) IN GENERAL.—Each member of the audit committee
of the issuer shall be a member of the board of
directors of the issuer, and shall otherwise be independent.
(B) CRITERIA.—In order to be considered to be independent
for purposes of this paragraph, a member of an
audit committee of an issuer may not, other than in his or
her capacity as a member of the audit committee, the
board of directors, or any other board committee—
(i) accept any consulting, advisory, or other compensatory
fee from the issuer; or
(ii) be an affiliated person of the issuer or any
subsidiary thereof.
(C) EXEMPTION AUTHORITY.—The Commission may
exempt from the requirements of subparagraph (B) a particular
relationship with respect to audit committee members,
as the Commission determines appropriate in light of
the circumstances.
(4) COMPLAINTS.—Each audit committee shall establish
procedures for—
Sec. 11 SECURITIES EXCHANGE ACT OF 1934 64
(A) the receipt, retention, and treatment of complaints
received by the issuer regarding accounting, internal accounting
controls, or auditing matters; and
(B) the confidential, anonymous submission by employees
of the issuer of concerns regarding questionable accounting
or auditing matters.
(5) AUTHORITY TO ENGAGE ADVISERS.—Each audit committee
shall have the authority to engage independent counsel
and other advisers, as it determines necessary to carry out its
duties.
(6) FUNDING.—Each issuer shall provide for appropriate
funding, as determined by the audit committee, in its capacity
as a committee of the board of directors, for payment of
compensation—
(A) to the registered public accounting firm employed
by the issuer for the purpose of rendering or issuing an
audit report; and
(B) to any advisers employed by the audit committee
under paragraph (5).
TRADING BY MEMBERS OF EXCHANGES, BROKERS, AND DEALERS
SEC. 11. ø78k¿ (a)(1) It shall be unlawful for any member of
a national securities exchange to effect any transaction on such exchange
for its own account, the account of an associated person, or
an account with respect to which it or an associated person thereof
exercises investment discretion: Provided, however, That this paragraph
shall not make unlawful—
(A) any transaction by a dealer acting in the capacity of
market maker;
(B) any transaction for the account of an odd-lot dealer in
a security in which he is so registered;
(C) any stabilizing transaction effected in compliance with
rules under section 10(b) of this title to facilitate a distribution
of a security in which the member effecting such transaction
is participating;
(D) any bona fide arbitrage transaction, any bona fide
hedge transaction involving a long or short position in an equity
security and a long or short position in a security entitling
the holder to acquire or sell such equity security, or any risk
arbitrage transaction in connection with a merger, acquisition,
tender offer, or similar transaction involving a recapitalization;
(E) any transaction for the account of a natural person, the
estate of a natural person, or a trust created by a natural person
for himself or another natural person;
(F) any transaction to offset a transaction made in error;
(G) any other transaction for a member’s own account provided
that (i) such member is primarily engaged in the business
of underwriting and distributing securities issued by other
persons, selling securities to customers, and acting as broker,
or any one or more of such activities, and whose gross income
normally is derived principally from such business and related
activities and (ii) such transaction is effected in compliance
with rules of the Commission which, as a minimum, assure
that the transaction is not inconsistent with the maintenance
65 SECURITIES EXCHANGE ACT OF 1934 Sec. 11
of fair and orderly markets and yields priority, parity, and
precedence in execution to orders for the account of persons
who are not members or associated with members of the exchange;
(H) any transaction for an account with respect to which
such member or an associated person thereof exercises investment
discretion if such member—
(i) has obtained, from the person or persons authorized
to transact business for the account, express authorization
for such member or associated person to effect such transactions
prior to engaging in the practice of effecting such
transactions;
(ii) furnishes the person or persons authorized to
transact business for the account with a statement at least
annually disclosing the aggregate compensation received
by the exchange member in effecting such transactions;
and
(iii) complies with any rules the Commission has prescribed
with respect to the requirements of clauses (i) and
(ii); and
(I) any other transaction of a kind which the Commission,
by rule, determines is consistent with the purposes of this
paragraph, the protection of investors, and the maintenance of
fair and orderly markets.
(2) The Commission, by rule, as it deems necessary or appropriate
in the public interest and for the protection of investors, to
maintain fair and orderly markets, or to assure equal regulation of
exchange markets and markets occurring otherwise than on an exchange,
may regulate or prohibit:
(A) transactions on a national securities exchange not unlawful
under paragraph (1) of this subsection effected by any
member thereof for its own account (unless such member is
acting in the capacity of market maker or odd-lot dealer), the
account of an associated person, or an account with respect to
which such member or an associated person thereof exercises
investment discretion;
(B) transactions otherwise than on a national securities exchange
effected by use of the mails or any means or instrumentality
of interstate commerce by any member of a national
securities exchange, broker, or dealer for the account of such
member, broker, or dealer (unless such member, broker, or
dealer is acting in the capacity of a market maker) the account
of an associated person, or an account with respect to which
such member, broker, or dealer or associated person thereof
exercises investment discretion; and
(C) transactions on a national securities exchange effected
by any broker or dealer not a member thereof for the account
of such broker or dealer (unless such broker or dealer is acting
in the capacity of market maker), the account of an associated
person, or an account with respect to which such broker or
dealer or associated person thereof exercises investment discretion.
The provisions of paragraph (1) of this subsection insofar as
they apply to transactions on a national securities exchange efSec.
11 SECURITIES EXCHANGE ACT OF 1934 66
fected by a member thereof who was a member on February 1,
1978 shall not become effective until February 1, 1979. Nothing in
this paragraph shall be construed to impair or limit the authority
of the Commission to regulate or prohibit such transactions prior
to February 1, 1979, pursuant to paragraph (2) of this subsection.
(b) When not in contravention of such rules and regulations as
the Commission may prescribe as necessary or appropriate in the
public interest and for the protection of investors, to maintain fair
and orderly markets, or to remove impediments to and perfect the
mechanism of a national market system, the rules of a national
securities exchange may permit (1) a member to be registered as
an odd-lot dealer and as such to buy and sell for his own account
so far as may be reasonably necessary to carry on such odd-lot
transactions, and (2) a member to be registered as a specialist.
Under the rules and regulations of the Commission a specialist
may be permitted to act as a broker and dealer or limited to acting
as a broker or dealer. It shall be unlawful for a specialist or an official
of the exchange to disclose information in regard to orders
placed with such specialist which is not available to all members
of the exchange, to any person other than an official of the exchange,
a representative of the Commission, or a specialist who
may be acting for such specialist: Provided, however, That the Commission,
by rule, may require disclosure to all members of the exchange
of all orders placed with specialists, under such rules and
regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of investors.
It shall also be unlawful for a specialist permitted to act as a
broker and dealer to effect on the exchange as broker any transaction
except upon a market or limited price order.
(c) If because of the limited volume of transactions effected on
an exchange, it is in the opinion of the Commission impracticable
and not necessary or appropriate in the public interest or for the
protection of investors to apply any of the foregoing provisions of
this section or the rules and regulations thereunder, the Commission
shall have power, upon application of the exchange and on a
showing that the rules of such exchange are otherwise adequate for
the protection of investors, to exempt such exchange and its members
from any such provision or rules and regulations.
(d) It shall be unlawful for a member of a national securities
exchange who is both a dealer and a broker, or for any person who
both as a broker and a dealer transacts a business in securities
through the medium of a member or otherwise, to effect through
the use of any facility of a national securities exchange or of the
mails or of any means or instrumentality of interstate commerce,
or otherwise in the case of a member, (1) any transaction in connection
with which, directly or indirectly, he extends or maintains
or arranges for the extension or maintenance of credit to or for a
customer on any security (other than an exempted security) which
was a part of a new issue in the distribution of which he participated
as a member of a selling syndicate or group within thirty
days prior to such transaction: Provided, That credit shall not be
deemed extended by reason of a bona fide delayed delivery of (i)
any such security against full payment of the entire purchase price
thereof upon such delivery within thirty-five days after such pur67
SECURITIES EXCHANGE ACT OF 1934 Sec. 11A
chase or (ii) any mortgage related security or any small business
related security against full payment of the entire purchase price
thereof upon such delivery within one hundred and eighty days
after such purchase, or within such shorter period as the Commission
may prescribe by rule or regulation, or (2) any transaction
with respect to any security (other than an exempted security) unless,
if the transaction is with a customer, he discloses to such customer
in writing at or before the completion of the transaction
whether he is acting as a dealer for his own account, as a broker
for such customer, or as a broker for some other person.
NATIONAL MARKET SYSTEM FOR SECURITIES; SECURITIES
INFORMATION PROCESSORS
SEC. 11A. ø78k–1¿ (a)(1) The Congress finds that—
(A) The securities markets are an important national asset
which must be preserved and strengthened.
(B) New data processing and communications techniques
create the opportunity for more efficient and effective market
operations.
(C) It is in the public interest and appropriate for the protection
of investors and the maintenance of fair and orderly
markets to assure—
(i) economically efficient execution of securities transactions;
(ii) fair competition among brokers and dealers, among
exchange markets, and between exchange markets and
markets other than exchange markets;
(iii) the availability to brokers, dealers, and investors
of information with respect to quotations for and transactions
in securities;
(iv) the practicability of brokers executing investors’
orders in the best market; and
(v) an opportunity, consistent with the provisions of
clauses (i) and (iv) of this subparagraph, for investors’ orders
to be executed without the participation of a dealer.
(D) The linking of all markets for qualified securities
through communication and data processing facilities will foster
efficiency, enhance competition, increase the information
available to brokers, dealers, and investors, facilitate the offsetting
of investors’ orders, and contribute to best execution of
such orders.
(2) The Commission is directed, therefore, having due regard
for the public interest, the protection of investors, and the maintenance
of fair and orderly markets, to use its authority under this
title to facilitate the establishment of a national market system for
securities (which may include subsystems for particular types of
securities with unique trading characteristics) in accordance with
the findings and to carry out the objectives set forth in paragraph
(1) of this subsection. The Commission, by rule, shall designate the
securities or classes of securities qualified for trading in the national
market system from among securities other than exempted
securities. (Securities or classes of securities so designated hereinafter
in this section referred to as ‘‘qualified securities’’.)
Sec. 11A SECURITIES EXCHANGE ACT OF 1934 68
(3) The Commission is authorized in furtherance of the directive
in paragraph (2) of this subsection—
(A) to create one or more advisory committees pursuant to
the Federal Advisory Committee Act (which shall be in addition
to the National Market Advisory Board established pursuant
to subsection (d) of this section) and to employ one or more
outside experts;
(B) by rule or order, to authorize or require self-regulatory
organizations to act jointly with respect to matters as to which
they share authority under this title in planning, developing,
operating, or regulating a national market system (or a subsystem
thereof) or one or more facilities thereof; and
(C) to conduct studies and make recommendations to the
Congress from time to time as to the possible need for modifications
of the scheme of self-regulation provided for in this
title so as to adapt it to a national market system.
(b)(1) Except as otherwise provided in this section, it shall be
unlawful for any securities information processor unless registered
in accordance with this subsection, directly or indirectly, to make
use of the mails or any means or instrumentality of interstate commerce
to perform the functions of a securities information processor.
The Commission, by rule or order, upon its own motion or
upon application, may conditionally or unconditionally exempt any
securities information processor or class of securities information
processors or security or class of securities from any provision of
this section or the rules or regulations thereunder, if the Commission
finds that such exemption is consistent with the public interest,
the protection of investors, and the purposes of this section, including
the maintenance of fair and orderly markets in securities
and the removal of impediments to and perfection of the mechanism
of a national market system: Provided, however, That a securities
information processor not acting as the exclusive processor of
any information with respect to quotations for or transactions in
securities is exempt from the requirement to register in accordance
with this subsection unless the Commission, by rule or order, finds
that the registration of such securities information processor is necessary
or appropriate in the public interest, for the protection of
investors, or for the achievement of the purposes of this section.
(2) A securities information processor may be registered by filing
with the Commission an application for registration in such
form as the Commission, by rule, may prescribe containing the address
of its principal office, or offices, the names of the securities
and markets for which it is then acting and for which it proposes
to act as a securities information processor, and such other information
and documents as the Commission, by rule, may prescribe
with regard to performance capability, standards and procedures
for the collection, processing, distribution, and publication of information
with respect to quotations for and transactions in securities,
personnel qualifications, financial condition, and such other
matters as the Commission determines to be germane to the provisions
of this title and the rules and regulations thereunder, or necessary
or appropriate in furtherance of the purposes of this section.
(3) The Commission shall, upon the filing of an application for
registration pursuant to paragraph (2) of this subsection, publish
69 SECURITIES EXCHANGE ACT OF 1934 Sec. 11A
notice of the filing and afford interested persons an opportunity to
submit written data, views, and arguments concerning such application.
Within ninety days of the date of the publication of such notice
(or within such longer period as to which the applicant consents)
the Commission shall—
(A) by order grant such registration, or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred eighty days
of the date of publication of notice of the filing of the application
for registration. At the conclusion of such proceedings the
Commission, by order, shall grant or deny such registration.
The Commission may extend the time for the conclusion of
such proceedings for up to sixty days if it finds good cause for
such extension and publishes its reasons for so finding or for
such longer periods as to which the applicant consents.
The Commission shall grant the registration of a securities information
processor if the Commission finds that such securities information
processor is so organized, and has the capacity, to be able
to assure the prompt, accurate, and reliable performance of its
functions as a securities information processor, comply with the
provisions of this title and the rules and regulations thereunder,
carry out its functions in a manner consistent with the purposes
of this section, and, insofar as it is acting as an exclusive processor,
operate fairly and efficiently. The Commission shall deny the registration
of a securities information processor if the Commission
does not make any such finding.
(4) A registered securities information processor may, upon
such terms and conditions as the Commission deems necessary or
appropriate in the public interest or for the protection of investors,
withdraw from registration by filing a written notice of withdrawal
with the Commission. If the Commission finds that any registered
securities information processor is no longer in existence or has
ceased to do business in the capacity specified in its application for
registration, the Commission, by order, shall cancel the registration.
(5)(A) If any registered securities information processor prohibits
or limits any person in respect of access to services offered,
directly or indirectly, by such securities information processor, the
registered securities information processor shall promptly file notice
thereof with the Commission. The notice shall be in such form
and contain such information as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest or for the
protection of investors. Any prohibition or limitation on access to
services with respect to which a registered securities information
processor is required by this paragraph to file notice shall be subject
to review by the Commission on its own motion, or upon application
by any person aggrieved thereby filed within thirty days
after such notice has been filed with the Commission and received
by such aggrieved person, or within such longer period as the Commission
may determine. Application to the Commission for review,
or the institution of review by the Commission on its own motion,
shall not operate as a stay of such prohibition or limitation, unless
Sec. 11A SECURITIES EXCHANGE ACT OF 1934 70
the Commission otherwise orders, summarily or after notice and
opportunity for hearing on the question of a stay (which hearing
may consist solely of the submission of affidavits or presentation of
oral arguments). The Commission shall establish for appropriate
cases an expedited procedure for consideration and determination
of the question of a stay.
(B) In any proceeding to review the prohibition or limitation of
any person in respect of access to services offered by a registered
securities information processor, if the Commission finds, after notice
and opportunity for hearing, that such prohibition or limitation
is consistent with the provisions of this title and the rules and regulations
thereunder and that such person has not been discriminated
against unfairly, the Commission, by order, shall dismiss the
proceeding. If the Commission does not make any such finding or
if it finds that such prohibition or limitation imposes any burden
on competition not necessary or appropriate in furtherance of the
purposes of this title, the Commission, by order, shall set aside the
prohibition or limitation and require the registered securities information
processor to permit such person access to services offered
by the registered securities information processor.
(6) The Commission, by order, may censure or place limitations
upon the activities, functions, or operations of any registered securities
information processor or suspend for a period not exceeding
twelve months or revoke the registration of any such processor, if
the Commission finds, on the record after notice and opportunity
for hearing, that such censure, placing of limitations, suspension,
or revocation is in the public interest, necessary or appropriate for
the protection of investors or to assure the prompt, accurate, or
reliable performance of the functions of such securities information
processor, and that such securities information processor has violated
or is unable to comply with any provision of this title or the
rules or regulations thereunder.
(c)(1) No self-regulatory organization, member thereof, securities
information processor, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce to
collect, process, distribute, publish, or prepare for distribution or
publication any information with respect to quotations for or transactions
in any security other than an exempted security, to assist,
participate in, or coordinate the distribution or publication of such
information, or to effect any transaction in, or to induce or attempt
to induce the purchase or sale of, any such security in contravention
of such rules and regulations as the Commission shall prescribe
as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the purposes
of this title to—
(A) prevent the use, distribution, or publication of fraudulent,
deceptive, or manipulative information with respect to
quotations for and transactions in such securities;
(B) assure the prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of information
with respect to quotations for and transactions in such securities
and the fairness and usefulness of the form and content
of such information;

71 SECURITIES EXCHANGE ACT OF 1934 Sec. 11A
(C) assure that all securities information processors may,
for purposes of distribution and publication, obtain on fair and
reasonable terms such information with respect to quotations
for and transactions in such securities as is collected, processed,
or prepared for distribution or publication by any exclusive
processor of such information acting in such capacity;
(D) assure that all exchange members, brokers, dealers,
securities information processors, and, subject to such limitations
as the Commission, by rule, may impose as necessary or
appropriate for the protection of investors or maintenance of
fair and orderly markets, all other persons may obtain on
terms which are not unreasonably discriminatory such information
with respect to quotations for and transactions in such
securities as is published or distributed by any self-regulatory
organization or securities information processor;
(E) assure that all exchange members, brokers, and dealers
transmit and direct orders for the purchase or sale of qualified
securities in a manner consistent with the establishment
and operation of a national market system; and
(F) assure equal regulation of all markets for qualified
securities and all exchange members, brokers, and dealers effecting
transactions in such securities.
(2) The Commission, by rule, as it deems necessary or appropriate
in the public interest or for the protection of investors, may
require any person who has effected the purchase or sale of any
qualified security by use of the mails or any means or instrumentality
of interstate commerce to report such purchase or sale to a
registered securities information processor, national securities exchange,
or registered securities association and require such processor,
exchange, or association to make appropriate distribution
and publication of information with respect to such purchase or
sale.
(3)(A) The Commission, by rule, is authorized to prohibit brokers
and dealers from effecting transactions in securities registered
pursuant to section 12(b) otherwise than on a national securities
exchange, if the Commission finds, on the record after notice and
opportunity for hearing, that—
(i) as a result of transactions in such securities effected
otherwise than on a national securities exchange the fairness
or orderliness of the markets for such securities has been affected
in a manner contrary to the public interest or the protection
of investors;
(ii) no rule of any national securities exchange unreasonably
impairs the ability of any dealer to solicit or effect transactions
in such securities for his own account or unreasonably
restricts competition among dealers in such securities or between
dealers acting in the capacity of market makers who are
specialists in such securities and such dealers who are not specialists
in such securities, and
(iii) the maintenance or restoration of fair and orderly
markets in such securities may not be assured through other
lawful means under this title.
The Commission may conditionally or unconditionally exempt any
security or transaction or any class of securities or transactions
Sec. 11A SECURITIES EXCHANGE ACT OF 1934 72
from any such prohibition if the Commission deems such exemption
consistent with the public interest, the protection of investors, and
the maintenance of fair and orderly markets.
(B) For the purposes of subparagraph (A) of this paragraph,
the ability of a dealer to solicit or effect transactions in securities
for his own account shall not be deemed to be unreasonably impaired
by any rule of an exchange fairly and reasonably prescribing
the sequence in which orders brought to the exchange must be executed
or which has been adopted to effect compliance with a rule
of the Commission promulgated under this title.
(4) The Commission is directed to review any and all rules of
national securities exchanges which limit or condition the ability of
members to effect transactions in securities otherwise than on such
exchanges.
(5) No national securities exchange or registered securities
association may limit or condition the participation of any member
in any registered clearing agency.
(d)(1) Not later than one hundred eighty days after the date of
enactment of the Securities Acts Amendments of 1975, the Commission
shall establish a National Market Advisory Board (hereinafter
in this section referred to as the ‘‘Advisory Board’’) to be composed
of fifteen members, not all of whom shall be from the same
geographical area of the United States, appointed by the Commission
for a term specified by the Commission of not less than two
years or more than five years. The Advisory Board shall consist of
persons associated with brokers and dealers (who shall be a majority)
and persons not so associated who are representative of the
public and, to the extent feasible, have knowledge of the securities
markets of the United States.
(2) It shall be the responsibility of the Advisory Board to formulate
and furnish to the Commission its views on significant regulatory
proposals made by the Commission or any self-regulatory
organization concerning the establishment, operation, and regulation
of the markets for securities in the United States.
(3)(A) The Advisory Board shall study and make recommendations
to the Commission as to the steps it finds appropriate to
facilitate the establishment of a national market system. In so
doing, the Advisory Board shall assume the responsibilities of any
advisory committee appointed to advise the Commission with respect
to the national market system which is in existence at the
time of the establishment of the Advisory Board.
(B) The Advisory Board shall study the possible need for modifications
of the scheme of self-regulation provided for in this title
so as to adapt it to a national market system, including the need
for the establishment of a new self-regulatory organization (hereinafter
in this section referred to as a ‘‘National Market Regulatory
Board’’ or ‘‘Regulatory Board’’) to administer the national market
system. In the event the Advisory Board determines a National
Market Regulatory Board should be established, it shall make recommendations
as to:
(i) the point in time at which a Regulatory Board should
be established;
(ii) the composition of a Regulatory Board;
(iii) the scope of the authority of a Regulatory Board;
73 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
(iv) the relationship of a Regulatory Board to the Commission
and to existing self-regulatory organizations; and
(v) the manner in which a Regulatory Board should be
funded.
The Advisory Board shall report to the Congress, on or before December
31, 1976, the results of such study and its recommendations,
including such recommendations for legislation as it deems
appropriate.
(C) In carrying out its responsibilities under this paragraph,
the Advisory Board shall consult with self-regulatory organizations,
brokers, dealers, securities information processors, issuers, investors,
representatives of Government agencies, and other persons interested
or likely to participate in the establishment, operation, or
regulation of the national market system.
(e) NATIONAL MARKETS SYSTEM FOR SECURITY FUTURES PRODUCTS.—
(1) CONSULTATION AND COOPERATION REQUIRED.—With respect
to security futures products, the Commission and the
Commodity Futures Trading Commission shall consult and cooperate
so that, to the maximum extent practicable, their
respective regulatory responsibilities may be fulfilled and the
rules and regulations applicable to security futures products
may foster a national market system for security futures products
if the Commission and the Commodity Futures Trading
Commission jointly determine that such a system would be
consistent with the congressional findings in subsection (a)(1).
In accordance with this objective, the Commission shall, at
least 15 days prior to the issuance for public comment of any
proposed rule or regulation under this section concerning security
futures products, consult and request the views of the
Commodity Futures Trading Commission.
(2) APPLICATION OF RULES BY ORDER OF CFTC.—No rule
adopted pursuant to this section shall be applied to any person
with respect to the trading of security futures products on an
exchange that is registered under section 6(g) unless the Commodity
Futures Trading Commission has issued an order directing
that such rule is applicable to such persons.
REGISTRATION REQUIREMENTS FOR SECURITIES
SEC. 12. ø78l¿ (a) It shall be unlawful for any member, broker,
or dealer to effect any transaction in any security (other than an
exempted security) on a national securities exchange unless a registration
is effective as to such security for such exchange in
accordance with the provisions of this title and the rules and regulations
thereunder. The provisions of this subsection shall not
apply in respect of a security futures product traded on a national
securities exchange.
(b) A security may be registered on a national securities exchange
by the issuer filing an application with the exchange (and
filing with the Commission such duplicate originals thereof as the
Commission may require), which application shall contain—
(1) Such information, in such detail, as to the issuer and
any person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, the issuer, and
Sec. 12 SECURITIES EXCHANGE ACT OF 1934 74
1 For additional information required of certain public utilities, see 16 U.S.C. 824c(h).
any guarantor of the security as to principal or interest or
both, as the Commission may by rules and regulations require,
as necessary or appropriate in the public interest or for the
protection of investors, in respect of the following: 1
(A) the organization, financial structures, and nature
of the business;
(B) the terms, position, rights, and privileges of the
different classes of securities outstanding;
(C) the terms on which their securities are to be, and
during the preceding three years have been, offered to the
public or otherwise;
(D) the directors, officers, and underwriters, and each
security holder of record holding more than 10 per centum
of any class of any equity security of the issuer (other than
an exempted security), their remuneration and their interests
in the securities of, and their material contracts with,
the issuer and any person directly or indirectly controlling
or controlled by, or under direct or indirect common control
with, the issuer;
(E) remuneration to others than directors and officers
exceeding $20,000 per annum;
(F) bonus and profit-sharing arrangements;
(G) management and service contracts;
(H) options existing or to be created in respect of their
securities;
(I) material contracts, not made in the ordinary course
of business, which are to be executed in whole or in part
at or after the filing of the application or which were made
not more than two years before such filing, and every
material patent or contract for a material patent right
shall be deemed a material contract;
(J) balance sheets for not more than the three preceding
fiscal years, certified if required by the rules and
regulations of the Commission by a registered public accounting
firm;
(K) profit and loss statements for not more than the
three preceding fiscal years, certified if required by the
rules and regulations of the Commission by a registered
public accounting firm; and
(L) any further financial statements which the Commission
may deem necessary or appropriate for the protection
of investors.
(2) Such copies of articles of incorporation, bylaws, trust
indentures, or corresponding documents by whatever name
known, underwriting arrangements, and other similar documents
of, and voting trust agreements with respect to, the
issuer and any person directly or indirectly controlling or controlled
by, or under direct or indirect common control with, the
issuer as the Commission may require as necessary or appropriate
for the proper protection of investors and to insure fair
dealing in the security.
75 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
(3) Such copies of material contracts, referred to in paragraph
(1)(I) above, as the Commission may require as necessary
or appropriate for the proper protection of investors and
to insure fair dealing in the security.
(c) If in the judgment of the Commission any information required
under subsection (b) of this section is inapplicable to any
specified class or classes of issuers, the Commission shall require
in lieu thereof the submission of such other information of comparable
character as it may deem applicable to such class of
issuers.
(d) If the exchange authorities certify to the Commission that
the security has been approved by the exchange for listing and registration,
the registration shall become effective thirty days after
the receipt of such certification by the Commission or within such
shorter period of time as the Commission may determine. A security
registered with a national securities exchange may be withdrawn
or stricken from listing and registration in accordance with
the rules of the exchange and, upon such terms as the Commission
may deem necessary to impose for the protection of investors, upon
application by the issuer or the exchange to the Commission;
whereupon the issuer shall be relieved from further compliance
with the provisions of this section and section 13 of this title and
any rules or regulations under such sections as to the securities so
withdrawn or stricken. An unissued security may be registered
only in accordance with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest
or for the protection of investors.
(e) Notwithstanding the foregoing provisions of this section, the
Commission may by such rules and regulations as it deems necessary
or appropriate in the public interest or for the protection of
investors permit securities listed on any exchange at the time the
registration of such exchange as a national securities exchange becomes
effective, to be registered for a period ending not later than
July 1, 1935, without complying with the provisions of this section.
(f)(1)(A) Notwithstanding the preceding subsections of this section,
any national securities exchange, in accordance with the
requirements of this subsection and the rules hereunder, may extend
unlisted trading privileges to—
(i) any security that is listed and registered on a national
securities exchange, subject to subparagraph (B); and
(ii) any security that is otherwise registered pursuant to
this section, or that would be required to be so registered except
for the exemption from registration provided in subparagraph
(B) or (G) of subsection (g)(2), subject to subparagraph
(E) of this paragraph.
(B) A national securities exchange may not extend unlisted
trading privileges to a security described in subparagraph (A)(i)
during such interval, if any, after the commencement of an initial
public offering of such security, as is or may be required pursuant
to subparagraph (C).
(C) Not later than 180 days after the date of enactment of the
Unlisted Trading Privileges Act of 1994, the Commission shall prescribe,
by rule or regulation, the duration of the interval referred
to in subparagraph (B), if any, as the Commission determines to be
Sec. 12 SECURITIES EXCHANGE ACT OF 1934 76
necessary or appropriate for the maintenance of fair and orderly
markets, the protection of investors and the public interest, or otherwise
in furtherance of the purposes of this title. Until the earlier
of the effective date of such rule or regulation or 240 days after
such date of enactment, such interval shall begin at the opening of
trading on the day on which such security commences trading on
the national securities exchange with which such security is registered
and end at the conclusion of the next day of trading.
(D) The Commission may prescribe, by rule or regulation such
additional procedures or requirements for extending unlisted trading
privileges to any security as the Commission deems necessary
or appropriate for the maintenance of fair and orderly markets, the
protection of investors and the public interest, or otherwise in furtherance
of the purposes of this title.
(E) No extension of unlisted trading privileges to securities described
in subparagraph (A)(ii) may occur except pursuant to a
rule, regulation, or order of the Commission approving such extension
or extensions. In promulgating such rule or regulation or in
issuing such order, the Commission—
(i) shall find that such extension or extensions of unlisted
trading privileges is consistent with the maintenance of fair
and orderly markets, the protection of investors and the public
interest, and otherwise in furtherance of the purposes of this
title;
(ii) shall take account of the public trading activity in such
securities, the character of such trading, the impact of such
extension on the existing markets for such securities, and the
desirability of removing impediments to and the progress that
has been made toward the development of a national market
system; and
(iii) shall not permit a national securities exchange to extend
unlisted trading privileges to such securities if any rule
of such national securities exchange would unreasonably impair
the ability of a dealer to solicit or effect transactions in
such securities for its own account, or would unreasonably restrict
competition among dealers in such securities or between
such dealers acting in the capacity of market makers who are
specialists and such dealers who are not specialists.
(F) An exchange may continue to extend unlisted trading privileges
in accordance with this paragraph only if the exchange and
the subject security continue to satisfy the requirements for eligibility
under this paragraph, including any rules and regulations
issued by the Commission pursuant to this paragraph, except that
unlisted trading privileges may continue with regard to securities
which had been admitted on such exchange prior to July 1, 1964,
notwithstanding the failure to satisfy such requirements. If unlisted
trading privileges in a security are discontinued pursuant to
this subparagraph, the exchange shall cease trading in that security,
unless the exchange and the subject security thereafter satisfy
the requirements of this paragraph and the rules issued hereunder.
(G) For purposes of this paragraph—
(i) a security is the subject of an initial public offering if—
(I) the offering of the subject security is registered
under the Securities Act of 1933; and
77 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
(II) the issuer of the security, immediately prior to filing
the registration statement with respect to the offering,
was not subject to the reporting requirements of section 13
or 15(d) of this title; and
(ii) an initial public offering of such security commences at
the opening of trading on the day on which such security commences
trading on the national securities exchange with which
such security is registered.
(2)(A) At any time within 60 days of commencement of trading
on an exchange of a security pursuant to unlisted trading privileges,
the Commission may summarily suspend such unlisted trading
privileges on the exchange. Such suspension shall not be
reviewable under section 25 of this title and shall not be deemed
to be a final agency action for purposes of section 704 of title 5,
United States Code. Upon such suspension—
(i) the exchange shall cease trading in the security by the
close of business on the date of such suspension, or at such
time as the Commission may prescribe by rule or order for the
maintenance of fair and orderly markets, the protection of
investors and the public interest, or otherwise in furtherance
of the purposes of this title; and
(ii) if the exchange seeks to extend unlisted trading privileges
to the security, the exchange shall file an application to
reinstate its ability to do so with the Commission pursuant to
such procedures as the Commission may prescribe by rule or
order for the maintenance of fair and orderly markets, the protection
of investors and the public interest, or otherwise in furtherance
of the purposes of this title.
(B) A suspension under subparagraph (A) shall remain in effect
until the Commission, by order, grants approval of an application
to reinstate, as described in subparagraph (A)(ii).
(C) A suspension under subparagraph (A) shall not affect the
validity or force of an extension of unlisted trading privileges in effect
prior to such suspension.
(D) The Commission shall not approve an application by a national
securities exchange to reinstate its ability to extend unlisted
trading privileges to a security unless the Commission finds, after
notice and opportunity for hearing, that the extension of unlisted
trading privileges pursuant to such application is consistent with
the maintenance of fair and orderly markets, the protection of
investors and the public interest, and otherwise in furtherance of
the purposes of this title. If the application is made to reinstate unlisted
trading privileges to a security described in paragraph
(1)(A)(ii), the Commission—
(i) shall take account of the public trading activity in such
security, the character of such trading, the impact of such
extension on the existing markets for such a security, and the
desirability of removing impediments to and the progress that
has been made toward the development of a national market
system; and
(ii) shall not grant any such application if any rule of the
national securities exchange making application under this
subsection would unreasonably impair the ability of a dealer to
solicit or effect transactions in such security for its own acSec.
12 SECURITIES EXCHANGE ACT OF 1934 78
count, or would unreasonably restrict competition among dealers
in such security or between such dealers acting in the capacity
of marketmakers who are specialists and such dealers
who are not specialists.
(3) Notwithstanding paragraph (2), the Commission shall by
rules and regulations suspend unlisted trading privileges in whole
or in part for any or all classes of securities for a period not exceeding
twelve months, if it deems such suspension necessary or appropriate
in the public interest or for the protection of investors or to
prevent evasion of the purposes of this title.
(4) On the application of the issuer of any security for which
unlisted trading privileges on any exchange have been continued or
extended pursuant to this subsection, or of any broker or dealer
who makes or creates a market for such security, or of any other
person having a bona fide interest in the question of termination
or suspension of such unlisted trading privileges, or on its own motion,
the Commission shall by order terminate, or suspend for a period
not exceeding twelve months, such unlisted trading privileges
for such security if the Commission finds, after appropriate notice
and opportunity for hearing, that such termination or suspension
is necessary or appropriate in the public interest or for the protection
of investors.
(5) In any proceeding under this subsection in which appropriate
notice and opportunity for hearing are required, notice of not
less than ten days to the applicant in such proceeding, to the issuer
of the security involved, to the exchange which is seeking to continue
or extend or has continued or extended unlisted trading privileges
for such security, and to the exchange, if any, on which such
security is listed and registered, shall be deemed adequate notice,
and any broker or dealer who makes or creates a market for such
security, and any other person having a bona fide interest in such
proceeding, shall upon application be entitled to be heard.
(6) Any security for which unlisted trading privileges are continued
or extended pursuant to this subsection shall be deemed to
be registered on a national securities exchange within the meaning
of this title. The powers and duties of the Commission under this
title shall be applicable to the rules of an exchange in respect to
any such security. The Commission may, by such rules and regulations
as it deems necessary or appropriate in the public interest or
for the protection of investors, either unconditionally or upon specified
terms and conditions, or for stated periods, exempt such securities
from the operation of any provision of section 13, 14, or 16
of this title.
(g)(1) Every issuer which is engaged in interstate commerce, or
in a business affecting interstate commerce, or whose securities are
traded by use of the mails or any means or instrumentality of
interstate commerce shall—
(A) within one hundred and twenty days after the last day
of its first fiscal year ended after the effective date of this subsection
on which the issuer has total assets exceeding
$1,000,000 and a class of equity security (other than an
exempted security) held of record by seven hundred and fifty
or more persons; and
79 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
1 12 U.S.C. 1141j(a). [Printed in appendix to this volume.]
(B) within one hundred and twenty days after the last day
of its first fiscal year ended after two years from the effective
date of this subsection on which the issuer has total assets exceeding
$1,000,000 and a class of equity security (other than
an exempted security) held of record by five hundred or more
but less than seven hundred and fifty persons,
register such security by filing with the Commission a registration
statement (and such copies thereof as the Commission may require)
with respect to such security containing such information and documents
as the Commission may specify comparable to that which is
required in an application to register a security pursuant to subsection
(b) of this section. Each such registration statement shall
become effective sixty days after filing with the Commission or
within such shorter period as the Commission may direct. Until
such registration statement becomes effective it shall not be
deemed filed for the purposes of section 18 of this title. Any issuer
may register any class of equity security not required to be registered
by filing a registration statement pursuant to the provisions
of this paragraph. The Commission is authorized to extend the date
upon which any issuer or class of issuers is required to register a
security pursuant to the provisions of this paragraph.
(2) The provisions of this subsection shall not apply in respect
of—
(A) any security listed and registered on a national securities
exchange.
(B) any security issued by an investment company registered
pursuant to section 8 of the Investment Company Act
of 1940.
(C) any security, other than permanent stock, guaranty
stock, permanent reserve stock, or any similar certificate evidencing
nonwithdrawable capital, issued by a savings and loan
association, building and loan association, cooperative bank,
homestead association, or similar institution, which is supervised
and examined by State or Federal authority having
supervision over any such institution.
(D) any security of an issuer organized and operated exclusively
for religious, educational, benevolent, fraternal, charitable,
or reformatory purposes and not for pecuniary profit,
and no part of the net earnings of which inures to the benefit
of any private shareholder or individual; or any security of a
fund that is excluded from the definition of an investment company
under section 3(c)(10)(B) of the Investment Company Act
of 1940.
(E) any security of an issuer which is a ‘‘cooperative association’’
as defined in the Agricultural Marketing Act, approved
June 15, 1929, as amended,1 or a federation of such cooperative
associations, if such federation possesses no greater powers
or purposes than cooperative associations so defined.
(F) any security issued by a mutual or cooperative organization
which supplies a commodity or service primarily for the
benefit of its members and operates not for pecuniary profit,
but only if the security is part of a class issuable only to perSec.
12 SECURITIES EXCHANGE ACT OF 1934 80
1 26 U.S.C. 401. [Printed in appendix to this volume.]
2 26 U.S.C. 404(a)(2). [Printed in appendix to this volume.]
sons who purchase commodities or services from the issuer, the
security is transferable only to a successor in interest or occupancy
of premises serviced or to be served by the issuer, and
no dividends are payable to the holder of the security.
(G) any security issued by an insurance company if all of
the following conditions are met:
(i) Such insurance company is required to and does file
an annual statement with the Commissioner of Insurance
(or other officer or agency performing a similar function)
of its domiciliary State, and such annual statement conforms
to that prescribed by the National Association of
Insurance Commissioners or in the determination of such
State commissioner, officer or agency substantially conforms
to that so prescribed.
(ii) Such insurance company is subject to regulation by
its domiciliary State of proxies, consents, or authorizations
in respect of securities issued by such company and such
regulation conforms to that prescribed by the National
Association of Insurance Commissioners.
(iii) After July 1, 1966, the purchase and sales of securities
issued by such insurance company by beneficial owners,
directors, or officers of such company are subject to
regulation (including reporting) by its domiciliary State
substantially in the manner provided in section 16 of this
title.
(H) any interest or participation in any collective trust
funds maintained by a bank or in a separate account maintained
by an insurance company which interest or participation
is issued in connection with (i) a stock-bonus, pension, or
profit-sharing plan which meets the requirements for qualification
under section 401 of the Internal Revenue Code of 1954,1
or (ii) an annuity plan which meets the requirements for
deduction of the employer’s contribution under section
404(a)(2) of such Code.2
(3) The Commission may by rules or regulations or, on its own
motion, after notice and opportunity for hearing, by order, exempt
from this subsection any security of a foreign issuer, including any
certificate of deposit for such a security, if the Commission finds
that such exemption is in the public interest and is consistent with
the protection of investors.
(4) Registration of any class of security pursuant to this subsection
shall be terminated ninety days, or such shorter period as
the Commission may determine, after the issuer files a certification
with the Commission that the number of holders of record of such
class of security is reduced to less than three hundred persons. The
Commission shall after notice and opportunity for hearing deny termination
of registration if it finds that the certification is untrue.
Termination of registration shall be deferred pending final determination
on the question of denial.
(5) For the purposes of this subsection the term ‘‘class’’ shall
include all securities of an issuer which are of substantially similar

81 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
character and the holders of which enjoy substantially similar
rights and privileges. The Commission may for the purpose of this
subsection define by rules and regulations the terms ‘‘total assets’’
and ‘‘held of record’’ as it deems necessary or appropriate in the
public interest or for the protection of investors in order to prevent
circumvention of the provisions of this subsection. For purposes of
this subsection, a security futures product shall not be considered
a class of equity security of the issuer of the securities underlying
the security futures product.
(h) The Commission may by rules and regulations, or upon application
of an interested person, by order, after notice and opportunity
for hearing, exempt in whole or in part any issuer or class
of issuers from the provisions of subsection (g) of this section or
from section 13, 14, or 15(d) or may exempt from section 16 any
officer, director, or beneficial owner of securities of any issuer, any
security of which is required to be registered pursuant to subsection
(g) hereof, upon such terms and conditions and for such period
as it deems necessary or appropriate, if the Commission finds,
by reason of the number of public investors, amount of trading interest
in the securities, the nature and extent of the activities of
the issuer, income or assets of the issuer, or otherwise, that such
action is not inconsistent with the public interest or the protection
of investors. The Commission may, for the purposes of any of the
above-mentioned sections or subsections of this title, classify
issuers and prescribe requirements appropriate for each such class.
(i) In respect of any securities issued by banks and savings
associations the deposits of which are insured in accordance with
the Federal Deposit Insurance Act, the powers, functions, and duties
vested in the Commission to administer and enforce sections
10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f), and 16 of this Act, and sections
302, 303, 304, 306, 401(b), 404, 406, and 407 of the Sarbanes-
Oxley Act of 2002, (1) with respect to national banks and banks
operating under the Code of Law for the District of Columbia are
vested in the Comptroller of the Currency, (2) with respect to all
other member banks of the Federal Reserve System are vested in
the Board of Governors of the Federal Reserve System, (3) with respect
to all other insured banks are vested in the Federal Deposit
Insurance Corporation, and (4) with respect to savings associations
the accounts of which are insured by the Federal Deposit Insurance
Corporation are vested in the Office of Thrift Supervision. The
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, and
the Office of Thrift Supervision shall have the power to make such
rules and regulations as may be necessary for the execution of the
functions vested in them as provided in this subsection. In carrying
out their responsibilities under this subsection, the agencies named
in the first sentence of this subsection shall issue substantially
similar regulations to regulations and rules issued by the Commission
under sections 10A(m), 12, 13, 14(a), 14(c), 14(d), 14(f) and 16
of this Act, and sections 302, 303, 304, 306, 401(b), 404, 406, and
407 of the Sarbanes-Oxley Act of 2002, unless they find that implementation
of substantially similar regulations with respect to insured
banks and insured institutions are not necessary or appropriate
in the public interest or for protection of investors, and pubSec.
12 SECURITIES EXCHANGE ACT OF 1934 82
1 Referred to at 12 U.S.C. 3305.
lish such findings, and the detailed reasons therefor, in the Federal
Register. Such regulations of the above-named agencies, or the reasons
for failure to publish such substantially similar regulations to
those of the Commission, shall be published in the Federal Register
within 120 days of the date of enactment of this subsection, and,
thereafter, within 60 days of any changes made by the Commission
in its relevant regulations and rules.1
(j) The Commission is authorized, by order, as it deems necessary
or appropriate for the protection of investors to deny, to suspend
the effective date of, to suspend for a period not exceeding
twelve months, or to revoke the registration of a security, if the
Commission finds, on the record after notice and opportunity for
hearing, that the issuer of such security has failed to comply with
any provision of this title or the rules and regulations thereunder.
No member of a national securities exchange, broker, or dealer
shall make use of the mails or any means or instrumentality of
interstate commerce to effect any transaction in, or to induce the
purchase or sale of, any security the registration of which has been
and is suspended or revoked pursuant to the preceding sentence.
(k) TRADING SUSPENSIONS; EMERGENCY AUTHORITY.—
(1) TRADING SUSPENSIONS.—If in its opinion the public interest
and the protection of investors so require, the Commission
is authorized by order—
(A) summarily to suspend trading in any security
(other than an exempted security) for a period not exceeding
10 business days, and
(B) summarily to suspend all trading on any national
securities exchange or otherwise, in securities other than
exempted securities, for a period not exceeding 90 calendar
days.
The action described in subparagraph (B) shall not take effect
unless the Commission notifies the President of its decision
and the President notifies the Commission that the President
does not disapprove of such decision. If the actions described
in subparagraph (A) or (B) involve a security futures product,
the Commission shall consult with and consider the views of
the Commodity Futures Trading Commission.
(2) EMERGENCY ORDERS.—(A) The Commission, in an emergency,
may by order summarily take such action to alter, supplement,
suspend, or impose requirements or restrictions with
respect to any matter or action subject to regulation by the
Commission or a self-regulatory organization under this title,
as the Commission determines is necessary in the public interest
and for the protection of investors—
(i) to maintain or restore fair and orderly securities
markets (other than markets in exempted securities); or
(ii) to ensure prompt, accurate, and safe clearance and
settlement of transactions in securities (other than
exempted securities).
(B) An order of the Commission under this paragraph (2)
shall continue in effect for the period specified by the Commission,
and may be extended, except that in no event shall the
83 SECURITIES EXCHANGE ACT OF 1934 Sec. 12
Commission’s action continue in effect for more than 10 business
days, including extensions. If the actions described in subparagraph
(A) involve a security futures product, the Commission
shall consult with and consider the views of the Commodity
Futures Trading Commission. In exercising its authority
under this paragraph, the Commission shall not be required
to comply with the provisions of section 553 of title 5, United
States Code, or with the provisions of section 19(c) of this title.
(3) TERMINATION OF EMERGENCY ACTIONS BY PRESIDENT.—
The President may direct that action taken by the Commission
under paragraph (1)(B) or paragraph (2) of this subsection
shall not continue in effect.
(4) COMPLIANCE WITH ORDERS.—No member of a national
securities exchange, broker, or dealer shall make use of the
mails or any means or instrumentality of interstate commerce
to effect any transaction in, or to induce the purchase or sale
of, any security in contravention of an order of the Commission
under this subsection unless such order has been stayed, modified,
or set aside as provided in paragraph (5) of this subsection
or has ceased to be effective upon direction of the President
as provided in paragraph (3).
(5) LIMITATIONS ON REVIEW OF ORDERS.—An order of the
Commission pursuant to this subsection shall be subject to review
only as provided in section 25(a) of this title. Review shall
be based on an examination of all the information before the
Commission at the time such order was issued. The reviewing
court shall not enter a stay, writ of mandamus, or similar relief
unless the court finds, after notice and hearing before a
panel of the court, that the Commission’s action is arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance
with law.
(6) DEFINITION OF EMERGENCY.—For purposes of this subsection,
the term ‘‘emergency’’ means a major market disturbance
characterized by or constituting—
(A) sudden and excessive fluctuations of securities
prices generally, or a substantial threat thereof, that
threaten fair and orderly markets, or
(B) a substantial disruption of the safe or efficient
operation of the national system for clearance and settlement
of securities, or a substantial threat thereof.
(l) It shall be unlawful for an issuer, any class of whose securities
is registered pursuant to this section or would be required to
be so registered except for the exemption from registration provided
by subsection (g)(2)(B) or (g)(2)(G) of this section, by the use
of any means or instrumentality of interstate commerce, or of the
mails, to issue, either originally or upon transfer, any of such securities
in a form or with a format which contravenes such rules and
regulations as the Commission may prescribe as necessary or
appropriate for the prompt and accurate clearance and settlement
of transactions in securities. The provisions of this subsection shall
not apply to variable annuity contracts or variable life policies
issued by an insurance company or its separate accounts.
Sec. 13 SECURITIES EXCHANGE ACT OF 1934 84
1 See also 16 U.S.C. 824c(h).
2 So in law. Should be ‘‘earnings statement’’.
PERIODICAL AND OTHER REPORTS 1
SEC. 13. ø78m¿ (a) Every issuer of a security registered pursuant
to section 12 of this title shall file with the Commission, in
accordance with such rules and regulations as the Commission may
prescribe as necessary or appropriate for the proper protection of
investors and to insure fair dealing in the security—
(1) such information and documents (and such copies
thereof) as the Commission shall require to keep reasonably
current the information and documents required to be included
in or filed with an application or registration statement filed
pursuant to section 12, except that the Commission may not
require the filing of any material contract wholly executed before
July 1, 1962.
(2) such annual reports (and such copies thereof), certified
if required by the rules and regulations of the Commission by
independent public accountants, and such quarterly reports
(and such copies thereof), as the Commission may prescribe.
Every issuer of a security registered on a national securities exchange
shall also file a duplicate original of such information, documents,
and reports with the exchange.
(b)(1) The Commission may prescribe, in regard to reports
made pursuant to this title, the form or forms in which the required
information shall be set forth, the items or details to be
shown in the balance sheet and the earning statement 2, and the
methods to be followed in the preparation of reports, in the appraisal
or valuation of assets and liabilities, in the determination
of depreciation and depletion, in the differentiation of recurring
and nonrecurring income, in the differentiation of investment and
operating income, and in the preparation, where the Commission
deems it necessary or desirable, of separate and/or consolidated
balance sheets or income accounts of any person directly or indirectly
controlling or controlled by the issuer, or any person under
direct or indirect common control with the issuer; but in the case
of the reports of any person whose methods of accounting are prescribed
under the provisions of any law of the United States, or any
rule or regulation thereunder, the rules and regulations of the
Commission with respect to reports shall not be inconsistent with
the requirements imposed by such law or rule or regulation in respect
of the same subject matter (except that such rules and regulations
of the Commission may be inconsistent with such requirements
to the extent that the Commission determines that the public
interest or the protection of investors so requires).
(2) Every issuer which has a class of securities registered pursuant
to section 12 of this title and every issuer which is required
to file reports pursuant to section 15(d) of this title shall—
(A) make and keep books, records, and accounts, which, in
reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the issuer;
(B) devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that—
85 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
(i) transactions are executed in accordance with management’s
general or specific authorization;
(ii) transactions are recorded as necessary (I) to permit
preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria
applicable to such statements, and (II) to maintain
accountability for assets;
(iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and
(iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences; and
(C) notwithstanding any other provision of law, pay the
allocable share of such issuer of a reasonable annual accounting
support fee or fees, determined in accordance with section
109 of the Sarbanes-Oxley Act of 2002.
(3)(A) With respect to matters concerning the national security
of the United States, no duty or liability under paragraph (2) of
this subsection shall be imposed upon any person acting in cooperation
with the head of any Federal department or agency responsible
for such matters if such act in cooperation with such head of
a department or agency was done upon the specific, written directive
of the head of such department or agency pursuant to Presidential
authority to issue such directives. Each directive issued
under this paragraph shall set forth the specific facts and circumstances
with respect to which the provisions of this paragraph
are to be invoked. Each such directive shall, unless renewed in
writing, expire one year after the date of issuance.
(B) Each head of a Federal department or agency of the United
States who issues a directive pursuant to this paragraph shall
maintain a complete file of all such directives and shall, on October
1 of each year, transmit a summary of matters covered by such
directives in force at any time during the previous year to the Permanent
Select Committee on Intelligence of the House of Representatives
and the Select Committee on Intelligence of the Senate.
(4) No criminal liability shall be imposed for failing to comply
with the requirements of paragraph (2) of this subsection except as
provided in paragraph (5) of this subsection.
(5) No person shall knowingly circumvent or knowingly fail to
implement a system of internal accounting controls or knowingly
falsify any book, record, or account described in paragraph (2).
(6) Where an issuer which has a class of securities registered
pursuant to section 12 of this title or an issuer which is required
to file reports pursuant to section 15(d) of this title holds 50 per
centum or less of the voting power with respect to a domestic or
foreign firm, the provisions of paragraph (2) require only that the
issuer proceed in good faith to use its influence, to the extent reasonable
under the issuer’s circumstances, to cause such domestic or
foreign firm to devise and maintain a system of internal accounting
controls consistent with paragraph (2). Such circumstances include
the relative degree of the issuer’s ownership of the domestic or foreign
firm and the laws and practices governing the business operations
of the country in which such firm is located. An issuer which
Sec. 13 SECURITIES EXCHANGE ACT OF 1934 86
demonstrates good faith efforts to use such influence shall be conclusively
presumed to have complied with the requirements of
paragraph (2).
(7) For the purpose of paragraph (2) of this subsection, the
terms ‘‘reasonable assurances’’ and ‘‘reasonable detail’’ mean such
level of detail and degree of assurance as would satisfy prudent
officials in the conduct of their own affairs.
(c) If in the judgment of the Commission any report required
under subsection (a) is inapplicable to any specified class or classes
of issuers, the Commission shall require in lieu thereof the submission
of such reports of comparable character as it may deem applicable
to such class or classes of issuers.
(d)(1) Any person who, after acquiring directly or indirectly the
beneficial ownership of any equity security of a class which is registered
pursuant to section 12 of this title, or any equity security
of an insurance company which would have been required to be so
registered except for the exemption contained in section 12(g)(2)(G)
of this title, or any equity security issued by a closed-end investment
company registered under the Investment Company Act of
1940 or any equity security issued by a Native Corporation pursuant
to section 37(d)(6) of the Alaska Native Claims Settlement Act,
is directly or indirectly the beneficial owner of more than 5 per centum
of such class shall, within ten days after such acquisition, send
to the issuer of the security at its principal executive office, by registered
or certified mail, send to each exchange where the security
is traded, and file with the Commission, a statement containing
such of the following information, and such additional information,
as the Commission may by rules and regulations, prescribe as necessary
or appropriate in the public interest or for the protection of
investors—
(A) the background, and identity, residence, and citizenship
of, and the nature of such beneficial ownership by, such
person and all other persons by whom or on whose behalf the
purchases have been or are to be effected;
(B) the source and amount of the funds or other consideration
used or to be used in making the purchases, and if any
part of the purchase price is represented or is to be represented
by funds or other consideration borrowed or otherwise
obtained for the purpose of acquiring, holding, or trading such
security, a description of the transaction and the names of the
parties thereto, except that where a source of funds is a loan
made in the ordinary course of business by a bank, as defined
in section 3(a)(6) of this title, if the person filing such statement
so requests, the name of the bank shall not be made
available to the public;
(C) if the purpose of the purchases or prospective purchases
is to acquire control of the business of the issuer of the
securities any plans or proposals which such persons may have
to liquidate such issuer, to sell its assets to or merge it with
any other persons, or to make any other major change in its
business or corporate structure;
(D) the number of shares of such security which are beneficially
owned, and the number of shares concerning which
there is a right to acquire, directly or indirectly, by (i) such
87 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
person, and (ii) by each associate of such person, giving the
background, identity, residence, and citizenship of each such
associate; and
(E) information as to any contracts, arrangements, or
understandings with any person with respect to any securities
of the issuer, including but not limited to transfer of any of the
securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or guaranties
of profits, division of losses or profits, or the giving or withholding
of proxies, naming the persons with whom such contracts,
arrangements, or understandings have been entered
into, and giving the details thereof.
(2) If any material change occurs in the facts set forth in the
statements to the issuer and the exchange, and in the statement
filed with the Commission, an amendment shall be transmitted to
the issuer and the exchange and shall be filed with the Commission,
in accordance with such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest
or for the protection of investors.
(3) When two or more persons act as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring,
holding, or disposing of securities of an issuer, such syndicate or
group shall be deemed a ‘‘person’’ for the purposes of this subsection.
(4) In determining, for purposes of this subsection, any percentage
of a class of any security, such class shall be deemed to
consist of the amount of the outstanding securities of such class,
exclusive of any securities of such class held by or for the account
of the issuer or a subsidiary of the issuer.
(5) The Commission, by rule or regulation or by order, may
permit any person to file in lieu of the statement required by paragraph
(1) of this subsection or the rules and regulations thereunder,
a notice stating the name of such person, the number of
shares of any equity securities subject to paragraph (1) which are
owned by him, the date of their acquisition and such other information
as the Commission may specify, if it appears to the Commission
that such securities were acquired by such person in the ordinary
course of his business and were not acquired for the purpose
of and do not have the effect of changing or influencing the control
of the issuer nor in connection with or as a participant in any
transaction having such purpose or effect.
(6) The provisions of this subsection shall not apply to—
(A) any acquisition or offer to acquire securities made or
proposed to be made by means of a registration statement
under the Securities Act of 1933;
(B) any acquisition of the beneficial ownership of a security
which, together with all other acquisitions by the same person
of securities of the same class during the preceding twelve
months, does not exceed 2 per centum of that class;
(C) any acquisition of an equity security by the issuer of
such security;
(D) any acquisition or proposed acquisition of a security
which the Commission, by rules or regulations or by order,
shall exempt from the provisions of this subsection as not enSec.
13 SECURITIES EXCHANGE ACT OF 1934 88
1 Margin so in law.
tered into for the purpose of, and not having the effect of,
changing or influencing the control of the issuer or otherwise
as not comprehended within the purposes of this subsection.
(e)(1) It shall be unlawful for an issuer which has a class of
equity securities registered pursuant to section 12 of this title, or
which is a closed-end investment company registered under the
Investment Company Act of 1940, to purchase any equity security
issued by it if such purchase is in contravention of such rules and
regulations as the Commission, in the public interest or for the protection
of investors, may adopt (A) to define acts and practices
which are fraudulent, deceptive, or manipulative, and (B) to prescribe
means reasonably designed to prevent such acts and practices.
Such rules and regulations may require such issuer to provide
holders of equity securities of such class with such information
relating to the reasons for such purchase, the source of funds, the
number of shares to be purchased, the price to be paid for such
securities, the method of purchase, and such additional information,
as the Commission deems necessary or appropriate in the
public interest or for the protection of investors, or which the Commission
deems to be material to a determination whether such
security should be sold.
(2) For the purpose of this subsection, a purchase by or for the
issuer or any person controlling, controlled by, or under common
control with the issuer, or a purchase subject to control of the
issuer or any such person, shall be deemed to be a purchase by the
issuer. The Commission shall have power to make rules and regulations
implementing this paragraph in the public interest and for
the protection of investors, including exemptive rules and regulations
covering situations in which the Commission deems it unnecessary
or inappropriate that a purchase of the type described in
this paragraph shall be deemed to be a purchase by the issuer for
purposes of some or all of the provisions of paragraph (1) of this
subsection.
(3) At the time of filing such statement as the Commission may
require by rule pursuant to paragraph (1) of this subsection, the
person making the filing shall pay to the Commission a fee at a
rate that, subject to paragraphs (5) and (6), is equal to $92 per
$1,000,000 of the value of securities proposed to be purchased. The
fee shall be reduced with respect to securities in an amount equal
to any fee paid with respect to any securities issued in connection
with the proposed transaction under section 6(b) of the Securities
Act of 1933, or the fee paid under that section shall be reduced in
an amount equal to the fee paid to the Commission in connection
with such transaction under this paragraph.
(4) 1 OFFSETTING COLLECTIONS.—Fees collected pursuant to
this subsection for any fiscal year shall be deposited and credited
as offsetting collections to the account providing appropriations
to the Commission, and, except as provided in paragraph
(9), shall not be collected for any fiscal year except to the
extent provided in advance in appropriation Acts. No fees collected
pursuant to this subsection for fiscal year 2002 or any
89 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
1 Margin so in law.
succeeding fiscal year shall be deposited and credited as general
revenue of the Treasury.
(5) 1 ANNUAL ADJUSTMENT.—For each of the fiscal years
2003 through 2011, the Commission shall by order adjust the
rate required by paragraph (3) for such fiscal year to a rate
that is equal to the rate (expressed in dollars per million) that
is applicable under section 6(b) of the Securities Act of 1933 for
such fiscal year.
(6) 1 FINAL RATE ADJUSTMENT.—For fiscal year 2012 and
all of the succeeding fiscal years, the Commission shall by
order adjust the rate required by paragraph (3) for all of such
fiscal years to a rate that is equal to the rate (expressed in dollars
per million) that is applicable under section 6(b) of the
Securities Act of 1933 for all of such fiscal years.
(7) 1 PRO RATA APPLICATION.—The rates per $1,000,000 required
by this subsection shall be applied pro rata to amounts
and balances of less than $1,000,000.
(8) 1 REVIEW AND EFFECTIVE DATE.—In exercising its authority
under this subsection, the Commission shall not be required
to comply with the provisions of section 553 of title 5,
United States Code. An adjusted rate prescribed under paragraph
(5) or (6) and published under paragraph (10) shall not
be subject to judicial review. Subject to paragraphs (4) and
(9)—
(A) an adjusted rate prescribed under paragraph (5)
shall take effect on the later of—
(i) the first day of the fiscal year to which such
rate applies; or
(ii) five days after the date on which a regular
appropriation to the Commission for such fiscal year is
enacted; and
(B) an adjusted rate prescribed under paragraph (6)
shall take effect on the later of—
(i) the first day of fiscal year 2012; or
(ii) five days after the date on which a regular
appropriation to the Commission for fiscal year 2012
is enacted.
(9) 1 LAPSE OF APPROPRIATION.—If on the first day of a fiscal
year a regular appropriation to the Commission has not
been enacted, the Commission shall continue to collect fees (as
offsetting collections) under this subsection at the rate in effect
during the preceding fiscal year, until 5 days after the date
such a regular appropriation is enacted.
(10) 1 PUBLICATION.—The rate applicable under this subsection
for each fiscal year is published pursuant to section
6(b)(10) of the Securities Act of 1933.
(f)(1) Every institutional investment manager which uses the
mails, or any means or instrumentality of interstate commerce in
the course of its business as an institutional investment manager
and which exercises investment discretion with respect to accounts
holding equity securities of a class described in section 13(d)(1) of
this title having an aggregate fair market value on the last trading
Sec. 13 SECURITIES EXCHANGE ACT OF 1934 90
day in any of the preceding twelve months of at least $100,000,000
or such lesser amount (but in no case less than $10,000,000) as the
Commission, by rule, may determine, shall file reports with the
Commission in such form, for such periods, and at such times after
the end of such periods as the Commission, by rule, may prescribe,
but in no event shall such reports be filed for periods longer than
one year or shorter than one quarter. Such reports shall include for
each such equity security held on the last day of the reporting period
by accounts (in aggregate or by type as the Commission, by
rule, may prescribe) with respect to which the institutional investment
manager exercises investment discretion (other than securities
held in amounts which the Commission, by rule, determines to
be insignificant for purposes of this subsection), the name of the
issuer and the title, class, CUSIP number, number of shares or
principal amount, and aggregate fair market value of each such
security. Such reports may also include for accounts (in aggregate
or by type) with respect to which the institutional investment manager
exercises investment discretion such of the following information
as the Commission, by rule, prescribes—
(A) the name of the issuer and the title, class, CUSIP
number, number of shares or principal amount, and aggregate
fair market value or cost or amortized cost of each other security
(other than an exempted security) held on the last day of
the reporting period by such accounts;
(B) the aggregate fair market value or cost or amortized
cost of exempted securities (in aggregate or by class) held on
the last day of the reporting period by such accounts;
(C) the number of shares of each equity security of a class
described in section 13(d)(1) of this title held on the last day
of the reporting period by such accounts with respect to which
the institutional investment manager possesses sole or shared
authority to exercise the voting rights evidenced by such securities;
(D) the aggregate purchases and aggregate sales during
the reporting period of each security (other than an exempted
security) effected by or for such accounts; and
(E) with respect to any transaction or series of transactions
having a market value of at least $500,000 or such
other amount as the Commission, by rule, may determine, effected
during the reporting period by or for such accounts in
any equity security of a class described in section 13(d)(1) of
this title—
(i) the name of the issuer and the title, class, and
CUSIP number of the security;
(ii) the number of shares or principal amount of the
security involved in the transaction;
(iii) whether the transaction was a purchase or sale;
(iv) the per share price or prices at which the transaction
was effected;
(v) the date or dates of the transaction;
(vi) the date or dates of the settlement of the transaction;
(vii) the broker or dealer through whom the transaction
was effected;

91 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
(viii) the market or markets in which the transaction
was effected; and
(ix) such other related information as the Commission,
by rule, may prescribe.
(2) The Commission, by rule or order, may exempt, conditionally
or unconditionally, any institutional investment manager
or security or any class of institutional investment managers or
securities from any or all of the provisions of this subsection or the
rules thereunder.
(3) The Commission shall make available to the public for a
reasonable fee a list of all equity securities of a class described in
section 13(d)(1) of this title, updated no less frequently than reports
are required to be filed pursuant to paragraph (1) of this subsection.
The Commission shall tabulate the information contained
in any report filed pursuant to this subsection in a manner which
will, in the view of the Commission, maximize the usefulness of the
information to other Federal and State authorities and the public.
Promptly after the filing of any such report, the Commission shall
make the information contained therein conveniently available to
the public for a reasonable fee in such form as the Commission, by
rule, may prescribe, except that the Commission, as it determines
to be necessary or appropriate in the public interest or for the protection
of investors, may delay or prevent public disclosure of any
such information in accordance with section 552 of title 5, United
States Code. Notwithstanding the preceding sentence, any such
information identifying the securities held by the account of a natural
person or an estate or trust (other than a business trust or
investment company) shall not be disclosed to the public.
(4) In exercising its authority under this subsection, the Commission
shall determine (and so state) that its action is necessary
or appropriate in the public interest and for the protection of investors
or to maintain fair and orderly markets or, in granting an
exemption, that its action is consistent with the protection of investors
and the purposes of this subsection. In exercising such authority
the Commission shall take such steps as are within its power,
including consulting with the Comptroller General of the United
States, the Director of the Office of Management and Budget, the
appropriate regulatory agencies, Federal and State authorities
which, directly or indirectly, require reports from institutional
investment managers of information substantially similar to that
called for by this subsection, national securities exchanges, and
registered securities associations, (A) to achieve uniform, centralized
reporting of information concerning the securities holdings of
and transactions by or for accounts with respect to which institutional
investment managers exercise investment discretion, and (B)
consistently with the objective set forth in the preceding subparagraph,
to avoid unnecessarily duplicative reporting by, and minimize
the compliance burden on, institutional investment managers.
Federal authorities which, directly or indirectly, require reports
from institutional investment managers of information substantially
similar to that called for by this subsection shall cooperate
with the Commission in the performance of its responsibilities
under the preceding sentence. An institutional investment manager
which is a bank, the deposits of which are insured in accordance
Sec. 13 SECURITIES EXCHANGE ACT OF 1934 92
with the Federal Deposit Insurance Act, shall file with the appropriate
regulatory agency a copy of every report filed with the Commission
pursuant to this subsection.
(5)(A) For purposes of this subsection the term ‘‘institutional
investment manager’’ includes any person, other than a natural
person, investing in or buying and selling securities for its own account,
and any person exercising investment discretion with respect
to the account of any other person.
(B) The Commission shall adopt such rules as it deems necessary
or appropriate to prevent duplicative reporting pursuant to
this subsection by two or more institutional investment managers
exercising investment discretion with respect to the same amount.
(g)(1) Any person who is directly or indirectly the beneficial
owner of more than 5 per centum of any security of a class described
in subsection (d)(1) of this section shall send to the issuer
of the security and shall file with the Commission a statement setting
forth, in such form and at such time as the Commission may,
by rule, prescribe—
(A) such person’s identity, residence, and citizenship; and
(B) the number and description of the shares in which
such person has an interest and the nature of such interest.
(2) If any material change occurs in the facts set forth in the
statement sent to the issuer and filed with the Commission, an
amendment shall be transmitted to the issuer and shall be filed
with the Commission, in accordance with such rules and regulations
as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
(3) When two or more persons act as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring,
holding, or disposing of securities of an issuer, such syndicate or
group shall be deemed a ‘‘person’’ for the purposes of this subsection.
(4) In determining, for purposes of this subsection, any percentage
of a class of any security, such class shall be deemed to
consist of the amount of the outstanding securities of such class,
exclusive of any securities of such class held by or for the account
of the issuer or a subsidiary of the issuer.
(5) In exercising its authority under this subsection, the Commission
shall take such steps as it deems necessary or appropriate
in the public interest or for the protection of investors (A) to
achieve centralized reporting of information regarding ownership,
(B) to avoid unnecessarily duplicative reporting by and minimize
the compliance burden on persons required to report, and (C) to
tabulate and promptly make available the information contained in
any report filed pursuant to this subsection in a manner which
will, in the view of the Commission, maximize the usefulness of the
information to other Federal and State agencies and the public.
(6) The Commission may, by rule or order, exempt, in whole
or in part, any person or class of persons from any or all of the reporting
requirements of this subsection as it deems necessary or
appropriate in the public interest or for the protection of investors.
(h) LARGE TRADER REPORTING.—
(1) IDENTIFICATION REQUIREMENTS FOR LARGE TRADERS.—
For the purpose of monitoring the impact on the securities
93 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
markets of securities transactions involving a substantial volume
or a large fair market value or exercise value and for the
purpose of otherwise assisting the Commission in the enforcement
of this title, each large trader shall—
(A) provide such information to the Commission as the
Commission may by rule or regulation prescribe as necessary
or appropriate, identifying such large trader and all
accounts in or through which such large trader effects such
transactions; and
(B) identify, in accordance with such rules or regulations
as the Commission may prescribe as necessary or
appropriate, to any registered broker or dealer by or
through whom such large trader directly or indirectly effects
securities transactions, such large trader and all accounts
directly or indirectly maintained with such broker
or dealer by such large trader in or through which such
transactions are effected.
(2) RECORDKEEPING AND REPORTING REQUIREMENTS FOR
BROKERS AND DEALERS.—Every registered broker or dealer
shall make and keep for prescribed periods such records as the
Commission by rule or regulation prescribes as necessary or
appropriate in the public interest, for the protection of investors,
or otherwise in furtherance of the purposes of this title,
with respect to securities transactions that equal or exceed the
reporting activity level effected directly or indirectly by or
through such registered broker or dealer of or for any person
that such broker or dealer knows is a large trader, or any person
that such broker or dealer has reason to know is a large
trader on the basis of transactions in securities effected by or
through such broker or dealer. Such records shall be available
for reporting to the Commission, or any self-regulatory organization
that the Commission shall designate to receive such reports,
on the morning of the day following the day the transactions
were effected, and shall be reported to the Commission
or a self-regulatory organization designated by the Commission
immediately upon request by the Commission or such a selfregulatory
organization. Such records and reports shall be in
a format and transmitted in a manner prescribed by the Commission
(including, but not limited to, machine readable form).
(3) AGGREGATION RULES.—The Commission may prescribe
rules or regulations governing the manner in which transactions
and accounts shall be aggregated for the purpose of
this subsection, including aggregation on the basis of common
ownership or control.
(4) EXAMINATION OF BROKER AND DEALER RECORDS.—All
records required to be made and kept by registered brokers
and dealers pursuant to this subsection with respect to transactions
effected by large traders are subject at any time, or
from time to time, to such reasonable periodic, special, or other
examinations by representatives of the Commission as the
Commission deems necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance
of the purposes of this title.
Sec. 13 SECURITIES EXCHANGE ACT OF 1934 94
(5) FACTORS TO BE CONSIDERED IN COMMISSION ACTIONS.—
In exercising its authority under this subsection, the Commission
shall take into account—
(A) existing reporting systems;
(B) the costs associated with maintaining information
with respect to transactions effected by large traders and
reporting such information to the Commission or self-regulatory
organizations; and
(C) the relationship between the United States and
international securities markets.
(6) EXEMPTIONS.—The Commission, by rule, regulation, or
order, consistent with the purposes of this title, may exempt
any person or class of persons or any transaction or class of
transactions, either conditionally or upon specified terms and
conditions or for stated periods, from the operation of this subsection,
and the rules and regulations thereunder.
(7) AUTHORITY OF COMMISSION TO LIMIT DISCLOSURE OF
INFORMATION.—Notwithstanding any other provision of law,
the Commission shall not be compelled to disclose any information
required to be kept or reported under this subsection.
Nothing in this subsection shall authorize the Commission to
withhold information from Congress, or prevent the Commission
from complying with a request for information from any
other Federal department or agency requesting information for
purposes within the scope of its jurisdiction, or complying with
an order of a court of the United States in an action brought
by the United States or the Commission. For purposes of section
552 of title 5, United States Code, this subsection shall be
considered a statute described in subsection (b)(3)(B) of such
section 552.
(8) DEFINITIONS.—For purposes of this subsection—
(A) the term ‘‘large trader’’ means every person who,
for his own account or an account for which he exercises
investment discretion, effects transactions for the purchase
or sale of any publicly traded security or securities by use
of any means or instrumentality of interstate commerce or
of the mails, or of any facility of a national securities exchange,
directly or indirectly by or through a registered
broker or dealer in an aggregate amount equal to or in excess
of the identifying activity level;
(B) the term ‘‘publicly traded security’’ means any equity
security (including an option on individual equity
securities, and an option on a group or index of such securities)
listed, or admitted to unlisted trading privileges, on
a national securities exchange, or quoted in an automated
interdealer quotation system;
(C) the term ‘‘identifying activity level’’ means transactions
in publicly traded securities at or above a level of
volume, fair market value, or exercise value as shall be
fixed from time to time by the Commission by rule or regulation,
specifying the time interval during which such
transactions shall be aggregated;
(D) the term ‘‘reporting activity level’’ means transactions
in publicly traded securities at or above a level of
95 SECURITIES EXCHANGE ACT OF 1934 Sec. 13
volume, fair market value, or exercise value as shall be
fixed from time to time by the Commission by rule, regulation,
or order, specifying the time interval during which
such transactions shall be aggregated; and
(E) the term ‘‘person’’ has the meaning given in section
3(a)(9) of this title and also includes two or more persons
acting as a partnership, limited partnership, syndicate, or
other group, but does not include a foreign central bank.
(i) ACCURACY OF FINANCIAL REPORTS.—Each financial report
that contains financial statements, and that is required to be prepared
in accordance with (or reconciled to) generally accepted accounting
principles under this title and filed with the Commission
shall reflect all material correcting adjustments that have been
identified by a registered public accounting firm in accordance with
generally accepted accounting principles and the rules and regulations
of the Commission.
(j) OFF-BALANCE SHEET TRANSACTIONS.—Not later than 180
days after the date of enactment of the Sarbanes-Oxley Act of 2002,
the Commission shall issue final rules providing that each annual
and quarterly financial report required to be filed with the Commission
shall disclose all material off-balance sheet transactions,
arrangements, obligations (including contingent obligations), and
other relationships of the issuer with unconsolidated entities or
other persons, that may have a material current or future effect on
financial condition, changes in financial condition, results of operations,
liquidity, capital expenditures, capital resources, or significant
components of revenues or expenses.
(k) PROHIBITION ON PERSONAL LOANS TO EXECUTIVES.—
(1) IN GENERAL.—It shall be unlawful for any issuer (as defined
in section 2 of the Sarbanes-Oxley Act of 2002), directly
or indirectly, including through any subsidiary, to extend or
maintain credit, to arrange for the extension of credit, or to
renew an extension of credit, in the form of a personal loan to
or for any director or executive officer (or equivalent thereof)
of that issuer. An extension of credit maintained by the issuer
on the date of enactment of this subsection shall not be subject
to the provisions of this subsection, provided that there is no
material modification to any term of any such extension of
credit or any renewal of any such extension of credit on or
after that date of enactment.
(2) LIMITATION.—Paragraph (1) does not preclude any
home improvement and manufactured home loans (as that
term is defined in section 5 of the Home Owners’ Loan Act (12
U.S.C. 1464)), consumer credit (as defined in section 103 of the
Truth in Lending Act (15 U.S.C. 1602)), or any extension of
credit under an open end credit plan (as defined in section 103
of the Truth in Lending Act (15 U.S.C. 1602)), or a charge card
(as defined in section 127(c)(4)(e) of the Truth in Lending Act
(15 U.S.C. 1637(c)(4)(e)), or any extension of credit by a broker
or dealer registered under section 15 of this title to an employee
of that broker or dealer to buy, trade, or carry securities,
that is permitted under rules or regulations of the Board
of Governors of the Federal Reserve System pursuant to secSec.
14 SECURITIES EXCHANGE ACT OF 1934 96
1 See 49 U.S.C. 11367(a) for exemption. [Printed in appendix to this volume.]
tion 7 of this title (other than an extension of credit that would
be used to purchase the stock of that issuer), that is—
(A) made or provided in the ordinary course of the consumer
credit business of such issuer;
(B) of a type that is generally made available by such
issuer to the public; and
(C) made by such issuer on market terms, or terms
that are no more favorable than those offered by the issuer
to the general public for such extensions of credit.
(3) RULE OF CONSTRUCTION FOR CERTAIN LOANS.—Paragraph
(1) does not apply to any loan made or maintained by
an insured depository institution (as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813)), if the loan is
subject to the insider lending restrictions of section 22(h) of the
Federal Reserve Act (12 U.S.C. 375b).
(l) REAL TIME ISSUER DISCLOSURES.—Each issuer reporting
under section 13(a) or 15(d) shall disclose to the public on a rapid
and current basis such additional information concerning material
changes in the financial condition or operations of the issuer, in
plain English, which may include trend and qualitative information
and graphic presentations, as the Commission determines, by rule,
is necessary or useful for the protection of investors and in the public
interest.
PROXIES
SEC. 14. ø78n¿ (a) It shall be unlawful for any person, by the
use of the mails or by any means or instrumentality of interstate
commerce or of any facility of a national securities exchange or otherwise,
in contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest
or for the protection of investors, to solicit or to permit the
use of his name to solicit any proxy or consent or authorization in
respect of any security (other than an exempted security) registered
pursuant to section 12 of this title.1
(b)(1) It shall be unlawful for any member of a national securities
exchange, or any broker or dealer registered under this title,
or any bank, association, or other entity that exercises fiduciary
powers, in contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest
or for the protection of investors, to give, or to refrain from
giving a proxy, consent, authorization, or information statement in
respect of any security registered pursuant to section 12 of this
title, or any security issued by an investment company registered
under the Investment Company Act of 1940, and carried for the account
of a customer.
(2) With respect to banks, the rules and regulations prescribed
by the Commission under paragraph (1) shall not require the disclosure
of the names of beneficial owners of securities in an account
held by the bank on the date of enactment of this paragraph unless
the beneficial owner consents to the disclosure. The provisions of
this paragraph shall not apply in the case of a bank which the
97 SECURITIES EXCHANGE ACT OF 1934 Sec. 14
Commission finds has not made a good faith effort to obtain such
consent from such beneficial owners.
(c) Unless proxies, consents, or authorizations in respect of a
security registered pursuant to section 12 of this title, or a security
issued by an investment company registered under the Investment
Company Act of 1940, are solicited by or on behalf of the management
of the issuer from the holders of record of such security in
accordance with the rules and regulations prescribed under subsection
(a) of this section, prior to any annual or other meeting of
the holders of such security, such issuer shall, in accordance with
rules and regulations prescribed by the Commission, file with the
Commission and transmit to all holders of record of such security
information substantially equivalent to the information which
would be required to be transmitted if a solicitation were made, but
no information shall be required to be filed or transmitted pursuant
to this subsection before July 1, 1964.
(d)(1) It shall be unlawful for any person, directly or indirectly,
by use of the mails or by any means or instrumentality of interstate
commerce or of any facility of a national securities exchange
or otherwise, to make a tender offer for, or a request or invitation
for tenders of, any class of any equity security which is registered
pursuant to section 12 of this title, or any equity security of an
insurance company which would have been required to be so registered
except for the exemption contained in section 12(g)(2)(G) of
this title, or any equity security issued by a closed-end investment
company registered under the Investment Company Act of 1940, if,
after consummation thereof, such person would, directly or indirectly,
be the beneficial owner of more than 5 per centum of such
class, unless at the time copies of the offer or request or invitation
are first published or sent or given to security holders such person
has filed with the Commission a statement containing such of the
information specified in section 13(d) of this title, and such additional
information as the Commission may by rules and regulations
prescribe as necessary or appropriate in the public interest or for
the protection of investors. All requests or invitations for tenders
or advertisements making a tender offer or requesting or inviting
tenders, of such a security shall be filed as a part of such statement
and shall contain such of the information contained in such statement
as the Commission may by rules and regulations prescribe.
Copies of any additional material soliciting or requesting such tender
offers subsequent to the initial solicitation or request shall contain
such information as the Commission may by rules and regulations
prescribe as necessary or appropriate in the public interest or
for the protection of investors, and shall be filed with the Commission
not later than the time copies of such material are first published
or sent or given to security holders. Copies of all statements,
in the form in which such material is furnished to security holders
and the Commission, shall be sent to the issuer not later than the
date such material is first published or sent or given to any security
holders.
(2) When two or more persons act as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring,
holding, or disposing of securities of an issuer, such syndicate or
group shall be deemed a ‘‘person’’ for purposes of this subsection.
Sec. 14 SECURITIES EXCHANGE ACT OF 1934 98
(3) In determining, for purposes of this subsection, any percentage
of a class of any security, such class shall be deemed to
consist of the amount of the outstanding securities of such class,
exclusive of any securities of such class held by or for the account
of the issuer or a subsidiary of the issuer.
(4) Any solicitation or recommendation to the holders of such
a security to accept or reject a tender offer or request or invitation
for tenders shall be made in accordance with such rules and regulations
as the Commission may prescribe as necessary or appropriate
in the public interest or for the protection of investors.
(5) Securities deposited pursuant to a tender offer or request
or invitation for tenders may be withdrawn by or on behalf of the
depositor at any time until the expiration of seven days after the
time definitive copies of the offer or request or invitation are first
published or sent or given to security holders, and at any time
after sixty days from the date of the original tender offer or request
or invitation, except as the Commission may otherwise prescribe by
rules, regulations, or order as necessary or appropriate in the public
interest or for the protection of investors.
(6) Where any person makes a tender offer, or request or invitation
for tenders, for less than all the outstanding equity securities
of a class, and where a greater number of securities is deposited
pursuant thereto within ten days after copies of the offer or
request or invitation are first published or sent or given to security
holders than such person is bound or willing to take up and pay
for, the securities taken up shall be taken up as nearly as may be
pro rata, disregarding fractions, according to the number of securities
deposited by each depositor. The provisions of this subsection
shall also apply to securities deposited within ten days after notice
of an increase in the consideration offered to security holders, as
described in paragraph (7), is first published or sent or given to
security holders.
(7) Where any person varies the terms of a tender offer or request
or invitation for tenders before the expiration thereof by increasing
the consideration offered to holders of such securities,
such person shall pay the increased consideration to each security
holder whose securities are taken up and paid for pursuant to the
tender offer or request or invitation for tenders whether or not
such securities have been taken up by such person before the variation
of the tender offer or request or invitation.
(8) The provisions of this subsection shall not apply to any
offer for, or request or invitation for tenders of, any security—
(A) if the acquisition of such security, together with all
other acquisitions by the same person of securities of the same
class during the preceding twelve months, would not exceed 2
per centum of that class;
(B) by the issuer of such security; or
(C) which the Commission, by rules or regulations or by
order, shall exempt from the provisions of this subsection as
not entered into for the purpose of, and not having the effect
of, changing or influencing the control of the issuer or otherwise
as not comprehended within the purposes of this subsection.
99 SECURITIES EXCHANGE ACT OF 1934 Sec. 14
(e) It shall be unlawful for any person to make any untrue
statement of a material fact or omit to state any material fact necessary
in order to make the statements made, in the light of the
circumstances under which they are made, not misleading, or to
engage in any fraudulent, deceptive, or manipulative acts or practices,
in connection with any tender offer or request or invitation
for tenders, or any solicitation of security holders in opposition to
or in favor of any such offer, request, or invitation. The Commission
shall, for the purposes of this subsection, by rules and regulations
define, and prescribe means reasonably designed to prevent,
such acts and practices as are fraudulent, deceptive, or manipulative.
(f) If, pursuant to any arrangement or understanding with the
person or persons acquiring securities in a transaction subject to
subsection (d) of this section or subsection (d) of section 13 of this
title, any persons are to be elected or designated as directors of the
issuer, otherwise than at a meeting of security holders, and the
persons so elected or designated will constitute a majority of the
directors of the issuer, then, prior to the time any such person
takes office as a director, and in accordance with rules and regulations
prescribed by the Commission, the issuer shall file with the
Commission, and transmit to all holders of record of securities of
the issuer who would be entitled to vote at a meeting for election
of directors, information substantially equivalent to the information
which would be required by subsection (a) or (c) of this section to
be transmitted if such person or persons were nominees for election
as directors at a meeting of such security holders.
(g)(1)(A) At the time of filing such preliminary proxy solicitation
material as the Commission may require by rule pursuant to
subsection (a) of this section that concerns an acquisition, merger,
consolidation, or proposed sale or other disposition of substantially
all the assets of a company, the person making such filing, other
than a company registered under the Investment Company Act of
1940, shall pay to the Commission the following fees:
(i) for preliminary proxy solicitation material involving an
acquisition, merger, or consolidation, if there is a proposed payment
of cash or transfer of securities or property to shareholders,
a fee at a rate that, subject to paragraphs (5) and (6),
is equal to $92 per $1,000,000 of such proposed payment, or of
the value of such securities or other property proposed to be
transferred; and
(ii) for preliminary proxy solicitation material involving a
proposed sale or other disposition of substantially all of the assets
of a company, a fee at a rate that, subject to paragraphs
(5) and (6), is equal to $92 per $1,000,000 of the cash or of the
value of any securities or other property proposed to be received
upon such sale or disposition.
(B) The fee imposed under subparagraph (A) shall be reduced
with respect to securities in an amount equal to any fee paid to the
Commission with respect to such securities in connection with the
proposed transaction under section 6(b) of the Securities Act of
1933 (15 U.S.C. 77f(b)), or the fee paid under that section shall be
reduced in an amount equal to the fee paid to the Commission in
connection with such transaction under this subsection. Where two
Sec. 14 SECURITIES EXCHANGE ACT OF 1934 100
1 Margin so in law.
or more companies involved in an acquisition, merger, consolidation,
sale, or other disposition of substantially all the assets of a
company must file such proxy material with the Commission, each
shall pay a proportionate share of such fee.
(2) At the time of filing such preliminary information statement
as the Commission may require by rule pursuant to subsection
(c) of this section, the issuer shall pay to the Commission
the same fee as required for preliminary proxy solicitation material
under paragraph (1) of this subsection.
(3) At the time of filing such statement as the Commission may
require by rule pursuant to subsection (d)(1) of this section, the
person making the filing shall pay to the Commission a fee at a
rate that, subject to paragraphs (5) and (6), is equal to $92 per
$1,000,000 of the aggregate amount of cash or of the value of securities
or other property proposed to be offered. The fee shall be reduced
with respect to securities in an amount equal to any fee paid
with respect to such securities in connection with the proposed
transaction under section 6(b) of the Securities Act of 1933 (15
U.S.C. 77f(b)), or the fee paid under that section shall be reduced
in an amount equal to the fee paid to the Commission in connection
with such transaction under this subsection.
(4) 1 OFFSETTING COLLECTIONS.—Fees collected pursuant to
this subsection for any fiscal year shall be deposited and credited
as offsetting collections to the account providing appropriations
to the Commission, and, except as provided in paragraph
(9), shall not be collected for any fiscal year except to the
extent provided in advance in appropriation Acts. No fees collected
pursuant to this subsection for fiscal year 2002 or any
succeeding fiscal year shall be deposited and credited as general
revenue of the Treasury.
(5) 1 ANNUAL ADJUSTMENT.—For each of the fiscal years
2003 through 2011, the Commission shall by order adjust each
of the rates required by paragraphs (1) and (3) for such fiscal
year to a rate that is equal to the rate (expressed in dollars
per million) that is applicable under section 6(b) of the Securities
Act of 1933 for such fiscal year.
(6) 1 FINAL RATE ADJUSTMENT.—For fiscal year 2012 and
all of the succeeding fiscal years, the Commission shall by
order adjust each of the rates required by paragraphs (1) and
(3) for all of such fiscal years to a rate that is equal to the rate
(expressed in dollars per million) that is applicable under section
6(b) of the Securities Act of 1933 for all of such fiscal
years.
(7) 1 PRO RATA APPLICATION.—The rates per $1,000,000 required
by this subsection shall be applied pro rata to amounts
and balances of less than $1,000,000.
(8) 1 REVIEW AND EFFECTIVE DATE.—In exercising its authority
under this subsection, the Commission shall not be required
to comply with the provisions of section 553 of title 5,
United States Code. An adjusted rate prescribed under paragraph
(5) or (6) and published under paragraph (10) shall not

101 SECURITIES EXCHANGE ACT OF 1934 Sec. 14
1 Margin so in law. Pursuant to section 11(c) of Public Law 107–123 (115 Stat. 2401), this
paragraph does ‘‘not apply until October 1, 2002’’.
2 Subsection (h) was added by section 302(a) of P.L. 103–202. That Public Law also contained
the following provisions:
SEC. 302. REVISION OF PROXY SOLICITATION RULES WITH RESPECT TO LIMITED
PARTNERSHIP ROLLUP TRANSACTIONS.
(a) * * *
(b) ø15 U.S.C. 78n note¿ SCHEDULE FOR REGULATIONS.—The Securities and Exchange Commission
shall conduct rulemaking proceedings and prescribe final regulations under the Securities
Act of 1933 and the Securities Exchange Act of 1934 to implement the requirements of section
14(h) of the Securities Exchange Act of 1934, as amended by subsection (a), and such regulations
shall become effective not later than 12 months after the date of enactment of this Act.
(c) ø15 U.S.C. 78n note¿ EVALUATION OF FAIRNESS OPINION PREPARATION, DISCLOSURE, AND
USE.—
(1) EVALUATION REQUIRED.—The Comptroller General of the United States shall, within
18 months after the date of enactment of this Act, conduct a study of—
(A) the use of fairness opinions in limited partnership rollup transactions;
(B) the standards which preparers use in making determinations of fairness;
(C) the scope of review, quality of analysis, qualifications and methods of selection
of preparers, costs of preparation, and any limitations imposed by issuers on such preparers;
(D) the nature and quality of disclosures provided with respect to such opinions;
(E) any conflicts of interest with respect to the preparation of such opinions; and
(F) the usefulness of such opinions to limited partners.
(2) REPORT REQUIRED.—Not later than the end of the 18-month period referred to in paragraph
(1), the Comptroller General of the United States shall submit to the Congress a report
on the evaluation required by paragraph (1).
* * * * * * *
Continued
be subject to judicial review. Subject to paragraphs (4) and
(9)—
(A) an adjusted rate prescribed under paragraph (5)
shall take effect on the later of—
(i) the first day of the fiscal year to which such
rate applies; or
(ii) five days after the date on which a regular
appropriation to the Commission for such fiscal year is
enacted; and
(B) an adjusted rate prescribed under paragraph (6)
shall take effect on the later of—
(i) the first day of fiscal year 2012; or
(ii) five days after the date on which a regular
appropriation to the Commission for fiscal year 2012
is enacted.
(9) 1 LAPSE OF APPROPRIATION.—If on the first day of a fiscal
year a regular appropriation to the Commission has not
been enacted, the Commission shall continue to collect fees (as
offsetting collections) under this subsection at the rate in effect
during the preceding fiscal year, until 5 days after the date
such a regular appropriation is enacted.
(10) 1 PUBLICATION.—The rate applicable under this subsection
for each fiscal year is published pursuant to section
6(b)(10) of the Securities Act of 1933.
(11) Notwithstanding any other provision of law, the Commission
may impose fees, charges, or prices for matters not involving
any acquisition, merger, consolidation, sale, or other disposition of
assets described in this subsection, as authorized by section 9701
of title 31, United States Code, or otherwise.
(h) 2 PROXY SOLICITATIONS AND TENDER OFFERS IN CONNECTION
WITH LIMITED PARTNERSHIP ROLLUP TRANSACTIONS.—
Sec. 14 SECURITIES EXCHANGE ACT OF 1934 102
SEC. 304. ø15 U.S.C. 78f note¿ EFFECTIVE DATE; EFFECT ON EXISTING AUTHORITY.
(a) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by section 303 shall become effective 12 months
after the date of enactment of this Act.
(2) RULEMAKING AUTHORITY.—Notwithstanding paragraph (1), the authority of the Securities
and Exchange Commission, a registered securities association, and a national securities
exchange to commence rulemaking proceedings for the purpose of issuing rules pursuant to
the amendments made by section 303 is effective on the date of enactment of this Act.
(3) REVIEW OF FILINGS PRIOR TO EFFECTIVE DATE.—Prior to the effective date of regulations
promulgated pursuant to this title, the Securities and Exchange Commission shall continue
to review and declare effective registration statements and amendments thereto relating
to limited partnership rollup transactions in accordance with applicable regulations then
in effect.
(b) EFFECT ON EXISTING AUTHORITY.—The amendments made by this title shall not limit
the authority of the Securities and Exchange Commission, a registered securities association,
or a national securities exchange under any provision of the Securities Exchange Act of 1934,
or preclude the Commission or such association or exchange from imposing, under any other
such provision, a remedy or procedure required to be imposed under such amendments.
(1) PROXY RULES TO CONTAIN SPECIAL PROVISIONS.—It shall
be unlawful for any person to solicit any proxy, consent, or
authorization concerning a limited partnership rollup transaction,
or to make any tender offer in furtherance of a limited
partnership rollup transaction, unless such transaction is conducted
in accordance with rules prescribed by the Commission
under subsections (a) and (d) as required by this subsection.
Such rules shall—
(A) permit any holder of a security that is the subject
of the proposed limited partnership rollup transaction to
engage in preliminary communications for the purpose of
determining whether to solicit proxies, consents, or authorizations
in opposition to the proposed limited partnership
rollup transaction, without regard to whether any such
communication would otherwise be considered a solicitation
of proxies, and without being required to file soliciting
material with the Commission prior to making that determination,
except that—
(i) nothing in this subparagraph shall be construed
to limit the application of any provision of this
title prohibiting, or reasonably designed to prevent,
fraudulent, deceptive, or manipulative acts or practices
under this title; and
(ii) any holder of not less than 5 percent of the
outstanding securities that are the subject of the proposed
limited partnership rollup transaction who engages
in the business of buying and selling limited
partnership interests in the secondary market shall be
required to disclose such ownership interests and any
potential conflicts of interests in such preliminary
communications;
(B) require the issuer to provide to holders of the securities
that are the subject of the limited partnership rollup
transaction such list of the holders of the issuer’s securities
as the Commission may determine in such form and
subject to such terms and conditions as the Commission
may specify;
(C) prohibit compensating any person soliciting
proxies, consents, or authorizations directly from security
103 SECURITIES EXCHANGE ACT OF 1934 Sec. 14
holders concerning such a limited partnership rollup
transaction—
(i) on the basis of whether the solicited proxy, consent,
or authorization either approves or disapproves
the proposed limited partnership rollup transaction; or
(ii) contingent on the approval, disapproval, or
completion of the limited partnership rollup transaction;
(D) set forth disclosure requirements for soliciting
material distributed in connection with a limited partnership
rollup transaction, including requirements for clear,
concise, and comprehensible disclosure with respect to—
(i) any changes in the business plan, voting rights,
form of ownership interest, or the compensation of the
general partner in the proposed limited partnership
rollup transaction from each of the original limited
partnerships;
(ii) the conflicts of interest, if any, of the general
partner;
(iii) whether it is expected that there will be a significant
difference between the exchange values of the
limited partnerships and the trading price of the securities
to be issued in the limited partnership rollup
transaction;
(iv) the valuation of the limited partnerships and
the method used to determine the value of the interests
of the limited partners to be exchanged for the
securities in the limited partnership rollup transaction;
(v) the differing risks and effects of the limited
partnership rollup transaction for investors in different
limited partnerships proposed to be included,
and the risks and effects of completing the limited
partnership rollup transaction with less than all limited
partnerships;
(vi) the statement by the general partner required
under subparagraph (E);
(vii) such other matters deemed necessary or
appropriate by the Commission;
(E) require a statement by the general partner as to
whether the proposed limited partnership rollup transaction
is fair or unfair to investors in each limited partnership,
a discussion of the basis for that conclusion, and an
evaluation and a description by the general partner of
alternatives to the limited partnership rollup transaction,
such as liquidation;
(F) provide that, if the general partner or sponsor has
obtained any opinion (other than an opinion of counsel),
appraisal, or report that is prepared by an outside party
and that is materially related to the limited partnership
rollup transaction, such soliciting materials shall contain
or be accompanied by clear, concise, and comprehensible
disclosure with respect to—
Sec. 14 SECURITIES EXCHANGE ACT OF 1934 104
(i) the analysis of the transaction, scope of review,
preparation of the opinion, and basis for and methods
of arriving at conclusions, and any representations
and undertakings with respect thereto;
(ii) the identity and qualifications of the person
who prepared the opinion, the method of selection of
such person, and any material past, existing, or contemplated
relationships between the person or any of
its affiliates and the general partner, sponsor, successor,
or any other affiliate;
(iii) any compensation of the preparer of such
opinion, appraisal, or report that is contingent on the
transaction’s approval or completion; and
(iv) any limitations imposed by the issuer on the
access afforded to such preparer to the issuer’s personnel,
premises, and relevant books and records;
(G) provide that, if the general partner or sponsor has
obtained any opinion, appraisal, or report as described in
subparagraph (F) from any person whose compensation is
contingent on the transaction’s approval or completion or
who has not been given access by the issuer to its personnel
and premises and relevant books and records, the
general partner or sponsor shall state the reasons therefor;
(H) provide that, if the general partner or sponsor has
not obtained any opinion on the fairness of the proposed
limited partnership rollup transaction to investors in each
of the affected partnerships, such soliciting materials shall
contain or be accompanied by a statement of such partner’s
or sponsor’s reasons for concluding that such an opinion
is not necessary in order to permit the limited partners
to make an informed decision on the proposed transaction;
(I) require that the soliciting material include a clear,
concise, and comprehensible summary of the limited partnership
rollup transaction (including a summary of the
matters referred to in clauses (i) through (vii) of subparagraph
(D) and a summary of the matter referred to in subparagraphs
(F), (G), and (H)), with the risks of the limited
partnership rollup transaction set forth prominently in the
fore part thereof;
(J) provide that any solicitation or offering period with
respect to any proxy solicitation, tender offer, or information
statement in a limited partnership rollup transaction
shall be for not less than the lesser of 60 calendar days or
the maximum number of days permitted under applicable
State law; and
(K) contain such other provisions as the Commission
determines to be necessary or appropriate for the protection
of investors in limited partnership rollup transactions.
(2) EXEMPTIONS.—The Commission may, consistent with
the public interest, the protection of investors, and the purposes
of this title, exempt by rule or order any security or class
of securities, any transaction or class of transactions, or any
person or class of persons, in whole or in part, conditionally or
unconditionally, from the requirements imposed pursuant to
105 SECURITIES EXCHANGE ACT OF 1934 Sec. 14
paragraph (1) or from the definition contained in paragraph
(4).
(3) EFFECT ON COMMISSION AUTHORITY.—Nothing in this
subsection limits the authority of the Commission under subsection
(a) or (d) or any other provision of this title or precludes
the Commission from imposing, under subsection (a) or
(d) or any other provision of this title, a remedy or procedure
required to be imposed under this subsection.
(4) DEFINITION OF LIMITED PARTNERSHIP ROLLUP TRANSACTION.—
Except as provided in paragraph (5), as used in this
subsection, the term ‘‘limited partnership rollup transaction’’
means a transaction involving the combination or reorganization
of one or more limited partnerships, directly or indirectly,
in which—
(A) some or all of the investors in any of such limited
partnerships will receive new securities, or securities in
another entity, that will be reported under a transaction
reporting plan declared effective before the date of enactment
of this subsection by the Commission under section
11A;
(B) any of the investors’ limited partnership securities
are not, as of the date of filing, reported under a transaction
reporting plan declared effective before the date of
enactment of this subsection by the Commission under section
11A;
(C) investors in any of the limited partnerships involved
in the transaction are subject to a significant adverse
change with respect to voting rights, the term of
existence of the entity, management compensation, or
investment objectives; and
(D) any of such investors are not provided an option
to receive or retain a security under substantially the
same terms and conditions as the original issue.
(5) EXCLUSIONS FROM DEFINITION.—Notwithstanding paragraph
(4), the term ‘‘limited partnership rollup transaction’’
does not include—
(A) a transaction that involves only a limited partnership
or partnerships having an operating policy or practice
of retaining cash available for distribution and reinvesting
proceeds from the sale, financing, or refinancing of assets
in accordance with such criteria as the Commission determines
appropriate;
(B) a transaction involving only limited partnerships
wherein the interests of the limited partners are repurchased,
recalled, or exchanged in accordance with the
terms of the preexisting limited partnership agreements
for securities in an operating company specifically identified
at the time of the formation of the original limited
partnership;
(C) a transaction in which the securities to be issued
or exchanged are not required to be and are not registered
under the Securities Act of 1933;
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 106
(D) a transaction that involves only issuers that are
not required to register or report under section 12, both
before and after the transaction;
(E) a transaction, except as the Commission may otherwise
provide by rule for the protection of investors, involving
the combination or reorganization of one or more
limited partnerships in which a non-affiliated party succeeds
to the interests of a general partner or sponsor, if—
(i) such action is approved by not less than 662⁄3
percent of the outstanding units of each of the participating
limited partnerships; and
(ii) as a result of the transaction, the existing general
partners will receive only compensation to which
they are entitled as expressly provided for in the preexisting
limited partnership agreements; or
(F) a transaction, except as the Commission may otherwise
provide by rule for the protection of investors, in
which the securities offered to investors are securities of
another entity that are reported under a transaction reporting
plan declared effective before the date of enactment
of this subsection by the Commission under section
11A, if—
(i) such other entity was formed, and such class of
securities was reported and regularly traded, not less
than 12 months before the date on which soliciting
material is mailed to investors; and
(ii) the securities of that entity issued to investors
in the transaction do not exceed 20 percent of the total
outstanding securities of the entity, exclusive of any
securities of such class held by or for the account of
the entity or a subsidiary of the entity.
REGISTRATION AND REGULATION OF BROKERS AND DEALERS
SEC. 15. ø78o¿ (a)(1) It shall be unlawful for any broker or
dealer which is either a person other than a natural person or a
natural person not associated with a broker or dealer which is a
person other than a natural person (other than such a broker or
dealer whose business is exclusively intrastate and who does not
make use of any facility of a national securities exchange) to make
use of the mails or any means or instrumentality of interstate commerce
to effect any transactions in, or to induce or attempt to induce
the purchase or sale of, any security (other than an exempted
security or commercial paper, bankers’ acceptances, or commercial
bills) unless such broker or dealer is registered in accordance with
subsection (b) of this section.
(2) The Commission, by rule or order, as it deems consistent
with the public interest and the protection of investors, may conditionally
or unconditionally exempt from paragraph (1) of this subsection
any broker or dealer or class of brokers or dealers specified
in such rule or order.
(b)(1) A broker or dealer may be registered by filing with the
Commission an application for registration in such form and containing
such information and documents concerning such broker or
dealer and any persons associated with such broker or dealer as
107 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
the Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors. Within
forty-five days of the date of the filing of such application (or
within such longer period as to which the applicant consents), the
Commission shall—
(A) by order grant registration, or
(B) institute proceedings to determine whether registration
should be denied. Such proceedings shall include notice of the
grounds for denial under consideration and opportunity for
hearing and shall be concluded within one hundred twenty
days of the date of the filing of the application for registration.
At the conclusion of such proceedings, the Commission, by
order, shall grant or deny such registration. The order granting
registration shall not be effective until such broker or dealer
has become a member of a registered securities association, or
until such broker or dealer has become a member of a national
securities exchange if such broker or dealer effects transactions
solely on that exchange, unless the Commission has exempted
such broker or dealer, by rule or order, from such membership.
The Commission may extend the time for conclusion of such
proceedings for up to ninety days if it finds good cause for such
extension and publishes its reasons for so finding or for such
longer period as to which the applicant consents.
The Commission shall grant such registration if the Commission
finds that the requirements of this section are satisfied. The Commission
shall deny such registration if it does not make such a
finding or if it finds that if the applicant were so registered, its registration
would be subject to suspension or revocation under paragraph
(4) of this subsection.
(2)(A) An application for registration of a broker or dealer to
be formed or organized may be made by a broker or dealer to which
the broker or dealer to be formed or organized is to be the successor.
Such application, in such form as the Commission, by rule,
may prescribe, shall contain such information and documents concerning
the applicant, the successor, and any persons associated
with the applicant or the successor, as the Commission, by rule,
may prescribe as necessary or appropriate in the public interest or
for the protection of investors. The grant or denial of registration
to such an applicant shall be in accordance with the procedures set
forth in paragraph (1) of this subsection. If the Commission grants
such registration, the registration shall terminate on the forty-fifth
day after the effective date thereof, unless prior thereto the successor
shall, in accordance with such rules and regulations as the
Commission may prescribe, adopt the application for registration
as its own.
(B) Any person who is a broker or dealer solely by reason of
acting as a municipal securities dealer or municipal securities
broker, who so acts through a separately identifiable department or
division, and who so acted in such a manner on the date of enactment
of the Securities Acts Amendments of 1975, may, in accordance
with such terms and conditions as the Commission, by rule,
prescribes as necessary and appropriate in the public interest and
for the protection of investors, register such separately identifiable
department or division in accordance with this subsection. If any
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 108
1 So in law. The period at the end of subparagraphs (A) through (E) probably should be semicolons.
such department or division is so registered, the department or
division and not such person himself shall be the broker or dealer
for purposes of this title.
(C) Within six months of the date of the granting of registration
to a broker or dealer, the Commission, or upon the authorization
and direction of the Commission, a registered securities association
or national securities exchange of which such broker or
dealer is a member, shall conduct an inspection of the broker or
dealer to determine whether it is operating in conformity with the
provisions of this title and the rules and regulations thereunder:
Provided, however, That the Commission may delay such inspection
of any class of brokers or dealers for a period not to exceed six
months.
(3) Any provision of this title (other than section 5 and subsection
(a) of this section) which prohibits any act, practice, or
course of business if the mails or any means or instrumentality of
interstate commerce is used in connection therewith shall also prohibit
any such act, practice, or course of business by any registered
broker or dealer or any person acting on behalf of such a broker
or dealer, irrespective of any use of the mails or any means or
instrumentality of interstate commerce in connection therewith.
(4) The Commission, by order, shall censure, place limitations
on the activities, functions, or operations of, suspend for a period
not exceeding twelve months, or revoke the registration of any
broker or dealer if it finds, on the record after notice and opportunity
for hearing, that such censure, placing of limitations, suspension,
or revocation is in the public interest and that such broker
or dealer, whether prior or subsequent to becoming such, or any
person associated with such broker or dealer, whether prior or subsequent
to becoming so associated—
(A) has willfully made or caused to be made in any application
for registration or report required to be filed with the
Commission or with any other appropriate regulatory agency
under this title, or in any proceeding before the Commission
with respect to registration, any statement which was at the
time and in the light of the circumstances under which it was
made false or misleading with respect to any material fact, or
has omitted to state in any such application or report any
material fact which is required to be stated therein. 1
(B) has been convicted within ten years preceding the filing
of any application for registration or at any time thereafter
of any felony or misdemeanor or of a substantially equivalent
crime by a foreign court of competent jurisdiction which the
Commission finds—
(i) involves the purchase or sale of any security, the
taking of a false oath, the making of a false report, bribery,
perjury, burglary, any substantially equivalent activity
however denominated by the laws of the relevant foreign
government, or conspiracy to commit any such offense;
109 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
1 See footnote on previous page.
(ii) arises out of the conduct of the business of a
broker, dealer, municipal securities dealer, government
securities broker, government securities dealer, investment
adviser, bank, insurance company, fiduciary, transfer
agent, foreign person performing a function substantially
equivalent to any of the above, or entity or person required
to be registered under the Commodity Exchange Act (7
U.S.C. 1 et seq.) or any substantially equivalent foreign
statute or regulation;
(iii) involves the larceny, theft, robbery, extortion, forgery,
counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds,
or securities, or substantially equivalent activity however
denominated by the laws of the relevant foreign government;
or
(iv) involves the violation of section 152, 1341, 1342, or
1343 or chapter 25 or 47 of title 18, United States Code,
or a violation of a substantially equivalent foreign statute.
1
(C) is permanently or temporarily enjoined by order, judgment,
or decree of any court of competent jurisdiction from acting
as an investment adviser, underwriter, broker, dealer, municipal
securities dealer, government securities broker, government
securities dealer, transfer agent, foreign person performing
a function substantially equivalent to any of the above,
or entity or person required to be registered under the Commodity
Exchange Act or any substantially equivalent foreign
statute or regulation, or as an affiliated person or employee of
any investment company, bank, insurance company, foreign
entity substantially equivalent to any of the above, or entity or
person required to be registered under the Commodity Exchange
Act or any substantially equivalent foreign statute or
regulation, or from engaging in or continuing any conduct or
practice in connection with any such activity, or in connection
with the purchase or sale of any security. 1
(D) has willfully violated any provision of the Securities
Act of 1933, the Investment Advisers Act of 1940, the Investment
Company Act of 1940, the Commodity Exchange Act, this
title, the rules or regulations under any of such statutes, or the
rules of the Municipal Securities Rulemaking Board, or is unable
to comply with any such provision. 1
(E) has willfully aided, abetted, counseled, commanded, induced,
or procured the violation by any other person of any
provision of the Securities Act of 1933, the Investment Advisers
Act of 1940, the Investment Company Act of 1940, the
Commodity Exchange Act, this title, the rules or regulations
under any of such statutes, or the rules of the Municipal Securities
Rulemaking Board, or has failed reasonably to supervise,
with a view to preventing violations of the provisions of such
statutes, rules, and regulations, another person who commits
such a violation, if such other person is subject to his supervision.
For the purposes of this subparagraph (E) no person
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 110
1 See footnote to subsection (b)(4)(A) of this section.
shall be deemed to have failed reasonably to supervise any
other person, if—
(i) there have been established procedures, and a system
for applying such procedures, which would reasonably
be expected to prevent and detect, insofar as practicable,
any such violation by such other person, and
(ii) such person has reasonably discharged the duties
and obligations incumbent upon him by reason of such procedures
and system without reasonable cause to believe
that such procedures and system were not being complied
with. 1
(F) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
broker or dealer;
(G) has been found by a foreign financial regulatory authority
to have—
(i) made or caused to be made in any application for
registration or report required to be filed with a foreign
financial regulatory authority, or in any proceeding before
a foreign financial regulatory authority with respect to registration,
any statement that was at the time and in the
light of the circumstances under which it was made false
or misleading with respect to any material fact, or has
omitted to state in any application or report to the foreign
financial regulatory authority any material fact that is required
to be stated therein;
(ii) violated any foreign statute or regulation regarding
transactions in securities, or contracts of sale of a commodity
for future delivery, traded on or subject to the rules
of a contract market or any board of trade;
(iii) aided, abetted, counseled, commanded, induced, or
procured the violation by any person of any provision of
any statutory provisions enacted by a foreign government,
or rules or regulations thereunder, empowering a foreign
financial regulatory authority regarding transactions in
securities, or contracts of sale of a commodity for future
delivery, traded on or subject to the rules of a contract
market or any board of trade, or has been found, by a foreign
financial regulatory authority, to have failed reasonably
to supervise, with a view to preventing violations of
such statutory provisions, rules, and regulations, another
person who commits such a violation, if such other person
is subject to his supervision; or
(H) is subject to any final order of a State securities commission
(or any agency or officer performing like functions),
State authority that supervises or examines banks, savings
associations, or credit unions, State insurance commission (or
any agency or office performing like functions), an appropriate
Federal banking agency (as defined in section 3 of the Federal
Deposit Insurance Act (12 U.S.C. 1813(q))), or the National
Credit Union Administration, that—

111 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
(i) bars such person from association with an entity
regulated by such commission, authority, agency, or officer,
or from engaging in the business of securities, insurance,
banking, savings association activities, or credit
union activities; or
(ii) constitutes a final order based on violations of any
laws or regulations that prohibit fraudulent, manipulative,
or deceptive conduct.
(5) Pending final determination whether any registration
under this subsection shall be revoked, the Commission, by order,
may suspend such registration, if such suspension appears to the
Commission, after notice and opportunity for hearing, to be necessary
or appropriate in the public interest or for the protection of
investors. Any registered broker or dealer may, upon such terms
and conditions as the Commission deems necessary or appropriate
in the public interest or for the protection of investors, withdraw
from registration by filing a written notice of withdrawal with the
Commission. If the Commission finds that any registered broker or
dealer is no longer in existence or has ceased to do business as a
broker or dealer, the Commission, by order, shall cancel the registration
of such broker or dealer.
(6)(A) With respect to any person who is associated, who is
seeking to become associated, or, at the time of the alleged misconduct,
who was associated or was seeking to become associated
with a broker or dealer, or any person participating, or, at the time
of the alleged misconduct, who was participating, in an offering of
any penny stock, the Commission, by order, shall censure, place
limitations on the activities or functions of such person, or suspend
for a period not exceeding 12 months, or bar such person from
being associated with a broker or dealer, or from participating in
an offering of penny stock, if the Commission finds, on the record
after notice and opportunity for a hearing, that such censure, placing
of limitations, suspension, or bar is in the public interest and
that such person—
(i) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), (E), (H),
or (G) of paragraph (4) of this subsection;
(ii) has been convicted of any offense specified in subparagraph
(B) of such paragraph (4) within 10 years of the commencement
of the proceedings under this paragraph; or
(iii) is enjoined from any action, conduct, or practice specified
in subparagraph (C) of such paragraph (4).
(B) It shall be unlawful—
(i) for any person as to whom an order under subparagraph
(A) is in effect, without the consent of the Commission,
willfully to become, or to be, associated with a broker or dealer
in contravention of such order, or to participate in an offering
of penny stock in contravention of such order;
(ii) for any broker or dealer to permit such a person, without
the consent of the Commission, to become or remain, a person
associated with the broker or dealer in contravention of
such order, if such broker or dealer knew, or in the exercise of
reasonable care should have known, of such order; or
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 112
(iii) for any broker or dealer to permit such a person, without
the consent of the Commission, to participate in an offering
of penny stock in contravention of such order, if such broker
or dealer knew, or in the exercise of reasonable care should
have known, of such order and of such participation.
(C) For purposes of this paragraph, the term ‘‘person participating
in an offering of penny stock’’ includes any person acting as
any promoter, finder, consultant, agent, or other person who engages
in activities with a broker, dealer, or issuer for purposes of
the issuance or trading in any penny stock, or inducing or attempting
to induce the purchase or sale of any penny stock. The Commission
may, by rule or regulation, define such term to include other
activities, and may, by rule, regulation, or order, exempt any person
or class of persons, in whole or in part, conditionally or unconditionally,
from such term.
(7) No registered broker or dealer or government securities
broker or government securities dealer registered (or required to
register) under section 15C(a)(1)(A) shall effect any transaction in,
or induce the purchase or sale of, any security unless such broker
or dealer meets such standards of operational capability and such
broker or dealer and all natural persons associated with such
broker or dealer meet such standards of training, experience, competence,
and such other qualifications as the Commission finds necessary
or appropriate in the public interest or for the protection of
investors. The Commission shall establish such standards by rules
and regulations, which may—
(A) specify that all or any portion of such standards shall
be applicable to any class of brokers and dealers and persons
associated with brokers and dealers;
(B) require persons in any such class to pass tests prescribed
in accordance with such rules and regulations, which
tests shall, with respect to any class of partners, officers, or
supervisory employees (which latter term may be defined by
the Commission’s rules and regulations and as so defined shall
include branch managers of brokers or dealers) engaged in the
management of the broker or dealer, include questions relating
to bookkeeping, accounting, internal control over cash and
securities, supervision of employees, maintenance of records,
and other appropriate matters; and
(C) provide that persons in any such class other than brokers
and dealers and partners, officers, and supervisory employees
of brokers or dealers, may be qualified solely on the
basis of compliance with such standards of training and such
other qualifications as the Commission finds appropriate.
The Commission, by rule, may prescribe reasonable fees and
charges to defray its costs in carrying out this paragraph, including,
but not limited to, fees for any test administered by it or under
its direction. The Commission may cooperate with registered securities
associations and national securities exchanges in devising
and administering tests and may require registered brokers and
dealers and persons associated with such brokers and dealers to
pass tests administered by or on behalf of any such association or
exchange and to pay such association or exchange reasonable fees
113 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
1 Margins so in law.
or charges to defray the costs incurred by such association or exchange
in administering such tests.
(8) It shall be unlawful for any registered broker or dealer to
effect any transaction in, or induce or attempt to induce the purchase
or sale of, any security (other than commercial paper, bankers’
acceptances, or commercial bills), unless such broker or dealer
is a member of a securities association registered pursuant to section
15A of this title or effects transactions in securities solely on
a national securities exchange of which it is a member.
(9) The Commission by rule or order, as it deems consistent
with the public interest and the protection of investors, may conditionally
or unconditionally exempt from paragraph (8) of this subsection
any broker or dealer or class of brokers or dealers specified
in such rule or order.
(10) For the purposes of determining whether a person is subject
to a statutory disqualification under section 6(c)(2), 15A(g)(2),
or 17A(b)(4)(A) of this title, the term ‘‘Commission’’ in paragraph
(4)(B) of this subsection shall mean ‘‘exchange’’, ‘‘association’’, or
‘‘clearing agency’’, respectively.
(11) 1 BROKER/DEALER REGISTRATION WITH RESPECT TO
TRANSACTIONS IN SECURITY FUTURES PRODUCTS.—
(A) NOTICE REGISTRATION.—
(i) CONTENTS OF NOTICE.—Notwithstanding paragraphs
(1) and (2), a broker or dealer required to register
only because it effects transactions in security futures
products on an exchange registered pursuant to
section 6(g) may register for purposes of this section
by filing with the Commission a written notice in such
form and containing such information concerning such
broker or dealer and any persons associated with such
broker or dealer as the Commission, by rule, may prescribe
as necessary or appropriate in the public interest
or for the protection of investors. A broker or
dealer may not register under this paragraph unless
that broker or dealer is a member of a national securities
association registered under section 15A(k).
(ii) IMMEDIATE EFFECTIVENESS.—Such registration
shall be effective contemporaneously with the submission
of notice, in written or electronic form, to the
Commission, except that such registration shall not be
effective if the registration would be subject to suspension
or revocation under paragraph (4).
(iii) SUSPENSION.—Such registration shall be suspended
immediately if a national securities association
registered pursuant to section 15A(k) of this title suspends
the membership of that broker or dealer.
(iv) TERMINATION.—Such registration shall be terminated
immediately if any of the above stated conditions
for registration set forth in this paragraph are no
longer satisfied.
(B) EXEMPTIONS FOR REGISTERED BROKERS AND DEALERS.—
A broker or dealer registered pursuant to the
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 114
requirements of subparagraph (A) shall be exempt from
the following provisions of this title and the rules thereunder
with respect to transactions in security futures
products:
(i) Section 8.
(ii) Section 11.
(iii) Subsections (c)(3) and (c)(5) of this section.
(iv) Section 15B.
(v) Section 15C.
(vi) Subsections (d), (e), (f ), (g), (h), and (i) of section
17.
(12) 1 EXEMPTION FOR SECURITY FUTURES PRODUCT EXCHANGE
MEMBERS.—
(A) REGISTRATION EXEMPTION.—A natural person shall
be exempt from the registration requirements of this section
if such person—
(i) is a member of a designated contract market
registered with the Commission as an exchange pursuant
to section 6(g);
(ii) effects transactions only in securities on the
exchange of which such person is a member; and
(iii) does not directly accept or solicit orders from
public customers or provide advice to public customers
in connection with the trading of security futures
products.
(B) OTHER EXEMPTIONS.—A natural person exempt
from registration pursuant to subparagraph (A) shall also
be exempt from the following provisions of this title and
the rules thereunder:
(i) Section 8.
(ii) Section 11.
(iii) Subsections (c)(3), (c)(5), and (e) of this section.
(iv) Section 15B.
(v) Section 15C.
(vi) Subsections (d), (e), (f ), (g), (h), and (i) of section
17.
(c)(1)(A) No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (other than commercial paper, bankers’ acceptances,
or commercial bills) otherwise than on a national securities
exchange of which it is a member, or any security-based swap
agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act), by means of any manipulative, deceptive, or other fraudulent
device or contrivance.
(B) No municipal securities dealer shall make use of the mails
or any means or instrumentality of interstate commerce to effect
any transaction in, or to induce or attempt to induce the purchase
or sale of, any municipal security or any security-based swap agreement
(as defined in section 206B of the Gramm-Leach-Bliley Act)
involving a municipal security by means of any manipulative,
deceptive, or other fraudulent device or contrivance.
115 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or to induce or
to attempt to induce the purchase or sale of, any government security
or any security-based swap agreement (as defined in section
206B of the Gramm-Leach-Bliley Act) involving a government security
by means of any manipulative, deceptive, or other fraudulent
device or contrivance.
(2)(A) No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (other than an exempted security or commercial
paper, bankers’ acceptances, or commercial bills) otherwise
than on a national securities exchange of which it is a member, in
connection with which such broker or dealer engages in any fraudulent,
deceptive, or manipulative act or practice, or makes any fictitious
quotation.
(B) No municipal securities dealer shall make use of the mails
or any means or instrumentality of interstate commerce to effect
any transaction in, or to induce or attempt to induce the purchase
or sale of, any municipal security in connection with which such
municipal securities dealer engages in any fraudulent, deceptive, or
manipulative act or practice, or makes any fictitious quotation.
(C) No government securities broker or government securities
dealer shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or induce or attempt
to induce the purchase or sale of, any government security
in connection with which such government securities broker or government
securities dealer engages in any fraudulent, deceptive, or
manipulative act or practice, or makes any fictitious quotation.
(D) The Commission shall, for the purposes of this paragraph,
by rules and regulations define, and prescribe means reasonably
designed to prevent, such acts and practices as are fraudulent,
deceptive, or manipulative and such quotations as are fictitious.
(E) The Commission shall, prior to adopting any rule or regulation
under subparagraph (C), consult with and consider the views
of the Secretary of the Treasury and each appropriate regulatory
agency. If the Secretary of the Treasury or any appropriate regulatory
agency comments in writing on a proposed rule or regulation
of the Commission under such subparagraph (C) that has been
published for comment, the Commission shall respond in writing to
such written comment before adopting the proposed rule. If the
Secretary of the Treasury determines, and notifies the Commission,
that such rule or regulation, if implemented, would, or as applied
does (i) adversely affect the liquidity or efficiency of the market for
government securities; or (ii) impose any burden on competition not
necessary or appropriate in furtherance of the purposes of this section,
the Commission shall, prior to adopting the proposed rule or
regulation, find that such rule or regulation is necessary and
appropriate in furtherance of the purposes of this section notwithstanding
the Secretary’s determination.
(3)(A) No broker or dealer (other than a government securities
broker or government securities dealer, except a registered broker
or dealer) shall make use of the mails or any means or instrumenSec.
15 SECURITIES EXCHANGE ACT OF 1934 116
tality of interstate commerce to effect any transaction in, or to induce
or attempt to induce the purchase or sale of, any security
(other than an exempted security (except a government security) or
commercial paper, bankers’ acceptances, or commercial bills) in
contravention of such rules and regulations as the Commission
shall prescribe as necessary or appropriate in the public interest or
for the protection of investors to provide safeguards with respect to
the financial responsibility and related practices of brokers and
dealers including, but not limited to, the acceptance of custody and
use of customers’ securities and the carrying and use of customers’
deposits or credit balances. Such rules and regulations shall (A) require
the maintenance of reserves with respect to customers’ deposits
or credit balances, and (B) no later than September 1, 1975,
establish minimum financial responsibility requirements for all
brokers and dealers.
(B) Consistent with this title, the Commission, in consultation
with the Commodity Futures Trading Commission, shall issue such
rules, regulations, or orders as are necessary to avoid duplicative
or conflicting regulations applicable to any broker or dealer registered
with the Commission pursuant to section 15(b) (except
paragraph (11) thereof ), that is also registered with the Commodity
Futures Trading Commission pursuant to section 4f(a) of the Commodity
Exchange Act (except paragraph (2) thereof ), with respect
to the application of: (i) the provisions of section 8, section 15(c)(3),
and section 17 of this title and the rules and regulations thereunder
related to the treatment of customer funds, securities, or
property, maintenance of books and records, financial reporting, or
other financial responsibility rules, involving security futures products;
and (ii) similar provisions of the Commodity Exchange Act
and rules and regulations thereunder involving security futures
products.
(4) If the Commission finds, after notice and opportunity for a
hearing, that any person subject to the provisions of section 12, 13,
14, or subsection (d) of section 15 of this title or any rule or regulation
thereunder has failed to comply with any such provision, rule,
or regulation in any material respect, the Commission may publish
its findings and issue an order requiring such person, and any person
who was a cause of the failure to comply due to an act or omission
the person knew or should have known would contribute to
the failure to comply, to comply, or to take steps to effect compliance,
with such provision or such rule or regulation thereunder
upon such terms and conditions and within such time as the Commission
may specify in such order.
(5) No dealer (other than a specialist registered on a national
securities exchange) acting in the capacity of market maker or otherwise
shall make use of the mails or any means or instrumentality
of interstate commerce to effect any transaction in, or to induce
or attempt to induce the purchase or sale of, any security
(other than an exempted security or a municipal security) in contravention
of such specified and appropriate standards with respect
to dealing as the Commission, by rule, shall prescribe as necessary
or appropriate in the public interest and for the protection of investors,
to maintain fair and orderly markets, or to remove impediments
to and perfect the mechanism of a national market system.
117 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
Under the rules of the Commission a dealer in a security may be
prohibited from acting as broker in that security.
(6) No broker or dealer shall make use of the mails or any
means or instrumentality of interstate commerce to effect any
transaction in, or to induce or attempt to induce the purchase or
sale of, any security (other than an exempted security, municipal
security, commercial paper, bankers’ acceptances, or commercial
bills) in contravention of such rules and regulations as the Commission
shall prescribe as necessary or appropriate in the public interest
and for the protection of investors or to perfect or remove
impediments to a national system for the prompt and accurate
clearance and settlement of securities transactions, with respect to
the time and method of, and the form and format of documents
used in connection with, making settlements of and payments for
transactions in securities, making transfers and deliveries of securities,
and closing accounts. Nothing in this paragraph shall be construed
(A) to affect the authority of the Board of Governors of the
Federal Reserve System, pursuant to section 7 of this title, to prescribe
rules and regulations for the purpose of preventing the
excessive use of credit for the purchase or carrying of securities, or
(B) to authorize the Commission to prescribe rules or regulations
for such purpose.
(7) In connection with any bid for or purchase of a government
security related to an offering of government securities by or on behalf
of an issuer, no government securities broker, government
securities dealer, or bidder for or purchaser of securities in such offering
shall knowingly or willfully make any false or misleading
written statement or omit any fact necessary to make any written
statement made not misleading.
(8) PROHIBITION OF REFERRAL FEES.—No broker or dealer, or
person associated with a broker or dealer, may solicit or accept, directly
or indirectly, remuneration for assisting an attorney in obtaining
the representation of any person in any private action arising
under this title or under the Securities Act of 1933.
(d) Each issuer which has filed a registration statement containing
an undertaking which is or becomes operative under this
subsection as in effect prior to the date of enactment of the Securities
Acts Amendments of 1964, and each issuer which shall after
such date file a registration statement which has become effective
pursuant to the Securities Act of 1933, as amended, shall file with
the Commission, in accordance with such rules and regulations as
the Commission may prescribe as necessary or appropriate in the
public interest or for the protection of investors, such supplementary
and periodic information, documents, and reports as may
be required pursuant to section 13 of this title in respect of a security
registered pursuant to section 12 of this title. The duty to file
under this subsection shall be automatically suspended if and so
long as any issue of securities of such issuer is registered pursuant
to section 12 of this title. The duty to file under this subsection
shall also be automatically suspended as to any fiscal year, other
than the fiscal year within which such registration statement became
effective, if, at the beginning of such fiscal year, the securities
of each class to which the registration statement relates are held
of record by less than three hundred persons. For the purposes of
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 118
this subsection, the term ‘‘class’’ shall be construed to include all
securities of an issuer which are of substantially similar character
and the holders of which enjoy substantially similar rights and
privileges. The Commission may, for the purpose of this subsection,
define by rules and regulations the term ‘‘held of record’’ as it
deems necessary or appropriate in the public interest or for the
protection of investors in order to prevent circumvention of the provisions
of this subsection. Nothing in this subsection shall apply to
securities issued by a foreign government or political subdivision
thereof.
(e) The Commission, by rule, as it deems necessary or appropriate
in the public interest and for the protection of investors or
to assure equal regulation, may require any member of a national
securities exchange not required to register under section 15 of this
title and any person associated with any such member to comply
with any provision of this title (other than section 15(a)) or the
rules or regulations thereunder which by its terms regulates or
prohibits any act, practice, or course of business by a ‘‘broker or
dealer’’ or ‘‘registered broker or dealer’’ or a ‘‘person associated with
a broker or dealer,’’ respectively.
(f) Every registered broker or dealer shall establish, maintain,
and enforce written policies and procedures reasonably designed,
taking into consideration the nature of such broker’s or dealer’s
business, to prevent the misuse in violation of this title, or the
rules or regulations thereunder, of material, nonpublic information
by such broker or dealer or any person associated with such broker
or dealer. The Commission, as it deems necessary or appropriate
in the public interest or for the protection of investors, shall adopt
rules or regulations to require specific policies or procedures reasonably
designed to prevent misuse in violation of this title (or the
rules or regulations thereunder) of material, nonpublic information.
(g) REQUIREMENTS FOR TRANSACTIONS IN PENNY STOCKS.—
(1) IN GENERAL.—No broker or dealer shall make use of
the mails or any means or instrumentality of interstate commerce
to effect any transaction in, or to induce or attempt to
induce the purchase or sale of, any penny stock by any customer
except in accordance with the requirements of this subsection
and the rules and regulations prescribed under this
subsection.
(2) RISK DISCLOSURE WITH RESPECT TO PENNY STOCKS.—
Prior to effecting any transaction in any penny stock, a broker
or dealer shall give the customer a risk disclosure document
that—
(A) contains a description of the nature and level of
risk in the market for penny stocks in both public offerings
and secondary trading;
(B) contains a description of the broker’s or dealer’s
duties to the customer and of the rights and remedies
available to the customer with respect to violations of such
duties or other requirements of Federal securities laws;
(C) contains a brief, clear, narrative description of a
dealer market, including ‘‘bid’’ and ‘‘ask’’ prices for penny
stocks and the significance of the spread between the bid
and ask prices;
119 SECURITIES EXCHANGE ACT OF 1934 Sec. 15
(D) contains the toll free telephone number for inquiries
on disciplinary actions established pursuant to section
15A(i) of this title;
(E) defines significant terms used in the disclosure
document or in the conduct of trading in penny stocks; and
(F) contains such other information, and is in such
form (including language, type size, and format), as the
Commission shall require by rule or regulation.
(3) COMMISSION RULES RELATING TO DISCLOSURE.—The
Commission shall adopt rules setting forth additional standards
for the disclosure by brokers and dealers to customers of
information concerning transactions in penny stocks. Such
rules—
(A) shall require brokers and dealers to disclose to
each customer, prior to effecting any transaction in, and at
the time of confirming any transaction with respect to any
penny stock, in accordance with such procedures and
methods as the Commission may require consistent with
the public interest and the protection of investors—
(i) the bid and ask prices for penny stock, or such
other information as the Commission may, by rule, require
to provide customers with more useful and reliable
information relating to the price of such stock;
(ii) the number of shares to which such bid and
ask prices apply, or other comparable information relating
to the depth and liquidity of the market for
such stock; and
(iii) the amount and a description of any compensation
that the broker or dealer and the associated
person thereof will receive or has received in connection
with such transaction;
(B) shall require brokers and dealers to provide, to
each customer whose account with the broker or dealer
contains penny stocks, a monthly statement indicating the
market value of the penny stocks in that account or indicating
that the market value of such stock cannot be determined
because of the unavailability of firm quotes; and
(C) may, as the Commission finds necessary or appropriate
in the public interest or for the protection of investors,
require brokers and dealers to disclose to customers
additional information concerning transactions in penny
stocks.
(4) EXEMPTIONS.—The Commission, as it determines consistent
with the public interest and the protection of investors,
may by rule, regulation, or order exempt in whole or in part,
conditionally or unconditionally, any person or class of persons,
or any transaction or class of transactions, from the requirements
of this subsection. Such exemptions shall include an
exemption for brokers and dealers based on the minimal percentage
of the broker’s or dealer’s commissions, commissionequivalents,
and markups received from transactions in penny
stocks.
(5) REGULATIONS.—It shall be unlawful for any person to
violate such rules and regulations as the Commission shall
Sec. 15 SECURITIES EXCHANGE ACT OF 1934 120
prescribe in the public interest or for the protection of investors
or to maintain fair and orderly markets—
(A) as necessary or appropriate to carry out this subsection;
or
(B) as reasonably designed to prevent fraudulent,
deceptive, or manipulative acts and practices with respect
to penny stocks.
(h) LIMITATIONS ON STATE LAW.—
(1) CAPITAL, MARGIN, BOOKS AND RECORDS, BONDING, AND
REPORTS.—No law, rule, regulation, or order, or other administrative
action of any State or political subdivision thereof shall
establish capital, custody, margin, financial responsibility,
making and keeping records, bonding, or financial or operational
reporting requirements for brokers, dealers, municipal
securities dealers, government securities brokers, or government
securities dealers that differ from, or are in addition to,
the requirements in those areas established under this title.
The Commission shall consult periodically the securities commissions
(or any agency or office performing like functions) of
the States concerning the adequacy of such requirements as
established under this title.
(2) DE MINIMIS TRANSACTIONS BY ASSOCIATED PERSONS.—
No law, rule, regulation, or order, or other administrative action
of any State or political subdivision thereof may prohibit
an associated person of a broker or dealer from effecting a
transaction described in paragraph (3) for a customer in such
State if—
(A) such associated person is not ineligible to register
with such State for any reason other than such a transaction;
(B) such associated person is registered with a registered
securities association and at least one State; and
(C) the broker or dealer with which such person is
associated is registered with such State.
(3) DESCRIBED TRANSACTIONS.—
(A) IN GENERAL.—A transaction is described in this
paragraph if—
(i) such transaction is effected—
(I) on behalf of a customer that, for 30 days
prior to the day of the transaction, maintained an
account with the broker or dealer; and
(II) by an associated person of the broker or
dealer—
(aa) to which the customer was assigned
for 14 days prior to the day of the transaction;
and
(bb) who is registered with a State in
which the customer was a resident or was
present for at least 30 consecutive days during
the 1-year period prior to the day of the
transaction; or
(ii) the transaction is effected—